Monday, April 30, 2007

Reader Submitted Question?

Here is a question from an email I received. What do you think this person should do?

We're selling a house in the states and will do very well (the downturn has not hit our neighborhood at all--doubled our investment in 5 years, not bad) and have a substantial downpayment but even hundreds of thousands of dollars here is really very little. But we also have investments that we could liquidate (not our retirement accounts) to pay the down payment--"total" liquidation would add about 80-85 percent to a downpayment. This would leave us with little reserve. But with a relatively low mortgage, we can save money prettyfast--right now we save pretty well--about 15 percent of after tax income--and that wouldn't change too much with the kinds of mortgage we're considering. Is that stupid?

Pros: more downpayment, nicer house, better neighborhood and/or less mortgage.

Cons: Little reserve. Investments seem to do well now. My wife feels it's insane to get rid of investments and it makes her nervous. She may be right.And related: given your feeling about the market, if you had the cash to buy a house now (we're looking east van) would you? Or does it make sense to keep money in the market until things turn...if they turn (about which I am somewhat doubtful, given what it looks like in our current neighborhood, Kits.)

What should this person do?

Friday, April 27, 2007

Prophetic Thoughts (or pathetic thoughts!)

After my brain was prodded by a discussion today at Chipman's blog on Months of Inventory, I did some MS Excel divination on the current real estate market numbers. To recap, as of March 31, we are seeing slower sales than last year, we are seeing a big increase in listings, and prices at all time highs.

For some historical context, in 2 of the last 3 previous real estate market downturns, we have seen new price highs in the first quarter of the year and subsequent declines, which are often sharp declines. The 3rd market decline saw a price peak in the second quarter.

In previous analysis, we have seen a very strong negative correlation (-0.81) between Months of Inventory and Quarterly Price changes when looking at the Fraser Valley Real Estate Board market statistics and I believe that this correlation can be helpful to predict future market price movements.

That said, I will go on record at this point and say that we are at the market top right now. Prices will not be this high again for at least 5 years and probably longer. The reason I say this, in addition to the reasons above, is that my "months of inventory price prediction tool" in MS Excel says so! I will explain.

To explain the tool briefly, I have made some assumptions about the sales rate and the listings rate which I think are fair, considering the trend today, and then, given the correlation, I have extrapolated quarterly price changes from there. Sales, I believe, will stay at a rate approximately -10% and -20% below 2006 levels (I used -10% for my tool). Active listings will increase throughout the year until October (this is in line with previous years and I have made sure to use fairly conservative numbers in the tool, in line with the current listings growth trend). This chart illustrates my assumptions. Months of inventory will be flat until June and then skyrocket to 9 to 10 months of inventory by year end. Surprisingly, this is with 'normal' seasonal changes starting from our current point.

The tool I have created says that we will likely see YOY price decreases in the Fraser Valley in August 2007. The tool also also suggests that by December YOY prices will be down 8-12% from December 2006. This will only be the beginning and prices will likely decrease a further 12-15% from the top after the end of the year through 2008. That said, it is difficult to say what will happen further than 6-8 months out though with any degree of certainty.

Will I be right on, close, or way off? Who can know? We will see. What do you think?

Thursday, April 26, 2007

One Year Behind the US

Image from Calculated Risk.

In the US existing home market, March 2007 saw the months of inventory climb to 7.3 months and saw year over year price declines for existing homes. By my estimation, the entire US has not been pulled into this housing correction yet with much of the west having escaped relatively unscathed thus far. Its only a matter of time now before the western US gets pulled in and we go with them here in Vancouver.
Update: Thanks to gadwin for the link to this CNN story. This is only the beginning.
Update 2: This is one of the most professional and well written synopsis of the current US housing situation I have read yet. It is by Mark Kiesel at PIMCO.

Tuesday, April 24, 2007

GVRD Population from 2001 Census Profiles

2001 Data:
Age -- Population
10-14 -- 122,000
15-19 -- 131,000
20-24 -- 136,000
25-29 -- 140,000
30-34 -- 158,000
35-39 -- 174,000
40-44 -- 175,000
45-49 -- 161,000
50-54 -- 144,000
55-59 -- 101,000
60-64 -- 79,000
65-69 -- 68,000

Keep in mind that this data is from the 2001 census-- the 2006 data isn't out yet, or at least I haven't found it, so these age groups have aged by 5 years.

