Saturday, March 10, 2007

Greater Vancouver House Price Index

All previous market corrections in Vancouver were preceded by market tops in the first half of the year. Q1 1981, Q2 1990, and Q1 1995. Are we seeing a market top in Q1 2007?



Here is what a 1995 - 2000 market price correction would look like.



Here is what a 1981 - 1985 style correction would look like.

34 comments:

Paul said...

Nice work! This is an exciting time. ... ;0

OnTheIsle said...

Great charts, I am now leaning to the 1981 chart going by this recent frenzied action,tightening credit standards and Ozzie Jurock telling you the hot spot to now be in RE is "outside" of Princeton,BC,now that is a total joke.

Plus the last time I checked my paycheck my 2% raise each of the last 3 years has not allowed me the lending power of an extra $200,000 to afford even a modest bungalow in the $400,000 range. Therefore the "wages have to catch up" theory is bunk, it would take a decade for this to happen.

I just heard a well known market timer still insist interest rates are going up, not down,that'll be the final nail hot job market or not. 1981 was a hot job market too in Victoria,construction jobs all over the place,condo's coming out your ying yang.

patriotz said...

the hot spot to now be in RE is "outside" of Princeton,BC,now that is a total joke.

Didn't you know? Everyone wants to live in Tulameen.

Paul said...

"I just heard a well known market timer still insist interest rates are going up, not down,that'll be the final nail hot job market or not."

Who is the well known market timer that said that? Link?

manafromheaven said...

Thanks for the graphs moh.
The one I mentioned yesterday is more detailed, as it actually shows a short revival after apparently running out of steam (similar to our February glitch?)

Those who might not realise the significance of the sub-prime mortgage fiasco should check ot Michael Campbells article in todays Sun.

Having been fortunate to profit from all 3 previous crashes, all current financial, economic and demographic data makes this one look more obvious than any of the others....a perfect storm.

I can barely contain myself over the upcoming bargains.

OnTheIsle said...

Who is the well known market timer that said that? Link?


He was on the Michael Campbell show this morning, I forget his name.

mohican said...

Who is the well known market timer that said that? Link?

He was on the Michael Campbell show this morning, I forget his name.

I believe that was Mark Liebovitz (sp?). You can listen at www.cknw.com if you like.

rentah said...

thanks for the work, mohican.

Are these nominal or real price-index graphs?

mohican said...

Rentah - the graphs are Nominal prices - unadjusted for inflation

Jesse said...

Good work. It is rare to observe regular market patterns presented here, less make money from them. There is enough knowledge that any regular pattern would normally be exploited and priced into the market.

But maybe not. It could be this information is not known widely, in which case short away, if you believe in history repeating anyways.

Freako said...

Great work.

How does the real chart look? I am surprised that nobody has tried to claim that 1981 was a great time to buy, because with this long time period charted in nominal terms, the huge cliff of '81 looks like a harmless molehill (it wasn't).

Clarke said...

These charts are great. The fact that anyone can look at these and then turn aound and argue that we are not in a bubble and not due for a big correction is just plain nuts.

I remember the first time I saw VHB's graph of housing prices on the westside. It was a real revelation, and everything clicked in five seconds.

There is a lot of buzz on CNN about the sub prime meltdown in the states, and even some static in Canadian media about the mortgage and housing market. I think we are in for 1981 style drop, and I think this might be the year.

rentah said...

agreed re 81.
I know someone who, by the good fortune of circumstance, happened to buy their westside house in 1985, for exactly half of what it had sold for in 81.

OnTheIsle said...

"These charts are great. The fact that anyone can look at these and then turn aound and argue that we are not in a bubble and not due for a big correction is just plain nuts."


Thats what I can't stomach is the Pastrick's and Muirs who say there is no bubble,how they sleep at night knowing they are deceiving the public on such a massive scale is beyond me but I guess they call it having no conscience.

And now the US lenders are saying no more zero down payment mortgages yet those high risk loans that they say don't happen in Canada are just gearing up here the last 6 months. The ads on the radio are telling you how it's no problem, we'll get you in that house you always wanted with nothing down, we have "creative" financing,come on down... sucker.

VAB said...

Have you bears read the NYT today? It doesn't look like we are going to have to wait too long for that correction with stiff like this on the front page.

http://tinyurl.com/22fdxo

Martin

OnTheIsle said...

