From the Fraser Valley Real Estate Board:
(Surrey, BC) - The Fraser Valley Real Estate Board credits ‘move-up’ buyers and greater affordability for the second best August in its real estate sales history, bolstered by a summer of historically low interest rates.
There were 1,786 sales processed in August, an increase of 96 per cent compared to the 910 sales during the same month last year. Add in sales from June and July generated by many first-time buyers and the result is 5,857 sales – outperforming the summer of 2007, at 5,800, but far from matching 2005, when summer sales peaked at 6,866.
“The last three months was a welcome return to a busier, more stable market, but also a discerning one,” describes Paul Penner, President of the Fraser Valley Real Estate Board. “Not every house was flying off the shelf like they did four years ago.”
“It’s a more complex market now, with variations in activity depending on the area and price and it requires knowledge, knowing what’s selling, for how much, and why.”
Penner says stability has returned to house prices, but with the average days on market in the Fraser Valley effectively remaining unchanged for six months, at just under 60 days for most property types, pricing remains highly competitive.
“Our August market poll reveals how much price matters. Over half of Fraser Valley buyers qualified for a conventional mortgage putting 25 per cent or more down, yet 39 per cent of REALTORS® who participated in our survey reported challenges in closing sales due to their clients’ inability to reach financing terms.”
The MLSLink® Housing Price Index (HPI) benchmark price of a detached home in August was $483,839, a decrease of 3.5 per cent compared to August 2008, when it was $501,317. In the last three months, the HPI benchmark price of a detached home has increased by 3.8 per cent. The HPI benchmark price of Fraser Valley townhouses decreased 4.7 per cent from $325,833 in August 2008 to $310,389 in August 2009, and in the last three months has increased by 4 per cent. The benchmark price of apartments also decreased year-over-year by 5.9 per cent, going from $250,888 in August of last year to $236,146 in August 2009, and has increased by 1.7 per cent in the last three months.
The number of active Fraser Valley listings in August decreased 5 per cent from July, dropping to 8,987 listings. This was a 24 per cent decrease from last year. The MLS® saw 2,470 new listings come on stream in August, 2 per cent fewer than in August 2008 and 23 per cent less than this past July.
My opinion is we're in an incredibly similar situation to 1991-1992. Prices will make new highs for the next few years but as rates rise things will become sluggish and remain level or drop a bit a few years later but still be 10-20% above levels seen today.
ReplyDeleteOh.. and yes I just opened the gates for you guys to attack me again.. it's fine, I don't take anything personally.
ReplyDeleteIt is a possibility chad. It means that we are in for 10 years of flat prices. No rush to buy.
ReplyDeletePrices will make new unaffordable highs for the next few years but as rates rise things will become sluggish and remain level or drop a bit a few years later but still be 10-20% above levels seen today.
ReplyDelete.....if it doesn't I am totally screwed, so it just has to....
I think if rates ever rise in the next few years it will completely annihilate the market. Many people are walking a very fine variable rate line. Only thing that can prolong this price level is these super low rates. Of course the longer they go on the more chance people have to solidify their position.
ReplyDeleteSo I guess the main question is how long are rates gonna stay so low. The secondary question is will the government raise rates even though it will wipe out tons of voters.
Mohican,
ReplyDeleteI didn't phrase what I said very well, I don't think prices will be flat in 10 years, I think in 10 years they're be 10-20% higher. By no means are things going to get parabolic to the upside, my thesis has always been higher prices in the future with a very low risk of a big drop buying right now. I believe we saw our big drop already and the recovery has been much quicker than I expected but we are where we are and I think the huge downside risk is gone (I was VERY bearish before the drop but I think the flush and recovery has already occurred)
And to RentingSuck, I have no actual data on to support this, it's just from talking to other buyers but it does seem like most people are going with the locked in 5 year fixed at these low rates rather than the variable as anyone with half a brain knows rates are going up. I also think those with a variable rate will switch to a fixed very quickly when rates begin to rise and still have a manageable payment. Like Mohican said, this is no rush to buy but I think if you find a place you like to live in, not as an investment, then I believe the downside risk is minimal and while the upside is capped I strongly disagree with anyone that says 5-10 years down the road someone buying now would be underwater.
When buying a personal residence the only 2 things I personally care about are:
ReplyDelete1) Rental Equivalence which means that buying is no more expensive than renting when considering interest, taxes, maintenance, and strata fees.
2) Affordability which means that total home expenses (interest, taxes, maintenance, and fees) are equal to no more than 25% of gross income.
Those are my personal standards and if I were buying today in Vancouver they would be impossible to meet. I actually don't think that any home in Vancouver or the inner suburbs would meet those two criteria.
Personally, I don't care if home prices appreciate or not but it just doesn't ring true that it takes such an exorbitant amount to purchase a home in the Vancouver area when compared to anywhere else on the continent and most everywhere else in the entire world.
Fill your boots if you really think you'll be further ahead by purchasing but I don't see it.
If prices increase at a compound annual rate of 1% per year for 10 years = 10.5% total increase, then that would be the death of the real estate market here because the Vancouver market is built on ever more appreciation. As soon as the appreciation stops then it will be a rapid fall down to reality based on fundamentals. If appreciation continues then only the bounds of human irrationality hold the limits.
Prices have to stop appreciating when people can no longer service the mortgage debt. This is a mathematical certainty, and I don't think it's that far away.
ReplyDeleteChad,
ReplyDeleteI would agree that most people are going with a 5 year rate right now as they believe rates will rise.
What I have trouble believing is that in 5-10 years prices will be higher. You say rates will rise (probably) and most people have 5 year mortgages. Now I know that you said you are prepared if rates go up to a historically normal 8% or even a crazy 12%, but do you really think others are as prepared as you?
In 5 years the rush of buyers on 5 year rates will almost surly be hit with a rate increase. No one can say what this will be, but it is hard to believe that they will be able to get yet another 5 year rate at ~4% interest. If the rates are dramatically higher it would be easy to see how people could be in trouble very quickly. Then again the economy could be much better and everyone will be making too much money to care.
