Friday, December 28, 2007
Monday, December 24, 2007
I am blessed this year with a charmed life of sorts. My workplace is an enjoyable place to be, I have food on my table every night, I have close friends whom I trust, and I have close family who is healthy and loved. I am thankful for all of the blessings God has provided.
This Christmas will be different for us as my wife and I have a young son with whom we enjoy spending time. We like playing, making wierd sounds together, eating (mmmm . . . baby food) and reading books! My wife and I are taking time this Christmas to visit with family and friends. In other words we are going to enjoy the finer things in life and I hope everyone else has the same opportunity and is able to sieze it.
I may post this week but I won't post with the usual regularity. Cheers and be safe.
Sunday, December 23, 2007
Mortgage rates have come up a lot recently with the onset and continuation of the global credit crunch. This chart actually doesn't tell the entire story as the pre-August discount rate off posted rate was around the 1.5% area and now it is around the 1.2-1.3% area so you could even add 20-30 basis points to the renewal gap to reflect this new business reality at the big banks. I am not sure how smaller lenders are dealing with this now but I know all the big banks are discounting less off of the posted rate and being a little more stringent on their lending criteria.
Friday, December 21, 2007
Wednesday, December 19, 2007
Monday, December 17, 2007
Among the highlights:
• Just over half of respondents (54%) both bought and sold a property in 2006. 44% only bought and 2% only sold a property.
• Approximately one-third of buyers are first-time home owners.
• First-time home buyers are more inclined to be young (under 45 years of age), with children, and from Asian countries in comparison to repeat buyers.
• Approximately six-in-ten of buyers and sellers are female.
• The majority (over seven-in-ten) of buyers and sellers are married or living common-law.
• Buyers tend to be younger than sellers with just over half of buyers being less than 45 years of age whereas just over half of sellers are 35 to 54 years of age.
• The average household size of both groups is 2.7.
• Approximately one-in-ten work from home and an equal size group do so at least part of the time.
• A total of 7% of home buyers bought a new home. Among these, approximately six-in-ten purchased the home pre-completion.
• Just over one-quarter of homes were bought or sold in the City of Vancouver.
• The Tri-Cities, Richmond and Burnaby each accounted for approximately 10-16% of transactions.
• Approximately 20% of buyers and sellers, most between 45 to 64 years of age, own more than one home.
• An average of just over 50% of the purchase price was financed, this proportion being relatively consistent across the Greater Vancouver region.
• Proximity to such amenities as shops, grocery stores and medical facilities is the most common factor considered in selecting neighbourhoods, particularly among condo, townhouse or duplex buyers.
• Furthermore, approximately one-third of buyers report to have paid more for their home to be closer or within walking distance to such amenities as public transit, shops and schools.
• In terms of factors considered in the selection of their home, apart from price, the style of home, followed by the size (with the majority desiring a larger home) are the most common considerations. The location and condition of the home are other important considerations.
• A total of 94% of both buyers and sellers used a Realtor.
• MLS listings on the Internet were most commonly used to market homes for sale, followed at some distance by Realtor client lists, open-houses and print ads.
• The Internet, followed by a Realtor are the most useful sources of information about homes for sale. In fact, almost nine-in-ten rate the Internet as ‘very’ or ‘somewhat’ useful.
• Email at 61% is the most commonly preferred method of receiving information by buyers who used a Realtor. Telephone calls and in person are the next most preferred ways.
Friday, December 14, 2007
Wednesday, December 12, 2007
OTTAWA — The world's major central banks, including the Bank of Canada, are launching a rare coordinated action to calm global credit markets and smooth out transactions over the end of the year.
The Bank of Canada, the U.S. Federal Reserve, the European Central Bank, the Bank of England and Switzerland's central bank made a joint announcement Wednesday, saying they were taking coordinated measures “designed to address elevated pressures in short-term funding markets.”
Investors applauded what was yet another step to deal with a severe credit crunch stemming from the tightening of bank lending standards. The Dow Jones industrial average was up by more than 100 points in midday trading, after rising more than 270 points in early trading, while the S&P/TSX composite index gained more than 120 points.
“At the very least these measures should tide the markets over the potentially awkward New Year period, and hopefully well into 2008 as well,” Capital Economics said in a research note. “They do not address the underlying imbalances threatening the world economy – notably the impact the U.S. housing slump will still have via conventional economic channels – but they should at least reduce the risk that the credit crunch tips economies into recession.”
For its part, the Bank of Canada will inject liquidity into short-term money markets, something it has resisted doing over the past few months despite widening spreads in short-term debt markets.
To date, the Canadian central bank has only concentrated on injecting liquidity into the overnight market to defend its target interest rate, which stands at 4.25 per cent. But spreads on credit for terms longer than overnight have been high and widening recently.
The central bank will enter into purchase and resale agreements with banks Thursday to the tune of $2 billion, followed by a minimum of $1 billion next Tuesday.
The Bank of Canada will also expand its list of collateral, something financial institutions have been begging the central bank to do for months.
Acceptable collateral for the term liquidity includes Government of Canada bonds and bonds guaranteed by the government, such as Canada Mortgage Bonds and securities backed by provincial governments, and bankers' acceptances and bearer deposit notes.
The Bank of Canada also said it would begin in March to accept some kinds of asset-backed commercial paper, or ABCP, as collateral for borrowing from its standing liquidity function, a pool from which banks can borrow at the bank rate, on an overnight basis, to help deal with temporary liquidity problems in their settlements.
To be accepted as collateral, the ABCP can not be the type that froze Canadian markets in August. Rather, it must be backstopped under global rules, not looser Canadian rules, the central bank said.