The first push of the baby boomers is now in the 60-64 age range, with the big bump to hit in another 5 years. The boomers explain why we have so many houses from the 70s and 80s in town! As far as the questions about the rate of household formation go, well, there is no sudden lump of kids graduating and getting jobs and buying houses-- the number of kids out there has been on a long slow downward trend ever since the 35-39 age group (who are now 40-44) bought houses, probably about 20 years ago. Would they explain the boom at the end of the 1980s? Would the first wave of boomers explain the boom at the end of the 70s?

From the 2001 census to the 2006 census, the number of private dwellings in the GVRD went from 786,000 to 871,000, up 10.8%. Over the same time, the GVRD population went up 6.5%, implying that there's an extra 4% of empty (or underused) housing stock in the lower mainland.

Monday, April 23, 2007

How Should I Invest My Down Payment?

I have had numerous questions about how one should invest a down payment if one is waiting for the real estate market to go through a correction or if one just needs to save more money before making a purchase.

I have a few thoughts about the subject and the answer largely depends on a person's risk tolerance and time horizon, as with all investments. Here are a couple of scenarios for us to consider:

1) For less than one year until purchase and/or low risk tolerance, this person should not have any equities in the portfolio to be used for the down payment. A money market mutual fund, cashable GIC, high-interest savings account, or short term bond fund would all be suitable selections. The major considerations I would have in this situation are first, liquidity, and second, the highest rate possible over such a short time horizon. Some good money market funds are the TD or RBC Premium Money Market and National Bank Corporate Cash Management funds.

2) For more than one year but less than five years and/or medium risk tolerance, this person should have 20% to 40% of the portfolio in large-cap and dividend paying equities plus a combination of GICs, bonds, and/or bond mutual funds. Some great 'all-in-one' passive solutions would be the TD Income Advantage Portfolio at the more conservative end, or the CI Portfolio Series Income Fund at the more aggressive end. Alternatively, you could buy a cashable GIC or money market fund with 60% to 80% of the money and buy 1 or 2 of the top ten Large Cap Dividend mutual funds in Canada with the rest and for some spice you could add a Global Dividend fund. Most of these funds offer low volatility and great track records.

3) For longer time horizons or for higher risk tolerance, this person could have up to 80% equity depending on the risk tolerance level and the investment opportunities available are very wide and I would just direct you to stay conservative with a focus on Large Cap Dividend investments.

In general, avoiding income taxes on the portfolio should be pursued, and a focus on dividends and capital growth is very advantageous. Some mutual fund companies offer funds that shelter interest income from the full rate of taxation and these funds are widely available through any investment dealer. They are sometimes referred to by a series letter or as a corporate class fund.

Saturday, April 21, 2007

Inventory Update - April 21, 2007

Well we are near the end of April and in the midst of the hot spring selling season for real estate and I doesn't look so hot from where I stand. Inventory keeps growing. The ratio of homes being listed to the ones being sold is high compared to hotter selling times.

The Chipman area popped over the 11,000 inventory mark on Friday. The trend is up, up, up, meaning more selection for buyers and more competition for sellers. If I was shopping for a house this spring I might wait given the chance to choose from a wider selection if I waited.

Friday, April 20, 2007

Reality Check- Open Discussion

Have at it. Talk about what you wish today.

Some ideas:
- young irresponsible, overleveraged flippers
- really junky, overpriced houses for sale - send the link
- anecdotes of people committing financial suicide

The inventory update will come later today. Have fun.

Thursday, April 19, 2007

CME Housing Futures

From Seeking Alpha:

As you may or may not know the Chicago Mercantile Exchange offers housing futures for investors to take a position in. The contracts trade off of the S&P/Case-Shiller Home Price Index that tracks single-family home prices in a number of cities. The most recent actual home-price data released by S&P/Case-Shiller in from January 2007. Below we compare the difference between the CME housing contracts that expire in February 2008 to the actual January 2007 prices to see what the futures are forecasting for home prices. Based on the January prices, the Chicago market is expected to fall the least by 3.3%. Boston is expected to fall the most at -6.2%. The Composite Index of all markets is expected to fall 5.6%, indicating investors believe a bottom will still not be in place by February of next year.

