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July 7th, 2010 at 2:10 pm
@VHB: Can I make an appointment to get my brakes done on my car?
July 7th, 2010 at 2:08 pm
I am thinking of Rona or Canadian tire as possible shorts. RON.TO has a nice head and shoulder pattern forming and does not have an auto repair business to fall back on the way Canadian Tire has.
July 7th, 2010 at 2:05 pm
@Gordon C.: I showed the annual percentage yield on an asset. The yield on an asset is the income divided by the price.
The source you cite has very particular narrow definitions of very particular types of yield calculations. Those are all different types of yields–and that’s fine. But those are not the only applications of the principle of calculating yields.
What I did is to take the general principle of calculating yields (income divided by price) and apply it to real estate, as you would any asset.
That may not be in your text book, but some of us don’t have to scurry for a textbook definition for something so basic as the current yield on an asset.
And yes, all I did was to invert the GRM and multiply by 12. Because that’s how the math is done. I’m sorry it’s not more complicated than that.
July 7th, 2010 at 1:59 pm
@Gordon C.:
No it doesn’t. Yield for any equity (i.e. any asset for which there is no obligation for a party to redeem at some point in the future) is based only on price and earnings. And earnings are known only looking backward, and are estimated going forward.
Fixed income assets such as bonds do include the redemption price when calculating yield to maturity, because the issuer has an obligation to repay. That’s what counts, not “expectations”.
July 7th, 2010 at 1:46 pm
Yield Rate (Y)
A rate of return on capital for a specific time period, usually expressed as a compound annual percentage rate. A yield rate considers all expected property benefits, including the proceeds from a sale at the termination of the investment. Yield rates include, and are calculated in the same manner as, the interest rate, internal rate of return (IRR), overall yield rate, and equity yield rate.
What you are trying to show is not a yield rate or even a rate of return on capital but something like an Equity Capitalization Rate, cash flow rate, cash on cash return or equity dividend rate. Except not really, because its not complete without knowing the level of equity in the property.
All you did was invert the GRM and express it as a percentage.
Gawd, I hope you don’t work on car brakes.
July 7th, 2010 at 1:38 pm
@Purp1:
Simple. The US was two years ahead of Canada. So, the US bust had been under way for almost 3 years when the interest rates took a huge cut, while the bust in Canada (except for Alberta, which has not recovered to peak) had been under way for less than a year. The US was way, way, too far gone for the low interest rates to push prices back up to peak.
As for “confidence”, opinion polls in the US indicated that most people thought that RE prices were still going up 2 years into the bust. The problem was not “confidence”, but like all busts, it was simply that there were no more buyers at the current prices. The fall in confidence is a result of the bust, not the cause.
July 7th, 2010 at 1:35 pm
@Purp1: “In the US prices dropped and continue to drop. “
When interest rates were lowered and homebuyer subsidies introduced, prices in many depressed markets, like San Diego, rebounded by 10%. UK prices followed the same trend.
Sudden step changes in interest rates and increased incentives bring forward demand and increase prices but are only a temporary reprieve. There are too many dwellings for too few people earning too little money.
July 7th, 2010 at 12:30 pm
Those side-by-side condos really illustrate the future, and that is reverse bidding wars. Instead of gullible first-timers bidding up prices, desperate sellers undercut each other in a race to the bottom. Even with lots of interested potential buyers, they will have to keep cutting and cutting, because no one will buy today when they know it will be cheaper tomorrow.
July 7th, 2010 at 12:23 pm
@patriotzed: Once again, I don’t disagree with your argument about price/income, price/rent and fundamentals etc.
But it’s also clear that those aren’t the sole drivers of the market, either in the US or here. Call it ‘confidence’ or ‘irrationality’ or whatever you want. In the US prices dropped and continue to drop. Here, they dropped and then bounced right back up again, despite still being wildly overpriced. That could happen again.
What’s the difference betwen the two markets? They were both too high at the peak?
July 7th, 2010 at 12:18 pm
Any suggestions for publically traded canadian residential real estate builders…preferrably with large projects currently on the go…and preferrably with low % presold?
seriously now, please reply back with stock symbols and I’ll do a some research into them.
I’ve looked into MEQ.TO, and am waiting for the perfect time to go short…I dont believe that this is the exact time.
