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jesse
10 years ago

@Anonymous: "While we do not know what this “something other” is"

If this guy can't explain it, would you rely on this "something other" dark matter to be present to seemingly make an investment worthwhile? No thanks; there are plenty of other investments around with better returns and tangible business cases to boot.

Anonymous
Anonymous
10 years ago

Another result is that almost all of the movement in the aggregate U.S. price-rent ratio was accounted for by two factors—the proxy for future growth in rents and the proxy for future returns. Put another way, other factors, such as bubbles, do not appear to be empirically important for explaining the behavior of the aggregate price-rent ratio. At the same time, when applied to local real estate markets, in many cases the movement in the price-rent ratio predicted by the model is much greater than the actual movement; specifically, the results indicate that something other than our measures of future rent growth and returns explains price-rent ratios. While we do not know what this “something other” is, the more common overstatement of volatility is caused by a much stronger comovement between the price-rent ratio and future returns than the comovement… Read more »

Anonymous
Anonymous
10 years ago

In public moron valley dwellers like Gordon C. are ignored or treated like retards for being uneducated and on the slow side.

On a blog they can talk a big game.

Here's a tip. Stupid on the street is stupid behind the screen it's just you can't see people dismissing you for being a dumbass that lives in the valley.

Anonymous
Anonymous
10 years ago

#134 Gordon i call troll.

Condo means shared ownership. google it or google strata ownership.

An apartment is a condo.

Most of UBC is leasehold but obviously you'd know that if you were from Vancouver, they have new"condos" all over UBC.

Maybe out in Chilliwack things are different than the rest of the world. I don't really care about your hood in the 'Wack or your job as a cabbie though this is about Vancouver.

Smart money is out. Just like Boobie's own daughter doesn't even "own" a condo she rents! Boob himself! The one claiming rich russians and people from mars were headed here at any costs.

No not the same guy who said rich germans were coming in 1981 but clearly using the same speech.

warptweet
warptweet
10 years ago

Hey superduperbulltime : Once you and your bull friends see the market sentiment turn down, the for sales signs will appear faster than a Chinese acrobat checking himself for cellulite! Meanwhile I am comfortable in my 5 acre 4000 sq ft rented home in South Surrey. I love Asian investors more everyday I live in this place. I pay less than half of what It would cost to buy it on a monthly basis, and I live in a mansion while my landlords are watching the for sale signs pop up in this area like mold in a grow op home. The landlords are subsidizing me to the tune of at least $3000.00 a month while they wait for a future development to come and "save" them. According to my calculations I would be an idiot to buy now and… Read more »

Absinthe
Absinthe
10 years ago

@Gordon C.: Here's a great paper from 2004 – Fed economists noting and explaining the change in P/R in the States. They were shy on calling a bubble. But what they did say – "We found that most of the variance in the price-rent ratio is due to changes in future returns and not to changes in rents." We all agree that speculation is the problem in this market. This is just one measure of speculation. I think we can all agree that this is true: people haven't been building as many purpose-built rental buildings because the return doesn't make sense, but the ownership market keeps chugging along. Some of this is due to tax and zoning and regulatory differences; some to the fact that the commercial investor isn't encouraged to maximize his/her loan by putting only 5% down and… Read more »

jesse
10 years ago

@Gordon C.: "Which means that the Price to Rent ratio can not be a fundamental of real estate as it only applies in some cases, and for condominiums and houses there is no such thing as Fundamental or Investment Value." On that point we must agree to disagree. An investor competing with an owner-occupier receives no benefits of ownership so accepts a lower yield. On the other point, I think we shouldn't get into silly side debates. Of course GRM is a spot value where IRR takes into account other variables. GRM is one thing that helps determine IRR so the two are not completely independent. My thesis is that cash flows, both revenue and expenses, for properties like condos or condominiums are stable. The amount one budgets for maintenance and general upkeep can be abstracted into a fixed amount… Read more »

Gordon C.
Gordon C.
10 years ago

Okay Patriotz.

Tell me, when was the last time that home owners did not want to buy a home to live in, leaving only investors to set the market for individual condos or houses?

Gordon C.
Gordon C.
10 years ago

Jessie and VHB, I have laid out my arguments.

Okay show me. Show me how you can estimate a yield from a GRM.

Show me how you can derive a yield rate starting from a price to rent ratio of say 200.

Would you like a knife and fork with your crow?

Gordon C.
Gordon C.
10 years ago

Jessie, I'm not saying it. The market shows it. There is no opinion. Apartments suites sell for less than condominiums. The proof is in the MLS. On a per unit basis, the public pay more for condominiums, than investors pay for apartment blocks. The opinion part to my statement, is that home ownership has a value over and above that of an investment. And if someone wishes to buy a condo as an investment, they have to compete with the home owner. The sale price being the highest of the two – and that would be home ownership. Very few home owners consider buying a 10 suite apartment building for home occupation. If they do, then it is only one suite out of the 10. So they are not in competition with home owners – they are in competition with… Read more »

jesse
10 years ago

@Gordon C.: "I’ll make it simple for you

There is none."

Are you serious? What do you do for a living again? You make BabyJesus cry.

Gordon C.
Gordon C.
10 years ago

I'll make it simple for you

There is none.

VHB
VHB
10 years ago

@Gordon C.: Thanks, but I don't need to learn things from youtube. An IRR is an IRR and a yield is a yield. If you can't figure out the relationship between the GRM and a yield, then I'm afraid I can't help you.

jesse
10 years ago

@Gordon C.: "For a condominium, the value of home ownership bids up the price over the income stream."

