Blessed by the Potato

Hat tip to Jonathan Chevreau’s recent blog post: “Younger folk aged 18 to 24 are leading the charge, with those “very likely to buy” almost doubling to 15% from 8% per in 2009.

This is one of the signs of the end stages of the housing bubble.

Low/no downpayments allow people to buy earlier and earlier in their lives, stealing demand from the future, and driving up prices in the present. Skyrocketing prices convince people to buy now or be priced out forever. But there is a limit to it all, unless we start selling houses to children. Home ownership rates are at ~70%, and here we have 15% of people in the youngest (least home-owning) age bracket planning to buy (more than that, actually, since there’s another bunch in the “likely to buy” category below “very likely”), and presumably ~8% who bought over the last year. Won’t take too much more robbing of the cradle here before we run out of ways to bring demand up and hit a wall when high school students can’t join in bidding wars.

That is of course assuming that tightening of interest rates doesn’t do the job first (and now most bank economists are calling for that to happen before the end of the year).

I’ve been bearish on real estate for going on 3+ years now, and I’ve been hesitant to get too excited about the correction that I know must be coming because real estate moves in long, slow cycles. It’ll be years before the time to buy (the undershoot) finally arrives… plus, I get in trouble for being “optimistically bearish” from people with house lust that I’ve convinced to hold off (“the market’s up 20% this year! We could have bought last year, damn you!”). Nonetheless, I can’t help but feel that the stars are aligning for this nonsense to finally end.

Flaherty brought in some rules that I thought would be fairly minor tightenings to the mortgage market. Real basic, common sense tweaks, like that banks shouldn’t give someone all the money they can borrow at today’s rock-bottom rates, but instead have to qualify people on the still-low 5-year rate. I didn’t think there’d be anyone walking that close to the bleeding edge of affordability, but apparently CIBC is forecasting that this rule alone will have a ~5% impact on the mortgage market (hat tip: Canadian Mortgage Trends). The new rules also require a 20% downpayment for non-principal residences, which should help reduce the speculation out there.

Canadian Business had an article this week on “Why Buying a House is a Bad Investment”. Despite the title, it’s not nearly as bearish as I am, though that may be because they’re talking about “Canadian housing”, which is a tough concept, because the market in London and Charlottetown is vastly different than Vancouver or Toronto.

Even some realtors are starting to think that there may be, possibly, just the teenist whiff of a bubble happening, despite their inherent bias towards believing that real estate prices will always go up.

So I think the end is finally arriving (well, the end did arrive in the fall of ’08, but low interest rates drove it back for an age), and I can start to make some prognostications. Time may prove me wrong, but time’s a bitch like that. I predict that by the end of the year rates will begin moving back up as the need for the emergency stimulus eases and inflation returns. The real estate market will stall around midsummer; by this time next year, it will be clear that the market momentum is down, and by the fall of 2011, the media should start picking up on the slide. Since real estate moves in slow cycles you probably won’t find a decent time to buy until late 2013 (rent-to-buy of <150X), with the final bottom coming somewhere around 2016. For Toronto, top-to-bottom, my crystal ball says we’ll see a 35% drop — still about 10-15% above the 1996 trough in real terms, but a real kick in the nards for anyone that bought in the last few years.

These prophecies of doom are for entertainment only of course, and I’ll be changing my opinions as new data emerges… but now you know what I’m thinking.

In other eschatological news, Netbug has cancelled his World of Warcraft subscription. The end times, they are nigh.

I’m sure you’ve all heard it before me (since people have been telling me about it while I haven’t been watching/reading the news myself lately): a Prius in California went out of control, and the police had to issue instructions over the loudspeaker to the driver, who then managed to safely stop the car.

I (and many other Prius owners) are anxiously awaiting the full report to try to find out what really went on. I don’t want to prematurely pass judgement one way or the other (on the car or on the driver) while the facts are so thin (and a media in full-hyperbolic frenzy is not usually reliable when it comes to small details).

The biggest questions in my mind immediately were:

1. Why did he not turn the car off?

2. Why did he not put the car in neutral?

Indeed, these are two of the steps that have been widely publicized as ways to stop an out-of-control car as the Toyota recall mess has progressed. An accelerator could become stuck in any car, not just a Toyota, and drivers should know how to manage that situation! It’s possible that he had a rare problem crop up, but poor crisis management lead to it becoming national news.

Now, if he did try these basic steps, and the car didn’t obey those inputs, then we have a more serious problem on our hands. That would represent two levels of failure, and be an extreme safety concern.

Since, at the direction of the officer, he was able to shut the car down and stop, I have to initially suspect that he did not try to turn the car off or shift to neutral (or use the emergency brake?!) until after he spent several minutes on his joyride, which to me clearly indicates at least some driver-error interaction in making the whole situation worse (though a mechanical/electrical/computer problem may have initiated the cascade of failure). **And how did he stop the car eventually? By turning it off under direction of the CHP officer.

So, until a level-headed report with all these facts comes out, the take-home message: learn how to control your car in an emergency situation. CAA and Young Drivers, last I checked, offered one-off refresher lessons if you need it. Or, educate yourself: how do you turn off your car and/or shift to neutral if the throttle sticks? What happens if you do that? For most cars, there is no harm in trying, under safe conditions (i.e., no other traffic — better yet, get some friends together and rent some time on a closed track) to get up to speed, shift to neutral, and stop. Do it. Find out what happens (if anything) to your power steering and brake assist while you’re in a calm state of mind and in control of the situation. You won’t harm your car*. At the very least, look it up so you know academically.

* – probably. I wouldn’t hurt your car. But who knows what you‘ll do. ;)

If you are in this situation and want to use the brakes, apply the brakes hard and do not try to slow gradually because you will overheat the brakes and experience brake fade. Try to stop completely in one go.

