Some anecdotal observations I have witnessed seem to indicate November is shaping up to be a strong sales month as well. In my neck of the woods Realtors are running out of their "SOLD" stickers.
No shortage of buyers able to buy. Sometimes I wonder if they know something I don't.
Thanks for finding time to update the graphs, mohican.
I used to be confounded by the debt people consume, but it seems the majority will gladly take the max. I thought the global financial meltdown would make a difference, but Canadian borrowers must trust the rhetoric that we’re still rock solid.
Check out this blog (scary on many levels) … http://americacanada.blogspot.com/2009/07/cmhc-and-our-government.html
Even at the zenith of the US housing bubble, prices peaked around $230,000 US while incomes were around $47,000 US. In Canada, incomes are $44,000 and prices are now at $326,613. If I have evidenced to you at this point how risky our lending has been, how are we so different than America? One might even say that we are much worse.
And this is the average Canadian. Of course, the leverage is much larger for the average British Columbian.
It seems every time I post here there's always at least one immature child that ruins what would have been a good debate (ciprian) but I'm going to make my comments anyway and hopefully inspire a decent conversation because so far my bullish stance has to this point proven itself to be right. I don't like looking at much more than the facts that lie within the charts and so far they haven't swayed me wrong yet but sometimes I like to look outside the charts as well and gain and understanding of WHY the charts are saying what they are... why is real estate going up in Vancouver (and likely continue to do so) when it seems so amazingly expensive already? In my opinion the catalyst for the strong market and likely a strong market for quite some time is the fact the government has really given buyers a deadline to buy before, and that would be around June. With the BoC saying they will hold off on rate increases until June (I think they'll hold off longer with the strong Canadian $ and no sign of the US tightening any time soon) and the HST coming in July there should be an amazing rush to buy real estate before both of these negative catalysts make it much less attractive to buy real estate. I can't predict what will happen after the HST comes into play and interest rates rise because if prices really do start to skyrocket then the charts change and obviously the interpretation changes as well.
It is truly amazing that most numbers are showing an even stronger market than in the boom years. And this is in a recession where the BC unemployment rate just went up almost 1% in a single month!
If chad is right about the deadline to buy then prices will fall off a cliff next summer. Add in the post olympic drop which almost every olympic city has seen in the past and things could get messy very soon. Any buyer putting 10% or less down right now could find their equity destroyed in a few short months.
It is kind of the way the americans are stealing demand from the future with the tax breaks. Anyone who planned to buy a place in the next couple of years would do so now before the $8000 tax credit runs out and interest rates go up. But if this is the case then who will be buying houses in 2 years?
Looking at the price of homes in some areas of the US (arizona, vegas and florida all have plenty of houses, with yards and everything, for less than 100K) it is hard to imagine how prices could fall much further, but it is equally as hard to imagine how prices will ever see any sort of rise in the next few years.
Despite being bearish, I agree with Chad. Prices look strong until rates (and in this case HST) change.
What amazes me is the number of pre-sale and sales offices opening. Onni has 3 new buildings for sale, and I am hearing of a number that will open in coming months. As noted on this board this really pulls in demand from the future. Interestingly this increases sales without actually increasing the supply of housing.
The party has found it's second wind - I thought we had seen morning and the begining of a hangover...
Good for you for being a reasonable sounding bull, it must be tough on these blogs sometimes.....
Anyways, the reason I am bearish is (I think) nicely summed up on the America Canada Blog "When home prices rise".
Basically, he states (with graphical proof/evidence) that in order for housing prices to remain stable, total mortgage debt in a population has to increase, due to factors like new housing, inflation etc....
Housing prices can only increase therefore when the rate of total mortage debt is increasing. That means that if mortage debt rises by 10% in 2009, it needs to rise by >10% in 2010 for prices to rise.
I'm convinced that we as a population are running out of the ability to pay, and therefore something needs to change. We cannot keep increasing the rate at which we are increasing our debt load. Until someone can convince me, with math, that things are not going to end badly for RE, I'm staying out of it.
Here's the link: http://americacanada.blogspot.com/2009/10/when-home-prices-rise.html
Does anyone know a good website for detailed real estate charts? Specifically price charts. Not just for Canada but for the US or anywhere for that matter. I've found it quite difficult to find any central location with decent charts other than UBC for Canadian real estate.
I'm wondering who's left to buy-- in my group of friends and acquaintances, my observations on who has bought are:
-2006-2008: non-bearish F&As who could really (or in two cases couldn't) afford it, bought. -2009: bearish F&As bought (all of them).
Yep, in my circle of F&As, all of my bearish friends (with the means to buy) have bought. There are two exceptions: myself, and a couple who just returned from overseas. Aside from them, the only other renters work low-wage jobs, or are recent graduates.
