Are we there yet?

Now that the correction has started, the only questions that remain are its depth and when we get there. Or more simply, when does one buy?

There are a lot of different ways of evaluating real estate prices and many of us are aware of the traditional metrics. I won’t repeat this analysis because it has been said before and is readily available. Most results would place fair value anywhere from current levels to another 20 to 30% on the downside (and even more by some).

Another way of evaluating expected prices is technical analysis, which is simply looking at past trends and assuming history will repeat itself. Real estate has appreciated at approximately 5.5% per year over the long term. Using 1983 prices (the bottom of the last crash) as a baseline, this would give an expected bottom of $630k for the average Greater Vancouver SFH. Using a similar approach, fair value was estimated at $730k, not accounting that markets tend to overshoot fair value. Considering this, I think $630k is a reasonable expectation for the bottom (based on technical analysis).

Based on the November 2008 average SFH prices of $750k, I think we have another $120k to go on the downside, or roughly another 15% drop on top of what we had to date. Considering the rate of the correction, it shouldn’t take long for us to get there. It might only take another 6 months.

But with all that said… who cares? Why are so many people consumed with buying at the absolute bottom? I think we are asking ourselves the wrong questions because none of us really know where the market will go (a known unknown). I think the following three questions are more important, partly because they can be answered (known knowns):

1. Can I afford it?

2. Do I like the product and the location?

3. Will I live there for a reasonable period of time (at least 5 years)?

If the answer to all these questions is yes, then it just might be the right time for you to buy.

Dave

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holgs
holgs
11 years ago

Dave,

This one's an animation about demographics in Canada; one even realtors can understand (no reading… Yay!)

So no strawmen about this being from the states, doesn't apply here, yada yada.

You were wrong AGAIN. Fessup!

http://www.footwork.com/pyramids.asp

Tony Danza
Tony Danza
11 years ago

Pope, thanks for the story ranking system, unfortunately it appears that "0" stars is not an option?

observer
observer
11 years ago

"UBC has the average nominal growth rate from 1976 at 8% per year."

Dave: how did you get this or where is it on the Sauder website? I am trying to reproduce this figure but am not getting anything that high.

I see now that you are actually making an assumption that house prices grow exponentially to make your predictions. Remember exponential growth always becomes unbearable in the end (no pun intended bears), sooner or later.

blueskies
blueskies
11 years ago

johnd:

i b 57 a much reviled boomer and have been

following the bear blogs since early '04

HBB and patrick.net

JohnD
JohnD
11 years ago

That's really funny, blueskies. Guess I didn't know this was high school all over again. How old are you???

JD

blueskies
blueskies
11 years ago

johnd:

unlike yourself betamax has earned his bear stripes…. been around since at least HBB….

JohnD
JohnD
11 years ago

What's with 'betamax'?

Guy/girl sounds like one of those 'know-it-all' types that doesn't know when to make a point and then shut up.

betamax
betamax
11 years ago

Despite Dave's protestations of not being a realtor, only a realtor would conclude with a weasel statement like "it just might be the right time for you to buy."

It is a standard sales pitch: briefly and superficially mention the current situation, pretend to argue objectively and thereby resolve any potential (but whitewashed/soft-peddled) problems, then 'close' at the end with a suggestion to buy anyway.

Translation: "Please, please buy! My advertising costs are even higher now and my $800/mth BMW lease is killing me, and I haven't sold a place since September. Please buy!!!"

betamax
betamax
11 years ago

1. Can I afford to catch a falling knife?

2. Do I like wasting large sums of money?

3. Will I live there until the market hits bottom and stays there(at least 5 years)?

If the answer to all these questions is yes, then it just might be the right time for you to buy.

Mold City
Mold City
11 years ago

I would bet a lot of boomers will stay right on living in their homes. If anything, they might buy a second home

Will they be doing that with all the money they got out of the stock & real estate markets? Keno Winnings? Bottle and can collection?

Drachen
Drachen
11 years ago

I should have mentioned in my previous post, everything is based on 2001 numbers since that was the time line Dave picked.

kuroame
kuroame
11 years ago

***CHHC TO BACK NEW CLASS OF MORTGAGE*****

Vanboom you forgot to include another large segment of potential buyers waiting on the sidelines. This group, previously excluded from the RE market due to discrimination by lenders will be snatching up homes in the spring when the CMHC will start backing a new class of mortgage; The FFCHL (Family Feline and Canine Housing Loan)-also dubbed the "Sub-Prime-Sub-Human Mortgage". Apparently many pets have been chomping at the bone, or sack of catnip, to flee the nest. These new loans, requiring only declared potential future income, will allow them to finally join the ownership society.

