Price to rent bubble in the Province
Looky here, the Province newspaper has discovered the price to rent ratio!
Take the house price and divide it by what it costs to rent for a year to get the price-to-rent ratio: Price divided by (Monthly rent x 12) = X.
(Estimates for additional costs of homeownership, such as taxes, maintenance and insurance are factored into the equation.)
If the number is higher than 15, it’s generally not a good time to buy.
If the ratio is less than 15, buying is a better deal than renting, if you plan on living there for at least five years to offset moving and closing costs.
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, according to a formula used by trulia.com to rank major urban U.S. centres every year.
B.C.’s numbers, as shown in the graphic, are through the roof, from 29 (Prince George) to 73 (West Vancouver).
Compare that to a few little housing markets like Manhattan (20) and San Francisco (17). That ratio doesn’t mean house prices are <i>low</i> it just means that they’re more reasonably priced compared to rents.
Since you can’t take on a big loan to pay rent it tends to show how much a place is actully worth in terms of desirability and local economics.
May 15th, 2012 at 12:57 am 1
I’m glad a local reporter is running some numbers, albeit slightly flawed ones, and throwing it in the faces of some local “experts”. A start, alas their “expert” network is full of the usual suspects.
Now… seriously, Province. If you want any hope of legitimacy on these sorts of articles, find bearish analysts and get their side. Otherwise you deserve every ounce of mockery meted on the blogosphere.
Sigh.
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May 15th, 2012 at 6:01 am 2
“A price-to-rent ratio used in the U.S….”
Economic principles are the same across the globe, price-to-rent ratios are no more American than mortgage interest.
“UBC professor Tsur Somerville said the ratio of 15 can’t fit all to-rent-or-buy scenarios because of variables such as appreciation, interest rates and other variable costs.”
Not a great endorsement for BC’s academic institutions. Those metrics impact the cost of purchasing, which must be reflected in rent to make financial sense. Maybe they don’t in BC where amateur landlords eat the difference hoping what they lose monthly is made up over time. Between Tsur and Muir this article presents a depressing picture of local real estate ‘expertise’.
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May 15th, 2012 at 6:26 am 3
@fixie guy:
Somerville is peddling BS which would get a 1st year finance student an F.
Appreciation is not an economic return of an asset. It’s simply the part of its cost which the current owner is able (or isn’t able) to pass on to the next owner. It’s not earnings, which is what the asset passes on to its owner from the user of the asset, and which determines the fundamental value.
When evaluating what you would pay for a asset, you can’t make an assumption that the next owner is going to be paying more than you would. That’s contradictory – you’re assuming that he would be willing to pay a price that you yourself would not. In other words, you’re assuming the existence of a greater fool.
Any stock market analyst who assumed appreciation a priori when evaluating a stock would be pilloried. It’s a sad commentary on the state of what used to be called the UBC Faculty of Commerce that Somerville is able to spew this BS. And it’s also a sad commentary on the Department of Economics, which one would expect to be more disinterested, that none of its members have called him to account either.
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May 15th, 2012 at 6:41 am 4
Some of the variable costs are lower in BC, such as snow removal and monthly condominium assessments to some other areas like Ontario. And true the interest rate is a big factor in these numbers. And sure the Province is mixing rental units like apartments with home ownership. So the numbers are flawed. Much easier to look at monthly rental costs compared to monthly mortgage payments plus home ownership costs. During a market trough, it becomes more costly to rent a home than to buy a home, because of the difficulty in saving a down payment. The opposite of what it is today. Of course when that happens the price to rent ratio will also fall, as does the percentage of debt service and the length of time it takes to pay back the mortgage. It will cost you less of your gross income and you will be able to pay back your mortgage faster if you wait for a trough. Ironically, buying later will mean you will pay off a home before someone buying today.
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May 15th, 2012 at 7:51 am 5
Canada’s banks, ranked the soundest on the planet by the World Economic Forum, aren’t immune to collapses triggered by falling housing prices, according to the government official implementing new mortgage rules.
