VHB has a post over at Housing Analysis looking at the last few years of sell / list ratios in Vancouver. He’s got two charts there, one based on daily data in the VCI forum and one going further back to 2001 based on REBGV data. Interesting to see the difference in years like 06, 08 and 2011.
This post was submitted by TDK1138.
One metric that nicely captures both the credit and mass psychology components of the current Canadian real estate craze is the total dollar amount of mortgage loan approvals as a percentage of GDP.
[...]
The total amount of mortgage debt would be expected to rise, but in a healthy and sustainable real estate market, it would rise in tandem with GDP growth, meaning loan approvals as a percentage of GDP should stay range bound. That they haven’t is but one more indication that this is a market driven by unsustainable dynamics.
http://www.theeconomicanalyst.com/content/mortgage-crazy-look-loan-approvals-province
This post was submitted by Mansur al-Hallaj.
According to fundamentals, Canadian RE ownership continues to be significantly overvalued compared to rental cashflow. Even the bubbly Australian market has started to correct, but with interest rates low for at least 2 more years, who can predict how long the plates can continue spinning?
You can play with The Economist’s house prices chart yourself here:
http://www.economist.com/blogs/freeexchange/2011/03/global_house_prices
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?
This post was submitted by patriotz.
If Vancouver house prices increase by the same amount they have since 1982 the average house price in 2038 will be almost $4 million dollars. Sounds reasonable, but what about interest rates? In the same amount of time interest rates have fallen dramatically. If they keep dropping at that rate they’ll break the zero bound soon and become negative.
Then what happens?
The bank will pay you to hold a mortgage.
The future is bright.
Here’s the link to the video on YouTube if you want to comment there.
This post was submitted by doubleplusgood.
Realtors. Some of you love them, some of you hate them and some of you are them. But there’s one thing that it seems we can all agree on: We appreciate it when a realtor takes the time to share market data with us.
One Realtor that has consistently shared market data with Metro Vancouver residents is Paul Boenisch. Paul has been sharing daily sales and listing numbers with us for a while and is now establishing a market data section on his site along with a new partner.
At the moment their market trends section is in its beginning stages, but Paul has a well established history of reliably providing data and promises to continue posting daily numbers here as well.
For more Metro Vancouver market data you may want to also check out the Realtor sites of Agent Will and Larry. For the bigger picture there’s CUER/Sauder at UBC and for great analysis check out the Economic Analyst. Lauren and Paul will be posting local real estate market data here.
Do you have a favorite source of market data that isn’t listed here? Drop it in the comments below!
Quick roundup of tidbits I collected:
First, notice the striking correlation between the %YoY change in Canada and Australian home price indexes:
Graph sources:
AUS Price Index (fig 1)
CAD Price Index (comminuques->april)
Second, look at the similarities between today and summer 2008:
- Both Aus & Canada %YoY home price trends are following the trend set in ’08.
- USD index came within a hair of its summer ’08 lows and has started to rally
- Commodities have started to tank and have registered their largest 1 week plunge since ’08
Third, QE2 comes to a close end of June. No more $4 billion of liquidity pumped into the markets daily to goose commodities and other risk assets. This also gives further fuel to the USD rally.
A crash this time around would be uglier as interest rate ammo worldwide is thin. So buckle up and let’s get the remaining world housing bubbles popping at warp speed scotty!
Submitted by crashcow
Foreign investors coming to Canada must be either oblivious to the relative valuations of Vancouver vs US real estate or are as dumb as a post. The chart below demonstrates just how much of a spread has developed between Vancouver home prices and US home prices in Canadian dollars. For a rational foreign investor buying investment property the decision should be a no-brainer: World class US cities priced at distressed multiples and in “cheap” greenbacks ,or an over inflated Vancouver market which is priced at unsustainable income multiples and in a currency that has seen strong appreciation. As you can see from the chart the relative valuations have gone from pillar to post – with US home prices at one time valued at approximately 2X Vancouver to now being valued at roughly 1/2 of Vancouver prices.