M- I have observed the same thing within my circle as well. Including myself, most bearish friends have purchased already. They largely took advantage of the winter 2008 price dip and negotiated hard to get a decent deal.
Many are still bearish - including me - but just wanted a little lifestyle certainty and were willing to pay for it.
I don't know where the future buyers will come from - overseas? The ownership rate is at an all time high right now as per statscan.
@chadmpnp "there should be an amazing rush to buy real estate before both of these negative catalysts make it much less attractive to buy real estate."
I think amazing rush to buy will continue as long as rates are low but also requires that inventory is contained. The real story going on now, IMO, isn't affordability or carrying costs or even the high level of sales -- which are all high but not overly so -- but the income on the other side of the ledger.
Debt and cash allow purchases but ultimately revenue needs to support the debt. From every indication there is substantial weakness in the rental and jobs market (i.e. revenue) and I expect that weakness to continue into 2010 and beyond.
On paper investors look at the mortgage and maintenance as fixed costs. The mistake is to treat rentals as fixed costs as well. There is a giant game of reverse musical chairs going on and there is someone out there with a chair that isn't being filled. In the short term this is sustainable but in the longer term this puts significant pressure to sell.
Right now we are too soon after the massive step change in interest rates so the pain hasn't really metastasized into the rest of the buyers' balance sheets yet. There is still a flood of money allowing safe exits from the market but ultimately the money coming in from revenue cannot support the debt, even at current interest rates. Until the net revenue exceeds the long term cost of capital, I'm short Vancouver real estate.
Why do I repeatedly remind you of the current data that is readily available? That's to balance Mohican's academic treatment of data. One operational imperative that you must master in order to be successful, is to balance the longer view (and bigger picture) with the short term results.
You must use the latest results to assess and modify your model.
Some people tend to focus too much on the immediate. They tend to take too much risk, or they are taken by surprise. Poor decision makers tend to procrastinate. Let's wait for more data! Let's do more analysis! Let's give it another six months or a year.
As I told Mohican in mid-Spring, it didn't look like a 'spring bounce'. Why wait for another year in order to be proven wrong? What's the market telling you right now?
Someone said that everyone else has already bought. Who's left to buy next year?
Let me post this question. Who's left to sell next year?
Everyone knows about interest rates, the Olympics and the HST. So, those who want to sell and can sell now are already selling. That's why the volume is unbelievable. The buyers have a dateline. The sellers have a dateline too.
The sellers with weak holding power or low appetite for risk are bailing out. The owners with stronger holding power and higher targets will be there next year. But, don't expect a deluge of selling unless something new pops up. Get it!
This is the reason that information efficiency models are important. Price fluctuations tend to be modest if information is available and well known to buyers and sellers. They (in general) act rationally.
As I have said before, Vancouver RE didn't pop like a bubble in 2008/9 because everyone knew about the flood of condo supply. Buyers had already factored that in. Hence, RE didn't peak till the economy was in recession. In contrast, the bubble in American cities had popped before their economy turned.
I had come to this realization by December 2008 because the panic selling did not materialize. It didn't fit the bubble model. After that, it was just a matter of waiting for the stock market to bottom and the first signs of economic stabilization.
If i had my guess on HST it will drop prices/sales on presales and increase prices on resales.
As for the why. That’s an interesting question; its definitely strange behaviour because when debt is at its cheapest leveraged assets will be at their highest price. I'm a little surprised that BOC has identified the problem but hasn't really done anything except a little lip service to the industry (of course the message wont reach the right people). Mentality is definitely that real estate always makes you money or at least from the current state of the economy it is perhaps seen as the easiest "get rich quick".
"Right now we are too soon after the massive step change in interest rates so the pain hasn't really metastasized into the rest of the buyers' balance sheets yet."
So true. It seems like the market hasn't fully hit its equilibrium yet where the price increases would start removing buyers from the market.
Realistically if we take the payment per month at the most recent peak and calculate how much prices would have to rise to hit that affordability barrier again its ~25% from the peak. Though if prices go that high then there's no doubt we have a problem. As jesse points out its likely that the purchasing power side of the equation has definitely decayed.
I think following the olimpics there will be tight competition for renters which will definitely cause problems. Considering the typical revenue property has to rely on capital appreciation to be profitable this can potentially be a big problem. Though we also have to wonder where all the money injected into the city from the big event will go.
I have no clue where interest rates will be going though... Theres so many contradicting problems with our current situation.
I think sellers are in easier supply the buyers. Buyers are not forced and their constrains prevent them from buying. Sellers are the opposite; they can be forced to sell and are never restricted from exiting the market (technically).
"The owners with stronger holding power and higher targets will be there next year. But, don't expect a deluge of selling unless something new pops up. Get it!"