Banks Not Immune to Housing-Related Failures: Corporate Canada
Previous failures of Canadian financial institutions were due to bad real estate lending and sharp falls in housing prices, and these can happen again, Vlasios Melessanakis, manager of policy development at the Office of the Superintendent of Financial Institutions, wrote in documents obtained by Bloomberg News under freedom-of-information law. The last failure in Canada was in 1996.
http://www.businessweek.com/news/2012-05-15/banks-not-immune-to-housing-related-failures-corporate-canada
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May 15th, 2012 at 8:52 am 6
Some Mid-month market updates.
Based on 10 days of activity to May 14, 2012.
MTD Sales – 530 Detached, 800 Attached
MTD Lists – 1,166 Detached, 1,907 Attached
Projected Sales combined – 2,926
Projected Lists combined – 7,500
Sale to list 39%
May should be the month this year with the highest number of sales, although it is a low amount and 15% below the 12 year average. Listings pace are also likely to top out this month and at 7500 would be 28% above 12 year average.
Current Inventory – 17,138 Detached and Attached
Projected Month-end inventory 18,500
Projected month-end MOI 6.25 (prior month 5.9 and 2 months ago 5.3)
Key monthly achievements / Other Market indicators.
1.) Year over year avg prices are now down over 5% for detached and approximately 1-2% for attached.
2.) Van-West detached inventory reaching record with low sales.
3.) Richmond detached inventory at record with low sales. On pace for less than 100 sales perhaps this month.
4.) Van-East detached and North Van Detached are most tight markets but are softening. North Van inventory likely up 25% this month.
5.) Some markets are topping out on inventory due to cancellations reaching or exceeding listing rate. However, inventory trend still up.
6.) Prices definitely softening in Richmond as it is almost 1 year now since the market there stopped. Sales below assessed value now firmly in majority.
7.) Van-West – Volume at a trickle but no evidence of price decreases at bottom end (i.e., Land value sales). Builders now taking larger discounts to move new stock and some houses selling at 25% reduced price off original ask.
8.) Van-West Attached – Market in May Stronger than April. MOI decreased from 6 to 5. Sales flat compared to prior year but listings up dramatically and on record pace. This very high listing rate could be driving sales up a bit but sales to list is at record lows for month comparable with 2008 – 41%.
9.) Van-East Apartments – Consistent with April, May is up over last year significantly. Listings are also up. This has caused a top-out in the inventory and may decrease over previous month. However, sales are below prior month and now MOI should increase to 4 from 3.6. Sales to list of 50% is not record low as 44% was reached in 2008.
10.) Listings expiration rate is higher than averages and this is starting to affect inventory increase rates.
11.) We continue to be above the 2010 inventory curve, the next highest for this time of year. 2010 stopped increasing really at end of May. If we have 2012 June increases, we will increase the spread between 2010 and 2012 further. 2008 then becomes the next highest in mid-June. 2008 Peaked with inventory approximately 20% higher than today’s amount. This upward momentum through the slow summer season was driven mainly by the absence of buyers in summer and then the removal of remaining buyers during the credit crisis.
12.) YTD Sales to List is running at lowest of decade and approx 2% behind 2008, the nearest comparable. However, unless we have a crisis that removes buyers in the fall from the market, we will not end the year as the worst but still much below 2009-2011
13.) MOI still forecasting to top out in early September. We should just come in at 10 months when it peaks this year. That is the point of larger price pressures downward.
Where is this market going? Tough to say. We definitely have some re-balancing that is going on. The high-end is now not selling much but there is significant inventory. The very bottom end is healthy and being supported by low-low interest rates and continued (generally) poor financial decisions of first time buyers. The move-up buyer rate is slowing as the pool of possible move-up buyers with big equity gains is now impacted by low gains in past 5 years on apartments / condos.
You are now clearly seeing price reductions in Richmond. Van-West people are holding out and there really are few over-levered buyers who are being forced to sell. It is also still a preferred destination for the smaller amount of remaining foreign money coming to town.
We need also to have financial market changes such as borrowing rates or access to credit changes in order to change the current pace. Otherwise – we are in a “steady” but low sales mode.
