Welcome!
VancouverPeak.com- admin replied to the forum topic Sandbox. in the group Housing Data
- admin posted an update:
- jesse and Makaya are now friends
- jesse replied to the forum topic Sandbox. in the group Housing Data
- jesse posted an update: CMHC starts, completions and under construction in Vancouver […]
- The Ant started the forum topic BC Population Growth in the group Housing Data
- jesse and The Ant are now friends
- jesse and wreckonomics are now friends
- wreckonomics posted an update: New Year, New HPI. ”Selection Broadens and Demand Eases to […]
- Best place on meth and admin are now friends
Wordpress theme by Abhishek Tripathi of Mediawick Digital Solutions
October 29th, 2009 at 1:50 pm
variability earth http://collaborationproject.or.....leseydaigl
October 29th, 2009 at 1:24 pm
events serious http://collaborationproject.or.....cyannpelle
October 29th, 2009 at 1:18 pm
http://arnoldpalmer.usgamuseum.....;as=111503
October 29th, 2009 at 1:05 pm
half concerns http://nmsua.edu/forums/profile.php?id=1987
October 8th, 2009 at 9:39 am
That ‘ol jobless recovery thing is pesky in’t it?
“In the week ending Oct. 3, the advance figure for seasonally adjusted initial claims was 521,000, a decrease of 33,000 from the previous week’s revised figure of 554,000. The 4-week moving average was 539,750, a decrease of 9,000 from the previous week’s revised average of 548,750.
The advance seasonally adjusted insured unemployment rate was 4.5 percent for the week ending Sept. 26, a decrease of 0.1 percentage point from the prior week’s unrevised rate of 4.6 percent.”
Too bad the numbers aren’t published for Canada. The fools may take pause in their insanity.
Just like another issue that come up. Didn’t the government publish just a few months ago that the Swine (Mexican) Flu was a non issue and that it wasn’t going to effect Canadians. Yep, keep those hotels as full as possible boys. People are dying like flies now and the vaccine thats being distributed in the UK, Eurozone and US won’t be coming to Canada any time soon. Woops
http://www.theprovince.com/hea.....story.html
Its a good thing the foolish sheeple have such short memories. Otherwise you’d think they’d get a bit angry after all the lies lies lies and more manipulation and lies. Who bets that the politicians get the fuck out of town while the rest of us die like pigs in the street?
October 8th, 2009 at 9:08 am
The ‘cocaine high’ of free money seems to be wearing a bit thin. Is it because the real economy won’t support the bubble without more ‘candy’?
http://www.vancouversun.com/bu.....story.html
October 8th, 2009 at 1:59 am
I wouldn’t care about the right or wrong reasons why ppl buy into the market… i wouldn’t mind them buying, building more and more RE since rents reflect only on overall people’s income. It’s just pointless telling them what “fundamental” is.
I will be socking away my savings into high yield investments and when I retire, I will move to other place on the planet where it’s warmer and sunnier.
IMO, don’t get attached to RE…
October 7th, 2009 at 11:49 pm
Yep. I think the West End rental market has been wounded by Rennie’s lifestyle boosterism – in support of (among other projects) Shangri-La, he really talked up the idea of the international pied-a-terre. Maybe that’ll happen – but I’d lay my money on the vacancy rate climbing a bit more, and then rents sinking back down. All that inventory coming online.
October 7th, 2009 at 10:15 pm
Lots of vacancies down here in the West End, where this time last year there were very few.
October 7th, 2009 at 9:07 pm
@read on: True that. Plus, the rate of change is amazing: in purpose built rental buildings it was recently a sliver of a percent.
October 7th, 2009 at 8:54 pm
the 1.5%, as has been repeatedly stated, is a stat for multiple occupancy rental buildings in Van – not a stat for the rental market as a whole. One would think that landlords would do their research and be aware of this. But obviously not.