These comments your posting are purely buyers psychology and purely speculative. Similarly I could argue that people are holding off on selling before the olimpics because they want to be around for the olimpics. There’s no way to prove this though; and it's not measurable or in any way meaningful.
"Buyers had already factored that in"
I don’t think there is a mass intelligence in the housing market similar to the stock market. I think its more like uh... cattle :P I think an indicator of this is in historical reactions to interest rates. As im sure you know real estate markets have been proven numerous times to be both very inefficient and subseptible to government policy.
"If i had my guess on HST it will drop prices/sales on presales and increase prices on resales."
Ooops.. drop sticker price on presales. The price will still go up because of the tax man. I think Jesse? did a really in debth look at this though on this blog and it was very well done.
"Let me post this question. Who's left to sell next year?"
Are you kidding? Most people who own houses dont try to time the market when they sell, they just sell when it makes sense in their life (ie. retirement, move down to smaller place after kids leave, move to another job...).
At the same time most buyers dont try to time the market either. They get married, have kids, they buy.
Another thing driving sales is fear. I cannot count how many times I have heard variations of "buy now or be priced out forever!". And people actually buy it. If prices continue to rise as they have been then it will get to a point when only lawers and doctors can afford a 1 bedroom condo in surrey.
These prices are being kept afloat by buyers willing to settle for less. Take a townhome instead of an SFH, live in surrey instead of burnaby, that kind of thing.
Anyway back to the question. Who will sell next year.
Well by my calculations the earliest boomers should be about 60 right now. Now there are at least a few out there who can retire at that age and want to live elsewhere.
Over the next few years the boomers are going to retire in droves. The real question is what will they do after? Will they sell and move to kelowna (or better yet arizona where you can get a place for 1/6 of the price)? or just stay put on the wet coast?
I dont know about you but the sunny places sound like a nice place to retire. Then again everyone likes their own stuff. I just find it hard to believe all the empty nesters will stay put in their SFHs with just the 2 of them in there.
So theres my answer, the boomers who make up about 25% of the population will be the guys selling in the next while.
Sales chart of homes clearly shows the good sales record in the year 2009 in comparison to previous years. 2008 was really a sad year for real estate business. Wachovia CD Rates
I was looking at US OIS spreads today which are quite good at predicting interest rate changes and as of now they are suggesting no rate changes in the US until about 1 year from now. The reason I bring this up is I don't see how it's possible for Canada to raise rates prior to the US. If Canada raises before the US, the CAD$ will skyrocket, which will kill our export industry which will put Canada back into recession (or worsen the one we are currently in) and force Canada to again cut rates. Almost every bearish argument here revolves around the fact that affordability in Vancouver is out of whack and the only thing sustaining it is low interest rates. That argument is quite fair, I think the reason why the majority of you have been so absolutely dead wrong is in expecting interest rates to rise soon. If interest rates remain low then the market will remain extremely hot and yes ultimately rates will rise significantly and the market will drop, but it will likely be dropping from levels significantly higher than here. The bears have been just dead wrong here and on pretty much every blog and as far as I can tell the only bulls have been myself and Jim Tan and again I really see no reason for this market to cool down any time soon, we'll see where we stand a few months from now and re-visit the #'s but right now things still look fabulous.
Researchers at Leeds University, led by Prof Jens Krause, performed a series of experiments where volunteers were told to randomly walk around a large hall without talking to each other. A select few were then given more detailed instructions on where to walk. The scientists discovered that people end up blindly following one or two people who appear to know where they’re going.
The published results showed that it only takes 5% of what the scientists called “informed individuals” to influence the direction of a crowd of around 200 people. The remaining 95% follow without even realizing it.
“There are strong parallels with animal grouping behavior,” says Prof Krause, who reported his study with John Dyer in the Animal Behavior Journal. “We’ve all been in situations where we get swept along by the crowd but what’s interesting about this research is that our participants ended up making a consensus decision despite the fact that they weren’t allowed to talk or gesture to one another… In most cases the participants didn’t realize they were being led by others.”
This is excellent example of how the human brain is setup for social life. Even without a top-down organizer or any obvious rules, society just falls into place. Unfortunately, that “follow the herd” mentality isn’t always beneficial. If we’re not fully versed on a subject, we tend to follow the guy who appears to know more than we do. That sort of behavior applies to more than just random walking, we do it in everyday life from picking political candidates to deciding what type of car to buy.
Listen guys, you bears have been bearish for a very long time and have been VERY wrong so I'm not going to argue with you guys unless you can bring a decent argument to the table because the bears have been so deadly wrong that I'm not willing to debate just based on the fact you are bearish and wrong. You bears claim that the catalyst for a decline in prices will be real estate increases, now you are so desperate you refer to a Japanese situation that mirrors ours in absolutely no ways. Also, once interest rates start increasing, that's when the REAL surge comes in prices as people try to lock in at still low rates before they raise too much, at that point, the market will correct, but that is VERY far down the road. We still have 1 or 2 years left of robust price increases. I'm just curious ReductiMat and theointmental, you can look back to my posts in mid-2009 and see how bullish I was and aside from Jim Tan I was the only one.. since then the real estate market is up 15%, how much are you bears up? Keep coming up with reasons as to why real estate is going down if you want to, but be cautious, it's hazardous to your financial health.