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May 15th, 2012 at 8:56 am 7
The HAM problem is not just felt in Vancouver…
Ferrari crash fuels Singapore anti-foreign sentiment
Sounds familiar?
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May 15th, 2012 at 9:14 am 8
@Makaya:
There are a couple of different issues in Singapore which the article touches on,
The first is the huge number of migrant workers in the country. Many middle class Singaporeans are coming to the conclusion that this is part of an effort by the government to suppress their wages and there is growing discontent with the government over it.
The other is immigration (I mean immigration as we know it in Canada) from the PRC. The reason for this is that ethnic Chinese have a lower birthrate than the Malays and Indians and the government wants to keep the Chinese in a majority. However as we see the locals have many of the same concerns with the PRC immigrants as Canadians do. But PRC immigration is not going to stop as long as the demographic issue remains.
The other thing you should keep in mind is that the Singapore government deliberately inflates RE prices. All land in Singapore is owned by the government and it restricts the amount that it leases out. As well the government has policies promoting home ownership which if anything are more substantial than those seen in Canada or the US.
So you can take restrictions on foreign ownership of RE in Singapore as you would those in Australia – an attempt to deflect blame from the government’s own policies.
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May 15th, 2012 at 9:37 am 9
@patriotz: I know very well the issues of Singapore (I hear about it daily…), and they are broader than what you describe.
“The reason for this is that ethnic Chinese have a lower birthrate than the Malays and Indians and the government wants to keep the Chinese in a majority. However as we see the locals have many of the same concerns with the PRC immigrants as Canadians do. But PRC immigration is not going to stop as long as the demographic issue remains.”
Singapore is a democracy only on the surface. Look beyond the facade and all the dirty business he’s involved in becomes obvious. The government’s popularity is at an all time low, and getting worse. The massive immigration from Singapore has only one goal: buying votes to keep the current governing party (PAP) in charge. This policy is starting to fire back, and I believe it’s just the beginning. You can’t humiliate your own population without consequences.
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May 15th, 2012 at 9:50 am 10
Average selling price in Vancouver down 9.8 per cent compared with a year ago at $735,315
Read more: http://www.vancouversun.com/Vancouver+home+sales+down+April+while+rest+Canada+soars/6624414/story.html#ixzz1uxS8ldZb
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May 15th, 2012 at 10:04 am 11
@N: That’s large. Especially when you couple that with much lower sales so that represents a much lower dollar value in RE sales. And we all know what that means….lower commissions.
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May 15th, 2012 at 10:22 am 12
@N: ….Average selling price in Vancouver down 9.8 per cent compared with a year ago at $735,315….
So, before deducting rent, I’ve just avoided a 70k loss by renting the last year! Or alternatively, I can rent for 5 years for free compared to the loss a buddy who purchased last year has experienced.
Bring it on baby! Yea!
I love the smell of rent savings in the morning.
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May 15th, 2012 at 10:30 am 13
@Makaya: Take a look at the video of the accident. WOW!!!!!!!
http://sg.news.yahoo.com/video-of-ferrari-crash-shows-speed-of-high-impact-collision-.html
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May 15th, 2012 at 10:46 am 14
@Not much of a name…:
To be fair, average prices are not great market indicators. What is significant is that those words are showing up in headline font at the top of a newspaper article in Vancouver.
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May 15th, 2012 at 10:58 am 15
@N: I understand that, but it’s just a different way to look at the numbers.
When looking at total dollar volume of sales, average is very important. Multiply the average sales price by the number of sales and there you have total dollar volume sales. This is a stat that the BCREA likes to use.
On a YOY comparison, total dollar volume of sales is down by over 20% in Vancouver. This has to hurt RE agents in the pocket book. Period.
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May 15th, 2012 at 11:18 am 16
To be fair, average prices are not great market indicators. What is significant is that those words are showing up in headline font at the top of a newspaper article in Vancouver
___________
It is showing up online, but not in the print. Lets see if that same stunning title of selling prices down 9.5% is still there by the end of the day…..