Also when rates to rise, probably next June, it will mean new buyers will be able to buy less with their money. A calculator I used said I could afford a home worth $272,584.91 with my income and down payment at 4.5% interest. At 5.5% interest I can afford $252,761.54. Not a big deal but it is still 7.3% less than I could afford before. If this happens to everyone then that means everyone has 7.3% less money to buy a home with. This may not force prices down that much, but I think it will have a negative impact on prices.
And if you believe 10-20% price increases in 10 years, that is only 1-2% per year. Much lower than the average inflation of around 4%. So the value may rise nominally, but in real dollars your house will be worth less in that scenario.
I think you might be assuming everyone is doing as much diligence as you are. Granted everyone should be, as buying a home is one of the biggest financial decisions you will ever make, but I dont think as many people are being that careful. I had a friend telling me he was looking into buying because he saw on the news that prices were rising and rates were low. That was all he needed to rush out and start looking at open houses. He basically took the MAXIMUM number he could afford, as given by his bank, and went out looking with that number as a target. If he buys around that number, and has to renew at at something around 8% in 5 years, he is screwed. He is a bright guy too, he just seems to have been caught up in the hype, and I dont think he is alone.
David,
ReplyDeleteI absolutely agree I don't think people are prepared like I am for an increase in rates but my point is still those charts I posted which in my opinion clearly show higher prices in the future. When looking at increased rates and affordability I concur prices should go down. The problem though is I have found looking back at charts and trying to fit a similar pattern to the pattern of the present has far more predictive power than trying to rationalize where prices are going to be. I could really get into this in more detail but I think it will suffice to say that we both are looking for different scenarios to play out and we'll see in 5-10 years where we're at.
I don't know about detached properties but from an investor perspective I can do some simple math for condos. I can get a dividend stock at a utility company offering similar risk to property that pays 7% with the dividend tax credit. A condo is around 4% and requires way more of my time to manage. The only way the condo is a better investment is when its price appreciates to compensate me for the poor rental yields and my time, which requires me selling to someone for an even worse yield than I would receive.
ReplyDeleteAs an owner-occupier, maybe I can overlook the obvious signs of a poor financial investment in the name of lifestyle but I am effectively giving someone else a large slice of my future net worth to do so. Nothing wrong with it but a bad financial investment is a bad financial investment. Sugar coat it with intangibles all you want.
chad,
ReplyDeleteI made some price charts of an asset for you to look at. I'd like you to tell us how they differ from the house price charts you posted.
yoy % change
Price
You can see that any time there had been a significant drop in the past, prices had gone back up relatively quickly.
The last drop shown is similar to the current drop in real estate. By your analysis this should be a good time to buy right?
I'm not trying to trick you, if you hadn't guessed this is the S&P 500 in December of 2000 and it went on to drop 50% from the peak. So seriously, looking just at the graphs I've shown would you have said this would be a good time to buy?
Vibe,
ReplyDeleteI trade/manage portfolios for a living and one thing I can tell you is each asset class has it's own way of moving in terms of volatility and long term regression. Stocks do not move like bonds/real estate/commodities/currencies.. real estate does not move like commodities and so on and so on. Asset classes have to be examined by it's particular past.
When commodities fall, they rarely touch the edges like we saw in 2008. The 80's in Gold, Nat Gas several times in the past.
Bonds very rarely rapidly fall in a very short fashion
I can go through in detail on every asset class but I hope you understand what I'm saying, every asset class has it's own way of acting and it's in my opinion that there is very little use comparing what happens in one asset class in a certain situation and somehow applying that to another asset class in somewhat of a similar situation.
Just a followup, once the year over year growth in the chart you posted would have turned positive in 2003, it would have been GREAT time to buy, the stock market almost doubled and by the time the market re-tested highs (2007) the YoY growth became extended again and it would be time to sell the S&P (based on that chart, that's by no means how I invest)
ReplyDeleteChad,
ReplyDeleteFirst off I feel the need to comment on something. You started the thread off by pre-emptively accusing others of "attacking" you, something that I haven't seen happen yet on this site. I think everyone has kept their attacks aimed at your arguments, and there’s a big difference. I also don’t see the relevance of your profession to the discussion. If your experience has given you extra knowledge or insight into the topics discussed here, it should show through in your arguments; no need to point it out.
I hope this doesn’t come across as being adversarial, I’m sure you aren’t doing it on purpose. And I know the attack comment was tongue in cheek. I just think this type of thing lessens the quality of debate.
Sorry for the tangent. I agree that the rate of decline will vary with asset class. Obviously real estate will take longer to reach its bottom. If anything this strengthens the bears’ argument, since we shouldn’t be surprised that house prices haven’t completely tanked yet. My question to you is this: why does your argument work for real estate and not for equities? You actually mentioned in an earlier thread that you were looking at the real estate data this way because of lessons you had learned in the stock market.
The graphs I posted look very similar to the ones you posted. I could very easily have made the same argument about equities in December of 2000 that you are making for real estate right now. What is the difference?
Vibe,
ReplyDeleteWhen I try to analyze an asset class I try to put all the odds in my favour by matching a mirror situation in the past to one of today, regardless of the asset class, so while the analysis is the same the conclusion will be far different based on the individual asset class and it's reaction to current situations.
Now back to the comparison of thw two graphs, I would never buy anything in a free fall, I would buy when the YoY growth approaches or cross the 0% line to the positive. I don't have an update chart of YoY growth chart of the S&P that you posted but I would assume when the YoY growth turned positive it probably was a great time to buy and the market did go up and then go overextended based on YoY growth and the subsequent crash of 2008 occurred. Based on this chart http://www.bcestates.com/bcestates/Stats.jpg Vancouver real estate now has positive year over year growth so based on that criteria it would be time to buy. On to your argument about the speed of the real estate recovery strengthening the bears argument, well, it could be interpreted in two ways based on my research. The quickness of the rebound may be proving how incredibly strong the market really is and real estate is climbing what I call an "interest rate hike wall of worry" while the bears wait and eventually capitulate.
