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
RSS 2.0 comments feed. Both comments and pings are currently closed.
December 16th, 2008 at 3:18 pm
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
December 16th, 2008 at 2:12 pm
Pope, thanks for the story ranking system, unfortunately it appears that “0″ stars is not an option?
December 16th, 2008 at 1:49 pm
“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.
December 16th, 2008 at 1:30 pm
johnd:
i b 57 a much reviled boomer and have been
following the bear blogs since early ’04
HBB and patrick.net
December 16th, 2008 at 12:38 pm
That’s really funny, blueskies. Guess I didn’t know this was high school all over again. How old are you???
JD
December 16th, 2008 at 12:34 pm
johnd:
unlike yourself betamax has earned his bear stripes…. been around since at least HBB….
December 16th, 2008 at 12:21 pm
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.
December 16th, 2008 at 12:09 pm
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!!!”
December 16th, 2008 at 12:00 pm
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.
December 16th, 2008 at 10:49 am
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?
December 16th, 2008 at 10:39 am
I should have mentioned in my previous post, everything is based on 2001 numbers since that was the time line Dave picked.
December 16th, 2008 at 10:32 am
***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.
December 16th, 2008 at 10:28 am
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 eat nothing but dirt, buy nothing and walk to work.
December 16th, 2008 at 10:22 am
Sign of things to come…?
Newfoundland expropriating Abitibi assets
http://business.theglobeandmai.....iness/home
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.
December 16th, 2008 at 9:46 am
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/
December 16th, 2008 at 9:30 am
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.....1229317200^1746799
December 16th, 2008 at 9:30 am
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.....1229317200^1746799
December 16th, 2008 at 9:29 am
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 but how to kill their office time is a main concern for them.
Topic Question Are we there yet?
Answer we are definitley there
NEXT SHOW IS ABOVE TO BEGUN
December 16th, 2008 at 9:26 am
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!
December 16th, 2008 at 9:21 am
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.
December 16th, 2008 at 7:47 am
Dave, I tried to do this, but you wouldn’t give me the information I needed to verify your claims for myself. Which two years are you using for your endpoints? That’s all the info I need, yet you won’t give it…
Again, it was a number I calculated months or years ago.
In any case, let’s pick 1975 as a start when prices were at $67k for a SFH in GV. That was prior to the late 70′s/early 80′s run-up and is roughly a bottom. 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.
UBC has the average nominal growth rate from 1976 at 8% per year.
So by no means, am I trying to cherry pick data to give higher numbers.
December 16th, 2008 at 7:33 am
What do you think will happen, long term and based on demographics, as boomers continue exiting the market and / or downgrading? Think about it.
There are more Millennials than there are boomers. So there will be demand assuming the Millennials exit the market and downgrade. But I haven’t seen any data to back up your claim. 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.
Notwithstanding the above, our population is still growing. More people = more housing demand.
December 16th, 2008 at 5:59 am
itll be way worse than 40% closer to 70% i would say..
December 16th, 2008 at 5:58 am
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.
December 16th, 2008 at 5:33 am
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
December 16th, 2008 at 1:29 am
It’s not a new argument and and it’s a lousy argument and it was done to death long ago.
Pope, if this is an example of the ‘new direction’ for this blog then you won’t need to shut it down; it’ll die of its own accord. Please, lets stick to current news stories, not recycled crap from long ago.
December 16th, 2008 at 12:00 am
Those three questions are relevant, but not sufficient if you are buying a house to live in. IMHO you should always compare the cost of owning vs renting a comparable property before you decide which way to go. After all, the intrinsic value of a house is that it gives you a place to live in.
Let’s say I buy the place I am currently renting (or a comparable unit) with 25% down and a 25 year mortgage. I will be paying more in interest alone, than my current rent. I will have to cover also the transactional costs, strata fees (it is a condo) and the property taxes.
If I am going to pay a premium for owning, I need at least to be clear about how much is it and objectively assess if it makes sense for me (and all those in my family who depend on my financial decisions).
December 15th, 2008 at 11:53 pm
i think dave’s post was very well designed for its intent, it got everyone’s attention and opinion. peoples could take it at face value or react to the nerve it hit. quite clever, would be tough to encore.
December 15th, 2008 at 11:02 pm
Quoting Dave:
“My ego isn’t so big that I feel a need to defend every minutia. Don’t trust my 5.5% value? Then why don’t you check it yourself before discounting it?”
Dave, I tried to do this, but you wouldn’t give me the information I needed to verify your claims for myself. Which two years are you using for your endpoints? That’s all the info I need, yet you won’t give it…
December 15th, 2008 at 10:41 pm
Dave and everyone else,
This post is 100% fail without posting pictures.