My bet is that it will be replaced…
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May 15th, 2012 at 11:21 am 17
Tales from the office: real-estate anecdotes.
One colleague is taking out a $1.4 million bridge loan to cover the purchase of a new home while he waits for his other house to sell. “You didn’t make the sale of your house a condition?” I asked. “No”, he said. He’s already taken 25k off and realizes the market is weak and will probably aggressively reduce it to get it off his hands.
Another colleague, the gal who makes 75k a year who was approved for a 600k mortgage, is now eating over $600 a month because the city wants to inspect the house she bought to rent out. The house has three suites, one upstairs, two downstairs. Apparently the bylaws don’t allow for two basement suites so she has converted one into a storage room until city inspects the house.
She didn’t buy it for cash flow, which is now negative, she wanted to blow it out the door for a quick profit, which is becoming more and more unlikely with each passing day.
Oh, the joys of home ownership.
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May 15th, 2012 at 11:41 am 18
@Manna from heaven: Are you co-workers HAM???
cause, you know, only us porker munchers do stupid things with money
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May 15th, 2012 at 11:42 am 19
@Manna from heaven: Fine examples of prudent lending by the banks.
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May 15th, 2012 at 11:52 am 20
@Manna from heaven: I must live in a bubble. I hear very little of these stories first-hand
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May 15th, 2012 at 12:07 pm 21
Some news from CBC…
Canadian home prices flatten in April
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May 15th, 2012 at 12:10 pm 22
real estate expert on BNN just called for a 4 year bull run in Calgary housing market that’s with new report of sales up 30% year over year. Is Calgary the next Vancouver?
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May 15th, 2012 at 12:48 pm 23
“It bears repeating that the national average price was skewed higher last spring by record level high-end home sales in Vancouver’s priciest neighbourhoods, and that a replay of this phenomenon was not expected this year,” said Gregory Klump, CREA’s chief economist
So a few expansive sales in ONE city, and in only some neighborhoods of that city is enough to skew a NATIONAL average. I wish I could see the numbers…
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May 15th, 2012 at 1:05 pm 24
@23 jumpin in Says: “It bears repeating” implies real estate Klumps raised warnings about the temporary beneficial effect on the national average of Vancouver high end sales during last year’s tear. I wouldn’t bet a mortgage on it.
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May 15th, 2012 at 1:20 pm 25
@fixie guy: It’d be funnier if he said “it bulls repeating”…
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May 15th, 2012 at 1:31 pm 26
It begins…
http://www.cmhc-class-action.com/
“they will hunt you for the rest of your life”
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May 15th, 2012 at 1:41 pm 27
@Patiently Waiting:
Let me get this straight. He bought a house, couldn’t afford it, declares bankruptcy and is angry that CMHC put the remainder of what they owed into collections and are being sued to get their money back. This is an injustice and he was never informed about this? What did he think? It was a free loan? You can say what you want about CMHC and their policies but how can they be evil for wanting their money back. Do people not take ANY responsibility for their own actions?
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May 15th, 2012 at 1:44 pm 28
@DaMann: Must be a HAMer. HAM is the root of all evil. No good Canadian would do such a thing.
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May 15th, 2012 at 1:58 pm 29
@DaMann: I don’t think they declared bankruptcy. I think they believe that because of the insurance that they could just walk away from the house (ie, non-recourse). What they need to do, and what they are obviously trying to avoid, is to declare backruptcy.
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May 15th, 2012 at 2:00 pm 30
YOY average price change graph from CREA.
Look at Vancouver!
http://img7.imageshack.us/img7/3287/chartofinteresthiresen.jpg
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May 15th, 2012 at 2:05 pm 31
@Anonymous:
Fair enough. Who the hell buys a house or property or whatever and doesn’t know these things? I mean really…
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May 15th, 2012 at 2:07 pm 32
@DaMann: “Who the hell buys a house or property or whatever and doesn’t know these things?”
If you had to pass an IQ test to buy a house, we wouldn’t be in a bubble.