The fact that the Canadian central bank is taking measures it has resisted to date — making plans to accept ABCP as collateral, getting involved in term lending, and being more lenient in the collateral it accepts – suggests grave and urgent concern on the part of the central bank.
And the fact that it is coordinating credit-oriented action with other central banks suggests problems are deep and widespread, heading to a climax as the year draws to a close and demand for liquid cash spikes.
The liquidity measures are aimed at flooding money markets with extra readily-available cash at a price lower than the market is demanding now. The measures are meant to drag spreads back to more normal levels, and instill confidence in the markets.
While each central bank's measures may seem modest taken on their own, they are impressive if taken together and should be effective, said Mark Chandler, fixed income strategist at RBC Capital Markets.
“It's coordinated with monetary policy and it's coordinated with central banks, and it shows that they're listening,” he said.
Markets balked yesterday when the U.S. Federal Reserve cut its key rate by just a quarter of a percentage point, feeling the Fed was not sufficiently recognizing the pain felt from the credit crunch.
The Fed's response makes more sense now, with the news that it is coordinating with central banks to inject liquidity, Mr. Chandler said.
The action comes alongside interest rate cuts by the Fed, the Bank of Canada and the Bank of England, he pointed out, and as a package should ease problems in debt markets.
Mr. Chandler said it is wise for central banks to work together, since the problem of widening spreads in credit markets is globalized – more expensive borrowing conditions in one country has sent borrowers scurrying to other countries in search of better rates. But the pressure of their demand made for more expensive borrowing in other countries too.
So a problem in England quickly became a problem in Canada and the United States.
“We've all been fighting for the same thing, which is a pool of liquidity,” Mr. Chandler said.
That pool is now larger and easier to access.
In a statement timed to occur before the start of trading, the Fed said it planned to offer $40 billion (U.S.) in emergency funds to banks next week through an auction process.
The Fed said that it was creating a temporary auction facility to make funds available to banks and was also setting up lines of credit with the European Central Bank and the Swiss Central Bank that could be used for additional resources.
The first two auctions of $20 billion each will be next week on Dec. 17 and Dec. 20.
Analysts said the use of auctions to try to get more money into the banking system was an acknowledgment that efforts to spur direct loans from the Fed to banks through the Fed's discount window had not worked as well as hoped because of banks' fears that investors could become worried if they started utilizing the Fed's discount window to any large extent.
The Fed said it was also setting up lines of credit with the European Central Bank and Swiss Central Bank that could be used for additional resources.
The Fed said the new auction process should “help promote the efficient dissemination of liquidity” when other lines of credit were “under stress.”
It said that the temporary swap arrangements being set up would provide up to $20 billion in reserves for the European Central Bank and up to $4 billion for the Swiss National Bank. The reserves would be available for up to six months.
Since the global credit crunch hit with force in August, central banks have been injecting massive amounts of money into the banking system in an effort to keep credit flowing.
However, those efforts have only been partially successful. Many businesses and consumers report rising trouble in obtaining loans as banks become more fearful about extending credit in the wake of a surge in bad loans stemming from the U.S. housing crisis.
But I thougth these problems were contained to the United States and only affected a few deadbeat borrowers called subprime!?!?!
Check out Calculated Risk on this topic.
Or Floyd Norris' comments at the NY Times.
Monday, December 10, 2007
For comparison purposes I have selected two typical 'first time buyer' residences in the Lower Mainland to determine what I consider to be a “fair market value” for these homes.
I am comparing the monthly cash outflow for buying versus renting, with renting representing the fair market value of the monthly cost of the housing in question. Sources for data are the Multiple Listing Service for local asking prices and Craigslist for local asking rents. I have tried my best to find units that are as similar as possible.
Mohican's fair market value is based on the fundamental price of the housing (rent) minus any extra owner incurred costs plus any principal paydown
- 100% financing
- 6% fixed five year mortgage rate with 40 year amortization
- Inclusion of maintenance fees and property taxes
1) Our first candidate is MLS # V673124 in the Central Park area of Burnaby. It is a two bedroom, 1 bath condominium. Maintenance fees and property taxes are approximately $400 / month. I assume the purchase price to be the asking price at $309,000. In this scenario a buyer would have monthly cash expenses of $2,084 = ($1,684 + $400with only $158 of principal pay-down for a total net cost of $1,926 / month. For comparison I found a comparable unit for rent in the same neighborhood, with the same features for $1200 / month for a net savings to the renter of $726 / month. Based on these numbers the mohican fair market value of this condominium is $183,456. This represents a 41% decrease from the current day asking price.
2) Our next candidate is MLS# F2730243 is a 3 bedroom, 3 bathroom townhouse in the quickly growing Clayton area of Surrey. This townhouse has an asking price of $334,900 and maintenance fees and property taxes are approximately $350 per month. In this scenario a buyer would have monthly expenses of $2,175 = ($1,825 + $350) of which only $172 is principal paydown. This gives us a total net cost of $2,003 per month. I found a comparible unit for rent in the same complex for $1600 / month. This gives the renter a monthly net savings of $403. Based on these numbers the mohican fair market value of this townhouse is $266,012. This represents a 21% decrease from the current day asking price.
This study examines the investment timing performance of equity mutual fund investors and its relationship to the distribution arrangement of the fund. We find that investors who transact through investment professionals using conventional distribution arrangements experience substantially poorer timing performance than investors who purchase pure no-load funds.
Investors in all three principal load-carrying retail share classes (A – Front End Load, B – Deferred Sales Charge, and C – Trailer Fees) significantly under-perform a buy-and-hold strategy. Among all load funds, Class B investors suffer from the poorest cash flow timing, underperforming a buy-and-hold strategy by 2.28% annually, compared with annual underperformance of 0.78% for investors in pure no-load funds. No-load index funds are the only funds found to show no evidence of poor investor timing. Although investors are ultimately responsible for their own investment choices, these findings question the value being added by investment professionals who sell mutual fund shares through conventional / commissioned distribution arrangements.