We have been tracking the housing futures for some time now, and below we look at how accurate they were based on our initial data points. We first started tracking the housing futures in July 2006. Below we highlight where the November 2006 contracts were trading in July along with the actual November 2006 numbers that were released earlier this year (there is usually a 3 month lag in the release of the actual reports).

In general, the contracts seemed to do a pretty good job of forecasting future housing prices five months out. Miami, Boston, San Diego and Washington DC did, however, have a pretty wide discrepancy. Miami was forecast to fall much more than it actually did, while Boston, San Diego and DC were all expected to fall much less than they actually did.

This is prettty interesting, what do you think?

Monday, April 16, 2007

How much should I pay for a house?

I was thinking about the advice I should give to the people I know who are considering the purchase of a place to live and I came up with a way of simply expressing the math that is in my head. I wanted to keep the advice quite simple since I recognize that most people get lost after 1 + 1 = 2 and 10 x 10 = 100.

So here we go, a simple model for evaluating how much a dwelling is worth. It factors in comparable market rent, opportunity cost of down payment, maintenance/fees/taxes (expressed as a % of market rent), and, very importantly, mortgage costs. The "low price" is what I consider the highest price that the property in question would be a "Value" buying opportunity from an investment perspective. The "high price" is top price for what I believe a 'rational buyer' would be willing to pay for the property given the choice of renting or buying the same property.

The formula is fairly simple. It is a Present Value calculation of the mortgage payment over a 25 Year period plus a factor for maintenance, taxes, and other fees. I assume the "Value" buyer wants at least a modest positive cash flow from day 1 and factors a decent amount for costs with no ownership premium. A 'rational buyer' is willing to pay a premium for the so-called 'privilege of ownership' and does not factor in as much for maintenance as the resident owner can do the work him or herself.

For kicks, I added the estimated current market price in Greater Vancouver and the necessary price correction to bring it in line with the "rational buyer's" highest possible price. Feel free to poke holes in my methodology.


An alternative valuation method reflecting the total lifecycle usage of a property. These formulas determine the price, above which, it is better to rent than buy. This number is represented in the column "PV of Property" and it takes into account the age (lifecycle stage) of the buyer. I also added some various interest rate and inflation scenarios for interest sake (pun intended). If the price of the property is above the PV of Property amount then it is cheaper to rent - for life. Click on the picture to enlarge.

Bloomberg News - US Foreclosures Double

Foreclosures Double as Owners Struggle to Refinance Mortgages -- By Bob Ivry -- April 16 (Bloomberg) --

"The number of U.S. homes entering foreclosure in the first quarter doubled from a year earlier as property prices stagnated and owners struggled to refinance mortgages. Owners of 168,829 homes in the first three months of 2007 received notice that lenders had filed for foreclosure due to failure to pay loans or liens, said today in a statement. That compares with 83,154 homes in the same period of 2006, the Sacramento, California-based research firm said.

A four-year high in mortgage payment delinquencies and the failure or sale of 50 subprime mortgage companies, which provide loans to people with poor or limited credit histories, has made credit less available. The inability of homeowners to refinance their debt has added to the rise in foreclosures. ``A lot of folks have been borrowing and borrowing and borrowing to stay out of trouble,'' President Alexis McGee said in an interview. ``Now that there are less borrowers in the marketplace, where are they going to go? Unless lenders step up and offer money to these people, they'll be locked out.''

Riverside County, California, had a 172 percent rise in the number of homes entering the foreclosure process in the first quarter, the biggest increase of any county in the U.S., the company said. said other counties showing big increases were Clark County, Nevada, which includes Las Vegas (143 percent); Los Angeles County, California, (92 percent); Miami- Dade, Florida (90 percent) and Cook County, Illinois, where Chicago is located (44 percent). The findings come as the National Association of Home Builders/Wells Fargo index of U.S. homebuilders' confidence fell to the lowest level of the year in April. The index dropped to 33 from 36 in March, the Washington-based association said today. A reading below 50 means most respondents view conditions as poor.

The National Association of Realtors said last week the median price of a home will fall 0.7 percent this year to $220,300. Mark Zandi, chief economist for Moody's in West Chester, Pennsylvania, also said last week that the median price will slide to $210,000 in 2008, the lowest level since March 2004.