Please list any tickers you know of.
July 7th, 2010 at 12:16 pm
#28 BPOM, I mentioned a couple of weeks ago that gulf properties had the potential to go to zero. These people still hunkering down are up against it now. Its not only the perception of the oil slick scaring away tourists for years, its also the very real possibility that one of this years hurricanes will deluge the coastal township and render them toxic wastelands that will require a HazMat certificate to get in or out. I can’t see many people wanting to buy if they have to weak a plastic suit and a gas mask to bed.
This section of the article also caught my eye.
“LOCAL GOVERNMENTS FEEL THE PAIN
And owners are not the only ones hurting. A drop in sales is prompting local governments to seek help as the ripple effect spreads quickly throughout Florida’s economy, highly dependent on property taxes and other revenue derived from real estate transactions. ”
This is exactly what I have forecast will happen here. I am going to say for the record that we can expect some kind of announcement on the ‘permanent nature’ of property taxes. Like a kids game of ‘no take backs’ the government will undoubtedly have already seen what has happened in other jurisdictions and had a secret contingency plan for what they will do when property values are reassessed at hundreds of thousands of dollars ( and millions in some cases) below current assesments. You heard it hear first.
I would like to see them rationalize spending before they pull some draconian tax crap on the citizens…but….looking at the record of draconian bullshit ( going so far as to suspend our charter rights for Olympic advertisers) I hardly feel confident that they will have the fortitude to start slashing the exhorbitant overhead they have figured in to the revenue projections.
Someone mentioned the ‘confidence’ factor, and said it exactly right. Its not that we are not confident, its the fact the prices have spiralled far too high for anyone, even at near zero rates, to afford the mortgage. Like any pyramid scam ( yes bulls it was a pyramid scam and you got suckered) they ran out of players by pricing everything higher than any normal person could afford to pay. All the ‘incentives’ in the world don’t change the bottom line on someones paycheque. The little extra that was available on peoples pay has now been clawed back on HST and the second tranche of the Gas (carbon) Tax. It only takes one straw to break a camels back, this is it.
July 7th, 2010 at 12:06 pm
@Mike: “Like it or not, this pretty much stopped the decline in house prices. Home prices, by and large, stopped falling in the past six months”
Do you think the government can permanently keep house prices above their fundamental value with their policies? I don’t think they can and I don’t think the government does either.
The US’s policies temporarily kept prices elevated (after dropping 30%) but ultimately they have to revert to where they produce a decent income stream for the price.
July 7th, 2010 at 12:03 pm
@Girlbear:
So I looked up the 2 listings. From what I could find, the 439K one was originally listed on June 22 at 498K. That’s a big haircut in such a short period of time. A seller coming to realizatoin or just desparate? Maybe both. But actions like this will send a ripple across the pond real quickly.
July 7th, 2010 at 11:57 am
When Royal LePage admits decline, it actually mean crash of 50% in the Greater Vancouver Area. Its going to get real ungly in the coming months.
July 7th, 2010 at 11:48 am
@Purp1:
No it’s not about “confidence”. Prices fell in the US, and everywhere else, simply because they were too high relative to prices and incomes.
And in fact prices in most US markets are still above historical norms, for example very much so in Seattle, so in fact “confidence” in RE must also still be above historical norms.
July 7th, 2010 at 11:46 am
“Disagree. What on earth would the government gain by trying something that they know would not work?”
votes?
July 7th, 2010 at 11:41 am
@D. Bone:
I didn’t say that, Mike did.
As I said, I think the Cons will simply ignore falling house prices as they did in 2007-2008.
That’s not to say they won’t take action to deal with the general economy. But I don’t think they will explicitly target anything to house prices, since they have denied all along that there has been a bubble and the last things the Cons will ever do is admit that they were wrong.
July 7th, 2010 at 11:36 am
@Devore:
Disagree. What on earth would the government gain by trying something that they know would not work?
I have said it before – IMHO the Cons will simply deny any systemic bubble, as they have been saying all along. Toronto and Alberta may well deflate slowly enough that they can get away with it. They got away with it in 2007-2008 when Alberta dropped 20%. As for BC, the rest of the country simply considers this province to be a bunch of idiots who will get what they deserve.
