Tag Archives: outlook

Friday Free-for-all!

It’s the end of another week and that means it’s Friday Free-for-all time!

This is our regular end of the week news round up and open topic discussion thread for the weekend.

Here are a few recent links to kick off the chat:

Assessments and sales
Canada in ‘serious trouble’?
Optimism Fading?
Rent vs. buy math
High debt a way of life
Oil brings doubt
Chinese investors not afraid of ghosts
Realtor Hunger Index at 68%
Prices down in Yuan

So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!

Does the Bank of Canada Think Real Estate Buyers are Suckers?

Some of you are under the impression that Bank of Canada Governor Stephen Poloz does nothing but sit around all day eating Doritos and watching The West Wing on Netflix, but you are sadly mistaken.

He also issues reports that freak out Realtors.

Consumer debt loads and house prices that could be as much as 30 per cent overvalued are the two biggest risks to Canada’s economy, the Bank of Canada warned in its semi-annual Financial System Review on Wednesday.

Yeah, but “up to 30 percent” includes zero percent over-valued too you know? Surely not everyone is overpaying for Canadian real estate.

The bank says it’s about 95 per cent sure that house prices have been overvalued by an average of about 10 per cent since 2007. That’s based on a new forecasting model the bank says it created, which incorporates existing data from private banks and other government institutions.

Huh. 95% Sure? really? I bet it’s all a’cause of those wealthy foreigners right?

And a lot of those inflated house prices are coming at a cost of rising debt loads. About 12 per cent of Canadian households are considered to be extremely indebted — which means they have a debt-to-income ratio of at least 250 per cent. That ratio has doubled since 2000, the report notes.

Oh.

But that’s ok because younger buyers are building equity right?

Young homeowners, the bank added, have become even more vulnerable to negative shocks to income and to higher interest rates.

Wow. What a buzzkill.

*For those who followed the foreigner link we would like to offer our sincerest apologies.  If you are a glutton for punishment, here’s a video of our prime minister singing Guns n’ Roses “Sweet Child o’ Mine“. If you watch the whole thing you earn a cookie! If you cut it off at 3:33 you have to go to work at a Tim Hortons in Fort Mac. You have been warned.

 

August 2012 Vancouver Market Outlook

B5Baxter posted this in the comment section yesterday, but the number of links tripped the spam filter and it was held up in moderation for a while.

We appreciate all market analysis and thought this one deserved it’s own post.

Here’s his summary of where we are in the Vancouver real estate market and roundup of forecasts:

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I have started to put together a monthly housing analysis update that I share with interested people. Here is the most recent one:
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Vancouver Real Estate Market Analysis – August 2012

July saw the lowest Metro Vancouver real estate sales in over a decade. Sales were lower than 2008 when prices saw a significant drop. And inventory has stayed near or above 2008 levels since the beginning of the year. That means that over the next few months we should see a drop in prices at least as great as we saw in 2008.

In 2009 prices recovered after interest rates were lowered and other government policies were introduced to stimulate the market. This time around there is less room to move interest rates and the federal government is signaling that they are interested in cooling the market rather than stimulating it.

The low sales and high inventory would indicate that we may be at the beginning of the long anticipated collapse of the Vancouver housing bubble.

Based on an analysis of price/rent, price/income and price/ gdp growth I am estimating that the current market is overvalued by 40-60% and we should expect to see declines of that magnitude sometime in this decade.

Average prices for detached homes in Vancouver have declined by 15% (www.yattermatters.com) from a peak in February. This is the first time we have seen five months of straight declines since 1996. Some individual asking prices have declined 20-40% (see: vancouverpricedrop.wordpress.com )

The Teranet index for Vancouver (usually considered a more reliable indicator than average prices of the overall market) has not shown the same decline. It has remained relatively flat but tends to lag other indicators. The REBGV index showed a 1.4% drop since May. This would be consistent with price behavior and inventory levels in 2008 when prices started declining in the second half of the year.

This graph ( http://vancouverpeak.com/groups/data-hounds/forum/topic/crash-curve-graphs/#post-2531 ) shows three of those metrics imposed on a graph of San Diego housing prices. I believe the Vancouver market is similar to the San Diego bubble market and the declines may follow a similar pattern.

If Vancouver prices did follow a similar trend to US prices we would see the 40-60% drop occur in 3-7 years.

Other estimates:

http://worldhousingbubble.blogspot.ca has estimated a decline of 41% and a time to bottom of 97 months (8 years).

The Economist magazine recently ( http://www.economist.com/node/21557731 ) stated that Canadian real estate is overvalued by 75% (this is an average for Canada, some markets like Vancouver may be higher).

http://alphahunt.ca has estimated a decline of “about 50%” from a March 2011 peak with a time-line of “5+” years

http://vreaa.wordpress.com/ has projected a decline of 50-66%

Pacific Partners estimates a 40% decline (http://pacificapartners.ca/blog/2012/07/18/canadian-real-estate-bubble-chart-book/#Table2 )

Investment Comparison:

During the last six months Vancouver Real Estate showed annualized return of 1.6% (using the optimistic HPI). During the first two quarters of this year the non-cash portion of my own strategic allocation portfolio returned 5.2%.