What is it then that makes foreign investors ignore the fire sales across the border? Is it our free health care system that they are coming for??? If the rich immigrants are as rich as we hear, why would they need a free health care system especially when an affluent individual can set themselves up to receive better health care in the US. Are there massive tax differentials on foreign owned property to justify the spread? It is most likely the “buy in” to Canadian citizenship which is the draw for many. As well, the herd mentality must also be a contributing factor.
In any event – I doubt that these relative valuations can be maintained – What do you think?
Chart 1)
The chart above displays Vancouver, Toronto, Calgary, and Montreal home prices vs. the TSX index.
The purpose for this measure is to understand the relative performance of two regional asset classes. Both asset classes should, over the long term, be correlated to fundamental Canadian economic characteristics; Such as, interest rates, wages, GDP growth, productivity, and even themes such as Chinese growth, global inflation, energy demand etc.
Over the long run you should expect equity markets to outperform real estate for a number of reasons, but most importantly these two points:
1) A higher return for equities is necessary to compensate investors for the higher risk profile
2) Over the long run no asset should be worth more than the present value of their future generated cash flows.
I re-based both measures to the late 90s when each market appeared to have reached their relative lows simultaneously. This time period is also significant because it marked a period of calm before a few very important changes to the Canadian economic landscape, including:
Interest rate cuts – Post 911
Energy Bull market and resulting “economic multiplier”
Chinese growth demand of commodities
Canadian currency bull run – related to a couple of points above
What I would have liked have done is to look at the ratio of total Canadian Real Estate values in nominal terms vs total Canadian equity index market capitalization. I leave that to someone else if they have the time, resources, and interest.
I used a moving three month average for both the price index and the tsx in order to smooth out the volatility. I didn’t bother looking at a “Total Return” measures for either asset class since their ability to generate future cash flows should be, at least partly, reflected in the price of the asset. All other notes are on the chart!
Image 2)
I hear a lot of different stories about sales volume – so to clean out the noise, I took the data from Teranet National Bank House Price index on “Sales Pairs” used for calculating their price index. It isn’t total sales volume but it does give us an idea of trend. I took the average sales volume each year and in each season in the 1990′s and compared it to the corresponding season over the last decade. Other than that initial quick burst during the 2009 recovery, sales volume has not recovered to what it was prior to the recession.
Keep in mind, since there are obviously more homes now than there were in the 1990s you should expect some level of inflation in the volume percentage. However, we really aren’t seeing it. Sales are pretty similar to 2001 at best.
Why did Canada’s housing market not suffer (yet) as much as the US? The media will tell you it’s our top-notch banks, prudent lending system and strong fundamentals. But take a close look at the graph below:
The US and Canada both had an uninterrupted housing boom that lasted 7 years, with US starting and ending roughly 2 years before Canada. After US banks began failing and world stock markets collapsed in Oct 2008, unprecedented stimulus measures were taken simultaneously by Canada and US.
The key point the above graph illustrates is that by the time stimulus was started, US home prices had already been falling for 3 years while Canada had just started their decline 1 year prior. As a result of the shorter stimulus response time in Canada, our housing prices and banks took a smaller hit.
Notice how similar the effects of this stimulus have been to home prices in both countries. By slamming interest rates to the floor, injecting $110 billion into Canadian banks ($65B from the Insured Mortgage Purchase Program and $45B from Bank of Canada) and creating home buyer incentives (US), housing demand was dragged forward and created a temporary rally in home prices. Even more interesting is how the stimulus effects have started to wear off at the same time in both countries.
And are our banks really more prudent than those in the US? As Ben Rabidoux noted on his blog, take a look at the bank leverage ratios (courtesy of Eric Sprott):
The media is right – it’s different here. It’s worse.
submitted by: crashcow