Ouch! There's no need to be mean-spirited, Chad. Your attitude smacks of someone who is highly unsure of their conclusions and is desperately attempting to get others to agree...in order to remove anxiety and feel validated. Me-thinks your emotions and lack of self-confidence have got the better of you.
Yes, I'm very unsure of my predictions as they've been correct so far so obviously I don't have a leg to stand on, unlike bears on this forum calling for MINIMUM 40% correction.. *cough, cough* we're pretty much at new highs. Do I know what will happen? No. But I am dealing with all the facts in front of me and they continue to say we go higher, unfortunately there can be black swan events that completely throw logical analysis on it's head but aside from an extraordinary event taking place then the market is headed higher. I just find it shocking that the mindset of bears is that they are always right even if prices prove them incredibly wrong for an enormous period of time but if there is even a 10% correction (after the market soared 30%) then they will claim they were always right. This goes for bears in any market, stocks, commodities, real estate, it's just the personality type of the pessimist I suppose. If prices crash then I'll admit I'm wrong I really don't have a problem with that, at the beginning of the Vancouver correction I was VERY bearish about 10% into the decline but as things rebounded and clearly showed that it was not a dead cat bounce, I flipped sides in early spring. I change my opinion when the facts change and tell me to change my opinion, it's foolish not to, if the facts tell me to be bearish, I'll be bearish. The problem with bears is they dig in their heels and have an inherent bias and I actually think if some of you stumbled upon Nostradamous or a working crystal ball that told you with 100% certainty real estate was headed higher, you guys would still be bearish.
Chad, I'm "right" because I simply don't believe we'll see $2,000/SqFt (average, real) prices in Yaletown in my lifetime. I also believe there are going to be numerous special assessments along the way.
As long as rent is 40-50% of the carrying costs, I can pretty much guarantee you that I'll be renting.
Call me in twenty years and then we can discuss who is right and wrong... because right now we're still in the first period.
PS: The ointmental is right, lose the emotion buddy. Make this a business decision. If you think 'a' and I think 'b', so be it. No need for the drama.
I don't really see how being right gets you anything. Did you buy in the spring or early summer? If not then despite being right you aren't any further ahead than the rest of us bears.
For me the rent vs buy calculation is the most important. As long as I can rent for less than mortgage interest, strata, and taxes I see no reason to buy. And I have been bearish since I started looking (about 18 months ago ) and prices are about the same and the economy is far worse now so the recent run of prices will not change my mind.
The rent vs buy calculation is absolutely fundamental to estimate whether ownership vs renting makes more financial sense. Right now, renting wins most of the time.
The exchange between M-, mohican and david regarding personal knowledge of bears who have bought has been archived at Vancouver RE Anecdote Archive, as a valuable anecdote regarding current activity and sentiment in the market. Please send any relevant anecdotes to VREAA.
I hope it works out too! I still believe we will see the market strong for minimum another year and if I were to speculate there could be weakness following that continued strength but I don't see any point in projecting so far into the future until we see more #'s several months down the road.
I can see that you are putting a lot of time and effort into your blog and detailed articles! I am deeply in love with everycal single piece of information you post here. Will be back often to read more updates!
Some anecdotal observations I have witnessed seem to indicate November is shaping up to be a strong sales month as well. In my neck of the woods Realtors are running out of their "SOLD" stickers.
ReplyDeleteNo shortage of buyers able to buy. Sometimes I wonder if they know something I don't.
Thanks for finding time to update the graphs, mohican.
Yes, the market is certainly still quite strong in my area too.
ReplyDeleteLots of people loading up on debt. We are amazed at the debt levels that average people are wiling to take on. Truly dumbfounding.
I used to be confounded by the debt people consume, but it seems the majority will gladly take the max. I thought the global financial meltdown would make a difference, but Canadian borrowers must trust the rhetoric that we’re still rock solid.
ReplyDeleteCheck out this blog (scary on many levels) …
http://americacanada.blogspot.com/2009/07/cmhc-and-our-government.html
Even at the zenith of the US housing bubble, prices peaked around $230,000 US while incomes were around $47,000 US. In Canada, incomes are $44,000 and prices are now at $326,613. If I have evidenced to you at this point how risky our lending has been, how are we so different than America? One might even say that we are much worse.
And this is the average Canadian. Of course, the leverage is much larger for the average British Columbian.