Most homeowners who enter the foreclosure process do not lose their houses. In many states, the process can be initiated by the lender when a borrower falls just one day behind, McGee said."

It is really almost unbelievable how fast foreclosures have shot up in the US and the biggest house price declines are still to come yet. The weakness of the average American's finances is astounding to me. Combine rampant consumerism with cheap and available credit and we've got a massive recipe for disaster like we've never seen before. Things look really bad - this will be a financial correction for the history books.

Saturday, April 14, 2007

Inventory Update and Charts

Plenty of new supply in the local real estate market this week. We appear to be trending to hit new highs in total inventory by June. This, by my estimation, will mean that we have over 6 months supply by the end of May and over 8 months supply by the end of October at the current sales rate and listing rate.

Thursday, April 12, 2007

Gong Show - Bubbles

I'm gonging bubbles this week because they grossly misallocate resources for a period of time and because many people are impoverished because of this misallocation.

From Wikipedia:

An economic bubble (sometimes referred to as a "speculative bubble", a "market bubble", a "price bubble", a "financial bubble", or a "speculative mania") is “trade in high volumes at prices that are considerably at variance from intrinsic values”. The intrinsic value is a theoretical calculation that aims at reflecting the fair value by taking into account hypotheses of future returns and risks.

The bubble is usually followed by a sudden drop in prices, known as a crash or a bubble burst. Both the boom and the bust phases of the bubble are examples of a positive feedback mechanism, in contrast to the negative feedback mechanism that determines the equilibrium price under normal market circumstances. Prices in an economic bubble can fluctuate chaotically, and become impossible to predict from supply and demand alone.

Economic bubbles are generally considered to have a negative impact on the economy because they cause misallocation of resources into non-optimal uses. In addition, the crash which usually follows an economic bubble can destroy a large amount of wealth and cause continuing economic malaise. A protracted period of low risk premiums can simply prolong the downturn in asset price deflation as was the case of the Great Depression in the 1930s for much of the world and the 1990s for Japan. Not only can the aftermath of a crash devastate the economy of a nation, but its effects can also reverberate beyond its borders.

Another important aspect of economic bubbles is their impact on spending habits. Market participants with overvalued assets tend to spend more because they "feel" richer (the Wealth Effect). Many observers quote the housing market in the United Kingdom, Australia, Spain and parts of the United States in recent times, as an example of this effect. When the bubble inevitably bursts, those who hold on to these overvalued assets usually experience a feeling of poorness and tend to cut discretionary spending at the same time, hindering economic growth or, worse, exacerbating the economic slowdown. Therefore, it is imperative for the central bank to keep its eyes on asset price appreciation and take measures to curb high levels of speculative activity in financial assets. This is usually by increasing the interest rate; that is, the cost of borrowing money.

When the bubble occurs in equity markets, it is called a stock market bubble. It is usually very difficult to differentiate a stock market bubble from an ordinary bull market except in hindsight.
The cause of bubbles is often disputed although some experts believe that the cause of bubbles can be explained by the "greater fool's theory." The greater fool's theory explains the behavior of a perennially optimistic market participant (the fool) who buys an overvalued asset in anticipation of selling it to another rapacious speculator (the greater fool) at a much higher price. The bubbles continue as long as the fool can find another (greater) fool to pay up for the overvalued asset. The bubbles will end only when the greater fool becomes the greatest fool who pays the top price for the overvalued asset and can no longer find another buyer to pay for it at a higher price.

Other experts argue that the cause of bubbles is excessive monetary liquidity in the financial system. Excessive monetary liquidity (easy credit, large disposable incomes) potentially occurs while central banks are implementing expansionary monetary policy (ie. lowering of interest rates and flushing the financial system with money supply). When interest rates are going down, investors tend to avoid putting their capital into savings accounts. Instead, investors tend to leverage their capital by borrowing from banks and invest the leveraged capital in financial assets such as equities and real estate. Simply put, economic bubbles often occur when too much money is chasing too few assets, causing both good assets and bad assets to appreciate excessively beyond their fundamentals to an unsustainable level. The bubbles will burst only when the central bank reverses its monetary accommodation policy and soaks up the liquidity in the financial system. The removal of monetary accommodation policy is commonly known as a contractionary monetary policy. When the central bank raises interest rates, investors tend to become risk averse and thus avoid leveraged capital because the costs of borrowing may become too expensive.