October 7th, 2009 at 8:06 pm
(Although 3 months in I would have dropped …)
October 7th, 2009 at 8:06 pm
@read on: Well, you don’t drop the price substantially after a single month’s vacancy in a market of 1.5% vacancies. She offered based on the same comps crabman’s using – and she’d bought the current assumptions about the Downtown core. (Live the Lifestyle!)
Anyway she found a renter or she sold. It’s not on Craigslist anymore…
Interestingly, someone used a link to her ad as an example of inexpensive living space out there – there was a link to her on this blog. I’ll see if I can find it.
October 7th, 2009 at 6:53 pm
“For example, there was a single *house* on Comox, with a gorgeous garden, 2 bedrooms and 2 floors, hardwood, etc., going for $2500 that sat open for months. I’d walk by, toured the place, it’s bloody idyllic: and the owner was tearing her hair trying to rent it. That’s a top tier place, but there was so much competition… ”
——–
Stupid bint should have lowever her asking price then.
October 7th, 2009 at 6:32 pm
@crabman: CHMC data on only the West End, as of last year, showed the current *paid* rents, as opposed to advertised rents, between 1-1.75 (lower for larger suites, as per usual.)
That’s because it’s a market in flux, up and then down and then up again, and if I were betting from the sidelines, I’d be gambling at a table too rich for my blood. I certainly would caution people about the numbers there! A lot of speculation: mainly because of Good Old Rennie selling his builds and the “downtown lifestyle”.
Only it hadn’t really been what he was selling – the West End was one of the cities *poor* neighbourhoods, and hell, I went to the raves in the buildings where yuppies sip Starbucks today. So it’s a new population, one that Rennie called, and a hell of a lot of suites to fill, all of which are small.
Which is my point: yes – on the top tier, 2-3 even is not unusual. But there’s a lot of people competing for that top tier and the discount buildings are gentrifying, heeding Rennie’s call.
Of course, Coal Harbour/Yaletown are different markets with different pricing structures (and different amenities) – but they are almost entirely new and top tier.
It may stay what was sold, Manhattan 2, but I’m not sure it’s going to fully transition to a stable version of Rennie’s vision.
For example, there was a single *house* on Comox, with a gorgeous garden, 2 bedrooms and 2 floors, hardwood, etc., going for $2500 that sat open for months. I’d walk by, toured the place, it’s bloody idyllic: and the owner was tearing her hair trying to rent it. That’s a top tier place, but there was so much competition…
October 7th, 2009 at 6:19 pm
yup, the current cap rate locally is about 2-4%. nothing to get excited about that’s for sure. nonetheless i know peoples with 100,000 at ing direct at 1%. yields will rise if government sticks with aggressive reflation. for those that haven’t noticed, the central bank has put the boots to the bond market pretty good the last number of months, could be some foreshadowing. history shows societies only have a fully functional bond market when it suits the majority. a 1970′s senario has a higher probability than a deflationary debt event.
October 7th, 2009 at 5:58 pm
@GG: Having just been through the records on the management of a downtown complex, I would also make sure to calculate in the cost of repainting/steam cleaning, the cost of fixing the place when trashed, the cost of bedbug/vermin control, the cost of insurance, and the cost of legal fees. The mortgage was definitely the largest slice of the operating budget, (on a new reno, so newish mortgage) – but it was probably only, what, 70%?
October 7th, 2009 at 5:49 pm
@Anonymous: I agree with you that availability of cheap money and psychology are what maintains the bubble for now.
I think what the fundamentals point to is a sustainable market. Different people may have different takes on what is sustainable – some, it’s that in which an investor in residential real estate can make some money, for others, it’s when buying is not an incredible risk to your own portfolio.
But whatever *event* breaks this wave, it *has* to break – because some day the free money will run out. We’ve borrowed a lot of tomorrows in order to keep this going today.
October 7th, 2009 at 4:44 pm
@crabman:
The problem is that stocks normally post positive gains in the long term, especially if you have a diversified and sensibly planned portfolio. Real Estate normally has little or no appreciation, it’s only since the mid ’80s in Vancouver where things have been different which is more indicative of a Mega-Bubble than a fundamental change in the financial realities of Real Estate. Factoring market realities into the picture even a die-hard bull has to see that significant appreciation is all but impossible from the current state for the next while.
