Friday Free For All!
It’s Friday and that means open-topic discussion time on VancouverCondo.Info. Here are a few stories I’ve noticed this week:
- Vancouver prices stagnating or dropping?
- Planners want offices downtown
- Council Passes EcoDensity™ ©harter
- Oil makes everything more expensive
- Mortgage rates going up
- Sad outlook for forestry
- Difficult days ahead for Canadian banks
- Canada urged to save for a rainy day
- Bay st. surprised about inflation?
- Still paying more than Americans
- US lenders slash prices to dump foreclosures
- Britain enters nightmare of negative equity
So what are you seeing out there? Post your news, links and thoughts here and have an excellent weekend!
RSS 2.0 comments feed. Both comments and pings are currently closed.
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pooo Says:
June 12th, 2008 at 9:37 pm
speculators are screwed! haha.
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Thums up2 Says:
June 12th, 2008 at 9:39 pm
The best ever anecdotal evidence in the history of real estate. http://canada.com/theprovince/.....prices.swf
No hair cut required in vancouver,b.c.”THE BEST PLACE ON EARTH”
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ted Says:
June 12th, 2008 at 9:45 pm
Thums, can you see the general wave shape on that graph you posted? Ever heard of a cycle? Can you guess where we might be in the cycle right now and why it might not be the best time to buy?
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freako Says:
June 12th, 2008 at 9:56 pm
Oil makes everything more expensive
Call me Austrian, but I don’t buy this argument. Inflation is caused by excess liquidity, not resource shortages.
If price of one item in the CPI basket goes up, people will either buy less of it (elastic demand) or buy less of something else (inelastic demand).
Demand for gasoline is inelastic in the short term, so people have no choice but to buy it. But since money is finite, that also means that they have no choice but to buy less of something else. Thus demand for other products such as casual dining is down, which means LESS inflation in those items. The NET impact is nil. Of course, having fixed basket will still indicate a rise in general price levels, but that is misleading.
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hmmhmm Says:
June 12th, 2008 at 10:03 pm
ted,
I think it’s been pretty obvious for awhile now that he can’t.
The guy is obviously either:
1. totally f***ing with us
2. completely out to lunch.
Either way, I can`t figure out why he still gets so much attention from some of you. I try to skip his posts, but then you guys comment on them and I feel like I need to go back and try to translate his garbage.
Please stop paying attention to him.
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ted Says:
June 12th, 2008 at 10:13 pm
freako, I took ‘everything’ to mean the key things that people are used to buying in their daily lives – gas, food, etc. Things that people view as neccesary or inelastic. Thats the stuff oil prices are hitting hard right now.
hmmhmm, you’re right about the troll, I apologize. sometimes I feel the need to raise to the bait to point out the obvious when I should keep in mind that anyone who doesn’t get it won’t be helped by further explanation. Whooo! That was rather long winded and unclear but its been a long week. ‘nite all!
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hmmhmm Says:
June 12th, 2008 at 10:39 pm
ted,
I understand. I rarely post here but will admit that I sometimes want to reply to some of the other obvious but better spoken trolls.
I just really like reading the various comments (from both sides), but it seems like too often his illiterate garbage completely derails the discussion.
If we ignore him…he might go away.
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patriotz Says:
June 12th, 2008 at 10:41 pm
Yes but the point is that the root cause of general price inflation is not a rise in price of any particular input, but of an increase in the money and credit supply.
Adding to this is that many believe much of the recent increase in oil price is not due to fundamental demand but to speculation, again the root cause being excess liquidity.
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beatstreet Says:
June 12th, 2008 at 10:44 pm
If price of one item in the CPI basket goes up, people will either buy less of it (elastic demand) or buy less of something else (inelastic demand).
Less of something else…like real estate perhaps?
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stagnate Says:
June 12th, 2008 at 10:50 pm
thumbs graph could use a bit of detail in regards to the inflation calculation. nonetheless, peoples sometimes forget to consider that the increase in money supply relative to population growth (in canada) is a very similar percentile to the growth in real estate values (or in fact any commodity besides lumber). it doesn’t mean the money can’t flow elsewhere, but there has been a close correlation to date, including the last few years.
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hmmhmm Says:
June 12th, 2008 at 10:55 pm
freako,
And while I`m at it, I think you are the poster I feel best reflects my thoughts on the current situation.
I`ve enjoyed reading (and agreeing) with your arguments over the past couple years, and predict that over the next couple of years, most of you biggest critics will slowly disappear.
Keep up the good work.
ps. I miss the VHB blog, although I`m glad he`s posting again occasionally. How do I get access to the archives
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jesse Says:
June 12th, 2008 at 11:30 pm
hmmhmm, you can access a lot of VHB’s data through mohican’s site. For more of freako, VHB, and other smart posters, go to the Realestatetalks BC Forum. This site is great regardless.
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hmmhmm Says:
June 12th, 2008 at 11:40 pm
I`ve watched freako and VHB (among others) fight the good fight on many of the local blogs and sites(including realestatetalks).
It`s taken longer than expected, but I think their common sense will show to be true very shortly. Interesting times ahead in this city.
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hmmhmm Says:
June 13th, 2008 at 12:00 am
This is for you Thums up2!
http://www.tatuagemdaboa.com.b.....hums%20up2
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patriotz Says:
June 13th, 2008 at 12:11 am
Less of something else…like real estate perhaps?
Yes, but an RE purchase is investment, not consumption. Buying a house is not consuming (using) it. Falling RE prices are asset price deflation which can happen even while CPI is rising (like right now in the US). The price of the consumption of RE (rent) is not affected by sales. Freako was talking about an offsetting fall in the cost of consumption if the money supply is kept constant.
From the MSNBC story:
“It’s not uncommon to have 10 to 20 offers on one house, and for the house to end up selling for more than its market price,” said Erin Attardi, a Sacramento Realtor.
No comment on this from the reporter, of course.
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Re-diculous Says:
June 13th, 2008 at 4:36 am
These number’s were posted on PaulB’s blog today
Compared with last year…
50% More inventory in REBGV
93% more inventory in North Van
(1015)
71% more in Van West
60% more in West Van
38% more in East Van
Further, current REBGV total as of yesterday is 18489
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patriotz Says:
June 13th, 2008 at 4:47 am
So much for the theory that the upscale areas are immune to a downturn because everybody pays cash.
Didn’t pan out in 1981 either of course.
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umdesch4 Says:
June 13th, 2008 at 6:05 am
On page 2 of the first article in the list, it says “Map shows proposed plan for Vancouver’s downtown core.”
Besides not being a proper sentence, they neglect to mention anything about what map they are referring to. It sure sounds like something I’d like to see though.
Anybody know what they’re talking about?
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ReductiMat Says:
June 13th, 2008 at 6:19 am
The horror. The horror. A form of cognitive disonance? I think a case could be made.
Oil speculation is bad, but hands off my housing speculation!
Personally, I’d rather it be the other way around.
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Montery Says:
June 13th, 2008 at 6:29 am
I suppose now it’s getting to the point where it’s not news anymore. But in my tracking of 2 bedroom condos in the West End, I found this rather interesting development…
Since I started tracking on May 6, this place on 1830 Alberni St was listed at 599K. On Jun 2nd, it disappeared. I keep watching for a day or two to see if it comes back under a different number. Nothing came up, so I assume someone paid $555/sqft. Not too surprising, that’s the mid-range in the market right now.
Jun 11 it comes back on the market under a new MLS# (V715154) and a brand new price. How much lower do you think? 10K? 20K? 30K??
Nope! It was re-listed at an amazing low low price of only 539K! A massive 60K drop in price! 60K… that can buy you a *really* nice car.
That price drop was an eye opener. So I looked a little closer at the listing. It’s a two-unit place that’s been merged together. That means that your condo fee’s are double. Condo fee’s on this place? $500/mo!!
That’s just crazy! Some poor sucker who buys that place will have to pay half a months rent in perpetuity just for the pleasure of living there. Nuts. If you don’t factor in the cost of monthly condo fees in your calculations, you deserve to get slapped.
I can’t imagine buildings being kept in any good shape when most of the places in the building have shrunk to half price and condo fees are now a significant percentage of the purchase price.
I wonder what condo associations will do when the fees to live in the building become very close to a mortgage payment on a condo!
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Drachen Says:
June 13th, 2008 at 7:19 am
Thums up2
Well for starters you don’t know what anecdotal evidence is do you? It’s evidence with only a small number of examples to back it up. Since the graph is based on city-wide prices it is the opposite of anecdotal.
Secondly the fact that Vancouver is at a record high AND the previous record high resulted in a crash is good news to you?
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Anonymous Says:
June 13th, 2008 at 7:51 am
Freako and patriotz, pardon my ignorance but if excess liquidity is what is causing these bubbles (housing, oil, etc) how can it be absorbed to fix the situation?
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Warren Says:
June 13th, 2008 at 8:11 am
I see a lot of price declines in downtown condos, but things are still selling. I guess its better than price increases.
freako, regarding oil prices, how can it not make “everything” more expensive when everything is transported around using oil, or in the case of food, grown with it?
Sure I can adjust my budget to drive less, eat less, not go on vacation, etc. But then my standard of living has dropped, since these things have all gone up much faster than my wages.
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reply to ted Says:
June 13th, 2008 at 8:14 am
you’re right about the troll … I should keep in mind that anyone who doesn’t get it won’t be helped by further explanation.
Well said, Ted. Others take note.
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reply to ted Says:
June 13th, 2008 at 8:14 am
Re “Others take note”, I should have added “myself included!”
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ReductiMat Says:
June 13th, 2008 at 8:15 am
It was excess liquidity married with obscene amounts of leverage under the auspices of faulty risk management that fueled the housing boom (IMO).
The good news is that this situation fixes itself when it blows up in their face. Unfortunately, the purveyors of said schemes usually walk away with hundreds of millions.
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scullboy Says:
June 13th, 2008 at 8:24 am
Anon:
I think I can answer that question. Someone (well a lot of someones) will take a nasty haircut.
It’s the downside of speculation.
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betamax Says:
June 13th, 2008 at 8:26 am
“if excess liquidity is what is causing these bubbles (housing, oil, etc) how can it be absorbed to fix the situation?”
Rather than being absorbed, the spigot is being turned off.
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Thums up2 Says:
June 13th, 2008 at 8:26 am
“I have no idea why people who are on the bear side still don’t seem to get this. Things will correct to reflect market fundamentals. “-Drachen in last post to betamax.
Ted,Drachen,and Hmmm,
I am surprised that you guys can’t see YOUR FUTURE in the graph,if you want me to explain,I would say friday was too early yesterday still can’t spare enough time but main while you guys can see the difference between 81,82 and 2007
Drachen says”Things will correct to reflect market fundamentals”-on the last thread.
I say things are already correct look at the graph carefully for more response i will be back,ted you can find your cycle and motor cycle in the graph,have a good ride on the cycle in the
“THE BEST PLACE ON EARTH”
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Lynchfan Says:
June 13th, 2008 at 8:28 am
I’m concerned that this correction won’t yield the necessary drop in prices because the public has been brainwashed with ridiculous real estate pumping propaganda.
Is it possible that the necessary 20%, 30% drops will be stopped when loads of people start jumping in at 10% because their idea of “reasonable” regarding the real estate market has been so skewed?
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Via Says:
June 13th, 2008 at 8:39 am
Province/Canwest News Service:
Fuel and food prices already eating away at our nest eggs
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umdesch4 Says:
June 13th, 2008 at 9:13 am
*blinks*
I show the graph to people and they gasp and say “that’s beyond insane! Are those numbers even right?!”
…and Thums up2 says “I say things are already correct”.
I want to know what he/she’s been smoking so I can stay FAR away from it.
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ReductiMat Says:
June 13th, 2008 at 9:26 am
Lynchfan, there is no right price.
The price is what it is. If it stops at 10%, it stops at 10% and the bulls have been right in saying that things are different this time.
If you believe it is not different this time, don’t bank on it stopping at 10%.
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Anonymous Says:
June 13th, 2008 at 9:42 am
umdesch4,
Shut the fuck of you fucking idiot- did you ever go to school? son of bitch.
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umdesch4 Says:
June 13th, 2008 at 10:01 am
Wow, so constructive!
So, let’s assume for the moment that I never went to school, or at least I missed “graph and chart analysis 101″. Can somebody explain to me how that graph plus
this graph
and this graph
indicate anything other than an impending correction?
Seriously though, for you bulls out there willing to actually make a well-reasoned argument, I honestly want to hear it.
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Burden of Proof Says:
June 13th, 2008 at 10:22 am
“I’m concerned that this correction won’t yield the necessary drop in prices because the public has been brainwashed with ridiculous real estate pumping propaganda.”
Usually, when a bubble turns into a bust, the same process that lead to the boom goes in reverse and fuels the bust. As prices drop, all investment experts will be talking about how real estate is dead for a generation. They will say its going to be just like Japan. That will fuel further price declines.
If you buy RE, people at cocktail parties will look at you like you are an idiot and say, “don’t you know that is the worst investment you can make? You won’t make a profit for 20 years.”
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Strataman Says:
June 13th, 2008 at 10:29 am
umdesch4 Says: “indicate anything other than an impending correction?” Well umdesch4 heh heh don’t you get it? if the bumsup satv type looks at the graph the line is going up!! Thus real estate goes up! And trying to argue with that simpleton type of person using logic is fruitless and we should ignore the junk comments it makes. They (those comments) spoil the site and call into question why it is worth reading or commenting here at all if we constantly respond to the lowest common denominator.
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patriotz Says:
June 13th, 2008 at 10:39 am
I’m concerned that this correction won’t yield the necessary drop in prices because the public has been brainwashed with ridiculous real estate pumping propaganda.
How did that brainwashing work out in the US, Spain, Ireland, the UK, Alberta, etc?
You can’t fool Mr. Market.
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Drachen Says:
June 13th, 2008 at 11:42 am
Burden
“If you buy RE, people at cocktail parties will look at you like you are an idiot and say, “don’t you know that is the worst investment you can make? You won’t make a profit for 20 years.””
And of course the irony is that will be the time to buy investment properties.
Strataman
“And trying to argue with that simpleton type of person using logic is fruitless and we should ignore the junk comments it makes.”
Or as the saying goes, “Never argue with an idiot, they’ll only drag you down to their level and beat you with experience.”
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Drachen Says:
June 13th, 2008 at 11:45 am
On a different note, on my morning run today I noticed the SECOND for sale sign go up in front of a unit purchased within the last year. Considering there’s only 14 such units (three houses that were flipped and broken to 4-5 units each and sold as strata) that makes 16% of the people who purchased as a primary residence in the last year cannot afford payments (I can’t think of another reason why you’d leave in less than a year).
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franko Says:
June 13th, 2008 at 11:55 am
recent anonymous buyer buyer said…”Shut the fuck of you fucking idiot-did you ever go to school? son of bitch.”
I know your predicament deserves more sympathy than amusement or schaden freude, but cheer up man…it’s not too late to cut your losses by selling now, providing that you don’t get too greedy.
er…speaking of scools, mind telling us which to avoid?
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Downten Says:
June 13th, 2008 at 12:14 pm
http://www.theonion.com/conten.....market_for
Not real news at all.. But I think it pertains to the overall housing market mentality
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vanguy Says:
June 13th, 2008 at 12:40 pm
18489 listings?
Where did this number come from?
Paul B has it at 17520 as of June 4th.
If it jumped 1000 listings in the past nine days then I’m a very happy man!
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umdesch4 Says:
June 13th, 2008 at 12:46 pm
Paul’s been posting updates to his blog while away on vacation in France.
See the comments in this thread
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dingus Says:
June 13th, 2008 at 1:11 pm
Breaking News from The Globe and Mail
Home listings flood market
http://www.globeinvestor.com/s.....3/GIStory/
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moldcity Says:
June 13th, 2008 at 1:17 pm
You can be happy Vanguy, listings really have jumped by almost 1000 in the last 9 days, today will probably put us over the top.
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Re-diculous Says:
June 13th, 2008 at 1:20 pm
Thanks Dingus, love this bit:
… Markets with the largest decreases in sales: Saskatoon (-37 per cent), Edmonton (-35 per cent), Calgary (-33 per cent), Greater Vancouver (-31 per cent), Regina (-28 per cent).
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moldcity Says:
June 13th, 2008 at 1:20 pm
And we made the national news! In that link dingus posted we’re in both the top listings increase and top sales decrease. Go Vancouver!
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Strataman Says:
June 13th, 2008 at 1:22 pm
– Markets with the largest decreases in sales: Saskatoon (-37 per cent), Edmonton (-35 per cent), Calgary (-33 per cent), Greater Vancouver (-31 per cent), Regina (-28 per cent).
http://www.globeinvestor.com/s.....3/GIStory/
Damn!!! We are not first!
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Re-diculous Says:
June 13th, 2008 at 1:24 pm
meant to add: so much for the notion that the “booming west” will escape unscathed
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dingus Says:
June 13th, 2008 at 1:29 pm
“And we made the national news! In that link dingus posted we’re in both the top listings increase and top sales decrease. Go Vancouver!”
It really, really, is different here.
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Strataman Says:
June 13th, 2008 at 1:36 pm
Markets with the largest decreases in sales: Saskatoon (-37 per cent), Edmonton (-35 per cent), Calgary (-33 per cent), Greater Vancouver (-31 per cent), Regina (-28 per cent).
Yes but were not first!
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stagnate Says:
June 13th, 2008 at 1:54 pm
lynchfan, indeed at 5-10% correction levels it would bring more potential buyers into play. developers will have cut back on new product because of the uneasy downside risk. inventory will stabalize or possibly shrink. that may be it. it is a given the real estate industry will spin it as the perfect time to buy. the potential buyer are out there, a big issue is to what extent a change in psychology affects demand.
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Burden of Proof Says:
June 13th, 2008 at 2:09 pm
“a big issue is to what extent a change in psychology affects demand.”
Where asset prices are concerned the psychology of demand is that the higher prices go, the more demand there is. Yes, this is paradoxical but it is true. Most people are stimulated to buy by rising prices because they fear missing the boat.
It is a fact that the greatest capital inflows to mutual funds happened in February (could be wrong about the exact month) 2000, the month before the stock markets crashed.
Who wants to buy an asset that is shrinking in price?
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Burden of Proof Says:
June 13th, 2008 at 2:09 pm
I should say “the greatest capital inflows to mutual funds IN HISTORY happened in February (could be wrong about the exact month) 2000, the month before the stock markets crashed.
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Mr.P.Ness Says:
June 13th, 2008 at 2:18 pm
Rob, Satv: this one is for you,
From one of the Pope’s links:
http://www.newstatesman.com/ec.....ng-british
But the truth is that you can hardly give these flats away. A two-bedroom flat, bought for £215,000 in September 2005, recently sold at auction for £79,000; another went for £86,000. Nine others did not sell at all. “Live the dream,” said the promotion for these developments; wake up to the nightmare of negative equity.
But your theory is that negative cash flow and negative equity is a good thing right?
And the shortage of land thing….
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umdesch4 Says:
June 13th, 2008 at 2:41 pm
And yet, in the middle of that wonderful doom-and-gloom article, we *STILL* get quotes like:
“However, we believe that the sector will remain in reasonable shape, and will avoid any U.S.-style housing correction.”
I guess the word “reasonable” is pretty broadly defined.
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stagnate Says:
June 13th, 2008 at 2:44 pm
true enough burden of proof, but a large percentage don’t like renting under any circumstances. shelter being a necessity they have to go one way or the other.
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Burden of Proof Says:
June 13th, 2008 at 3:13 pm
“a large percentage don’t like renting under any circumstances.”
Unless owning makes no financial sense. We are currently seeing a rush to the exists because capital appriciation is basically at an end. Negative cashflow, no prospect of capital gains = no reason to own. What comes next is the standard bust with prices falling in the double digits.
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Vanguy Says:
June 13th, 2008 at 3:48 pm
Wow! 1000 listings in 9 days….and so many units yet to complete. This is the happiest I’ve been in a long time…
Not even 40yr amort, and 5% down can stop this thing now…the train has definitely left the station.
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dingus Says:
June 13th, 2008 at 3:59 pm
And, while I’m in coco mode, CBC has the story as:
Canadian real estate boom over, statistics indicate
http://www.cbc.ca/money/story/.....house.html
I’ve been looking for that headline for a long time. Feels almost like VE day.
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Ted Says:
June 13th, 2008 at 4:03 pm
I heard Concord has slowed construction at their Cooper Pointe development… Trying to help slow the tide of inventory?
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Dave Says:
June 13th, 2008 at 4:04 pm
Vanguy, if that’s the happiest you have been in a LONG time, then you obviously bet wrong.
Let me explain…If you go back through all the data in the last 40 or 50 years, you will see that most corrections have given up about 1 years worth of gains. If (big if) we have a price correction anytime soon, it will probably only give up 1 year (i.e. 10%), assuming history to be a guide. Have fun trying to time the peak. Best case, your gain in 10%.
If you have been sitting for more than a year, then chances are you will have made a bad decision in hindsight.
Trying to time real estate is stupid when it is for your primary home (IMO). If you can afford it and your life situation is stable, then it is always a good time to buy. Investment is a different matter.
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Burden of Proof Says:
June 13th, 2008 at 4:05 pm
Here is a comment from the CBC story. Hilarious!
“How can this be – I was told that real estate only goes up in price and this boom was different from the last one in that it would never stop.
With house prices going up at 45% per year forever, I was hoping to sell mine in about ten years and buy Australia.
I guess I’ll have to invest in energy stocks now as I heard the price of oil is going to $1,000,000,000,000,000 per barrel in 2010.
Best regards
Born Yesterday”
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stagnate Says:
June 13th, 2008 at 4:13 pm
burden of proof: true enough, but consider umdesh. then consider that for every one burden of proof there are nine umdesh’s.
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Burden of Proof Says:
June 13th, 2008 at 4:16 pm
“Let me explain…If you go back through all the data in the last 40 or 50 years, you will see that most corrections have given up about 1 years worth of gains. If (big if) we have a price correction anytime soon, it will probably only give up 1 year (i.e. 10%)”
This is completely wrong. Look at the graph on the Sauder website (link below). The busts in the early 80’s and late 1990’s gave back at least 75% of the gains made during the boom. Where do you get your misinformation from?? Post a link to back up your statement.
http://cuer.sauder.ubc.ca/cma/.....couver.pdf
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Burden of Proof Says:
June 13th, 2008 at 4:18 pm
Im looking at real rather than nominal prices.