The reason I compare this situation to the one of 1991-1992 is because of the snapback rally from oversold condition and I believe if we remained oversold for a few more years before heading back up such as we did in the late 80's then the rally we would see would be MUCH stronger. Basically what I'm saying is the rally I see coming in real estate prices will be ok, nothing spectacular but similar price action to that after 1992.
There is no point in arguing with chadmpnp. It's like arguing religion. His view is based on history of RE price performance and selective with his timing.
ReplyDeleteHe is not considering other risk factors which go beyond simple realestate economics. From a broader economic perspective we are far from a recovery and may likely hit another brewing storm. Low probability of outcome? Perharps but why risk it by making a bet on RE in a period of instability?
Kenneth Rogoff is a professor of economics and public policy at Harvard University.
http://www.theglobeandmail.com/news/opinions/a-financial-crisis-becoming-a-debt-crisis/article1276882/
Our models show that even an economy that is massively overleveraged can, in theory, plod along for years, even many decades, before crashing and burning. It all boils down to confidence and co-ordination of expectations, which depend in turn on the vagaries of human nature. Thus, we can tell which countries are most vulnerable, but specifying exactly where and when crises will erupt is next to impossible.
A good analogy is the prediction of heart attacks. A person who is obese, with high blood pressure and high levels of cholesterol, is statistically far more likely to have a serious heart attack or stroke than a person who exhibits none of these vulnerabilities. Yet high-risk individuals can often go decades without having a problem. At the same time, individuals who appear to be “low risk” are also vulnerable to heart attacks.
Of course, careful monitoring yields potentially very useful information for preventing heart attacks. Ultimately, however, it is helpful only if the individual is treated, and perhaps undertakes a significant change in lifestyle.
The same is true for financial systems. Good monitoring yields information that is helpful only if there is a response. Unfortunately, we live in a world where the political and regulatory system is often very weak and shortsighted.
Indeed, no economy is immune to financial crises, no matter how much investors and leaders try to convince themselves otherwise, as Carmen Reinhart and I show in our new book, ironically entitled This Time is Different: Eight Centuries of Financial Folly . Right now, the latest “this time is different” folly is that, because governments are taking all the debt on their shoulders, the rest of us don't have to worry.
We are constantly reassured that governments will not default on their debts. In fact, governments all over the world default with startling regularity, either outright or through inflation. Even the United States, for example, significantly inflated down its debt in the 1970s, and debased the gold value of the dollar from $20 per ounce to $34 in the 1930s.
Everyone from the Queen to laid-off Detroit auto workers wants to know why more experts did not see the financial crisis coming. It is an awkward question. How can policy-makers be so certain that financial catastrophe won't soon recur when they seemed to have no idea that such a crisis would happen in the first place?
The answer is not very reassuring. Essentially, there is still a risk that the financial crisis is simply hibernating as it slowly morphs into a government debt crisis.
Take a look at all the optimmistic quotes during the 1930's
http://www.gold-eagle.com/editorials_01/seymour062001.html
We could be at points 8 and 9. Nobody knows.
Bears such a Mohican, Vibe, David at least construct decent arguments and it's a pleasure debating them as they actually present some very rational points. People like Ice, there's no point in arguing against him because he presented no argument.
ReplyDelete"From a broader economic perspective we are far from a recovery and may likely hit another brewing storm. "
^ Let me know where you bought your crystal ball.
Looking at quotes from the 1930's, great, go short all the markets then, the stock market will grind out to new highs by 2012, enjoy that short.
I'm more than happy to debate new data points presented like those from Mohican and Vibe, but debating hypothetical theories backed by nothing... I'll pass
"I'm more than happy to debate new data points presented like those from Mohican and Vibe, but debating hypothetical theories backed by nothing... I'll pass"
ReplyDeleteIf Wall St. brainiacs didn't narrowly focus on the modeling data points based on history and just used common sense they wouldn't have missed the biggest RE, Commodity, Equit and Debt bust in history which lay in front of their nose.
There goes your argument on historical data points buddy.
Did you even open the book on Black Swan? LOL
Actually everything in 2008 when compared to history showed there would be a massive deflationary decline which panned out.
ReplyDeleteTry researching Gann Theory and how he uses price history and how it fit perfectly in 2008 predicting the decline by using past history.
Stop showing your ignorance and maybe look at some posts from gannglobal.com early 2008 mentioning crude oil and the stock market were ready to crash. Also read the newest update that said to get long stocks in mid-May...
Again, stop showing your ignorance because the actual facts are if Wall St. would have used history as a guide the crisis could and would have been avoided.
Ice:
ReplyDeleteInteresting info. Thanks for posting. I found the Gold-Eagle quotes very interesting to read. I find studying the psychology behind the markets absolutely fascinating.
I've been thinking that it would be awfully interesting to read the front page headlines of the New York Times from that time period.
Mohican:
I like the way you distilled what personally works for you to want to buy a home.
I do wonder what's gonna happen to this RE market. Alot depends on sentiment and interest rates. Both not easily predicted factors.
Not sure how to find the answers to these questions, but I wonder...
After this Spring/Summer surge could we have finally cleared out pent up demand?
Is there still alot of retail investor fear to invest in the stock market?
Chadmpnp
ReplyDeleteSee that hockey stick rise due to cheap credit? Guess what's going to bring that down?
http://cuer.sauder.ubc.ca/cma/data/ResidentialRealEstate/HousingPrices/housing-pri-vancouver.pdf
Also it's mighty convenient to ignore the massive deficits incurred by USA and Canada through borrowing and printing of money.
But hey this has no impact on the economy and interest rates right?
I know it's difficult for some to think conceptually and anticipate problems but hey that's why we have greater fools.
"My opinion is we're in an incredibly similar situation to 1991-1992"
ReplyDeleteYou are comparing apples with oranges.
The recession was industry specific - Tech Bubble Bust which had little impact the broader economy including RE and hence a fast rebound
This time its a secular global recession/depression. Canada has yet to feel the real pain as it lags the USA by 18 months.
