tag:blogger.com,1999:blog-31427364.post4370860911925302454..comments2024-03-26T03:52:23.395-07:00Comments on Housing Analysis: Population and housing stats, 1991-2009mohicanhttp://www.blogger.com/profile/06094213357140749289noreply@blogger.comBlogger30125tag:blogger.com,1999:blog-31427364.post-63293194194196103872010-03-28T11:03:39.512-07:002010-03-28T11:03:39.512-07:00JimTan: "But, the situation reversed itself a...JimTan: "But, the situation reversed itself after 2002. The early bulls were dead right. Employment fell to 4%, inter-provincial immigration recovered, and housing prices rose till 2007. There was euphoria. But, it was based on reality."<br /><br />Interesting-- we had good reasons for having such low unemployment during the last decade-- recovery after the tech boom, massive forestry industry improvement to sell to the US' housing construction bubble, massive public infrastructure projects to prepare for the Olympics, and a massive amount of residential construction. All good reasons for people to be moving here.<br /><br />Now that the Olympic construction's over, I wonder if we'll see a reversal in provincial migration-- our forestry industry's going to be in the dumps for a few more years, Olympic construction's over, housing "under construction" has been plummeting, and the economy in general stinks right now for anyone looking for work; in the group of my 6 closest friends, two are looking for work in other provinces and one has been told by his boss that he's going to be let go in the next few weeks, when the boss shuts the company down due to no work.M-https://www.blogger.com/profile/11157896639592232047noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-50803576083378330812010-03-28T10:58:59.436-07:002010-03-28T10:58:59.436-07:00Listening to some of them, even permanently lower ...<i>Listening to some of them, even permanently lower prices are of little concern because they can afford the monthly payments regardless.</i><br /><br />Aha, but this means that the buyers are speculating on <b>interest rates</b> remaining at their present levels long term. Which is impossible barring a long-term deflationary recession.<br /><br />The only buyers who can't be said to be speculating today are those paying cash with indifference to falling prices. Which I think includes just about nobody.patriotzhttps://www.blogger.com/profile/11154064267408955762noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-64312507381361407392010-03-28T10:16:53.004-07:002010-03-28T10:16:53.004-07:00Bubbles always start with something real. It'...Bubbles always start with something real. It's even been posted on this blog that we underbuilt in the 90's and the first stage of the upswing was catching up to that. Now we're just way way beyond that. When you've got the highest prices at the lowest interest rates ever with dodgy employment it's just not going to end well. And you can't be at 9.3 times median income to median house price without a lot of people being right on the bleeding edge of variable interest rates and amortization. Yup some people might be taking the opportunity to pay down their debt but most likely not many of them live in Vancouver.AndrewJhttps://www.blogger.com/profile/04813082701244060724noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-45705089893122948162010-03-27T22:20:19.069-07:002010-03-27T22:20:19.069-07:00"Clearly the emotional factor is nearly impos..."Clearly the emotional factor is nearly impossible to quantify but plays a huge role in price changes."<br /><br />It's not just about emotions. Look at the Sauders chart on inter-provincial migration.<br /><br />http://cuer.sauder.ubc.ca/cma/index.html#<br /><br />The province went through a bad time when net inbound migration (1993-4 5k-10k per quarter) became a net outflow during 1998-2001. The physical movement of people reflected the perception and reality that the province was on the skids. <br /><br />But, the situation reversed itself after 2002. The early bulls were dead right. Employment fell to 4%, inter-provincial immigration recovered, and housing prices rose till 2007. There was euphoria. But, it was based on reality.JimTanhttps://www.blogger.com/profile/13480972517925246528noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-74463621530815545252010-03-27T21:45:03.933-07:002010-03-27T21:45:03.933-07:00"How many current or recent buyers would have...<i>"How many current or recent buyers would have purchased at these price levels if they knew there would be no real appreciation in prices for 5 or 10 years?"