We examine the relationship between fund distribution arrangements and investor timing performance. Our study expands on the finding that the timing of shareholders’ trades causes their actual performance to lag behind the performance of the funds in which they invest. Given that the majority of fund shares are purchased through investment professionals, we explore whether shareholders who rely on the advice of such professionals benefit by avoiding the perils of market timing.
We find that investors who use investment professionals to purchase load or legal no-load funds experience greater losses due to poor timing than investors who buy pure no-load funds. This finding persists whether the fund is actively or passively managed. Load fund Class B shares have the lowest alpha, reflecting relatively high annual expenses, and existing evidence suggests that B shares are generally a poor choice for investors. The finding that investors in Class B shares also experience the worst average timing performance casts these shares in a further bad light. However, it is worth highlighting the fact that investors in all of the retail share classes, except no-load index funds, experience significant underperformance due to poor cash flow timing.
These results sound a warning to fund investors who are considering whether to attempt market timing, either on their own initiative or through their broker’s advice. Rather than outperforming a given fund, the average active investor is more likely to under-perform a passive dollar invested in the fund, and the use of an investment professional to trade shares is correlated with even worse investment timing performance.
Maybe I'm putting myself out of work here but this study draws interesting conclusions to be sure. In addition to fixed income products, I also sell 'no-load' mutual funds so I am not as bad as most of my colleagues in the business. Watching the fee level on funds is important to me and most of my clients as it directly impacts performance. Investing in funds with good defensive characteristics and long-term outperformance is where value can be added in most of my client relationships.
In Canada, most no-load mutual funds have trailer fees which typically are paid by the mutual fund company to the firm selling the funds and subsequently to the advisor. If you do not have an advisory relationship, there are mutual funds available that do not have trailer fees, which typically saves the investor money. Of course you need to do a little bit of work yourself.
The question I have about this study is what would most of these investors do if they did not have an advisory relationship? Would they invest at all? Would they do as well on their own versus an advisor who sold them no-load funds?
Wednesday, December 05, 2007
Townhouses sold for an average of $325,409 in November, an increase of 6.2 per cent from 2006 when the average price was $306,509. The average apartment price went up 7.5 per cent in one year, from November 2006’s average of $200,032, to $215,118 for 2007.
Vancouver, B.C. December 4, 2007 –
The Real Estate Board of Greater Vancouver (REBGV) reports that total residential sales reached 2,883 units in November 2007, an increase of 22.2 per cent compared to 2,358 sales in November 2006, and a 1.9 per cent decrease compared to the 2,938 units sold in November 2005.
Property listings increased 6.6 per cent compared to last year’s levels, with 3,377 active listings at November month-end, compared to 3,168 during the same period last year. “The housing market continues to be strong,” says REBGV president Brian Naphtali. “November figures show strong growth compared to last year, are basically on par with figures from 2005, and are 16 per cent higher than the same period in 2004.
“Affordability is a key question,” Naphtali says. “Our data indicates that about 60 per cent of residential homes purchased in November were multi-family, which includes condos and townhomes. The benchmark price for a condo in Greater Vancouver is about $375,000. However, there are units available for considerably less than this price. For example, the benchmark for condos in Port Coquitlam in November was $243,624; in Maple Ridge, $254,703; and in Coquitlam, $283,830.”
Certainly looking like a market top.According to Multiple Listings Service® (MLS®) data, sales of apartment properties increased by 21.5 per cent to 1,276 sales in November 2007 compared to 1,050 sales in November 2006. The benchmark price of an apartment property in Greater Vancouver, calculated by the MLSLink® Housing Price Index, is $374,393, up 13.6 per cent from one year ago.
Sales of attached properties increased by 33.7 per cent in November 2007 to 540 sales, compared to 404 sales in November 2006. The benchmark price of an attached unit is $455,332, up 11 per cent from a year ago.
Sales of detached properties increased by 18 per cent in November 2007 to 1,067 sales, compared to 904 sales in November 2006. The benchmark price of a detached unit is $729,011, up 12.6 per cent from last year.
Some data points that were not mentioned in the press release are that annual appreciation in the outer suburbs of Coquitlam, South Delta, Port Moody, Maple Ridge and New Westminster is decidedly lower (in the 7% range as opposed to the 12% range cited in the press release). This is in line with my postulation that market softness and subsequent price declines will show up in the suburbs first and move from the outside in. This is why I watch the FVREB release more closely than any other data. This outside-in movement has been typical in the bubbly US markets.
Monday, December 03, 2007
The video is an interesting history lesson with some controversial conclusions.
And here in Canada - - - all is (not) well.
OTTAWA (Reuters) - The Bank of Canada may have overstepped its legal powers during the summer credit crunch and legislative changes are needed to clarify its role in future financial market crises, an independent report said on Tuesday.
From August 15 to September 7, the central bank temporarily expanded its list of collateral used when conducting open-market operations to boost liquidity and reinforce its target for the overnight interest rate.
The bank stepped into "questionable legal territory" when it began accepting commercial paper, foreign bonds and corporate bonds in addition to the usual government securities, bills of exchange and promissory notes, argued John-Paul Koning of the C.D. Howe Institute, a think tank.
"The bank's actions may have exceeded its statutory authority and, if Parliament believes it necessary that the bank should have the scope to act as it did, legislative changes are needed," Koning wrote.
The law governing the Bank of Canada says that only government-issued and guaranteed securities may be used as collateral for central bank operations designed to influence the overnight lending rate. These include the Special Purchase and Resale Agreements, whereby it buys securities with the agreement to sell them back the next business day.