It seems every time I post here there's always at least one immature child that ruins what would have been a good debate (ciprian) but I'm going to make my comments anyway and hopefully inspire a decent conversation because so far my bullish stance has to this point proven itself to be right. I don't like looking at much more than the facts that lie within the charts and so far they haven't swayed me wrong yet but sometimes I like to look outside the charts as well and gain and understanding of WHY the charts are saying what they are... why is real estate going up in Vancouver (and likely continue to do so) when it seems so amazingly expensive already? In my opinion the catalyst for the strong market and likely a strong market for quite some time is the fact the government has really given buyers a deadline to buy before, and that would be around June. With the BoC saying they will hold off on rate increases until June (I think they'll hold off longer with the strong Canadian $ and no sign of the US tightening any time soon) and the HST coming in July there should be an amazing rush to buy real estate before both of these negative catalysts make it much less attractive to buy real estate. I can't predict what will happen after the HST comes into play and interest rates rise because if prices really do start to skyrocket then the charts change and obviously the interpretation changes as well.
ReplyDeleteI was also wondering, do the UBC charts ever update? The quarter ended some time ago...
ReplyDeletehttp://cuer.sauder.ubc.ca/cma/data/ResidentialRealEstate/HousingPrices/housing-pri-vancouver.pdf
Those charts...
It is truly amazing that most numbers are showing an even stronger market than in the boom years. And this is in a recession where the BC unemployment rate just went up almost 1% in a single month!
ReplyDeleteIf chad is right about the deadline to buy then prices will fall off a cliff next summer. Add in the post olympic drop which almost every olympic city has seen in the past and things could get messy very soon. Any buyer putting 10% or less down right now could find their equity destroyed in a few short months.
It is kind of the way the americans are stealing demand from the future with the tax breaks. Anyone who planned to buy a place in the next couple of years would do so now before the $8000 tax credit runs out and interest rates go up. But if this is the case then who will be buying houses in 2 years?
Looking at the price of homes in some areas of the US (arizona, vegas and florida all have plenty of houses, with yards and everything, for less than 100K) it is hard to imagine how prices could fall much further, but it is equally as hard to imagine how prices will ever see any sort of rise in the next few years.
Agent Will's statistics week ended Nov 7
ReplyDeleteSales/List 103%
This is a traditionally slow month?
Current economic and fiscal policy has pushed demand forward and the current demand does not seem sustainable. Time will tell for certain though.
ReplyDeleteDespite being bearish, I agree with Chad. Prices look strong until rates (and in this case HST) change.
ReplyDeleteWhat amazes me is the number of pre-sale and sales offices opening. Onni has 3 new buildings for sale, and I am hearing of a number that will open in coming months. As noted on this board this really pulls in demand from the future. Interestingly this increases sales without actually increasing the supply of housing.
The party has found it's second wind - I thought we had seen morning and the begining of a hangover...
@ Chad -
ReplyDeleteGood for you for being a reasonable sounding bull, it must be tough on these blogs sometimes.....
Anyways, the reason I am bearish is (I think) nicely summed up on the America Canada Blog "When home prices rise".
Basically, he states (with graphical proof/evidence) that in order for housing prices to remain stable, total mortgage debt in a population has to increase, due to factors like new housing, inflation etc....
Housing prices can only increase therefore when the rate of total mortage debt is increasing. That means that if mortage debt rises by 10% in 2009, it needs to rise by >10% in 2010 for prices to rise.
I'm convinced that we as a population are running out of the ability to pay, and therefore something needs to change. We cannot keep increasing the rate at which we are increasing our debt load. Until someone can convince me, with math, that things are not going to end badly for RE, I'm staying out of it.
Here's the link:
http://americacanada.blogspot.com/2009/10/when-home-prices-rise.html
sorry, that was supposed to be "when the rate of total mortage debt increase is increasing.
ReplyDeleteDoes anyone know a good website for detailed real estate charts? Specifically price charts. Not just for Canada but for the US or anywhere for that matter. I've found it quite difficult to find any central location with decent charts other than UBC for Canadian real estate.
ReplyDeleteI'm wondering who's left to buy-- in my group of friends and acquaintances, my observations on who has bought are:
ReplyDelete-2006-2008: non-bearish F&As who could really (or in two cases couldn't) afford it, bought.
-2009: bearish F&As bought (all of them).
Yep, in my circle of F&As, all of my bearish friends (with the means to buy) have bought. There are two exceptions: myself, and a couple who just returned from overseas. Aside from them, the only other renters work low-wage jobs, or are recent graduates.
M- I have observed the same thing within my circle as well. Including myself, most bearish friends have purchased already. They largely took advantage of the winter 2008 price dip and negotiated hard to get a decent deal.
ReplyDeleteMany are still bearish - including me - but just wanted a little lifestyle certainty and were willing to pay for it.