</i><br /><br />vreaa: for owner-occupiers, I would bet close to 100% would still buy. The financial calculations are, from what I've seen, are not much more than rent-vs-buy at current interest rates. Little to no risk analysis comes into the decision; there would be significant pressure on current prices if it did.<br /><br />The major "speculation" in recent buyers is on nothing bad ever happening. I wonder how many are planning far enough in advance to be true speculators from an investment POV. Listening to some of them, even permanently lower prices are of little concern because they can afford the monthly payments regardless.<br /><br />I bet a few would think twice if convinced prices would drop in value by 20-30% in 3-5 years instead of staying flat. But only because they're greedy buggers.jessehttps://www.blogger.com/profile/02155122147972263497noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-68743241172984528902010-03-27T20:01:52.501-07:002010-03-27T20:01:52.501-07:00I'd add a further thought:
3. Isn't buyin...I'd add a further thought:<br /><br />3. Isn't buying a home that is only affordable because of its secondary suite identical to buying a home for oneself AND a separate speculative property? In both cases the only reason for owning the extra property is that you believe it's price will increase (it certainly isn't for positive cash flow, we've established that).<br />Thus I'd argue that there is an immense amount of 'hidden speculation' in this market.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-31427364.post-57972567786088785142010-03-27T19:52:21.188-07:002010-03-27T19:52:21.188-07:00JimTan: Regarding increase in ownership rates from...JimTan: Regarding increase in ownership rates from 61% to 65% from 2001 - 2006:<br /><br />Okay, good point, so speculator share of the market can't have risen.<br /><br />However, I'd add:<br />1. The numbers don't mean there is no bubble (owners blow up bubbles as well as speculators do)<br />2. There is 'speculation' in EVERY Vancouver RE purchase, in that almost every single buyer expects prices to rise. So the owners are also 'speculators'.<br /><br />As I've asked elsewhere: How many current or recent buyers would have purchased at these price levels if they knew there would be no real appreciation in prices for 5 or 10 years?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-31427364.post-32254498145940019672010-03-27T19:09:18.656-07:002010-03-27T19:09:18.656-07:00Glaringly obvious statement of the day:
It's ...Glaringly obvious statement of the day:<br /><br />It's all very emotional. Price rises cause further price rises and drops cause further drops. If it was as simple as you state we would not see such large price changes (up or down), but this is not the case.<br /><br />Clearly the emotional factor is nearly impossible to quantify but plays a huge role in price changes.mohicanhttps://www.blogger.com/profile/06094213357140749289noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-16290488599799653772010-03-27T18:15:57.776-07:002010-03-27T18:15:57.776-07:00"Is there any evidence for that claim?
Haven&..."Is there any evidence for that claim?<br />Haven't speculators become holders of a GREATER percentage of properties as the bubble has expanded?"<br /><br />Powerful analytical technique. There is a bubble. So, the investor ownership rate must have increased!!!!<br /><br />Fact (from CMHC): Vancouver home ownership rate 61% (2001) and 65.1% (2006). Blows vrea's bubble theory to pieces. It's not about the investors!<br /><br />http://cmhc.ca/en/corp/about/cahoob/data/data_003.cfm<br /><br />Here's my mistake. My 1991-2001-2006 conclusion is wrong because I was quoting from the Vancouver Sun. I finally checked the original Stats Canada document and the paragraph does not appear in it.<br /><br />http://www2.canada.com/vancouversun/news/story.html?id=26d2d130-7190-4039-8f48-750c780f3b04&p=2<br /><br />“Home ownership highest since 1971<br />debt soars; Canadians stretching loans over longer time, StatsCan says<br /> <br />Gillian Shaw <br />Vancouver Sun <br /><br />Thursday, June 05, 2008<br /> <br />The dream of home ownership is a reality for more Canadians than in a generation, but so is the increasingly sober reality of soaring debt levels...<br /><br />In Vancouver, 65 per cent of people own their own home, a 15-per-cent increase in the five years between the 2001 and 2006 census findings...”