Nowhere on the tuberwebs have I ever seen any kind of technical analysis without associated graphs, charts, etc. You can’t just state the results of your TA analysis without pointing out with pictures how you got to the result.
Furthermore, I think if you went back further than the boomer generation reaching adulthood, you would come to an entirely different conclusion. Most housing price graphs have two slopes, with the second slope ramping much faster due to simple demographics (as boomers started reaching adulthood, they bought more houses and stocks, giving a steeper slope.)
What do you think will happen, long term and based on demographics, as boomers continue exiting the market and / or downgrading? Think about it.
Second point. TA is crap, and it only works for those who trade the fundamentals using TA for entry and exit points. Speculating on housing, and TA is synonymous with speculation based on the bible of investing (“The Intelligent Investor” by Bill Graham) using TA without taking into account the fundamentals is just downright stupid. The fundamentals are WAAY out of wack.
Dave. We were in agreement for a while there – or at least we had a truce.
This post is 100% fail.
December 15th, 2008 at 10:26 pm
housing hits 20 year lows.
but not to worry, CREA says your home may be worth more than you think.
December 15th, 2008 at 10:11 pm
bcubbins, you are missing the larger point. The purpose of the article was not to present a detailed assessment that would withstand the scrutiny of a PhD defense. I could easily write a few pages, posts numbers and graphs but I think it takes away from the article. You can either accept my numbers at face value or not. My ego isn’t so big that I feel a need to defend every minutia. Don’t trust my 5.5% value? Then why don’t you check it yourself before discounting it?
I am not advocating that anybody use technical analysis or fundamental analysis. Feel free to evaluate things as you see fit. I am interested in considering both points of view and that’s why I presented a quick prediction using technical analysis.
Largely opinion? Uhhh…. no kidding. What do you think this is?
That’s not technical analysis? Please. You are only showing your ignorance.
December 15th, 2008 at 9:50 pm
ellery, Thanks for a thoughtful post. I had seen a few of Dave’s posts before, but haven’t been following this blog very faithfully for the past six months or longer, so your comment is appreciated. I see realtor-think from infrequent posters in another blog, and it seems they can’t be chased away for very long. It gets wearying. I personally think they have a kind of cult mindset … i.e., an unassailable system of beliefs that leads, for example, to the “classic” realtor-think questions Dave asks. Now if I respond to the post and not the history, I can handle my feelings. And I worry that if as a group we don’t respond to the post, then newbies don’t get a credible view. More importantly, we can look like intolerant wierdos. The ideas here and earlier on VHB are familiar to many and well-supported by fact, but these are “new” to a few first-time readers. As for the post itself, I wouldn’t give it a thumbs up, but as you of course acknowledged, it’s Pope’s blog … and out of respect for the Pope …
December 15th, 2008 at 9:46 pm
A well-researched and written bullish article would be welcome. This one is B.S.
Dave pulls “facts” out of his ass. He implies that technical analysis is an accepted method of real estate valuation. He claims 5.5% annual appreciation as if it were established fact, failing to mention that it was a number he came up with himself. And when pressed, he can’t even tell us how he derived it.
The article is full of weaselly phrases. “Real estate has appreciated” [where? in Vancouver? North America? the whole world?] “over the long term” [over what years exactly?] “Using a similar approach” [how did it differ? what was the base year? why was that year selected?] “fair value was estimated” [by Dave or someone else?]
The article is largely opinion. “I think $630k is…”, “I think we have…”, “I think we are asking…”, “I think the following…”. Newspapers clearly distinguish opinion pieces from the real news reporting.
And lastly, it culminates in a ridiculous straw man argument: “Why are so many people consumed with buying at the absolute bottom?” [Could he point out a single person "consumed with buying at the absolute bottom"?]
Oh, and “simply looking at past trends and assuming history will repeat itself” is not technical analysis, it is the root cause of all bubbles.
December 15th, 2008 at 9:35 pm
““A point to consider is that index funds outperform fund managers about 80% of the time.”
Uhhh, are you sure it isn’t 51%
Now go through the archives and find one thing you’ve said that hasn’t been completely wrong, false or misleading”
Actually he’s right here. Mutual funds have to charge significant management fees in order to be profitable (paying for a research team, advertising, etc.), which drives down average return. I don’t know if the number is 80%, but it is quite large. Most mutual funds are not worth investing in.
