What sets house prices?

Jesse put together a nice clear presentation on our housing market.

Check it out.

His argument is that the factors that set house prices are different for the long term than they are for the short term.

If short term factors drive up supply and pull demand forward, what happens in the future to balance this out?

With housing affordability in Vancouver hitting an all time low and sales scrapping along under 100 a day It sure looks like Months of Inventory is starting to flash a big warning sign for current buyers.

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ScubaSteve
Member
ScubaSteve

@Crikey:

If the author wants to attack his religion, that’s fine, but he doesn’t present the article that way. Instead, he presents it as an attack against Bain, with subtle hints of anti-morman mixed in.

Van
Guest
Van

Unless there is a financial shock I don’t see prices or MOI changing much. This isn’t 2008 all over again. There are no financial shocks on the horizon. Central banks will pump money in and rates will stay low or be lowered more to keep this baby pumped.

Boombust
Guest
Boombust

“I don’t see prices or MOI changing much.”

Ya kiddin’ me? They already HAVE,on both counts.

And, there is a HUGE shadow inventory of new builds that aren’t even part of the official REBGV stats.

Been to Coquitlam/Maple Ridge lately?

Vote Down The Facts
Guest
Vote Down The Facts

@Boombust:

There’s always a large shadow inventory. Are there any figures that show it being especially large right now?

Van
Guest
Van

“HUGE shadow inventory”
Bahahahaha do you think this is America!?

Van
Guest
Van

End of month inventory plummeted.. we won’t even see 20k this year.

s
Guest
s

Not sure if it counts a shadow inventory but the newly built apartments or pre sales don’t get put onto the MLS system, so there’s a more more inventory then reported.

If you look at the construction around the city I’m sure there’s over 20K if everything being sold was put onto the MLS site.

Van
Guest
Van

tons of new build stuff is on the MLS already overstating inventory.

Mort
Guest
Mort

@Van: There are no financial shocks on the horizon. .

Haha. Awesome, that’s almost as good as ‘there is no black swans forecast’. They wouldn’t be shocks if you saw them coming.

However, I’m tryin to remember what 2007, early 2008 looked like.. Was Greece in danger of being booted from the euro? Was china in as poor a shape? Where the piigs?

Anonymous
Guest
Anonymous

@Van: “Unless there is a financial shock I don’t see prices or MOI changing much.”

Ok Van we get your point of view. It is the same as what most people believe when they get caught investing in a bubble. My suggestion is for you to increase your real estate holdings ASAP before prices go up.

Van
Guest
Van

Mort – If you are waiting for a meltdown you will remain poor.

Van
Guest
Van

Anonymous – no bubble, no meltdown, no increases.

Vote Down The Facts
Guest
Vote Down The Facts

@Mort:

Greece should have been kicked out the euro in 2004, after they admitted lying to get into it.

Chabar
Guest
Chabar

The more the merrier!

While the news is full of warnings about a national housing slowdown and shaky global economic future, the Vancouver region has had a building boom almost equal to pre-recession years.

http://www.theglobeandmail.com/news/british-columbia/bc-building-boom-nears-pre-recession-levels/article4517188/

southseacompany
Member
southseacompany

All that supply coming on the market, but, hey, people are leaving! Come back… buy a condo!

“Yaffe: B.C. losing residents to better housing and jobs elsewhere”
http://www.vancouversun.com/business/2035/Yaffe+losing+residents+better+housing+jobs+elsewhere/7183511/story.html#ixzz25SkrGf9E

“A Royal Bank report on Canadian housing affordability on Monday warned: “Affordability measures for the Vancouver area … are inching ever closer to the worst levels in the annals of Canadian real estate.”

“Consider them a canary in the mine shaft. If current trends continue, B.C. is on track to become a destination for environmentalists and rich folk.”

Sounds oh so sustainable.

jumpin in
Guest
jumpin in

http://www.aljazeera.com/business/2012/09/20129372012982312.html
China manufacturing hits three-year low
Figures show sector in world’s second-largest economy faces “intensifying downward pressure”, HSBC analyst says.