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May 15th, 2012 at 2:12 pm 33
The G&M spinning RE again, it’s been a long time!
Why Calgary could become hottest housing market again
Love this one from the comment section:
How many like him are (or will be) in Vancouver?
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May 15th, 2012 at 2:36 pm 34
Look at benchmark prices compared to 5 years ago based on sub-region in the Vancouver area: http://twitpic.com/9lfvtj
Not all areas have gone gonzo since the GFC. Something to consider.
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May 15th, 2012 at 2:39 pm 35
@Anonymous:
LOL Fantastic point!
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May 15th, 2012 at 3:15 pm 36
To be fair the Calgary market has been pretty hot this spring. The median price in May so far is $435,000, just below the high of $439,000 in June 2007. Of course if oil continues to tumble the market will be dead again.
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May 15th, 2012 at 3:21 pm 37
@Makaya: Wow 30 year old and can afford a $1.4M Ferrari, a penthouse in Signapore. Wow….I’m in the wrong industry/job.
My condolensces to the two innocent bystanders who died, it’s really unfortunately. The only bright side out of this tragedy is that the perp also died, rather than walking away without punishment. It’s really too bad he didn’t crash into a concrete barrier instead.
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May 15th, 2012 at 3:28 pm 38
@jesse: Unless the guy buying another house has a huge income, the bridge loan is probably from a private lender or credit union (although even this outlet is shrinking).
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May 15th, 2012 at 3:53 pm 39
ohohoho…
http://business.financialpost.com/2012/05/15/canadian-banks-not-immune-to-housing-bubble-osfi-official/
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May 15th, 2012 at 4:19 pm 40
@Makaya:
Singapore has a non- replacement birth rate coupled with a surging economy. It needs immigrants badly but the influx is stirring resentment, some of which has abated since the govt cut back on the number of arrivals.
There’s also one huge difference with Canada. Very little welfare state here and a pretty high threshold for skills so immigration has a rather large net economic benefit. You notice the young Ferrari driver had a high paying job and bought his own car. Not quite the same as our Ferrari-drivIng vancouver house sitters now is it?
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May 15th, 2012 at 4:29 pm 41
@ Patz
A rebuttal from Tsur (I ruffled his feathers a bit via email).
-clip
Please see any paper on housing as an asset, then look for owner cost of capital, notice that rent to price ratio depends on interest rate, holding costs, and expected appreciation. The last two have geographic variation within a country, all three vary across int’l borders
What is the appropriate expectation is a very legitimate debate, and in many places should much exceed the rate of inflation, but not in every place
If cities are not perfectly “open” then urban utility doesn’t have to equalize across cities and land price deviations can get larger than can be explained by amenities alone
Finally, rent and prices have to be for the same unit/location and this is rarely the case in detached housing markets
-clip
for what’s its worth.
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May 15th, 2012 at 4:35 pm 42
@Anonymous:
“Singapore has a non- replacement birth rate” & “Very little welfare state here”
I see cause and effect here…
Canada is obviously nothing like Singapore (thank god!). My point was not to compare the two countries, but to draw a parallel on the resentment towards HAM here and there.
“You notice the young Ferrari driver had a high paying job and bought his own car. Not quite the same as our Ferrari-drivIng vancouver house sitters now is it?”
If you have a link regarding his previous occupation that made him so rich, I’d welcome it. I couldn’t find what this guy was doing.
The only thing I found was this below, but I can verify whether this is true or not:
“The dead PRC driver, Ma Chi, of the red Ferrari was the brother of Ma Yong, one of the big mafia bosses operating in Chongqing. During the crackdown initiated by Bo Xilai and Wang Lijun on the Chinese mafia, Ma Yong fled to Guangzhou in the south.
The Straits Times of May 14 described the deceased driver, Ma Chi, as a 31-year old private investor. The latter never graduated from college.
According to some sources, Ma Chi used to launder at least 1 million of USD per month in Hongkong.”
http://senatus.net/shareditems/10653/http://robinlow.blogspot.com/2012/05/ma-chi-ferrari-driver-that-killed.html?spref=fb&fb_source=message
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May 15th, 2012 at 4:45 pm 43
@Makaya: Any chance you can find a blog more on topic with the things you want to discuss?