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vanguy Says:
June 13th, 2008 at 4:27 pm
Sorry Dave. This is the happiest I’ve been regarding Real Estate since I moved back to Vancouver from the US in 2005.
I agree it’s foolish to time any market. But it’s also foolish to purchase an asset you can’t afford.
I also think there are many real estate investors in California, Florida, and Nevada that currently wish they’d only given up 10%. Wasn’t Los Angeles off 19% YOY last month? If you only put down 5%, 19% kinda hurts. San Diego 20.5% off. Las Vegas 26% off….
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stagnate Says:
June 13th, 2008 at 4:32 pm
the bust in the early 80’s gave back 75%, no correction, that was a bust precipitated by 20% interest rates. in the 90’s the market was choppy, but could be best described by the word stagnation.
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Dave Says:
June 13th, 2008 at 4:45 pm
Who cares about ‘real prices’? I haven’t heard of anybody buying a mortgage that goes up with inflation. You buy a house in nominal prices and pay back your loan in nominal prices. Inflation works in the purchasers favour.
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Burden of Proof Says:
June 13th, 2008 at 4:49 pm
Stagnate:
This is what prices did in the 1990’s according to the Sauder graph. If this is what you call stagnation, then bring it on! I’d call it a bust,, by the way. But who cares about sematics. You can call it a the age of aquarius if you want.
1991- $360k
1995 – $500k
2001 – $380k
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allen Says:
June 13th, 2008 at 4:52 pm
Have fun trying to time the peak.
I don’t need to time the peak to know this: my family income is above the supposed average in this city and will only buy me a small shitty condo unless I’m willing to go for a forty year loan and put my financial future at risk. There are many other places where I can earn more and pay less for housing. I like Vancouver fine, but I’m not opposed to moving away.
At present I see no reason to buy here, do you? I’m talking about right now with the market the way it currently is.
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Burden of Proof Says:
June 13th, 2008 at 4:54 pm
“Who cares about ‘real prices’? I haven’t heard of anybody buying a mortgage that goes up with inflation. You buy a house in nominal prices and pay back your loan in nominal prices. Inflation works in the purchasers favour.”
You must be joking!
Unless you have a 40 year fixed rate, which is likely not the case, your interst rate resets every year or two or five or seven as your mortgage term ends.
If inflation is higher in the future, your rate will be higher when your mortgage term ends. That is how banks protect themselves against inflation. That is why rates are rising now, incidentally.
Therefore, inflation does not work in the buyer’s favour. You pay higher intesrst rates when you refinance.
Did the bank forget to tell you this?
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beatstreet Says:
June 13th, 2008 at 5:00 pm
City planners recognize the need for business! Oh what an insight. The planner even admits there is little demand for office space.
I wonder why!
I can only shake my head. We have chased out all the large firms such as Microsoft so that primarily Mom and Pop stores are left to pay “business taxes”.
Obviously, more and more of the bike-path highway costs are going to be shouldered by today’s Vancouver property owner.
While we can only hope things don’t play out like Montreal 1976, I am beginning to fear the worst in terms of local taxes.
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umdesch4 Says:
June 13th, 2008 at 5:01 pm
Sorry, what about me?
The fact that I just bought a house (against all common sense), or that I think there’s going to be a correction coming, and it’ll probably be substantially more than 10% (especially for condos in downtown Vancouver) ?
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Dave Says:
June 13th, 2008 at 5:06 pm
Burden, inflation and interest rates are two different things.
Try again…
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Burden of Proof Says:
June 13th, 2008 at 5:19 pm
Inflation causes interest rates to rise. This is called a causal connection. It is logic. I can see how you would miss that …
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Anonymous Says:
June 13th, 2008 at 5:23 pm
inflation and interest rates are two different things.
You really don’t see the connection between the two?
Good luck with your investments fella!
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Burden of Proof Says:
June 13th, 2008 at 5:23 pm
“Obviously, more and more of the bike-path highway costs are going to be shouldered by today’s Vancouver property owner.”
I agree. Why would any business locate in Vancouver? You force your employees to live a 40 minute commute away. You force them to pay through the nose in gas. Hardly an attractive employment proposition. You pay outrageous real estate prices. Expect more business to go the way of microsoft.
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Vansanity Says:
June 13th, 2008 at 5:29 pm
I hope you all caught Global News tonight at 6pm. Here was a recap in case you missed it, it will probably be on their site later.
1) Foreclosures up at least 50% in Vancouver YOY (local expert believes the US type crash is coming);
2) Mortgage rates on the rise.
Gave me goosebumps. The first story had a bit on a home that the owners had 2 mortgages and could not keep up any longer. They bought it for $700,000 (+) it was assessed at $719,000 last year and through foreclosure sold for $580,000.
Nothing to see here, we’re back to normal now. Carry on. Buy buy buy! LOL! Have a great weekend! Hopefully we get some sun in June-uary.
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-A- Says:
June 13th, 2008 at 5:47 pm
I don’t like stealing other people’s lines, but there is a technical term that one of the posters uses which describes the current situation very well.
tick tock, tick tock, tick tock
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Burden of Proof Says:
June 13th, 2008 at 5:50 pm
What do you think about this one, “Beeeeeeeeeeeeeeeeeeeeeep!” As in, “flatline” the market is dead! Not as catchy, I admit.
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bdk Says:
June 13th, 2008 at 5:50 pm
Here’s the executive summary for satv/thumsup or whatever he’s calling himself today
“He said that it’s unlikely that Vancouver will see exceptionally high office towers because the business market in Vancouver isn’t strong enough for that. Vancouver has no head offices and much of its office space goes to companies leasing relatively small amounts of space.”
NO HEAD OFFICES
BUSINESS MARKET ISN’T STRONG ENOUGH
RELAX YOUR BRAIN MUSCLES AND SELL BEFORE IT’S TOO LATE!
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cashisking Says:
June 13th, 2008 at 5:57 pm
Foreclosure property lawyer (credible local expert) also said he didn’t become a convert bear until October/November when business started to pick up. Also said he is hiring staff (more than one) because he needs help to keep up.
I wonder how many “speculator trifecta’s” are out there – 0 down, 40 yr amort, and variable rate mortgages.
Too the moon Alice, too the moon!
We should set a date place to “out” ourselves … us Bears that is … A year from now? When the Sun admits the market is down X%?
Bear costumes? We’ll invite all the disgraced pimps …. it’ll be fun!
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Dave Says:
June 13th, 2008 at 6:07 pm
Burden, don’t be a dummy.
Of course inflation and interest rates are correlated. All I said is that they are two different things.
If inflation runs at the rate is has in the last 5 to 10 years, then interest rates will likely remain stable. That means when you renew, your monthly mortgage costs are the SAME in nominal dollars. In the meantime, your wages have gone up (say 15%).
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Drachen Says:
June 13th, 2008 at 6:17 pm
Dave
“If you go back through all the data in the last 40 or 50 years, you will see that most corrections have given up about 1 years worth of gains.”
Umm we’re talking about Real Estate here, not stock markets or anything. In Real Estate as with most commodities the prices tend to fall the inverse amount they went up in the bubble.
You really don’t know anything about this stuff do you? Do you know how the BOC sets the key interest rate? Their mandate is to keep inflation below 2%, if inflation rises or looks like it will rise they raise the rate. When inflation is low they can lower the rate.
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Re-diculous Says:
June 13th, 2008 at 6:19 pm
As far as technical terms / theme songs, I still prefer my my favorite David Bowie song “Turn and face the strange c-c-c-changes”
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Re-diculous Says:
June 13th, 2008 at 6:22 pm
Here’s a link to the Global TV piece:
http://www.canada.com/globaltv/bc/index.html
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Dave Says:
June 13th, 2008 at 6:29 pm
Ummmm.. no duh Drachen (RE: real estate =/ stocks)
Was that not my point (i.e. the correction being proportional to the rise)? In the case of Vancouver real estate, my review of the data has shown that the market usually only takes back 12 to 18 months of gain.
That’s not the BOC policy. The policy is to target inflation AT 2% and keep it between 1 and 3%.
My point (and you keep missing it), is that inflation exists and will continue to do so. That means, the total amount of your mortgage goes down in inflationary terms.
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Strataman Says:
June 13th, 2008 at 6:38 pm
Dave “Let me explain…If you go back through all the data in the last 40 or 50 years, you will see that most corrections have given up about 1 years worth of gains.” Your joking right? Anybody who can read a chart or spreadsheet can see that your statement is nuts, you generally gain around 3.5% – 5% across two decades so if you gain 15% one year you gotta make up – 12 % some other time in a year. And your kidding about mortgages that don’t go up with inflation right? Nobody who buys a place can be that stupid!
Can they? 
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soon-to-be-renter Says:
June 13th, 2008 at 6:55 pm
Lead story on Global BC… Foreclosures are up!
http://www.canada.com/globaltv/bc/index.html
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Dave Says:
June 13th, 2008 at 7:17 pm
Nuts? Nope.
Have a look at slide 52. The years that dropped were generally smaller than the prior years gains. The only exception to this was the 95 correction, which gave up about 18 months.
http://www.bcrea.bc.ca/economi.....hCheck.pdf
If you ignore the small blip in 1992, prices went up for 10 years between 1985 and 1995 (see slide 37).
My point is that if you sit out of the market for more than 12 to 18 months, then the past corrections would predict your timing was bad.
You mortgage amount drops over the term you make payments… dummy. It doesn’t increase with inflation.
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Thums up2 Says:
June 13th, 2008 at 7:22 pm
umdesch4 Says: Can somebody explain to me how that graph plus-this graph-and this graph.
Umdesch4,
Housing stats are not that many when it comes to months and years of completion, for your kind information those are already sold.
Resale Inventory:Paul b is not a rebgv himself so we don’t really have to accept those fake numbers unless we get direct access to their official site because there is no official to take the question. anyway for your kind information you will be surprised in few months to look for the same numbers,those resale listing does not make much difference because those are already under owners care.
Drachen actually nothing for you but yeah if anybody else need more information how to read the graph please contact my math teacher BDK and for discription of the graph please contact my english teacher SOFIA but that graph it self explain every thing what bear don’t like to see and hear Strataman actually nothing.
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patriotz Says:
June 13th, 2008 at 7:22 pm
If you can afford it and your life situation is stable, then it is always a good time to buy
You’re saying that it was a good time to buy in 1981 before a 45% nominal drop and major recession?
Bwahahaha.
All I can say is that if you think it’s a good time to buy now, get out and buy, sucker. Let’s keep that excess supply flowing.
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Brittanny Spears Says:
June 13th, 2008 at 7:24 pm
Hey Satv, What , no comment about todays Global news? Come on, lets hear your side of this.
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Brittanny Spears Says:
June 13th, 2008 at 7:28 pm
Thums down-2. Did you forget to take your lithium again?
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Dave Says:
June 13th, 2008 at 7:29 pm
You sure showed me patriotz. A one year window in 25 years? OK, I’ll give you that year and 1994 as well. That still makes me right 96% of the time.
How long have you been sitting on the sidelines? Honest.
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jesse Says:
June 13th, 2008 at 7:56 pm
“You buy a house in nominal prices and pay back your loan in nominal prices. Inflation works in the purchasers favour.”
You just uncovered the secret to eternal wealth! Debt! No free lunch, dude. There’s a reason why mortgage and rates and bond yields are higher than inflation. Good luck with those salary increases, though.
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patriotz Says:
June 13th, 2008 at 8:01 pm
That still makes me right 96% of the time.
BFD. The issue is whether you and the other bulls are right now.
Get it?
Like I say, get out and buy, pal. Buy 10 houses. Right now.
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Dave Says:
June 13th, 2008 at 8:07 pm
I agree. The past is the past and nobody can change the past. What matters is the future.
If you are buying for a primary home and plan to own for many years, then trying to time the market is likely a fools strategy. Worrying about a 10% correction over a long time horizon is pointless. History suggests that the next bull market will more than make up for it.
However, going forward… sitting on the sidelines for an extended period (again 12 to 18 months) will likely cost you.
I don’t need 10 houses… just one… I already bought it. I don’t really care what the market does.
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Brittanny Spears Says:
June 13th, 2008 at 8:26 pm
Dave, Timing IS everything. How will you feel when the current value of your home is half of what it is now and at the end of your mortgage term the interest is double what it is now? You will get forclosed on and loose everything. just like alot of Americans are experiencing now.
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stagnate Says:
June 13th, 2008 at 8:29 pm
Brittanny, that’s a doomsday senario, it’s easy for bears to think that way but its friday night-get out there and get crazy!
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Dave Says:
June 13th, 2008 at 8:30 pm
And when have home values fallen 50% in BC?
Are you suggesting interest rates of 14% within 5 years?
Neither of those scenarios is likely. What is more likely is that at some point in the next few years we have a 10% correction and interest will be +/- 2 to 3% of where they are today.
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patriotz Says:
June 13th, 2008 at 8:32 pm
However, going forward… sitting on the sidelines for an extended period (again 12 to 18 months) will likely cost you
Are you saying that 12 to 18 months from now prices are likely to be higher?
House price declines are not a random phenomenom. House prices go down because they are too high.
The issue is not what % of the time house prices go up or down. The issue is what house prices are reasonable. Reasonable house prices are those where ownership costs are comparable to renting, and prices are a reasonable multiple of incomes. Prices will eventually adjust to this level. Always.
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beatstreet Says:
June 13th, 2008 at 8:34 pm
In the case of Vancouver real estate, my review of the data has shown that the market usually only takes back 12 to 18 months of gain.
Well my take is that usually the market is not inflated by 40 year mortgages, US subprime lenders setting up shop in Vancouver (who have since left) and once-in-a generation low interest rates that are gone for good (unless a depression hits or something).
Therefore, the past is no guarantee of future results.
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patriotz Says:
June 13th, 2008 at 8:40 pm
And when have home values fallen 50% in BC?
Are you suggesting interest rates of 14% within 5 years?
Mortgage rates were higher at the market peak in 1981 than the market bottom in late 1983. Repeat, the market fell as mortgage rates were falling.
Many US markets are alredy down up to 30% from the peak in 2006, with minimal increase in interest rates.
If prices do not make sense relative to rents and incomes, they have to come down.
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Dave Says:
June 13th, 2008 at 8:43 pm
Yes, I believe prices will be higher 12 to 18 months from now. I think we will have a couple 5% years and perhaps a small drop after that. Overall, mostly flat.
No houses prices don’t go down because they are ‘too high’. They typically go down due to external factors such as an economic downturn or higher interest rates.
Beatstreet, what percent of mortgages are 40 year in Vancouver? 1%? 2%? It’s small and it isn’t the driving force in this market. Subprime loans are not an issue here.
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beatstreet Says:
June 13th, 2008 at 8:43 pm
Mortgage rates were higher at the market peak in 1981 than the market bottom in late 1983. Repeat, the market fell as mortgage rates were falling.
Exactly.
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Dave Says:
June 13th, 2008 at 8:47 pm
GDP fell 7% after 1982. Enough said.
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Brittanny Spears Says:
June 13th, 2008 at 8:51 pm
Dave, Are you saying that you don’t care about profit/loss?
Because if your are, you are not human. The general population is driven by fear and greed. This is a primal instinct. It is greed that drove the market up and it is panic that will drive it down. It does not matter where you are,China or Canada. You have to think with your head, not your heart.
PS. Big night out tommorrow, so I am just chilling on the blogoshere.
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beatstreet Says:
June 13th, 2008 at 8:51 pm
Beatstreet, what percent of mortgages are 40 year in Vancouver? 1%? 2%? It’s small and it isn’t the driving force in this market. Subprime loans are not an issue here.
In any market it is the marginal buyer that sets the last price. And, in this market I would argue most of the marginal buyers have been using 40 year mortgages. So, the absolute number really doesn’t matter if my assumption is right.
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Disbelief Says:
June 13th, 2008 at 8:53 pm
Dave is clearly an idiot troll Re shill. Bull in sheeps clothing. Clearly the market is very unpredictable but what is likely is a correction. Whether Dave likes it or not it will happen and a lot more than 10%.
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Drachen Says:
June 13th, 2008 at 8:56 pm
Dave
“And when have home values fallen 50% in BC?”
When have they tripled? (inflation adjusted)
If you purchased at the peak in the ’80s it took over 20 years and the current bubble to regain your losses.
Your logic is as demented as most bulls. If you throw a rock upwards 10 feet it falls 10 feet (the bubble of the ’80s) but if you throw it up 30 feet in the air your hypothesis is it will only fall about 5?
Well as others have said, why are you wasting your time here? Your fingers should be too sore from signing all those mortgages to be able to type here if you’re that confident.
“Subprime loans are not an issue here.”
They’re not the issue in the states either, or hadn’t you noticed that all the media outlets are talking about the problem spreading to ‘prime’ mortgages.
The problem is not the mortgages, not directly anyhow, the problem is unsustainable prices. Vancouver’s prices are clearly unsustainable, ergo they will fall. As I’ve said before there are 3 methods tried and true to measure overinflated real estate markets, all 3 of them peg our market at around 250-300% over sustainable values. Your wishful thinking will be like cobwebs breaking an elephant’s fall.
If you have something more useful than, “Nuh uh.” to add to the conversation let’s hear it, otherwise without any kind of evidence or research to back up your claims you’re just spewing hot air (or pixels).
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Disbelief Says:
June 13th, 2008 at 8:59 pm
Dave needs to learn about supply and demand not a difficult lesson to learn… Dave sounds a lot like Cameron Muir. Lots of supply demand down something has to give. Even with 0 down and 40 year mortgages. Idiots like you were beaking off in California and Florida not long ago. We follow the US we always have and we for a long time will. Sorry Dave (Cam)
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jesse Says:
June 13th, 2008 at 8:59 pm
“No houses prices don’t go down because they are ‘too high’. They typically go down due to external factors such as an economic downturn or higher interest rates.”
There is not much correlation between GDP growth and house prices except in areas where construction jobs make a large part of the workforce. Like, say, Vancouver. House prices must follow incomes or eventually nobody could afford to buy property any more except with rising amounts of debt. Right now prices do not in aggregate support the underlying incomes, ESPECIALLY when debt levels are unusually high. Like, say, Vancouver.
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Dave Says:
June 13th, 2008 at 9:00 pm
Brit, I don’t disagree with your assertion regarding fear and greed driving markets. That doesn’t support your case or refute any of my points.
The main points are:
1. Prior corrections have been externally driven. Although forestry is down, the BC economy is very strong and our future looks great.
2. Price corrections have only given up 12 to 18 months of gains. I have been in the market since 2001 and plan to be so for the rest of my life. Corrections in price don’t really affect me. If anything a price drop might allow me to consider real estate as an investment.
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beatstreet Says:
June 13th, 2008 at 9:06 pm
Subprime loans are not an issue here.
In Canada subprime is spelled ABCP.
http://canadianpress.google.co.....j30O_yebKA
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Dave Says:
June 13th, 2008 at 9:13 pm
Drachen, why do I have to keep repeating myself? It is better to use nominal costs because that is what your mortgage is priced at. I don’t care about inflation adjusted values.
I am the one backing up my points with real data. On what information are you basing your correction on? So far, I haven’t seen any real data. So far, all my points have been backed up (e.g. depth of corrections).
I fully believe in supply and demand. Last months MOI numbers suggest a balanced market with little price change. If MOI gets up to 9 months, then I will predict a 10% price correction, but no more.
FACT… 35,000 people are coming to BC each year. FACT… rental vacancy is at historic lows. FACT… 35,000 housing starts per year isn’t much higher than the norm.. FACT… The GVRD will grow from about 2.2 million people today to 2.9 million people in 2020. Sounds like demand to me.
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Noname Says:
June 13th, 2008 at 9:15 pm
Dave,
You actually do indeed care about what the market does. In fact, I would bet that you are pretty damn scared about a possible drop. If you weren’t, you wouldn’t be posting on this site trying so desperately to try to convince others that no drop can occur.
You posts reek of fear. Nothing personal, just an observation…
Noname
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Brittanny Spears Says:
June 13th, 2008 at 9:15 pm
Dave,
#1 – BC econmony is strong because of construction. This is fading very fast.
#2 Price corrections can give up alot more than 12-18 months of gains, Eg. Britain yesterday: Purchased in 2005 for 215k pounds, sold at auction for 79k pounds. You would be amazed at how much and how quickly a market can turn. My family and myself hvae been involved in the Real Estate game since the ’60’s.If fear turns to panic, it can get real ugly real fast. I am talking about 90 days fast. Mark my words, you will see. Sell now at under market prices and you will thank me for a lifetime of losses. Think about your kids, not yourself.
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stagnate Says:
June 13th, 2008 at 9:16 pm
boys calm down, dave got under your skin. he’s telling you something you don’t want to hear, because maybe he’ll be right. assessing demand and supply for vancouver real estate is not quite as simple as just looking at an inventory chart. and assuming everyone but the bears is tapped out has been a losing ticket in the past. given the constraints on the supply side a 20 to 1 rent to own ratio on your generic inland condo is not that bubbly. 5-10% correction then stagnation in the market. you heard it hear first.
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Dave Says:
June 13th, 2008 at 9:21 pm
Noname, I never said a drop wouldn’t occur. I am basically predicting a flat market for a number of years going forward. What I am saying is that IF a drop does occur, it will likely be relatively shallow (i.e. giving up less than 10%). I have about 40% equity in my home and another 15% in liquid assets. I don’t fear losing my equity.
I don’t really have anything to gain or lose here. In contrast, many of the perma-bears are unwilling to admit that they have been wrong all these years and that values will never drop to the levels when they started calling for a crash.
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patriotz Says:
June 13th, 2008 at 9:23 pm
Prior corrections have been externally driven
What was the external driver of the current US bust? The Spanish bust? The Irish bust? The UK bust which is just getting rolling?
Prices fell 20% from the market peak in BC in 1981 to the onset of the recession in 1982. How come?
What was the external driver of the late 90’s bear market in Vancouver, a time of very strong economic growth in the US?
I have been in the market since 2001 and plan to be so for the rest of my life. Corrections in price don’t really affect me.
Corrections in price don’t affect you when you buy at a market bottom, which is exactly why I intend to buy at the next market bottom. And no, they are not hard to identify.
