BC Negative Savings Rate: Does not Compute
A recent post by Ben over at financialinsights highlighted a BMO report on RRSP vulnerability as a savings vehicle in Canada. Most notably, BC stands out like a sore thumb when it comes to savings rates, defined roughly as the percentage of disposable income not spent:
For 1.5MM households with average income of $75,000, a -4.2% savings rate means spending $4.8BB more than the province’s $113BB reported personal income.
The low savings rate is nothing new and Doug Porter at BMO has opined a low savings rate isn’t necessarily a bad thing if asset prices are increasing:
“While debt has risen to record heights, so, too, have financial assets due to a rebound in equities and an underlying rise in savings”
BC Stats, in its heyday, has released a few interesting reports on savings rates. Here (pdf) is one from 1994, where they state the following observations based on analysis of data from the mid-1960s to 1994:
Remember this report was published 17 years ago now! Since then, BC’s savings rate has moved negative. There was a more recent paper on savings rate published by BC Stats — I cannot find it any more online — where there was more analysis of the savings rate question as a negative savings rate seemed to indicate a structural problem with the provincial economy.
The question is, therefore, does BC’s chronically negative savings rate portend a significant structural problem with the economy, or are there other factors at play? There are a few potential answers, including:
- Unreported income, from internal and external sources,
- High net worth due to assets accumulated during non-residency
- Borrowing against, or selling, existing asset equity
- Assets held by BCers are growth, as opposed to value, oriented.
- Others?
All must be occurring in a greater proportion to other provinces. A recent TD report provides some guesses on which of these could be having an effect:
Reflecting the lofty costs of homeownership, households in British Columbia record the highest vulnerability. In particular, B.C. residents on average register the highest debt-to-income ratio, debt-service cost, and greatest sensitivity to rising interest rates. What’s more, B.C. is the only province where the average savings rate is negative. None of this is new, however, as the province has systematically been the most vulnerable since the start of our data series in 1999. The structural nature of this challenge suggests that there maybe factors at play that are not being captured in the aggregate data. For example, the province’s relatively large economic reliance on its service sector and self-employment – two areas that tend to have higher-than-average incidences of non-reported income – might be superficially driving down income and driving up the various sub-index readings.
In addition, B.C. households appear to have adopted coping mechanisms, such as renting out basement apartments, which might not be fully factored into the income side. Even if these factors are part of the story, they don’t address the fact that British Columbia’s [debt] index level has recorded the second fastest rate of increase among the provinces over the past half decade. Higher interest rates over the next few years threaten to leave as many as one in ten households in B.C. in a position of financial stress. On the plus side, rapidly-appreciating home prices in the province has left the debt-to-asset ratio – a metric of household leverage – below the Canadian average. Still, with the home price-to-income ratio pointing to some ongoing over-valuation in the housing market, stable B.C. home values are far from assured.
Emphasis mine.
March 2nd, 2011 at 4:48 pm
@4SlicesofCheese: And here they come:
http://vancouver.en.craigslist.ca/search/apa/van?…
March 2nd, 2011 at 3:54 pm
Just got an email update on a unit from Capitol Residences on Seymour and Robson.
I believe the building just completed, 10 units already up for sale.
The cheapest unit is going for 349,000 for a 603 sq ft unit and its on the 25th floor.
There are two other 1 br units that are 588/585 sq ft going for 40k more then the larger/higher unit.
Since prices are set by comparables, does anyone know how much sales after that one would be affected by the "underpriced unit"?
http://www.6717000.com/833seymour/listings/
March 2nd, 2011 at 3:28 pm
Capital Economics released its Canada Economic Outlook Report (Q1 2011), which predicts sharp falls in Canadian house prices.
"Relative to incomes, our calculations suggest that Canadian housing is now just under 40 per cent over-valued, which is about the same level of excess that the US market reached before it collapsed. We have pencilled in a 25 per cent cumulative decline in house prices over three years, mirroring what happened south of the border.
"The biggest downside risk is that an adverse feedback loop could develop, as it did in the US, with rapidly falling house prices leading to a contraction in both output and employment, which puts even more downward pressure on house prices."
Capital Economics also warns that the government-owned CMHC could be exposed to significant losses should house prices fall significantly.
"According to our reading of CMHC financial statements, insured mortgages and securitised mortgage guarantees total an amount close to $C800 billion. The total equity of CMHC is $C10 billion.
"If house prices collapse further than we predict, say by 35 per cent, with a default rate of 10 per cent and average home equity of 10 per cent, then the potential capital loss amounts to $C20 billion.
"Even if we assume that half of this amount is eventually recovered, that still leaves an expected loss of around $C10 billion. Under the same assumptions, the 25 per cent decline in house prices that we expect over the next few years would still result in a considerable loss of around $C6 billion."