ALL attempts in the US to prop up house prices are to prevent banks from going under. The banks here already have their mortgages guaranteed, so there is no reason the government to attempt the same here.
July 7th, 2010 at 11:29 am
@Girlbear:
Nice find! I think I’ll take the larger one for less money, thanks!
The race is on…I can just see realtors cursing each other, calling each other up “How could you price it for less than mine? What are you trying to do, crash the market???” I’m starting to see more and more examples of this, my old neighbor is trying to sell her wreck of a house in Kelowna for around $400k (reduced from $429k) and suddenly a newer house pops up across the street listed at $339k. Lots of cursing going on I’m sure.
July 7th, 2010 at 11:27 am
@The Pope:
The American authorities never in their wildest dreams expected a property crash in the magnititude that was experienced. They let prices fall, until they crashed.
They were caught off guard by the crash, its causes and effects. They responded with ZIRP, QE, Fed asset purchases and the homebuyer tax credit. They also provided banks with enough liquidity to absorb real estate losses and put a moratorium on foreclosures. Like it or not, this pretty much stopped the decline in house prices. Home prices, by and large, stopped falling in the past six months.
The government has policy tools available to it to support prices and bring consumption forward. Like it or not. NOW – I completely 100% disagree with the government’s actions. We have structural imbalances in our economy, which need to be sorted out through a massive debt restructuring. Creditors must take losses. The best regulation is failure. The government is punishing the responsible savers who should be rewarded. The transfer of assets from the weak hands and poor managers to the strong hands and good managers should be well underway. The government is preventing Capitalism from doing its work…and I believe it will continue to do so until the system collapses.
Home prices in the US are falling again now that the government’s programs have expired. You are completely correct that prices are not supported by the fundamentals.
Let’s see what happens next. Paul Krugman wants a $15 trillion QE package. Do you not think this will elevate home prices?
Pope – I’ve read your comments. You know what you are talking about and your fundamental analysis is bang-on. Where we disagree is what the government will do and the effectiveness of those policies. I’m just trying to deal with reality.
The past two years should demonstrate that the government has tools available to it, that it is crafty and that its tools can be effective in supporting prices.
We need strong leadership and quite frankly I don’t think we’ve got it. The temptation to inflate, I fear, will be overwhelming.
July 7th, 2010 at 11:21 am
@Girlbear:
Decisions, decisions.
One is 950sf for $439K and the other is 847sf for $494K.
Pay more for less seems to be the correct choice. Being irrational is the vancouver way.
July 7th, 2010 at 11:20 am
@patriotzed: The point is not that it would work here when it did not work in US, but that it will be tried here knowing it will not work, just like it was tried in the US knowing it would not work. It’s all about appearances. Politicians need to look good, and they can only look good when they are “doing something about it”. Sitting on their hands while an entire market segment collapses around them will not fly.
People talk about “black swan” events. The only black swan we need to worry about is sudden breakout of common sense and politicians doing the right thing.
July 7th, 2010 at 11:12 am
Real estate in the Gulf states is finished.
Tourism may be done as well.
http://news.yahoo.com/s/nm/us_oil_spill_realestate
July 7th, 2010 at 11:09 am
@kwl: thanks.
July 7th, 2010 at 11:07 am
@Girlbear: Huh? One built in 2001, the other in 2000? That seems unlikely.
“Buyer to verify all facts (if you’re weird and those matter to you).”
July 7th, 2010 at 11:06 am
@patriotzed:
Anything in excess of a 20% decline would be met with significant fiscal and monetary stimulus.
…….
Why? With a drop of 20%, most people would hunker down and keep paying their mortgage. In some highly – over leveraged, bubbly location like Vancouver, a small number of idiots will lose dwellings that they have no equity in and couldn’t afford in the first place (just like the US). In the rest of the country, 20% of a significantly smaller original purchase price (compared to Vancouver) will not be significant and no-one will give a rat’s ass but would be pissed off if the Gov tried to bail out the morons that bought in Vancouver.
July 7th, 2010 at 10:56 am
Side by side properties….
http://www.realtor.ca/property.....Id=9661406
http://www.realtor.ca/property.....Id=9683896
July 7th, 2010 at 10:55 am
If you buy a place downtown, you don’t need a car because everything is so close. There are lots of great cafes and restaurant just outside your condo. Downtown is the place to be. It’s where the action is.