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patriotz Says:
June 13th, 2008 at 9:26 pm
What I am saying is that IF a drop does occur, it will likely be relatively shallow (i.e. giving up less than 10%)
Since the market top last year, prices in Calgary and Edmonton have dropped over 10%, from a price/income much lower than Vancouver, at a time of rapidly increasing oil prices.
Why?
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Dave Says:
June 13th, 2008 at 9:28 pm
I agree stagnate. I think the only question is when the peak will occur. My point is that it could happen this year or in another few years. If the later, then sitting on the sidelines will have been a bad call. Even if you buy near the peak and prices correct 5%, within a year, you will probably still be ahead given that you gained equity and haven’t been paying rent (I could do the math but won’t bother) .
If you haven’t bought yet and have a good down-payment, then it isn’t worth worrying about buying at the peak. If you can afford it and plan to own for a long time, then you will be just fine. We’ll get back to the peak in 7 years (nominal).
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Brittanny Spears Says:
June 13th, 2008 at 9:29 pm
Yes, some bears have been wrong for the last 4 or 5 years. Not me. I sold in Dec. 2007.I will buy back when interest rates peaks and start moving down again. I predict about 6-8 years from now.
Get out of the way, or your going to get hit by the truck.
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stagnate Says:
June 13th, 2008 at 9:33 pm
calgary, edmonton, saskatoon – demand/supply is too elastic in these prairie hoods, even today someone would be better off investing in vancouver than the above.
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Dave Says:
June 13th, 2008 at 9:37 pm
What was the external driver of the current US bust? The Spanish bust? The Irish bust? The UK bust which is just getting rolling?”
I don’t follow the US market that closely, but IMO… The US bust is really a story of LA, Vegas, Phoenix and Florida. Other markets that are similar to Vancouver (e.g. Portland, Seattle and perhaps NY) haven’t had big issues. The problem is twofold: 1. Large volume of subprime loans (much higher than Van); and, 2. Higher mortgage renewal rates for those loans causing foreclosures. On top of that, the ’sun cities’ were overbuilt based on in-migration for vacation homes. This is not the case for Vancouver.
The Spanish bust is analogous to Florida in that outside buyers were driving the market.
No idea about Ireland or UK.
Prices fell 20% from the market peak in BC in 1981 to the onset of the recession in 1982. How come?
They fell more than that (30 to 40%). How come?
- The prior two years to 1981 saw values almost double
- Large speculation (speculation #s are much lower currently
- double digit unemployment
- double digit interest rates
- major recession
What was the external driver of the late 90’s bear market in Vancouver, a time of very strong economic growth in the US?
The NDP.
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patriotz Says:
June 13th, 2008 at 9:39 pm
35,000 people are coming to BC each year. FACT… 35,000 housing starts per year isn’t much higher than the norm.
Well, actually it is much higher than the norm, and it also amounts to about 2 new housing units for each new household.
FACT… The GVRD will grow from about 2.2 million people today to 2.9 million people in 2020.
Er no, that’s a prediction, not a fact. It’s also way out of whack with the current historically low growth rate of 1% annually.
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stagnate Says:
June 13th, 2008 at 9:40 pm
brittany: indeed you’ve got some game, you’ll do ok no matter what happens.
dave: i see some weakness in the market now, with tangible results coming. i agree with you though, i don’t think real estate will be cheap again in the sense some others posting here are hoping for.
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Dave Says:
June 13th, 2008 at 9:42 pm
Since the market top last year, prices in Calgary and Edmonton have dropped over 10%, from a price/income much lower than Vancouver, at a time of rapidly increasing oil prices. Why?
The run-up in the prior two years in Alberta was huge. It hasn’t given up a year of gain yet.
Alberta isn’t the first choice to live for new immigrants and Canadian’s from other provinces. Alberta is flat and has no limit on land. In contrast, only 4% of BC is privately owned and we are surrounded by the ocean, rivers and mountains. Valuations (price / income) will never get as high as BC.
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Dave Says:
June 13th, 2008 at 9:52 pm
Well, actually it is much higher than the norm, and it also amounts to about 2 new housing units for each new household.
You are ignoring replacement numbers. I have no idea what those are.
I think it is around 33,000 for 2008. The average in the last 20 years is probably around 28,000. I wouldn’t call that ‘much higher’.
Er no, that’s a prediction, not a fact. It’s also way out of whack with the current historically low growth rate of 1% annually.
Fair enough. How about ’strong likelihood’?
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Thums up2 Says:
June 13th, 2008 at 9:58 pm
“I predict about 6-8 years from now.”
Brittanny,
You did not get the point of inflation in the favour of purchaser that similar favour is a great punch for tenents in other wards if you are locked into mortgage for your said 8 year your rent will be 25%-35% up- one who is paying average rate of 1050 rent-will be paying 4800 till the mortgage term of 25 year come to an end you damn it.
About your question of global news, I can thrash their news in one second but you know that media deliver news for all sector of socaity so i will leave my response blank for media.
Dave thanks and special HI-5-keep up the good work.
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Thums up2 Says:
June 13th, 2008 at 10:07 pm
“35,000 people are coming to BC each year. FACT… 35,000 housing starts per year isn’t much higher than the norm.”
In 2007,60,000 people moved to bc.
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DJ Says:
June 13th, 2008 at 10:18 pm
Dave,
How exactly is the 12-18 month number relevant? It’s like saying Vancouver Canucks defeated San Jose sharks eight out of ten times when the game was played on a tuesday. Cool … but so what?
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Ignore the Jackass Says:
June 13th, 2008 at 10:36 pm
Bah. Just when the discussion was getting interesting. PLEASE thums up2, if you can’t put together a coherent sentence or use real numbers just knock it off and step away from the keyboard.
in 2007 BC recieved 38,893 immigrants, a 7.6% decrease from 2006. Stop lying and back up your bullshit numbers.
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patriotz Says:
June 13th, 2008 at 10:46 pm
What was the external driver of the late 90’s bear market in Vancouver, a time of very strong economic growth in the US?
The NDP.
OK, got it. Housing busts only happen in BC when there’s an NDP government.
Guess I’ll go out and buy now.
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moldcity Says:
June 13th, 2008 at 11:01 pm
WOW! Thanks for the link to the Global news piece on the vancouver housing market guys, I missed the broadcast but it was great to be able to watch that online. It looks like the market has really turned and the psychology is changing as we speak. This spring has been BRUTAL for trends, with all the places for sale and the drop off of buyers.
For anyone saying ‘the bears were wrong’ blah blah blah.. lets just deal with the present. Does anyone here truly believe that it makes sense to buy in Vancouver RIGHT NOW!?!
…Dave?
…Stagnate?
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ReductiMat Says:
June 13th, 2008 at 11:08 pm
Dave, the shit hitting the fan in the United States was not because of sub-prime loans. If your primary source of information on this topic is USA Today, or the nightly news, I can see why you think this.
If you did follow it closely, you’d be shocked to see how closely our situation mimics that of say California.
For some fantastic analysis on all that is going on there, I suggest you read some of the ubernerd posts here.
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stagnate Says:
June 13th, 2008 at 11:31 pm
moldcity: as the landscape changes there is opportunity as follows- buy from a desperate seller (there will be a lot more of them than in recent past) and then turn around and sell to a buyer who hasn’t considered that the landscape has changed. yes, time spent on the blogs can lead to money in your pocket courtesy of the uneducated. cash flow investment? nah, would look elsewhere. wait for 60% drop? like dave says could be a wide deep hole with nothing but a shovel.
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Brittanny Spears Says:
June 13th, 2008 at 11:47 pm
“Ignore the Jackass” Post #136. Yes & Thank-you. Thums up just pulls shit out of his ass that is not backed up by anything. He is a brainless, illiterate little dickhead that needs an ESL course or deportation papers.
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richard Says:
June 13th, 2008 at 11:50 pm
“FACT… 35,000 people are coming to BC each year. FACT… rental vacancy is at historic lows. FACT… 35,000 housing starts per year isn’t much higher than the norm.. FACT… The GVRD will grow from about 2.2 million people today to 2.9 million people in 2020. Sounds like demand to me.”
Yeah, but can they afford to stay here?
“Although forestry is down, the BC economy is very strong and our future looks great.”
Which part of the economy is booming, exactly? Construction isn’t going to last forever. Tourism is down. Mining and resources is up, but are there any mines in Vancouver? I know there’s a great big hole in the middle of Cambie but i understand it’s for the Canada Line, not the Canada Mine. “Oh yeah! Let’s migrate to Vancouver and get a job at the world class coffee shop and enjoy the mountains and the ocean.” Oh that’s right, i forgot about the drug trade and the criminal activity.
“Alberta isn’t the first choice to live for new immigrants and Canadian’s from other provinces.”
Neither is Vancouver.
“Alberta is flat and has no limit on land. In contrast, only 4% of BC is privately owned and we are surrounded by the ocean, rivers and mountains.”
I really don’t think the majority of immigrants know that BC is “The Best Place on Earth.” You only get indoctrinated into that after you’ve been here for a while and have heard it from the locals. All the mountains and oceans in the world aren’t going to help you get child care, food on the table, clothes on your back, and a roof over your head. You know, things that families actually need. Screw the mountains and oceans.
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Regarding Dave Says:
June 14th, 2008 at 12:18 am
Regarding Dave and his “dont-sit-out-for-more-than-18-months” notion, when did people who bought at the 1981-ish peak break even? Wasn’t it about 20 years or more later?
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Regarding Dave Says:
June 14th, 2008 at 12:24 am
Well Dave, I’m still struggling with this. I think I’ m glad I didn’t buy at the 1981-ish peak because I would lose money for the next 20 years. Actually, that’s when I sold my house in Coquitlam and pocketed 40% profit after 1.5 years of ownership. But the people who bought it got screwed because their house lost 35% of its value within a year and took 20 years to come back.
Anyway, I don’t think I should buy at the current peak. But I’ve been sitting it out since 2002 (really, it’s true). So I’ve been sitting it out for 6 years, which exceeds your 18-month rule.
So tell me honestly Dave, give me your best advice. Should I buy now? Also, just so I can see what kind of thinker you are, what advice did you give your friends regarding Nortel?
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patriotz Says:
June 14th, 2008 at 1:41 am
I really don’t think the majority of immigrants know that BC is “The Best Place on Earth.”
Half of all immigrants to Canada settle in Toronto. Some also settle elsewhere in Ontario, so for immigrants to Canada, Ontario is clearly “the best place on earth”.
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macchiato Says:
June 14th, 2008 at 3:33 am
Dave is presenting his argument probably better than most here, I just don’t agree with many of his forward looking extrapolations of some fundamentals and some under estimations. Virtuous is going vicious and it’s a positive feedback loop. The global foreclosure report is one of the first real signs of this, not to mention a couple months ago, it was said half of the new jobs yoy were in construction … when that unravels it should be ugly.
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macchiato Says:
June 14th, 2008 at 3:34 am
Regarding that Global report, the woman says that the local real estate market is slowing cooling down. WTF? I thought is was cooling off at RE light speed, or is it just me?
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Alpha_Bear Says:
June 14th, 2008 at 4:44 am
I think that I’ve found the reason that Dave isn’t concerned about the magnitude of the impending housing collapse in Vancouver.
If you look at the slide 52 which he refers to in an earlier post (#92), you’ll notice that Cameron Muir somehow neglected to include the magnitude of the price change in the first few years of his graph of “Vancouver MLS Average Price” (page 52). The graph begins in 1980, yet the percentage change in price is not shown before 1983.
I’m sure that this is just an oversight by Cameron, and not an attempt to intentionally deceive.
Dave also state in the same post, “You mortgage amount drops over the term you make payments… dummy. It doesn’t increase with inflation.”
The amount that you owe the bank should drop over the term that you make payments, but your monthly mortgage payment can increase dramatically when interest rates rise (which usually happens if the BOC decides to fight inflation). I’ve seen interest rates over 21% in Vancouver, imagine what that would do to your monthly payment if they were to get that high again.
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Strataman Says:
June 14th, 2008 at 6:30 am
Dave “FACT… rental vacancy is at historic lows.” Dave I work full time in the condo industry. CMHC calculates rentals based on the criteria that if ONE owner has THREE rental units it is counted as rental property. If three owners each have ONE rental property it is NOT counted as a rental property. The MAJORITY of Condo rentals are of the latter type. There is a glut of Condo’s for rent if you are in the $1400 and above rental territory. So you are quoting a statistical fact not a REAL fact.
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Strataman Says:
June 14th, 2008 at 6:37 am
Dave “You mortgage amount drops over the term you make payments… dummy. It doesn’t increase with inflation.” I have experience inflation in the 80’s first hand. The mortgage payment will go up because the interest rates will go up. I have seen and experienced where all the payment made over a five year term are wiped out due to the timing of the renewal and you owe more at mortgage renewal then you did when you started. The only way you can beat that scenario is to have a very large down payment well in excess of 25%.
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Ted Says:
June 14th, 2008 at 6:47 am
My point (and you keep missing it), is that inflation exists and will continue to do so. That means, the total amount of your mortgage goes down in inflationary terms.
Isn’t this part of the reason the banks charge interest rates?
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Strataman Says:
June 14th, 2008 at 6:54 am
Ted “That means, the total amount of your mortgage goes down in inflationary terms.” Technically true as long as cash flow is no object thus my emphasis on the amount of down payment you have. If you can absorb a 5-20% increase in payments you are correct you will gain; if you can’t well???
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Carioca Canuck Says:
June 14th, 2008 at 7:11 am
http://www.findcalgary.ca/aPage.jsp?aPageId=20
Jun 2007 Average $496,890 Median $439,000 Volume 1757
Jun 2008 Average $478,133 Median $406,000 Volume 1390
Here is what is happening in Calgary……this Dave guy does not have his facts straight.
We have had a 30-50% drop in sales for each of the last 6 moths……there are 16,000 listings in our area.
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Thums up2 Says:
June 14th, 2008 at 7:15 am
Ignore the Jackass Says: in 2007 BC recieved 38,893 immigrants,
Hey ITJ,
First of all those numbers are greater than the said 35,000. then you need to add migration rates.60,000 people moved to bc in 2007 is not a new news for us on this forum lots of posters have been telling us through the cmhc link.
“The GVRD will grow from about 2.2 million”
(pause)actually
GVRD population is already reached at 2,289,900 in (2007).
MORTGAGE INTEREST RATES: can’t go up if you are locked for the total term or partial,In the partial or full term a mortgagee can request the bank to renew before the expire date if the interest rates are down.
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Dave Says:
June 14th, 2008 at 7:22 am
Wow, lots of questions over the night. I’ll try to provide my thoughts and answer them all.
Which part of the economy is booming, exactly?
Lots of sectors are booming. Our economy is much more diversified. Unemployment is at historic lows and this is the tightest labour market in our history. It’s not just construction jobs. Somebody here said 1/2 of the new jobs were construction. I recall seeing 1 in 6.
In any case, the level of construction is not significantly above historic norms (i.e. 33k starts versus an average of 28k). Given a growing population, this average should be growing over time in any case.
There are also a lot of big projects still in the planning stages for BC (e.g. Site C dam, lots of infrastructure) which will continue for at least a decade. And please don’t reference the Olympics which only account for about 1% of total construction activity.
Regarding Dave and his “dont-sit-out-for-more-than-18-months” notion, when did people who bought at the 1981-ish peak break even? Wasn’t it about 20 years or more later?
Firstly, the 80s are a bad analogy. Prices ran up almost double in the prior two years. Fast rises mean fast drops. Shallow rises (e.g. now) mean shallow falls (say 10%). You could make a case for a mid 90’s fall (e.g. 15%) though.
Actually it only takes 6 to 7 years to get out of a real estate correction in nominal dollars. Again, your mortgage is priced in nominal dollars, but your income goes up in real dollars.
Anyway, I don’t think I should buy at the current peak. But I’ve been sitting it out since 2002 (really, it’s true). So I’ve been sitting it out for 6 years, which exceeds your 18-month rule.
So tell me honestly Dave, give me your best advice. Should I buy now? Also, just so I can see what kind of thinker you are, what advice did you give your friends regarding Nortel?
I think you should buy if: 1. you plan to own for at least 5 years; and, 2. you can afford it. If you find what you like, I wouldn’t be afraid to buy. I sold a townhouse in February (3 days) and went straight into a house. I don’t see big gains in our market going forward for at least another 7 years. There isn’t much upside left in this bullmarket. However, I also don’t think there is much downside risk as well. There could still be a couple years of gains left (say 8% this year and 5% next – CMHC). A correction could then take most of that back, but perhaps not all.
You might have to wait decades before another 30% correction comes our way.
I bought Nortel in 1999 but didn’t recommend it to friends. I don’t think your question gives insight into my ‘thinking’. I think you need to look at the whole picture. Being wrong once, doesn’t mean I am always wrong. Being right on other things also doesn’t mean I will be right going forward. Rather than looking at track records, we should discuss the merits of analysis on their own.
I’ve seen interest rates over 21% in Vancouver, imagine what that would do to your monthly payment if they were to get that high again.
And what’s your point? Are you predicting 21% rates going forward? What’s your analysis and back it up.
My opinion… the high interest rates of the early 80’s were caused by high inflation over the prior decade and the Federal Reserve wanting to finally put a nail in the inflation coffin. Inflation has been fairly low over the last decade and the BOC has an excellent track record with its policy of targeting 2% inflation (our last recession was a looong time ago). I see rates +/- 2 to 3% from where they are now over the next 5 years.
RE – CMHC Rental Numbers
Good point. Over time, the rental vacancy number becomes less and less relevant. Comparing the current number to 20 years ago could be a problem. But.. it is still useful for evaluating trends. And the trend continues to be down to a very low level.
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Thums up2 Says:
June 14th, 2008 at 7:30 am
Carioca Canuck,
What dave has said is year over year prices are up when you include all the new and resale home and yes i confirm prices are up in almost all cities include toronto at almost 2% still up yoy.
Strataman,
if you admit some thing in one line why do you need to write 15 comments to deny the facts?
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Dave Says:
June 14th, 2008 at 7:35 am
Carioca Canuck, how so? What have I said about Calgary that has been wrong?
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Drachen Says:
June 14th, 2008 at 7:41 am
Dave
“Other markets that are similar to Vancouver (e.g. Portland, Seattle and perhaps NY) haven’t had big issues.”
Yeah, but none of those markets tripled either. None of them had big run-ups. The bump in the ’90s was actually a feature of our current bubble and not a separate bubble. This is an entirely normal feature for a large bubble (it’s in Economic textbooks)
Our graph post 2000 looks most like Miami where the run up was just as slow and prices have fallen 35% and are still falling hard. That doesn’t really gibe with your “slow run up = 10% fall” theory does it? In fact London had a far slower run-up going back over a decade and they’re on a long downhill slide. Look up the Tokyo “Mt Fuji” graph rose 210% over 10 years and fell back to the starting point after 15 years of declines.
Your theory, in other words doesn’t hold up in the real world.
Please give at least one example where prices ACTUALLY fell only 10% or so after doubling or more in a slow run-up. You can’t can you, because it hasn’t happened.
The fall will be in the order of 60-70%. That is prices will normalize at around 30-40% of current levels. This is what Economic history tells us if we actually look at other examples which bear some similarity to our market.
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Dave Says:
June 14th, 2008 at 7:47 am
I said, “The run-up in the prior two years in Alberta was huge. It hasn’t given up a year of gain yet.”
The facts for Calgary are:
June 2005 – $246k
June 2006 – $367k
June 2007 – $497k
June 2008 – $478k
That backs up what I said (i.e. 2008 has yet to give up a year of gains. You have to go back to June 2006 to give up a year (i.e. drop to $367k).
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Carioca Canuck Says:
June 14th, 2008 at 7:50 am
Post # 131
The run-up in the prior two years in Alberta was huge. It hasn’t given up a year of gain yet.
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Drachen Says:
June 14th, 2008 at 7:52 am
Dave
“Drachen, why do I have to keep repeating myself? It is better to use nominal costs because that is what your mortgage is priced at. I don’t care about inflation adjusted values.”
Ahh I understand, you’re one of those people who thinks you’re smart. In case you hadn’t figured it out wiseass I prefer to use inflation adjusted dollars because that is how the economy is measured. Not in your pretend dollars. If you can’t convert the two then I begin to see where these assenine arguments come from
“I am the one backing up my points with real data. On what information are you basing your correction on? So far, I haven’t seen any real data. So far, all my points have been backed up (e.g. depth of corrections).”
Real data? One point in the ’90s which is arguably just a feature of our current bubble. Comparing Vancouver which has tripled to Seattle which rose what 10-20%? It may be “real data” but you can’t just cherry pick data that you like. That’s how wars get started. I haven’t bothered posting the data because it’s readily available. If you want go to langley financial planning (link from this blog) and search for the uberpost.
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Dave Says:
June 14th, 2008 at 7:56 am
It has happened. Here in fact.
Prices went up about 250% from 1985 to 1995. The market then took back about 18 months of gain and went down 15%.
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Alpha_Bear Says:
June 14th, 2008 at 7:58 am
Dave,
When I posted: “I’ve seen interest rates over 21% in Vancouver, imagine what that would do to your monthly payment if they were to get that high again.”
You kindly replied: “And what’s your point? Are you predicting 21% rates going forward? What’s your analysis and back it up.
My opinion… the high interest rates of the early 80’s were caused by high inflation over the prior decade and the Federal Reserve wanting to finally put a nail in the inflation coffin. Inflation has been fairly low over the last decade and the BOC has an excellent track record with its policy of targeting 2% inflation (our last recession was a looong time ago). I see rates +/- 2 to 3% from where they are now over the next 5 years.”
My opinion is that inflation is currently under-reported, due in part to changes in the way inflation is calculated, and mostly because of reliance on the “core” rate, which does not include food and energy.
For a better idea of the real rate of inflation, I suggest you take a peek at The Economist’s weekly commodity price index, which shows a 27.3% annual increase in their ‘all items’ section.
My prediction is that we are now entering a period of stagflation and interest rate increases which will make the 1970’s, 1980’s, and even the 1930’s look like a picnic.
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ReductiMat Says:
June 14th, 2008 at 8:03 am
Dave, you must have missed my post on the housing mess in the USA. I strongly urge you to investigate the link I provided. It will help you see the corollary between our market and the hardest hit ones down there.
As for your last post, you were asked about booming sectors besides construction. Do you realize you neglected to offer any examples, and the two projects you did provide were in construction?
Actually it only takes 6 to 7 years to get out of a real estate correction in nominal dollars.