The list of collateral is less restrictive for lending through the Bank of Canada's Standard Liquidity Facility. It was this list that the bank adopted temporarily for its purchase and sale operations in the market.
The law gives the central bank extended buying and selling powers in times of financial emergency but only if the governor publicly states that an emergency exists, something Bank of Canada Governor David Dodge did not do in August.
Lawmakers should decide whether they want to give the Bank of Canada the power to use private sector debt as collateral when ensuring short-term financing in times of financial market difficulty, Koning said.
"The Bank of Canada should offer Canadians a comment on its actions of this past August. Policymakers should also revisit the thinking behind certain sections of the Bank of Canada Act," he said.
"Failure to do so could hamper the bank's response the next time the financial system runs into trouble."
Dodge signaled on October 21 that he was mulling possible changes to the bank's liquidity provisions. In a speech in Washington, he floated the idea of a new central bank facility that would provide liquidity to banks at terms longer than overnight, collateralized with a possibly wider range of securities.
Deputy Governor Pierre Duguay repeated the idea in a November 20 speech. "The types of market failure that such a facility would be designed to deal with would obviously need to be very carefully considered to avoid weakening the incentive for preventive risk and liquidity management by market participants," he said.
Dodge and Senior Deputy Governor Paul Jenkins will be answering questions from the Senate Banking Committee on Thursday and the incoming governor, Mark Carney, appears before the House of Commons finance committee on Wednesday afternoon.
(Reporting by Louise Egan; Editing by Peter Galloway)
With all the inclement weather over the weekend I had some time to watch TV and there was a CNBC special on Friday night featuring Warren Buffett and a recent brief trip to Asia. It was intriguing and I am sure they had trouble keeping it down to one hour. I encourage you to check it out over on CNBC's website.
Friday, November 30, 2007
So let us speculate, unscientifically of course, on what the data will be.
Last month saw 6 months of inventory in the Fraser Valley Real Estate Board area with no significant price changes. Prices have not risen in the Fraser Valley since the July / August period and seem to be stuck at that level for the time being. We need more inventory and/or lower sales to see further price declines. Will we see that this month?
Last month also saw 4 months of inventory in the Greater Vancouver Real Estate Board area with modest price appreciation. Price growth is still robust in the GVREB area, although some areas are showing weakness, especially in the outlying areas. Inventory and sales are still bullish in the Greater Vancouver area and we need to see inventory grow and sales shrink before any price correction can materialize. When will we see this happen?
Tuesday, November 27, 2007
The basic concept behind supply chain management is simple: customers order products from you; you keep track of what you're selling, and you order enough raw materials from your suppliers to meet your customers' demand. So why is it that, in a recent article, the Economist claimed that, "Managing a supply chain is becoming a bit like rocket science?"
The problem turns out to be one of coordination. Suppliers, manufacturers, sales people, and customers have their own, often incomplete, understanding of what real demand is. Each group has control over only a part of the supply chain, but each group can influence the entire chain by ordering too much or too little. Further, each group is influenced by decisions that others are making.
This lack of coordination coupled with the ability to influence while being influenced by others leads to what Stanford's Hau Lee refers to as the Bullwhip Effect. Decisions made by groups along the supply actually worsen shortages and overstocks.
The bullwhip effect is illustrated by a story Prof. Lee tells about how Volvo found itself with extra inventories of green cars. To get them off the dealers' lots, Volvo's sales department offered special deals, so demand for green cars increased. Production, unaware of the promotion, saw the increase in sales and ramped up production of green cars.
Cisco faced a similar problem last year that resulted in a $2.2 billion inventory write-down. Only a few months before the write-down, Cisco wasn't able to get its products to customers quickly enough. Quoting a supplier to Cisco interviewed in CIO Magazine, "People see a shortage and intuitively they forecast higher. Salespeople don't want to be caught without supply, so they make sure they have supply by forecasting more sales than they expect. Procurement needs 100 of a part, but they know if they ask for 100, they'll get 80. So they ask for 120 to get 100."
Delays Wreak Havoc
But coordination isn't just about communication. Even in supply chains where communication is perfect, manufacturing and procurement delays can wreak havoc. That's because while customers are asking for increased orders, backlogs are building, and it is oh-so-easy to confuse backlogged orders with increases in demand.
Thousands have felt the frustration of supply chain management in a simulation developed at MIT's Sloan School of Management called the beer game. The simulation is run as a board game in teams playing the roles of retailers, wholesalers, distributors, and brewers of beer. As the backlog for orders increase, players order too much inventory, forcing their teammates into severe backlogs further down the supply chain. The game can be emotionally intense. John Sterman, Director of MIT's System Dynamics Group writes, "During the game emotions run high. Many players report feelings of frustration and helplessness. Many blame their teammates for their problems; occasionally heated arguments break out."
The Near Beer Game Simulation
You can try a version of the beer game called the Near Beer Game. It's called the Near Beer Game because, although it's not identical to the original beer game, it teaches many of the same lessons. It also teaches one extra lesson not in the original game: even with perfect information, even when there are no breakdowns in communication, you'll still feel the bullwhip effect due to procurement and manufacturing delays.
Here's how the Near Beer Game works: at the beginning of the simulation your supply chain is in perfect equilibrium. Customers are ordering ten cases of beer each week, you have ten cases in inventory, ten cases are brewing, and ten cases worth of raw materials are arriving from your vendors. In week two, demand increases to fifteen cases per week and remains at fifteen cases for the remainder of the simulation. The game ends when you manage to get your supply chain back in equilibrium for fifteen cases of beer.