<br /><br />No excuses! I hadn't double check the quote I was using. My apologies.JimTanhttps://www.blogger.com/profile/13480972517925246528noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-82233995661591540362010-03-27T17:08:07.455-07:002010-03-27T17:08:07.455-07:00Of course desire or necessity to sell is very much...Of course desire or necessity to sell is very much a situational thing. It's not like the people who will sell at some given price comprise a diminishing cohort which can be exhausted, as the claim "Those willing to sell at lower prices have already sold (2001-8)" assumes.<br /><br />People die, get sick, get divorced, move, lose jobs or have other financial crises all the time. Builders keep building because that's the way they make a living. In other words there are always new entrants to the "must sell" cohort and they must accept what buyers are willing to pay.<br /><br />Talk about obvious fallacies.patriotzhttps://www.blogger.com/profile/11154064267408955762noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-90008870471728008722010-03-27T16:13:54.450-07:002010-03-27T16:13:54.450-07:00"Those willing to sell at lower prices have a..."Those willing to sell at lower prices have already sold (2001-8). Now, the remaining owners will only sell at current or higher prices (all other things unchanged). If prices drop, the selling tapers off and there is a shortage. If prices rise, the selling accelerates. Thereby satisfying demand." <br /><br />Idealy this is how it would work, but it doesnt happen like this in real life. Just because you wont sell for less than you paid doesnt mean others wont. How many investors are still holding Cali houses that they bought in 2005? They will have to wait a damn long time to ever sell it for more than they paid. <br /><br />If prices rise, it spurs buyers as they scramble to get in before they are "priced out forever". The rush to buy pushes prices higher. If prices fall the rush stops, which allows prices to fall further as there are less bidding wars and buyers can drive a hard bargin. This accentuates the drop.<br /><br />It's all very emotional. Price rises cause further price rises and drops cause further drops. If it was as simple as you state we would not see such large price changes (up or down), but this is not the case.Unknownhttps://www.blogger.com/profile/16361217381016612518noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-88049918628951585142010-03-27T08:53:58.815-07:002010-03-27T08:53:58.815-07:00JimTan said: "In 1991-2001, investors were he...JimTan said: "In 1991-2001, investors were heavy buyers as many homeowners became renters. After 2001, investors took profit as prices doubled."<br /><br />Is there any evidence for that claim?<br />Haven't speculators become holders of a GREATER percentage of properties as the bubble has expanded?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-31427364.post-90330029719590793522010-03-26T19:35:44.038-07:002010-03-26T19:35:44.038-07:00"So currently there are obviously enough peop..."So currently there are obviously enough people that can afford the current prices for the amount of houses available. This is only because of of super low interest rates. Although most people will only accept the currently high prices it won't matter because the people that have to sell will have to sell at whatever pice the market can offer."<br /><br />You don't seem to be aware of the supply situation. In January, there were only 15k units (see Jesse's chart) under construction (trailing 12 months). That's half the rate of 2008. That's equal to 2004.<br /><br />It means that there may be enough for the population growth in 2010. But, the picture is bleak for 2011. There were only 9k housing starts in 2009, about 6k short. Moreover, the condo bulk of those starts won't be delivered till summer 2011 because of delays during the Great Panic. <br /><br />So, spring 2011 should be interesting as the economy continues its recovery. Let's see how prices will be set at the margin.JimTanhttps://www.blogger.com/profile/13480972517925246528noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-5951525863214336452010-03-26T18:21:04.711-07:002010-03-26T18:21:04.711-07:00"would guess that about 1% of inventory is lo...<i>"would guess that about 1% of inventory is lost each year"</i><br /><br />We should also include major constructions that modify an existing property by adding more dwelling space but do not trigger either a demolition or a housing start. This is a significant effect in the near-burbs where houses are not decrepit enough to warrant tearing down but are a bit too small for the current residents.jessehttps://www.blogger.com/profile/02155122147972263497noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-48675784268652829752010-03-26T14:27:08.533-07:002010-03-26T14:27:08.533-07:00But how many units are created with the new constr...But how many units are created with the new construction?