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May 15th, 2012 at 4:46 pm 44
@Makaya: “If you have a link regarding his previous occupation that made him so rich, I’d welcome it. I couldn’t find what this guy was doing.”
It was in the article you originally quoted!
‘Police gave no other details but local media said the Ferrari driver was a financial adviser from Sichuan who was applying for permanent residency and already living in a Singapore penthouse with his family.’
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May 15th, 2012 at 4:50 pm 45
@Flip Flop: “What is the appropriate expectation is a very legitimate debate, and in many places should much exceed the rate of inflation, but not in every place”
Which place would that be that exceeds inflation over the long term? Case Shiller already debunked that myth. Without interest rates falling we would not see anything above inflation. When the rates rise we will not keep up with inflation. To forecast above inflation over the long term with current rates is asinine. Imagine what housing prices would look like if interest rates were 10% as they were for most of the 70s.
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May 15th, 2012 at 5:02 pm 46
@Anonymous: “Any chance you can find a blog more on topic with the things you want to discuss?”
I solemnly pledge to stop discussing Chinese gangsters on RE blogs…
…just as soon as Global TV pledges to stop showcasing Cam Good flying around in yellow helicopters.
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May 15th, 2012 at 5:23 pm 47
Headline on the Globe & Mail:
Vancouver’s real estate swoon deepens
Also mentions people walking away from deposits….
Just need some more stories like this to really change the market psychology… If it hasn’t turned already!
http://www.theglobeandmail.com/report-on-business/economy/housing/vancouvers-real-estate-swoon-deepens/article2433053/
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May 15th, 2012 at 5:40 pm 48
@Anonymous: “Which place would that be that exceeds inflation over the long term?
Underused property will increase faster than inflation and areas with constrained land supply will do the same, and that goes for Vancouver in spades. Sorry, but it is a fair point. Condos, and houses away from the periphery, are unlikely to increase their utility significantly and will roughly track inflation as Shiller indicates. Shiller looks at aggregate US and city-wide data, not specific areas, but I do believe he has commented that price movements are not necessarily homogeneous, even over the long run.
Vancouver SFH is central in a region that is increasing in density, just look at any new
housemultiplex going up in place of a WW2-era bungalow. There is more utility with the new dwelling, often with multiple suites that generate additional revenue, way more than the $1500/month or whatever that could be generated from a near-teardown bungalow. We should expect as time passes the bungalow to increase its price faster than inflation, though how much faster is a very good question. I had pegged it at about 1% but detached lots have far exceeded that so far.Like or Dislike:
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May 15th, 2012 at 5:43 pm 49
@jumpin in:
I see McLister is being a whiney, lying scumbag again – in other words, being himself.
“How many new lending ‘guidelines’ can the market bear before it breaks?” wrote Robert McLister, a mortgage planner who edits the website.
Hey asshole, don’t like lending ‘guidelines’? Fine, let’s get rid of taxpayer backed mortgage insurance and go private, then you can set your own rules.
There’s “no question” the proposed OSFI guidelines will curb demand and hurt housing prices, McLister said in an interview.
That’s right you fucking crybaby, I’m sure you and your ilk would like to see cheap and easy credit extended forever to anyone who can breathe but we’ve had enough.
McLister pointed to banks’ low arrears rates on mortgages as evidence more rules aren’t needed.
What a lying piece of filth, he knows full well defaults are never a problem in a rising market and that’s why we haven’t seen them yet.
Disingenuous pig.
McLister called the idea of a 40% decline in housing prices across the country “farcical.” Such a decline is “not going to happen, period.
I’m sure the Scummy McBroker would rephrase that if he had to bet his life on it.
Right Robbie boy?
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May 15th, 2012 at 5:45 pm 50
New Listings 287
Price Changes 174
Sold Listings 95
TI:18274
http://www.laurenandpaul.ca
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May 15th, 2012 at 5:53 pm 51
@paulb.: +92 from yesterday, I live it better that way!