One interesting twist is that the Prius (and many other newer cars) has a push-button start, rather than a conventional key-turn. That means you can’t just turn the key to turn it off, you have to push and hold the button for a few seconds if you want to power-off the car while moving (in park, you just tap the button). Now, this is the same behaviour as nearly every personal computer/cell phone/etc. on the market today. Push and hold to power off. In an interesting bit of user-interaction ergonomics, Toyota is reportedly considering adding “rapidly tapping the button” as a method to turn off the car, since that’s what people may attempt in a crisis.

Update: Someone posted a link to the 911 call at http://10newsblogs.com/audio/prius-911call.mp3 — the 911 operator does instruct him many times to shift to neutral and how to turn the car off, and he doesn’t respond. In fact, most of the call consists of her telling him to shift to neutral, and he just swears and tells her landmarks he’s passing. Don’t know yet if he didn’t hear her, if he tried and it didn’t work… but people are starting to suspect that he’s a hoax. Now I really can’t wait for a real report on the whole thing…

There weren’t too many surprises in this federal budget, which coming from these clowns is a surprise in itself.

There was a provision for some money to create some attractive post-doctoral positions across Canada. At $70k each, these are decent grants (roughly double the typical post-doc salary)… but with only 140 country-wide, this isn’t going to hit very many people (i.e.: I probably won’t get one).

Of course, the large text giveth, and the small text taketh away. The budget also removed a loophole for some post-docs to get paid tax-free: scholarship income is now only tax-free for “real” students. I don’t know of any at Western that were getting paid this way, but presumably it happens.

I sold all my Consumers’ Waterheater (CWI.UN) this morning. Their results came out yesterday, and they did not look very good: attrition rate was higher than I had hoped/forecast, along with some other disappointments in the restart of their submetering business. But there were two big things that made me lose confidence in the stock.

The first was pure numbers: their payout ratio for the last quarter was 86%. They had cut the distribution in half a few months ago, and that was supposed to bring the payout ratio down to <70% (i.e.: a level that would be sustainable after the 2011 Harper/Flaherty tax came into effect). Yet despite the vastly reduced payout in effect for the whole quarter, their payout was still so high as to suggest another potential cut in the future if things didn’t start improving.

The second was the conference call. Right at the end they talk about how their competitors (who were already playing dirty with tactics to skirt rules that are supposed to allow consumers to back out of agreements from door-to-door salespeople) were stripping the CWI tanks of valuable components during the switchovers, and CWI hadn’t done anything about it yet. They had the wording in the contract to charge the customers for the damage, but haven’t been.

On the one hand, I can understand that: I’d probably fight a charge for damage to a tank, and it is a little scummy to try to grab some cash from a customer on their way out the door. On the other hand, these are customers that they’ve lost anyway, and their tanks are damaged beyond reasonable wear and tear. Something should have been done — if it is indeed their competitors stripping components as they allege, then there should be a lawsuit in the works. Why is management dragging their feet on this?

My dad put it well: the management at CWI aren’t operations types. They’ve handed off the day-to-day stuff to Direct Energy, and have been caught flat-footed in the face of an extremely aggressive set of competitors.

So for now, I’m out.

Later today I’ll be driving the ’97 Accord for the last time. All things considered, it has been a pretty good car: fun to drive, well-equipped, and reliable.

I found the original purchase agreement in the owner’s booklet: we bought it in January of 2000 (just over 10 years!) for $19k. We’ve put on 165k km in that time (I didn’t think the original owner did that much driving in the first 3 years — I always thought I drove closer to 20 Mm/yr!) and had roughly $8k in repairs. Maintenance is a bit tougher to estimate, but is probably somewhere around $5k. I’m getting ~$1k back as the trade-in, for a vehicle cost of $0.188/km. I don’t have fuel consumption records going all the way back to 2000, but in the last few years I’ve averaged 9.6 L/100 km overall, which at $1/L would cost $0.096/km, for a total cost of just under thirty cents per kilometre. There’s insurance, too, of course, and I’m sure my estimates here are probably missing some other costs since my record-keeping hasn’t been great.

Nonetheless, a bit of an eye-opener to the full costs of driving a car. I used to scoff at taking the train since it was $96 for a trip that only cost $32 in gas by car, but of course gas is only a fraction of the costs of driving!

Then again, the marginal cost of driving (gas, wear-and-tear) is actually fairly small, so that might not be the most appropriate accounting method. If I look at it as paying $30k (plus insurance yearly) for the privilege and freedom of being able to drive a car when and where I want, then the cost per trip is pretty low. And that’s how it works, too: once you have the car, it’s easy to use it for little trips to the store or to a friend’s house for a game of Settlers of Cataan or whatever. I’m sure it would probably be cheaper to not own a car and just use an autosharing service (or ick, a cab) for those trips that public transit and cycling won’t suit… but they have high marginal costs, which would make me not want to do them and so feel trapped (like, I wouldn’t pay $20 in cab fare to go to the grocery store and fill the trunk with stuff on sale).

Anyhow, I’m getting side-tracked. The point is that this was my first “real” car — the Prius will be my first new car, and the ’87 BMW was my first-ever car, but the Accord was the first car that was all mine (repairs and all), and not a family car that I was the primary driver on. It was the car I drove on my first date, the car we took out to PEI several times, the car that took us to our honeymoon, and the car that crawled through a freak snowstorm to bring my kitty (and me) out to London.

But now it’s an old car. The repairs are starting to mount. And the Toyota recall gives me a good entry point to drive the car of the future today. So it’s time to move on.

Against all reason though, I’m going to miss it.