Still others say that economic bubbles are mainly driven by the greed and irrational exuberance of overly bullish investors. They argue that investors tend to extrapolate past extraordinary returns on investment of certain assets into the future, causing them to overbid those risky assets in order to attempt to continue to capture those same rates of return. Overbidding on certain assets will at some point result in uneconomic rates of return for investors; only then the asset price deflation will begin. When investors feel that they are no longer well compensated for holding those risky assets, they will start to demand higher rates of return on their investments.
Due to this phenomenon, some regard bubbles as related to inflation and thus believe that the causes of inflation are also the causes of bubbles. Others take the view that there is a "fundamental value" to an asset, and that bubbles represent a rise over that fundamental value, which must eventually return to that fundamental value. There are chaotic theories of bubbles which assert that bubbles come from particular "critical" states in the market based on the communication of economic factors. Finally, others regard bubbles as necessary consequences of irrationally valuing assets solely based upon their returns in the recent past without resorting to a rigorous analysis based on their underlying "fundamentals".

Tuesday, April 10, 2007

These are a few of my favorite things . . .

At a loss for what to post, I decided that I would give you some insight into what a few of my favorite financial products are and why I like them. Today I am highlighting one of my favorite mutual fund managers - Kim Shannon and her company - Sionna Investment Managers.

From the Sionna Investment Managers website:

"Kim founded Sionna in the summer of 2002 and has 23 years ofinvestment management experience. She was previously CIO at Merrill Lynch IM, Canada and led large cap equities at AMI Partners. Kim is past President of the Toronto CFA Society andis currently on the CFA Institute's Canadian Advisory Committeeand the Canadian Coalition for Good Governance's Accounting & Audit Policy Committee."

From the Brandes website:

Sionna's Investment Philosophy and Approach

Sionna is an active investment manager with a value driven, bottom-up approach to stock selection. They manage portfolios with a disciplined, approach that has produced superior long-term returns.

Sionna believes that the stock market reflects human emotions as much as it reflects fundamental value, which leads markets as a whole, as well as individual stocks, to euphoric highs and depressed lows. The Sionna team attempts to take advantage of human emotion by determining the value of securities in a disciplined way that allows them to remain dispassionate.

They believe that stocks tend to revert back to their intrinsic values in the fullness of time, and seek to buy stocks trading significantly below this level and patiently wait for them to revert back to intrinsic value, resulting in conservative portfolios. Sionna manages Canadian equity portfolios in a relative value style.

The Sionna Process

Sionna applies sound, fundamental analysis to find companies that are worth more than their current stock market price. They think in simple terms: buying a dollar’s worth of a company at a price of 70 cents or less. Sionna begins by considering a universe of 500 companies, and through rigorous screening, distills it to about 70 to 140. From this, a focused portfolio of 35 to 60 companies emerges.


Sionna believes that diversification mitigates risk, and therefore favours well diversified portfolios, with no more than a +/- 5% differential to index sector weights. However, they also believe that by focusing on stock selection, rather than sector timing, risk to the investor is further reduced. Therefore Sionna will occasionally go overweight in a sector, or take a zero position, depending on the availability of value opportunities.

Why mohican likes them so much?

1) They are disciplined value investors.
2) They recognize great investment opportunities that many others pass by.
3) They keep fees low because of their initial quantitative process.
4) They outperform over the long run and by a large margin. The fund that Sionna previously managed was the CI Canadian Investment fund which had a fantastic record of outperformance - especially during downmarkets.

Saturday, April 07, 2007

REBGV March Statistics and Inventory Update

Greater Vancouver home prices rose again in March to put Vancouver in the top 5 most unaffordable cities in North America (sarc) hooray - I'm so excited (/sarc) !

This price rise was accompanied by a decrease in demand / sales and a rise in supply / listings. Economics 101 taught me that when demand declines and supply increases then a shift in prices is shortly forthcoming, but we will see (sarc), maybe Vancouver is truly different and defies the fundamental economic principles of equilibrium, supply and demand (/sarc)!

