Friday Numbers

There were 289 new listings Friday and 251 sales, for a sell/list of 86.85%. Of the sales 31, or 12.35%, went over list. 6 of those were on the Westside. 5 were in East Van, 1 was in Richmond, 1 was in Port Coquitlam, 1 in Pitt Meadows, 1 in New Westminster, 6 in North Van, 4 in Maple Ridge, 2 in Coquitlam, 1 in Burnaby and 3 in Surrey.

Average list price of the sales was $543,588, while the average sales price was $534,730, a difference of $8,857, meaning the average sale went for 1.65% under list price. 22 properties went for list price. One property went for 21%($49,000) under list while the highest over list was 24% ($235,000) over . Average days on market to sale was 34.

There were 14million dollar plus properties sold with 5 over $2 million.

There were 121 price changes, of which 12, or 9.92%, were increases. The average original list price of price changes was $574,686; the average new price was $557,774, a difference of $16,912, meaning the average price change was -2.68%. Average days on market to price change was 47 days. 0.90% of all listings reduced their prices Friday.

Inventory in my target area broke 12,000 again, reaching 12,074, while over 90s dropped, reaching 1,811, or 15.00%.

The 14 day rolling sell/list was 74.64%.

Some say I post “bad” news late and “good” news early. 86% sell/list, stable inventory, low over 90s. I should have posted this Friday!

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66 Comments

Filed under Daily Numbers

66 responses to “Friday Numbers

  1. CheapMan

    11911 + 289 – 251 – 0 (Exp.) = 11949 = 12074

  2. CheapMan

    Is Rob trying to inflate the inventory and cause the market to crash? Is he a bear in disguise?

  3. robchipman

    Can’t explain it Cheapman. Awum’s pointed out similar things. He indicates that (at least I think he indicates this) the numbers self-correct the next day. Maybe do that math a few days in a row and see what happens.

  4. sutluc

    1894-15%=1609.9

  5. sutluc

    Nevermind, I mis-read what was written. Doh!

  6. awum

    The listings came back! I usually don’t like to say “I told you so” but…

    Yeah, the data retrieval from Rob’s search isn’t 100% consistent day to day. Occasionally, some parts of the data probably just don’t show up in the inventory count when pulled. But they are still there, so they show up the next day.

    It is clearly a conspiracy by the IT folks at MLS to discourage realtors from noticing when they take a long lunch.

  7. Good Point

    CheapMan
    You point out what we never notice.

    Maybe more listings, less sales so inventory goes up
    and match 12074

  8. robchipman

    awum:
    You’re a bad man…. 🙂

    (Seriously, the fact that some blog watchers keep such a sharp eye on these kind of things is one of the strengths of the internet. Thanks to both of you for doing it).

  9. first_time_buyer

    “Some say I post “bad” news late and “good” news early. 86% sell/list, stable inventory, low over 90s. I should have posted this Friday!”

    It can be done on purpose to prove otherwise. No wonder you came and posted epics here whereas you could have posted numbers. maybe you were wondering that somebody would bring up the subject, saying rob is not posting maybe bcos numbers are bad and you can jump back saying no no, look at it, numbers are good, but I dint post. So, I am not all that crooked. Alas!!! nobody did it. An effort going waste? Let me do it myself. A point was thus proven and highlighted too.

    Post it a week later for all I care, atleast make it look consistent.

  10. robchipman

    1st time:

    You’re hilarious! People who say I post or not post at certain times because of nature of the numbers are barking up the wrong tree, pure and simple. I find it kind of amusing, actually. Its a no win, though.

    I will say that its getting tougher to remain motivated to supply numbers to people who like the product but don’t value the supplier.

  11. Domus

    Rob,

    I value your numbers. I am very grateful for them and give you kudos for that! Keep up the good work.

    At times I even find your commentary interesting.
    However, as I probably overstressed this past weekend, there have been a few occasions lately that made me think again about your objectivity on issues related to Vancouver RE. I do understand you are a realtor and you want to do your job well. I am sure you are great at it.
    However you lately tend to stand by frankly risible arguments put forward by posters who see RE like a religion, rather than a matter of business.

  12. General Zod

    From Mish’s Global Economic Blog;
    http://globaleconomicanalysis.blogspot.com/

    HB: Have you ever seen a U.S. bubble that is comparable to this one?

    Mish: There has never been a housing bubble in the US as big as this one, on a national scale. Perhaps some international bubbles have been as big. Vancouver Canada is going to implode like Florida did. Spain and the UK are huge problem areas right now. The bubble in Japan was arguably bigger and it took 18 years to unwind.

  13. REisRE

    There is no free things in this world, so the numbers are not free either. You have to read the bull point when you read the numbers. You have to pay for what you get.

  14. first_time_buyer

    “I will say that its getting tougher to remain motivated to supply numbers to people who like the product but don’t value the supplier.”