So… While it may be ‘comparable’ to dividend yield it is not a sensible basis for reaching an investment decision. But it’s a little like saying apples have more energy in them than bacon because they have more sugar. Taking one factor that makes up a data set and comparing it to other things does not give any new information about the whole data set.
October 7th, 2009 at 4:38 pm
@GG: Actually, I think your price and rent numbers are pretty accurate. Downtown rents are in the $2 – $2.20/ft range, and prices are about $550 – $650/ft for decent downtown buildings.
So the price/rent ratio range is 250-325. Your example of $350k and $1,300 would be a ratio of 269.
October 7th, 2009 at 4:29 pm
*Lower Price-to-Rent value.
October 7th, 2009 at 4:29 pm
@Drachen: I think GG is saying that the 1.1% return is without any appreciation. So it is comparable to dividend yield. If the property appreciates above 350k, that gain would be on top of the 1.1%.
Of course, any bump in the road (high vacancy rate, big special assessment, declining rents) and this profit will turn to a loss.
October 7th, 2009 at 4:25 pm
Summary of the main valid points that will lower my calculated yield and support a significant correction:
1. The price and rent values need to be revised with more accurate data. The numbers used might be representing a higher price-to-rent value than the aggregate Van market.
2. High transaction costs of RE (GST + HST on new homes, Realtor fees, Lawyer fees, Property Purchase Tax, etc)
3. Missed rent payments will make the rental income lower. (eg. 1 month missed every 2 years).
4. Investor Psychology will bring prices lower than fundamental value.
5. Comparison with S&P500 dividend yield may be flawed. Perhaps compare with S&P500 absolute return. Also, S&P500 and RE have different risk profiles. Should be comparing with risk-adjusted values by dividing yields by their standard deviations.
Please add if I have missed any…
October 7th, 2009 at 4:01 pm
Just to clarify, for an investment decision to make ANY sense you have to look at your total profit, otherwise you’d pass up a stock that’s doubling in price every year for one that has very little growth with a 5% dividend every year, it just makes no sense at all.
October 7th, 2009 at 3:57 pm
@GG:
So… That doesn’t make any sense.
You need to factor everything in, just taking one part of the equation and leaving the other part out makes this an exercise in futility. The appreciation in stock prices is a part of the investment and because of the liquidity of stocks it’s value as an asset is higher.
Why don’t you compare to bonds which have a 0% return (using your methods) by that standard a savings account in the bank is better.
What I’m trying to say is there’s a fundamental flaw in your reasoning.
October 7th, 2009 at 3:41 pm
“I’ve followed this blog for a while and the analysis is quite good but people that are calling for a 50% drop are just completely out to lunch and are either just simply stupid or have an agenda…. ”
I couldn’t agree more! A %70 or higher decline is much more likely!
October 7th, 2009 at 3:28 pm
@Drachen: The S&P500 yield I am using is *Dividend* yield only and excludes stock price appreciation (this is because I want to compare it to my calculated RE yield which excludes home price appreciation). The quoted dividend yield is the cash dividend paid out to investors (no part of it is retained). You can find the data on Standard and Poor’s website: http://www2.standardandpoors.c.....0,0,0.html
@VultureBoy: The RE yields I calculated are net profit after borrowing costs. If you buy after prices drop 30%, then the calculated 6% yield would be your net profit. The profit is made from the rent you collect and the equity you build in the home after servicing the borrowing cost.
@Patriotized: For the example with monthly cash outflow of $629, you’re compensated by a cash inflow of $350K after 25 years. This is where the positive yield comes from.