The cracks in your logic are showing.
I'm not suggesting history predicts the future 100% but food for thought. But hey my buddy chadmpnp is confident that the worst is over.
ReplyDeletehttp://finance.yahoo.com/news/The-Great-Depression-and-etfguide-1598524595.html?x=0&.v=1
Even this rally parallels the Great Depression
The first leg of the Great Depression reduced the Dow Jones (DJI: ^DJI) by 48%. The first leg of the 2007 bear market reduced the Dow Jones by 53%. Both times, the initial declines were followed by powerful and persistent rallies.
The five-month rally from November 1929 to April 1930, lifted the Dow Jones (NYSEArca: DIA - News) by 49%. So far, the five month rally from the March 2009 lows has lifted the Dow Jones by some 46%. The time frame and percentage gains are certainly too close for comfort.
Even though the S&P 500 (SNP: ^GSPC) was not around during the Great Depression, the modern day picture mirrors the Dow. The Nasdaq (Nasdaq: ^IXIC) may have already provided a window into the future as it declined over 80% from its 2000 technology (NYSEArca: XLK - News) bubble, to its 2009 low.
When talking about windows for the future, we can't omit the juicy fact that the Dow Jones measured in the only true currency - gold (NYSEArca: GLD - News) - has also declined to an extent similar to the 1929 - 1932 market meltdown (more about that later).
From humorous to sobering - parallels that sting
Did you know that the Great Depression was preceded by a great real estate boom centered in Florida? The Florida real estate bubble burst in 1926, three years before equities. Just as we've seen recently, investors took their leftovers from the real estate bust and poured it into stocks. Talk about jumping out of the frying pan into the fire.
Just as in 2007, no one foresaw a decline, let alone the seriousness of the decline. On December 4, 1928, President Coolidge sent the following message on the state of the Union to the reconvening Congress: '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. You may regard the present with satisfaction and anticipate the future with optimism.'
Ice,
ReplyDeleteI'll bother debating you when you present a shred of evidence other than predictions based on nothing but your opinions and no evidence whatsoever. I guess the markets are always wrong, and Ice is always right....
Like I challenged others in a past debate without a single taker after much big talk from the bears, if you think the real estate market in Vancouver will be lower than today in 5-10 years, I am willing to bet you any reasonable amount of money and both of us put the money in escrow with the provision that if real estate is lower in 10 years, you take the money, if it is higher, I take the money. Quite honestly, if you're not willing to take this offer then I will continue to disregard your baseless rhetoric and focus my constructive debates with the intelligent people here who back their arguments up with compelling statistics.
And if you want to throw yahoo finance stats my way on how this is the Great Depression 2.0 I'll actually show statistics that look at more than just one single point in history, one point in time is useless to look at, so let's look at 7 times in history, instead of just 1 that you plucked for your convenience.
ReplyDelete"The relentless recovery rally hit another new high on Friday, extending its gain to 56% from the March bottom and
20% in a month and 20 days from a modest July 8 corrective low.
That gain though remains less than those of other second legs higher in the aftermaths of historic busts like the
one that began in October 2007. To get a good idea where this leg is headed, we studied the most applicable
precedents dating back more than a century, including those of 1904, 1908, 1933, 1938, 1974, 1987 and 2003.
Second-leg advances in four of our seven closest fits registered 47% or greater (including three that spanned
seven months or more). Gains in the other three ranged from a more reserved 23% to 28%, but that's still more
than we've seen to date. The fastest to top was the 1938 market, and even that example predicts higher prices
into October.
While a major correction is inevitable at some point, we're convinced the long side is the place to be for the longer
term. Bull markets do not end in less than six months. The next immediate target in the cash S&P remains the
sharp two-day bear market rally high of 1044.31 from last October 14.
"I'll bother debating you when you present a shred of evidence other than predictions based on nothing but your opinions and no evidence whatsoever. I guess the markets are always wrong, and Ice is always right..."
ReplyDeleteOpinions? The objective and third party info is staring straight in your face. You can either open your mind or stay blinded by your narrowly biased agenda.
"Like I challenged others in a past debate without a single taker after much big talk from the bears, if you think the real estate market in Vancouver will be lower than today in 5-10 years, I am willing to bet you any reasonable amount of money and both of us put the money in escrow with the provision that if real estate is lower in 10 years, you take the money, if it is higher, I take the money. Quite honestly, if you're not willing to take this offer then I will continue to disregard your baseless rhetoric and focus my constructive debates with the intelligent people here who back their arguments up with compelling statistics."
ReplyDeleteMy argument is Vancouver will have a significant price drop before 10 years and this is the worst time to be buying RE.
I couldn't care less if in 10 years you broke even in RE.
Significant drops in asset classes usually occur when everyone is bullish, not when everyone is bearish. There are a lot of Vancouver real estate blogs out there, almost every single one of them are bearish and all comments from viewers of the blog are bearish.
ReplyDeleteIce, which objective information are you talking about? The information you plucked out based on ONE YEAR in history? How about the data I posted on 7 years of history that corresponds to today, including the fallout from the great depression.
I'll post the 7 dates cited again, because, unlike you I would rather look at several incidents in history, not just a single time to come up with a suitable conclusion.
"To get a good idea where this leg is headed, we studied the most applicable
precedents dating back more than a century, including those of 1904, 1908, 1933, 1938, 1974, 1987 and 2003.
Second-leg advances in four of our seven closest fits registered 47% or greater (including three that spanned
seven months or more). Gains in the other three ranged from a more reserved 23% to 28%, but that's still more
than we've seen to date. The fastest to top was the 1938 market, and even that example predicts higher prices
into October.
While a major correction is inevitable at some point, we're convinced the long side is the place to be for the longer
term. Bull markets do not end in less than six months. The next immediate target in the cash S&P remains the
sharp two-day bear market rally high of 1044.31 from last October 14."
"Ice, which objective information are you talking about? The information you plucked out based on ONE YEAR in history? How about the data I posted on 7 years of history that corresponds to today, including the fallout from the great depression."