Sounds easy right? Try it out and see how many weeks it takes you. See if you can bring the supply chain back into equilibrium without the bullwhip oscillations of stock-outs followed by over-supply.
How to Reduce the Bullwhip Effect
One way to reduce the bullwhip effect is through better information, either in the form of improved communication along the supply chain or (presumably) better forecasts. Because managers realize that end-user demand is more predictable than the demand experienced by factories, they attempt to ignore signals being sent through the supply chain and instead focus on the end-user demand. This approach ignores day-to-day fluctuations in favor of running level.
Another solution is to reduce or eliminate the delays along the supply chain. In both real supply chains and simulations of supply chains, cutting order-to-delivery time by half can cut supply chain fluctuations by 80%. In addition to savings from reduced inventory carry costs, operating costs also decline because less capacity is needed to handle extreme demand fluctuations.
In addition to cycle time reductions throughout the supply chain, Hau Lee, V. Padmanabhan, and Seungjin Whang recommend the following actions to reduce the supply chain management bullwhip effect:
- Focus on end-user demand through point-of-sale (POS) data collection, electronic data interchange (EDI), and vendor-managed inventories (VMI) to reduce distortions in downstream communication.
- Work with vendors to create smaller order increments and reduce order batching. Order batching exacerbates demand fluctuations.
- Maintain stable prices for products. Price fluctuations encourage customers to over-purchase when prices are low and cut back on orders when prices are high, leading to large demand fluctuations.
- Allocate demand among customers based on past orders, not present orders to reduce hoarding behavior when shortages occur.
Monday, November 26, 2007
Thursday, November 22, 2007
Monday, November 19, 2007
Well another loverly day in the blissful paradise that is Vancouver. Warm, balmy tempuratures in the low single digits, liquid sunshine of different varieties and over 8 hours of wonderfully cloud-filtered daylight. The weather must be one of the reasons for the real estate prices being higher here than anywhere else in North America. Really, California or Florida, give me a break . . . all they have is sun, sun, sun and hot, hot, hot. Who wants that!?!?! (um - don't answer that - me - thats who!)
Let's look at the Price / Rent ratio in our splendid and worthwhile village, er, I mean Metropolis of Vancouver. The average price / rent ratio over the data period has been 19.9 and currently sits at an all time high of over 27 as of June 2007.
Now let's look at Price / Rent ratio in other loverly places where sadly for them it doesn't rain as much. How would you get mould to grow if it doesn't rain? How would building envelope specialists be employed in these sunny climes? Notice anything about most of the more pricey real estate markets in the US? (hint - the earth orbits it and clouds block our view of it in Vancouver 300 days a year)
Vancouver clearly has nothing to worry about with its cost of living because quite obviously this is such a desireable place to live and nothing like Honolulu or San Diego or Miami. Smart people (or amazingly rich and stupid people) will pay anything to experience the bone-chilling warmth of Vancouver in November (and December and January and February) with short and wet days and dreary and soaking nights.
Price / Rent ratio be damned. What is the point of all these silly numbers anyway? Afterall how can you measure the cost of our amazing climate and mouldy buildings? Priceless I say.
Gosh - I am so sick of this self-absorbed city.
Sunday, November 18, 2007
Here's an interesting Youtube video my wife just found. She was looking for information on Edmonton's real estate downturn, and found this Ozzie Jurock interview from about a month ago. He was asked about Edmonton's downturn, and the anchor questioned whether Vancouver could experience a similar downturn.
Ozzie posts some interesting numbers for Vancouver-- damned if I know where he got them from, but here they are:
Vancouver new homes: August 2007, $962,800
Vancouver new homes: September 2007, $864,600 ......Down 10% !!!
Vancouver resale homes: August 2007, $859,000
Vancouver resale homes: September 2007, $816,500 ......Down 5% !!!
Vancouver resale condos: August 2007, $374,500
Vancouver resale condos: September 2007, $383,500 ......Up 2%
What happened? Where did he get these numbers? Are these averages? Medians? Vancouver City? GVRD? REBGV?
Assuming these numbers were collected in the same manner, something shocking happened for higher-priced properties between the end of August and the end of September. It looks like the condo market continued to chug along, but the higher-end market stalled.
I'll try to embed the video here. This is my first time trying this, so it may not work right...
Thursday, November 15, 2007
17% of mortgage holders in Canada took out equity from their homes or increased the amount of the mortgage principal within the past twelve months.
The average amount of equity take-out is estimated at $35,400.
Various findings from the survey can be combined to generate an estimate of the total amount of equity take-out by Canadian home owners:
• At present there are about 8.8 million owner-occupied dwellings in Canada.
• Next, we need an estimate of how many home owners have mortgages. According to
Statistics Canada’s most recent survey of household spending (from 2005), 53% of Canadian home owners have mortgages. Interestingly, this is a reduction from the 55% share found in the 2001 Census – while there has been very large growth in the number of home owners in recent years, which has increased demand for mortgages, it has also happened that a large number of longer-term home owners have become mortgage-free.
It is possible that the share of owners with mortgages has increased slightly since the 2005 survey, because there has been a very large volume of completions of new homes during 2006 and 2007. The consequence is that the percentage of home owners with mortgages has been roughly stable, and is assumed to be 55%. This indicates that there are about 4.8 million home owners with mortgages at present.
• 17% of home owners with mortgages have taken out equity during the past year.
• The average amount taken out was about $35,400.
Combining these factors, the total amount of equity take-out is calculated as $29 billion. To put this into perspective, personal disposable income of Canadians is about $900 billion per year. Equity take-out is equivalent to about 3% of disposable income.
