Here are the charts based on the data released by the Fraser Valley Real Estate Board for the month of August 2009.
Sales were at a very high level compared to other Augusts.
Active Listings are on the high side.
Months of Inventory is at 5 which represents a balanced market.
Slighty off topic post about an article I was reading:
Quote is here:
"During the heady days of summer 1927, the Fed had done something else that would contribute to the Great Depression: It lowered interest rates. Markets responded to the rate cuts with a strong rally in the second half of 1927, and the Fed then decided to raise rates from 3.5 percent to 5 percent in 1928. But it stopped there. A higher rate would have choked off farmers who needed capital and were facing falling commodity prices throughout the decade. Moreover, it would have ended the bonanza of stock price gains that was benefiting the financial sector. To reduce risk, the Fed could have used its powers to convince banks to stop providing loans for stock purchases and to increase their capital, but this too would have ended the bonanza. It was a classic Fed dilemma: Should it raise rates and take other actions to curtail financial speculation involving excessive risk-taking, but possibly slow down the rest of the (real, not financial) economy in the process--and bear the resulting political damage? The Fed decided to stand aside. And so, history’s most damaging economic bubble was created."
Full article is here:
The parallels are eerie. Do you think they'll have the guts to spike rates this time or not. That is the question.
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.
Thanks in advance.
RE: mohican said...
" When buying a personal residence the only 2 things I personally care about are:
1) 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."
QUESTION to Mohican.
I may be able to achieve those standards you adhere to. But only with a massive down payment (>50%)
How do you factor this in? I do not want to be saddled with a potentially depreciating asset even though I can comfortably service the debt. Thoughts?
(I know I'm not mohican, but...)
Because using your down payment stops it from being availabile to you for other things (like income, security, future opportunity, or what have you), I consider that a significant cost of buying.
Thus, to make a "Rental Equivalence" comparison, you have to find some way to measure this cost--and this can be quite difficult. You could use some comparisons--such as an N year bond return--to put some boundaries on your valuation; this way you might start honing in on the "real" value, but it will likely still be quite difficult.
I'm interested to know how you proceed, though: what factors you consider, what valuation(s) you use, and what you eventually decide. I expect other people are considering the same things, too, so there may be a very interesting discussion brewing, here.
Sorry, I wasn't clear in my post. I include opportunity cost of the down payment money in my calculation of 'rental equivalence.'
For me today this could mean a savings account or short term bond fund which yields maybe 1-2%. You can alternatively use the 5year fixed mortgage rate as your opportunity cost, which is what I use when calculating rental equivalence. Today that rate is around 4.1%.
You do need some way to measure the opportunity cost of your down payment.
I have not decided on a course of action to purchase other than avoiding the market at this time.
I feel its overpriced, but also annoyed at the "enthusiasm" of buyers right now. Best to avoid and keep increasing my down payment - I have very cheap rent that has enabled us to save a major down payment.
My problem is that I will need a larger place soon (expanding family). So I am hoping that inventory starts rising again (this may be the week), and the hysterical buyers peter out so we can make a sensible decision. And oh yeah, how about 20% off the top?
While driving by Memento in Burnaby last night I spotted a large line up. I just checked the brochure I got and the grand opening is at noon TODAY. I mean the build looks OK but it's right beside the Lougheed highway and nearly underneath the skytrain. Either this was staged or Vancouver real IS different. Overnight lineups at this stage of the game seems strange. I'll see if the people are still there when I head for Costco this morning.
BTW this is not a presale the units are completed. They were built by Ledingham Macaliister who touts their reputation and that they have been in business since 1905. Right across the street there are a ton of condos and a tower and the same behind it. I'm pretty sure the other developments haven't sold out yet. Lots of supply in the Brentwood area so this seems truly weird.
HA HA Memento with its views of a used car lot. I found an article about it which is a testament to why I didn't pursue my career in journalism. Woodward and Bernstein it ain't.
On page 1, you'll find denial:
"? The Memento homes are not homes first offered for sale last September; pulled from the market when they generated little interest, as an international financial crisis commanded the front page and the top of the news hours, and then re-offered as government monetary decisions mitigated the evaporation of credit around the world.
? They are not newly priced homes, meaning recently reduced in price. (They, of course, are newly priced, as in recently priced.)
? They are not "remainders," inventory not sold during a sales and marketing campaign conducted before construction or inventory returned to the developer by purchasers during construction
? They are not more-of-the-same homes, a new phase in a new-home community, a completed clubhouse or completed grounds the only other news."
On page 2, this head-scratching bit of prose:
"This last quality is, perhaps, why public-memento status for this new-home project is more than mere fancy. The Ledingham McAllister development company hasn't so much erected a building as it has sculpted a very public addition to the built environment in a very public location."
And finally, on Page 3:
"The ceiling of the exterior portion of the entrance is a true wood soffit, of dimension lumber and in the herringbone pattern. Timber and stonework guide resident and visitor to the lobby. Water features soothe their passage. These are "sense of entry" treatments and the company means them to reference the ski lodges of Whistler."
A journalist is just a well-spoken prostitute.
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