tag:blogger.com,1999:blog-31427364.post7469207491448964892..comments2024-03-26T03:52:23.395-07:00Comments on Housing Analysis: Some Thoughts on Bank of Canada and House Pricesmohicanhttp://www.blogger.com/profile/06094213357140749289noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-31427364.post-10432304164940746972012-12-03T10:33:22.546-08:002012-12-03T10:33:22.546-08:00The "pro-cyclical" nature of incomes to ...The "pro-cyclical" nature of incomes to house prices is something for consideration.<br /><br />To keep Vancouver's prices from falling "too fast" will require additional sources of funds. That comes from either direct outside investment or additional credit growth. Credit growth going forward could end up on government BSs.<br /><br />Note I have refined my graphs as per some feedback from a friend of mine. The drops over longer duration corrections are likely overstated due to income growth.<br /><br />On the topic of income growth, Realtors in aggregate have seen their incomes drop by a fair amount in 2012. Most of the province's households will carry on with at-inflation or slightly-above-inflation income gains though the public sector is starting to feel the austerity pinch; it's the FIRE jobs that will get hit hard if the downturn is pronounced. Not sure about construction; I don't think it's quite a San Diego or Phoenix situation.jessehttps://www.blogger.com/profile/02155122147972263497noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-43043399712108180492012-12-03T05:42:15.655-08:002012-12-03T05:42:15.655-08:00Say prices as a ratio to incomes are 40% above the...<i>Say prices as a ratio to incomes are 40% above their long-term average. To revert prices to this range will require a 30% drop. To do this in seven years requires a -5% annual drop in the price-income ratio. Assuming incomes rise by 2% per year that means national prices need to drop at -3% per year for seven years to revert.</i><br /><br />And there is the problem. You cannot take incomes as an independent variable when the % of GDP in housing-related sectors is far above normal and much of consumption is enabled by rising consumer debt. Falling house prices will reduce incomes and ability to borrow. It's a positive feedback loop for both rising and falling prices.<br /><br />That's simply looking at domestic factors. Add an anvil like a bust in China and Wile E. takes the plunge.<br /><br />Thanks Jesse for your work in this and preceding posts.patriotzhttps://www.blogger.com/profile/11154064267408955762noreply@blogger.com