I don’t see big gains in our market going forward for at least another 7 years
I also don’t think there is much downside risk as well. There could still be a couple years of gains left (say 8% this year and 5% next – CMHC).
Are you in real estate? The NAR might be hiring.
Finally, you said we will have to wait decades to see a 30% drop. Yet at other times you intimate this type of drop is impossible. Under what conditions can we see a 30% drop?
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Strataman Says:
June 14th, 2008 at 8:13 am
thumbs up and computer help line
http://www.bagge.net/general/the-help-desk
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Strataman Says:
June 14th, 2008 at 8:23 am
Is anybody having trouble loading this site? Of all the sites I visit this one takes forever to load and I seem to loose a lot of comments in cyberspace. Is it just me?
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patriotz Says:
June 14th, 2008 at 8:28 am
Prices went up about 250% from 1985 to 1995. The market then took back about 18 months of gain and went down 15%.
Interest rates fell greatly over that cycle (1985-2001). That’s why it was possible for a large increase to be followed by such a small decrease. Also the difference between the real increase and real decrease was much smaller because of the long cycle. As a result both endpoints of the cycle were at rent equivalence.
Do you think interest rates are going to drop a similar amount (by half) going forward? I don’t. All indications are that they are going up, and the increase has already begun. In a cycle with rising interest rates the drop will be disproportionately large, not small.
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blueskies Says:
June 14th, 2008 at 9:11 am
what would it take to stop a decline at 10%?
legislation?
seances?
tribal dances at full moon?
as noted:
fear vs greed is the essence of the debate
the current number of listings cannot be explained in a “normal” market scenario
…and i’m seeing a rush for the exits.
strataman: i notice the long loading times also… maybe this site is too popular… bet you there a lot of “lurkers” reading but not commenting….
something i wish satv would consider
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richard Says:
June 14th, 2008 at 9:27 am
“Lots of sectors are booming. Our economy is much more diversified. Unemployment is at historic lows and this is the tightest labour market in our history. It’s not just construction jobs. Somebody here said 1/2 of the new jobs were construction. I recall seeing 1 in 6.”
Gee thanks. that’s quite specific. By the way, it was in the news this year that YES. 1/2 of the new jobs are in construction. It is NOT 1/6. Also, there’s a whole bunch of people in real estate and things like that. But yes, you are right. the economy is strong. question is, for how much longer?
“In any case, the level of construction is not significantly above historic norms (i.e. 33k starts versus an average of 28k). Given a growing population, this average should be growing over time in any case.”
Yes, and all those condo towers going up are just figments of our imagination. All those construction jobs are just figments of our imagination. Oops. there goes the economy.
“There are also a lot of big projects still in the planning stages for BC (e.g. Site C dam, lots of infrastructure) which will continue for at least a decade. And please don’t reference the Olympics which only account for about 1% of total construction activity.”
Don’t worry. i won’t reference the olympics. I will say that Site C has been mentioned here before. It will take 7 years to complete, employ 2000 people, and is somewhere in the north. How that will help real estate in vancouver, i do not know. By the way, with 2,000,000 people in the GVRD, 2,000 people is like 0.1 percent.
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Montery Says:
June 14th, 2008 at 9:35 am
Wow, busy site this weekend!
Dave, I have to say you’ve raised some interesting points. I tend to look at the big picture and am making my own forward looking assumptions based on my technical analysis of the last 30 years of RE history in Vancouver (using the Sauder data and price-adjusting to 2008 dollars).
If past boom-bust cycles (ignoring the singular event of 1981) can be said to represent the future, then my prediction is that we can see a slow decline (in real dollars) over the next 15 years. In nominal dollars, it will appear as stagflation for this period. I anticipate a negative correction (bearish sentiment driving prices below “what it should be”) that will accelerate the down-ward curve, but it’ll flatten and stay flat for many many years.
I guess I’m mostly in agreement with Dave!
I will throw out this caveat: I’m talking about single detached housing (since this is where my data comes from). However, the Vancouver Condo market will be totally gutted. Those brand new Quadra developments in Surrey? Next years ghetto’s.
As far as investments go, I’m thinking I’ll stick with dividend paying stocks and just pick a house that I like and can afford to stay in for 10-15 years ’till it’s time to retire to Panama.
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Brian Says:
June 14th, 2008 at 9:50 am
Why do real estate pumpers keep coming up with inane arguments. Vancouver is not a special and unique place.
Hey Dave,
Congratulations on pulling out a useless observation from Mr. Muir’s slides. Take an economics course and look at the charts again. Home prices have doubled in the last 12 years and incomes have gone up a whooping 6%. Where is the demand coming from to explain the massive shift in valuations. Well it’s definitely not population growth, because new supply hitting the market is taking care of that.
So you are telling me the market never gave back a year of gains in the last 20 years? It just doesn’t matter. That’s the most irrelevant observation you can make. All that matters is basic economics.
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patriotz Says:
June 14th, 2008 at 9:54 am
I’m talking about single detached housing (since this is where my data comes from). However, the Vancouver Condo market will be totally gutted
It is simply not possible for SFH to hold flat nominal prices while there is a condo bust. SFH and condos are not independent markets. There is substitutability between them in both directions, in both ownership and rentals. In particular, a very large number of SFH buyers move up from condos.
Never, ever, do you get a flat nominal top when ownership costs are so out of whack with rent (more than 2x). The opportunity costs, or actual cash losses, are way too large for investors to enter the market or even stay in it. They will bail. A large number of potential owner-occupiers will also stay out when they see that appreciation has stopped. But the builders are going to keep building, because that’s how they earn a living.
And then prices start falling. And falling. And it takes rent equivalence to get the market in equilibrium again.
How anyone could argue otherwise given what we have seen in the US for the past two years is beyond me. Even in the UK with its onerous restrictions on new supply, prices are now falling at a higher rate than at any point in the US bust.
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Dave Says:
June 14th, 2008 at 10:23 am
Brian, I would be willing to bet that I have taken more economics courses than you.
Observing the past does matter. If you don’t agree with my assessment, then at least provide a rationale as to why it is not relevant. Simply saying prices have gotten too high and will therefore fall, is not an assessment.
You had a good start in looking at income and prices. The real measure to use is affordability. At least quote those numbers. The affordability levels are definitely at a high but not at unprecedented numbers (in line with historic peaks). That to me suggests that the correction will also be commensurate with historic corrections (i.e. 12 to 18 months of gains).
It’s possible we will just have a soft landing and flatline without a correction.
Things are different than before that affect affordability. For example, there are more dual income families than 13 years ago.
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Anonymous Says:
June 14th, 2008 at 10:25 am
Blueskies,
I can see some one already taking care on inventory in comment #93
Brian Says:
“Why do real estate pumpers keep coming up with insane arguments. Vancouver is not a special and unique place.”
oh excuse me please,where do you live brian?
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stagnate Says:
June 14th, 2008 at 10:29 am
yes dave made some decent arguments and made some people upset, the people who got upset deserve to be upset. there are sound reasons why the vancouver real estate market has exhibited such strength and is one of the last to leave the party. may not be much of a hangover though.
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jesse Says:
June 14th, 2008 at 10:48 am
“That to me suggests that the correction will also be commensurate with historic corrections (i.e. 12 to 18 months of gains).”
Dave, it’s not just the magnitude but the duration of poor affordability that matters. In 1981 for example the boom was reasonably short lived and few actually entered the market or refinanced during that brief period. This time there have been close to 3 years of poor affordability, with investors and first-time buyers entering the market and refinances of existing owners happening in record amounts. Your 12-18 months of gains is probably a bit too optimistic.
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Anonymous Says:
June 14th, 2008 at 11:01 am
Dave,
Your statemant regarding 12 to 18 months of gains is irrelevant because it has no predictive power. A similar bullshit stat would be to say that on average Vancouver has given up 35 percent of price gains during past corrections; therefore we can expect to see a 35 percent corretion. Magnitude and length of future corrections are not determinded by past corrections. They are determined by the interplay between rents, incomes and prices.
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DJ Says:
June 14th, 2008 at 11:03 am
Comment above is mine.
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Dave Says:
June 14th, 2008 at 11:08 am
Jesse, good observation about the length of poor affordability. It’s consistent with the speculation that was rampant in 1981 (i.e. few buyers driving the market up due to speculation). In contrast, the recent 3 year period of ‘high’ prices suggests that buyers can actually sustain the current price level.
Actually not too many first time buyers have entered the market in the last 3 years. That was about the time those people dropped off the radar. It’s another reason why I think the next correction will be shallow. I think there are a lot of buyers on the sidelines who couldn’t afford 3 years ago that will be able to enter after a drop in prices.
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Dave Says:
June 14th, 2008 at 11:22 am
DJ, there are two theories for predicting markets. The first is fundamental analysis and the second is technical analysis. I like to consider both. My observation of 12 to 18 months would fall under technical analysis. I am also happy to discuss fundamental analysis of real estate.
No doubt that prices are currently high by most metrics (price to rent, price to income, affordability, etc…). If you look at all those metrics you will find that they are similar to the prior peaks. That suggests to me a potential correction would be similar to past behaviour.
But, I think things are different than before. For example, there are more dual income families. Our economy is more diverse and workers are more educated. Thus, the risk of serious economic downturns is somewhat mitigated. Our banking system is more stable (e.g. BOC has an excellent record). I also think there is a permanent affordability shift out of single family housing into higher density. With a growing population and limited land, it will simply not be possible for many people to ever afford a house. Rather, many people will only ever afford condos or townhomes. Thus, using average incomes to assess affordability of SFH makes little sense.
I think the risk premium on real estate will be lower going forward than it was in the past. An 8% cap in the past will probably be a 6 or 7% cap in the future. Lower risk premiums result in higher asset pricing. Right now, we might be at a 4 or 5% cap (on average). I don’t think a potential correction will overshoot my new cap rate target by much.
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Someguy Says:
June 14th, 2008 at 11:25 am
However, the Vancouver Condo market will be totally gutted. Those brand new Quadra developments in Surrey? Next years ghetto’s.
I have to point out that Surrey is not Vancouver so this statement makes no sense.
http://www2.standardandpoors.c.....llapse.pdf
http://www.npr.org/templates/s.....d=89803663
Basically Location, Location, Location
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Anonymous Says:
June 14th, 2008 at 11:31 am
The issue is whether you and the other bulls are right now.
Get it?6
The bigger question is – do you? You just did a giant flip-flop on your part from just a few days ago.
Then you argued bears were “righ6t” even if their timing is of by several years – now you claim it’s all about “right now”.
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Anonymous Says:
June 14th, 2008 at 11:37 am
…there are two theories for predicting markets…
There is a third path that believes the Really Big Moves are inherently, by-definition unpredictable. In application this means keeping most of your funds as safe as possible and betting small amounts of the rest on outcomes nobody thinks are possible (like, say, oil quadrupling in price in 24 months).
Investing like that takes balls of titanium…
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Burden of Proof Says:
June 14th, 2008 at 11:48 am
Dave,
You said
“Lots of sectors are booming. Our economy is much more diversified.”
According to the Business Council of BC, the economy shrank last quarter (link below). Are you ignorant or do you just not know the difference between shrinking and growing? Time to dust off the old dictionary.
Are you intentionally lieing? Like I said before, where do you get your misinformation from? You never post a link to back up your fraud statistics.
http://www.bcbc.com/Documents/BCEIndexv7n1.pdf
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/dev/null Says:
June 14th, 2008 at 11:49 am
Dave,
Comment #128 “speculation #s are much lower currently” [than '81]
Comment #179 “Actually not too many first time buyers have entered the market in the last 3 years.”
Maybe it’s just me but these statements seem contradictory. If not FTBs and not speculators then who is buying? Is it just people swapping back and forth, or are you suggesting it’s investors?
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Burden of Proof Says:
June 14th, 2008 at 11:54 am
Dave,
You may think that my response to you is a little too harsh. However, unsubstantiated assertions that contradict authoritative studies deserve a very strong response.
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richard Says:
June 14th, 2008 at 12:00 pm
“But, I think things are different than before. For example, there are more dual income families.”
Yeah, because everything is so expensive now.
“Our economy is more diverse”
That’s right. People now diversify in to more than 1 job so they can pay the mortgage.
” and workers are more educated.”
Absolutely. You have doctors and PhDs driving cabs. Never used to have that.
“Thus, the risk of serious economic downturns is somewhat mitigated.”
Unless you are in forestry or tourism. Those aren’t major industries in BC anymore because they’re tanking.
“Our banking system is more stable (e.g. BOC has an excellent record).”
No kidding. I don’t think there will be a bear stearns like bailout here. After all, the CMHC is buying up mortgages from the bank now, so we’ve started the fripping bailout early.
“I also think there is a permanent affordability shift out of single family housing into higher density.”
sigh… you might be right there….
“With a growing population and limited land, it will simply not be possible for many people to ever afford a house.”
So what will happen now to the average people who are already mortgaged to the hilt holding SFH?
“Rather, many people will only ever afford condos or townhomes.”
So average people won’t be taking those SFHs off the boomers and current owners? How will they finance their retirement then?
“Thus, using average incomes to assess affordability of SFH makes little sense.”
I think the banks and mortgage brokers have come to the same conclusion as you did a few years ago. That’s the only explanation i can see why they approve silly mortages.
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think_first Says:
June 14th, 2008 at 12:23 pm
There has been a lot of talk (on various blogs and in the media) about the how we in Canada “don’t have subprime”. Well, by definition, I don’t think we do. However, it seems to me that most media have a poor grasp of the definition of “Subprime” in that they confuse subprime with the loan itself. I mean, unless I’m way off base here, subprime, Alt-A and prime are categories based on the borrower him/herself (based on their credit risk/FICO score) and have nothing to do with the actual loan (other than the interest rate charged).
Why do I think this is important??? Well, because this means that any borrower (subprime, Alt-A, prime) can potentially get any type of ‘exotic’ loan (e.g adjustable rate mortgage (ARM), pick-a-payment, NINJA (no income, no job/assets)) Therefore, a subprime borrower could have an ARM (or some other ‘exotic’ loan), but so could an Alt-A or prime borrower.
So, to me this means that a prime borrower may default just/almost as easily as a subprime borrower for a couple of reasons. The first is that is what is important to me is how much skin they have in the game. If they have 0% down then it won’t be all that difficult to throw in the towel. Second, if/when a loan resets and the payment goes up, it doesn’t really matter what your FICO (credit risk) score is. What matters is if you have the cash flow to meet the increased expense. No cash flow? Default. After enough defaults, I’m thinking that no one wants to buy Mortgage Backed Securities/invest in other ways in these ‘risky assets’. This means banks no longer have that source of credit which leads to less credit/how cost of credit which leads to higher rates….(you know the drill…And this isn’t even considering the excess supply generated by builders building too many units or the increase due to defaults.)
So, while I don’t believe that Canada has ‘Subprime’ by definition, I believe that we (and especailly Vancouver) do have the thing that is utlimately causing the fall in the States (and in many other places in the world). And that is extremely high loan-to-value (LTV) mortgages (e.g. 0-5% down, longer amortization times). People are really stretched (74% of income to support a median priced SFH in Vancouver, if I’ve got my stats right). I don’t think it matters what it is called (Subprime or not). What it all boils down to, as far as I’m concerned, is people living beyond their means.
Maybe I’m wrong. Who knows? Just a though…
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scoop Says:
June 14th, 2008 at 12:55 pm
Dave, I find your voice interesting, so keep it up. Other than saying things like “no duh” and “dummy” which detract from your credibility a bit, IMHO.
I am not trained in economics. I’m just a guy trying to do the best for my family. I’ve been renting for a few years and occasionally kick around the idea of buying a modest home with a huge mortgage. This is what nearly all of my colleagues have done and what even now some of them still urge me to do.
If I had bought a place 5 years ago, I think I would be like you – I wouldn’t be thinking of selling now. The market goes down, it doesn’t make a big difference to you. So call me a dummy for not buying 5 years ago. But I didn’t. So here I am in 2008, and what should I do? My family salary is comfortable, I have basically no debt, am renting a nice place for a reasonable price, and socking away a fair amount of money each month in RRSPs, RESPs, and a downpayment savings fund.
So I can probably “afford” something half-decent at this point – maybe a fixer-upper sfh or townhouse with a tiny yard in the suburbs – and my life situation is stable. By your measure, this is a good time for me to buy.
I can agree that generally, timing the market on any investment can be a fool’s game. But that doesn’t mean I can’t assess the likely outcomes based on what I know today. First, the upside: the most bullish voices, yourself included, are predicting (at best) flat prices or nominal gains in the next couple years. I wouldn’t be in a worse position to buy if that happened, as I expect my salary to increase more than 5% or even 8% per year. Now the downside. You admit that a decline wiping out 18 months gain is well the realm of possibility – what would that be, like 20%? And no one knows when for sure, but you admit that price metrics are at historic peaks and affordability is at historic lows. And the current inventory and sales data right now are pretty damn interesting, in my view. Then I consider the bear arguments from fundamentals which point to a possible decline of a much larger magnitude – and possibly prices not being back at these levels for 20 years. And I look around the world: if the US situation can somehow be differentiated (not sure it can), what about the UK? Are we in a much different situation than London, because that article that the pope linked to sounded a whole lot like here.
So, looking at the big picture, would you say I’d be taking a bigger risk by jumping in right now, or by staying out and seeing how this unfolds over the next 12-24 months? Your honest advice – should I go to my bank on Monday and get pre-approved?
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betamax Says:
June 14th, 2008 at 1:18 pm
Dave: I sold a townhouse in February (3 days) and went straight into a house….There isn’t much upside left in this bullmarket. However, I also don’t think there is much downside risk as well.
Congrats on concocting a series of arguments which help to rationalize your more expensive purchase. Unfortunately, for the most part they represent wishful thinking.
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franko Says:
June 14th, 2008 at 1:20 pm
Young Dave’s predicament reminds of a story where a lady heard on a traffic report that a motorist was obliviously driving the wrong way on a divided highway. Upon realization that her husband was headed for the same area, she thought she’d better call him on his cell phone to warn him of the potential danger, only to be told by hubbie “one guy going the wrong way? ya gotta be kidding, there’s about a hundred of em”
You’re going the wrong way Dave…on the road to disaster!
…and might you be confusing economics courses with EGOnomics??
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/dev/null Says:
June 14th, 2008 at 1:49 pm
That in turn reminds me of a scene in the brilliant John Candy and Steve Martin movie “Planes, Trains and automobiles”. Guy on the other side of the highway is shouting “You’re going the wrong way!” out his window and they look at each other and say “How does he know where we’re going?” Classic.
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FormerLurker Says:
June 14th, 2008 at 1:50 pm
I’ve been lurking here ever since VHB’s website went off the air but have never been compelled to respond until now.
Luckily the cup was still on its way to my lips or I would have sprayed my morning tea all over my monitor when I read post #125 by Dave. So, what was the assertion that I have been waiting all day for someone to respond to? Here it is:
Even if you buy near the peak and prices correct 5%, within a year, you will probably still be ahead given that you gained equity and haven’t been paying rent (I could do the math but won’t bother) .
Well, Dave, I did the math. You are wrong unless your bank is giving you a negative interest rate or you have a 100% down payment. Neither likely.
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Brian Says:
June 14th, 2008 at 2:02 pm
Dave,
HOUSEHOLD income is not moving. In fact, Mr. Muir’s slides show a demographic shift happening over the next few years to an increase in households with no income from jobs. These are the same households with most of their savings in the form of home equity (see BC’s negative savings rate).
Their is no “permanent affordability shift” to higher density under way. The average first time home buyer has been pushed to the fringes of metro areas for a long time. Town centers are always expanding outwards. When was the last time a new neighbourhood of SFHs was built in Vancouver or Burnaby? 20 years maybe?
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jesse Says:
June 14th, 2008 at 2:08 pm
Dave: “Actually not too many first time buyers have entered the market in the last 3 years. That was about the time those people dropped off the radar”
I don’t know what you classify as a “first time buyer” but given the number of dwellings has increased in 3 years (58K increase since 2001 according to Statscan) I don’t see how it’s possible NOT to have new market entrants.
Statscan data indicates the number of owner occupied units in Vancouver area increased by 68K from 2001 to 2006 while the number of rental units decreased by 10K (yes decreased). There was also a 32K increase in homeowners with mortgages paying 30%+ of their incomes towards their accommodations. Judging by the record sales volumes in 2005-2007 I am confident there have been a lot of FTBs entering the market.
In any case, whether it’s an FTB or an investor entering the market makes no difference. It’s the incomes that determine prices in the long run.
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blueskies Says:
June 14th, 2008 at 2:20 pm
I think there are a lot of buyers on the sidelines who couldn’t afford 3 years ago that will be able to enter after a drop in prices.
I call BS on this.
If they could not afford to buy 3 years ago how can they afford it now if there is only a 10% drop in prices?
You are defeating your main argument of a minor drop in prices. Without first time buyers there are a lot fewer move up buyers.
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exx Says:
June 14th, 2008 at 2:24 pm
A coherent bull, definitely a sign of the times – welcome Dave
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Drachen Says:
June 14th, 2008 at 2:30 pm
Dave
“Brian, I would be willing to bet that I have taken more economics courses than you.”
So, option A or option B.
A) You know perfectly well that you should be using inflation adjusted numbers but choose to use nominal dollars to cheat economic theory.
B) You really didn’t learn much in your Econ classes.
“It has happened. Here in fact.
Prices went up about 250% from 1985 to 1995. The market then took back about 18 months of gain and went down 15%.”
As I’ve said, that’s a feature of the bubble we’re still riding. Choose another time and another place.
“No doubt that prices are currently high by most metrics (price to rent, price to income, affordability, etc…). If you look at all those metrics you will find that they are similar to the prior peaks.”
What are you SMOKING??? Show me. Give me a time and a place where this was true. It is not. Rents have remained nearly flat in Vancouver (adjusted) for many years now yet prices are far higher than they’ve ever been. You are a liar. Same goes for income, ‘affordability’ is a smokescreen people like you use.
The rest of that post is simply repeating the “we’re different” mantra with only some wishy washy crap to back it up. Dual income? Guess what smart guy, Stats Canada keeps the FAMILY income statistic, which has barely risen at all during this bubble.