This estimate of $29 billion is considerably larger than was estimated in the 2006 survey – the figure of $10.1 billion estimated in 2006 was for only equity taken out at the time of renewal. The much larger figure for 2007 includes equity taken out by people who took on new mortgages, as well as equity that was taken out at times other than the renewal dates (this can include drawing on secured lines of credit).
Out of the $29 billion in equity take-out, about 40% was taken by those who took out new mortgages, 30% was taken by those renewing mortgages, and 30% was by people who took equity through their existing mortgages or secured lines of credit. The survey data enables us to draw some conclusions about the characteristics of people who have taken out equity:
• Across the age groups, there are no significant differences in the percentages of home owners that take out equity (except that there was negligible take-out by people aged less than 25).
• The amounts taken out are highest for owners in their “middle working ages” of 35 to 54 (an average of about $38,000).
• Across the country, there are small variations in the percentage of home owners that have taken out equity. In Atlantic Canada and central Canada (including Quebec, Ontario, and Manitoba) the shares are slightly below the national average of 17%; in the west (Saskatchewan, Alberta, and British Columbia) the share is about 20%.
• Average amounts taken-out vary across the country, from $24,000 in Atlantic Canada, to $32,000 in central Canada, and $45,000 in the west.
• It might be expected that people who expect house prices to increase rapidly would be more likely to take equity from their homes, and might take out larger amounts, but the data finds only a weak relationship.
An earlier section reviewed expectations of Canadians concerning the future of house prices in their communities. Among those expecting increases (about 39% of Canadians), 19% have taken out equity in the past year, slightly above the average rate of 17%, and the average amount taken out $37,000 was slightly above the average of $35,400. Those with neutral expectations about house prices (about 49% of Canadians) took out equity at the average rate, and took out the average amount. Among those with the lowest expectations about house prices (13% of Canadians), just 12% took out equity and the average amount taken out ($28,000) was 20% below average.
Those who took out equity were asked what they used the money for. Some people gave more than one purpose. Therefore, the following responses add to more than 100%. On average, 1.2 purposes were given:
• 47% indicated that the money would be used for debt consolidation or repayment.
• 43% gave renovation or home repair as the purpose. This category was mentioned much more often by older adults (55 and over, at 53%), than by those in the middle (35 to 54, at 44%), and those under 35 (30%).
• Other responses included “other” (11%, usually to fund family expenses), to invest (6%), car purchase or repair (5%), to start up or invest in a business (5%) to purchase another property (4%), and to add a garage or granny suite (1)%.
"Dread of disaster makes everybody act in the very way that increases the disaster. Psychologically the situation is analogous to that of people trampled to death when there is a panic in a theatre caused by a cry of 'Fire!'" -- Bertrand Russell
One the greatest assets I have acquired during my years on Wall Street is perspective. We all say that we understand the concept of risk; that equities provide better returns than other assets on average, over time precisely because they contain higher risk, and yet on days like today, we tend to wring our hands and wonder what in the world is wrong with the world. Welcome to Riskville, baby.
I have worked hard nearly every day this year searching for those good companies trading at what I thought were attractive valuations. As of today, my fund is roughly flat for the year. In other words, I have made no money for myself despite nearly 7 months of work. So how do I feel about this? Well, I must admit that I dislike losing money about as much as anyone I know. And yet, I think I can put today's trading action in perspective.
During my career I have seen many crashes, breaks and panics. In every single case, the market eventually recovered and went on to new highs. I suspect that this will happen again. The talking heads will be debating for days the implications of today's market development. They will talk (in breathless tones, no doubt) about the causes and reasons for the big move down and will roll out the "experts" who, by the way, were telling us to be cautious about the markets. You don't remember those guys? Funny thing, eh? What am I going to do?
Some of the stocks that I liked but felt were a bit expensive look a lot more attractive to me today. I will likely shift some of my funds into some of these names. I am unlikely to make any actions that would be considered reactive to today's movements. I do not feel compelled to make my portofolio more or less defensive. I do not think that the fundamentals for companies like Kraft or Amgen have measurably changed in the last 24 hours.
So, my bottom line for today remains the same as nearly everyday --find good stocks trading below fair value, buy them and sell them when they become more fully valued. Boring I know, but that's how I roll...
Tuesday, November 13, 2007
Growing credit debt is crushing Canadians: study
Updated Tue. Nov. 13 2007 8:46 AM ET CTV.ca News Staff
A new study of Canadians' credit debt finds that a whopping 25 per cent owe between $10,000 and $40,000, and 28 per cent don't even know the interest rate they pay on their main credit card.
The report by Credit Canada and Capitol One was timed for release during their Credit Education Week, and is designed to raise awareness of good financial management.
Laurie Campbell, of Credit Canada, said the numbers -- which don't factor in mortgage debt -- were surprisingly high.
"The numbers are quite startling, even I was quite surprised, but nevertheless, this is truly what we're seeing," Campbell told CTV's Canada AM.
"Savings rates at an all-time low and debt rates at an all-time high so this financial literacy week in my opinion is long overdue."
The study, which questioned 4,000 respondents about their personal credit debt practices, found a disconnect between Canadians' debt levels and retirement plans.
When asked about their total outstanding debt from credit sources and loans, respondents said the following (figures don't include mortgage debt):
$0 -- 16 per cent
$10,001 to $20,000 -- 13 per cent
$20,001 to $40,000 -- 12 per cent
$100,001 to $200,000 -- 9 per cent
$300,001 to $500,000 -- 1 per cent
Two per cent of Canadians said they had six credit cards; while six per cent had five credit cards; 12 per cent had four cards; while the majority, 25 per cent, had two credit cards.
Twenty-two per cent of Canadians said they had only one credit card.
When it came to the average balances people said they carried on their credit cards, 36 per cent said their monthly balance was $0 because they paid off their credit card each month.