Good article,this subprime story is just beginning. A few eye opening quotes:

"The resulting differences were significant: in 90 percent of loans, borrowers overstated their incomes 5 percent or more. But in almost 60 percent of cases, borrowers inflated their incomes by more than half. "


"There are delayed triggers in many of these investment vehicles and that is delaying the recognition of losses,” Charles Peabody, founder of Portales Partners, an independent research boutique in New York, said. “I do think the unwind is just starting. The moment of truth is not yet here.”


"If home prices do not appreciate or if they fall, defaults will rise, and pension funds and others that embraced the mortgage securities market will have to record losses. And they will likely retreat from the market, analysts said, affecting consumers and the overall economy."


And they say Canada will be immune, I don't think so.

Jim said...

Why is the average price of a single family home currently at $743,222(REBGV monthly graph), whereas it was $795,477 in October, yet the bench mark is now is higher than it was in October? Statistically irrelevant? The benchmark is a "made up" number. The graph reflects actual sales prices. So I see a continuing decline in prices to date. No?

betamax said...

While 'exotic' neg-am loans are not rampant in Vancouver as in the US, we certainly have our share of 100% financing, and that will soon become less available to the masses.

Similarly, equity withdrawals will be significantly harder to come by, with all the wider economic effects. We won't have to wait for sticky prices to fall for the ATM party to end; the credit crunch will kill it fast.

patriotz said...

Why is the average price of a single family home currently at $743,222(REBGV monthly graph), whereas it was $795,477 in October, yet the bench mark is now is higher than it was in October?

benchmark = standardized SFH (or so they say).
average = average of all properties sold.

The average depends just as much on market mix (how many sales in each segment) as on price movements. The average can go down while prices go up if the number of sales at the high end is decreasing versus the low end. Or vice versa.

And do read that NYT article - it's brutal. The jig is up south of the border, and I don't think the happy talk is going to hold things afloat on this side for long.

OnTheIsle said...

"We won't have to wait for sticky prices to fall for the ATM party to end; the credit crunch will kill it fast. "


The ATM party on your equity is another thing the MSM is severely down playing that we are not like in the US. I think I must have been the first person in BC to get sucked in by my bank manager in the mid 90's when I just wanted a loan for a kitchen reno.
I tell ya, when you are a struggling family and you have emergencies pop up like car repairs, family illnesses where you have to travel,suprise house repairs,car upgrades, and you are trying to keep the kids fed and clothed decently and only one parent may be the major bread winner, it is a godsend you have access to this.
But when the reality hits home after a few years of relying on it ,it is mind blowing how high it can get. It's like a Visa card on steroids cause it's low interest (prime plus half or less). In the back of your mind you dont worry as the house prices will surely increase to offset it (it didn't in my case ) but you still have to make the monthly payment on interest only and once you get to the $30,000 level or more, that can be a fair chunk of change every month when you are a family.

You have to know there are many many households going thru this ATM experience right now in BC that the MSM doesnt want to even think about let alone admit too. Only in the USA you say ? I say BS to that.

duck said...

I am surprised that nobody has tried to claim that 1981 was a great time to buy, because with this long time period charted in nominal terms, the huge cliff of '81 looks like a harmless molehill (it wasn't).

I sold near the peak (on the way up) in 1981 and made a lot of money. The people who bought thought it was a good time to buy.

As a testament to how clued out people can be in a hot market, I didn't have the foggiest notion that the market was hot, or that it took a dive after I sold.

mohican said...

"You have to know there are many many households going thru this ATM experience right now in BC that the MSM doesnt want to even think about let alone admit too. Only in the USA you say ? I say BS to that."

I totally agree ontheisle. I see people putting themselved further and further in the hole everyday where I work (major financial institution) despite best efforts by many of the staff to coach these people into a more frugal lifestyle. 95% of the time it is a personal consumption problem that people cannot or will not get their hands on and it will destroy their personal finances if they don't do something about it. The products are available to committ financial suicide and its a personal choice to use them or not.

The MSM don't report on this because they do it too and the reporter who reports on the story has a $50,000 HELOC on his house too so it's viewed as normal.

OnTheIsle said...

I'm not a huge Garth Turner fan but he has nailed it on the real estate bubble and economic dangers lurking all around.


http://www.garth.ca/weblog/

patriotz said...

Borrowing is borrowing. It doesn't matter if the loan is secured against your house, anything else, or not secured. It makes no difference to your asset allocation.

Rising asset prices are not income. Borrowing for consumption does not realize capital gains. Selling an asset - at the right time - does.

People who think their house represents a source of income for consumption, unless they are planning on selling and moving to Saskatoon, are kidding themselves. The income from a house is the imputed rent - period.