Unfortunately, the end of the housing boom will have a serious detrimental impact on total employment and housing activity as well as asset values…
Overall, we anticipate that domestic demand growth will slow from 5.5% in 2010, to 2.2% in 2011 and only 1.9% in 2012…
http://macrobusiness.com.au/2011/02/will-canadas-…
March 2nd, 2011 at 3:19 pm
No subprime in Canada?
"Finally, in an effort to support the housing market in 2008 (when affordability fell sharply and the economy stalled), the Canadian government directed the Canadian Mortgage and Housing Corporation – the government-owned guarantor of high loan-to-value-ratio mortgages (explained here) – to approve as many high-risk borrowers as possible in order to keep credit flowing. As a result, the approval rate for these risky loans went from 33 per cent in 2007 to 42 per cent in 2008. By mid-2007, the average Canadian home buyer who took out a mortgage had only 6 per cent equity in their home, suggesting the risk of negative equity is high even if there is only a moderate correction. "
More:
http://www.businessspectator.com.au/bs.nsf/Articl…
March 2nd, 2011 at 1:31 pm
Link to Toys-R-Us = skyscraper page:
http://skyscraperpage.com/cities/?cityID=1&of…
March 2nd, 2011 at 1:29 pm
@Anonymouse: thanks for the skyscraper page link.
We learnt a thing or two.
Hadn't realized that 'Sears' (7 floors), Oakridge Mall (7 floors) and, our personal favourite, 'Toys-R-Us'(1 floor) were classified as 'skyscrapers'. But, there you have it!
March 2nd, 2011 at 12:14 pm
@Troll:
Troll your writing style is very similar to that of one of my relatives
March 2nd, 2011 at 11:30 am
"Weak day for sales, the yellow hordes will need to do better…"
Don't wanna be no yellow peril.
-"Wild in the Streets" (1967)
March 2nd, 2011 at 11:14 am
@Troll: Hey look–people are voting up my post with objective numbers that are not great for the bear case. So maybe when people are voting down your posts, it isn't about your 'facts'. Maybe it's about your 'tude, dude.
March 2nd, 2011 at 10:57 am
@Best place on meth: I'd call you a stupid disingeneous prick but you'll take it as a compliment. You want to get hung up on that one phrase, go ahead, miss the point completely. In my next sentence I'm talking about the increasing sales trend last fall. And I've already clarified a couple of times for your dumb brother and his cousin, but clearly you're not interested in objective analysis. Pretty funny considering you hang out with Realtors.
March 2nd, 2011 at 10:51 am
@128 Troll: Sorry dude, Aunt Flo visiting again? Thx but I'll stick with the Teranet numbers.
March 2nd, 2011 at 10:50 am
I have the month aggregate index going back to March 2002. February 2011 was the SECOND HIGHEST price appreciation of ANY month in the last 9 years.
March 18th is indeed coming, but anyone denying that February 2011 was smoking hot is, well, smoking something.
Month to Month price increase, top 10 months between March 2002 and February 2011.
Feb-07 3.76%
Feb-11 3.50%
May-06 3.27%
Apr-04 3.23%
Apr-09 2.71%
Feb-06 2.71%
Feb-04 2.70%
Apr-05 2.57%
Jun-09 2.50%
Feb-08 2.40%
Note that 5 of the top 10 months are Febs. This happens because buyers are out buying, but there hasn't been enough time to accumulate much inventory. Prices rise. February has the highest average price gain of any month.
The 3.5% gain in February is equivalent to an annual rate of 51.1%, if the pace were kept up.
That is SMOKING hot.
March 2nd, 2011 at 10:40 am
@Anonymouse
you got it all wrong, I dont give a dam about boxes on the sky here or elsewhere.
I was talking about what goes on inside. Look at the video again.
And dont get me talking on vancouver architecture pls, there isnt such thing in Vacouver. Highrises are to architecure as junk food is to haute cuisine.
March 2nd, 2011 at 10:38 am
@Anonymouse: Tall and ugly is still ugly.
March 2nd, 2011 at 10:37 am
March 2011 month-end projections
Days elapsed so far 2
Days remaining 21
5 Day Moving Average: Sales 167
5 Day Moving Average: Listings 297
SALES
Sales so far 352
Projection for rest of month (using 5day MA) 3507
Projected month end total 3859 +/- 787
NEW LISTINGS
Listings so far 658
Projection for rest of month (using 5day MA) 6237
Projected month end total 6895 +/- 822
Sell-list so far 53.5%
Projected month-end sell-list 56.0%
MONTHS OF INVENTORY
Inventory as of February 23, 2011 12621
MoI at this sales pace 3.27
Just behind the pace for 7K listings. In 2010, we had 7K listings in March, April, and May.
We did 7K listings in April May July 2008, too.
And that's it for the last 10 years. 6 times.