Romeo Jordan
Guest
Romeo Jordan

I suspect an avalanche of listings over the next two months, 20,000+ listing and MOI into the teens.

Fucking trolls know it’s coming.

Romeo Jordan
Guest
Romeo Jordan

We’ve got Larry yapping about how the westside prices are going UP, what a crock of shit.

Prices are falling, a few $15million listings sold millions below ask, pulling up the average in a thin market (they would pull up the average in a hot market, just not as much), and he’s spinning it like the bears are wrong, so we’ll have to remind him of how fucking asinine his post was in a few months.

chip
Guest
chip

@Crikey:

“I’m not saying that Romney is bad, but I would certainly like to know how he feels about Mormonism’s tradition (until very recent history) or excluding blacks;”

Just google his father who as governor of Michigan in the 60s set up the state’s first civil rights commission and actually marched with the NAACP against discrimination. I generally despise all politicians but in Romney’s case there has been pretty broad affirmation for his personal decency. (Doesn’t mean he’ll balance the budget of course).

yvr2zrh
Member

@Romeo Jordan:

I do agree he made it sound like the prices are actually rising but I would not say he is telling the bears they are wrong. He just neglected to say how 2 10M+ sales within 80 transactions moves the average up in Van West by $275K and there are a few others that bumped it up more. This is statistical noise and not indicative of an increase in prices. It is actually consistent with a spike in August last year.

I would not be so harsh on him.

604 Receding Gains
Member
604 Receding Gains
Great presentation Jesse! It is one of the few presentations around that can be used to predict price changes – most others focus on the rear view mirror. It looks like MOI of +/-7 is the tipping point for prices – that’s when buyers step back and sellers panic. Question: What is the average time delay for price movement as MOI grows? You show 6-month HoH with a strong correlation, however did you look at other periods to see what the “response function” is to MOI build-up? Is the upward swing faster than the downward swing? I’d suspect yes. Side note: I’d suggest availability of capital determines the equilibrium price-rent ratio, not prices. The equilibrium ratio moves up and down with interest rates (counter-cyclical – when rates go down, the price-rent ratio goes up., i.e. prices go up).
h stern
Guest
h stern

Seriously, learn to make a proper graph. Are four digits of precision really needed on the ordinate axis? The effort is appreciated – don’t get me wrong – and the non-linear scale is a nice touch, but if your work looks amateur it’s going to be dismissed as amateur. Which is a shame, because this is important data.

registered
Member
registered

@25 jesse Says: “… price-rent is what we should be looking at for predicting where prices and rents are going in the long run. Further, the daily/weekly movements of the market — supply and demand — are at the nexus of how these price drops occur.”

I’ll be honest, that doesn’t parse for me at all. The first part reads as circular reasoning and as to the second, how can daily/weekly price/rent trends be the cause – or as you put it the ‘how’ – of price drops? It’s a measurement, not a cause.

jesse
Member

@h stern: “Seriously, learn to make a proper graph”

I am somewhat at the mercy of Google docs on that one. In any case, if the precision of the graphs are enough to render the understanding of the arguments moot, may I suggest my graph-making acumen is not really the problem. Thanks for the feedback, I will attempt to adjust.

jesse
Member
@fixie guy: ” It’s a measurement, not a cause” Price drops lag MOI from my analysis, to the point where we have a good measure of future price movements based on current sales and inventory figures. That suggests, but does not prove, causality. It’s a strong enough a relationship I’m happy with the platitude. I thought the price change to MOI correlation was so strong it’s worthy of highlighting. The root causes of distorted price-rent are a multitude of factors, in most part likely due to credit availability and low real rates. That should not be lost in the analysis — and I think it’s a presentation in itself — but the prognosis of a prolonged high MOI for years has direct implications for home sellers and their employed agents. That was a big part of the message I am… Read more »