Real Estate’s Looney Tunes

Smelly Business

The venerable Globe and Mail struck an article about an offer Ottawa is making to hog farmers asking them to leave the industry.
This writer doesn’t begin to profess understanding hog farming. Strictly speaking, all that is known for certain, is that it is a smelly business! Reading the Globe’s article, begged curiosity to ask how much of that smell is coming from Ottawa?

Merrie Melodies

The problem – too much pork. As Laurent Pellerin, president of the Canadian Federation of Agriculture, said “hogs are now going for less than $1 a head when they are worth about $200 each.” Certainly a real problem. Like current mortgage rates it would be tough to ‘chop’ the hog prices any lower. Instead, Ottawa’s solution – a $75 million buy out plus another $17 million to advertise that we should eat more pork. “Agriculture Minister Gerry Ritz, who made the long-awaited funding announcement Saturday, said there will be government-backed long-term loans for those who want to give it another go and buyout cash for others who have had enough.”

This bale out, buy out or helping hand has left hog farmers in a dilemma. Chinta Puxley, the Globe’s intrepid reporter, notes that “for hog producers who are struggling (the offer) leaves them with a tough decision: take loans and restructure or shut their farms down.”

Make Mine Crispy

With tonge in cheek, one surmises that the proposal did not contain words for those taking the cash option that they could ship their porkers to Ottawa at no cost so that the boffins in parliament might take comfort amongst their kind. A further assumption that wasn’t mentioned is that after appropriate tours of the grounds on Parliament Hill the Government of Canada’s Canada Benefits program will be offering free Pork Luau’s for street people on the lawns of parliament.

Pork and Bubbles

Back in March the Bank of Canada announced an unprecedented reduction in mortgage rates. Since that moment Alia McMullen and Garry Marr of the Financial Post tells us that “home buyers have swarmed back into the market because of low interest rates.” They note that stunned economists are predicting that there is a risk that “continued low interest rates will begin to stoke a house price bubble.” Quoting from the same article, Douglas Porter, the deputy chief economist at BMO Capital Markets, said “We can’t rule it out.”

If the stunned economists and BMO’S Porter, in particular, are right and we do see a ‘bubble’ in housing price values, will Ottawa feel similarly inclined to pass around the cheap bacon. Suspect is that many buyers will squeal in pain the moment they get notice of a mortgage rate increase.

Operating under the premise of ‘what could go wrong’ may be a better way to understand the present dilemma for hog farmers and the almost assured premise for many present day home buyers. If Porter is right, home buyers may soon join the farmers in chewing the fat that resulted from their decision to take advantage of ‘more’.

In defining more is the suggestion that hog farmers may have believed that – ‘We’ll Sell Every Little Piggy We Grow or The World Needs Pork. To home buyer’s, more could be understood to be something that embodies the mantra of ‘Rates are so low – give me a mortgage for all that I qualify and don’t forget the line of credit.’ A guess is that while making application at the bank, they concurrently create a defensive position to justify their rationale. The mantra may be as simple as Low Interest Rates Made Me Do It or You Gave Us a Break So What Did You Expect.

Suspect is that neither group understood that their decision to engage was made during a phase of the economy that, for lack of a better description, could be called ‘Porter’s bubble’. We know the hog farmers are in trouble with their bubble of pork, but when the real estate price bubble if there is one, bursts, should we expect a similar outcry from those home buyers who beguiled by current low rates, drove prices higher with cheap money?

Looney Tunes

Many will recall that Porky Pig wore a bow-tie, a jacket or vest. His manner of dress might incline you to think of him as a gentleman.

Accordingly there are a great number of gentlemen in Ottawa – wearing bow ties, jackets or vests. Many are afflicted by political pressure, an painful ailment that makes them susceptible to lobby groups from their electorate. Dated experience has found these gentlemen a remedy for their pain. The remedy is simple, dole out a little pork. So is it possible, that in the not to distant future, they may be suffering pain from the outcry of those home buyers, seduced into thinking that current mortgage rates will last forever. It is possible, that we might then see a few million dollars fall into a special 2009 home buyer trough. Will it parallel the pork offer by providing a cash buy out for those who suffer from high mortgages or, a government-backed long-term loan (something like a 50 year bond) for those who want to give it another go.

Always in awe of our government’s largess when seeking to mitigate political pain, it causes one to wonder where our economy will end up given all the bail out monies that has been funneled into all the must-have troughs. It would be nice to hope that the politicians idea of pain medication were a bubble. It also be nice to believe that the bubble has a breaking point emulating Porky’s famous salute where he says: ‘Ahhh – Baahlea – Baahlea – That’s all Folks!’

*TM and © Warner Bros. Entertainment Inc. All rights reserved.
LOONEY TUNES, and all related characters and elements are trademarks of and © Warner Bros. Entertainment Inc. 2004.

**Quotes from Financial Post and Globe and Mail