    Oops, Did it rub on the wrong side? You wanted to come out clean by becoming your own judge. Thats not how things work. Is it a threat? and do i care?? honestly, no. There is an old saying, employment is good but employers are not. this because employees dont die if employer shuts down an organization. everybody is there for their self interest, you are no exception. So, by all means, get demotivated or whatever, I could not care more. But as long as they appear as public good, I will take my free ride. Go ahead and ban me, my IP and my neighbour’s IP.

  15. John

    Rob said: “I will say that its getting tougher to remain motivated to supply numbers to people who like the product but don’t value the supplier.”

    I don’t post comments that often so you probably don’t hear it from everyone, but I know there are many people (including friends and family who I’ve introduced to your site) who greatly appreciate the numbers you provide.

    It’s hilarious to think that a select few run off with a wild conspiracy theory that you’re trying to manipulate numbers by posting later/earlier (or that you’re even posting later on purpose to prove some sort of point).

    Rob, is it not possible for you to ban by IP? 🙂

    first_time_buyer: Like most people, Rob has a life, he can’t be posting numbers every night right on the dot at 9 PM. Maybe he’s taking his kids to baseball/soccer, wants to go for dinner with his wife, watch the game with his friends, or do whatever else he would rather do than update his blog. Did you ever stop to think that people have other things to do than post on their blogs? Or are you just trying to stir the pot?

  16. Captain Bear

    “Vancouver Canada is going to implode like Florida did. Spain and the UK are huge problem areas right now. The bubble in Japan was arguably bigger and it took 18 years to unwind.”

    Don’t those silly Americans know we are land locked.

    And oh yeah, the Olympics……

  17. Captain Bear

    Rob, thanks for the numbers, I won’t be nasty today.

  18. robchipman

    First time:

    I don’t ban IPs. I wouldn’t even if I could. I don’t even delete many posts.

    Did you rub me the wrong way? No. You made me smile, actually. And its even more amusing to read that you’ll free ride on something until it breaks down, without a care for its maintenance. Modern times or what!

    Its also funny that I can tack on a little attempt at humour and have you take it seriously. I may not be much of a comic, but there’s a huge difference between recognizing bad humour and confusing it with a serious position.

    Domus:

    Exactly what risible arguments do I stand by? Why do you say I stand by them? Have I endorsed them or simply let other people address them? How many times do I have to say a correction is coming before I lose the bull label? Has anyone seen me recommend an investment purchase lately?

    BTW, I just checked some 1999 vintage rents from an old rent roll here in my office. 3 bedroom house similar to the one I pointed out – $1,440 (I still collect rent there), another older one at $1,080, another similar one at $1200. One with a main floor and suite on a busy road (224th) for $695/$840. Another old 3 bedroom for $970. Another similar one for $1200.

    You called $1,000 net rent for a 2500 sq. ft. Maple Ridge house in 2003 a “fantasy”. I am really curious what you regard as “risible” :-)! You’ll post a link to a guy who predicts pain for the financial markets in the same thread where you recommend people get out of real estate and into stocks. I like your posts, but c’mon!

    John:

    Thanks for the kind words!

  19. Joshua

    Rob:

    I’ll come out of the woodwork again to show my support for your numbers and your commentary. As a current renter, and aspiring owner, your blog gives me a good read on the various forces at play in the current RE market. I’m not a bear or a bull, but just a guy trying to find a nice place to live and enjoy my family, without going broke. Would I like prices to come down? Well, duh. But I’d settle for a stable market and a good economy (because a crashing RE market is hardly the sign of a good economy) – is that so much to ask??

    It’s a shame that some others can’t seem to come out to play without tinkling in the kiddie pool and ruining things for everyone. 🙂

  20. jesse

    “Vancouver Canada is going to implode like Florida did”

    Don’t know why Mish would make these comments when his central thesis is the ineptitude of the US Congress and Fed. I don’t think he has much skin in the local game so it’s interesting how he’s singling out Vancity.

  21. deb

    Rob
    I read your numbers every single day. I don’t often comment, but just wanted to say that I appreciate your service so much.

    Blogs will always gather opinions, ideas and outright balderdash, but I just let it flow by me, take your numbers, do my own research and learn, learn learn.

    The name “Rob Chipman” to me means someone who is assisting people by helping them become informed as they can be.

    Thanks again.

  22. realitycheck

    Michael Shedlock (mish) is a stockbroker and has his own ax to grind. He wants people to invest in the stock market not in the housing market. I will take his info on bubbles bursting with a grain of salt. Just as I would take info about upcoming stock market crashes from a realtor with the same amount of skepticism.

  23. realitycheck

    It is interesting to note that Mish talks about Vancouver as a huge bubble waiting to burst and then goes on the say that the housing meltdown was all due to American economic policy. This does not compute!!