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May 15th, 2012 at 6:01 pm 52
“To be fair the Calgary market has been pretty hot this spring. The median price in May so far is $435,000, just below the high of $439,000 in June 2007″
So put another way, its 5 year ROR is 0%
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May 15th, 2012 at 6:33 pm 53
Wow…. Price changes outpacing sales nearly 2-1 today. Add in an MSM story of peeps walking away from deposits and a nice -9.8% dip on yoy average price. I’d call that a day wouldn’t you?
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May 15th, 2012 at 6:33 pm 54
@jesse: “Underused property will increase faster than inflation and areas with constrained land supply will do the same, and that goes for Vancouver in spades. Sorry, but it is a fair point.”
Wrong. Underused property has a premium already priced in. If you can build a larger house on a lot, subdivide or what ever that premium is already built in at market price. What Tsur was talking about is property values increasing above inflation justifying paying a premium over renting. Isn’t going to happen over the long term. Tsur Sommerville is nothing more than an industry shill.
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May 15th, 2012 at 6:57 pm 55
@Joey Jo Jo Jr.: nice! Thought about sharing that on Facebook but I know some friends and family would take it personal …
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May 15th, 2012 at 7:15 pm 56
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May 15th, 2012 at 7:29 pm 57
testing..can’t seem to post
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May 15th, 2012 at 7:32 pm 58
comment on Globe and Mail
“”Not everyone is convinced there’s a housing bubble. Economic fundamentals are driving activity and prices, and many markets are still undersupplied, said Peter Norman, chief economist at Altus Group.
He points to an improving labour market, low interest rates, population growth and pent-up demand from the recession as driving activity. “I wouldn’t say it’s out of control but it certainly indicates strengthening demand in a relatively supply-constrained market,” he said.
Even in Toronto, where talk of a bubble is most concentrated, rising prices simply reflect population growth of about 100,000 people a year in a city where “severe land constraints” are limiting the ability to build single homes, he said.”
IF HIGH HOUSING PRICES ARE BASED ON STRONG ECONOMIC FUNDAMENTALS THEN REMIND ME AGAIN WHY WE NEED EMERGENCY LOW INTEREST RATES???”
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May 15th, 2012 at 7:42 pm 59
@Anonymous: Sorry, but the data support prices increasing above inflation due to changing density norms.
A house surrounded by condos won’t increase faster than inflation but that’s not most houses.
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May 15th, 2012 at 7:42 pm 60
I figure sales mix could show a 15-20% decline by late fall, although this will not be an accurate read of things. My guess is a true 10% decline by year end, but the big show will not unfold until we see some interest rate hikes.
Stick that in your noggin.
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May 15th, 2012 at 7:57 pm 61
if DOW and TSX deflate just 10% within next month RE market would be in 2008 mode right away.
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May 15th, 2012 at 8:07 pm 62
@jesse: “Sorry, but the data support prices increasing above inflation due to changing density norms.”
The steady decline of interest rates is the only thing responsible for increases above inflation. Here is the data:
http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/
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May 15th, 2012 at 8:18 pm 63
@Patiently Waiting:
“It begins…
http://www.cmhc-class-action.com/
“they will hunt you for the rest of your life””
This is why the government wants to privatize the CMHC. Clearly they will need to go after foreclosures to collect on debts and the government doesn’t want to be the bad guy.
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May 15th, 2012 at 8:33 pm 64
Opss Honk Kong down 2.5% overnight…looks like the smelly stuff is hitting the fan
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May 15th, 2012 at 8:33 pm 65
Entertaining pieces on The National tonight.
First the piece on Vancouver’s deflating real estate market and the 10 crash in average prices year over year. And there’s Sewer Somerville saying everything is hunky dory except for maybe Toronto’s condo market.
Sure Sewer, when was the last time only one segment of one market crashed in any country? Sorry loser, it all goes down together.
Followed by a round table panel discussion “Should we trust China”?
Stupid question.