7K is a lot of listings. And we have a good shot at it this month
Sales are above average, but behind record pace. I expect high sales for the next 3 weeks, then crickets. Where crickets is defined as sales<150/day
March 2nd, 2011 at 10:31 am
@paradox:
Given you brought up the architecture thing, it's only fair if I point out that there are 63 buildings in Vancouver which are taller than Dresden's tallest. And 310 in Vancouver taller than Dresden's 2nd tallest.
In North America, Vancouver ranks 5th in terms of number of highrises – behind only New York, Toronto, Mexico City, and Chicago.
http://skyscraperpage.com/
March 2nd, 2011 at 10:29 am
@Troll:
Hey scumbag, you first said:
"Bears, don’t forget that sales over the last half year have been higher than normal."
You've now changed it to:
"Look at Agent Will’s graph and tell me that I was wrong that sales were trending up last fall."
Apologize to everyone here for your misstatement/backpedaling/shifting goalposts – or fuck off.
March 2nd, 2011 at 10:26 am
Now look what you bears gone and did!
Chased away my uncle Dave
March 2nd, 2011 at 10:24 am
@fixie guy: Hey they still let you post here? Pity. Stay angry, it suits your lack of intelligence.
Look at Agent Will's graph and tell me that I was wrong that sales were trending up last fall. This is not a sign of market weakness. But I'm sure you can find some other piece of data which suits you better.
By the way, how's the conspiracy theory going about the developer who's paying people to stand in line? If you can't even accept other explanations than a conspiracy, then how will you accept data that is as plain as day?
March 2nd, 2011 at 10:18 am
@paradox:
Kevin Brauch gets the best gigs, that lucky bastard.
Anyway, it's a nice building but we have the Planetarium.
*cough*
March 2nd, 2011 at 10:11 am
Weak day for sales, the yellow hordes will need to do better.
Dailies – List | Sold
Vancouver East & West*
New Listings – 101
Back On Market Listings -3
Price Changes -16
Sold Listings – 45
Vancouver All Areas*
New Listings – 301
Back On Market Listings – 10
Price Changes – 78
Sold Listings – 135
*Attached & Detached – Date: 03/02/2011 Time:17:29 Pacific YatterMatters.com:Courtesy REBGV. Data believed to be accurate but is not guaranteed.
March 2nd, 2011 at 10:09 am
@paradox:
"When we see smth similar in downtown vancouver, I might start to beleive that we are getting close to the top."
You're basing your definition of "world class" on a single building?
March 2nd, 2011 at 9:35 am
Check out this video to see what a world class city looks like:
http://tinyurl.com/4ps7zld
When we see smth similar in downtown vancouver, I might start to beleive that we are getting close to the top.
Selling real estate to each other is nothing to be proud of.
March 2nd, 2011 at 9:29 am
It's not fair letting jesse carry the load alone, so here are the Teranet matched sales pairs numbers for Q3 and 4 over the last ten years. 2010 sales look closer to 2008 than 'good'.
http://img195.imageshack.us/img195/5426/teranetma…
March 2nd, 2011 at 9:25 am
Flying out of Shanghai for Vancouver shortly. Will ask for a show of hands for those on RE buying trip.
Anyone with property on the market, send me the MLS # now and I'll soften them up over the inflight pepper chicken for modest 2% cut and a promise that I get to come along for the requisite heli ride over coveted crackshack, I mean mansion.
March 2nd, 2011 at 8:40 am
Year Sales(Jan-Mar)
1999 4756
2000 4707
2001 5321
2002 8648
2003 8030
2004 9391
2005 8687
2006 8898
2007 8247
2008 7492
2009 4507
2010 7400
2011 4916*
Average 7174
*Jan-Feb only
March 2nd, 2011 at 8:29 am
Let's face it Bears, sales since last summer are better than we'd hoped. I believe the housing bust will/is happening from outward locales to the epicenter Vancouver. Just like Seattle finally fell down south, Vancouver will eventually fall as well…it will just take time. The more that fools are bidding up houses now, the more they will regret as the buyer pool is finally exhausted. This is gonna be ugly!!!
March 2nd, 2011 at 8:21 am
@Best place on meth: "Prove it"
That would be most inconvenient. Sales looked stronger in the fall because most springs and summers were comparatively good for sales.
Year sales(Oct-Dec)
1999 4708
2000 4804
2001 7377
2002 7626
2003 9217
2004 7286
2005 8369
2006 6766
2007 7808
2008 3162
2009 9200
2010 6745
Average 6922
March 2nd, 2011 at 8:20 am
@113 Best place on meth Says: "Prove it."
The sales pair count on Teranet – http://www.housepriceindex.ca/Default.aspx – suggests Troll is a Lying SoS, but then he wouldn't live up to the handle otherwise. Troll: since you were confused by this last time, click on the little Vancouver pin (left side of Canada….no, your other left) and look at the bottom graph. Excluding 2008, fall sales activity as shown is lowest since 2001.