July 7th, 2010 at 10:50 am
OT: many people registered for a user account to claim their handle yesterday, but the automated confirmation system appears to have stopped working. I’ve updated that system and manually confirmed those that registered. Hopefully all new registrations will receive a confirmation email allowing them to activate their account from this point forward.
All new registrations need to confirm their email address to activate their account within 5 days to help prevent spam. VCI is anti-spam.
Anonymous comments are still allowed, but anyone can post using your name and your comment vote counts for 1 point instead of the 2 that registered users get.
July 7th, 2010 at 10:48 am
@The Pope: Isn’t it really about confidence (or lack of) in the US? The majority of people don’t see a home as a good investment anymore. That’s going to push prices down regardless of what the Gov’t does.
I wouldn’t be surprised if our market didn’t mirror the US exactly. If there’s a drop of 15-20% and the psychology hasn’t broken I think we could see support there with undulating prices within 0% to -20% for a few years (or maybe a slow grinding down). This short of any other external changes. If rates stay low, employment steady, then I think there might a lot more people jumping back in at 20% off. I hope not, but I think 2008 showed us anything is possible.
July 7th, 2010 at 10:42 am
@Mike: America will do anything to prevent falling prices.
they are doing it already, so why have prices in so many of their markets collapsed?
July 7th, 2010 at 10:36 am
@Mike:
“I expect more and more stimulus and quantitative easing.”
That will only happen in the US as they have something called the worlds reserve currency.
For the rest of the countries, stimulus is finished.
Austerity is the name of the game.
July 7th, 2010 at 10:07 am
Hey Bear, this article disgusting. How long will bull dump and pump RE? It’s big conspiracy just like FIFA referee against team England.
Don’t they know only bear can call market drop? This article just sleazy codeword for ‘market keep going up’. When will CREA stop lying eh bears? Everyone except idiots knows that last month stats is sign of 50%+ crash. Even smoking toddlers can understand this.
Keep giving each other fake cars at fake inventory parties bears. Don’t forget cranteeny. I would like Audi R8 and apple cranteeny. Thank you.
July 7th, 2010 at 10:01 am
Question, does anyone know if the first laneway in Vancouver East that was features on Global TV news when it had its open house got rented for $1700? I’m not talking about our favorite one near Cambie & 21st Ave that’s still advertising on Craiglist.
The Chinese newspaper is reporting that it got rented for that much because it has high end kitchen and furnishing. However even with that I find it kind of tough to believe it would rent for $1700 when you can rent in DT, MetroTown, and other nicer area for the same amount. Just curious if anyone knows where the laneway house is and if it is actually rented for that much?
thanks.
July 7th, 2010 at 9:42 am
@Bigbadbear1:
What’s really disgusting is that they stole the line from the Friendly Giant.
Is nothing sacred?
July 7th, 2010 at 9:39 am
@carlk: Thanks for contributing. On this point:
“Today we have higher bank lending rates and higher mortgage rates”
Mortgage rates have edged up by a miniscule amount. I am not seeing much to indicate that rates will rise as much as many economists are predicting because there is a chronic unemployment/underemployment issue. Until that is fixed rates will remain low.
Will house prices fall even with low mortgage rates? Absosmurfly.
July 7th, 2010 at 9:34 am
@Mike:
How did that work out south of the border?
I challenge anyone who claims that the Canadian government can make more than a token effort to support house prices to explain how it could work here when it couldn’t in the US.
Also note that any resurgence in consumer price inflation would be met by a bond market bust. What would that do to the RE market?
July 7th, 2010 at 9:27 am
Let’s look at this from a historical perspective. Let’s compare 2008 to today’s market.
Feb to Apr 2008: Aside from the turmoil in the US Financial Sector and the realization that their housing market is in trouble, Vancouver’s real estate market seemed to have lots of momentum except inventory levels reached new highs.
May 2008 Sales start to slow and by in the next 8 months the overall average market prices drop ~15%.
Bank of Canada ie. the Federal Govt rolls out the lowest bank lending rates ever prompting our banks to decrease mortgage rates to new lows which saves our real estate market and here we are today.