ReplyDeleteThe biggest assumption you are making with the 7 years of history is that we've hit bottom and the magnitude and complexity of issues is the same. So that's your proof?
My proof is that 7 times in history it has played out that way, your proof is that 1 time in history it played out your way.... who's got the odds here bud?
ReplyDeleteGood luck
.. also if you think we're going to breach the March lows in the S&P, then simply short the markets and cover when we breach 666 in the SPX again... let me know how that works for you.
ReplyDeleteIf you are too afraid your own thesis about real estate is wrong to bet me, then bet me that the stock market won't breach its March lows.
If you are unwilling to put your money where your mouth is on either of your arguments then just give it a rest because you clearly don't even buy what you are selling.
"My proof is that 7 times in history it has played out that way, your proof is that 1 time in history it played out your way.... who's got the odds here bud?"
ReplyDeleteWhy are you ducking the counter argument.
Answer this question "Is the complexity and magnitude of the issue the same as the previous 7 recessions?"
Let me help you here buddy.
http://img525.imageshack.us/img525/2258/clipimage0019.jpg
"If you are too afraid your own thesis about real estate is wrong to bet me, then bet me that the stock market won't breach its March lows.
ReplyDeleteIf you are unwilling to put your money where your mouth is on either of your arguments then just give it a rest because you clearly don't even buy what you are selling."
Let's bet. I will send Mohican a cheque and he can hold on to it until the bet ends and pay out the winner. How much would you like to bet.
My bet is the RE market in Vancouver will plummet a minimum 15% in 5 years.
http://marketdepth.typepad.com/marketdepth/2009/06/index.html
ReplyDeleteSell Canadian Banks. Why? RE portfolio risks.
RE Dreams
http://marketdepth.typepad.com/marketdepth/2009/08/real-estate-dreams-2009-edition.html
Chad,
ReplyDeleteI just wanted to pick up on a few points you made a while back. (sorry I was on vacation for the past 3 weeks so I am trying to play catch-up)
The UBC graph you posted a while ago shows that the real price of the average home in Vancouver is near an all time high. I could be wrong but to me that means that if you took $100 and somehow invested it in something that tracked inflation exactly, that money now would buy less home now than ever before (with the exception of last year). I was always under the impression that idealy (I know, this is an ideal situation) that the average home price for an area would never really increase or decrease that much. This is because as more people move there, more homes are built, further from the core, which will be cheaper and drag the average down. At the same time homes closer to the core become more desirable, thus pulling the average up, and the two roughly cancel out.
Basically what I think should happen is that if you had the amount of money needed to buy the average home 30 years ago, and then invested it in something that apreciated at exactly inflation, you should be able to buy the average home again with the new amount of money. The average home will be a different one however, as more homes further from the core are built, the average home would be further from the core.
What I am asking is why you seem to think that the real price of the average home will continue to increase. I do not think the average can increase above inflation. However the best homes in the city could rise in value almost forever as the larger the city grows, the more people will want that home. If you have the third best home out of 1000 and then 9000 worse homes are built, more people will want that third best home.
My question to you is this:
How does this chart:
http://cuer.sauder.ubc.ca/cma/data/ResidentialRealEstate/HousingPrices/housing-pri-vancouver.pdf
tell you that real estate in vancouver is undervalued? In real dollars I could have bought 1.5 times as many homes just 8 years ago. This is inflation adjusted dollars.
From what I can tell the price of everything else (averaged out) in that time went up by X. Yet the price of a home went up by X times 1.5.
I know you are an equity person, but homes are different because everyone has a home, either renting or buying. There are far more things to consider other than supply and demand. The US saw unprecidented drops in housing prices. Just because charts say something has never happened doesnt mean it cant happen.
I have kind of rambled on as I am still a bit jet lagged.
Just for curiosity could you please answer how that graph shows undervalued homes in vancouver.
David,
ReplyDeleteI'll be straight up, the only thing I've looked at in the past few months that makes me bearish is the stats you point to. I obviously still strongly believe prices are headed higher in nominal terms, so if we were to rationalize things to the argument that you are making which frankly I agree with, inflation will have to rise faster than home prices, which I strongly believe will happen. Will inflation be high enough that rates get out of control and really put a lid on any rally? Possible as well. That's why I have always said flattish prices with the market being up 5-10 years from now.
Ice, I'm not betting if the market drops at any given point in the next 5 years, I will bet if prices will be higher or lower in 5 or 10 years as every single one of my arguments have been based on that.
Oh and David I missed your last part, basically if you look at any chart on the UBC site, not just Vancouver, http://cuer.sauder.ubc.ca/cma/data/ResidentialRealEstate/HousingPrices/ , every single time YoY growth has dipped below -10% and rallied back to positive growth YoY, prices have been higher in the near term, medium term and long term. Any time a real estate market has decline 10-15% at any point and subsequently made or almost made new highs, it has continued over the next few years to continue higher and never see those old highs again. If anyone has a chart that shows a 10-15% decline and then new highs being made and then failing and dropping back down 10-15% then I'd be interested to see it because I have never been able to find one.
ReplyDelete"every single time YoY growth has dipped below -10% and rallied back to positive growth YoY, prices have been higher in the near term, medium term and long term. Any time a real estate market has decline 10-15% at any point and subsequently made or almost made new highs, it has continued over the next few years to continue higher and never see those old highs again. If anyone has a chart that shows a 10-15% decline and then new highs being made and then failing and dropping back down 10-15% then I'd be interested to see it because I have never been able to find one."
ReplyDeleteChadmpnp, you really do seem to be counting white swans. I suggest you reread The Black Swan; the point Taleb makes is that this type of "evidence" may be useless or harmful.
"Ice, I'm not betting if the market drops at any given point in the next 5 years, I will bet if prices will be higher or lower in 5 or 10 years as every single one of my arguments have been based on that."
ReplyDeleteSo you agree that RE market can drop at least 15% at any given point within next 5 years.