The mortgages will be backed by a special fund derived from a one-time, retroactive to 1983, 5000% tax on pet sweaters and booties.

Drachen
Drachen
11 years ago

Dave "Let’s then pick the closest bottom to our current boom which was 2001 when prices were $360k. That would give 6.7% per year, which is higher than my estimate. Again I believe my original numbers went back to the 50’s." So then you'd say it's reasonable to expect that house prices in 2031 (I presume that's condo at 360k?) will be 1.3 million? Over which time median wages should increase about 50% or so. Is that about right? By 2051 it would be nearly 5 million and wages would have about doubled from now. Yeah that sounds reasonable, a family with an income of 120k living in a 5 million dollar condo (rolling eyes). After all that's only 41 times their annual income right? They should be able to pay it off in a few thousand years if they… Read more »

NO -LYMPICS
NO -LYMPICS
11 years ago

Sign of things to come…?

Newfoundland expropriating Abitibi assets

http://business.theglobeandmail.com/servlet/story

ST. JOHN'S — — The Newfoundland and Labrador government is bringing in urgent legislation to expropriate all AbitibiBowater Inc. assets in the province, except the mill in the central Newfoundland town of Grand Falls-Windsor.

Tony Danza
Tony Danza
11 years ago

I would bet a lot of boomers will stay right on living in their homes. If anything, they might buy a second home (e.g. downtown condo) as a weekend getaway.

Then what? Zombie boomers go around buying up every last house on Earth?

There are more Millennials than there are boomers.

Maybe if you include everyone born after the Boomers in the Millenials group. This is the stupidest thing you've said in the last three hours. Check out this link and add its' lessons to your already impressive knowledge base[/sarcasm]:

http://www.ccsd.ca/factsheets/demographics/

paul
11 years ago

Something for those who don't understand how builders go bankrupt.

Shades of things to come for vancouver builders. Did anyone note that the CPI-U numbers were off another 1.9% this morning? It's getting worse faster for people who live in the city. Ad revenues have screeched to a halt causing a huge layoff this morning at SUN MEDIA.

http://albuquerque.bizjournals.com/albuquerque/st

paul
11 years ago

Something for those who don't understand how builders go bankrupt.

Shades of things to come for vancouver builders. Did anyone note that the CPI-U numbers were off another 1.9% this morning? It's getting worse faster for people who live in the city. Ad revenues have screeched to a halt causing a guge layoff this morning at SUN MEDIA.

http://albuquerque.bizjournals.com/albuquerque/st

vancouverboom2
vancouverboom2
11 years ago

BOOM2 DEMAND IN GREATER VANCOUVER There is demand of more than 21,500 unit in greater vancouver beyond 2008. How much demand is currently sitting on the edge of market? FLOOD OF DEMAND 48,000 sellers in 2006 are sitting out to get in at low 50,000 sellers in 2007 are sitting out to get in at low 22,000 sellers in 2008 are sitting out to get in at low 14,000 left over buyer are sitting out to get in at low 134,000+21,500 of 2009=155,500 buyers will be grinding their teeth in 2009,March is expected to be the first month to start showing month over month increase then all these part of 155,500 buyers will be runing to get in $105,000 fake stated gap will be eliminated on snap shots but blogs will be alive why? because bloggers are not really buyers… Read more »

Tony Danza
Tony Danza
11 years ago

Guys take it easy on Dave, he's just trying to butter everyone up for his new Real Estate trading platform. That's right: day trade your way to RE riches! Just imagine the commission cheques!

bcubbins
bcubbins
11 years ago

Dave, your larger point was transparently obvious to all.

But I fear you have missed the point of my comments. Note the use of the third person pronoun "he" instead of the second person "you". My comment was not intended for you at all.

squidly77
squidly77
11 years ago

itll be way worse than 40% closer to 70% i would say..

macchiato
macchiato
11 years ago

squidly77, note the haircut they are calling is for October 2009, not a complete bottom necessarily. This is also just a hypothetical article IF we followed at the US pace.

squidly77
squidly77
11 years ago

the national post is out to lunch only caling for a 40% hair cut for vcr homes..somuch for the uninformed experts

easy to read graphs @ the national post