<br /><br />In the past year alone, I have seen four older houses in my neighbourhood torn down. All were strictly SFH with no suites inside. All four new houses have suites with one having an additional guest house. <br /><br />So, with that said, the housing units actually more than doubled with the new construction.Not much of a namehttps://www.blogger.com/profile/13581344882786624775noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-72794279932670943012010-03-26T13:50:13.842-07:002010-03-26T13:50:13.842-07:00You have to also subtract how many homes are lost ...You have to also subtract how many homes are lost to demolition, which the numbers don't do. I would guess that about 1% of inventory is lost each year, assuming that buildings last 100 years, which is probably conservative. It also lines up with cities that are losing population. <br /><br />Based on that, I am guessing we lose 15 to 20,000 units per year. Our population growth requires roughly 30,000 additional units per year. So on net, I think the balanced number is somewhere around 45 to 50,000 housing starts per year.Davehttps://www.blogger.com/profile/12522026256007882727noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-75689704634330883172010-03-26T09:24:58.542-07:002010-03-26T09:24:58.542-07:00I didn't do a good job explaining the equilibr...<i> I didn't do a good job explaining the equilibrium model to David. Just to restate the point. Home ownership jumped back to 65% and the housing shortfall was erased. </i><br /><br />Home ownership increase does not increase net demand for housing as every person who buys vacates a rental house or a previous house. I just don't think this is a good demand indicator.<br /><br />A general comment is that you seem to forget that prices are made at the margins which means just the people currently buying and selling will make or break prices. So currently there are obviously enough people that can afford the current prices for the amount of houses available. This is only because of of super low interest rates. Although most people will only accept the currently high prices it won't matter because the people that have to sell will have to sell at whatever pice the market can offer.AndrewJhttps://www.blogger.com/profile/04813082701244060724noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-59247875967593446322010-03-25T23:13:34.292-07:002010-03-25T23:13:34.292-07:00"In 2004, the unemployment rate was descendin..."In 2004, the unemployment rate was descending (at the end of 2004, unemployment was 5.6%)into a period of unusually low unemployment rates over 2005-2008."<br /><br />You're right! There's no guarantee that unemployment will fall to 4% again. We'll just have to wait and see.<br /><br />I didn't do a good job explaining the equilibrium model to David. Just to restate the point. Home ownership jumped back to 65% and the housing shortfall was erased. <br /><br />In order for that to happen. prices had to double. Investors had to be persuaded to sell their inventory. Land owners had to be cajoled to unload their land bank. <br /><br />Those willing to sell at lower prices have already sold (2001-8). Now, the remaining owners will only sell at current or higher prices (all other things unchanged). If prices drop, the selling tapers off and there is a shortage. If prices rise, the selling accelerates. Thereby satisfying demand. <br /><br />Price is the clearing mechanism for buyers and sellers. The transaction price determines who buys and who sells.<br /><br />Similarly, demand responds to price changes. If prices are too high, there will be fewer migrants to the province. Young people will leave the city in search of cheaper prices and better value. The buying drops. Prices weaken.<br /><br />So supply and demand are interrelated and act together to create equilibrium/stability (all other things unchanged). Extreme and sudden price changes (like the creation and bursting of bubbles) are the exception, not the norm. Almost all the time, people act rationally.<br /><br />The point is that prices tend to stabilize at this level unless something fundamental changes. With investor participation back at 35%, the risk of a panic is lower. Was there panic and a spiral in 2008-9?