Friday Free For All!
Every Friday we do an end of the week news round up here at http://vancouvercondo.info and have an open topic discussion to share thoughts on the local market and global economy. Anything related to real estates and economics is welcome. Here are a few stories I’ve noticed this week to get us started:
-Politics and the Vancouver affordability crisis
-Agent Wills Realty Reality check
-Vancouver auto thefts on the rise
-Steeper drop in Canadian house prices
-The Canadian deflation threat
-National Bank: US faces year long recession
-Bush concerned about financial crisis
-30 Year deregulation era dies sudden death
-Financial crisis enters dangerous new phase
So what are you seeing out there? Post your news, links, thoughts and anecdotes here and have an excellent weekend!
note: any conversation on Vancouver, real estate or economics is allowed, please keep it civilized. When posting articles please only quote pertinent points and link to the original instead of pasting the entire article here. Pasting a link will automatically create a clickable hot-link. Thanks!
RSS 2.0 comments feed. Both comments and pings are currently closed.
September 22nd, 2008 at 9:32 pm
Buff Buttler,
Why did you keep the margin of profit around 15% while agreement with freako is based on if you sell units under it’s actual cost that way how long some one will pay the cost to employees and for the matterial?
In a case of a owner as a seller why would some one sell it under it’s assessment value while his own cost of living is not acceptable compare to what he is going to pay for alternate accomodation?
Rental Vacancy rates in vancouver is zero since last six months all we got in the market is monthly supply when people change their places for adjustments.
Over all very good post and most likely it works in downturn.
September 22nd, 2008 at 2:20 pm
Markets looks ugly today. Dow Jones down almost 400 points. You Bulls must be crazy to buy real estate when the Vancouver market is dropping, and the North American financial market is in meltdown!
September 22nd, 2008 at 2:19 pm
Do you really believe that canada can exist as a first-world country without the US buying stuff from canada? think rationally..
Do you think your banks have a different asset composition? Many eurotards also have that delusion..
Do you think your real estate bubble is smaller than the US?
How is your government going to pay all the stuff promised to the retiring baby boomers?
Have you looked at your demographic profile lately?
Your tax base is shrinking (more retirees + poorly paid immigrants)
For all the dishonesty inherent in US governmental statistics, they are quite honest when compared to canucks.
And there is the issue that, unlike the US, a very large percentage of the immigrant population feels discriminated against and hates canucks. Coincidently they + their kids are soon going to be a significant % of your working age population. wanna bet how that will turn out.. Of course, europe has the same problems..
The sad reality is that your future is much bleaker than anything successive republican administrations could ever inflict on the US.
You know the big difference between between canucks and americans- lots of americans are self-critical, almost all canucks believe their own delusions..
Hubris usually starts with excessive uncritical belief in yourself and magical thinking- a feature much more common in canucks than americans
September 22nd, 2008 at 1:17 pm
Dave said
“I have been consistent in my prediction of a price correction along with the expectated magnitude from the day I started posting here.”
No you havent. You keep revising them… You should be a politician.
September 22nd, 2008 at 1:15 pm
To continue with my rambling I would also argue that we didnt fully correct in 2001 before the olimpics were announced.
Regardless the news of the opimpics created extra demand. At the exact time you had lossening of credit wich allowd a lot of people who could never enter the market enter in. Esentially creating artifical demand (similar case in Alberta but its hype is sustainable for a little longer because its a tangible asset). The poor timing of this easy credit with the hype helped price out the middle class worker which is what real estate is esentially driven by in the long term average through affordability. Now we have a poorly timed tightening of credit. We have global financial destress which is restricting access to capital effectivly reducing the number of jobs being created. Most important of all they removed the 0% down wich before atleast tied a purchaser to there income. Now this is gone and you have far less demand.
All these points make the case for downward pressure. Theres lots of other reasons to buy other then investment (say family/kids ect.) however from an investment perspective if your only upside is the Olimpics then your esentially gambling with your future.
The most important thing for any purchaser (especially now) is to buy within your means. And if your in a cycilic industry be prepared to take a pay cut.