Absolutely not, my thesis from the beginning is flat to slightly higher prices 5-10 years from now, you are arguing against that, you are also arguing that the stock market is going to take out it's March lows, if you'd like to back up either of those claims with $ then let me know.
ReplyDelete"Absolutely not, my thesis from the beginning is flat to slightly higher prices 5-10 years from now, you are arguing against that, you are also arguing that the stock market is going to take out it's March lows, if you'd like to back up either of those claims with $ then let me know."
ReplyDeleteThen let's bet that RE market can drop at least 15% at any given point within next 5 years?
What exactly are you not understanding about what I just said? If you want to bet that the market will be lower in 5 or 10 years, fine, if you want to bet that at any random point in the next 5 years a 15% pullback could occur then rally right back up a year later and you still win the bet, I'll pass.
ReplyDeleteQuotes from Chad from the last few days:
ReplyDelete"I believe 5-10 years from now prices will be MUCH higher than they are today"
"I strongly believe in 10 years prices will be SUBSTANTIALLY higher than they are today."
"I don't think prices will be flat in 10 years, I think in 10 years they're be 10-20% higher"
"I have always said flattish prices with the market being up 5-10 years from now."
so, Chad, which one is it? "SUBSTANTIALLY higher" or "10-20% higher" or just "the market being up" ?
Oh Chad, you and your little analyses
Ciprian, it's quite simple, maybe you need help with English so I will help you out.
ReplyDeleteFrom these prices we will be substantially higher than today, given the past history of roughly 5-8% YoY growth, we will be flattish.
Going to add anything decent to the debate, Ciprian?
"From these prices we will be substantially higher than today, given the past history of roughly 5-8% YoY growth, we will be flattish."
ReplyDeleteI don't believe this is grammatically correct, but it doesn’t really matter, right? You can teach me English anyway. It’s not important what you can actually do but what you believe you can do.
Oh Chad, you and your little analyses
"If you want to bet that at any random point in the next 5 years a 15% pullback could occur then rally right back up a year later and you still win the bet, I'll pass."
ReplyDeleteIsn't that core message from the Bears? Not a good time to buy now until a major correction happens.
Nobody can time the market bottoms or tops including Buffett. But what the RE fundamentals and economic risk factors suggest is a possible looming major RE correction particularly in Vancouver and Calgary markets.
Unless one is willing to put down a significant cash deposit and carry a small mortgage it's not a good time to buy RE.
ciprian what chad has been saying has been reasonably consistant. I think he expects prices to be nominally higher, but not necessarily higher in inflation adjusted dollars.
ReplyDeleteI guess another question I have for chad is if what I just said is correct, why would you want to buy now? I could understand if you had enough money to pay for the home outright, because this would be a useful investment (you live there) that would probably track inflation, but maybe not as quickly. If inflation is high in the comming years, this will lead to higher interest rates which will cause the next term of your mortgage to be signifigantly higher. This inflation in the long term will raise the value of your home, but will it be enough to compensate for the extra money you paid in interest?
You seem to agree houses will not exceed their current value in real dollars. As an equities guy you know that well invested money will preform at or greater than inflation, which you think homes will not.
I just can't see the logic in purchasing now and paying interest on an investment when it will preform worse than other investments. Do you dislike renting? If you have reasons other than financial that make you want to buy (future family, need for roots, want to renovate, hate answering to a landlord) then I cant really argue with those things. You will have to decide how much those things are worth to you.
I know these are not the hard stats you like, but the 3 most important stats for me are inflation adjusted price, income to rent ratio and rent vs buy.
We have covered inflation adjusted price. Income to price ratio in Vancouver is the worst in Canada, and probably near the worst in the world. This CBC article today
http://www.cbc.ca/money/story/2009/09/09/housing-affordability.html
shows vancouver is by far the most unaffordable city in canada. (It also seems to be trying to scare people into buying, basically saying the cost will go up, buy now! And it fails to mention that the carrying cost of the exact homes purchased today will be much higher if interest rates are higher in 5 years.)
The third is rent vs buy. There are rent vs buy calculators out there where you put in your savings, current rent and it tells you basically what you can afford at these payments.
My rent minus strata and property taxes (ignoring any chance of special assments) can buy a place worth 162K. Yet the place I am renting is assessed at 270K.
To buy the place I rent, my monthly payment would increase by about $650, yet I would be paying less than $375 towards the principal at the beginning of the mortgage, even at current low interest rates! (I took posted rates -1%, so I used 4.6%)
It makes more sense to me to save that extra $650 a month for a bigger downpayment, then I will have a smaller mortgage when I decide it is a good time to buy.
These things tell me to wait. However I have nothing against renting and have nothing in my life that is pulling me to buy a home. If you want to buy for reasons other than financial, then your situation may be different.
Ice, we can actually agree on that, I don't believe the markets, especially real estate can be timed.
ReplyDeleteI think where we disagree is you think another 15% correction is in order while I believe that 15% correction has already occurred. As I mentioned in an earlier post the only reason I see to be bearish is when I look at an inflation adjusted chart, we are definitely extended there. In my opinion the inflation adjusted chart will return to equilibrium with flat to slightly higher prices with higher than average inflation.
I have said a few times that as an investment I wouldn't be putting my money in real estate but as a first time home buyer, with the ability to put down 25% and the ability to manage much higher rates after a 5 or 10 year term at incredibly low rates I believe it's a good time to buy because I really do not see a big drop coming in RE.
When I have the time I will do much more in depth research into the relationship of real vs nominal prices because that is the only chart that I can put together that makes me bearish, but adding a bearish element only makes me think we have flattish prices in the future as opposed to a decline.
"ciprian what chad has been saying has been reasonably consistant. I think he expects prices to be nominally higher, but not necessarily higher in inflation adjusted dollars."
ReplyDeleteI would agree that if you look at history in 10 years the likelihood of RE will be higher than today.
But with one big caveat - There is still risk projecting that far out as there is and will be a huge demographic shift with boomers retiring and most likely downsizing. Also, the next 10 years will not be like the pass 10 years simply because cheap credit will not be the norm.