December 15th, 2008 at 9:27 pm
“With a record of 0 for 4 and 1 still in doubt why should we give any credence to your obviously flawed method?”
His method works, he’s just been holding the graphs upside-down.
December 15th, 2008 at 8:22 pm
I’ll add my voice to those who say Dave (and others who share his views) should continue posting. I may not agree much with what he says, but his contributions keeps things lively.
Oh, and brownnuts, browntown, brownslaps or whatever, keep posting, too. You’re hilarious!
December 15th, 2008 at 8:12 pm
Just a reminder check the name section it sometimes fills it in with a previous poster name otherwise you will post under their name.
December 15th, 2008 at 7:34 pm
Also, as to the answer to #3, I think 5 years is far too little time to spend in a particular house/condo.
Over 5 years, if you consider the PPT and realtor fees, on a cheap property (cheap for this market– say $500K), you’re looking at:
$ 9,000 : Property purchase and transfer tax
$18,000 : Realtor fees, including GST
$ 2,000 : Lawyer,notary, inspections
——–
$29,000 : Total cost to purchase and later sell a property
This is $483 per month, when averaged out over 5 years. $483 per month covers a lot of your rent cheque.
On my last condo (which I lived in for 2.5 years), the market rose rapidly, so I didn’t really take much of a hit from the transaction costs. In a flat to declining market, you’re going to be paying every penny of those transaction costs out-of-pocket.
My recommendation to would-be buyers: rent, and when you buy, make sure it’s a place that will suit you for at least 10 years, or better even for the rest of your life. My next place I’m aiming to have a lifetime property. Maybe the house will need replacement, but I’m planning on keeping the same piece of land.
December 15th, 2008 at 6:25 pm
Are we there yet? No
1. Can I afford it? Hell no
2. Do I like the product and the location? Yes!
3. Will I live there for a reasonable period of time (at least 5 years)?
See answer to #1
after 88 straight months of increasing prices
and approx 6 months of decreasing prices we are not “there” yet.
after doing some intensive technical analysis (2 beers) i’d suggest we have another 70+ months of sliding prices blogfroth notwithstanding…..
December 15th, 2008 at 6:17 pm
kuroame Says:
“the group who bought into the RE bubble were also found to have sex many times more frequently than the dead group.”
Sounds plausible, however coming from a RE pumper, such statements must be critically evaluated, with a healthy dose of cynicism.
Questions must be asked:
Was it solo sex?
Was it with the Palm Twins?
Was it with a biological object?
BTW, kuroame, are you the pumper who used to pump and pump RE in San Diego?
December 15th, 2008 at 6:16 pm
kuroame Says:
“the group who bought into the RE bubble were also found to have sex many times more frequently than the dead group.”
Sounds plausible, however coming from a RE pumper, such statements must be critically evaluated, with a healthy dose of cynicism.
Questions must be asked:
Was it solo sex?
Was it with the Palm Twins?
Was it with a biological object?
BTW, kuroame, are you the pumper who used to pump and pump RE in San Diego?
December 15th, 2008 at 5:59 pm
oh yeah, nutmaster dave back in saddle! 15% down? avoid to much bear kool-aid dave! because remembers
“they may find bdk at stongs but they won’t find vancouver house at 100 time rent”
December 15th, 2008 at 5:56 pm
Dan in Calgary & anyone else who wonders abou the anti-Davism of the blog:
I guess if you don’t read the blog on a regular basis it looks like a kneejerk reaction. However, I remember when Dave first started posting and many bears were very courteous and encouraged eachother to be civil to a newcomer with different opinions.
Over time, unfortunately, Dave has proven to be be mostly talking points and very little data. He almost never links to anything (as many others here do regularly), and mostly “asserts” things using “common sense”. Frequently, he has refused to answer direct questions and changes the subject again and again. He also had the stupidest argument in history on Paul Boenisch’s blog in which he made bets and then kept changing small details to win (even though he ended up losing anyway). He completely derailed that blog for awhile.
Dave’s main purpose is to play on readers’ fear and doubts about “missing the market ” again. Coupled with his generic talking points I am very sure that he is either a troll or a realtor or both and has very little to offer.
I have bullish friends in real life that I listen to, in order to make sure that I don’t get too much of an unbalanced picture. Word to the wise: don’t pick Dave as your personal Bull.
Pope, I kind of can’t believe you let him post, based on his history, but it’s still your blog.
December 15th, 2008 at 5:48 pm
BMO raising more capital.
Hmmm… third big canadian bank to raise money… hmm… big bank raising more money…. hmmm… where have i seen this before?… what’s that place called again?… was it the US of A?