Thursday Numbers

I’m having no end of trouble with my home computer.  Hopefully I’ll get it sorted out soon.

There were 326 new listings today, and 207 sales, for a sell/list of 63.49%.

There were 99 price changes.

Inventory climbed to 12,258, of which 1,990, or 16.49%, were over 90s.

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44 Comments

Filed under Daily Numbers

44 responses to “Thursday Numbers

  1. Anonymous

    I am finally seriously considering selling investment properties and it’s not because of daily numbers. I think the time has come due to a confluence of factors and that adjusted for inflation, 6 months from now average home prices will be down.

    Unlike this spring, I do not beleive we are going to recover from the end of year downturn. I expect a modest 5% correction by December this year. We’ll really see global monetary policy tighten into 2008 and 2009. The US and Chinese stock markets are by most measures overinflated. There’s too much oversold overrated credit in the system and the leveraged buyouts are driving up stock prices due to scarcity and not because the intrinsic value of the company has changed.

    Consumer spending will decrease in 6 to 12 months as well as a result of credit tightening. The Chinese stock market will have to crash in the next 12 months as well and the effects won’t be isolated.

    To get an idea of why the US market is inflated look at what the most brilliant investor in the world for the past 4 decades is doing. He’s holding 40 Billion in cash. He’s made it clear to his shareholders that he will employ the money when people are fearful but is holding on to it for now.

    He is also probably buying chinese yuan in anticipation of significant deflation there compared to the US dollar. The deflation could well be triggered by the catastrophic stock market crash they are going to experience. It is also extremely undervalued as it is due to government restrictions.

    How does that affect Vancouver? It doesn’t directly. Vancouver has scarcity going for it. Bordered by mountains, the ocean and the US border, but non-resident investors and local investors have been driving up prices to unsustainable levels in the long term and that is only because of the easy credit available. There is no other comparable cause. Once interest rates go up (See Bank of Canada and US Treasury yields) and they will for sure over the next 12 months investors and first time buyers will be affected.

    The larger investors (buying $3 million+ commercial buildings, townhowse complexes, apartment buildings, etc) are already indicating the market has turned. It’s only a matter of time before the little people get the information.

  2. awum

    But you forget the Bank of Mom and Dad (see last thread).

    The problem with the bank of Mom and Dad is that it can only really support one bump-up to home prices, because the wealth was built in the first place through housing appreciation. Once that fuel is used up, either one of two things happens:

    – The generation of folks who took out the Mom-and-Dad loans are not really going to be in a position to help out their kids in purchasing a home if housing has gone through a similar significant price increase, unless of course wages have caught up.

    – If there is a significant enough pause or correction that they may be in a position to give their kids a level of help to buy a home, then they won’t have seen the kind of price increases that would make it easy to provide a significant level of help.

    This is a long-term view, I know, but IF the bank of Mom and Dad is a significant driver to home prices, then the future of housing price growth in general is in very bad shape.

    Unless rents outpace wages, of course. If that happens, we will see the collapse of Western civilization as we know it. Remember, you read it here first.

    🙂

  3. Anonymous

    I don’t see a collapse of western civilization happenning because of the housing or financial markets.

    Read Jared Diamond’s book Collapse for a better view of how or why western civilization as we know it today could collapse.

    We’re not adequately planning for the potential for global warming and only 0.1% of the world’s elite know what’s happening with oil supplies. A sudden oil shock could easily trigger a depression like 1929. Again these are hypothetical situations that have nothing to do with Vancouver in particular.

    The only thing that can prevent a normalization of house prices is massive immigration into the province. Right now contrary to popular beleif the numbers show that the inflow of people into Vancouver is low.

    Look there are a certain number of homes and a certain number of people.

    At two extremes everyone owns or everyone rents from their megawealthy overlords.

    If we all rented, our rents would be dictated by our salaries. The value of the home would be purely an investment value and would be sold on cap rates compared to the condition of the property and other factors. In this scenario it’s safe to say that comparably most of Vancouver is overpriced. Keep in mind that the only reason houses would appreciate in this case is because year over year they would draw greater rents due to inflation.

    So you buy a home (like a bond) you’d get a rental income from it minus expenses (coupon value of the bond) and then unlike bonds when you sell you’d get the bond value plus inflation. That total return would have to be at least 10% to 15% to make it worthwhile to savvy investors. Based on that return the home prices would have to be a maximum of 200 times rent. We’re currently way past that in most areas. My $650,000 house rents for $2200.