  24. LesserApe

    Yeah, it’s completely inconceivable that American economic policy could have any effect whatsoever on Canada.

    Oh, ummm, maybe it does compute.

  25. Domus

    Rob:

    the difference between financials and RE is simple. RE recessions last longer and the long-term returns are historically lower. This is basic finance, as taught to kids in College.

    Now, if we are at a peak of an RE cycle and there is a risk of a financial downturn as well, the best thing you can do is put money into liquid interest-bearing assets.
    However, if you think you might not need the money straight-away it still makes a lot of sense to buy stocks, as we know that normally they through fast and give better long-term returns.

    Of course, there is no guarantee in any strategy but this is what observation of past patterns would suggest. I am pretty confident that, in real terms, RE will be much cheaper in Vancouver 4 years from now. And stock, in real terms, will have instead appreciated. This is how the world has worked until today. If we live in a different paradigm, then I might be completely wrong. Very possible, but rather unlikely.

    Thanks for the numbers. Recently there was a poll on some bear sites to find someone willing to publish similar numbers. Nobody came forward.

    It is a sign that you are doing everyone a favour and I am grateful (honestly) for that.

  26. Domus

    Forgot: the most risible argument you supported recently was about interest rates…….some kind of genius (don’t remember who) suggested that there is no evidence that fluctuation in interest rates have any long-term effects on RE.

    Just plot the series of real (not nominal) interest versus house prices over the past 50 years and you will see otherwise. Real interest rates are growing right now. Even more interesting, real rates on long-term maturities are spiking…….

  27. awum

    Rob called me a “bad man”; I believe the term he was looking for was “bad ass”… 😉

    Looks like there are still lots of buyers out there. I’m starting to doubt that many of those are real “investors” these days. Most of these folks are betting not only against sensible metrics, but against history as well. Looking at the UBC Sauder School data on real house prices (i.e., corrected for inflation), I note that Vancouver RE is in the longest ever winning streak quarter-by-quarter real gains.

    1977.1 to 1979.1 9 quarters down
    1979.2 to 1981.4 11 quarters up
    1982.1 to 1983.3 7 quarters down
    1983.4 1 quarters up
    1984.1 to 1986.1 9 quarters down
    1986.1 to 1990.4 19 quarters up
    1991.1 to 1991.3 3 quarters down
    1991.4 to 1995.2 15 quarters up
    1995.3 to 1997.3 9 quarters down
    1997.4 1 quarter up
    1998.1 to 1999.4 8 quarters down
    2000.1 1 quarter up
    2000.2 to 2001.4 7 quarters down
    2002.1 to 2007.2 21 quarters up

    I am aware that there is plenty there to suggest that 2002 onward there was ground to be made up. I’ve never had a problem admitting that, as I am no dyed-in-the-wool bear when it comes to real estate. It’s also not lost on me that the 1986 to 1995 stretch was fairly consistent (except it lost a good chunk in 1991). However, (a) it’s never been up-up-up for so long without pause, and (b) the market sure does look to get depressed after a long period of real gains.

    Buying now for investment purposes (for most folks) is hoping that it really is different this time.

  28. robchipman

    Domus, if you check you’ll see that Fozzie’s co-worker (the one you said should sell now) claimed that there wasn’t a direct correlation between interest rates and real estate prices. Fozzie asked for comments and I said that while interest rate hikes are negative pressure on prices, the correlation is not as straightforward as some would think. Awum pretty much said the same thing.

    The worst you can accuse me of is that I said “When interest rates rise sometimes prices jump with them in the short term due to fear”, (which is true). I also said that this usually lasts only three months. Do you find that risible?

    I subsequently pointed out that stable rates and slightly rising rates have gone hand in hand with wild appreciation. Nobody denies that. It was attributed to speculation, but that still points to a weaker correlation.

    I did not say “that there is no evidence that fluctuation in interest rates have any long-term effects on RE”. You’re mis-quoting. You can check.

    My personal experience with real estate is that bought wisely, and with the use of leverage, it returns way more than stocks. Thats only over a few decades, mind you, and I managed the real estate while professionals managed the stocks. (Again, I have many examples of 600%+ returns over the past 4-5 years in real estate).

    I have done alright with some stocks that I’ve gotten lucky on. A cheap stock can increase 500% in a year (I had one), and that will pay for a lot of 50% losses on bad stocks. I’ve also had blue chip stocks do 25%+. Still, my real estate has (largely because of leverage) done much better. I doubt that you’ll even try to deny that.

    What you’re really left with is “I think real estate in Vancouver will be cheaper in 4 years and that stocks will appreciate”. That’s only opinion. People called for price reversals in 2005, 2006 and 2007 for largely the same reasons that you cite. (Mind you, 2007 isn’t over yet). I’m not saying your prediction is wrong. I’m just saying it sounds like a lot of others, and isn’t as convincing to me as it is to you.