March 2nd, 2011 at 8:18 am
@Troll: I just reinforced your belief by voting you down.
March 2nd, 2011 at 8:13 am
@reasonfirst: I'm not changing anything, just looking at the same data you guys presumably are. Are you stuck on the phrase "Higher than normal"? I guess you could split hairs on how 'normal' is defined, 3 years, 10 years whatever. Point is, sales were increasing in the fall compared with both one of the slowest years recently (2008) and one of the hottest (2009). Make of it what you want and draw whatever conclusions you like. Voting it down just shows bears don't want to consider alternate views.
March 2nd, 2011 at 8:11 am
@Supersogs:
Cam Good is a lying scumbag and should be treated as such.
>>>There's an über-wealthy upper class forming and there's a strong middle class growing in China. This massive middle class is now getting to a point where they can afford international real estate.<<<
The Chinese middle class earns $3600 a year. That will not buy you international real estate in Botswana, let alone Vancouver.
March 2nd, 2011 at 8:06 am
Follow-up to the helicoptor full of Chinese investors flying over White Rock. It just keeps spinning and won't stop:
"There are literally planeloads of Chinese coming here to buy real estate."
Across the Lower Mainland, especially Richmond and Vancouver's west side, mainland Chinese buyers and immigrants are becoming a major part of the market, in some cases competing with each other through multiple offers.
But the phenomenon is starting to spread to other areas including Burnaby, West Vancouver, White Rock and beyond.
Read more: http://www.vancouversun.com/business/Chinese+inve…
My understanding was that only Richmond and Vancouver Westside are holding steady. That's of course, just based on numbers and facts. Can't hold a candle to reports from reputable Vancouver Sun and their best friend Cam Good.
March 2nd, 2011 at 8:05 am
@Troll:
>>>Bears, don’t forget that sales over the last half year have been higher than normal.<<<
Prove it.
Prove that sales in the 6 month period from Sept/10 to Feb/11 have been in higher than average.
Also, do not attempt to use 1996 as the average.
March 2nd, 2011 at 7:56 am
@reasonfirst: Sorry – "you're"
March 2nd, 2011 at 7:56 am
@Troll: Your changing your story.
March 2nd, 2011 at 7:55 am
@Devore:
"So why say sales were high, when both sales and listings were mediocre, and sell/list barely average? Stick to spinning future predictions, not historical facts"
Sales were typical of any other December over the past few years with a couple of exceptions. I'd consider those to be high, relatively speaking, because of the way the market has been on the way up for so long.
But either way it demonstrates how many like to pick and choose the data the suits their argument. Inventory, MOI, absolute sales, sell:list ratios – there's never any consistency here. To me that suggests that there's no clear direction in the market, and I'm of the opinion that there's a couple more years left of elevated prices before things even contemplate heading in the opposite direction.
March 2nd, 2011 at 7:52 am
@reasonfirst: Look at the trend. Normally sales decline in the fall, last year they didn't.
March 2nd, 2011 at 7:48 am
Wills charts shows sales in the fall were somewhere above 2008 and below 2009. How does this lead you to believe that sales are higher than normal???
March 2nd, 2011 at 7:45 am
Don't believe FACTs? Take a look at Agent Will's charts.
March 2nd, 2011 at 7:44 am
LOL, that's right bears, vote down FACT.
Sales have held up well. Deal with it.
March 2nd, 2011 at 7:16 am
Bears, don't forget that sales over the last half year have been higher than normal. Sales remained elevated over the fall, when they usually decline. This happened before the mortgage rules announcement. So to attribute the current high sales numbers only to the announcement is a mistake. You may not see the drop off after March 18th that you're hoping for.
March 2nd, 2011 at 6:57 am
@Anonymouse: So why say sales were high, when both sales and listings were mediocre, and sell/list barely average? Stick to spinning future predictions, not historical facts.
March 2nd, 2011 at 6:38 am
@Best place on meth:
"For not knowing the difference between sales and sell/list, you get a big FAIL."
I know the difference.
March 2nd, 2011 at 6:38 am
@100 asia man Says: "@ 76 fixie guy. it was toungue in cheek I was having a laugh."
March 2nd, 2011 at 6:33 am
Timing. I was thinking about this the other day, I have lived here in Tokyo since the collapse of he bubble in this country. The factorsof timing are very complicated but as an example here in tokyo (I am going by evidence from many sources) the bubble realistically burst around 91 or so, but lingered and took many forms of deflating and didnt end up really bottoming out here in Tokyo until 2002-03. Thats over ten years!
In Vancouver there are many different factors, I think it will be a little faster than Tokyo but my gut feeling is that the real bottom wont come until at least 2016-17 but of course it will completely depend upon the public mindset and interest rates. but I am sure as hell they wont go up higher from now.