October 7th, 2009 at 3:27 pm
@observer: Don’t bog yourself down with the perpetuity formula and 3.4% yield – it is only for a special point on the yield graph where the 25-yr mortgage rate = yield rate = 3.4%. Only at that point, all curves intersect since the yield will not be affected by your down payment. This is because your 3.4% yield services your 3.4% borrowing cost leaving you with a 3.4% return on your down payment (which can be any value from $0-$350K).
Also note that the present value of the perpetuity on any given date is always $350K. This is because at any given date, the same future (infinite) cash flow stream is remaining. You can therefore sell the property after N years for $350K. You’ll still earn the annual 3.4%, but just for N years.
For this special point, you can calculate the Present Value 3 different ways and get the same result:
1. Perpetuity formula: PV = Annual Income / Rate = 12K / 3.4%.
2. Annuity formula: PV(r = 3.4%, N = 25, PMT = +$12K, and FV = +$350K)
3. The “long way” explicitly takes into account the mortgage payments and down payment. It is calculated by:
i) Mortgage payment = PMT(r = 3.4%/12, N = 25×12, PV = – ($350K – down), FV = 0)
ii) Net annual investment = (Mortgage pmt – Rent + Maintenance + Tax) x 12.
iii) PV = PV(r = 3.4%, N = 25, PMT = – Annual investment, PV = -Down, FV = + $350K).
October 7th, 2009 at 2:15 pm
GG,
Great question – good analysis. As your analysis points out, this all boils down to required rate of return in order to hold real estate which in real estate is often summarized by Cap rates, and in my opinion really comes down to your weighted average cost of capital (WACC). To calculate either you need to assume a cost of debt, a leverage ratio, and cost of equity.
1. IMO the cost of debt can’t get any lower so this must rise.
2. Leverage ratio’s with the financial crisis should be coming down
3. Ones desired return on equity (ROE).
ROE is a magical question. As patriotzed points out market ROE for Boardwalk and others is 8%+ today which should rise as interest rates rise to maintain a constant market risk premium. A public vehicle like this has lower ROE requirements when compared to a SFH due to diversification of risk and liquidity of the equity. A private SFH should have a substantially higher ROE.
IMO longterm interest rates are artificially low at the moment due to market intervention by governments, and by historical standards. Coupled with a higher ROE bar I would say my cap rate or WACC on a long term basis should be higher than 6% and therefore RE should drop more than 30%.
Lastly, of high importance. Everyone chooses their own ROE. This is a function of perception of risk and investment alternatives. At the moment I know people of substantial wealth that are happy to clip coupons (rent) at a yield of 3.4% vs. a 30 day BA at 0.25%. Market volatility has driven them to cash holdings and they can touch and feel RE and therefore perceive low risk.
October 7th, 2009 at 1:52 pm
The analysis by GG may require some tweaking as noted in previous comments but the underlying theme appears consistent with what is going on in the market. The units that are selling are the “lower” priced condos as they can still, for now, command a rent that can generate a positive return (whether it is a good return is up for debate). The rents do not keep pace as you get to the higher end of the market as you can rent a million dollar condo for $2,500-$3,000. The compression is happening because of the reality that the salaries in Vancouver do not support higher rents. My anecdotal evidence is only from the downtown area and may not apply to the greater metro region as a whole.
October 7th, 2009 at 1:22 pm
That’s not an investment, that’s an operating loss. You’re selling the use of the property for less than it’s costing you. An investment is when you purchase capital. The loss is actually reducing your savings, i.e. your capacity to invest.
You couldn’t make up stuff like this.
October 7th, 2009 at 12:53 pm
If you include a vacancy of 1 month every 2 years, and assume $500/year in repairs/maintenance/assessments (low), this would increase your negative monthly cash flow to:
$629 + $1,300/24 + $500/12 = $725.
Assuming 4% inflation, you will be cash flow positive in 15 years. Over those 15-years, you will have forked out over $91k!
In order to have positive cash flow from day 1 with a $100k down payment, that condo would have to cost $237k (33% less).
October 7th, 2009 at 12:35 pm
12:27 PM – Ozzie Jurrock on Global TV. SFH +154%. He really sqirmed when pressed if the numbers are yoy.