If and when there is a major correction within the next 5 years many 1st time home buyers and speculators who over leveraged will suffer greatly and confidence will plummet bringing RE crashing down. I don't know the % but anecdotally thru friends and colleagues there are many people are who just living month to month on their incomes and all it takes is a job loss or rising rates over next 5 years to historical avg the house of cards will fall.
"only makes me think we have flattish prices in the future as opposed to a decline"
ReplyDeleteso we are now at flattish prices for the future. no more "SUBSTANTIALLY higher" or "10-20% higher" or even "the market being up" ?
Please , pretty please say that in the future the prices will drop and you will have all the bases covered. no matter what will happen in the future you can say "I told you so"
"a first time home buyer, with the ability to put down 25% and the ability to manage much higher rates after a 5 or 10 year term"
this first time buyer will have to come up to at least 80k for the 25% down and closing costs for a 300,000$ one bedroom apartment. That's pretty much everybody in their low 30's
Ciprian, please note what Dave said so you can stop looking like a complete and utter fool to everyone.
ReplyDelete" david said...
ciprian what chad has been saying has been reasonably consistant. I think he expects prices to be nominally higher, but not necessarily higher in inflation adjusted dollars. "
"I think where we disagree is you think another 15% correction is in order while I believe that 15% correction has already occurred."
ReplyDeleteThis is the critical key distinction. You believe we are on the road to recovery and the worst is behind us.
I believe this "recovery" is temporary due to massive government borrowing and quantitative easing. I expected Q2 and Q3 to show what the media and feds spin as "recovery and stabilization".
Until I see the real economy recover LEAD by consumer consumption and rising real FT employment the economy is fragile.
I haven't even touched upon the perils of huge gov't deficits and ticking time bomb of banks - commercial RE loans and the next leg of resetting of adjustable mortgage rates.
Chad,
ReplyDeleteDavid said "I think he expects prices to be nominally higher, but not necessarily higher in inflation adjusted dollars." He thinks that but he's not sure. do you know why? because nobody knows what you are talking about. sadly, not even you.
"you can stop looking like a complete and utter fool"
so, we move now to calling names. That's a new low, even from someone who reads charts holding them up side down.
why do you try so hard to convince us?
oh Chad you and your little analyses
I respect your opinion, Ice and I'll just say we disagree and that's what makes a market. Moving on though, I'm trying to put together more charts but I'm having trouble finding data going further back than 1970. If anyone can get some historical prices, real or nominal or both going back as far back as possible that would be great. I strongly believe my analysis based on the charts are correct, however a MAJOR caveat in my thesis could be the charts I have looked at only go back to 1970 and that is an extremely small data sample and a similar situation in the past may have played out differently, I would like to plot it out and backtest it if possible.
ReplyDeleteThanks in advance.
We need a Canadian and Vancouver version of this Case Shiller index from 1890.
ReplyDeletehttp://www.investingintelligently.com/wp-content/uploads/2006/08/a_history_of_home_values.png
Detached House Prices Major CDN Cities since Feb 1999.
ReplyDeletehttp://www.chpc.biz/Major_Cities_Chart.htm
"This chart This chart shows the detached housing prices for Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montréal. In July 2009 Calgary, Toronto and Ottawa prices dropped over 2% M/M while Vancouver, Edmonton and Montreal prices rose 0.8-2.5% M/M with Montreal hitting a new record price (Plunge-O-Meter). What is consistent is that sales across Canada are plunging... 3.5-10.5% M/M in the west and 9-20% M/M in central Canada (scorecard). The latest Stats Can average wage data and income requirements for mortgage financing on the chart clearly show that prices in the West are overdone."
ciprian stop arguing about semantics. I said "I think" because I dont want to speak for anyone else. And chad doesnt seem to be trying to convince us of anything, he is just trying to decide for himself if he should buy a home now.
ReplyDeleteAnd 25% down is not unreasonable for a person under 25 to come up with. I have about 60K saved up and I am 22. I took a 2 year program at BCIT while living at home which I paid for with money from part time jobs during high school and started saving as soon as I got hired a few months after school.
I am not saying everyone can do it. Obviously anyone taking longer than a 2 year program will probably have to go into debt. Also anyone who couldnt/wouldnt live at home during school will also have trouble.
My point is that it is possible if you live well below your means. Most people cant grasp this concept and finance a car and get 3 credit cards as soon as they get a full time job. I have a friend who makes slightly more than me and has worked for longer and he barely makes rent some months.
Still even with the ability to buy a home if i wanted I choose not to as it would cost far more than I want to pay and would put me in financial trouble if I was to lose my job.
That's very impressive saving up that much money at such a young age, David.
ReplyDeleteDavid,
ReplyDelete"ciprian stop arguing about semantics. I said "I think" because I dont want to speak for anyone else."
You don't want to speak for anyone else but that's exactly what you did.
About your financial situation: do you see the tragedy here? You did everything right, you worked from an early age, you saved a lot, you skipped parties , dates, going out with friends for the mighty dollar but if you decide to buy today a one bedroom apartment with 25% down anywhere in Vancouver, Burnaby, North Van, West Van or even Coquitlam you don't have enough money. you are still short about 20k. Sad, right? Unfortunately for me, I know what you feel. No matter how hard you work or how much you save at the end of the day you barely make a dent when it comes to buying a property. And this brings us to our friend Chad. Not only that he is so blind to everything around him which is fine by me but he is aggresive towards the readers of this blog. That's my problem with him. Read the posts about what is wrong with the way Chad debates and argues his case. He lost me when called his interpretations of the charts FACTS. I guess when it comes to his IQ I am bearish.
I don't buy "he is just trying to decide for himself if he should buy a home now" Poor Chad , he tries so hard to make up his mind but he can't. If only he could find some charts to help him out.
David, if you are really serious about living WELL below your means you will never buy a property. Think about it: why pay interest for at least a decade, taxes, repairs and so on when you can live with your parents forever? It just doesn't make sense, right?
David,
ReplyDelete"ciprian stop arguing about semantics. I said "I think" because I dont want to speak for anyone else."