Price compression - the observed phenomenon that 1) prices of apartments tend to rise faster than the prices of single family homes during booms and 2) prices in outlying regions (ie. maple ridge, port coquitlam, langley, etc) rise faster than prices in the city. My compression hypothesis is that as we near the end of the boom cycle the compression will reverse into decompression with apartments and outlying areas losing first and the most value as a percentage.

Witness the compression between housing types here:

My intention, at some point, is to get some more data to do a more thorough analysis over a longer period of time. If anyone has access to longer time frames of data that is not available in the public realm, please email me, I'd love to get my hands on it.

On the inventory front:

Have a great weekend.

Thursday, April 05, 2007

How we paid off our house in three years

Perry Goertzen as told to Duncan Hood - from Yahoo Personal Finance

Have you ever wondered what you could accomplish if you saved 80% of your pay? Well I can tell you, because I did it.

Most people have trouble saving just 5% or 10% of what they make, but my wife Tiffany and I decided that it was worth living like paupers for a few years if it could give us a huge jump start on life. Saving as much as we did was challenging, but what we accomplished was amazing - I still can't believe it myself sometimes. When we started, we had a rusty old Toyota Tercel, no house, few possessions and a crushing debt of $37,000. A few years later, we had two almost-new cars and a beautiful new four-bedroom house on a 46-ft lot in Milton, Ont. Everything was completely paid off - we had zero debt. During this time, neither of us made much more than $60,000 a year at any one job, but by working several jobs and saving almost all of our income, our net worth increased from negative $37,000 to positive $420,000 in less than five years.
I was born in rural Manitoba in my grandparents' car on Mother's Day, and my family still jokes that I came into this world fast and I haven't slowed down since. But though I was always very energetic, it was channeled in the wrong direction during my teenage years: I was basically a juvenile delinquent. I quit high school at age 15, worked odd jobs, drank and partied. By my early 20s I hit rock bottom. I realized that I was going nowhere and that I had to make some serious changes to get back on track. So I gave up my old friends and my old lifestyle, and decided to move to Abbotsford, B.C., to start over.

It was there that I met my future wife, Tiffany. After a couple of years we got engaged and then we got married in 1995, when I was 27. During this time I changed dramatically. I started volunteering for an organization that worked with troubled teens, and I loved the work. Tiffany and my family kept challenging me to go back to school, and shortly before we got married, I applied to a private Christian university in Langley, B.C., called Trinity Western, and I was accepted as an adult student. Four years later, in 1998, I graduated with a B.A. in psychology.

I was proud of my degree, but a B.A. didn't open as many doors as I originally thought it would, so we decided that I should get a Master of Social Work degree. Wilfrid Laurier University, in Waterloo, Ont., offers one of the better programs in Canada, so we packed up our belongings and drove across the country. It was an absolutely crazy trip - we did it in only 49 hours with one four-hour stop at a little motel - and when we arrived we settled into a small apartment in Milton, midway between the university and a new teaching job we found for my wife. During the next two years of schooling, money was tight, and I had to borrow heavily for tuition and books. When I finally finished my master's degree in 2000, we had a total debt of $52,000 from my student loans.

This is when we made the decision that changed everything. With my new degree, I quickly found a job that paid well, but we decided that rather than rewarding ourselves for all those years of hard work, we would continue living like impoverished students for a few more years. In exchange, we figured we'd get a head start on the rest of our lives.

I got my first job as a crisis intervention worker before I even finished my degree. When I graduated, they gave me more hours, then offered me a second position doing the same thing at another location. I was just loving the work, and I took on a third job doing the same thing at the Credit Valley Hospital in Mississauga. As crazy as it sounds, I then took on a fourth position, and I saw clients now and then through my own counseling business as well.

The next few years are a bit of a blur. I worked an average of 90 to 100 hours a week, or about 14 hours a day, seven days a week. It wasn't unusual to work 22 hours straight, go home, sleep for two or three hours, get up, shower, and work another 12-hour shift. I once worked 99 days in a row, took two days off, and then worked another 60 days. Meanwhile, Tiffany began supplementing her salary as a teacher by tutoring and giving piano lessons.