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May 15th, 2012 at 8:34 pm 66
@Makaya:
““Singapore has a non- replacement birth rate” & “Very little welfare state here”
I see cause and effect here…”
So a welfare state leads to a higher birth rate or something, except that everywhere in the world a large welfare state corresponds with low birth rates.
Everything you write is just muddled nonsense.
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May 15th, 2012 at 9:38 pm 67
Here’s a real world data point for The Province article:
6285 CHARLES ST, Sold March 2012 $1,173,000
Recently spotted on Craigslist for $2500 / month. http://tinyurl.com/bpcowa4
price:rent – 39.1
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May 15th, 2012 at 9:40 pm 68
@Anonymous:
“So a welfare state leads to a higher birth rate or something, except that everywhere in the world a large welfare state corresponds with low birth rates.
Everything you write is just muddled nonsense.”
Why so angry?
Let’s just take countries with similar level of development and then compare fertility rates, ok?
From “2012 List by the CIA World Factbook”
- Singapore: 0.78 (worst in the world)
- Canada: 1.59
- France: 2.08
Now, tell me which of this country has the most generous welfare state? Which had the least generous? and which is in between?
Get it now?
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May 15th, 2012 at 9:40 pm 69
More great headlines:
“Vancouver’s real estate swoon deepens” Globe & Mail, today.
http://www.theglobeandmail.com/report-on-business/vancouvers-real-estate-swoon-deepens/article2433053/
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May 15th, 2012 at 10:28 pm 70
@Makaya:
Where’s the USA fit in your list? Welfare state about the same size as Canada (in terms of % of GDP), yet a birth rate similar to France.
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May 15th, 2012 at 10:48 pm 71
@Anonymous: US has hispanics and mormons.
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May 15th, 2012 at 10:56 pm 72
I know 3 families who used to give me a “sorry” look because we rent while they own. They just “lost” roughly $150 000 in the last 12 months (10% drop). Ahhhhh… no more real estate talk when I will invite them for dinner. What a breather!!!
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May 15th, 2012 at 11:03 pm 73
@Anonymous:
This is not related to RE but since you ask the question…
It is reasonable to assume that if a country gives lots of incentives to women to have babies (generous mat leave, easy access to daycare, non discrimination policies, child allowance, etc), women will tend to have ore babies. Obviously, there are more influencing factors (such as religion for example).
OK, enough of this discussion, back to RE
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May 15th, 2012 at 11:04 pm 74
@Best place on meth:
“Followed by a round table panel discussion “Should we trust China”?”
It *is* a stupid question. I haven’t trusted China for decades. It chips easy, often can’t go in the dishwasher and often the cup handles are dainty. Because of that, I’ve been using paper plates and beer cups for decades.
I agree, fuck China.
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May 15th, 2012 at 11:06 pm 75
@Anonymous:
Keep a close eye on the silverware.
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May 15th, 2012 at 11:39 pm 76
@chilled: “Keep a close eye on the silverware”
Wooden bowls will fuck you over at every opportunity! Bastards!
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May 16th, 2012 at 12:12 am 77
Too bad majority of the population couldn’t do a own vs rent scenario if their lives depended on it.
Even if the price-to-rent ratio was 300 they would still see renting as throwing money away or “paying someone else’s mortgage”.
On well, knowledge is power and to each his own!
Onward!
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May 16th, 2012 at 4:04 am 78
@Anonymous: You’re using aggregated data to explain why certain housing types in certain locales in a region will only track inflation. That is not correct.
We only need look at sales prices in Vancouver westside of detached bungalows over the course of many decades, and not necessarily using prices of the past 10 years as a gauge, to show that low density detached housing in a region that is increasing in density will have its land value increase faster than inflation.
This makes sense, a property’s utility increases as its density increases. Future density could well be priced in but they are discounted due to holding costs and risk, hence the faster-than-inflation appreciation.
Does that make the low density property a good investment? Not necessarily due to significantly lower rental yields. But Sommerville’s suggestion that a property can increase faster than inflation, when taking into account a local situation, is correct.
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