OnTheIsle said...

"The MSM don't report on this because they do it too and the reporter who reports on the story has a $50,000 HELOC on his house too so it's viewed as normal. "


So true mohican, you can tell these news anchors (Global especially) don't want to even discuss the possibility of a decline in real estate prices but sure love to rub it in that they are up bigtime. Even heard a CFAX radio news anchor in Victoria a couple months back do the happy dance brag job when talking about record real estate prices.
It was quite pathetic for professionals to rub it in to those many who are on the outside for so many various reasons from job,health,divorce problems etc. You can't take these news guys seriously any more after they do immature reporting like that.

When this house of cards comes crashing down I will be the first to email them and ask if they are still doing the happy dance. :)

Jesse said...

"When this house of cards comes crashing down I will be the first to email them and ask if they are still doing the happy dance."

You know more than most this will not happen: a significant chunk of owners are bubble-resistant because they bought over a decade ago. Dude is probably making a bet he cannot possibly lose. Especially if he can spin the situation positively. Not that spin is bad. In the end happiness and optimism is more important to most of us than being truly right.

betamax said...

You have to know there are many many households going thru this ATM experience right now in BC that the MSM doesnt want to even think about let alone admit too.

Correct, though I once saw one line in a Vancouver Sun article which stated that 38% of BC homeowners had withdrawn equity from their homes in 2005.

That's a shockingly high percentage, which is probably why it was buried on page 6 of the business section and was never reported on again.

mohican said...

Here are some hard stats from the mortgage industry. www.cimbl.ca

• At present there are about 8.35 million owner-occupied dwellings in Canada.
• Of these, according to the survey results, 65% have mortgages (the share of home
owners who have mortgages is increasing – at the time of the 2001 Census the
estimated share was about 55%). This indicates that there are about 5.4 million
home owners with mortgages at present.
• 21.5% of home owners with mortgages have renewed their mortgage during the past
year.
• Of these, 33% increased their mortgage principal.
• The average increase in mortgage principal was about $26,100.
• Combining these factors, the total amount of increase in mortgage principal due to
equity take-out is calculated as $10.1 billion.

Jesse said...

The actual report is here. Note in 2004-2005 BC made up 17.7% of the mortgage market and 21.3% of the growth, by $ amount. I expect stats for 2006 would look similar.

patriotz said...

I once saw one line in a Vancouver Sun article which stated that 38% of BC homeowners had withdrawn equity from their homes in 2005.

Actually, to "withdraw equity" from your home you would have to sell a full or part interest in it. I have a bunch of stocks, and if I wanted to withdraw equity from my portfolio, I would sell some of them. If I took out a loan secured against my stock portfolio, I certainly wouldn't pretend that I had withdrawn equity from it, nor would most other stock investors IMHO.

This "equity withdrawl" nonsense is just a euphemism for going deeper in debt. I think it's more than just words, it represents a severe lack of financial sense among homeowners doing it.

rentah said...

Combining these factors, the total amount of increase in mortgage principal due to
equity take-out is calculated as $10.1 billion.


mohican, freako, guys_who_know:
I take it that's an annual rate, so that's the equivalent of 1% of GDP. Say all that was spent on goods and services in Canada (not necessarily the case, I know).
How much impact would it have?
How much of the GDP could be attributed to activity generated by such spending? How important is it? (and, conversely, how important will its disappearance be?)

--
It seems it'd be like BC losing more than $1Billion dollars of annual spending. How would that effect the economy? And how much of the argued rosy past economy can be attributed to this stimulus?

betamax said...

This "equity withdrawl" nonsense is just a euphemism for going deeper in debt.

Agree 100%. I like your stock market analogy because it makes the insanity readily apparent. I may use it sometime...

Warren said...

I admit I was somewhat financially naive when I bought property (in 1999), but the experience helped me learn in a hurry.

Its tough to believe people who have bought a home and gone through that experience are still making dumb decisions around HELOCs and the like.

Watch This... said...

I remember 1981. No jobs. None.

Interest rates in the high teens.

No China, India, EU, Russia, Brazil.

Goldman Sachs didn't have thier people in charge of the US Fed, US Treasury, NYSE, and soon to be World Bank.

It was a different world. Could it happen again? Of course. It will, at some point. I suggest you may want to quit wishing for it with such glee. When a correction big enough to bring us back to '81 type plunge happens, many of you will lose your mates, some of you will have your retirement funds wiped out. Not one of you will escape being harmed in a signifigant way.

Doug