Eleven per cent said their monthly balance was between $1,001 and $2,500, 9 per cent had a balance of between $2,501 and $5,000 while 1 per cent had the highest monthly balance of between $20,001 and $30,000.
When asked how their credit card habits could be best described:
50 per cent said they pay their credit card off in full every month.
37 per cent said they pay the minimum requirement each month
10 per cent said they do not have a credit card.
3 per cent said they sometimes/often miss the minimum required payment.
"Certainly what happens with a lot of people is they look at their statement, they see a minimum payment, and say that's what I have to pay and unfortunately they don't look further to find out what the implications of only paying the minimum payment are," Campbell said.
When it came to budgeting, 53 per cent said they have no budget. Another 31 per cent said they have a budget and stick to it, and 16 per cent said they have a budget but rarely stick to it.
When asked when they thought they would be able to retire, respondents said the following:
13 per cent -- never
3 per cent -- between 71 and 76
24 per cent -- between 56 and 60
29 per cent -- between 61 and 65
14 per cent -- between 66 and 70
"The majority of people expect to be able to retire at 60 or 65," Campbell said.
"I don't know how they expect to retire if they're not saving, so there's a real dichotomy between the way people see their future and the way they're handling their money."
When asked what their top concern was regarding credit and debt management, 26 per cent said they worried about not being able to deal with unexpected emergencies.
Campbell said the goal of Credit Education Week is to raise awareness among Canadians about credit debt and how to deal with it, through providing free advice and online resources.
While a strong Canadian dollar has lulled many Canadians into a sense of financial security, people must be cautious, she said.
"People are very optimistic which is a very wonderful thing but you also have to plan for your future and think about where you're spending your money and put your goals in place, that's the most important thing."
Friday, November 09, 2007
First up is the Streetracks Gold ETF which is the equivalent to 1/10th an ounce of gold. Gold is quoted in US dollars so it can be difficult for us Canadians to grasp how that affects us when our currency is so volatile against the US dollar. Gold was $443 US in late 2004 and $535 CDN. At the beginning of 2007, gold was $622 US and $725 CDN. Now gold is at $822 US and $754 CDN. Dramatic appreciation in US dollars and very modest appreciation in Canadian dollars.
The Dow Jones Industrial Average (DJIA) was 10572 US in late 2004 and 12765 CDN. It was 12474 US at the beginning of 2007 and 14531 Canadian. Now the DJIA is at 13266 US and 12165 Canadian. Over the 3 year period the DJIA appreciated over 25% in US dollars but is down nearly 5% in Canadian dollar terms since 2004. Since the beginning of 2007 the Dow Jones has gone down nearly 20% in Canadian dollar terms while rising over 6% in US dollar terms. Wildly different results depending on the currency you are measuring in.
Thursday, November 08, 2007
Moving on - Anonyposter has returned with scraped data in hand. Mohican has made a chart and both are here for your viewing pleasure. Our Anonyposter has scraped listing and price data for the entire City of Vancouver on October 2 and November 5 and now we can compare and use that data to our hearts content.
Wednesday, November 07, 2007
Net Earnings: (Assuming 100% financing and owner payment of property taxes and strata fees) Net Earnings = Gross Annual Rent – (Interest Charges + Property Taxes + Strata Fees)
Gross Annual Earnings = $1600 / month x 12 months = $19,200
- Interest Charges = Mortgage Interest During first 12 months of Mortgage (6% Mortgage, 40 Year Amortization) = $18,910
- Surrey Property Taxes = $2,000
- Strata / Maintenance Fees = $120 / month x 12 months = $1,440
Net Earnings = 19,200 – (18,910 + 2,000 + 1,440)
Net Earnings = -$3,150
Price to Earnings Ratio = Price / Earnings = $320,000 / -3150
Price to Earnings Ratio = -101.6 = N/A (Negative P/E ratios are not-applicable)
Now that is a bad investment. Note: Investments that lose money and have no prospect of making money are “bad investments.”
An alternative scenario: Let’s assume for a moment that our prodigious landlord had a 20% down-payment and did not factor in opportunity cost of his capital (this seems like a brain-dead idea but let’s roll with it). Interest charges now equal $15,120.
Net Earnings = 19,200 – (15,120 + 2,000 + 1,440) = $640
Our example’s Price to Earnings ratio = $320,000 / $640 = 500 (A P/E of 500 would typically be reserved for a company whose growth rate exceeds 100% per year - this is definitely not the case in our example)
$640 of profit on a down-payment of $64,000 is a ridiculously low return on investment (0.1%) and I don’t know why anyone would want to be a landlord at these rates when you can just buy a GIC which pays 4.5% very easily with no risk.
In the stock market a Price to Earning ratio in excess of 15 is considered a highly valued company. Typically companies which trade a high P/E ratio are growing quickly and earnings are expected to grow thus making the future P/E ratio smaller. This is the markets way of paying for earnings growth. Companies reduce costs and increase revenues to improve their earnings and this is why being a stock-holder can be very beneficial.
In our example of the Cloverdale townhouse, where is the earnings growth going to come from?
Will rents rise substantially? Not likely.
Will costs decrease? Even less likely.
Tuesday, November 06, 2007
The year over year price changes are declining in the Fraser Valley with the current annual appreciation for all housing types as measured by the HPI / House Price Index at 8%. This is continuing the downward slide in appreciation from the heady days of 2006 at 24% annual appreciation. If we are to learn lessons from other housing markets we would expect the annual appreciation to continue to slide into negative territory in the next 6 months. The average time from peak YOY% appreciation to 0% is approximately 18 to 24 months - that is in the next couple of months.