I don't know where the future buyers will come from - overseas? The ownership rate is at an all time high right now as per statscan.
M,
ReplyDeleteWhen bears capitulate isnt that the sign of a market peak? Maybe we are almost there!
Then again I dont expect much to change until interest rates do.
@chadmpnp "there should be an amazing rush to buy real estate before both of these negative catalysts make it much less attractive to buy real estate."
ReplyDeleteI think amazing rush to buy will continue as long as rates are low but also requires that inventory is contained. The real story going on now, IMO, isn't affordability or carrying costs or even the high level of sales -- which are all high but not overly so -- but the income on the other side of the ledger.
Debt and cash allow purchases but ultimately revenue needs to support the debt. From every indication there is substantial weakness in the rental and jobs market (i.e. revenue) and I expect that weakness to continue into 2010 and beyond.
On paper investors look at the mortgage and maintenance as fixed costs. The mistake is to treat rentals as fixed costs as well. There is a giant game of reverse musical chairs going on and there is someone out there with a chair that isn't being filled. In the short term this is sustainable but in the longer term this puts significant pressure to sell.
Right now we are too soon after the massive step change in interest rates so the pain hasn't really metastasized into the rest of the buyers' balance sheets yet. There is still a flood of money allowing safe exits from the market but ultimately the money coming in from revenue cannot support the debt, even at current interest rates. Until the net revenue exceeds the long term cost of capital, I'm short Vancouver real estate.
Why do I repeatedly remind you of the current data that is readily available? That's to balance Mohican's academic treatment of data. One operational imperative that you must master in order to be successful, is to balance the longer view (and bigger picture) with the short term results.
ReplyDeleteYou must use the latest results to assess and modify your model.
Some people tend to focus too much on the immediate. They tend to take too much risk, or they are taken by surprise. Poor decision makers tend to procrastinate. Let's wait for more data! Let's do more analysis! Let's give it another six months or a year.
As I told Mohican in mid-Spring, it didn't look like a 'spring bounce'. Why wait for another year in order to be proven wrong? What's the market telling you right now?
Someone said that everyone else has already bought. Who's left to buy next year?
ReplyDeleteLet me post this question. Who's left to sell next year?
Everyone knows about interest rates, the Olympics and the HST. So, those who want to sell and can sell now are already selling. That's why the volume is unbelievable. The buyers have a dateline. The sellers have a dateline too.
The sellers with weak holding power or low appetite for risk are bailing out. The owners with stronger holding power and higher targets will be there next year. But, don't expect a deluge of selling unless something new pops up. Get it!
This is the reason that information efficiency models are important. Price fluctuations tend to be modest if information is available and well known to buyers and sellers. They (in general) act rationally.
As I have said before, Vancouver RE didn't pop like a bubble in 2008/9 because everyone knew about the flood of condo supply. Buyers had already factored that in. Hence, RE didn't peak till the economy was in recession. In contrast, the bubble in American cities had popped before their economy turned.
I had come to this realization by December 2008 because the panic selling did not materialize. It didn't fit the bubble model. After that, it was just a matter of waiting for the stock market to bottom and the first signs of economic stabilization.
If i had my guess on HST it will drop prices/sales on presales and increase prices on resales.
ReplyDeleteAs for the why. That’s an interesting question; its definitely strange behaviour because when debt is at its cheapest leveraged assets will be at their highest price. I'm a little surprised that BOC has identified the problem but hasn't really done anything except a little lip service to the industry (of course the message wont reach the right people). Mentality is definitely that real estate always makes you money or at least from the current state of the economy it is perhaps seen as the easiest "get rich quick".
"Right now we are too soon after the massive step change in interest rates so the pain hasn't really metastasized into the rest of the buyers' balance sheets yet."
So true. It seems like the market hasn't fully hit its equilibrium yet where the price increases would start removing buyers from the market.
Realistically if we take the payment per month at the most recent peak and calculate how much prices would have to rise to hit that affordability barrier again its ~25% from the peak. Though if prices go that high then there's no doubt we have a problem. As jesse points out its likely that the purchasing power side of the equation has definitely decayed.
I think following the olimpics there will be tight competition for renters which will definitely cause problems. Considering the typical revenue property has to rely on capital appreciation to be profitable this can potentially be a big problem. Though we also have to wonder where all the money injected into the city from the big event will go.
I have no clue where interest rates will be going though... Theres so many contradicting problems with our current situation.
JimTan,
ReplyDeleteI think sellers are in easier supply the buyers. Buyers are not forced and their constrains prevent them from buying. Sellers are the opposite; they can be forced to sell and are never restricted from exiting the market (technically).
"The owners with stronger holding power and higher targets will be there next year. But, don't expect a deluge of selling unless something new pops up. Get it!"