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M- Says:
June 14th, 2008 at 2:43 pm
I came across this chart in my bookmarks today– it’s been a while since I last looked at it (the chart’s only updated to Oct ‘07). It’s relevant in terms of opening our eyes wider than Vancouver’s RE prices alone. Note that the chart shows nominal prices.
http://www.andexcharts.com/realestate.htm
Assuming the pattern from the last 30 years holds true, Canada overall looks like it’s in for a decade of stagnant prices. Calgary’s on its way down to the Canada average. Toronto’s in for 5 years to a decade of drops and/or stagnancy. Vancouver’s prices will, by a combination of dropping and stagnating, come down to meet Toronto’s prices, perhaps up to a decade from now. Vancouver stands out as being the only place to have a big bump up to the mid-90’s; my theory is this was a one-time bump up due to the mass migration prior to the Hong Kong handover (why Vancouver? because we’re physically the closest to Asia, making travel somewhat easier), following which our prices stagnated and dropped until they met Toronto’s RE recovery.
Here’s the one thing that bothers me: I don’t think the pattern of the last 30 years is going to hold. I believe, quite strongly, that the pattern of the last 30 years represents the biggest demographic shift in a long, long time– the boomers. The boom in the 70s was the boomers buying first homes. The astounding boom that we’re in right now represents the last of the boomers upgrading (or the late-bloomers buying their first homes so they’ll have a place to retire into), as well as the kids of the boomers (eg, me) buying their first homes. Beyond us, there’s a demographic bust. I’ll put that into a separate comment to avoid moderation delays…
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M- Says:
June 14th, 2008 at 2:54 pm
Here’s a link to some age profiles in the lower mainland from the 2006 census.
http://www.gvrd.bc.ca/growth/keyfacts/popbyage.htm
You’ll notice that the 20-24 age group is the only twinge of “echo boomer” profile that people have talked about. Unless there’s a lot of immigration, or migration to the GVRD from other provinces, there’s not a lot of kids out there now to hold up our RE market beyond here– the age profiles keep getting smaller and smaller from here.
I’ve done some statistical analysis and predictions, and I’m expecting the BIG demographic shift to happen in the 2016-2021 time frame. I know boomers who have already started downsizing due to health issues, and I expect this trend to only increase from here. I’ve got a pattern of being a little early with my predictions, so pardon me if I’m off by a few years. When should your money be invested in retirement homes? 2018.
In the next couple of weeks, once I refine my numbers a bit, I’ll put up a post on Mohican’s “Financial Planning and Personal Sanity” site– it was an eye-opener for me when I ran my predictions. The coming demographic shift is absolutely mind-boggling.
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punface Says:
June 14th, 2008 at 3:03 pm
I agree – welcome Dave.
I’m still a -20% bear, but I appreciate you bringing up some counter-arguments we need to be reminded of every now and again.
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punface Says:
June 14th, 2008 at 3:11 pm
Do the stats on rental prices and vacancy rates both rely on CMHC data?
If so, I could see that under-reporting the current rental prices in the same way it under-reports the current vacancy rate (by relying only on landlords with more than 3 units, thus ignoring a lot of the more recent condo rental stock.)
I keep bringing up rent because several older buildings I’m familiar with in central areas of Vancouver have rents that are at least 25% higher than they were a few years ago (for new tenants, obviously.)
Anyway, even if rents were 25% higher we’d still be in for a big drop by any rate-of-return metric.
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no_subprime_here Says:
June 14th, 2008 at 3:43 pm
If anybody was looking for a divine sign to mark the top of the market, this must be it, look at the discussion above. Coherent bulls coming out of the woodwork, backed by shaky facts and wishful thinking desperately trying to talk up the market.
Dave, thanks for the sign.
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Montery Says:
June 14th, 2008 at 4:35 pm
Someguy Says:
June 14th, 2008 at 11:25 am
[Quoting Montery]
However, the Vancouver Condo market will be totally gutted. Those brand new Quadra developments in Surrey? Next years ghetto’s.
I have to point out that Surrey is not Vancouver so this statement makes no sense.
http://www2.standardandpoors.com/spf/pd … llapse.pdf
http://www.npr.org/templates/story/stor … d=89803663
Basically Location, Location, Location
Sorry Someguy… That little quip about Quadra condo’s being next-years ghetto’s was me being negative about Surrey. I lived there many moons ago, so I can say that with all honesty!
Seriously though, those condo developments in Surrey (and elsewhere, but I like picking on Surrey) will be the first to turn into apartment rentals and then you get all the crack-head single moms raising their meth-head kids. If that’s not the picture of a ghetto, I don’t know what is.
When you think about it, from a societal point of view, this bursting bubble is going to end very very badly. Think we have problems now with grow-ops and methlabs? You ain’t seen nothin’ yet baby!!
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Van Man Says:
June 14th, 2008 at 5:02 pm
Dave says:
History suggests that the next bull market will more than make up for it.
I say:
But Dave, historic performance is not indicative of future returns. If you take Nasdaq for instance, the past few booms during the 80s and 90s rose the index to spectacular heights. Sure, there were busts along the ways and as you suggested, the next bull market will more than make up for it. Well it did and made quite a few people rich. But after the tech bubble burst and in 2002, average PE for multinational corporations went from 100x to 44x and 8 years later, it went down to 18x. Today, I believe it stands around 17x. It’s not even cheap during the early 90s than it is today! Do you get it? If you held your portfolio and not sell, waiting for the next bull market to more than make up for it. Well, I got bad news for you. For those who did, they virtually lost all their money, made their holdings worth in pre-1990 dollars.
And you think this only happens in stocks?? Well check out the Japanese real estate market. Same enthusiastic crowds like yourself. Self-confident, arrogant because their past busts had been met with the next bull market that made up for it. Well, after the 80s bubble and the subsequent bust afterwards, the 90s to 2000, home prices turned back the clock for, guess by how much? By 23 years! So homes that were overly inflated went down all the way to what it was worth 23 years ago.
The thesis you made about bull market will more than make up for it is only correct when you have new fools to buy your overinflated assets. This was true during the 80s and 90s where boomers bought in during the 80s, and then went on to upgrade in subsequent booms. The problem is, all of the boomers had now finished with their upgrades. Average age of the boomers are in the 50s and early 60s. The early bunch are retiring soon.. Are you proposing that they will keep upgrading to ever more expensive homes when they plan to retire?!? I think the reverse would be true. Most of them are simply house rich, but cash poor. And the generation that follows the boomers are smaller. Most of them are even having difficulty affording those outrages condos because, unlike boomers, they don’t have equity.
It was equity that made boomers easier to upgrade into more expensive homes in better neighborhoods that drove up prices. Imagine that if you have an inflated equity of $500,000, sold it and re-mortgage the new $800,000 home, the difference is only $300,000. Not a big deal really. But, it’s a big deal for the new generation with poor jobs that has to mortgage the entire $800,000.
Not to mention that in a couple of years, you’ll have an excess of homes that boomers may want to unload. Who wants to buy them? Other boomers?? In about 10 years, a lot of boomers are going to be in their 60s. So you need people in their 40s and 50s to be buying homes that are designed for families. These days, few people are forming families.
This was exactly what Japan faced during the 90s downturn.
People who got burned with RE aren’t going to be buying again like they did 10 years later and they don’t favour foreign immigration, which well exacerbated the problem even more.
Now, while we do have immigration in Canada and in the US, current migrants aren’t as wealthy as their former counterparts during the early 80s and 90s. And with China’s economic prospects getting better and better YOY, some current Chinese residents have contemplated leaving Vancouver and heading back. There’s no doubt that, there are an abundance of high paying jobs here. Some yes, but if we do a comparison of the same jobs you do here, it’s lower.
Future job prospects are going to be gearing towards technology for better pay or service for lower pay. The manufacturing industries have mostly died. We used to have textile mills here like Jantzen, Malden Mills (maker of the Polar fleece) etc.. But cheap labour in China and India had completed decimated these past well paying jobs. Jobs that could actually afford Vancourites those demanding mortgages of the early 80s and 90s. However, unless you have some sort of manufacturing type industries forming here, wages in certain sectors are going to stay depressed.
It’s true that historical, Vancouver has been expensive and there was only a few occasions that it went down drastically and managed to recover nicely. I’m just not too sure about it this time tough. The past busts were domestically caused. This time, however, it was caused by a global phenomena. It’s not just Vancouver, but most US states, UK, Spain and so forth. If you expect a rebound to make up for it, then you would expect every effected nations to do the same. A raising tide raises all ships you know.
Problem is, they are facing the same lack of younger generation to be the next fool. Yes, immigration can help, but if they do, what stopping them in attracting young people elsewhere to come? In Europe, there’s this anti-immigrants movement going on. I find it funny though.
Sooner or later, they are getting old and they need lots young people to run their country and there’s not enough of them going around anymore.
All I have to say it, don’t be so sure that the next boom will come around the corner. That’s what a lot of American experts had said. It still hasn’t materialize yet. And it still hasn’t materialize for Nasdaq either. 8 years and I know that there are brokers today telling clients to just hang in there. Even to death, people still cling to a hopeless cause. I hope you are not one of them.
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franko Says:
June 14th, 2008 at 5:17 pm
Good stuff about demographics M.
I was wondering when someone would remind us of the single most important factor of market fundamentals. Demographics are based entirely on fact, without any speculation, guesing or BS.
The only problem is that your call is out by a few years. After all his research 15 years ago, Harry S. Dent told us in several of his books that demographics would cause North American markets to start declining dramatically in 2005.
Not sure how different we are from the US, but it looks like his call was pretty close.
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fish10 Says:
June 14th, 2008 at 5:22 pm
Threw some bearish numbers up:
http://tinyurl.com/6mxtbg
Fish10
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Drachen Says:
June 14th, 2008 at 6:02 pm
Some thoughts on our new friend Dave
He seems to have an awful lot of time on his hands.
He has taken many economics classes.
He is a capable debater.
He seems to know all the dirty tricks to drag a debate onto his terms even though they are not fair terms.
*****
So, what is an Economics major (I presume with some sort of degree) doing spending so much time here? Is he being paid to sabotage this site? If he doesn’t have some interest in ‘converting’ a few bears or perhaps the whole site why is he wasting his time here? Is the Real Estate community starting to see us as a threat?
It would certainly explain a lot. I suspect he’s a protege of Tsur’s or perhaps Tsur himself (unlikely though I doubt he’d stoop quite that low). We have been getting a lot of press lately (good job by the way Pope!) so perhaps this is their way of ‘fighting back’.
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Dave Says:
June 14th, 2008 at 6:09 pm
Scoop, I sold my townhouse in February and went straight into a SFH. I could have sat on the sidelines and waited this market out, but I decided to buy. That tells you my thoughts on this market.
Your decision to buy or not is a personal one. I think that if you can afford it, plan to own it for at least 5 years and can find the right product, then it is a good time to buy for you.
I don’t see much downside in waiting either. I am basically predicting a soft market going forward with flat prices and perhaps some small upside. You will be able to buy in the next five years. That is probably a guarantee.
As far as prices dropping for 20 years… it hasn’t happened before except perhaps during the Great Depression (I don’t have numbers that far back). Again, your mortgage is in nominal dollars and inflation works in your favour going forward. Using real dollars is only useful when evaluating relative affordability (e.g. comparing different periods of time). Anybody who thinks differently simply doesn’t get it.
Sorry about the dummy comments. I had a few drinks and was just responding to negative posts towards me. I’ll try to stay on the high road for now on. Sorry if I offended anybody.
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Dave Says:
June 14th, 2008 at 6:22 pm
Van_Man, franco, I agree demographics are interesting to follow and read.
I am not sure I buy your logic about the echo generation causing housing values to fall. Sure some boomers will sell their homes and leave the City and many will not. It’s hard to say who ends up buying the product.
What we do know is that land in the GVRD is constrained. There isn’t much space left to create new SFHs west of the Port Mann. Yet, our population is projected to increase at a moderate rate (400k people over 12 year). That means there will be more competition for less land, which implies that higher income people are going to be the ones to win out. Over time, fewer and fewer people will ever have the opportunity to buy a SFH, even with good jobs. The only question is when. The smaller percentage of Echo’s will only delay the inevitable, if at all.
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Dave Says:
June 14th, 2008 at 6:29 pm
Burden of Proof, Jock didn’t send me the memo on BC GDP growth last quarter. That’s the first I have heard it dropped. I would be willing to guess that the drop was mostly outside of the GVRD due to the major slowdown in forestry.
You don’t believe my stats? Which ones? I am more than happy to back up my viewpoints with actual data.
I think employment numbers are as or more important than GDP. The reality is that total employment is at an all time high and the unemployment rates near all time lows. That tells me that the economy is serving us well. Granted, if GDP continues to drop our unemployment rate will start to creep up.
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Dave Says:
June 14th, 2008 at 6:36 pm
The rest of that post is simply repeating the “we’re different” mantra with only some wishy washy crap to back it up. Dual income? Guess what smart guy, Stats Canada keeps the FAMILY income statistic, which has barely risen at all during this bubble.
Drachen, Muir’s numbers are in CONSTANT dollars. Income growth in nominal dollars is quite strong right now and should continue given the tight labour market.
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Dave Says:
June 14th, 2008 at 6:44 pm
Their is no “permanent affordability shift” to higher density under way. The average first time home buyer has been pushed to the fringes of metro areas for a long time. Town centers are always expanding outwards. When was the last time a new neighbourhood of SFHs was built in Vancouver or Burnaby? 20 years maybe?
That’s my point Brian. They aren’t creating new SFH neighbourhoods in Vancouver or Burnaby. I don’t see the fringes continuing to grow. Are people going to start commuting from Hope with gas at $1.40 a litre? At this point, it is probably cheaper to buy a house in Vancouver (on a monthly basis) compared to Langley when you factor in the cost of driving.
The future of housing in the GVRD is going to be a story about density. I predict that many SFH lots will get subdivided in half to say 1/8th acre.
The affordability shift is inevitable. The density of the City will go up, which means it will take a higher and higher income person to afford a SFH. It’s simple math.
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jesse Says:
June 14th, 2008 at 7:13 pm
Dave: “The reality is that total employment is at an all time high and the unemployment rates near all time lows. That tells me that the economy is serving us well.”
The unemployment ratewithout the recent gains in construction, real estate, and mortgage brokering jobs would be as high as in 2000 (see post on Langle Financial), likely around 7%. Unless the construction boom continues unabated, requiring continued federal government spending and loose credit conditions, BC WILL see unemployment rise in the near future.
Further to that, there is going to be a major shift of capital projects away from the Lower Mainland in the next few years as the backlog of non-Olympic projects in other parts of the province are the next in line. Not so good for Vancouver employment prospects and wage gains.
“At this point, it is probably cheaper to buy a house in Vancouver (on a monthly basis) compared to Langley when you factor in the cost of driving.”
I don’t know about that but it’s a fair point that densification will eventually happen even more in Vancouver. The problem is Langley and other areas will remain competition for the inner city, though perhaps at a larger discount. Just because Langley will be discounted due to high fuel costs does not preclude Vancouver from dropping in price as well. The “running out of land” or better “peak land” argument I think is a bit premature. Look at a satellite image of the Lower Mainland to see what could be developed if necessary. Regardless, you still need incomes to support the prices and this is not the case now in aggregate.
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patriotz Says:
June 14th, 2008 at 7:13 pm
I don’t see the fringes continuing to grow… At this point, it is probably cheaper to buy a house in Vancouver (on a monthly basis) compared to Langley when you factor in the cost of driving.
Driving to what? All those head offices downtown?
There is nothing anchoring employment to central Vancouver, as the market is making abundantly clear – former commercial property downtown being redeveloped into residential, and companies moving in droves to the suburbs.
Really the only thing preventing downtown from experiencing a US-style inner city decline is that it happens to be sitting right next to the best natural amenities. It’s turning into an urban resort rather than a real business centre.
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Alpha_Bear Says:
June 14th, 2008 at 7:19 pm
I believe that we have found the indicator that shows we have reached the peak of the market. It appears that “Dave” is a ‘bear’ who has now jumped into the market, and is now very ‘bullish’.
Here’s a few of his earlier posts:
Dave Says:
June 5th, 2007 at 12:01 pm
“This is looking more and more like ‘81 – Vancouver was at or near the top then too, IIRC.”
Dave Says:
March 19th, 2008 at 10:51 pm
“Good to see people with common sense. Edmonton is starting to experience “withdrawal” pains in regards to the housing bubble. There is a lot of people looking to buy a house but people seem to be waking up to the fact that they are OVERPRICED! I have seen brand new houses that are almost a year old and are still sitting empty. In Fort Saskatchewan one developer backfilled basements he dug last fall. They can’t unload the junk they built in the spring of ‘07. Houses that they are asking $500,000 for are selling for $350,000.
The media is totaly silent about the housing slump. I guess if you make millions a year from real estate advertising you won’t bite the hand that feeds you.”
Aren’t capitulating bears a sign of a market top?
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blueskies Says:
June 14th, 2008 at 7:28 pm
Aren’t capitulating bears a sign of a market top?
which begs the question….
Do all the bears have to capitulate to make it work? ….. or just a couple, like stragglers in a herd… you know…. the ones that lions take out for lunch.
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Van Man Says:
June 14th, 2008 at 7:29 pm
Dave thinks Ben Bernanke is going to play the same stagflation game like Paul Volcker did in the early 80s. I don’t blame him. Those that had been through the 80s also knew this game very well. In a fire triangle, you need all 3 things to have this chemical reaction going and that is, oxygen, fuel and heat. Remove one of them and the fire is out. Firefighters use this principle to dig a line around the forest perimeter to remove the “fuel” source, fly water bombers to dump water to reduce “heat” and lastly dump fire retardant to remove the “oxygen” component. Surprisingly enough, there’s also an inflation triangle too. You need all 3 things to get it going. You need, asset class, participants (investors initially and then fools later on) and last but not least an abundance of cheap money.
Paul Volcker tried just that some 20 odd years ago, removing cheap money by raising rates. It brought 13.8% rates to a single 3% or so within 2 years. Some effectively flame dousing, or is it. You are quite right. By raising rates, you are essentially raising nominal wages and since debt was locked in through the last bubble, boomers had the best deal yet. Through inflation, they got out of one bubble only to end up in another bubble. Then as usual, by raising rates, they managed to douse another one.
But basically, this method never actually remove the source of the fire and that was, the fuel source. What’s this source of fuel? The fools, or err we say it people like me and yourself. You see, we have such a short memory about the last carnage. A few years later, the same old things happens again, but because we now earned the equity through raising wages of the past inflation wars, upgrading in the new era of newly created bubble gets better. What this does is basically to fuel the fire to become a bigger fire and now to a nuclear fire. Ahh yes, you are expecting that we adhere to Paul Volcker’s way of fighting stagflation (basically this is where we are right now). Raise rates. That’s why, American media are so quick to call Ben a chicken — demanding Mr. Volcker to be brought back.
But you and many of you do not know that Ben, yes Mr. Chicken Ben is indeed trying to deflate the bubble, but by different means. You may have noticed that he had cut rates in the midst of the bubble forming, but had also bailed out Bear Stearns and traded treasuries with some higher quality ABCP (Asset Backed Commercial Paper). But this way, he’s not going to last very long, because he does have a finite amount and I think it will run out at the end of 2008-9? Basically, he’s increasing the money supply, which would be au contraire to Paul Volcker. That’s why some of us here are frustrated as to why rates haven’t gone up yet?
But how do you fight a nuclear fire? It’s not as small as what you’ve seen in the 80s or 90s. There’s a saying that you must fight fire with fire. That’s true and it’s got to do with depleting its fuel source, though this would be contrary to most people thinking. That’s because, most people do not know about the fire triangle, like they do with the inflation triangle. The fuel source of this current bubble is the people who used cheap money. Cheap money does not create bubbles and neither assets. If they do, Nasdaq would now begin to rise, NOT FALL eventhough PE ratios are cheaper than they were in the early 1990s!
Even after 8 years, the fools still have a fresh memory of what it felt like getting burned by Enron and Global Crossings! No fools are primed and ready to fuel this fire again.
If you want to fight high RE prices, you need to fight it with higher prices by increasing the money supply through low rates. Let the fuel source burn off, that is exhausting all the greater fools if possible. Don’t forget that this is NOT a one nation deal either. This is a corporative enterprise among nations. That is why, Ben Bernanke is a sneaky person. He wants to ensure that the fuel source is completely wiped out.
His next weapon would be raising rates to fight any remaining inflationary pressures, and maybe to ensure the nuclear is dosed completely for sure. The Fed is not inflating, it is deflating as it has been for sometime. I’m not sure why some people think that just because rates were lowered that inflation on homes will continue to rise. If you completely torch Stanley Park and it becomes a moonscape, there won’t be anything left to burn.
VM.
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Alpha_Bear Says:
June 14th, 2008 at 7:32 pm
I’m concerned that Dave is not being entirely honest with us.
Today, in post 209 Dave Says:
June 14th, 2008 at 6:09 pm
Scoop, I sold my townhouse in February and went straight into a SFH. I could have sat on the sidelines and waited this market out, but I decided to buy. That tells you my thoughts on this market.
In a post from January of this year, this is what he has to say:
24 Dave Says:
January 23rd, 2008 at 5:50 pm
We paid $1050 from 2005-2007 for a 750 sq. ft. apartment near Macdonald and Broadway in Kitsilano (1 bd. + den with south facing windows). Now since 2007 we are paying $1755 (incl. utilties) for a 2 bedroom + den + dining room main floor of a house near 2nd and Macdonald in Kits (over 1000 sq. ft. for sure)…
So, Dave sold his townhouse in February of this year, while in January he was renting the main floor of a house.
Am I the only one here who doubts Dave’s sincerity?
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downtobidness Says:
June 14th, 2008 at 7:35 pm
Dave: Post 125
“Even if you buy near the peak and prices correct 5%, within a year, you will probably still be ahead given that you gained equity and haven’t been paying rent (I could do the math but won’t bother”
As FormerLurker stated earlier, this is untrue given today’s reality. One of the only ways to make money when rents and mortgage payments are so out of line is by continual and substantial appreciation of the asset, which many of us think is unsustainable. On numerous occasions I have had to pull out the ol’ numbers to prove to people that you WILL come out ahead by investing your “renting premium” into other vehicles, assuming of course that you can discipline yourself to do so.