September 22nd, 2008 at 1:07 pm
Dave
“I have been consistent in my prediction of a price correction along with the expectated magnitude from the day I started posting here.”
The problem is that your prediction has already been surpassed and the market shows no sign of a turnaround. So in this case consistency is hardly in your favour. Unless you want to count being consistently wrong as a good thing.
“Do I really need to point out to you once again that real estate markets are locally driven?”
Ok, so you’re trying to say Vancouver’s real estate market cycle is 13 years. Still no response to the suggestion that there can be waves on waves. Still no evidence except for two consecutive periods which really bear almost no similarity other than the length of the wave. I say again, to even attempt to claim a pattern you’re going to need three consecutive periods to measure, two in a row does not make a pattern.
Why should Vancouver be different from Toronto? Or any of the big cities in the states? You’ve completely failed to address 90% of my argument and your “pattern” of two events is laughable evidence for your case at best.
September 22nd, 2008 at 12:51 pm
thumbs,
I do think you bring up a good point about construction costs. To know the effect of this on the current market you need to consider a few things (and feel free to argue anything):
First we have the profit that the builders company is taking. From talking to friends that manage building companies they try to shoot for 15% profit margine *minimum* to avoid project risk. This was for houses however Id imagine condos would be similar. Now this is esentially a 2 year projection (due to completion time) and due to the long time it is very subseptible to overbuilding. Especially in markets where the profit percent is much higher then the minimum which I would argue is the case for Vancouver. Now say you have a case of falling prices builders will keep up with new starts until there profit margin drops below 15% (they may however ajust there volume). So even though the market is falling you can still see a large number of starts and this will in the long term help sustain the plunge. If the builders were to cartel then they could prevent this however there are to many participants. Therefore I’d argue supply will go far past what is required.
This leads to the second point wich is vaccancies – both rental and owned. If you have a large number of vancancies then it is possible for prices to drop below replacement costs to in effect “clear” the market. The severity of this would be the months of inventory. I dont think we will see all vancancies come onto the market until the drop gains momentum.
So esentially we are at the peek “replacement cost”. Where prices of labour and materials will both start to move down. Since there are also a vaccume of extra properties far and above what is needed it is possible for it to fall below replacement cost. This also drops land prices wich is another input into replacement cost. Lastly people typically pay a premimum for a fresh new place so they would pay above market in down times.
September 22nd, 2008 at 11:43 am
Current MOI is 12.5. Therefore, Dave finally agrees Vancouver RE is going to crash!
That’s a pretty big leap.
I have been consistent in my prediction of a price correction along with the expectated magnitude from the day I started posting here.
September 22nd, 2008 at 11:31 am
don’t worry thumsup/krish this is just a bad dream if you pinch yourself you’ll wake up to a magical fairytale world where prices go up regardless of fundamentals and people will understand what you’re trying to say
September 22nd, 2008 at 11:31 am
Dave said:
Of course MOI is a leading indicator of price. That’s a well known and proven metric. It’s a reflection of basic supply and demand interactions.
Current MOI is 12.5. Therefore, Dave finally agrees Vancouver RE is going to crash!
September 22nd, 2008 at 10:50 am
“Not sure exactly what you are asking, but construction cost does not affect prices directly.”
Same meaning as i say theory does not provide power to any of those rules.
“More supply, less demand absolutely means lower prices.”
That’s right for short term but supplier will chose to shut down his bussiness in long run so you are wrong!think about it?.
“And remember, true supply is a function that includes all relevant factors (such as seller motivation)”
That’s correct and procedure could be found in comment#176 as following…….
While rents are up and coming there is no point to sell your home for less that’s why after few month (nobody going to sell other than motivated sellers).”
over all your post is a translation of my post
September 22nd, 2008 at 10:33 am
As I have stated, their is ample evidence of strong correlation in the U.S. markets.
Correlations aren’t very useful. If anything they are misleading because they overlook the driving factors. It sounds like you understand the difference between correlation and causation, but are quick to discount the consequences. For the benefit of our audience I will try to explain the difference with a simple example. One could show that 90% of prisoners are smokers, in contrast to 10% of the general population. A false conclusion on this data would be to say that smoking makes people criminals. The correct conclusion would be to say that they are only correlated and the difference a reflection of other factors.