Buy now or be priced out forever!
PIMP!
October 7th, 2009 at 12:30 pm
TD economist suggest cooling market? says free money may have had an effect? Sic ‘em soupy.
http://www.financialpost.com/story.html?id=2078270
October 7th, 2009 at 12:25 pm
@Drachen: Sure, okay, not ALL.
One should NEVER say ‘all’…
October 7th, 2009 at 12:09 pm
I think ALL purchases might be a stretch, most is more realistic, my wife always says to me that if we win the lottery we should buy a place now even if it means losing lots of money in the long run. There have to be a few other people who share her psychology and simply have enough that they want a home of their own and don’t care that it’s a losing proposition.
Look at Laliberté for example, $35 million on a trip, why wouldn’t someone like that shrug off future losses on a house as well?
October 7th, 2009 at 12:08 pm
@Anonymous:
Speaking of pure Chinese, Hong Kong saw a 57% real price decline from 1997 to 2002.
Put that in your wok and fry it.
http://knowledge.wharton.upenn.....cleid=1194
October 7th, 2009 at 11:50 am
@Anonymous: Hordes of people wanting to buy houses will be stepping in, though.
A fair point to raise, but will that be the case?
I agree with Drachen (#61) that we have borrowed from future demand.
Furthermore, I have always maintained that ALL current Vancouver RE purchases (and those from about 2005 onwards) have a BUILT-IN speculative component in that even those seemingly innocent young FTBs, and move-upper families, who appear to simply be buying for their own use, are actually buying with the built-in expectation of substantial future price gains.
So, if people were guaranteed that prices would be flat in Vancouver RE for the next 5 or 10 years, how many would be buying to the limits of affordability right now? I suspect far fewer than are actually doing so.
And, what if they now see prices drop 10%, 15% , 20%… the whole speculative magnet will leave the market.
As I’ve said elsewhere, I suspect that the crucial support level is 15% below peak (the prior trough prices of winter 2008-2009). Once that level is broached, we’ll see supply coming in from speculators, and those truly buying for their own use will sit on their hands awaiting the whole thing to play out. Unexpected interest rate drops will not bail the market out second time around.
October 7th, 2009 at 11:33 am
@Anonymous:
I’m not so sure. Low interest rates and the overall mass psychology of the RE market here have combined to annihilate future demand. Most of my friends and family could not afford to buy their home now. That’s not the sign of a healthy housing market.
October 7th, 2009 at 11:27 am
@Anonymous: Hordes of people wanting to buy houses will be stepping in, though.
The problem with that concept is home ownership is at record high levels, there simply AREN’T hordes of people on the sidelines and I’d say many if not most of the people wanting to buy right now are sitting out partly because they have some financial common sense and they’ll wait until prices make more sense.
October 7th, 2009 at 11:16 am
@rentah: So, it doesn’t look like RE will become an attractive investment at 30% off, and hordes of investors will NOT be stepping in to buy at that point.
Indeed. Hordes of people wanting to buy houses will be stepping in, though. Not everyone crunches numbers like some of you guys do because they do not see housing as an investment asset. If 99% of a market segment is using different rationale for buying and selling decisions than your model is using then unfortunately your model is worthless. Even if it’s not wrong (if you know what I mean).
October 7th, 2009 at 11:00 am
@stockwhisperer: “calling for a 50-70% drop is just a mockery of human intelligence and doesn’t even deserve a response.”
Yeah, like the idea that Nortel at 125 would sell for 1 buck, or that gold at 250 would go to 1000, or that Lehman Bros would disappear, or that the Olympic Village would be a bust, or that… you get my drift.
In these economic climes, EVERY hypothesis deserves some consideration..
So, stockwhisperer, humour us and share the basis of your position: What analysis leads you to believe that 50%-off Vancouver RE prices is so preposterous a notion?