I like to use my boyfriend’s downtown apartment as an example, although I admit it might not be indicative of all situations. He pays 1200 a month for a place whose equivalent has fetched 350,000 in recent months (same floorplan, same floor!). Through a quick and dirty analysis using 5.5% interest rates, 25 year amort, and a generous 50,000 downpayment, and factoring 1000 a year for property taxes and 250 for monthly strata fees (I’m being extremely conservative!) I found that after 5 years his equity would be a whopping $80,203.74, while his investment equity (at an interest rate of 6%) would be $141,302.70.
even if you’re not making any interest on the money, you still come out ahead!
Even in 10 years… (although by now your rates will likely have changed) the renter will have $264,276.70, and the buyer will only have $120,944.06.
This is why I tell people if they have the money to buy, and any sort of self control in terms of saving, Don’t buy now!
I understand that this doesn’t take into account gains in property price, but the place would have to appreciate 60,000 in 5 years before the gains would be similar. Given my current feelings about the market, this may not be a “sure thing” like many think it is.
*Disclaimer: I’m not an economist or fancy business lady, so I admit there may be holes in my quicky analysis.
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Van Man Says:
June 14th, 2008 at 7:43 pm
Dave, I don’t disagree with you that home prices won’t go up into the future. We are both homeowners. Me and my wife also own a couple of properties, all had met with gigantic appreciation. We were delighted to have sold 1 in Kelowna last year and if you factored that in 1983 dollars, we are extremely delighted.
But we bought them in 1983 and if you know what 1983 felt like, it felt like Nasdaq of today or maybe a little bitter. Would you buy Nasdaq today if I tell you that in another 20 years or so, it will go up like it did in 1999. People we knew told us just that in 1983. Now, all they could do is look at us with envy.
VM.
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patriotz Says:
June 14th, 2008 at 7:55 pm
One of the only ways to make money when rents and mortgage payments are so out of line is by continual and substantial appreciation of the asset
Not “one of the only ways”, it’s the only way, period.
Which is why a market that is as overvalued as ours is now cannot have a flat nominal top, as I’ve said before.
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Vansanity Says:
June 14th, 2008 at 8:21 pm
Anecdotal: Went fishing today, drove through Coquitlam to pick up a buddy and I couldn’t help but notice all the for sale signs out there. Take a spin around Como Lake Drive if you’re bored. There is nothing normal about that and this is only the beginning!
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Vansanity Says:
June 14th, 2008 at 8:52 pm
The banks’ increasing their mortgage rates certainly wasn’t a surprise, after the BoC left the rate the same. The one thing that stood out for me was that CIBC was the first to raise their rate. I found it interesting because I know CIBC was one of the hardest, if not THE hardest, hit by the subprime and ABCP mess. Undoubtedly, all will try to recoup as much of their losses as possible now.
I remember some reluctance, from several of the same banks, in following the BoC’s previous rate cut. They were practically begging for the drop to stop. Well… it looks like its stopped. Now watch CPI continue to climb and wait for the BoC to try to counter-act it. The BoC is definately alive to it.
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patriotz Says:
June 14th, 2008 at 8:56 pm
Went fishing today, drove through Coquitlam to pick up a buddy and I couldn’t help but notice all the for sale signs out there
The $64,000,000,000 question:
Do all those people, all over Greater Vancouver, suddenly have to move? Or have the speculators suddenly decided to bail?
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freako Says:
June 14th, 2008 at 8:57 pm
You sure showed me patriotz. A one year window in 25 years? OK, I’ll give you that year and 1994 as well. That still makes me right 96% of the time.
Dave, you are assuming a random walk among downturns. I don’t that is wise. They bigger they grow, the bigger they fall. I doubt that price-rent multiple has been this high ever, so your 4% may bite you in the ass. All IMHO of course.
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Dave Says:
June 14th, 2008 at 9:23 pm
Nice conspiracy Alpha_Bear, but those weren’t my posts. Last night was the first time I posted on this forum.
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patriotz Says:
June 14th, 2008 at 9:33 pm
That still makes me right 96% of the time.
But it doesn’t make me wrong 96% of the time, because I wasn’t expecting nominal price declines before 2005.
I will also admit to being wrong in 1982. I thought the market had bottomed and it hadn’t. That’s another year or so I was wrong. Works both ways. I was a bull and I was wrong. I learned something from that.
For someone who seems adept at throwing out a lot of expert-sounding talk, it’s funny you don’t seem to understand asset valuation.
Or maybe you do and are just hoping that your audience doesn’t.
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Thums up2 Says:
June 14th, 2008 at 9:52 pm
think_first,
Sub-prime loans – Canada runs about 2% vs. US which runs about 10%. Canada has a lower default rate and no adjustable rate mortgages, resulting in a different “culture of debt” as Canadian mortgage payments are not tax deductible.
Burden of proof,
Dave and other bulls are already aware of the economy situation and that was already presented to this forum so dave’s comment is based on that what economy concil has published now is result of prediction made before here it is like this
“B.C.’s economy remains strong with 3% economic growth – same as last year – which is above the Canadian average and will fall slightly in ‘08. Our economy created 30,000 new jobs last year and has 4% unemployment.”
Richard,
Jobs are here to stay as facts were already been brought on this board,here is little feed back-”After 2010 new transportation projects will keep the economy moving. 2010 will add $4.9 billion to the economy from 2001-2016 and the economy will grow til 2016 then return to normal.”
Drachen says:
“Stats Canada keeps the FAMILY income statistic, which has barely risen at all during this bubble.”
Drachen first of all there is no real estate bubble in Vancouver secondly the income stats show a huge 26 percent increase in employees earning over $100,000 and 30% increase in employees earning over $150.000.
Drachen how long have you been lurking on these blogs? don’t you feel the shame where other poster have to repeat the reals for you?????stop being economist when you don’t even know how much deposit buyers need to submit to buy unit in future projects and when you don’t know how much salaries top employees are earning.
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Warren Says:
June 14th, 2008 at 10:15 pm
Paid to sabotage the site? Hahaha.. that’s what makes people not take bears seriously. Good laugh though.
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stagnate Says:
June 14th, 2008 at 11:10 pm
good point warren, a lot of these guys are intelligent but lack credibility because they just see what they want to see (which in fact isn’t very intelligent). you could go back and show them why their posts were wrong in 2004 or 2006 but you would just get a bunch of denial and garth turner syndrome (well this time i can’t be wrong). paid or not paid dave did very well.
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Clarke Says:
June 14th, 2008 at 11:23 pm
I was driving all around east Van in the last couple of days, and the number of open houses was striking. What was also striking was the realtor signs outside of condo developments. Seeing the numbers on the websites is one thing, but continually noticing them while driving around really starts to hit home. The prices are really laughable. In one case,The one condo complex by Ontario and Broadway had MLS listings for a couple of suites posted outside. A one bedroom of 600 square feet had an asking price of $440k. Wow. Good luck with that soft landing…..
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think_first Says:
June 14th, 2008 at 11:40 pm
Thums up2 Post 229
Glad to see that you missed the ENTIRE point of my post. Keep up the good work!
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Disgusted Says:
June 15th, 2008 at 6:38 am
I have been reading this and other similar sites for a couple of years and this is the first time I have felt compelled to add a comment. The general treatment of Dave on this site is uncalled for. Why the need to attack Dave personally? If you want this to be a forum where ideas are actually exchanged rather than only one point of view given then I would suggest that many contributors brush up on their blogging etiquette.
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Disbelief Says:
June 15th, 2008 at 6:55 am
I think what Dave and others fail to factor in is that homeowners that have huge economic gain on paper are taking advantage of this new found wealth. This type of false equity is and will be the root of all evil. Money is cheap and homeowners are taking advantage via HELOCs and loans to purchase all sorts of goods (new cars, expensive items). I have talked to so many friends and family that each know at least one person that is dipping in to their equity. This is a scary situation and one that will have catastophic effects… People don’t have to buy but some people some time will have to sell…
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bach Says:
June 15th, 2008 at 7:24 am
I’ve been reading this site for about a month now and I agree, there are some rude over-the-top comments, but thats true of most active discussion forums. The internet is a scary place, I wouldn’t take any of it too personally. That said, yes I believe some commenters could dial down the anger.
I don’t know too much about economics, all I know is that prices right now are too high for me. I thought prices always stay up until I started reading some of the stories out of the States and now the UK.
Once you get past some of the nonsense commments I’m finding this to be an educational eye-opening site, its interesting to see something mentioned by a commenter here and then see it show up on the news a week later.
As far as prices go, I was looking around at what I could buy, but not finding anything. There are a lot of ridiculous asking prices out there, so for the only way I would be in the market is if prices come down significantly. I’m young enough I can wait, or I may start looking at job oppourtunities in cities with more reasonable housing costs.
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Alpha_Bear Says:
June 15th, 2008 at 7:28 am
Disgusted said:
“The general treatment of Dave on this site is uncalled for. Why the need to attack Dave personally? If you want this to be a forum where ideas are actually exchanged rather than only one point of view given then I would suggest that many contributors brush up on their blogging etiquette.”
Perhaps Dave should brush up on his blogging etiquette, and not barge into a blog, start calling others names, and then not back up his assertions with data.
The bulls have had their fun with the bears the past few years, now it’s time for the bears to return the favor. It sure seems that lately the bulls actually believe that housing prices will continue to rise forever.
I suspect that Dave is worried that his paper gains are in the process of evaporating, and that’s why he’s here, trying his best to ‘pump’ the market.
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Thums up2 Says:
June 15th, 2008 at 7:48 am
Think First,
Never ever under estimate the bulls on the board, they are very well prepaired.some of them are rocket scientist.
“They can see it preety much clear from the top that prices are coming towards space all the time”
I would suggest this is good time for shoping while top end real estate is on lunch break.
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Disbelief Says:
June 15th, 2008 at 8:08 am
Everyone has the right to ones opinion but the nonsensical rhetoric garbage from SATV, Thums up, Kirrrrsh. Makes Dave’s comments look genius… Dave you should take a ride on the Real estate rollercoaster and see first hand that real estate has it’s ups and downs and 10%decrease is optimistic to say the least…
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Disbelief Says:
June 15th, 2008 at 8:11 am
http://consumerist.com/consume.....249597.php Here it is dave just for you and any other uber bull that wants to get a dose of reality.
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patriotz Says:
June 15th, 2008 at 8:21 am
Why the need to attack Dave personally?
Because he wants people to buy RE at the onset of a historic crash that has amply demonstrated its destructive effects on ordinary people in the US and elsewhere?
Just maybe.
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richard Says:
June 15th, 2008 at 8:23 am
“Paid to sabotage the site? Hahaha.. that’s what makes people not take bears seriously. Good laugh though.”
Almost as ridiculous as the idea of paying people to line up for condos… um… wait…
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stagnate Says:
June 15th, 2008 at 9:01 am
disbelief: lighten up dude, bear or bull thumbs last post was good humour. whoever it is has a clever sense of humour. rode the rollercoaster, notice how it stagnates at the end, waiting for inflation to catch up!
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betamax Says:
June 15th, 2008 at 9:25 am
a lot of these guys are intelligent but lack credibility because they just see what they want to see (which in fact isn’t very intelligent).”
Which in fact is precisely what the bulls do when they uncritically extrapolate past gains into the future.
Everyone is influenced by their prior interests and experiences, but the situation re. housing is that the fundamentals are out of whack and absolutely will be corrected, no matter if the correction is delayed a couple of years longer than some expected.
Anyone still bullish after the US crash is in denial, and their arguments have inconsistently changed from “it can’t happen” to “it won’t happen here”. What they fail to recognize was that the same arguments were made in the US, to no avail.
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Disbelief Says:
June 15th, 2008 at 9:30 am
rode the rollercoaster, notice how it stagnates at the end, waiting for inflation to catch up!
Stagnate… Have fun waiting but thats not how markets and rollercoasters work. The next step is a huge drop and that is what will ensue the question is when??? I am very patient and calm, no need to lighten up here. The inexperienced FTB or investors are still buying while smart investors don’t when it doesn’t make sense. And right now it doesn’t.
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van-zee Says:
June 15th, 2008 at 9:34 am
I’m still of the opinion that the market can move anyway it want’s. I see that there is much more downsize risk at this moment in time than possible gains. I welcome posters like dave that show that not all people who are bullish are trolls and that they do have an alternative point of view. A 10% correction and then return to small yoy gains would change my opinion as to the stability and risk in local real estate.
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van-zee Says:
June 15th, 2008 at 9:41 am
My above post should read downside risk not downsize.
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There Is No Bubble Says:
June 15th, 2008 at 9:47 am
SELL NOW OR BE PRICED IN FOREVER!!
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Disbelief Says:
June 15th, 2008 at 9:55 am
What would a 30-40% drop do to your opinion of real estate? The market is what it is. However the fundamentals of a worthy investment are you don’t buy at the peak and even a lot of experts say we are there…
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Alpha_Bear Says:
June 15th, 2008 at 9:56 am
In post # 229, Thums up2 Says:
“Canada has a lower default rate and no adjustable rate mortgages…”
1. The only reason that Canada temporarily has a lower default rate, is because the U.S. got a two-year head start on the collapse of their housing market.
2. We certainly have adjustable rate mortgages in Canada. I’ve yet to see a mortgage in Canada where the payment is fixed for the entire term of the mortgage (with the exception of fixed 10-year mortgages, and you’re able to pay off the entire mortgage in 10 years). What we don’t have in Canada is fixed 30-year mortgages, which were apparently the norm in the U.S., prior to the introduction of Canadian-style adjustable-rate mortgages.
IF you continue to insist that we don’t have adjustable-rate mortgages in Canada, can you tell me the name of the bank or lending institution which is currently offering a fixed rate for the duration of the mortgage?
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priced out theme Says:
June 15th, 2008 at 10:01 am
Strataman,
Priced out theme was found to be true lower end appreciation showing no sign of any lunch or dinner breaks.
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Disbelief Says:
June 15th, 2008 at 10:05 am
People in Canada are in Denial they are set for a big smack in the face. When will these people wake up… Too much hippie lettuce in the lower mainland anyway.
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Drachen Says:
June 15th, 2008 at 10:22 am
Dave
“Last night was the first time I posted on this forum.”
Yes, I notice you ignored me before, let me be more direct.
Who is paying you to blog on this forum?
Are you associated with Tsur Sommerville?
If you deny both of the above why do you have the sudden interest in converting bears?
You’ve spent a large chunk of Friday and Saturday beating on a brick wall with your contrived arguments and your misleading statistics and you’ve only accomplished annoying a few people. This is not the behaviour of a rational person without an underlying motive. It is obvious you are not what you pretend to be.
So, what do you hope to gain by attempting to subvert this blog?
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Anonymous Says:
June 15th, 2008 at 10:47 am
I can only load the first page newest first defaults back to first page. Two differant computers two IP’s
Strataman
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umdesch4 Says:
June 15th, 2008 at 11:33 am
Drachen, I have to disagree a little. Dave’s posts are interesting, and thought-provoking, even though I completely disagree with his conclusions. At least his entire argument doesn’t boil down to “Vancouver is the best place in the world, the universe, the entire set of all universes that could possibly exist in within the infinite fabric of spacetime”
I don’t think he’s got “misleading statistics”, so much as odd ideas extrapolated from those stats, which he honestly believes.
At least he seems to be arguing the case for a possible 10% correction, instead of an all-out crash. Most bears in here until recently seemed to be of the opinion that it’ll just go up and up and up forever.
In a way, although I can’t see it, I hope he’s right. If he is, then specuvestors will get hurt, but the damage to well-meaning people who honestly own their property to live in it won’t suffer so much.
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umdesch4 Says:
June 15th, 2008 at 11:40 am
Sorry, obviously meant to say “bulls” above.
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RJB Says:
June 15th, 2008 at 12:40 pm
Dave, all of your arguments have been proven wrong in every market in the world. Vancouver will see big reductions in the next few years. We aren’t special. Sorry.
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punface Says:
June 15th, 2008 at 12:47 pm
my tinfoil hat has a hole in it
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Dave Says:
June 15th, 2008 at 1:13 pm
RJB, that’s not true. Victoria is a good example of a market that hasn’t had big corrections historically. The 1981 crash dropped prices in all markets, but it only gave up 12 months of gain in Victoria over the course of 5 years. The average price in 1980 was $92k which jumped to $127k in 1981. By 1985, prices dropped down to $94k. In 1979 prices were a lowly $67k. Had you bought just two years before the correction, you were still up 20%
Prices then rose every year after 1985 up until 1994 to an average of $256k. The correction dropped values down to $242 in 1995 (6% correction) and held over 1996. After that prices continued to rise every year until present day.
http://www.vreb.org/pdf/histor.....782007.pdf
So, I am sorry, but it is possible for markets to plateau.
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Dave Says:
June 15th, 2008 at 1:22 pm
Who is paying you to blog on this forum?
Nobody.
Are you associated with Tsur Sommerville?
No.
If you deny both of the above why do you have the sudden interest in converting bears?
I am not out to convert anybody, just have a discussion. The market is going to do what the market is going to do regardless of what we all say here. People have been posting the same bear arguments for the last 5 years yet the market kept going up despite such talk.
So, what do you hope to gain by attempting to subvert this blog?
Do the rules here state that one must be a bear to post?
Obviously a site like this attracts a lot of bearish types. Having a more balanced view is therefore, perceived to be extreme. Is predicting a relatively flat market (i.e. +/- 10%) really that controversial? I love how that makes me ‘bullish’ here. My view is really neutral.
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Dave Says:
June 15th, 2008 at 1:32 pm
Question for the bears….
1. How do you think values got so high in our market if it wasn’t fundamentally affordable to purchasers? And back it up with data.
2. Considering that prior real estate corrections were caused by external events to the market (e.g. higher unemployment, slow economy, higher interest rates), what do you believe the trigger for the ‘coming correction’?
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blueskies Says:
June 15th, 2008 at 1:49 pm
How do you think values got so high in our market if it wasn’t fundamentally affordable to purchasers?
cheap easy to get money…. don’t need no stinkin’ data
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Drachen Says:
June 15th, 2008 at 1:49 pm
Dave
“My view is really neutral.”
Fair and balanced? Just like Fox news huh? Only an idiot really believes that THEY hold the middle ground in any debate. This really epitomizes your position. You believe a lot of things very strongly with little or no reason to believe them. You have absolutely no interest in hearing the other side of the debate and yet you prattle on about how you’re right and we’re wrong while avoiding most of the meat of our arguments.
“Is predicting a relatively flat market (i.e. +/- 10%) really that controversial?”
No, it’s not controversial. In fact it’s very much what people like Tsur say all the time. It’s just stupid. You’re essentially basing your entire argument around one feature in a graph from the 1990s and saying, “well this time will be exactly like that time.” Despite the fact that there’s been dozens of contrary historic examples brought up (which I note you’ve mostly ignored by the way).
“I am not out to convert anybody, just have a discussion.”
Two problems with that statement.
1) From out of the blue you are suddenly the most active user here.
2) You seem relatively intelligent and you certainly know all the talking points Rennie, Sommerville etc. use. If you were as intelligent as you come across you’d be able to recognize the truth in the opposing side.
“The market is going to do what the market is going to do regardless of what we all say here. People have been posting the same bear arguments for the last 5 years yet the market kept going up despite such talk.”
And I’m sure there were those who cried out about the collapse of the British Empire many years before it came to pass. That didn’t make them wrong. Do you care to explain how a market can survive when it is fundamentally 2.5-3x overvalued? Do you think P/E ratios are not a factor? Where will the next round of money come from? The one after that? Remember in a bubble like this each year requires an exponential increase in investment. We don’t even have a flat rate of investment going on right now, it’s curving downwards. When our graph most closely matches Miami and some of the other biggest bubble cities in the US (post 2000) why won’t you acknowledge that our down curve could very well match them too? Your answers have been weak at best.
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Drachen Says:
June 15th, 2008 at 2:09 pm
Dave
“How do you think values got so high in our market if it wasn’t fundamentally affordable to purchasers? And back it up with data.”
The same way values get so high in any bubble. Speculation.
Like blueskies I need no data, you’d have to be an idiot to need data to acknowledge that point.
“2. Considering that prior real estate corrections were caused by external events to the market (e.g. higher unemployment, slow economy, higher interest rates), what do you believe the trigger for the ‘coming correction’?”
Classic fallacy. Feed us a lie then say, “Explain my lie for me.”
Point to a real estate correction that actually was caused by external events. Most of them have simply collapsed under their own weight. An external event may have triggered the collapse but the collapse is always inevitable whether or not there is a significant event.
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bdk Says:
June 15th, 2008 at 2:58 pm
So Dave, you’re saying that you’re neutral and that it’s a good idea to buy at the peak.
Are you trying to sell any units? What is it that you do?
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freako Says:
June 15th, 2008 at 3:06 pm
How do you think values got so high in our market if it wasn’t fundamentally affordable to purchasers? And back it up with data.
Affordability comes in shades of gray. There is the traditional 30% GDSR, and then there is our variety. Then there is easy money and so on.
In any case, not sure of your point. Does “fundamentally affordable” equal fairly valued? Clearly not.
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freako Says:
June 15th, 2008 at 3:10 pm
2. Considering that prior real estate corrections were caused by external events to the market (e.g. higher unemployment, slow economy, higher interest rates), what do you believe the trigger for the ‘coming correction’?
An ancient tree falls in the forest. What caused it to fall down? Was it the wind? The soil erosion? Rot? A butterfly flapping its wings in China? Not sure where you are going with this. If a market is fundamentally overvalued, no external cause is required, though if would speed things up a bit.
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ReductiMat Says:
June 15th, 2008 at 4:22 pm
Dave, give me one number. The number of active listings at which point we are outside of a ‘balanced market’.
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Dave Says:
June 15th, 2008 at 4:49 pm
I disagree Freako. I think prices got to this level because people were able to afford to bring it to this level. Either they paid mostly in cash or they had to get a mortgage approved. For the most part, our banks are conservative when it comes to lending. The people who bought a few years ago now make more money on average, so their mortgage is more affordable than when they got it.
I am not suggesting that prices of assets can get out of balance. To be sure, this happens all the time in markets and anybody can quote all sorts of examples. But, there isn’t much speculation in the current market. The speculation numbers (measured by flipping) have been dropping the last years. Granted, that doesn’t include condo assignments. In contrast, the speculation in 1981 was HUGE.
The other factor that could cause a correction is too much product being released into the market. Overall, housing construction is slightly above the historic average but not by much. Population growth in BC is still strong and vacancy rates are very low. It just isn’t possible for sales to drop off the map.
