Wednesday, April 28, 2010
NBR | Behavioral Finance Basics | Your Mind and Your Money |
Monday, April 26, 2010
Mortgage rates on the rise again
Full 100 basis point increase in the past four weeks.
Vancouver Real Estate Market Roller Coaster
Vancouver RE market rollercoaster from Vancouver Condo Info on Vimeo.
Wednesday, April 21, 2010
House Price Comparisons
Over at vancouvercondo.info is a constant stream of listings and sales data from commenters for the Greater Vancouver area. The listings growth is robust, as is the level of sales. We are on track to bust records for April listings and sales in recent memory. What will happen to prices, specifically the benchmark and house price index?
According to mohican's months of inventory to price change correlation analysis, the benchmark price will not start substantially falling until sales slow or active listings continue to increase at breakneck speed. Below is the half-over-half prices changes and 3 month moving average of months of inventory (i.e. active listings at month-end divided by sales from the month) on a time and scatter plot. (I extrapolated expected April MOI on the time plot.) This series provides the best correlation of the data. I've also included the scatter plot on semilog which allows the low MOI data to be better resolved.
Although not immediately obvious from the graphs, assuming the rate of sales does slow, a meaningful price drop from current levels is unlikely to materialize until sometime in the summer. If sales remain robust it is unlikely prices will drop unless active listings significantly increase. It's worth asking who is selling, or trying to sell. That listings are increasing fast may be a harbinger for lower sales going forward.
Given there appears to be an integral component to listings growth, it is unlikely listings growth will slow until sometime in the summer. Hat tip to PaulB for the hourly numbers. This one's for you and the inventory junkies. Subliminal message at 1:05.
Monday, April 19, 2010
You are here--updated
Here are all the caveats. All prices are adjusted for inflation, using Q1 2010 prices. The graph looks pretty much the same with a log scale or if you put the y-axis to zero. This is for Vancouver West condos--not because they are representative of the broader market but because this is ground zero for the bubble.
How far down to you expect this to go? How long? Why?
Saturday, April 17, 2010
Canada's brewing debt storm - - Globe and Mail
For every $1 of disposable income, Canadians owe a record $1.47. How did it come to this?
Wednesday, April 14, 2010
RBC, Scotiabank lift benchmark mortgage rate to 6.1%
Thursday, April 08, 2010
Royal LePage warns of real estate 'irrationality'
Last Updated: Thursday, April 8, 2010 9:25 AM ET Comments109Recommend72
The Canadian Press
There are signs that some of Canada's major house markets have become overheated, although most other markets have shown a more healthy rate of moderate growth, according to a national real-estate sales organization.Across Canada, the price of a standard two-storey home rose 10.3 per cent, to about $365,000 during the first quarter of 2010, Royal LePage said Thursday.
Prices for all key housing types were up more than 10 per cent across Canada in the first quarter on a national basis, according to the Royal LePage survey released Thursday.
But Vancouver and Toronto prices rose much more dramatically — about 20 per cent in some cases — and the head of Royal LePage Real Estate Services suggested they may have risen too far in those local markets.
"House sale data from the past two-year period shows tremendous variances in terms of how different cities reacted to the recession," said Phil Soper, president and chief executive, Royal LePage Real Estate Service. "In Vancouver and Toronto, for instance, the dramatic unit sales fluctuations exhibit a significant degree of market irrationality: inordinately fearful when faced with poorer markets; and overly enthusiastic when the tables turned."
The Royal LePage survey found the average price of detached bungalows in Toronto climbed to $459,107 in the first quarter, up 13.3 per cent from a year ago. Standard two-storey homes in Toronto were up 13.2 per cent, rising to $562,150 while condo prices rose a more moderate 10 per cent to $317,579.
In the Vancouver area, detached bungalows climbed an eye-popping 21.8 per cent to $906,045 while two-storey homes were up 19.2 per cent to $987,500 and standard condos were up 15.7 per cent from early 2009, rising to $470,000.
In contrast, Soper described Montreal as "an example of a city where the market has been much more stable and homeowners there seem quite happy with the relatively slow pace of change."
The average price of a bungalow in Montreal climbed by 7.2 per cent to $249,172, the price of a standard two-storey house increased by 7.6 per cent year over year to reach $355,109, while the average price of a condominium increased by 7.6 per cent, to $222,244, Royal LePage said.
The survey found that on a national basis, the average price of a detached bungalow in Canada rose to just over $329,000 in the first three months of this year — up 11 per cent from the first quarter of 2009. Standard two-storey homes rose 10.3 per cent, to about $365,000, while condominium units increased by 10.9 per cent to just under $229,000.