  29. robchipman

    Bad Ass:

    Stop saying “However, (a) it’s never been up-up-up for so long without pause, and (b) the market sure does look to get depressed after a long period of real gains”. That sounds to much like “the market is going to change, because it always does” and “the cure for high prices is high prices”.

    An interesting/scary scenario was presented to me: the cycles get bigger, with higher peaks….and lower lows. Your numbers don’t really support that, but after 19 quarters up after Expo we had only 3 down. Two thoughts – we’re at 21 up Qs now. Would 3 down quarters make a difference? Sounds like the guy saying “I’m waiting for a 20% correction, because we’re out of whack with fundamentals”. Second, where’s that guy who used to always say Vancouver real estate dropped in value after Expo?

  30. robchipman

    BTW, I concur: its tough to justify investment. Witness earlier comments about pure investment properties selling under tax assessment.

  31. awum

    …and by the way, I’m also pretty much convinced that real estate as an investment is OK. Leveraging, income tax benefits, and forced savings make it quite appropriate for Joe Average (provided of course he can buy something decent). You have to be pretty committed and pretty savvy to out-invest a homeowner most of the time.

    Unless you bought your home in 1976, 1977, 1981, 1983, 1994, 1995, 1996, 1997… maybe a few other years… in which case Mr. Stocks and Bonds investor has likely kicked your ass.

    My point? I think 2007 is a lot more like 1994 than 2002. My proof? I dunno, I just feel it in my bones.

  32. bad ass

    To be honest, Rob, unless I come up with a massive downpayment in the next couple of years (which either means marrying money, winning a lottery with tickets I never buy, or some rich relative I’ve never heard of leaving me a fortune) I don’t see owning Vancouver real estate in my future. I don’t think the correction will be big enough. It won’t be 2001 again for years yet.

  33. Skeptic

    Awum 5.45pm, nice post 😉

    So looking at the stats, the worst downturn has lasted 9 quarters, i.e. just over two years. So when the market finally runs out of steam, we can expect a downturn that is 9 quarters or less ?

    For a long term investor, that’s not a huge dilemma. Especially since each successive peak is higher than the last.

  34. awum

    Actually, there was a brief and small upturn between the 9 quarter slump and an 8 quarter slump. It was almost 5 years all together. The 1982 to 1986 period did something similar, but of course the drop was frikkin’ huge.

    The dilemma is that the savings on rent in Vancouver is bigger than anywhere else, so you had better be counting on a bigger return here than anywhere else. At this point, all I would say is: Good luck with that!

  35. dyugle

    Thanks for the numbers Rob you really do provide a great service.
    You have actually improved the way I post as preparing a good post that doesn’t get convoluted into something else is a bit of an art form. The quoting out of context seems to be rampant as well as the bait and switch form of argument. You have come to my defense when I was arguing the bear side and breathed a little bit of common sense into the argument. I thank you for this as well. You do make a lot of common sense arguments that are backed up by facts. I am a bear yet I find many of my fellow bears to be a little presumptuous and quite impatient.
    Perhaps they do not like your bullish subtext. It is easy to see this by the way you present the daily numbers as no bear would present them in that manner. As an example a bear would not say this “There were 121 price changes, of which 12, or 9.92%, were increases.” instead a bear would say the opposite “There were 121 price changes, of which 109, or 90.08%, were decreases.” also a bear would not say “0.90% of all listings reduced their prices Friday.” once again the bear would say the opposite “0.10% of all listings increased their prices Friday.” See it is a subtle little thing but it shows a bullish bias. A non-biased approach would be to simply say “121 price changes, 12 increases and 109 decreases” and not give any percentages.
    Of course you can post the numbers anyway you like as it is your blog. I actually like the way you post as you do not try to hide your bias. This makes you consistent and easy to understand.

  36. deb

    just for fun… humour me.
    Let’s say the tide turned and prices started to come down. What is the fastest drop you have ever seen in real estate anywhere and how long do you think it could take here.

    Just for fun….

  37. Domus

    “The worst you can accuse me of is that I said “When interest rates rise sometimes prices jump with them in the short term due to fear”, (which is true). ”

    I don’t accuse anyone of anything. I am not the spanish inquisition. The fallacy in all those arguments is that they look at nominal interest rates. You should take the difference between nominal rates and inflation.

    Inflation has been high lately and finally long-term rates are spiking. This is a big jump in real terms.

    Oh, another thing Rob: it maybe that leveraging for a wealth-poor individual is the only way to invest. In that case RE is a way for people to start up making money. But to say that RE dominates stocks returns is an historical lie: this is an article from Forbes magazine (hardly a cave of bears….!) and it shows clearly that the historical truth is that stocks dominate (repeat: dominate) RE investment in terms of long-term returns.

    http://tinyurl.com/yo2vm2

    Notice: please look at the massive difference in the link. Shares are better by a factor of 4! If you should lock your money in stocks and take it 25 years later, that would buy 4 times as many houses as if you had invested it in a single house!