    The other extreme is that everyone owns a home. In this case there are no rents and prices are dictated by the ratio of people living in the area to desirable properties in the area. In this case house prices are again limited by personal income and past savings / equity. In this case one cannot argue that home prices would be lower than they are today because people would pay for the emotional value a home has to them. A very rich person could spend as much as they wanted on a particular property if it held emotional value to them. It really boils down to the overall wealth of Vancouver’s citizens and their purchasing power. To me this is hard to quantify.

    Having said that, I know that there are a lot of first time buyers right now that cannot afford to buy their own home and must rent. How long can this continue? In a stable market where everyone owns a home even first time buyers should by defininition be able to find the least desirable homes at affordable values because everyone would own in this scenario. So yes maybe the lower end of the property market has some ways to fall. In the multimillion dollar range though I don’t see much price depreciation because if your that rich you don’t HAVE to sell and on the other hand you can afford to buy depending on what emotional value the home has to you and your net worth (which should be significant). There are no SFH being sold for $4M with the buyer taking a $3M mortgage.

  4. robchipman

    “If we all rented, our rents would be dictated by our salaries. ”

    As a rent collector I don’t quite buy this. Someone, somewhere, has to own the property. They have the option to squeeze the potential tenants, and say “35% of your income isn’t enough. I want 40%”.

    Another factor, and one that is more critical, is demand for housing. In that sense ownership doesn’t matter. If I have two tenants wanting to rent the same house I’ll get more rent. (It works the other way, of course – if I have a serious danger of a vacancy a good tenant can ask for a rent reducion and get it. This has happened in Vancouver. It does require some sort of economic downturn.)

  5. Ymir

    Rob, this question is going to be slightly off topic and perhaps it belongs to private email, but here it goes:
    We are in our forties and we have three teenage children attending high school.
    Came to Canada in 1989, and a few years later we’ve moved to Vancouver from the Prairies after selling our house there, and for a variety of reasons we did not buy here right away.
    To make a long story short the market has definitely escaped us and we’ve lost our hope to ever being able to afford a house that could fit our family comfortably, so we are living in a co-op town home and enjoying a debt-free life.

    We don’t have that many savings at hand, as most of our disposable income was and is still being locked in RRSPs, but we’ve got some cash and unfortunately it’s mostly US funds (I know….)

    Here is the question we’ve been asking ourselves lately:
    Should we put it all (the money) in RRSPs like we usually do or should we just buy a piece of land somewhere far, like the Kootneys or Cariboo where we could build a small quaint log cabin over the years (while going there for holidays) and get it all ready for the retirement…

    We really wouldn’t mind doing this – leaving here as soon as the kids are adult and can make their own decisions. In fact we’d love it – we don’t mind the solitude, boredom, lack of the “city-living flair” or Starbucks for that matter… We love Canada, but sadly we can’t really find it around here anymore…

    Now, with the value of RE skyrocketing all over, the vacant land prices seems to be inflated as well. Do you agree?

    And with all the talk about the slowing pace of the appreciation, or maybe even a drop in values, do you think it will affect prices of the properties we’d be looking for?
    Could we hope for getting some bargains soon if we hold our horses or are the land prices in Cariboo detached from our Vancouver reality, and govern themselves by their own rules so crash or no crash the prices will remain?
    I’m sure you understand this is not supposed to be an “investment” – we really want to end up living there.
    And no, it needs not to be waterfront (neither it must be huge) as long as it looks and feels like “real” Canada, and not like Lower Mainland and has enough room for a log cabin.

  6. Realist

    Ymir
    Sounds to me that most of your conversation should be in the offices of your Accountant who has Personal Financial Planning as an arm of his/her practice…

  7. Noname

    Rob said – “As a rent collector I don’t quite buy this. Someone, somewhere, has to own the property. They have the option to squeeze the potential tenants, and say “35% of your income isn’t enough. I want 40%”.”

    Don’t you think this will affect consumer spending? Or do you think that the extra 5% received by the owner will be spent by the owner in stead keeping the economy afloat?

    Also, can you answer how you see the economy (that relies on a great deal on consumer spending) not being affected by people having to spend more and more on housing and less and less on consumer products?

    Also, don’t you think that there will be a chunk of people that will say that they are not willing to give 40% and therefore they would be leaving?