Today we have higher bank lending rates and higher mortgage rates which despite the recent miniscule reductions are expected to continue to go up. We have much more tighter lending guidelines and the introduction of the HST to new home purchases.
Forgive me if I feel quite bearish given the negative influences acting on our real estate market. The sales data from the last 2 months seems to be reflective of the influence of these factors.
As a side note, I am a realtor and former banker and I have no illusions of Vancouver being different or special when it comes to fundamental economics.
July 7th, 2010 at 9:20 am
@househunter:
Good points househunter. This is not your typical downturn. As long as Obama and Bernanke are in charge, America will do anything to prevent falling prices.
I expect more and more stimulus and quantitative easing. I’ve said that the government will tolerate a 20% decline in prices nationally (i.e. Toronto), Vancouver may be more or less by that point.
Anything in excess of a 20% decline would be met with significant fiscal and monetary stimulus. I expect the government will flood the streets with money, which might support nominal prices.
In real terms, house prices will collapse, one way or another.
July 7th, 2010 at 9:18 am
@VHB: typo correction.
this line: An example: GRM is 200. 200/12 = 16/667. 1/16.667=6%. Done.
Should be:
An example: GRM is 200. 200/12 = 16.667. 1/16.667=6%. Done.
July 7th, 2010 at 9:16 am
I hope you don’t mind me going back to last week, but here is a challenge from Gordon C:
“Jessie and VHB, I have laid out my arguments.
Okay show me. Show me how you can estimate a yield from a GRM.”
Not estimate–calculate. Here it is:
GRM = price/(rent/month).
Multiple denominator by one, expressed as (12months/1year) gives us price/(annual rent).
Invert this to get (annual rent)/price. That is the definition of yield.
So, to go from GRM to yield, you just divide by 12 and invert.
An example: GRM is 200. 200/12 = 16/667. 1/16.667=6%. Done.
To conclude, there is a direct mathematical relationship between GRM and annual yield. They both take the same inputs (rent and price) and express the same thing in different ways.
July 7th, 2010 at 9:15 am
@Newcomer:
This is the “Great Homes and Destinations” insert to the NYT which is an advertising feature. It’s obvious from the format, they’re not trying to fool anyone. Don’t confuse it with the editorial content. But it’s still an entertaining read:
Utter nonsense of course, if prices are too high relative to rents they have to come down, land or no land. Hong Kong saw a 50% bust in the late 90′s. Also Mr Corros’ description of Vancouver sounds a lot like San Diego, CA. Say no more.
July 7th, 2010 at 9:06 am
Actually this is the shorter link:
http://www.theglobeandmail.com.....le1629806/
Cannot be that fast of a drop… can it?
July 7th, 2010 at 9:05 am
Is this for real?
http://globaleconomicanalysis......ysis+(Mish‘s+Global+Economic+Trend+Analysis)
July 7th, 2010 at 9:00 am
Househunter, these two articles might be of interest to you, especially regarding your comment about the US. Our Government has managed to prop up our economy with cheap credit but it can’t continue for much longer. If a full on depression hits the US which many are now forecasting Canada will not be immune.
http://tinyurl.com/22ujgvo
http://tinyurl.com/263fskz
July 7th, 2010 at 8:56 am
Wow…a new low for Real Estate advertising…desperate times people…
http://ca.news.yahoo.com/s/cbc.....rt_procura
July 7th, 2010 at 8:53 am
@househunter:
Didn’t you get a memo from Oprah? If you want it bad enough, it WILL happen!
Just post a note about it on your fridge and star at it every morning.
Honestly, it is so funny to watch theses guys trying to save their asses…
July 7th, 2010 at 8:50 am
According to a balanced and well-researched piece in the New York Times, it will be a minor correction, not a downturn.
http://www.nytimes.com/2010/07.....r=1&hp
July 7th, 2010 at 8:36 am
I think everyone is waiting for a massive crash. Its not going to happen (as much as I want it too). There is too much stimulus globally. Jobs are not bleeding anymore in the US. There will be a price reduction but nothing that can be called a crash…. IMHO.
July 7th, 2010 at 8:34 am
Sign you’re in a bubble: only relative prices seem to matter.