For the above reasons, I don’t believe that affordability in itself will cause a correction. Rather, it will take an external event such as higher interest rates at the time of renewal, or higher unemployment.
So far, it seems most people think this market will correct due to affordability. I don’t buy it. I think the upside is capped due to affordability but I don’t see it driving the downside, excluding an external event.
ReductiMat, I don’t think the active listings is the number to use to predict price changes. Rather, you must also consider sales. Months of Inventory (MOI) is a better measure to use. Most people would say that a ratio of 5 or 6 would be a ‘balanced market’, a ratio of 3 being a sellers market and a ratio above 7 or 8 a buyers market. I realize the May numbers were around 6 in Vancouver, which is a moderate drop from the earlier part of the year. I think listing will peak in June and start to go down in July and August, as is generally the case. The real question will be sales. I think similar to 2006, we will probably see a minor drop in price between September and December due to softening sales and higher product (maybe MOI up to 7 or 8). I think prices will be relatively flat for the summer. Overall, I think 2008 will still be a positive growth year (say 5%). I think 2009 will be flat and will likely recover the September to December drop early in the year. If I am right, you can be sure I will remind everybody a year from now.
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blueskies Says:
June 15th, 2008 at 5:13 pm
For the most part, our banks are conservative when it comes to lending.
what part of the “conservative” spectrum does
a 40 year mortgage fall?
Population growth in BC is still strong and vacancy rates are very low. It just isn’t possible for sales to drop off the map.
dropping now as we speak, who gets to define “edge of the map”?
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Dave Says:
June 15th, 2008 at 5:18 pm
The same way values get so high in any bubble. Speculation.
Like blueskies I need no data, you’d have to be an idiot to need data to acknowledge that point.
Well I have seen the speculation data. It’s actually quite low.
That said, there are many people speculating in the condo market and they go from development to development. I am well aware of the percentages of pre-sales that condo speculators make up. But this is really limited to a small portion of the overall real estate market (i.e. new condo sales in high density areas of Vancouver, Burnaby and Richmond).
Point to a real estate correction that actually was caused by external events. Most of them have simply collapsed under their own weight. An external event may have triggered the collapse but the collapse is always inevitable whether or not there is a significant event.
That’s easy.
The correction in 1981 was caused by: 1. major economic downturn; 2. high interest rates; 3. rampant speculation; and, 4. a major spike in prices over the prior two year period with absolutely no parallel to our current market. None of these four events are occurring today.
The correction in 1995 was caused by 1: a spike in interest rates; and, 2. leaky condo crisis and the fear it created. Again, I don’t see parallels today.
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Braying Ass Says:
June 15th, 2008 at 5:26 pm
The correction in 1981 was caused by: 1. major economic downturn; 2. high interest rates; 3. rampant speculation; and, 4. a major spike in prices over the prior two year period with absolutely no parallel to our current market. None of these four events are occurring today.
Dave, you’re baiting us, right? You aren’t really writing that stuff with a straight face, are you?
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Braying Ass Says:
June 15th, 2008 at 5:28 pm
Dave is satv. He’s toying with us, but with a different, more up-front persona now.
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jesse Says:
June 15th, 2008 at 5:31 pm
“Overall, housing construction is slightly above the historic average but not by much.”
Sorry, Dave, you’re wrong on this one. We are at an all-time high for units under construction. Check out this graph. Again, it’s the area under the graph that’s important. Also note the previous times when construction was high was during time when population growth was DOUBLE what it is now.
For your other comments regarding speculation levels being “quite low” and your causal analysis for reasons for past busts, I think we should be asking you for some data on this, in all fairness. Be careful in using causation and coincidence interchangeably. There will always be “reasons” in retrospect for crashes. The real reason is poor affordability. I’ll say it a million times over: it’s the incomes and credit availability (i.e. affordability) that determine prices. Take either one away and prices MUST fall.
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beatstreet Says:
June 15th, 2008 at 5:52 pm
Dave says I don’t see parallels today.
Neither do I. It really is different this time.
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Alpha_Bear Says:
June 15th, 2008 at 6:00 pm
Dave,
I’d like you to provide some data to back up your following assertions:
“I think prices got to this level because people were able to afford to bring it to this level. Either they paid mostly in cash or they had to get a mortgage approved.”
Where’s your evidence?
“For the most part, our banks are conservative when it comes to lending.”
40 year terms and little or no down-payment is conservative? Again, please provide data to back up your assertion.
“The people who bought a few years ago now make more money on average,…”
And your source for this information is…?
“…there isn’t much speculation in the current market. The speculation numbers (measured by flipping) have been dropping the last years.”
What’s your source for this assertion?
“…I have seen the speculation data. It’s actually quite low.”
Great, you’ve stated that some data regarding speculation actually exists. I’m sure that you’ll be kind enough to share it with us.
“It just isn’t possible for sales to drop off the map.”
Why not?
“The correction in 1981 was caused by: 1. major economic downturn; 2. high interest rates; 3. rampant speculation; and, 4. a major spike in prices over the prior two year period with absolutely no parallel to our current market. None of these four events are occurring today.”
Haven’t you noticed the collapse in the forest industry, and reduced tourism numbers? Most Olympic construction is almost complete, so those construction workers will soon be looking for work. Also, with interest rates currently so low, do you expect them to stay low, or go lower? You won’t share your data regarding speculation with us, so we really dont’ know if it is rampant or not. If you don’t consider the price increases over the past few years a spike, then how would you describe them.
Again, please provide the data necessary to back up your assertions.
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browntown Says:
June 15th, 2008 at 6:01 pm
hey dracken, why would anyone answer idiot like you! just think you’re intellegent, dickslap! dave ignore you just like market! ha ha ha
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Alpha_Bear Says:
June 15th, 2008 at 6:07 pm
“…I don’t think the active listings is the number to use to predict price changes. Rather, you must also consider sales. Months of Inventory (MOI) is a better measure to use. Most people would say that a ratio of 5 or 6 would be a ‘balanced market’, a ratio of 3 being a sellers market and a ratio above 7 or 8 a buyers market.”
Are you aware that Kelowna currently has 15 months of condo inventory?
I suppose that it’s different there, right?
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Braying Ass Says:
June 15th, 2008 at 6:17 pm
Dave’s trolling and catching lots of you.
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Dave Says:
June 15th, 2008 at 6:31 pm
Alpha Bear, that’s a lot of questions and I am not sure I have time tonight. Be assured, you will get those answers.
With respect to Kelowna, yes it is different than Vancouver. Vancouver is a major city and employment centre. Kelowna sales have been strongly driven by the vacation market, while Vancouver is predominantly local. The number of outside buyers in the last number of years has been HUGE in Kelowna. Based on 15 months of inventory, I would expect a correction.
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Dave Says:
June 15th, 2008 at 7:12 pm
“I think prices got to this level because people were able to afford to bring it to this level. Either they paid mostly in cash or they had to get a mortgage approved.” Where’s your evidence?
There are two ways prices get to this level. 1. Speculation; or, 2. Because people could afford it.
I don’t believe speculation is happening which leads me to believe number 2 is true. See my link below on data.
“For the most part, our banks are conservative when it comes to lending.” 40 year terms and little or no down-payment is conservative? Again, please provide data to back up your assertion.
I don’t have the data in front of me, nor can I easily find it. This is actually one piece of data I haven’t seen, but only heard. I have been told that the overall percent of mortgages at 40 years in Canada is very low.
I don’t know the quality of the people behind these loans. Are they subprime, or are they made up of a certain demographic (e.g. young university graduates who will have strong income growth, versus low income people with low education)?
“The people who bought a few years ago now make more money on average,…” And your source for this information is…?
Pretty much everybody’s pay goes up over time and at least at the rate of inflation. See slide 27. How does 6% sound to you?
http://www.cucbc.com/publicati.....07octc.pdf
“…there isn’t much speculation in the current market. The speculation numbers (measured by flipping) have been dropping the last years.” What’s your source for this assertion?
“…I have seen the speculation data. It’s actually quite low.” Great, you’ve stated that some data regarding speculation actually exists. I’m sure that you’ll be kind enough to share it with us.
See slide 41. Flipping is only 2 to 3% of market activity, while it was almost 15% in 1981. The condo numbers in Vancouver back then were about 25% of market activity.
http://www.cucbc.com/publicati.....07octc.pdf
“It just isn’t possible for sales to drop off the map.” Why not?
There is always real estate activity even in slow markets. People have to move for all sorts of reasons.
“The correction in 1981 was caused by: 1. major economic downturn; 2. high interest rates; 3. rampant speculation; and, 4. a major spike in prices over the prior two year period with absolutely no parallel to our current market. None of these four events are occurring today.” Haven’t you noticed the collapse in the forest industry, and reduced tourism numbers? Most Olympic construction is almost complete, so those construction workers will soon be looking for work. Also, with interest rates currently so low, do you expect them to stay low, or go lower? You won’t share your data regarding speculation with us, so we really dont’ know if it is rampant or not. If you don’t consider the price increases over the past few years a spike, then how would you describe them.
The forest sector is 3% of the BC economy. Tourism is big for sure and the slow down will have an effect. Most economists do not predict a recession for BC and estimate a 2% growth rate in 2008, 3% in 2009, 4% in 2010 and 3% in 2011.
Really, that’s all that matters. Some sectors don’t do well while others do. It’s the overall economy that matters.
For the sake of interest (not needed to support my view), I don’t think forestry will stay down for more than another 2 to 3 years. History shows that the US housing industry rebounds from corrections, which drives the price of our lumber up. One economist is predicting record prices in 2 years!
As far as construction goes, there are a lot of large projects on the books for the next decade that are already booked. (See slide 20 and 21)
http://www.cucbc.com/publicati.....g2008c.pdf
Not only that, there are going to be a lot of retirements in the industry and there will be shortage of workers regardless of whether a slowdown happens or not. It’s the unemployment that matters, rather than total work load of a particular sector. The forecast is for 4% unemployment for the foreseeable future (slide 14).
http://www.cucbc.com/publicati.....g2008c.pdf
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Drachen Says:
June 15th, 2008 at 7:12 pm
Dave
“Well I have seen the speculation data. It’s actually quite low.”
Nearly everyone who purchased in the last 5 years is speculating prices will go up. That’s quite low? I know you’re not considering people who purchase as a primary residence speculators but that just means that your definition is wrong. How do you know that people purchasing as a primary residence aren’t gambling on increasing prices? I’ve never talked to nor heard about anyone buying in the last 5 years who wasn’t convinced prices would continue upwards and they certainly would have been much less likely to buy if they thought prices would go down. That’s the essence of speculation isn’t it?
How did the price on tulip bulbs become so high that a handful of tulip bulbs were worth an entire estate?
You did say you’d taken some economics classes right? You should know the answer.
“The correction in 1981 was caused by: 1. major economic downturn; 2. high interest rates; 3. rampant speculation; and, 4. a major spike in prices over the prior two year period with absolutely no parallel to our current market. None of these four events are occurring today.”
1 and 2 didn’t really get swinging until the market started to fall. 3 and 4 are arguments in my favour (prices were simply unsustainable). So BZZZZT try again!
“The correction in 1995 was caused by…”
The dip in the ’90s was a feature of our current bubble. As I’ve said before this feature exists in nearly every major bubble throughout history (as you should know if you took very many economics classes). That first dip is caused by the smart/cautious money leaving the room as they realize P/Es have gone out the window, they don’t care to speculate and just want safe, solid investments so they move elsewhere.
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Dave Says:
June 15th, 2008 at 7:17 pm
“I think prices got to this level because people were able to afford to bring it to this level. Either they paid mostly in cash or they had to get a mortgage approved.” Where’s your evidence?
There are two ways prices get to this level. 1. Speculation; or, 2. Because people could afford it.
I don’t believe speculation is happening which leads me to believe number 2 is true. See my link below on data.
“For the most part, our banks are conservative when it comes to lending.” 40 year terms and little or no down-payment is conservative? Again, please provide data to back up your assertion.
I don’t have the data in front of me, nor can I easily find it. This is actually one piece of data I haven’t seen, but only heard. I have been told that the overall percent of mortgages at 40 years in Canada is very low.
I don’t know the quality of the people behind these loans. Are they subprime, or are they made up of a certain demographic (e.g. young university graduates who will have strong income growth, versus low income people with low education)?
“The people who bought a few years ago now make more money on average,…” And your source for this information is…?
Pretty much everybody’s pay goes up over time and at least at the rate of inflation. See slide 27. How does 6% sound to you?
http://www.cucbc.com/publicati.....07octc.pdf
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Dave Says:
June 15th, 2008 at 7:17 pm
“…there isn’t much speculation in the current market. The speculation numbers (measured by flipping) have been dropping the last years.” What’s your source for this assertion?
“…I have seen the speculation data. It’s actually quite low.” Great, you’ve stated that some data regarding speculation actually exists. I’m sure that you’ll be kind enough to share it with us.
See slide 41. Flipping is only 2 to 3% of market activity, while it was almost 15% in 1981. The condo numbers in Vancouver back then were about 25% of market activity.
http://www.cucbc.com/publicati.....07octc.pdf
“It just isn’t possible for sales to drop off the map.” Why not?
There is always real estate activity even in slow markets. People have to move for all sorts of reasons.
“The correction in 1981 was caused by: 1. major economic downturn; 2. high interest rates; 3. rampant speculation; and, 4. a major spike in prices over the prior two year period with absolutely no parallel to our current market. None of these four events are occurring today.” Haven’t you noticed the collapse in the forest industry, and reduced tourism numbers? Most Olympic construction is almost complete, so those construction workers will soon be looking for work. Also, with interest rates currently so low, do you expect them to stay low, or go lower? You won’t share your data regarding speculation with us, so we really dont’ know if it is rampant or not. If you don’t consider the price increases over the past few years a spike, then how would you describe them.
The forest sector is 3% of the BC economy. Tourism is big for sure and the slow down will have an effect. Most economists do not predict a recession for BC and estimate a 2% growth rate in 2008, 3% in 2009, 4% in 2010 and 3% in 2011.
Really, that’s all that matters. Some sectors don’t do well while others do. It’s the overall economy that matters.
For the sake of interest (not needed to support my view), I don’t think forestry will stay down for more than another 2 to 3 years. History shows that the US housing industry rebounds from corrections, which drives the price of our lumber up. One economist is predicting record prices in 2 years!
As far as construction goes, there are a lot of large projects on the books for the next decade that are already booked. (See slide 20 and 21)
http://www.cucbc.com/publicati.....g2008c.pdf
Not only that, there are going to be a lot of retirements in the industry and there will be shortage of workers regardless of whether a slowdown happens or not. It’s the unemployment that matters, rather than total work load of a particular sector. The forecast is for 4% unemployment for the foreseeable future (slide 14).
http://www.cucbc.com/publicati.....g2008c.pdf
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punface Says:
June 15th, 2008 at 7:19 pm
Once again, I like this Dave fella. And he has said 7 or 8 MOI is when it becomes a buyer’s market. Extrapolating the current listings and sales for June we could easily be there by the end of this month (though July is more likely.)
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Dave Says:
June 15th, 2008 at 7:24 pm
So Dave, you’re saying that you’re neutral and that it’s a good idea to buy at the peak.
I never said that. If I used the word peak before, I really meant to say plateau. I don’t see big upside, nor big corrections. In my opinion if you buy now, you buy at the plateau.
I think it is a good idea for people to buy when they can afford to buy and when it makes personal sense to them. Trying to time the market is a waste of stress and time. If you can afford it, don’t worry about it. If you buy, chances are it is for the LONG term. You will be more than rewarded over time.
Are you trying to sell any units? What is it that you do?
Not selling anything.
It doesn’t matter what I do. Rather, the merits of my analysis are what count.
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/dev/null Says:
June 15th, 2008 at 7:27 pm
I don’t have the data in front of me, nor can I easily find it. This is actually one piece of data I haven’t seen, but only heard. I have been told that the overall percent of mortgages at 40 years in Canada is very low.
Vancouver trend won’t necessarily be similar to all of Canada. (They don’t teach stats to you kids anymore?) Didn’t a recent MSM report state that in the last year ~2/3 of mortgages in B.C. were >25 years?
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/dev/null Says:
June 15th, 2008 at 7:41 pm
Well, 37% across Canada:
http://tinyurl.com/45ytwd
“From the fall of 2006 through the fall of 2007, 37 per cent of all new mortgages in Canada were for amortizations longer than 25 years,” said Jim Murphy, president and chief executive of the Canadian Association of Accredited Mortgage Professionals. “Of all the mortgage products that have been introduced, the ones longer than 25 years are the most popular … 37 per cent is quite high. It is phenomenal for a product that is relatively new.”
Don’t recall where I saw the BC stat but I thought it was higher than this. Regardless, 37% by fall of 2007. Doesn’t seem “very low”.
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Dave Says:
June 15th, 2008 at 8:08 pm
Key word… NEW
I am referring to ALL mortgages.
As I said before, first time home buyers have dropped off the radar in terms of total home sales in the last few years. Let’s assume they are 10% of the market (don’t have the numbers handy), then that drops the total amount to 4% of mortgage volume.
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richard Says:
June 15th, 2008 at 8:14 pm
“Key word… NEW
I am referring to ALL mortgages.
As I said before, first time home buyers have dropped off the radar in terms of total home sales in the last few years. Let’s assume they are 10% of the market (don’t have the numbers handy), then that drops the total amount to 4% of mortgage volume.”
damnit. /dev/null beat me to the figures…i was busy fixing dinner… but here’s one line in there he didn’t include
“Among all outstanding mortgages last year, some nine per cent were pegged with payoff dates stretching more than 25 years all the way to 40 years.”
“That number will obviously increase every year,” said Murphy.
anyhoo, with everyone flipping their units every couple of months/years, all mortgages are gonna be new anyway…
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van-zee Says:
June 15th, 2008 at 8:19 pm
The report dave linked to had some interesting things that I hadn’t seen before.
The most interesting was 3 possible way that the end of a cycle will play out.
They considered probabilities of these scenarios playing out.
The third scenario is given odds of 65% and features the following.
Supply grows at faster pace, new investment more costly
Sales volume shrinks due to affordability price
squeeze and less investor activity
Moderate decline in volumes
Modest decline in prices
Long adjustment process possibly two to five years
Probability – 65%
No prior precedence
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alexcanuck Says:
June 15th, 2008 at 8:20 pm
I don’t believe speculation is happening
18000 empty condos don’t indicate some degree of speculation?
I don’t have the data in front of me, nor can I easily find it. This is actually one piece of data I haven”t seen, but only heard. I have been told that the overall percent of mortgages at 40 years in Canada is very low.
http://www.financialpost.com/story.html?id=477974
“Longer-term amortizations now account for three-quarters of all monthly insured-mortgage applications, with the 40-year product accounting for half of that, the report said.”
Boy, that was easy to find.
Pretty much everybody’s pay goes up over time and at least at the rate of inflation.
Did you miss that report on how median income has actually DECLINED since the late 1980’s? (After inflation, of course. Even counting inflation as the government does.)
Dave writes very professionally, with a disregard for fact usually found only in those being paid to present a point of view.
He stays relentlessly on message.
He is excellent at taking a true fact and linking it to an unsupported conclusion.
I really am very impressed by his command of the medium. His knowledge of the subject? Not so much. He certainly has not responded to anyone asking for specific data or sources backing up his assertions. That is covered in public relations 101. His job is not to change the mind of those with a deeply held conviction, backed up by research and facts. His job is to sway the undecided, particularly those who want a simple, easy answer. (That’s most of the population) That is, after all, why people like “Dave” are in such demand at election time.
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blueskies Says:
June 15th, 2008 at 8:25 pm
His job is not to change the mind of those with a deeply held conviction, backed up by research and facts. His job is to sway the undecided, particularly those who want a simple, easy answer.
very reminiscent of your typical JW proselytizer
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punface Says:
June 15th, 2008 at 8:25 pm
From another article easily found on news.google:
“There are reports that in high-priced markets like Vancouver and Victoria, 85 to 90 per cent of first-time buyers are going with a 40-year amortization.”
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freako Says:
June 15th, 2008 at 8:32 pm
I disagree Freako. I think prices got to this level because people were able to afford to bring it to this level.
Not sure what you disagree with. I can afford to go the liquor store and buy a 40 pounder of vodka that I can then down in 40 gulps. That does not make it a good, nor sustainable.
Because a bank allowed me to (and I chose to) stretch my affordability to the utmost limit doesn’t mean that future buyers want to do that. If future buyers would prefer the more traditional 30% GDSR, prices will plummet.
But, there isn’t much speculation in the current market. The speculation numbers (measured by flipping) have been dropping the last years.
Ignore that silly number that CUBC likes to quote. The number of resales in a 6 month or 1 year period is an awful proxy for level of speculation in the market. For all practical reasons, speculation occurs when somebody buys with the expectation of capital appreciation. In a sense EVERY recent investor (and many owners) is a speculator because he is paying far above what current rents support. Clearly they are counting on appreciation.
The other factor that could cause a correction is too much product being released into the market. Overall, housing construction is slightly above the historic average but not by much. Population growth in BC is still strong and vacancy rates are very low. It just isn’t possible for sales to drop off the map.
1. It is more than slightly above historic average.
2. Even if it is only “slightly” above, don’t forget that prices are set at the margin. A two percent imbalance between supply and demand is huge.
3. Population growth is not strong by historical measures.
4. Agreed rental vacancy is fairly tight as measured by official stats. Craigslist is starting to tell another story, however.
5. What do you mean sales cannot drop off a cliff. Of course they can, it has already started. Down 35% yoy month to date. What about California etc? Sales are off hugely.
For the above reasons, I don’t believe that affordability in itself will cause a correction. Rather, it will take an external event such as higher interest rates at the time of renewal, or higher unemployment.
I think you are too hung up on affordability as a cause, not the result. The poor affordability is a PRODUCT of excess speculation, not the cause of. Bears like to point it out because it is a MARKER (ie. evidence) of excessive valuations. What will CAUSE prices to go down is merely the end of the speculative psychology that led invididuals to overpay in the first place. That can occur by itself, or it can be helped by an external event, but the end result is the same. Excessive valuations will disappear, sure as gravity causes apples to fall.
So far, it seems most people think this market will correct due to affordability.
No, read above. I seems as if you are debating in good faith, otherwise, I’d cry fallacy.
If I am right, you can be sure I will remind everybody a year from now.
I will personally bow down to your greatness. Snowballs chance in hell that will happen, though.