You agree that the listings per population ratio ignores a key driving factor and basic supply and demand fundamentals and base your belief on an unknown, which is the level of correlation. Is it 50% correlated, or 90% correlated. If only 50%, then well, it sucks. If 90%, then fine, I’ll buy it. Some basic linear regression could demonstrate this. The data is there. Have at her.
Until then, I think you are basing your belief on an unfounded faith.
September 22nd, 2008 at 10:18 am
My scientific economy tells me that demand,supply,and construction cost help setup the prices of any unit but theory does not provide power to any of those rules.
Where more supply help reduce the prices then there is high prices of unit also help decrease the sales volume.It does not mean that prices will fall because of high cost of unit that’s how these theory fall on to buyers and sellers personal circumastances.
Not sure exactly what you are asking, but construction cost does not affect prices directly. Over the long run, they do impact supply. More supply, less demand absolutely means lower prices. And remember, true supply is a function that includes all relevant factors (such as seller motivation), not just current listings.
September 22nd, 2008 at 10:16 am
Dave “Nobody suggested that all future markets would follow the exact historic trends.” Drachen “You did.”
I think the next market will follow a similar, but not exact, trend. There is a difference.
You try to point out minor exceptions to the general rule (e.g. small peaks on the larger trend) but then go on to say that economics is not an exact science. You can’t have it both ways.
The fact is that the last two cycles have been 13 to 14 years in length. Flat markets generally last about 6 years and bull markets about 7 years. Of course, there are all sorts of factors that can change the future, but trends do often repeat themselves.
Do I really need to point out to you once again that real estate markets are locally driven? I don’t care what cycles in Japan look like. There are completely different dynamics at play. For example, did you know that Japan’s population will drop by half this century? Did you know we face the opposite situation with over 100 people moving here each and every day?
September 22nd, 2008 at 10:14 am
Freako, it’s hard to keep track of all the questions posed to me amongst all the lunacy. I am not dodging anything here, just trying to avoid the trolls.
Fair enough, but IMHO you have a knack for addressing the lunacy, but skipping the substantive challenges posed to you.
Listings per population may in fact be a valid metric, but again I have yet to see anybody demonstrate as much.
As I have stated, their is ample evidence of strong correlation in the U.S. markets.
It strikes me as not being better than MOI because it glosses over demand.
True, but we’d expect demand to be at least a partial function of population. If there should be a discrepancy between MOI and listings/population in a given city, which one is more reliable. Demand is at least in part based on psychology. May I suggest that listings per population is an EARLIER predictor of future price drops as it semi-controls for speculative demand. When sales/population is at historic highs, MOI may understate the situation. Personally, I think they are complimentary measures.
I would expect listings per population to be CORRELATED with high MOI, but not to a point of it being a useful metric to predict prices.
As I stated above, I believe that listings/population is an earlier predictor. In a sense, it PREDICTS rising future MOI. You are correct in that there is no causation. However, that does not void predictive ability.
Essentially what may happen is that sellers (supply) are the first to move as the market peaks. Demand (as indicated by sales) may be a step behind. Of course, it could be the other way around. In any case, all else the same, high listings/population does not bode well.
September 22nd, 2008 at 10:10 am
Real estate agents on Vancouver’s West side must have been busy over the weekend writing up news listings because I just checked and listings have broken through the magic 1,000 mark!
As of today, there are 1,006 single family homes listed for sale on Vancouver’s west side… that is the highest number for many years.
Here is a breakdown by price category:
Under $1.5 million asking price = 416
Between $1.5 million and $2.5m = 373
Over $2.5 million asking price = 217
September 22nd, 2008 at 9:39 am
“Somebody earlier asked you personally whether you thought high MOI predicts future price drops?.”
