In came the waves

The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops

So begins the Economist’s landmark article on the global RE bubble from June 2005. It’s now available for free viewing after years behind the pay wall.

This is the classic analysis of the housing bubble IMHO and the one that made me bearish on RE. Its arguments are my arguments.

“The most compelling evidence that home prices are over-valued in many countries is the diverging relationship between house prices and rents. The ratio of prices to rents is a sort of price/earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier.”

And there you have it. It’s possible to ascertain whether housing is over-valued because it’s an investment, whether or not its owners think of it as one, or what they mean by an “investment” in the first place. Eventually market forces and marginal pricing must prevail and that means that prices must fall back to a level justified by rental value.

Do read the article if you haven’t already, and try adding Vancouver (or other major Canadian markets, or just the Canadian average) to the graphs. How do we look compared to the US and other countries in 2005?

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Anonymous
Guest

@The Leak:

he's also the best van RE joke name i've seen yet

better than 和谐的房地产泡沫

keeperofthederp
Guest
CanuckDownUnder
Member
CanuckDownUnder

@Calgary Real Estate:

Prices in Calgary have gone up 4% this year?

That's funny, the CREB just put out their monthly stats package and year to date the SFH median is down 1.2% while the condo median is down 1.5%.

Patiently Waiting
Member
Patiently Waiting

@Anonymous: For $2200 or less, you can get a whole heritage home in Queens Park:

http://vancouver.en.craigslist.ca/bnc/apa/2520723

nuxfan
Member
nuxfan

@DaMann: 6 years ago the rates were higher and wages were lower, Try again.

Wages are different for different people. 100K combined 6 years ago was pretty easily achievable for 2 working professionals.

the purchase price and selling price might be exaggerated a bit, but those numbers are probably not far off – certainly a 1M gain is almost guaranteed.

Girlbear
Guest
Girlbear

@vangrl: I agree! BPOM has the best posts going west of the Rockies! 😉

Common Sense
Guest
Common Sense

@Troll:

"Interesting marketing pitch…first time I’ve seen this angle."

Concord Pacific used to do the rental guarantee thing with inflated rents pre-boom. No way they get those rents but if they have to throw in a $10000 subsidy towards rent to make a 300K sale no big deal. Good marketing ploy to draw in the novice investor. Maybe they can steal a few suckers from Jurock now everyone knows about his scam.

As the market tanks we should see lots of stuff like this including free cars, trips and many other gimmicks to get the last few fools to buy.

Calgary Real Estate
Guest

@Girlbear:

That was actually a forecast I posted at the beginning of this year and prices have gone up by 4% since then. The market here has been gradually improving, not as crazy as Vancouver.

Girlbear
Guest
Girlbear

@N: I think the laneway house people must want the renter to pay the entire mortgage on their main house for them…

$4500. Jesus.

fricuRomeoJordan
Guest
fricuRomeoJordan

Girlbear is the new sherif in town….I like that…way better than the moronic McLoser, IMHO.

Frank – some of this is likely condo purchases…but yeah, I agree…that said, this market is stuck in neutral at best….I'm ultra bearish.

Girlbear
Guest
Girlbear

@Calgary Real Estate: Those stats are from March. Have you happened to hae noticed what has been going on in the markets since then….?

Calgary Real Estate
Guest

@patriotz:

You are right about the 10% drop since 2007 which is normal when priced have gone up over 50% from 2004 to 2007. As to increasing oil prices, it has helped bringing some jobs back and real estate prices, this year alone have gone up by 4%. Here is some stats:
http://calgaryrealestate.ca/calgary-real-estate/2

Calgary Real Estate
Guest

@Junius:

Current job growth and Income level in Calgary can still support average priced homes. Vancouver might be different. Here is some stats:
http://calgaryrealestate.ca/calgary-real-estate/2

Anonymous
Guest
Anonymous

@Troll:

Too bad they have inflated the rents to hook people into buying. 2200/month for a 2br 900sqft condo in new west? Not likely, here's what $1650 gets you:
http://vancouver.en.craigslist.ca/bnc/apa/2526881

With an extra $450 in taxes/strata that puts them off by at least $1000/month so when you're 24 months are up you'll have to cough it up yourself.

chilled
Member
chilled

@vangrl:

"yes! I think he should start his own blog. I completely agree with everything he says….and he makes me laugh, which is a sexy quality for any guy"

and I thought BPonM was a broad!?!?

Frank
Guest
Frank

@fricuRomeoJordan:

It is quite the slow down.

However I still cannot get my mind around the fact that in the last 24 hours 29 people have bought homes in this crazy over-priced market in these two areas.

fricuRomeoJordan
Guest
fricuRomeoJordan

Frank – wild how much east/west side are slowing down, eh?

Girlbear – great posts, thank you.

Dave, I love you.

Troll
Guest
Troll
Email from Viceroy in New West… We are writing to you today in response to the many Viceroy registrants who have contacted us seeking more information on Bosa's Equity Builder Program™ – now featuring a powerful 2 Year Rental Guarantee. The 2 Year Rental Guarantee program will ensure you a market-leading rental rate for 24 months, handle the rental management of your suite and cover the strata fees and property taxes. Registrants like you have requested we break down the numbers for them, so we thought we would take a minute to share a few examples to show you just how powerful this program can be. Example One Suite 707 – One Bedroom (600 sq ft) Purchase Price $275,900 Total Deposit (20% after 9 months) $55,380 Guaranteed rental income from Bosa to you $1,515/month for 24 months = $36,360 Example… Read more »
Frank
Guest
Frank

I meant supportive comments on his blog!

Sorry.

Frank
Guest
Frank

Vancouver East & West*

New Listings – 72

Back On Market Listings – 7

Price Changes – 37

Sold Listings – 29

Vancouver All Areas*

New Listings – 250

Back On Market Listings – 32

Price Changes – 160

Sold Listings – 104

From Larry Yatter.

BTW how about going over and putting some supportive e-mails on his bog so he keeps this up.

http://www.yattermatters.com/

onenangryslav2
Guest
onenangryslav2

@N: Gee…I wonder what their monthly PITI amounts to? Any Amazing Kreskins here?

N
Guest
N

@Girlbear:

So this is a laneway house for 4.5 grand. That sure won't sit around long.

vangrl
Member
vangrl

"Is it me or is “Best Place on Meth” the best read on this forum? :-)"

yes! I think he should start his own blog. I completely agree with everything he says….and he makes me laugh, which is a sexy quality for any guy