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.

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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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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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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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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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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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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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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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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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No, no, and no.

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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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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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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’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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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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“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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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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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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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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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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