Freako,
I was thinking that you or Patriotz will come forward to answer this instead you are asking the same question,first of all Bluesman did not show any guts to make this question of slow sales=price drop now you have turn the table towards dave.
things just makes me think of patriotz where is patrioz? anyway,indirectlly you can find the answer in bulls post but if you need a speciall answer that will bring us on the same slots where bulls are already right now.
My scientific economy tells me that demand,supply,and construction cost help setup the prices of any unit but theory does not provide power to any of those rules.
Where more supply help reduce the prices then there is high prices of unit also help decrease the sales volume.It does not mean that prices will fall because of high cost of unit that’s how these theory fall on to buyers and sellers personal circumastances.
as a seller are you willing to keep your unit?
yes if there is any alternative solution to cover the cost like rental yield,hope for market improvement,or desire to keep for whatever it takes.
Now recomended price drop=realtors commission
Rents are up and coming
Are you willing to sell your unit in loss?
Answer:No!
If there are any stress of job loss,employement loss,emergency condition then prices will come down little bit more but there is nothing coming ahead except a fourth coming tornado,
I think prices will start going up very soon in next few months how ever your question is for dave so i beg your pardon.Freako?
September 22nd, 2008 at 9:30 am
Dave
“Nobody suggested that all future markets would follow the exact historic trends.”
You did.
“The real estate cycle is 13 years”
You didn’t say the last two cycles have been 13 years. The fact that you’re patently wrong doesn’t seem to bother you. I used Japan as an example that proves you wrong and you just ignored it. I am not suggesting that Japan’s model will unfold here, I merely use it to prove your “13 year” theory wrong. If it’s wrong once it can be wrong again and you certainly have very weak evidence suggesting that it’s right. Two events in a row does not make a pattern, you need at least three before drawing any kind of sensible conclusion (not that you’ve ever tried to draw any kind of sensible conclusion).
No other graph that I’ve been able to find shows such a clean 13 year interval even twice in a row. The US wide Case Shiller graph shows about an 18 year peak to peak, Japan as I said is about 25 years, Toronto has a nice graph that shows peaks at 1960, 1989, and right now.
September 22nd, 2008 at 9:28 am
“Freako, it’s hard to keep track of all the questions posed to me amongst all the lunacy. I am not dodging anything here, just trying to avoid the trolls.”
You do know it’s hard to avoid yourself, right?
September 22nd, 2008 at 9:07 am
Freako, it’s hard to keep track of all the questions posed to me amongst all the lunacy. I am not dodging anything here, just trying to avoid the trolls.
Of course MOI is a leading indicator of price. That’s a well known and proven metric. It’s a reflection of basic supply and demand interactions.
Listings per population may in fact be a valid metric, but again I have yet to see anybody demonstrate as much. It strikes me as not being better than MOI because it glosses over demand. You can still have a high percentage of listings and have high demand, which would translate into price increases. It’s possible that at certain points in the market cycle, people are more active for various reasons (e.g. moving up in the market). A market like Las Vegas or Whistler may always have high listings per population because they are vacation destinations, which may have higher real estate turnover. Places like London and New York may have higher turnover due to the high paced nature of the financial based economies. Again, this is all just speculation, and these factors may or may not be valid. I am just pointing out possible problems that one should consider.
Causality is not something to disregard. For example, high supply and low demand (i.e. high MOI) will CAUSE lower prices and vice versa. I would expect listings per population to be CORRELATED with high MOI, but not to a point of it being a useful metric to predict prices.
And yes, that webpage strikes me as being cherry picked. Was anything outside of California, Florida or Las Vegas tracked? I didn’t see it. What about places like New York, Seattle or Dallas?
Again, feel free to crunch the numbers. Maybe you could publish a paper with your findings.
September 22nd, 2008 at 8:03 am
“My bet is never. He’ll disappear and try to delude himself into believing he was actually right and it was only incredibly bizarre luck that swung things our way.”
Drachen,
After your prediction of 70% desireable drop in prices you have got nothing to make even after three year month over month prices in your area went up by 7.70 percent last month a huge increase of $103.445 no wonder you have cut down the amount of your posts by 70% that’s what you deserve what about another 30% of incohrent drachen?.