Ahh that explains why it's cheaper to rent a car than to buy it. Oh no wait, it isn't. But of course housing lives in bizzarro world where owning is justifiably more expensive. I don't think so.

I see many condos that are professionally managed and in their essence no different from apartment blocks. Why are the priced differently? Condos carry the same risk, if not more. If you're telling me it's because investors are willing to accept a lower return, all I can say is good luck with that one in the long term.

patriotz
10 years ago

@Gordon C.:

If you want to buy a condominium for an investment – then you have to compete with the home owner and pay the price of home ownership. To say than houses and condominiums will revert to “investment value” is ludicrous.

Your first sentence above is the very reason why prices cannot remain above investment value long term.

You just don't get it.

Gordon C.
Gordon C.
10 years ago

And VHB said: Bonus marks if you can then explain how the yields of assets (when compared to prevailing risk-free rates) can be used to make comparisons through time. —————————————————– Sorry old boy, that's an internal rate of return (IRR) NOT a GRM. Using an IRR (look it up on youtube) provides the yield on the investment. The GRM is just a unit of comparison, like a price per suite or a price per square foot. ————————————————— And Jessie, to use a Discount Cash Flow (DCF) analysis on a condominium is silly. You use a DCF analysis on shopping centres and hotels. While a house or a condo owner may call their property an investment, that does not follow that their properties are a going concern. A nice example of this is a 10 suite apartment block and a condominium.… Read more »

Anonymous
Anonymous
10 years ago

@BCite: BCite you are either a lying realwhore or you haven't really started looking yet. The Fraser Valley has among the highest vacancy rates in the country, at almost seven percent (official rate, but is probably higher for individually owned condos and basement suites).

Come on, I know of people renting the top halves of large houses in Coquitlam in the $1100-1200 range, same goes for decent family townhouses in Port Moody. No way Langley doesn't have better deals.

http://www.marketwire.com/press-release/CMHC-Nati

Or better yet, check Metro Vancouver Housing, you can get something nice in the $1000 range.

patriotz
10 years ago

@Chilled (quoting):

"Huge crowds at Costco this morning to beat the HST, a few people were holding up the lines at the cashiers because their purchases exceeded their Visa’s credit limit."

The same idiot rush as the RE buyers – trying to beat a tax change that won't even happen.

At least the stuff from Costco isn't going to get cheaper.

crashcow
10 years ago

asia celebrating canada day with red ink…
http://finance.yahoo.com/intlindices?e=asia

jesse
10 years ago

Another fascinating article from Landlord Rescue. Worth a read.

jesse
10 years ago

@Gordon C.: "The ratio has never been stagnate at any time in the last 30 years." A look at individual stock PE ratios shows volatility too. A school of thought with investment states that one invests when P/E ratios are below long term average, assuming one has the cash to do so. As I mentioned, it's important to separate market value from investment value. In real estate in the past 30 years, the time window when an investment has been worthwhile (from a discounted cash flow perspective) has been relatively small but it does happen. This is partly because of the factors you mention (greed, politics, etc.) — markets have become distorted by fits of speculation and this leads to volatility, though valuations at some point reach "fundamental" value (i.e. sum of discounted cash flows) during these violent swings. Again,… Read more »

anonymous
anonymous
10 years ago

@ReadyToPop: @Anonymous: My in-law's neighbor shipped their youngest child (2nd child) to the grandparents in China as well so that the wife could go back to work. The couple bought the house in 2008 (east van) and have at least 2 sets of tenants living in their basement, possibly 3 as the carport (van special) was converted to a living space. One of the other neighbors suspects the carport suite neither has plumbing nor access to the washroom as they regularly smell urine wafting into their backyard. My in-laws have caught the couple, or the tenants, dumping their garbage in other people's trash bins as theirs is completely full (further indicating over capacity). It's scary to think the lengths some immigrants will go to in order to afford living in Vancouver. Unfortunately my in-laws and their neighbors put up with… Read more »

jesse
10 years ago

@Gordon C.: "looking at NET income streams, you have completely forgotten about expenses. That would mean your price rent ratio assumes, that expenses increase proportionally to rents. THEY DON’T" Expenses are reasonably predictable with housing and they are accounted for because they are predictable, though with some risk. Accounting for maintenance and other expenses is not rocket science and certainly way more predictable than other businesses' expenses. It is, in my opinion, a poor choice to use prevailing winds to determine how to invest in an asset with multi-decade useful life. A look south of the border — and at previous busts in Vancouver — show how wrong some of the assumptions used for appraisals have been. I also think it's worth separating market price from investment value; how I would determine market price for the next 5 years is… Read more »

stagnate
stagnate
10 years ago

a-sharp says:

I was hoping for the “recovery/higher rates” RE decline…but instead we get the “double dip recession” decline.

a 5-15% decline was baked in the cake no matter what, i've said for years that 2007 values are appropriate for this market and still do. a market where demand exceeds supply for sfh lots is going to be interest rate sensitive. low interest rates this fall will provide support but i don't expect the bounce back like we did in 2009. indeed the fake recovery/higher rates senario would have been more bearish for the local market.

Peter Pan
Peter Pan
10 years ago

@bridgeman – Post 54

You make a good point… George Soros explained the concept of reflexivity in his books… The reaction to an economic even reinforces that event… In the case of Vancouver real estate, bulls believe the price of their pile of bricks is independent from the easy money which allows others to bid up the price of similar piles of bricks.

They forget price is the dependent variable and interest rates/junk underwriting are independent.