These comments your posting are purely buyers psychology and purely speculative. Similarly I could argue that people are holding off on selling before the olimpics because they want to be around for the olimpics. There’s no way to prove this though; and it's not measurable or in any way meaningful.
"Buyers had already factored that in"
I don’t think there is a mass intelligence in the housing market similar to the stock market. I think its more like uh... cattle :P I think an indicator of this is in historical reactions to interest rates. As im sure you know real estate markets have been proven numerous times to be both very inefficient and subseptible to government policy.
"If i had my guess on HST it will drop prices/sales on presales and increase prices on resales."
ReplyDeleteOoops.. drop sticker price on presales. The price will still go up because of the tax man. I think Jesse? did a really in debth look at this though on this blog and it was very well done.
Jim,
ReplyDelete"Let me post this question. Who's left to sell next year?"
Are you kidding? Most people who own houses dont try to time the market when they sell, they just sell when it makes sense in their life (ie. retirement, move down to smaller place after kids leave, move to another job...).
At the same time most buyers dont try to time the market either. They get married, have kids, they buy.
Another thing driving sales is fear. I cannot count how many times I have heard variations of "buy now or be priced out forever!". And people actually buy it. If prices continue to rise as they have been then it will get to a point when only lawers and doctors can afford a 1 bedroom condo in surrey.
These prices are being kept afloat by buyers willing to settle for less. Take a townhome instead of an SFH, live in surrey instead of burnaby, that kind of thing.
Anyway back to the question. Who will sell next year.
Well by my calculations the earliest boomers should be about 60 right now. Now there are at least a few out there who can retire at that age and want to live elsewhere.
Over the next few years the boomers are going to retire in droves. The real question is what will they do after? Will they sell and move to kelowna (or better yet arizona where you can get a place for 1/6 of the price)? or just stay put on the wet coast?
I dont know about you but the sunny places sound like a nice place to retire. Then again everyone likes their own stuff. I just find it hard to believe all the empty nesters will stay put in their SFHs with just the 2 of them in there.
So theres my answer, the boomers who make up about 25% of the population will be the guys selling in the next while.
Sales chart of homes clearly shows the good sales record in the year 2009 in comparison to previous years. 2008 was really a sad year for real estate business.
ReplyDeleteWachovia CD Rates
I was looking at US OIS spreads today which are quite good at predicting interest rate changes and as of now they are suggesting no rate changes in the US until about 1 year from now. The reason I bring this up is I don't see how it's possible for Canada to raise rates prior to the US. If Canada raises before the US, the CAD$ will skyrocket, which will kill our export industry which will put Canada back into recession (or worsen the one we are currently in) and force Canada to again cut rates. Almost every bearish argument here revolves around the fact that affordability in Vancouver is out of whack and the only thing sustaining it is low interest rates. That argument is quite fair, I think the reason why the majority of you have been so absolutely dead wrong is in expecting interest rates to rise soon. If interest rates remain low then the market will remain extremely hot and yes ultimately rates will rise significantly and the market will drop, but it will likely be dropping from levels significantly higher than here. The bears have been just dead wrong here and on pretty much every blog and as far as I can tell the only bulls have been myself and Jim Tan and again I really see no reason for this market to cool down any time soon, we'll see where we stand a few months from now and re-visit the #'s but right now things still look fabulous.
ReplyDeleteChad, why did Japan go down while rates were still at zero?
ReplyDeleteYes Chad, please tell us more about Japan. We await your timeless wisdom.
ReplyDeleteA little Saturday morning coffee read:
ReplyDeletehttp://www.adsavvy.org/understanding-the-human-herd-mentality/
Understanding The Human Herd Mentality
Researchers at Leeds University, led by Prof Jens Krause, performed a series of experiments where volunteers were told to randomly walk around a large hall without talking to each other. A select few were then given more detailed instructions on where to walk. The scientists discovered that people end up blindly following one or two people who appear to know where they’re going.
The published results showed that it only takes 5% of what the scientists called “informed individuals” to influence the direction of a crowd of around 200 people. The remaining 95% follow without even realizing it.
“There are strong parallels with animal grouping behavior,” says Prof Krause, who reported his study with John Dyer in the Animal Behavior Journal. “We’ve all been in situations where we get swept along by the crowd but what’s interesting about this research is that our participants ended up making a consensus decision despite the fact that they weren’t allowed to talk or gesture to one another… In most cases the participants didn’t realize they were being led by others.”
This is excellent example of how the human brain is setup for social life. Even without a top-down organizer or any obvious rules, society just falls into place. Unfortunately, that “follow the herd” mentality isn’t always beneficial. If we’re not fully versed on a subject, we tend to follow the guy who appears to know more than we do. That sort of behavior applies to more than just random walking, we do it in everyday life from picking political candidates to deciding what type of car to buy.
