BMO: Vancouver price drops for next 2 years

A Bank of Montreal report is predicting that Vancouver house prices will continue to fall for the next couple of years:

BMO Senior Economist Sal Guatieri says the price of homes in Vancouver and uncertainty over long-term mortgage rates are creating a buyer’s market.

He also says rich foreign investors who have driven up real-estate prices in Vancouver are now looking at cities that are less expensive.

“The sizzle is coming off the Vancouver housing market,” Guateri says.

Read the full article over at News 1130.

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chip
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chip

@Huh?:

Lots of people were seeing a bubble. But Krugman was one of the few who actually wanted a bubble.

After the tech crash he persistently called for rate cuts and more govt spending to inflate housing prices. And he got his wish.

The Krugmans of the world would see us lurching from bubble to bubble because they have an almost religious belief in the power of the govt and Fed to pull levers that fine-tune the economy.

It’s crazy talk, but almost everyone is crazy these days: deficits are good, savings are bad, wealth redistribution is good, wealth creation is bad, etc etc.

Broken Clock
Guest
Broken Clock

@UnagiDon:

>Similarly with Canadian MSM. Should you listen to David Madani, or Cameron Muir?

The mainstream media is overwhelmingly bearish. If you were an attentive idiot, and simply sought information and did what you were told, you would be rich.

Contrast this with all the effort put into analysing the market on this blog, and others. All that effort was completely fruitless.

If that doesn’t at least make you stop and think… forget about feeling deeply disturbed… if that doesn’t make you scratch your head for one second…

Huh?
Guest
Huh?

@UnagiDon:

Straw man alert!

Krugman has no vested financial interest in a real estate bubble. The other two guys are RE Industry spokesmen. Of course, you need to use a minimum of critical thinking a elementary bias identification when you read the paper.

Jeez…

Anonymous
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Anonymous

@Yalie: “This makes no sense whatsoever.”

Yes it does because transaction costs over a longer holding period are less significant ie property purchase tax to buy and real estate commissions to sell.

UnagiDon
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UnagiDon

@Huh?: I guess it depends on who you listen to in the MSM. If you listen to Krugman, you would have done OK. If you listened to David Lereah, you would have been wiped out. Note that both of them hold PhDs in economics and are (former) economics professors at major US research universities.

Similarly with Canadian MSM. Should you listen to David Madani, or Cameron Muir?

Huh?
Guest
Huh?

@BulbsForSale:

Didn’t Paul Krugman call the top of the USA bubble in the New York Times?

I guess you just don’t read USA MSM but simply use the “how did that work out in the USA?” bear mantra.

BulbsForSale
Guest
BulbsForSale

@Hyperventelator: “In the last decade, this is what I have learned: you make money by following the herd and getting out when the MSM tells you that the party is over.”

LOL! USA housing bubble. How’d that work out for the wisdom of crowds? If you were to ‘follow’ the herd and do everything recommended in every newspaper article you’d be broke from transaction fees alone within a day or two.

Yalie
Guest
Yalie
@Devore: The “long term” argument has to do with the buyer eventually paying off the mortgage, which is fixed (+/- interest rate diff) at which point you’re left with only operating costs, while rents rise with inflation and never end. I think there’s also the unspoken assumption that over time house prices keep going up, so you’re gaining there as well (the typical “risk free” method for building wealth). True, those are all very good examples of “long term” arguments. And they are all equally fallacious for the same reasons. It doesn’t matter that rents will forever rise with inflation. It doesn’t matter that your house will generally go up in value over time, or that your mortgage payments are fixed. The only thing that matters is whether the money you save from renting grows faster than the value of… Read more »
Broken Clock
Guest
Broken Clock

@Devore: “They’re not telling anyone to sell! sell! sell!”

Are you sure?

“Why might now be a good time to sell your home?”
The Canadian Press
Published Monday, May. 14, 2012 3:04PM EDT
http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/home-buying/canadians-consider-selling-or-staying-amid-possible-bubble-burst/article2432176/

Devore
Member
Devore

@Anonymous: The “long term” argument has to do with the buyer eventually paying off the mortgage, which is fixed (+/- interest rate diff) at which point you’re left with only operating costs, while rents rise with inflation and never end. I think there’s also the unspoken assumption that over time house prices keep going up, so you’re gaining there as well (the typical “risk free” method for building wealth).