You don't want to speak for anyone else but that's exactly what you did.
About your financial situation: do you see the tragedy here? You did everything right, you worked from an early age, you saved a lot, you skipped parties , dates, going out with friends for the mighty dollar but if you decide to buy today a one bedroom apartment with 25% down anywhere in Vancouver, Burnaby, North Van, West Van or even Coquitlam you don't have enough money. you are still short about 20k. Sad, right? Unfortunately for me, I know what you feel. No matter how hard you work or how much you save at the end of the day you barely make a dent when it comes to buying a property. And this brings us to our friend Chad. Not only that he is so blind to everything around him which is fine by me but he is aggresive towards the readers of this blog. That's my problem with him. Read the posts about what is wrong with the way Chad debates and argues his case. He lost me when called his interpretations of the charts FACTS. I guess when it comes to his IQ I am bearish.
I don't buy "he is just trying to decide for himself if he should buy a home now" Poor Chad , he tries so hard to make up his mind but he can't. If only he could find some charts to help him out.
David, if you are really serious about living WELL below your means you will never buy a property. Think about it: why pay interest for at least a decade, taxes, repairs and so on when you can live with your parents forever? It just doesn't make sense, right?
"..when you can live with your parents forever? It just doesn't make sense, right?"
ReplyDeleteThis is a joke, right? Do you even have a job or are you writing from your parents basement.....?
I guess your above statement answers that.
ciprian:
ReplyDeleteI do see that it doesnt make much sense how someone who was lucky enough to get a good job early in life cant afford a decent home.
However the same could be said about anyone. No matter your income or savings, you will have to pay significantly more to own rather than rent. This "tragedy" is not specific to me.
You almost seem to think there is a big conspiracy out there designed to keep people from owning. Guess what; it is a bubble. There have been bubbles before and there will be bubbles after it. It was caused by speculation and it keeping its air due to the low interest rates from the government.
And I didnt skip dates and parties in order to save this money. The small things are fine once in a while, it is the big things that get you. I do not own a car; I take the skytrain and save hundreds every month. I have a roommate and we share a small 2 bedroom in east van. All in with rent and utilities (internet, phone and TV included) my monthly expenses are much less than $1000 (not including food).
It does suck that guys like us cant afford a decent house, but I am in no rush to buy. I have not been brainwashed into thinking I must own a home at all costs. I firmly believe purchasing within 5 years will be much more reasonable. If this doesnt happen I will simply continue renting if it is still much cheaper. I don't plan on living well below my means forever, what is the point of saving money if I never spend it on anything? The whole point of me saving money is for a big down payment to avoid paying interest for the rest of my life.
Chad has a different point of view than you. I have noticed that he and you have taken to insults rather than discussion. I don’t know who started it but he has always been quite civil in discussions with me. You have also been pretty reasonable towards me, but we generally agree that prices will fall so there isn’t much to argue about.
What I am saying is that I agree, prices suck. Still there isn’t much I can do about it other than keep renting, so that is what I am going to do. Chad seems to think buying now is not such a bad idea. I have made my case about why I disagree and that is all I can do. If he buys I wish him luck in his purchase.
Chad,
ReplyDelete"I guess your above statement answers that."
You quoted two questions from my post not a statement. A question is not a statement my dear friend. You have to start with the basics. Take baby steps, be thorough and I promise you one day you will be able to even read charts. Just be happy that your current job doesn't require an analytical mind or logic
"Do you even have a job or are you writing from your parents basement.....?"
Do you imply that the merit of a argument depends on the place where that argument was made or on having a job? So, you are saying that a person who's unemployed is
not able to make the same argument as a person with a job? I had an issue with you when you tried to force on us your arguments but now I think you are actually funny. keep it up Chad boy
Ciprian,
ReplyDeleteYes, I do feel if someone is unemployed their argument has less validity than one that is unemployed. If a company doesn't see your value enough to hire you, then I don't either. If you're writing from your parents basement, then that says a lot about your bearish bias, praying to g-d prices come down to a point to where you can buy.
On the personal attacks, you have no idea what I do for a living and frankly I couldn't care less if you do. As I've stated several times throughout various posts when confronted with the interest rate hike argument, I have absolutely no problem with a hike. Why would that be? Probably because I make enough money that even a $2000 a month variation in payments isn't even going to show up on my radar, I guess I must have a terrible paying job.
Ciprian, even your fellow bears have zero respect for you. I doubt anyone has any respect for you, you have yet to present a single valid point and you resort to personal attacks very quickly and don't worry I won't shy away from them because with every post you give me more ammunition to attack you with, I just haven't used any of my bullets yet, but if you continue with your pathetic antics then I'll start using the ammunition you supplied.
Bears, while I disagree with many of you, there have been good points presented and I have always come here for a good debate. Those like Ciprian taint these forums in a big way and one could at first glance think the bears are mentally challenged based on his posts but don't think because I have zero respect for him (no one does) that I do not have respect for other arguments and would love to continue the civil debates with the intelligent ones on this forum in the future.
Chad,
ReplyDelete"Yes, I do feel if someone is unemployed their argument has less validity than one that is unemployed"
It doesn't make any sense. I assume that's just a typo on your part even though making sense is not your strongest suit. I believe you meant "employed" instead of "unemployed" So your phase will be like this
"Yes, I do feel if someone is employed their argument has less validity than one that is unemployed"
Again, no logic whatsoever, but we've discussed that already. :)
I didn't expect an answer to my question about the validity of an argument based on some characteristics of the prson that makes that argument only because I assumed that the answer is no. I just wanted to be funny. But you didn't stop there. You continued your post with explaining how rich you are, suggesting I guess that being rich will give validity to your arguments. So ,let's see what we have so far: according to you a person must be right if he/she has job, owns a house or is rich. Here is question for you :Does somebody's ethnicity play a role in an argument?
you managed to go from ridiculous, to funny and now to sinister in just a few posts.
Agreed in full. This is a great article with an excellent view point.
ReplyDeleteDeirdre G
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