ReductiMat and theoinmental
ReplyDeleteListen guys, you bears have been bearish for a very long time and have been VERY wrong so I'm not going to argue with you guys unless you can bring a decent argument to the table because the bears have been so deadly wrong that I'm not willing to debate just based on the fact you are bearish and wrong. You bears claim that the catalyst for a decline in prices will be real estate increases, now you are so desperate you refer to a Japanese situation that mirrors ours in absolutely no ways. Also, once interest rates start increasing, that's when the REAL surge comes in prices as people try to lock in at still low rates before they raise too much, at that point, the market will correct, but that is VERY far down the road. We still have 1 or 2 years left of robust price increases. I'm just curious ReductiMat and theointmental, you can look back to my posts in mid-2009 and see how bullish I was and aside from Jim Tan I was the only one.. since then the real estate market is up 15%, how much are you bears up? Keep coming up with reasons as to why real estate is going down if you want to, but be cautious, it's hazardous to your financial health.
Ouch! There's no need to be mean-spirited, Chad. Your attitude smacks of someone who is highly unsure of their conclusions and is desperately attempting to get others to agree...in order to remove anxiety and feel validated. Me-thinks your emotions and lack of self-confidence have got the better of you.
ReplyDeletewhile (1)
ReplyDelete{
chad: give me a good argument why prices will fall
bear: blah blah blah
chad: you have been wrong for the past years, therefore your arguments are wrong now.
}
I'm going outside. Best of luck, chad.
Yes, I'm very unsure of my predictions as they've been correct so far so obviously I don't have a leg to stand on, unlike bears on this forum calling for MINIMUM 40% correction.. *cough, cough* we're pretty much at new highs. Do I know what will happen? No. But I am dealing with all the facts in front of me and they continue to say we go higher, unfortunately there can be black swan events that completely throw logical analysis on it's head but aside from an extraordinary event taking place then the market is headed higher. I just find it shocking that the mindset of bears is that they are always right even if prices prove them incredibly wrong for an enormous period of time but if there is even a 10% correction (after the market soared 30%) then they will claim they were always right. This goes for bears in any market, stocks, commodities, real estate, it's just the personality type of the pessimist I suppose. If prices crash then I'll admit I'm wrong I really don't have a problem with that, at the beginning of the Vancouver correction I was VERY bearish about 10% into the decline but as things rebounded and clearly showed that it was not a dead cat bounce, I flipped sides in early spring. I change my opinion when the facts change and tell me to change my opinion, it's foolish not to, if the facts tell me to be bearish, I'll be bearish. The problem with bears is they dig in their heels and have an inherent bias and I actually think if some of you stumbled upon Nostradamous or a working crystal ball that told you with 100% certainty real estate was headed higher, you guys would still be bearish.
ReplyDeleteChad, I'm "right" because I simply don't believe we'll see $2,000/SqFt (average, real) prices in Yaletown in my lifetime. I also believe there are going to be numerous special assessments along the way.
ReplyDeleteAs long as rent is 40-50% of the carrying costs, I can pretty much guarantee you that I'll be renting.
Call me in twenty years and then we can discuss who is right and wrong... because right now we're still in the first period.
PS: The ointmental is right, lose the emotion buddy. Make this a business decision. If you think 'a' and I think 'b', so be it. No need for the drama.
Ointmental
ReplyDeleteMaybe the leaders had nice bums?
Chad
I don't really see how being right gets you anything. Did you buy in the spring or early summer? If not then despite being right you aren't any further ahead than the rest of us bears.
For me the rent vs buy calculation is the most important. As long as I can rent for less than mortgage interest, strata, and taxes I see no reason to buy. And I have been bearish since I started looking (about 18 months ago ) and prices are about the same and the economy is far worse now so the recent run of prices will not change my mind.
david - I completely echo your comments.
ReplyDeleteThe rent vs buy calculation is absolutely fundamental to estimate whether ownership vs renting makes more financial sense. Right now, renting wins most of the time.
The exchange between M-, mohican and david regarding personal knowledge of bears who have bought has been archived at Vancouver RE Anecdote Archive, as a valuable anecdote regarding current activity and sentiment in the market.
ReplyDeletePlease send any relevant anecdotes to VREAA.
David,
ReplyDeleteI did buy in early/mid spring as I said in posts around when I bought.
Chad
ReplyDeleteI must have missed that.
Congrats, you were right and we were wrong. I hope it works out for you.
David,
ReplyDeleteI hope it works out too! I still believe we will see the market strong for minimum another year and if I were to speculate there could be weakness following that continued strength but I don't see any point in projecting so far into the future until we see more #'s several months down the road.
I can see that you are putting a lot of time and effort into your blog and detailed articles! I am deeply in love with everycal single piece of information you post here. Will be back often to read more updates!
ReplyDeleteDeirdre G
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