Avg. two-storey house price
Canada - $365,000
Vancouver - $987,500
Toronto - $562,150
Montreal - $355,109
© The Canadian Press, 2010
Read more: http://www.cbc.ca/money/story/2010/04/08/real-estate-royal-lepage.html?ref=rss#ixzz0kWaAno0g
Tuesday, April 06, 2010
From the Globe and Mail
Published on Tuesday, Apr. 06, 2010 12:00AM EDTLast updated on Tuesday, Apr. 06, 2010 10:14AM EDT
Pity the publicans, restaurateurs, haberdashers and booksellers, for they are the victims of Canada's increasingly house-poor economy.
The stories are all too common. There's the couple down the street who haven't dined out in years and the kids wearing hand-me-downs, all to make the mortgage payment and cover the interest on the line of
The tales are not apocryphal. The shifting spending patterns are clearly evident in retail sales data.
Canadians are funnelling more disposable
These policies are often pitched as fuel for an engine of economic growth, one that has the side benefit of providing shelter for Canadians. They get votes, and they work, if the result is measured simply by rising home prices and housing-related spending.
“Once most people have adequate housing, as they do in Canada, does it make sense to continue to focus policies on the sector to drive growth by providing what amounts to more luxury in our homes? ”
But at what cost? A different way to view housing-promotion policies is as stimulus for a growing black hole that sucks light and oxygen from other areas of the economy. Those that don't sell appliances, tools, or something else Canadians can use to make their homes look more like those on HGTV, are losing out.
This is more than a personal finance issue or a monetary policy question about bubbles, it is philosophical.
Once most people have adequate housing, as they do in Canada, does it make sense to continue to focus policies on the sector to drive growth by providing what amounts to more luxury in our homes?
Does housing deserve such emphasis if the effect is to encourage Canada's economy to become more dependant on the home sector, and by extension, on the banks that finance those homes? Is it prudent to encourage the average household to tie so much of its assets up in the house, leaving little for fun or saving?
The biggest policy tool is the CMHC. Through it, the government uses its triple-A credit rating to hold down interest rates for less creditworthy people who want to take out really big mortgages with low down payments. That appears to make homes more affordable but in fact leads to bigger interest charges over the years, leaving less cash for RRSP contributions or university tuition, or just a stress-relieving night on the town.
“The theory is we feel richer, so we spend more, supporting the rest of the economy. Except the figures show the rest of the economy isn't getting as much benefit, and besides, there's a good argument that such thinking doesn't make much sense for a house. ”
Another such tool is the home renovation tax credit, last year's attempt to restart the economy by goosing housing. Yet it's questionable whether housing-related spending needed any help.
Canadian retail sales rose 23 per cent from 2004 to 2008, while most sales related to furnishing and fixing houses have jumped at a much faster pace. Indoor furniture and home furnishings rose 26 per cent, appliances 31 per cent, and hardware and renovation goods 28 per cent, according to the latest detailed figures on Statistics Canada's website. At the same time, sales of clothing, books, sporting goods, drinks at bars and restaurant meals increased at a slower pace than overall spending.
For those Canadians with floating-rate mortgages, that spending skew is going to get more pronounced as interest rates climb.
Getting away from house-first economic thinking also means taking a skeptical look at the idea that the co-called wealth effect from rising housing prices is a significant benefit to the economy at large.
The theory is we feel richer, so we spend more, supporting the rest of the economy. Except the figures show the rest of the economy isn't getting as much benefit, and besides, there's a good argument that such thinking doesn't make much sense for a house.
The result of this so-called wealth created by a more valuable house is often, paradoxically, less disposable income.
As a home's value goes up, taxes generally do too. What's more, short of selling the place and getting out of the housing market altogether, it's tough to get at that so-called wealth to fuel spending.
The main method is refinancing, which the CMHC makes easy. Realtors may argue that taking out home equity to redo the kitchen is a good investment in higher resale value, but the reality is there are upfront costs in the form of interest payments.
The result of Canada's obsession with spending the value in our homes may be less a wealth effect than a variation on the Diderot effect.
That's the unfortunate affliction named for French philosopher Denis Diderot after he found himself caught in a vortex of spending he couldn't afford. His misery was sparked by a beautiful new dressing gown that was so fine, he wrote, that it made everything else in his home look dowdy. So out went his household goods, to be replaced by expensive new stuff.
Such spending leads only to "nothing left in the family strongbox" for things such as education. "The same fatal taste for luxury has ruined great nations," he warned back in 1769.
Substitute granite countertops for a fancy robe, and his words feel awfully apt today.