#166 Dave Says:"a) Every correction in Vancouver has been followed by a flat market for a number of years

Liar: http://cuer.sauder.ubc.ca/cma/data/ResidentialRea…

What's it been, two days since I posted this hoary and familiar old graph? You might lack any integrity but you can't be faulted for lack of consistency.

@Dave: "Every correction in Vancouver has been followed by a flat market for a number of years"

A look at interest rates following previous market downturns shows part of the reason for "flat" prices: falling interest rates. This time around, I wish current mortgage holders all the luck they can find. They're going to need it.

@stagnate: "over ten years there will be an increasing population on a fixed land base."

This is indeed true. If you assume there is no more land to build (which there definitely is but let's assume the worst case), land prices will additionally increase by the population growth rate. That's about 1% or so which I suppose you could deduct from the 5.3%.

In practice condos see close to none of this benefit due to little to no future density gain.

Steady as she goes but getting sustained 5% annual wage growth sounds developing worldish.

@Yalie:

a) Every correction in Vancouver has been followed by a flat market for a number of years. It happened in the 80s and in the 90s and I predict it will happen again. The run-up in prices during this past bull market was roughly the same as in the 90s, but lower than the early 80s boom.

b) There is more to it than that. Rent isn't half. Some people just want to get on with their lives and own a place. Timing is a big factor as well. Nobody can predict the market 10 years out. If you want to compare costs, then you should also look at the full cycle. The guy who buys 10 years early is also done with his mortgage 10 years earlier.

Olympian Marketing Task – “I've set a target of selling 100 units by June. Everything is now on the table. It has become a do-right or die effort.”

http://wp.me/pcq1o-1AU

Also:

Read about the Olympian project that took years of construction, gained cult focus, had short lived glory, suffered shoddy construction, and ended up a 'major tourist attraction'.

It's worth doing an exercise, taking existing prices, holding them flat for 10 years, and calculating nominal wage growth required to bring median price/median income to the levels seen in, say, 2000.

P = current median price

I = current median income

r = annual income growth rate

P(2000)/I(2000) = P(2010)/I(2010)/(1+r)^10

r = exp(ln(P(2010)/P(2000)*I(2000)/I(2010))/10)-1

Now compare r to average wage growth in the past 10 years.

To throw up approx. numbers:

P(2010)=850K

P(2000)=400K

I(2000)=49940

I(2010)=70000

r = 5.3%

A study of Vancouver's real income growth of the past few generations will give some indication how likely that is. Any bump in the road… one wheel's off and the axle's broken.

@XYZ:

When *I* Googled her I got a photo. It turns out she's a mortgage broker for some shady seeming firm! She's really pretty though and if a gay dude is saying it, then she's probably smokin' hot.

Poor thing… sounds like she spent too much on the much vaunted "vancouver lifestyle".

@XYZ: Your experiences reflect my own. Five years ago I was making about 75K in Toronto. I had to spend around 15K (counting living expenses) and around 3 months prepping for the PMP exam. I eventually found a job as a project manager in Van for 50K, then found another for 60K + bonus. That job didn't work out, and when I shifted careers again I wound up spending a good 30K (again counting expenses) and 6 months to get a culinary diploma. I got a job right out of school, which was seasonal. Extrapolating annually I would have made maybe 55K, but hourly I was making about 8 – 10 bucks. When I returned to Van I got a job managing one of the most popular coffee shops in Van (Cafe Artigiano on Pender), but that paid the big… Read more »

@Dave:

I can’t argue with your math. I don’t think that tells the whole story though. I would be interested to see the demographics of the median buyer. I wonder what their income level actually is. What happens to the numbers when we take out students, retirees and low income people who will never buy? Obviously, it goes up quite a bit. From my observation, the average income for a typical household buyer is much higher than $65k. A couple people working an entry level job should be making far more than that.

Yes, it would be interesting, but affordability is not only about people who buy a house, since they can obviously afford them. If only the top 1% of population can afford to buy a house, prices are still fine since they average buyer can afford it? Hmm?

@fixie guy:

Different guy. I don't get paid well enough to post there.

Anyone else notice how accurately Dave channels RET's eyesthebye? Same lack of respect for logic, same cool affirmation of rank idiocy, same 'I foretold, I foretold, I foretold' without examples? Probably coincidence.

@Yalie:

It's not far off from my prediction. End of the decade is a little longer than I would imagine, but not by much. I wouldn't rule out surpassing the June 2010 peak, but if we do, I don't think it will by a large margin.

Likewise, I don't see that we are going to pass the prior 2009 bottom in this period of time.

I also think we might see markets diverge a little bit. I could see some segments passing their peaks more quickly while others will drop below their previous bottoms. I think 'core' areas (e.g. Vancouver) will fare better than outlying areas where inventory can be easily and quickly added (e.g. Chilliwack).