<br /><br />Long term demand factors (like demographics) change direction slowly. So, supply factors tends to be more volatile.JimTanhttps://www.blogger.com/profile/13480972517925246528noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-83144999418669646632010-03-25T18:21:52.753-07:002010-03-25T18:21:52.753-07:00"Yes, unemployment is at 8% and interest rate..."Yes, unemployment is at 8% and interest rates will rise. However, we have a similar situation in 2002-4 when unemployment was 8% and the vacancy rate was 2% too."<br /><br />If you look at the StatCan unemployment data, going back to the start of 1976 (as far back as the series goes) the average unemployment rate for B.C. is 8.9%<br /><br />In 2004, the unemployment rate was descending (at the end of 2004, unemployment was 5.6%)into a period of unusually low unemployment rates over 2005-2008.<br /><br />People think that the current unemployment is abnormally high and will come back down - but based on the history since 1976 the current unemployment rate is well below the norm.<br /><br />As for the vacancy rate, that record goes back to 1971, and the only times it has ever gone above 2 before was after a housing downturn 84-85, 91 & 98-99.<br /><br />Meanwhile the U.S. statistics suggest that no major U.S. city has ever been below 3 for any length of time on the rental vacancy rate (typical values are around 10%) so I'm not sure we're comparing apples to apples there.Declanhttps://www.blogger.com/profile/07930743440194279349noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-81951690265124625902010-03-25T14:58:38.343-07:002010-03-25T14:58:38.343-07:00Hi Jesse, I'm not sure exactly which data you&...Hi Jesse, I'm not sure exactly which data you're referring to, but it could be because the CMHC report from your Mar 7 post was covering the Vancouver CMA, while my BC Stats data covered the entire province.<br /><br />Declan: thanks for pointing that out, it's nice to have clarity on the definition of a "start".M-https://www.blogger.com/profile/11157896639592232047noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-34174009834361804962010-03-25T14:53:02.754-07:002010-03-25T14:53:02.754-07:00“After the mass building in 01-06 shouldnt price g...“After the mass building in 01-06 shouldnt price gains have slowed or even fallen as supply was coming back into line with demand?... With investors out of the game prices will fall back to a level where the average family can afford an average house again.”<br /><br />Here's a comment on micro-economic models of equilibrium pricing. Price changes as supply and demand curves change. A fundamental change in demand would change the curve and push price higher or lower if supply doesn't adjust acordingly. <br /><br />Without a fundamental change in said curves, prices tend to stabilize. For example, a push to higher prices would result in fewer buyers and more sellers. An attempt to push prices lower would result in more buyers and fewer sellers. So, prices return to the equilibrium level.<br /><br />In May 2008, Rennie commented that deliveries matched demand. So, 2008 should have been a stable year. It was up to June. However, prices fell suddenly after September 2008 when the Great Panic (reverse of bull bubble) began. But, 2009 was a banner sales year as pent-up demand hit the market. <br /><br />Why should prices return to 2001 level? As along as there are buyers at current price levels, prices will stabilize. That is why the CAAMP report is important. At low levels of affordability, buyers trade down to a price point they can afford. With improved affordability, buyers trade up or refinance to lower rates. As interest rates rise, owners accelerate principal repayment. Make sense?<br /><br />The key is supply. Without a flood of new supply, there is no fear. Existing owners can hold on as long as cash flow isn't negative. Buyers have no reason to hold out for a big price drop. There is no momentum for a big spiral down. Ireland has a home vacancy rate of 20%. Las Vegas has a rental vacancy rate of 16%. Vancouver is only 2%. <br /><br />Yes, unemployment is at 8% and interest rates will rise. However, we have a similar situation in 2002-4 when unemployment was 8% and the vacancy rate was 2% too. Didn't stop Vancouver RE from rising as interest rates rose and the unemployment rate dropped to 4%.