In some ways it wasn't much of a life. My wife thought I was pushing it too much, and our friends and family thought we had lost perspective. But my father had taught me a strong work ethic and I felt like I had wasted a lot of years in my youth. This was my chance to catch up. With six or seven jobs between the two of us, within a few months of graduating, our combined income was well in excess of six figures. But even with our sizable new income, we continued living in our $900-a-month apartment in Milton. Most of our furniture came out of the garbage, and we rarely bought new clothes. We didn't have cable and we didn't go out much. Eventually, we splurged and bought a set of rabbit ears for our old TV.

We were able to save over 80% of our after-tax income, which amounted to over $80,000 a year. In a lot of ways, saving 80% of your income is absurd, but you would be amazed at how quickly you can pay off huge loans if you do. I obtained some loan remission from the government, which knocked my $52,000 student debt down to $37,000, and we managed to pay that off in just four short months. Paying off such a staggering loan so quickly was an incredible feeling. We realized that we had become accustomed to saving most of our income, so we decided to accomplish a few more goals before we broke the habit. We began by saving up for a down payment on a house, and it took us less than a year to save up $82,000.

In June of 2002, we purchased our first home in a new subdivision in Milton for $302,000, and took on a five-year, 5.2% fixed-rate mortgage for $220,000. At first, we intended to pay it off in 10 or 15 years. But then I began to look at what would happen if I doubled up the payments and paid an extra 10% a year. It was incredibly motivating to see how much interest you could save. So we decided to double up every bi-weekly payment, from $670 to $1,340. We also made the annual 10% prepayment, which was about $22,000 a year.

At the end of the first year, we realized that we were saving much more than we needed, even with the doubled payments and annual prepayment, so I approached the bank and asked them if we could make an annual prepayment of 20% instead. It took a little bit of coaxing and a few Tim Hortons coffees, but banks can be more flexible than you might think: don't assume the terms of your mortgage can't be changed.

At that rate of payment, it sounds absolutely incredible, but we managed to pay off the whole thing in exactly 952 days. By paying off the mortgage in less than three years instead of 25, we saved a total of $153,000 in interest charges, which amounts to more than half the original cost of the house. Meanwhile, the house had already increased in value to about $420,000.
Now we own our house, our cars, and we have absolutely no debt. We feel like a huge weight has been lifted off of us. The best part of it is that we feel like we've been set free to do many things in life that we otherwise wouldn't have been able to do. Tiffany is pregnant now, and we're expecting our first baby in July. Because we have no debt and our expenses have been reduced by 80%, one of us can stay at home as long as we want after our baby is born. I'm only working about 55 hours a week now - which after my previous schedule, feels like part-time - and we're already saving aggressively for retirement. My dream would be to retire when my father did, at age 52, so that we'll still be young and healthy enough to travel the world.

Let me make it clear that I wouldn't recommend the number of hours that I worked for most people. But was it worth it for me? Absolutely. It's been challenging and tiring, but exciting and rewarding too. Right now, I wouldn't change anything for the world. We're only in our 30s, but in a lot of ways, we're set for life.

Tuesday, April 03, 2007

March 2007 FVREB Statistics

Here are the March 2007 Fraser Valley Real Estate Board statistics and these are the highlights:

"The total number of sales processed through the MLS® in March was 1,743, a decrease of 16 per cent compared to the same month last year when 2,072 sales were processed. New listings increased by 33 per cent compared to the same month last year with 3,369 new listings in March taking the number of active listings to 7,351, an increase of 46 per cent compared to the 5,037 active listings in March of 2006."

"In March, the average price of a single-family detached house in the Fraser Valley was $509,197, an increase of 15 per cent compared to the same month last year when the average price was $442,726. The average price of townhomes also saw an increase of 15 per cent, going from $277,999 in March 2006 to $319,592 in March 2007. The average apartment price in March 2007 was $203,874 compared to $180,545 the same month last year, an increase of 12.9 per cent."

Last year the FV months of inventory was 2.4 but now it is 4.2 - a significant increase - but not enough for price decreases yet. The spring selling season is just starting so we will see if demand holds up through April and May.