September 22nd, 2008 at 7:59 am
I made a factual comment and backed it up with real world data. b>
But there is also real world data that the cities with the highest listings per population ratio went down the most. No cherry picking involved. Any opinion on that? Clearly listings per population is better for comparison purposes than absolute listings. And the HARD data is unambigous. High listings per population leads to significant price drops. No exceptions.
Somebody earlier asked you personally whether you thought high MOI predicts future price drops. Maybe I missed it, but I didn’t see a reply. I thought you said that you don’t selectively avoid issues.
September 22nd, 2008 at 7:37 am
What about 1984 and 1990? What about the possibility of larger and smaller waves within a big picture (if you really want to force the triangular shape of Economics into the square hole of Physics fine but even Physics allows for multiple waves at different lengths).
Drachen, give it up already. You are making yourself look quite petty. I made a factual comment and backed it up with real world data. Everybody in the industry accepts those points as being prior housing peaks. Nobody suggested that all future markets would follow the exact historic trends.
Again, you have provided absolutely nothing to back up your claim or expectation that we would follow the pattern Japan experienced.
September 22nd, 2008 at 12:15 am
Gold is never cheap, is it Michael? You have a passion for gold. Me Too. I like gold jewelry.
September 21st, 2008 at 11:48 pm
Night follows day…whether you like it or not. Stocks, bonds, property, art become expensive…and then they become cheap. Recently, they’ve been expensive…soon, they will be cheap.
September 21st, 2008 at 10:50 pm
Sorry Drachen, about saying you are handsome, my friend told me that it wasn’t you that was handsome, it was Draken. Sorry, my bad. I’m not with Dave any more, but he’s way smarter than you.
September 21st, 2008 at 10:48 pm
Drachen, I won’t ask you if you like cartoons. That’s because I don’t think you ever learned to laugh. You probably have hypertension. I don’t like hanging out with hypertensives. Even Dave isn’t hypertensive. But you are good looking. Well, that’s what I heard.
September 21st, 2008 at 10:43 pm
Dave
So far your record is 0 for 3 predictions and it’s looks pretty likely you’ll be 0 for 4 by the end of the month.
What makes you think you know anything about the real estate market? How many times do you have to be wrong before you’ll admit your methods are crap, your work is sloppy and your source information is cherry picked to fit into your pre-conceived notions.
Should we start a betting pool?
How many of Dave’s predictions must turn out to be wrong before he’ll admit that we know better than the does?
My bet is never. He’ll disappear and try to delude himself into believing he was actually right and it was only incredibly bizarre luck that swung things our way.
September 21st, 2008 at 10:38 pm
Bluesman
Sorry I can’t spend more time shooting Dave down in flames, fun as it is I’ve got other things going on.
September 21st, 2008 at 10:37 pm
Dave
“The three lines are drawn at each of the three most recent peaks in housing prices.”
But they’re not drawn at the three most recent peaks. They’re drawn at three peaks you chose that fit your theory.
What about 1984 and 1990? What about the possibility of larger and smaller waves within a big picture (if you really want to force the triangular shape of Economics into the square hole of Physics fine but even Physics allows for multiple waves at different lengths).
What about the fact that we’re talking about the behaviour of a population of people who don’t fit into such simplistic algorithms as you propose?
As I said before, if you really belie that the laws of Physics drive real estate you should really call up all the sociology and economics departments and let them know they’re irrelevant.
September 21st, 2008 at 10:20 pm
Anonymous at 5:11pm, regarding your quote of Mr. Sparrow to the effect that in Calgary ‘the average time on the market is 52 days’, this is a misleading statistic which is not accurately described. As calculated, the 52 days is only for houses that sell; the statistic does not account for houses that languish. A more accurate measure is to take month-end inventory and divide by average sales rate. For August, SFH in Calgary had sales of 1170 and a month-end inventory of 5541 … a 4.7 months supply. Thus on average it takes 4.7 months to sell a house, not 52 days. using the same method, it takes 5.45 months to sell a Calgary condo.
September 21st, 2008 at 10:10 pm
draken, Do you like cartoons too? Tom didn’t answer me and Dave is out of my life now.