<br /><br />Demand is complicated because of the uncertainty of macro-economic relationships. That's why I emphasize the importance of market intelligence. At various points in time, consider the net effect of various factors. How does it look going forward the next year? The key is the supply response. Are the landowners signaling that the party is over?JimTanhttps://www.blogger.com/profile/13480972517925246528noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-31850523005066176082010-03-25T11:20:13.451-07:002010-03-25T11:20:13.451-07:00I'm having trouble resolving the high level of...I'm having trouble resolving the high level of starts indicated by CMHC shown <a href="http://housing-analysis.blogspot.com/2010/03/housing-starts-and-under-construction.html" rel="nofollow">here</a> with M-'s calculations.jessehttps://www.blogger.com/profile/02155122147972263497noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-47805097383946328152010-03-25T10:17:59.884-07:002010-03-25T10:17:59.884-07:00“I'm not sure why you'd have a regional mi...“I'm not sure why you'd have a regional mismatch in housing starts - developers aren't stupid, and Vancouver starts are a higher percentage of total BC starts than they used to be...”<br /><br />I used M's link <br /><br />http://www.bcstats.gov.bc.ca/data/dd/handout/HSTART.pdf<br /><br />In 2001, housing starts were 17k in BC vs. 10k in Vancouver (60%). In 2008, housing starts were 34k for BC and 19k in Vancouver (55%). So, Vancouver's share of housing starts has fallen.<br /><br />Here's the pattern, from 2000 to 2004, Vancouver's share was 57-61%. From 2005 to 2008, Vancouver's share fell to only 50-55%. It seems that at the beginning of the bull market, Vancouver has a larger share. At the end of the bull market, the rest of BC overbuild. Make sense?<br /><br />Note that the housing starts in 2005-08 (35k) were on average much larger than 2000-04 (22k per year).<br /><br />(Prepared by: BC Stats, March 2010)<br /><br />I suppose that this is why Kelowna (pop. 160k) has a substantial glut of condo? Vancouver RE has recovered to peak levels. But, Kelowna is still down double digit?JimTanhttps://www.blogger.com/profile/13480972517925246528noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-77082944403829425852010-03-25T09:51:42.053-07:002010-03-25T09:51:42.053-07:00OK Jim, ill bite.
Lets say you are right and BC ...OK Jim, ill bite. <br /><br />Lets say you are right and BC hasnt been overbuilt. There was a shortage in the late 90s and as a result prices rose in the early 00s and more units were built. <br /><br />After the mass building in 01-06 shouldnt price gains have slowed or even fallen as supply was coming back into line with demand?<br /><br />Even if the price gains were justified in the early 00s then I think the only reason they continued was because people got caught up in real estate mania seeing all their friends making money hand over fist flipping condos. <br /><br />Once people get the mentality that RE is a solid investment it is unlikely it will fall because everyone wants to own it. Eventually prices will get so high that the average family cannot afford anything close to what they can rent. Once the price gains stop investors will bail as the only way they make money on their "investment" is through rapid price gains. <br /><br />With investors out of the game prices will fall back to a level where the average family can afford an average house again. This started to happen in 2008 and was only reversed by record low interest rates which caused an increase in affordability and would be buyers were told to "get in now before rates go up". This caused another rush to buy which surged prices. Some investors who didnt learn their lesson last time may pick up a few more places and spur further price gains. <br /><br />Eventually through price gains or interest rate increases we will get back to where we were in 2008 and prices will head down to historically normal levels.Unknownhttps://www.blogger.com/profile/16361217381016612518noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-8466772977579008802010-03-25T02:19:34.278-07:002010-03-25T02:19:34.278-07:00"Have the imbalances been wrung out of the sy..."Have the imbalances been wrung out of the system?"<br /><br />I don't think theres any way to know for sure unless you could get specific usage statistics. There definitly is an issue in the rental market that seems to be brewing; this isn't localized to vancouver though. It would be interesting to compare these to say California.<br /><br />Declan great find! I like how they felt the need to clarify hospitals :Pbuff_butlerhttps://www.blogger.com/profile/13312280863888753900noreply@blogger.com