March 2007 Real Estate Statistics

I had hoped that the local real estate boards would have released the March statistics by now and I would be able to perform my standard analytical affair on them but alas they are not available yet. In lieu of the actual numbers let's play the guessing game. I would like to know what you think:
  • Total Chipman inventory will be at the end of September 2007
  • Total FVREB inventory will be at the end of September 2007
  • What benchmark / median prices for different housing types will we be talking about in 6 months?
Recognize that this is a futile exercise and its just for fun. Here are my guesses:
  • Chipman inventory will peak in September 2007 at over 15,000.
  • FVREB inventory will be over 11,000 by the end of September
  • We will be talking about benchmark prices / median prices equivalent to March 2006 and down from their March 2007 peak.
What do you think?

Sunday, April 01, 2007

1927-1933 Chart of Pompous Prognosticators

Chart locations are an approximate indication only

  1. "We will not have any more crashes in our time."- John Maynard Keynes in 1927
  2. "I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future."- E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928
    "There will be no interruption of our permanent prosperity."- Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928
  3. "No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment...and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding."- Calvin Coolidge December 4, 1928
  4. "There may be a recession in stock prices, but not anything in the nature of a crash."- Irving Fisher, leading U.S. economist , New York Times, Sept. 5, 1929
  5. "Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."- Irving Fisher, Ph.D. in economics, Oct. 17, 1929
    "This crash is not going to have much effect on business."- Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929
    "There will be no repetition of the break of yesterday... I have no fear of another comparable decline."- Arthur W. Loasby (President of the Equitable Trust Company), quoted in NYT, Friday, October 25, 1929
    "We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices." - Goodbody and Company market-letter quoted in The New York Times, Friday, October 25, 1929
  6. "This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years."- R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929
    "Buying of sound, seasoned issues now will not be regretted" - E. A. Pearce market letter quoted in the New York Herald Tribune, October 30, 1929
    "Some pretty intelligent people are now buying stocks... Unless we are to have a panic -- which no one seriously believes, stocks have hit bottom." - R. W. McNeal, financial analyst in October 1929
  7. "The decline is in paper values, not in tangible goods and services...America is now in the eighth year of prosperity as commercially defined. The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin."- Stuart Chase (American economist and author), NY Herald Tribune, November 1, 1929
    "Hysteria has now disappeared from Wall Street."- The Times of London, November 2, 1929
    "The Wall Street crash doesn't mean that there will be any general or serious business depression... For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game... Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before." - Business Week, November 2, 1929
    "...despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation..." - Harvard Economic Society (HES), November 2, 1929
  8. "... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall." - HES, November 10, 1929
    "The end of the decline of the Stock Market will probably not be long, only a few more days at most." - Irving Fisher, Professor of Economics at Yale University, November 14, 1929
    "In most of the cities and towns of this country, this Wall Street panic will have no effect."- Paul Block (President of the Block newspaper chain), editorial, November 15, 1929
    "Financial storm definitely passed."- Bernard Baruch, cablegram to Winston Churchill, November 15, 1929
  9. "I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress." - Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929
    "I am convinced that through these measures we have reestablished confidence." - Herbert Hoover, December 1929
    "[1930 will be] a splendid employment year."- U.S. Dept. of Labor, New Year's Forecast, December 1929
  10. "For the immediate future, at least, the outlook (stocks) is bright." - Irving Fisher, Ph.D. in Economics, in early 1930
  11. "...there are indications that the severest phase of the recession is over..." - Harvard Economic Society (HES) Jan 18, 1930
  12. "There is nothing in the situation to be disturbed about." - Secretary of the Treasury Andrew Mellon, Feb 1930
  13. "The spring of 1930 marks the end of a period of grave concern...American business is steadily coming back to a normal level of prosperity." - Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930
    "... the outlook continues favorable..." - HES Mar 29, 1930
  14. "... the outlook is favorable..." - HES Apr 19, 1930
  15. "While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us." - Herbert Hoover, President of the United States, May 1, 1930
    " May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..." - HES May 17, 1930
    "Gentleman, you have come sixty days too late. The depression is over."- Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930
  16. "... irregular and conflicting movements of business should soon give way to a sustained recovery..." - HES June 28, 1930
  17. "... the present depression has about spent its force..." - HES, Aug 30, 1930
  18. "We are now near the end of the declining phase of the depression." - HES Nov 15, 1930
  19. "Stabilization at [present] levels is clearly possible." - HES Oct 31, 1931
  20. "All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S."- President F.D. Roosevelt, 1933
List created by Colin J. Seymour, June 2001 June 2001