October 7th, 2009 at 10:45 am
“You are out to lunch. 50% is definitely in the cards. 60-70% is not out of the question in Vancouver. It is one of the most overpriced areas in the world and completely detached from fundamental reality.
Look at some charts and develop some math skills. ”
Stay anonymous…. prices will be up 5-10 years from now without any huge price drops.. and when I say huge I’m saying 15%+.. calling for a 50-70% drop is just a mockery of human intelligence and doesn’t even deserve a response.
October 7th, 2009 at 10:33 am
I would want double what a risk free bond would yield and I would like it to be managed by professionals not me and the maintenance should include special assessments. The monthly cost for these two items is substantial. For example a $50,000 special assessment every 10 years would amount to $416 per month. You can ask Mr Chipman or Strataman what they would charge to manage the place or you can just pay yourself nothing as most amateur landlords do.
My $50,000 over 10 years may be high but here is a link to repairs costs of $118,000 over a 14 year period or $702 per month.
http://www.cbc.ca/canada/briti.....owers.html
October 7th, 2009 at 10:10 am
Interesting posit on ‘gold-real estate’ valuations
http://urbansurvival.com/week.htm
October 7th, 2009 at 10:06 am
Based on this analysis I now believe that Vancouver prices are pretty inexpensive by international standards. Since Vancouver is soon to be a internationally known OLYMPIC CITY™ it only makes sense for the yield on rental units to be lower than S&P yields. It’s about status. Uropeans and international sissy pants don’t believe in profits and yields they believe in status and global communities and sitting around listening to terrorists make rambling speeches.
October 7th, 2009 at 10:05 am
They are just plain stupid and ignoring the pure Chinese factor behind the Van real estate.
October 7th, 2009 at 9:57 am
“I’ve followed this blog for a while and the analysis is quite good but people that are calling for a 50% drop are just completely out to lunch and are either just simply stupid or have an agenda…”
You are out to lunch. 50% is definitely in the cards. 60-70% is not out of the question in Vancouver. It is one of the most overpriced areas in the world and completely detached from fundamental reality.
Look at some charts and develop some math skills.
October 7th, 2009 at 9:48 am
@patriotz:
#46 P, you’re absolutley right about the ‘problem’ of homelessness being misunderstood and horribly mishandled. You are astutley correct by differentiating between the drug addicted, the mentally ill from the working poor and street population.
Mentally ill persons were turned out of institutions and were expected to show up to the clinics (envisioned but never established) for care and medication supervision. I hate to put too fine a point on it, but the reason these persons were institutionalized in the first place was because they couldn’t be responsible for themselves or their actions.
I guess thats why they call it ‘insane’ as opposed to ‘sane’. The politicians and all associated with the perpetuation of this degradation of helpless and sick people should be utterly ashamed of themselves. Lets start there and work our way up to solving the ‘problem’.
Meanwhile I see that the IOC is publicly distancing itself from the ‘rabid dog fest’ the RCMP have envisioned for the games. The atmosphere is so vicious and Stalinistic that only N.Korea would agree to the ‘security plan’ as envisioned by the RCMP.
http://www.vancouversun.com/
Entities, citizens groups and organizations all are appalled by the actions taken so far and are speaking out. Finally, the dark spectre of a police force out of control is barking in peoples faces and its a scary scene the the RCMP are planning.
PS, I’m pretty sure I heard Greg ( the boy mayor)state that he would eliminate homelessness by 2015. Thats why I have been laughing at the Vision teams antics to misdirect the issue to bike paths , silly bridges and world tours. C’mon you have to admit that its all been a real goon show from the get go.
October 7th, 2009 at 9:45 am
As much as I want to market crash, you are looking at the wrong direct at this particular moment.
Looking fundamentals are worthless. They have been out of whack for a long long time and continue to be like that. The most important thing is AVAILABILITY OF MONEY and people psychology for this funny little vancouver housing market.
It will correct to fundamental someday, but the reasons for correction wouldn’t be out of whack ratios of household income or ROE. It takes me 5-6 years to learn this, don’t be too stubbon.