    Skeptic:
    “So looking at the stats, the worst downturn has lasted 9 quarters, i.e. just over two years.”

    This is yet again a fallacy of the nominal. After 2 years of declining nominal prices, you still get the following years of flat to declining real prices, because nominal increases are lower than inflation. Check Sauder graphs in real values.
    RE cycles are long. After the through there is a flattening of real-terms values usually.

  38. Skeptic

    dyugle, that’s political correctness gone mad….

    Rob, don’t change a thing.

  39. Skeptic

    Domus, if you look at the Sauder real price graphs, you’d almost conclude that prices haven’t really gone up much, in fact maybe current prices are justified (accounting for inflation).

  40. Domus

    Skeptic,

    look at this:

    http://tinyurl.com/8tmn5

    The red line is the real value, controlling for inflation. Even taking a ccount for the big spike of 1982, the long-term average value has been around 400k. We are at 660. That’s roughly 65% higher than the (rather generous) long-term average in real term.

    Now: it won;t change overnight, prices are sticky on the way down in RE, which therefore requires longer cycles of adjustments than shares. But change it will, and return to the long-term real value it belongs to.

    Nominally, prices could stay where they are or grow very little each year. If that happens, inflation will eat into the real value and the cycle will be a long, protracted adjustment taking many years. If I were an RE investor I’d rather prefer a fast adjustment like in stock markets.

  41. It will be much worse

    Interest rates went from low 20’s% to less than 5%-

    Can anyone in their right mind see room for a 1500 bsp drop to come to the rescue this time, or an equivalent in wage hike for most future buyers?

    No it won’t be different this time, it never is.

  42. Appreciative

    I have to say that attacking Mr. Chipman’s post and
    declaring that he is holding back the numbers
    preposterous.
    Keep up the good work Rob. A lot of people, myself included appreciate what your doing.
    The numbers don’t lie!

  43. LesserApe

    Deb, the fastest possible drop would probably be the result of a nuclear bomb detonated downtown. In such a scenario, I’d guess that Vancouver real estate would lose 98% its value in a matter of days. However, that scenario isn’t very likely.

    If you exclude unusual cataclysmic events (which I think one shouldn’t completely exclude), I’d guess something like 80% fall over the course of a decade would be as bad as it could get. (e.g. Tokyo) That’s also extremely unlikely, though.

  44. $froma$ia

    General Zod! HAHAHA You saw Superman recently too eh?

    I like the one liner,” it’s not God it’s Zod “. That character is such a flamer! HAh!

    Thanks General Rob for the numbers. I see the total is 4.28% instead of the usual 4% adjust+offer.

    Hmmm.

    Hey Rob, it’s seems that detached homes have hit a price ceiling and that the majority of people still left are those that can only afford a townhome or condo. Do you think that’s whats bringing up the townhouse and condo prices, the fact that most SDFH are out of affordability for most now?

  45. $froma$ia

    thats -4.28%! and -4%!

  46. thomas

    doesn’t seem SFH are out of most people’s reach, since they’re selling at a strong pace still and still a seller’s market.

  47. Skeptic

    Lesser Ape, good point, also most of those events you mention would have quite an impact on stock markets.

    Domus, can you please show me the bubble in this Sauder graph ? http://cuer.sauder.ubc.ca/cma/data/HousingPrices/housing-pri-pctgrowth-vancouver.pdf

  48. Skeptic

    Domus, here’s your post:

    http://tinyurl.com/8tmn5

    The red line is the real value, controlling for inflation. Even taking a ccount for the big spike of 1982, the long-term average value has been around 400k. We are at 660. That’s roughly 65% higher than the (rather generous) long-term average in real term.

    Now go and fit a line of best fit through each of those series, we’re not going back to 400k, you’re trying to fit a horizontal line to something with a long term uptrend.

  49. Domus

    Skeptic,

    this is the last time I repeat this point: real-terms appreciation!
    If you don’t get it it means you either don’t want to get it or you just cannot grasp the basic concepts of economic measurement.

    You send me the grapg of nominal growth rates from Sauder, but the relevant one is the real growth rates (inflation-free) which is just below:

    http://tinyurl.com/38rcn9

    From the above graph you can see that appreciation has been way too strong in the past few years and an adjustment is impending.

    Why does the nominal graph you used does not give the same information? Simple: because inflation rates over that period of time have changed wildly (by many percentage points), meaning that similar nominal growth rates had totally different meanings in real terms.

    In other words, a 10% nominal growth rates in the mid-90s was only a 3% real growth rate. But a 10% growth rate in the mid- 2000s was an 8% real growth rate. Apples should be compared with apples. Try again…..