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Dave Says:
June 15th, 2008 at 8:34 pm
Did you miss that report on how median income has actually DECLINED since the late 1980’s? (After inflation, of course. Even counting inflation as the government does.)
I don’t know why we all keep discussing the nominal versus real pay issue.
You mortgage stays in nominal dollars while you pay goes up in real dollars. The FACT is that pay is going up about 6% in real dollars per year. That’s pretty good. If you have a 5 year mortgage and it comes time for renewal, on average your pay would be 35% higher (assuming consistent growth and constant interest rates).
I have heard the other side of that report. The first data point used in that report was a spike. If you use the year before or after, the conclusion would be different. In fact, it would show that real pay has actually gone up in the last 20 years. But again, as discussed above… who cares?
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Dave Says:
June 15th, 2008 at 8:47 pm
I think you are too hung up on affordability as a cause, not the result. The poor affordability is a PRODUCT of excess speculation, not the cause of. Bears like to point it out because it is a MARKER (ie. evidence) of excessive valuations. What will CAUSE prices to go down is merely the end of the speculative psychology that led invididuals to overpay in the first place. That can occur by itself, or it can be helped by an external event, but the end result is the same. Excessive valuations will disappear, sure as gravity causes apples to fall.
I agree that affordability will not get worse and it will probably get better over time. It doesn’t take nominal price drops to get there. So we basically agree. I will add however, that I believe there will be a permanent affordability shift because I believe real estate to now have less risk than existed in the past (yes that is controversial and yes it will take 20 to 30 years to prove).
If we use the 80’s and 90’s as examples, prices went up during times that affordability improved.
Let’s assume flat prices going forward… If we assume income growth of 5 to 6% in nominal dollars (based on the last few years) things will be roughly 25 to 30% more affordable (assuming constant interest rates).
The historic average affordability is a ratio of 2.5 (Income / Payments). We are currently just under 2. Just income growth on it’s own could be enough to get us back to the average. That said, history suggests the market generally overshoots the average.
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patriotz Says:
June 15th, 2008 at 9:07 pm
Key word… NEW
I am referring to ALL mortgages.
Don’t you understand that market prices are determined by those who are buying and selling, not those who aren’t, jackass?
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-A- Says:
June 15th, 2008 at 9:10 pm
I nominate DAVE Troll of the Year.
Simply amazing.
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alexcanuck Says:
June 15th, 2008 at 9:18 pm
The FACT is that pay is going up about 6% in real dollars per year.
WHERE IS YOUR SOURCE FOR THIS ???
I call BS on this. Give us a source for your assertions or STFU. Please pardon my language, but I would really like to see where your number comes from.
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richard Says:
June 15th, 2008 at 9:30 pm
“The FACT is that pay is going up about 6% in real dollars per year.”
For the denser readers here (me mostly), what does the “in real dollars per year” part mean, anyway? Say i’m making $100 this year. my increase is 3% next year, so i understand i’m going to be making $103 next year. Which bits are “real” and “nominal”?
sorry to be asking such a simple question, but i get lost sometimes… I do know however, that this year my increase was only 2%, next year it’s going to be 3%, and the year after it’s going to be 2%. sigh…
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patriotz Says:
June 15th, 2008 at 9:36 pm
Nominal simply means the dollar price of something. Real means nominal adjusted by inflation, which is estimated by CPI.
So if your dollar wage went up 3% this year and CPI was up 2%, your real wage went up by 1%.
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richard Says:
June 15th, 2008 at 9:48 pm
“Nominal simply means the dollar price of something. Real means nominal adjusted by inflation, which is estimated by CPI.
So if your dollar wage went up 3% this year and CPI was up 2%, your real wage went up by 1%.”
Oh okay… so does therefore this bit
“You mortgage stays in nominal dollars while you pay goes up in real dollars. The FACT is that pay is going up about 6% in real dollars per year.”
mean that if i took out a mortgage of $500,000 a year ago, then it’s still $500,000 this year (less whatever was paid back), and that dave thinks somebody whose pay went up 6% in real dollars really had an increase of 6% + the cpi (%2), so really 8%? Geez, there must be an easier way of saying that. 8% is a nice increase, by the way. where can i get an 8% increase, anyway?
but then why does he go “If we assume income growth of 5 to 6% in nominal dollars (based on the last few years)”? first it’s real dollars then it’s nominal dollars. geez. can’t one just say “income growth of 5 to 6%” and leave it at that?
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Alpha_Bear Says:
June 15th, 2008 at 9:49 pm
Dave,
I asked you to provide some evidence to back up your assertions, and your first piece of evidence is yet another unsupported assertion. Your opinion is not fact. Please be prepared to provide sources to back up your statements
“I think prices got to this level because people were able to afford to bring it to this level. Either they paid mostly in cash or they had to get a mortgage approved.” Where’s your evidence?
You replied:
“There are two ways prices get to this level. 1. Speculation; or, 2. Because people could afford it.
I don’t believe speculation is happening which leads me to believe number 2 is true.”
I believe that you’re speculating about the amount of speculation in the housing market.
“For the most part, our banks are conservative when it comes to lending.”
40 year terms and little or no down-payment is conservative? Again, please provide data to back up your assertion.
“I don’t have the data in front of me, nor can I easily find it. This is actually one piece of data I haven’t seen, but only heard.”
Please, if you can’t back up your statements with data, don’t waste our time here.
“I have been told that the overall percent of mortgages at 40 years in Canada is very low.
I don’t know the quality of the people behind these loans.”
Could you be bothered to find some data to back this up?
“The people who bought a few years ago now make more money on average,…”
And your source for this information is…?
“Pretty much everybody’s pay goes up over time and at least at the rate of inflation.”
Are you for real? My last contract was for an 11% increase over 5 years!
Dave, if you’re going to insist on making statements that you can’t back up with data, you’ll soon lose whatever credibility you think you currently possess.
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anon Says:
June 15th, 2008 at 10:18 pm
I must interject to refute an assertion made by “Dave.” He claims that it is a “FACT” that wages increase (or have increased) at the rate of 6% per in real terms per year. Here are some simple calculations of average annual changes in nominal average weekly earnings in BC for the years 2001-2007.
2001/2002: 0.95%
2002/2003: 1.45%
2003/2004: 1.93%
2004/2005: 2.64%
2005/2006: 4.15%
2006/2007: 2.35%
These are calculated from Cansim Table 281-0026 (BC, all employees, excluding overtime, all industries). Year-to-year increases are calculated using index of annual values which are averages over the calendar year.
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beatstreet Says:
June 15th, 2008 at 10:25 pm
So who will be the best candidate to keep the Vancouver property market humming and support the cash flow needs of condo developers, Roberston or Ladner?
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mohican Says:
June 15th, 2008 at 10:27 pm
Thanks anon,
I was just about to pull out that cansim table.
Dave is bringing up all the industry talking points like a pro and I admire his argumentative logic and his tenacity for sticking around to the 300th post on a sunny weekend. His quotes are likely from slides he’s seen at some industry conference somewhere, from another country, or anecdotes heard at the bar.
Either way, his quotes are wrong and have been proven as wrong so his argument falls apart because of a false premise. Population growth is low in percentage terms, speculation is rampant, wages are not rising even close to the amount he’s asserted, risky mortgages are being made every single day at our so-called conservative Canadian banks.
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freako Says:
June 15th, 2008 at 10:31 pm
I don’t know why we all keep discussing the nominal versus real pay issue.
You mortgage stays in nominal dollars while you pay goes up in real dollars. The FACT is that pay is going up about 6% in real dollars per year.
The people lending you money aren’t morons. They price in expected inflation. You seem to think that some free lunch occurs when you pay a mortgage with inflated dollars. There is no such thing. You pay for expected inflation. Sometimes you get lucky in that inflation deviates from expectations in your favour, sometimes the opposite. No net freebie.
So we basically agree. I will add however, that I believe there will be a permanent affordability shift because I believe real estate to now have less risk than existed in the past (yes that is controversial and yes it will take 20 to 30 years to prove).
That is pure conjecture. I see absolutely nothing that suggests reduced volatility (that is what we are actually talking about when we use the word “risk”). And your explanation nto explain why affordability in Vancouver is so bad compared to the rest of Canada, nor why affordability is improving via price drops in California.
If we use the 80’s and 90’s as examples, prices went up during times that affordability improved.
Not sure about the whole period, but in part yes. But affordability improved as rates dropped. In the recent boom we have the crazy fact that affordability worsened considerably as rates dropped to historic lows. That will NOT end well.
Let’s assume flat prices going forward… If we assume income growth of 5 to 6% in nominal dollars (based on the last few years) things will be roughly 25 to 30% more affordable (assuming constant interest rates).
Huge assumptions. You must take into account the relationship between incomes and inflation, and in turn, inflation and interest rates. Your numbers don’t compute. For nominal income increases in that range, long rates should be much higher. I think your assumption of 5 to 6% is grossly optimistic.
The historic average affordability is a ratio of 2.5 (Income / Payments). We are currently just under 2.
Where are you getting these numbers? The price of the median benchmark dwelling in the GV is $568K. The median household income is what? $60K?
That said, history suggests the market generally overshoots the average
That is a totally bogus statement, and detracts from your earlier point. I still presume that you are debating in good faith, but the way you conveniently connect the dots and apply generalities out of context in order to make your case is creating doubts in my mind.
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patriotz Says:
June 15th, 2008 at 10:39 pm
Whoever sits in the mayor’s chair is irrelevant to the RE market. One need only look at the current bubble which started with a COPE mayor (Larry Campbell, now a Liberal senator), and has continued with an NPA mayor (Sullivan).
The “soft” left in Vancouver (Vision/former COPE light) is just as pro-development as the NPA. They are just supported by different contingents of the construction industry (unions versus companies).
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jesse Says:
June 15th, 2008 at 10:57 pm
“If we assume income growth of 5 to 6% in nominal dollars (based on the last few years) things will be roughly 25 to 30% more affordable (assuming constant interest rates).”
Dave, the numbers you quoted were from the CUBC presentation. It does not compute with what Statscan has published as wage growth from 2001 through 2006, about 1-2% annual gains on average. I don’t know where CUBC gets its numbers but only people receiving continuous promotions or in cyclical industries can hope to receive 5-6% per year wage gains with 2% CPI inflation. This is borne out when you look at the negotiated union and public sector worker wage increases: about 3% per year at the very most.
You will probably find that many of the people receiving 5-6% wage gains are in industries like construction and real estate. There is no doubt these industries have been red hot in the past 5-6 years and I am sure many are making a killing. If those jobs disappear there is a snowball’s chance in hell of 5-6% average wage gains.
I’ll add that house sales are currently 30% lower than last year. That is about a 20% wage DECREASE for Realtors. Certainly not a 5-6% gain. I hope CUBC factors this into their calculations going forward.
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freako Says:
June 15th, 2008 at 11:03 pm
Dave, the numbers you quoted were from the CUBC presentation.
Yup, I concur that Dave has leaned heaviliy on CUBC for material. He also quoted the misleading resale percentage as a proxy for speculation.
I can’t speak for Pastrick’s other forecasting, but on RE I think he is out to lunch. Sure us bears were premature, and his had direction right to date, but he will miss the boat very very badly the coming bust. Anybody with their eyes open can see it coming. Yet an economist that represents multiple financial institutions sees only what he wants to see.
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Brittanny Spears Says:
June 16th, 2008 at 12:39 am
To bad Dave bought recently.
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Drachen Says:
June 16th, 2008 at 8:18 am
Freako
“I still presume that you are debating in good faith”
He is not debating in good faith. He claims to have taken many Economics classes yet he keeps trying to drag nominal dollars into the equation. He cites dubious numbers and ignores numbers that would detract from his argument. He compares Vancouver to Seattle, Portland and New York even though their markets have gone through nothing like what ours has in the way of appreciation instead of comparing us to places like Miami which has had a very similar appreciation curve. Nearly all of his historic arguments are based on the Vancouver graph where he makes extremely broad assumptions based on two data curves.
None of that is arguing in good faith and I think he knows it.
His talking points are simply too close to verbatim of the RE industry’s points. So close in fact that he could be accused of plagiarism.
So Dave, it’s obvious you don’t make up all these arguments yourself and you didn’t arrive at these conclusions by yourself. Care to give us the source of your debate material?
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Drachen Says:
June 16th, 2008 at 8:22 am
Dave
Also, as if it wasn’t obvious. The “flipping” statistic you quote to support your speculation argument is incredibly weak. In the ’80s short term condo flipping was done primarily through actual purchases, now the main vehicle for short term flippers is the assignment which is not recorded in your stats. Almost everyone who buys for the purposes of speculation is holding on for longer than in the ’80s and renting the property out. In other words the statistic you’re quoting was created to intentionally mislead people.
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/dev/null Says:
June 16th, 2008 at 8:32 am
Gotta love peer review, eh Dave?
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jesse Says:
June 16th, 2008 at 8:46 am
“To bad Dave bought recently.”
Dave’s motives are irrelevant if we are debating data and logic, not “belief”. It’s worth everyone considering their own confirmation bias. We see what we want to see and it’s hard to debate against anyone with selective blindness.
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Anti-Pesto Says:
June 16th, 2008 at 12:35 pm
Great to see the constant attack against anyone that doesn’t support the bear view. Don’t recally any of Daves posts being vicious or personal. Glad to see I’m not missing much by not visiting as often. Continue on.
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Dave Says:
June 16th, 2008 at 12:53 pm
Got a better speculation metric, aside from… ‘everybody knows’… ‘it’s obvious to anybody’… ‘ everybody I know who bought…’?
I readily admitted previously that this metric did not capture pre-sales and assignments. I also know that a large percentage of pre-sales in the downtown condo market is quite high (depending on the development). But, these transactions are not recorded as sales anywhere and so nobody has the actual data. Do you? Didn’t think so.
In the meantime, measuring the volume of ‘flipping’ is the next best thing to use. By this metric, speculation is low.
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Dave Says:
June 16th, 2008 at 1:11 pm
Richard – For the denser readers here (me mostly), what does the “in real dollars per year” part mean, anyway? Say i’m making $100 this year. my increase is 3% next year, so i understand i’m going to be making $103 next year. Which bits are “real” and “nominal”?
sorry to be asking such a simple question, but i get lost sometimes… I do know however, that this year my increase was only 2%, next year it’s going to be 3%, and the year after it’s going to be 2%. sigh…
My bad. When I wrote that I got real and nominal mixed up accidently.
The point I made earlier was that a mortgage remains in constant dollars. All that means is that if you took out a $100k mortgage, it will not increase over time with inflation. Rather, it will drop as you pay off the principle.
Wages obviously go up over time due to many factors, the biggest of which is generally inflation. What I meant to say is that wages also go up in nominal dollars. If you made $100k last year and got a 3% raise, you would be making $103K.
The data shown by CUBC (taken from stats Canada) shows that income growth is at around 6% per year right now. I have to look at it again (and I will), but I think it refers to the rate of increase the average individual receives. People don’t just get raises due to inflation but also for having more experience and taking on more responsibility. For example, when wage increases were frozen in BC, people’s pay still went up as they moved up the classification scale.
Economists often like to use ‘real’ numbers for various reasons. A real number is just a nominal number corrected for inflation. For example, a chocolate bar in 1980 might have cost $0.25, but costs $1 today. If you considered real dollars, you would say the chocolate bar cost $1 in today’s terms.
My point is that ‘real’ numbers are useful in a limited context (e.g. evaluating past data), but are less useful from an individual’s perspective. An individual takes out a mortgage in constant dollars and gets pay increases in constant dollars. Over time, the effect of inflation it to make the prior purchase easier to pay for.
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Dave Says:
June 16th, 2008 at 1:26 pm
Drachen -Nearly all of his historic arguments are based on the Vancouver graph where he makes extremely broad assumptions based on two data curves.
I make no apologies for using Vancouver data to predict the future of the Vancouver market. Saying prices will follow other markets (e.g. Miami) presupposes the same mechanisms and demographics are in play.
If you want to make parallels with another market, then you need to provide a lot more information than just saying the appreciation curves were similar. Some questions that would need to be resolved would include: 1. demographic of buyers (e.g. percent out of town); 2. level of speculation; 3. level of subprime mortgages; 4. economic fundamentals (employment / unemployment); 5. population changes; 6. available land supply (is it constrained or easy to build down the coast?); 7. affordability, etc…..
I’m not saying it can’t be done, but I think it is better to stick to the history of our own market.
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freako Says:
June 16th, 2008 at 3:51 pm
In the meantime, measuring the volume of ‘flipping’ is the next best thing to use.
No, no, and no.
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freako Says:
June 16th, 2008 at 3:57 pm
The point I made earlier was that a mortgage remains in constant dollars. All that means is that if you took out a $100k mortgage, it will not increase over time with inflation. Rather, it will drop as you pay off the principle.
Holy Macro. By that logic, I should go out and buy a freaking Ferrari on credit because I am paying back the loan with inflated dollars. Did you skim the part earlier where I poopoo’s this line of thinking? LENDERS ARE NOT IN THE BUSINESS OF GIVING AWAY MONEY. THEY TAKE INFLATION INTO ACCOUNT WHEN LENDING YOU MONEY. THINK ABOUT IT.
The data shown by CUBC (taken from stats Canada) shows that income growth is at around 6% per year right now. I have to look at it again (and I will), but I think it refers to the rate of increase the average individual receives.
Look at it againk, because it is patently false.
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freako Says:
June 16th, 2008 at 4:02 pm
I’m not saying it can’t be done, but I think it is better to stick to the history of our own market.
Holy Macro #2. Your “think” is to reality as lipstick is to a pig. This is worse than debating global warming/religion/etc etc. Pointless. Dave, at what level of peak to trough depreciation will you concede that you were wrong in your interpretation of the situation? Can we nail you down to a number? Because that is the only way this debate will end. Would 20% be enough?
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Dave Says:
June 16th, 2008 at 4:45 pm
Holy Macro. By that logic, I should go out and buy a freaking Ferrari on credit because I am paying back the loan with inflated dollars. Did you skim the part earlier where I poopoo’s this line of thinking? LENDERS ARE NOT IN THE BUSINESS OF GIVING AWAY MONEY. THEY TAKE INFLATION INTO ACCOUNT WHEN LENDING YOU MONEY. THINK ABOUT IT.
Ummm no. A Ferrari is not a home.
Of course lenders don’t give out free money. Of course inflation influences the Prime Rate.
None of this affects anything that I have stated.
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Dave Says:
June 16th, 2008 at 5:21 pm
Freako, put me down for 12 to 18 months of gains. In other words, if there is a correction, then I predict values will drop from 10 to 15% (nominally). So, if it breaks 15%, I will have been wrong.
I will further add that a correction of greater than 10% will only occur due to an external factor (e.g. higher interest rates > 1.5%, higher unemployment ~ + 2%, or a recession)
As far as the upside, if prices appreciate more than 10% to 15% in the next two years, then I will have been wrong.
And what is your number on both on the upside and downside?
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freako Says:
June 16th, 2008 at 5:52 pm
Ummm no. A Ferrari is not a home.
Of course lenders don’t give out free money. Of course inflation influences the Prime Rate.
None of this affects anything that I have stated.
,/b>
No, a Ferrari is not a home, but that doesn’t matter because the logic you attempt to apply is the same.
I can’t afford the Ferrari today, but maybe I will with tomorrows income. Thus, as long as I borrow to buy item x, I can afford it.
So, if it breaks 15%, I will have been wrong.
I will talk to you then. Probably 12 to 18 months away, but one never knows.
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freako Says:
June 16th, 2008 at 6:03 pm
For what it’s worth, my prediction is real prices back to 2003 levels (however long it takes). That would be rougly a 45% drop in nominal terms if prices peaked today and fell rapidly.
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Dave Says:
June 16th, 2008 at 8:50 pm
However long it takes? You can do better than that.
Pick a nominal decrease and pick a timeline. Also, pick a nominal increase where you will admit you were wrong along with the associated timeline.
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holgs Says:
June 16th, 2008 at 9:06 pm
Sorry to join in the gang up. Dave, I see what you did here:
I will further add that a correction of greater than 10% will only occur due to an external factor (e.g. higher interest rates > 1.5%, higher unemployment ~ + 2%, or a recession)
You know that a correction will cause much greater than 1.5% higher unemployment, right?
If the estimate of 1/6th of new jobs in construction is true, then what of the remaining percentage is
- mortgage brokering
- real estate sales
- furniture sales
- electritical
- harley dealers
I personally know a bunch of people my age (~30 years) that are in construction or real estate. Probably a good 20-30%, of my camping buddies are in to that field. And all of them own at least one home.
My prediction is this, one year from now, unemployment will be on the rise due to housing sales tanking and prices beginning their downfall, and you will come back here and point to the job losses as the reason, rather than a consequence, for the downturn.
I predict that my prediction will be 100% true (+/- 2%) within the next two years.
Oh, and I also predict it applies to other “educated bulls” such as Muir and Pastrick.
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holgs Says:
June 16th, 2008 at 9:08 pm
PS. I should have reviewed my grammar in that last post. Living in Sweden will do that to ones English.
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freako Says:
June 16th, 2008 at 9:39 pm
Pick a nominal decrease and pick a timeline. Also, pick a nominal increase where you will admit you were wrong along with the associated timeline.
No I can’t. Sure I have predictions related to timelines, but I would never place any certainties on them. But I am very confident that real prices will drop to those levels. And if I am right, do we need timelines? No. We have all the information needed to make a decision. An investor would be better off waiting as long as it takes as well.
If you want my guess for a time line, sure. Since the collapse has already started, I am no longer taking random guesses at it like I have in the past. It is still just a guess, but I have some confidence in it.
1. We have already peaked (GV SFH benchmark April 2008(.
2. We will see 5% nominal peak to trough by the fall.
3. We will see 10% nominal peak to trough by the spring.
4. We will see 25% nominal peak to trough by the following spring (2010).
5. We will see 45% nominal peak to trough by the foloowing spring (2011).
There you have it, a 28 month path to RE oblivion.
Of course, those are total guesses. The only thing I am certain of is the return to 2003 real prices.
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freako Says:
June 16th, 2008 at 9:43 pm
Also, pick a nominal increase where you will admit you were wrong along with the associated timeline.
Sorry I cannot, because I cannot possibly predict how much longer stupid people will be given money by stupid lenders. I will admit that I am wrong when fundamentals have caught up with prices (without prices going back down). Particularly the price/rent multiple.