The continued highly negative correlation between months of inventory and quarterly price changes is witnessed here. As we maintain inventory levels above 6 months, we should expect falling prices as the market moves into buyers territory.
Monday, November 05, 2007
(Surrey, BC) – Fraser Valley’s real estate market remained balanced in October, showing increases on the Multiple Listing Service® (MLS®) in listings, sales and average home prices. The total number of sales processed through the MLS® in October was 1,464, an increase of 14 per cent compared to the same month last year when 1,287 sales were processed.
New listings increased by 12 per cent compared to the same month last year with 3,124 new listings in October taking the number of active listings to 8,712, an increase of 17 per cent compared to the 7,438 active listings in October of 2006.
“It’s been seven years since Fraser Valley buyers had this much inventory to choose from,” says Jim McCaughan, president of the Fraser Valley Real Estate Board. “REALTORS® are able to show their clients more properties and as a result, we’re noticing a gradual increase in the length of time homes are on the market.”
In October, the average number of days to sell a detached home in the Fraser Valley was 52 days, an increase of 10 days compared to the same month last year. It took an average 8 days longer to sell an apartment last month, 47.4 days compared to 38.7 days in October 2006.
Townhouses on the other hand took less time to sell in October with the average days to sell at 33 compared to 35 in October 2006. Jim McCaughan explains, “Townhouses are becoming more popular on both ends of the buying spectrum. They’re more affordable for families getting into the market and empty-nesters are opting to downsize to an attached home as a lifestyle choice.”
The price of a single-family detached home in October averaged $517,087, a 6.1 per cent increase in one year. The average price in October 2006 was $487,238. The average price of a Fraser Valley townhouse in October was $329,991, an increase of 9.5 per cent compared to last year’s average price of $301,496. Average apartment prices in the Fraser Valley increased by 17.5 per cent compared to last year. In October 2006, they averaged $193,466 compared to $227,358 last month.
Friday, November 02, 2007
1) Mohican gives the fall mini-budget a B+ mark for a balanced approach to lowering taxes for individuals, consumers, and corporations. It makes Canada more competitive in an investment sense and helps us all keep more dollars in our pockets. I am a big fan of consumption taxes rather than income taxes so the mini-budget loses marks for the further cut to the GST. I would rather see that money spent on a broader income tax cut. That said, lower taxes are good for everyone.
2) The US Federal Reserve cut rates this week, prompting a broad selloff in the US dollar and a substantial rise in Gold and Oil. I don't see how the US economy is going to avoid a recession given the inflation outlook in the country to the south. Fuel prices alone could be enough to slow the economy into recession given the weak housing market already in place.
3) The Stingy Investor has some great research on various investment techniques and stock picking strategies. I highly recommend reading about them if you are into that sort of thing.
4) The REBGV and FVREB will release statistics on real estate sales, inventory, and prices for October early next week. I'm curious what sort of price action we will see. Clearly the FVREB is leading the march toward a declining market before the REBGV tips. Time will tell.
Wednesday, October 31, 2007
As units complete I expect it to put pressure on existing home sales and further new home sales and I believe the market to be currently saturated with supply. If my belief is true then it would hold that we would need significant population growth with people who have the ability to purchase homes in order for no price correction to happen.
A significant price correction in new and existing homes is likely to happen during the next 2-4 years as prices of new and existing homes are priced out of reach for all but a few buyers with existing home equity and the wealthy minority.
Thursday, October 25, 2007
Latest in their 'brilliant' financial innovations is a splendid no-down-payment-required 'investor' mortgage insurance so that lenders need not worry and extend credit in even the craziest of situations. CMHC gets a gigantic cut of the purchase price at 7.25% to shield them from the risk of default by the borrower.
Why would a borrower ever default you ask? After all our real estate market is bullet proof and prices only go up and we are hosting a two week long sporting event in a couple years and rich celebrities and asians and drug dealers will buy all the property in the province in a couple years with their endless wealth. Why not borrow all the money you can get your little speculative, gambling hands on and bet the (taxpayer funded) farm on some shoebox condos made by drug smoking, ill-qualified construction workers and marketed by a delusional multi-millionaire with a marketing budget so big it dwarfs the construction costs?
That's it . . . I give up . . . I am going to nominate the CMHC economics department, Bob Rennie and Cameron Muir for the Nobel Peace Prize in Economics for rigging an industry that is immune to rational thought and behaviour and is immune to the vagaries of the business cycle.
Hat tip to freako and CMHC for inciting this rant.
Wednesday, October 24, 2007
It was the lowest sales pace since the group began tracking both single-family and condo sales jointly in 1999.
Total existing home sales, which include condominiums, fell in September from a downwardly revised pace of 5.48 million in August. Economists polled by Reuters were expecting home sales to fall to a 5.25 million-unit sales pace.
"Home sales fell in September, but it was certainly due to the August credit crunch," said NAR economist Lawrence Yun.
"The housing data ... tells us that we are not out of the woods yet. It increases the uncertainty regarding the U.S. economic outlook and reinforces the view the Fed may have to cut rates at its meeting next week," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.
The slower pace of sales helped drive up the inventory of homes available for sale by 0.4 percent at the end of September to 4.40 million, which represents a 10.5-month supply at the current sales pace. That supply was the highest for both single-family and condos combined since 1999.
Single-family home sales fell 8.6 percent in September to a seasonally adjusted 4.38 million-unit pace from 4.79 million, which was the slowest pace in nearly 10 years.
The national median existing home price for both single-family and condos dropped 4.2 percent from a year ago to $211,700.
And in the Vancouver, BC housing market we grow trees in the sky and fundamentals do not apply. I just want the local market to CRASH ALREADY! We all know its coming but the waiting is getting to me!