    And please, I beg you, please, do not pick up the first silly graph which can cut you a cheap point…..

  50. ceejay

    Who’s going to predict a serious recession? That’s about the only thing that will take the wind out of RE’s prices and its just not happening globally.
    Even in the US the so-called RE collapse is marginal at best and restricted to a few overheated markets. Losses are a few percent in a year after 2 to 3 digit gains. I’m just saying don’t count on an implosion, Domus et.al. Market theory just won’t help you as it only serves to confirm your baseless paradigm.

    What will help explain long-term RE prices??:

    Global warming. Worst (but increasingly likely)scenario is a 6 to nine meter sea level rise within 30 years. A significant percentage of global (expensive) real estate is going to disappear. So, will the ensuing social disruption trigger an economic collapse, or is land at 10 m + above sea level going to become prime beachfront?
    Anyway, its probably just the cabernet talkin’.
    Cheers.

  51. Skeptic

    Domus,

    1. You didn’t answer my question 😉
    2. Inflation impacts everything, not just real estate, it also impacts income and stock market returns.
    3. The run up in the chart you show is still only about half of what happened in ’81.
    4. If inflation increases the real price graph will trend flatter even if price appreciation continues the same.

  52. Domus

    Ceejay,

    I posted this today at 6:54pm: “Nominally, prices could stay where they are or grow very little each year. If that happens, inflation will eat into the real value and the cycle will be a long, protracted adjustment taking many years. If I were an RE investor I’d rather prefer a fast adjustment like in stock markets.”

    I am not suggesting armageddon. Just a prolonged substandard performance of RE investments. I think that is almost unavoidable. Additional shocks might trigger more painful scenarios. In any case loads of people are going to be hit hard, especially young overxtended families and retirees who put all their money in RE.

    Skeptic,

    “Inflation impacts everything, not just real estate, it also impacts income and stock market returns.”

    Yes, but the impact is different: that’s why stocks are the greatest inflation hedge; stocks grow even faster when there is inflation. RE does not.

    “The run up in the chart you show is still only about half of what happened in ‘81.”

    Of course the difference with ’81 is that back then inflation was at 12% yearly. All it took was one year to eat into real appreciation. Now it will take considerably longer. There is no free lunch, even inflation has its advantages, namely it allowed a really fast adjustment in ’82 which ended up biting hard only those who bought around 1981 but not before. The coming adjustment will bite also those who bought 3 years ago, athough it will take longer for this to appear evident.

    “If inflation increases the real price graph will trend flatter even if price appreciation continues the same.”

    This is actually a good point which has been raised by many commentators including Calculatedrisk and Paul Krugman: there are 2 possibilities for the Fed Reserve in the US.

    (1) Wipe away debt of subprime borrowers by lowering interest rates and allowing inflation to increase. This would, in one swing, reduce all debts in real terms making them manageable. It would probably kickstart the economy: more spending, renewed optimism, a fresh start for all! However it would also trigger dangerous inflation expectations for the future, which would mean even higher prices tomorrow.

    (2) Stand firm and not lower rates (as it seems is happening): this is the cure most painful in the short term, as it does not allow borrowers to walk away from their obligation but it also implies lower spending and a slowdown in the economy. However it is the winning strategy in the long term as it provides credibility to money management and enforces contracts for the “real” value they were signed for. If you borrowed something that was worth X, you should not pay back something that is worth only half of X.

    I think scenario 2 is shaping up, which means rather painful times for unwise borrowers in the US.

    Big question: is Canada so different?

  53. robchipman

    Domus:

    You accuse me of standing by risible arguments, and you have to misquote me to do it.

    Then you point me to the boilerplate comparison of stocks and real estate. That article was written about 25 years ago, and gets re-cycled all the time. They always throw that one in about houses having the benefit of saving you rent. They compare active investing in stocks with owning a house.

    I’m comparing investing in housing and leveraging it with investing in stocks. The only time I’ve been offered margin so that I could leverage stocks, btw, is when they found out I owned real estate. Go figure. On the other hand, I was offered leverage on real estate the very first time I bought. Banks are funny that way.

    Anyway, you stick with stocks, and I’ll stick with real estate and stocks. Like I said, keep leveraging it to the tune that your rents will support, take the tax deductions, hold long term, and occasionally, like the last few years, realize 600% on your downpayment.

    One last thought on whether real estate prices and interest rates correlate the way some people think. The BOC report indicates that Vancouver has a very low correlation with the US market, or for that matter, with the Toronto market. Yet, interest rates go up in the US, Toronto and Vancouver all at the same time. If all three correlate to interest rate hikes, why don’t they correlate to each other? Just curious. Its probably a risible observation.

  54. Domus

    Rob,

    calm down. I will try to reply to your points in good order:

    1) “That article was written about 25 years ago, and gets re-cycled all the time. They always throw that one in about houses having the benefit of saving you rent. They compare active investing in stocks with owning a house.”