Devore
Member
Devore
@Hyperventelator: I think you are premature in your mainstream media pronouncements. They’re not telling anyone to sell! sell! sell! or that the top is in, or that a significant drop is coming, or anything like that. We’re merely starting to see the sentiment shift. Is this the signal you are looking for? By the time they’re full-on bear, it’s far too late. The media is fickle, and will run with any story that will get publicity and they can get an “expert” to interview for. On the way down, there will be many plateaus and as many stories proclaiming the bottom is here. Will you follow the wisdom of the herd then too? You are also choosing the “you’re in good company” way of investing, so popular with pension fund managers, which is laden with risk. You’re probably fine some… Read more »
Anonymous
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Anonymous

@yallie: I think the point being made about the length one lives in the home has to do with the fixed costs involved in selling a home. If those costs are spread over a longer timeframe, the impact is diminished.

helena handbasket
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helena handbasket

Wasn’t Sal Guatieri a character on The Sopranos?

Not much of a name...
Member
Not much of a name...

@Yalie: I know it wasn’t the best analysis, but the fact remains that by saying that anything over 20 doesn’t make sense to buy still has a large shock factor when almost all areas of the lower mainland are at least double that.

Most people don’t understand NPV but they can understand that if the price to rent is showing 40+ for the area they live, RE has to be over priced by a large margin.

Yalie
Guest
Yalie
From the Province article: By the time the number hits 20, renting is apparently the way to go, except if buyers expect to stay put for at least 15 years This makes no sense whatsoever. The net present value of an asset does not change based on how long you plan to own it. If renting is currently better than buying over a 14 year horizon then it’s better over 15 years as well. That’s because after renting for 14 years, the money I earned from my invested savings will BY DEFINITION be greater than the equity I would have in the house if I had bought instead. I can therefore buy the house in year 14 with a down payment that is larger than the equity position I would have had if I originally bought. One year later I’m… Read more »
rp1
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rp1

#21 @fixie guy: The funniest thing is when they advise first time buyers not to “time the market” when the market is high. Those are the only people who can (and should) time the market. It is impossible for sellers to time the market when it’s high. They can’t all sell at once, although it seems plenty will try.

Of course when the market is low the situation is reversed. Buyer’s don’t need to time, but sellers should to avoid selling at the trough. I think people understand that. They just don’t understand how to value houses.

Broken Clock
Guest
Broken Clock

@fixie guy: Are you suggesting that it is hard to call the top?

Maybe it is for some, but obviously it’s no problem for The Vancouver Sun, The Province, The Globe And Mail, Canadian banks, Tsur Sommerville.

Makaya
Member
Makaya

902 sqft for sale in downtown at the bargain price of “$588,888″…

I’m wondering who they are hoping to sell it to?

http://www.realtor.ca/propertyDetails.aspx?propertyId=11646988&PidKey=-562106568

Madashell
Guest
Madashell

Did anyone see Garth’s blog….

“Homeowners beware! Canadian banks may soon force you to requalify your mortgage at the end of every term, if your circumstances change… say you lose your job or get divorced, you could risk losing your home.”

registered
Member
registered

16 Hyperventelator Says: “Yeah, but we were wrong. I’m comming to the distrubing realization that I would be significantly richer if I did everying that the Vancouver Sun and the MSM told me to do.”

How would that have worked out south of the border? Everyone’s rich at a bubble top.

Not much of a name...
Member
Not much of a name...

@CashedOut: I’m in NV and my price to rent works out to 47.

loser with girls
Guest
loser with girls

Madashell Says: “I would like to know why gasoline at the pump went up to $1.47.9/l???????? Are we getting fleeced like real estates here?”

LOL…they are defending high gasoline prices on thin margins of refineries
but we know that is big BS.

CashedOut
Guest
CashedOut
@Not much of a name…: Love the article. Especially if it stirs up some fear and doubt in the herd. However, I have to question their methodology: It doesn’t seem to me that $960k place on the west side rents for $1498. Not clear from the footnotes, but it seems to me they took the average HPI for detached, TH and Apt. Then divided that by the avg yearly rent of a 2 bedroom suite (which would include basement suites, apt, and TH). I think it would depend on the rental stock mix in the neighborhood, but in a neighborhood like VanWest, you would include a lot of basement suites, and those wouldn’t be selling for $960k. For example, there are some duplexes on W16th and Cambie that sometimes come up for $3000. One was recently listed for about $1… Read more »
Madashell
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Madashell

@loser with the girls: I would like to know why gasoline at the pump went up to $1.47.9/l???????? Are we getting fleeced like real estates here?

Hyperventelator
Guest
Hyperventelator
@The Leak: “Hey BMO guy!!! We bears here could have told you that four years ago. It wasn’t rocket science. Follow the blogsphere.” Yeah, but we were wrong. I’m comming to the distrubing realization that I would be significantly richer if I did everying that the Vancouver Sun and the MSM told me to do. If I bought when they said buy and sold now that they are saying sell, I would be a multi millionaire. I’m not sure that it pays to think for yourself. In the last decade, this is what I have learned: you make money by following the herd and getting out when the MSM tells you that the party is over. And make no mistake, the party is now over. Even the MSM says so. The blogs did not make me rich but the MSM… Read more »