    That article is just one of many on the internet. It is an established fact that RE prices perform worse than stock marlket indexes (yes! It is an index they talk about in the article: S&P 500 index. Who is “misquoting” who now? )

    2) “The only time I’ve been offered margin so that I could leverage stocks, btw, is when they found out I owned real estate. Go figure.”

    Rob, once more I have to call you on this. because I just made the exact same point, so no reaason to sweat it: at 6:42pm today I posted the following sentence “Oh, another thing Rob: it maybe that leveraging for a wealth-poor individual is the only way to invest. In that case RE is a way for people to start up making money.” This means that RE can be a valid first step on the wealth ladder. After that, you can do much better. Last time I checked Warren Buffet was not building condos in South Florida.

    3) Interest rates: Rob, nobody claimed that Vancouver, Toronto and the US market will have the same reaction to interest rates. That would be preposterous. However Vancouver RE has experienced its fair share of down trends in the past 25 years. More than once real value of housing (and also nominal values) have been going down for a few years. If you superimpose the time series of real interest rates, you will notice that increases in real interest rates are often followed by decreases in real prices of RE. This is just an observation. If you want a general theory of the universe, where I tell you how prices in Toronto, LA and NY move together, I am quite afraid I won;t be able to oblige.

    Kind regards and thanks for the numbers, as always…..

  55. robchipman

    Domus:

    When I say “that article”, I mean the generic one that gets re-edited ad infinitum. Its no surprise that there are lots of it on the internet. Its boilerplate. You can change the date and re-print it. Before the internet it turned up in magazines and newspapers. Its an old, old article.

    RE rises more slowly that stock indices. That’s clear. When you factor in leverage the story changes immeasurably. Do the numbers. That’s kind of beside the point, however. I don’t say that real estate is better than other investments. I say that its a great investment, and that bought wisely, with some discipline, it performs very well. In my personal experience its out performed stocks, whether bought in indices or individually (I’ve got both).

    You claimed that I stood by the risible argument that real estate is not vulnerable to long term interest rate fluctuations. The original proposition was a little different, of course:

    “I have a co-worker that is adamant that historically there has been no significant direct correlation between i-rates and house prices. Yes, higher rates mean bigger mortgage payments, but his position is that other factors (inflation, migration, employment, overall economy etc…) can more than off-set the effects of higher rates”.

    I said that the correaltion is not as direct as some think. You called that risible.

    The correlation is either there or it isn’t. If its there then real prices drop when interest rates rise. Interest rates rise in a consistent fashion across the continent, and certainly across the country. If real estate prices fall with interest rate increases, then they fall everywhere. If that’s the case then real estate prices in Vancouver would correlate closely with the US and Toronto. Unfortunately, according to the BoC, they don’t.

    What part of “interest rates and real estate prices don’t correlate as closely as some people think” strikes you as most risible? (I notice that now you’re saying “often” – the change in your tone is certainly risible 🙂 )

  56. Skeptic

    Domus:

    “Yes, but the impact is different: that’s why stocks are the greatest inflation hedge; stocks grow even faster when there is inflation.”

    They are also much more volatile. Everybody knows volatility = risk.

    “Now it will take considerably longer. There is no free lunch, even inflation has its advantages, namely it allowed a really fast adjustment in ‘82 which ended up biting hard only those who bought around 1981 but not before. The coming adjustment will bite also those who bought 3 years ago, athough it will take longer for this to appear evident.”

    Pure speculation and wishful thinking on your part.

    “I think scenario 2 is shaping up, which means rather painful times for unwise borrowers in the US.

    Big question: is Canada so different?”

    I get it, you’re talking about the US again. Whatever.

    You never responded to my post the other day when I mentioned that most major stock indices are at or close to all time highs. Don’t you think its irresponsible to get all these safe young homeowners to sell and invest their money into stocks near the peak ? Or do you forsee the stock market continuing up at 17% per year indefinitely ?

  57. LesserApe

    Actually, not everyone knows volatility = risk. I don’t know that. Neither do Warren Buffett and Charlie Munger. In fact, you’ll find that they consider the idea that volatility = risk kind of insane.

  58. Domus

    Rob,

    do not play with fire, it is dangerous.

    The article on Forbes has facts in it. One basic fact is that long time returns on equity is huge compared to housing. It is documented everywhere. You can try to discredit this fact as you want, but a fact it remains. Accept it Rob.

    I think you guys have a problem admitting basic facts, but I’ll let it pass as I am not in the business of coercing rationality. Once Vancouver RE market corrects (as it will) I am really curious what kind of fairy tales you will come up with. It reminds a bit of those guys who claimed the earth was flat a few century back…..

  59. robchipman

    Domus:

    I say “RE rises more slowly that stock indices. That’s clear. When you factor in leverage the story changes immeasurably. ”

    and you respond:

    “One basic fact is that long time returns on equity is huge compared to housing. It is documented everywhere. You can try to discredit this fact as you want, but a fact it remains. Accept it Rob”.

    We’re covering ground here that we’ve already covered.

    Its clear that on the surface the markets outperform real estate. That’s common knowledge. As I’ve said, the article you cite has been re-printed countless times. Its not a news flash.

    Its also clear that I don’t want to compare investments in order to establish that one is superior to the other. In the first place there are too many variables. In the second the way returns are measured vary. And in the third, regardles of where you and I eventually saw off, the real ranking of relative investments will be made by the market and its countless players (the vast majority of whom don;t read this blog).

    So here’s the question: Do you maintain that returns on stock indices, long term, will “dominate”leveraged returns on Vancouver real estate, long term? Have you crunched any of those numbers?

  60. robchipman

    Lesser Ape:

    Warren Buffet may be a smart guy, but his buddy Charlie is priceless, isn’t he? He apparently has written a book of distilled wisdom, but I have been unable to run across it. I’m sure it would be a good read.

  61. Domus

    Rob,

    maybe it will come as a surprise, but you can leverage stocks. It’s called buying shares in a hedge fund. Of course, you take the risk, just like in RE.

    Now you won’t tell me that leveraging in RE is risk-free, will you? Casey Serin anyone?

  62. robchipman

    Domus:

    Why not explain how leveraging in a hedge fund works, and how accessible it is? Do you lever the investment yourself, or does the hedge fund manager? Can you expand?

    In terms of risk and real estate, let me explain why its risk free and why it always go up in value and why you can’t lose…oh, wait, I’ve already said there is risk, that it doesn’t always go up in value, that you have to structure the purchase to minimize the risk, plan to hold long term precisely because of the risk, and use a disciplined approach to purchasing because you can lose if you ignore the rules.

    Sorry, I would have liked to oblige you.

    Anyway, real estate is made to be leveraged in a simple fashion. It lends itself to the practice. Its application is elementary. It would be the first lesson you learn in leverage school. The result is that it improves the return on real estate without substantially increasing the risk, because its based on long term arrangements and sound lending practices (hence the concerns about short term, variable rate/teaser rate/ARM mortgages, sub-prime lending and looser lending standards).

  63. Domus

    Rob,

    the most successful hedge funds tend to do “inside the box” leverage, that means you simply buy their shares and they use an aggressive investment technique which is often based short-selling or leveraged buy-out. the substance is not very different from an RE investor who buys 300k worth of Vancouver housing using 15k down payment and hopes for future appreciation to make returns on his 15k.

    One of the advantages of stock contracts is that you can often buy opt-out clauses or downright insurance contracts which cover you.

    In RE the best choice you have if things turn sour is to hold on and wait for the storm to pass, which can take years.

  64. LesserApe

    Rob: Yeah, Munger’s pretty amusing. I think one of the most impressive things about those guys is the way that they can take a complex topic, and distill it into something that can be understood by everyone.

    (e.g. Buffett on expensing options “If options aren’t a form of compensation, what are they? If compensation isn’t an expense, what is it? And if expenses shouldn’t go into the calculation of earnings, where in the world should they go?”)

    The book you’re probably thinking of is “Poor Charlie’s Almanack”. It’s quite good, but only semi-written by Munger — 75% of the book is a compilation of Munger’s speeches, while the rest is discussions of his life and philosophies written by other people.

  65. robchipman

    Domus:

    You’re probably aware that they also buy income generating equities with little money down, and so capture two potential sources of profit: small returns on the face value that is multiplied by leverage, and the income stream itself. Very similar to real estate.

    You are correct that in real estate you have the option of waiting out the downturns, and those downturns can last a long time (I can’t resist: how long has Nortel been down? Longer than a real estate cycle?) Its not the best choice. There are ways to make your choices better and minimize the pain.

    Anyway, you’ve said that you think stocks will appreciate in coming years while real estate will fall in value. You’re ignoring the threat that global hyper-liquidty poses to each, and ignoring volatility and just picking one in favour of the other. In that case its kind of pointless to argue that one investment is better than the other, because you’ve already decided that one will go up in value (by definition good) and one will go down (by definition bad). Its easy to see which is better. Its a little harder to see that the decision is based on a gut feel.

  66. Domus

    Rob,

    I am not sure what will happen in the future. My statement is based on what happened in the past, that is, stocks tend to be safer bets if you are looking at the long-term. Also, I think buying one single stock (Nortel) is not the way I am thinking about stocks. Buying an index as the S&P500, even with no leverage, can be a great alternative to owning RE.

    I am not religious about these things: up until 4 years ago i would have been happy to buy RE in Vancouver, honest. Not any more now. When the market gets better and more reasonable I might give you a ring!
    Right now i think it would be suicidal.

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