    Don’t get me wrong, Vancouver is great but when you have no disposible income left to enjoy it, you might as well live in Winnipeg. I am quite sure I am not the only one with this assesment…

    Noname,

  8. Noname

    Also, Rob. Can you please be concise and straight to the point when answering my question (if you choose to do so)?

    Quite often, you have a tendency to answer questions in a long drawn out fashion where your answer gets lost among the words.

    Thanks,

    Noname

  9. Annon

    Since Iran has asked Japan to pay Yen for oil immediately, I think USD is really in trouble.

    http://tinyurl.com/yp3su3

    US government’s options:
    1. Save USD = hike interest rate = more housing defaults + export decline = economy crash
    2. Save housing = lower interest rate = further devalue USD = more expensive imported goods = inflation (until USD paper money no longer works)

  10. robchipman

    noname:

    I can’t see the point of your questions. I pointed out the workings of supply and demand.

    If landlords could take every drop of tenants money so that tenants couldn’t spend on consumer goods, guess what would happen? More rental accomodation would magically appear, and your hypothetical problem would vanish.

    Quick question: can you remember the last time someone said “Vancouver real estate, whether you’re buying it or renting it, is cheap”? Me neither.

    Ymir:

    The market will change. It always does. When it does I’ll buy a jewel in the Cariboo or the Chilcotin. We can be neighbours 🙂 Patience. If you (or anyone) thinks Vancouver prices are crazy, believe me, interior prices are crazy too.

  11. Dignan

    “Since Iran has asked Japan to pay Yen for oil immediately, I think USD is really in trouble.”

    Another issue is the potential for the Yen carry trade to unwind. I wonder if this is what Iran had it mind when making this demand.

    By the way Rob, the discussion on the Blog has benefited from your brief sabbatical. I think even the participants were getting tired of the same old arguments/discussions.

  12. Annon

    Digman,

    Yes, I can feel that some readers here are not too excited about repetitive arguments. But to be fair, it’s hard to have every comments interesting when the exchange of ideas is on a daily basis and most of the time all we have are the stats. It’s also interesting to note that, while valid, quite a few bears are relying on “all trends exhaust” argument and naturally there isn’t too much one can extend out of that argument. At a time, I was looking for sources that could have fueled/influenced the trend. And by identifying the sources, we can then analyze if and when the fundamentals change. And I feel that this will have something different for people to extend discussion in this blog.

  13. Noname

    Rob,

    The point of my question is the following.

    You seem to imply that rents will simply increase as a response to the imbalance between rent/own ratio.

    While you seem to advocate this perspective (since it suits your clients’ needs best), you don’t really offer a full explanation how you think this will forego. You don’t address the issue of inflation as result of higher rents (leading to higher interest rates) and you don’t address the issue of how this would affect consumer spending which is an important component of the economy.

    Noname

  14. -A-

    I was just visiting Langley financial blog: it is featuring a “blast from the past”
    thread, which gave me the idea a suggesting you might want to do something like that from the industry perspective.

    Something along the lines of then and now, why it won’t pop this time etc.

    Why the “experts” missed the signals, (or did they)

  15. Skeptic

    Noname, the higher rents leading to higher interest rates argument is flawed.

    Interest rates are set for all of Canada, while we are talking about rents for just one city in Canada. The impact of a modest rise in Vancouver rents (a trend which seems to be underway) on Canada wide inflation and therefore Canadian interest rates is low.

  16. “Quick question: can you remember the last time someone said “Vancouver real estate, whether you’re buying it or renting it, is cheap”? Me neither.”

    When I first arrived on these fair shores in 1988, I thought that E. Van house prices were “cheap”. As to rent – I didn’t notice (in and out of town, spare room surfing…).

  17. Noname

    Skeptic said – “Interest rates are set for all of Canada, while we are talking about rents for just one city in Canada. The impact of a modest rise in Vancouver rents (a trend which seems to be underway) on Canada wide inflation and therefore Canadian interest rates is low.”

    That makes sense, though, do you really think that if rents increase, they would only increase in Vancouver? And not other parts of Canada?

    Given that house prices are out whack (compared to rents) to a certain extent all over Canada, why would rents only increase in Vancouver? Why wouldn’t they go up in Calgary? Or Edmonton? Will housing prices collapse there, but they will not in Vancouver? Only Vancouver will experience localized inflation but the rest of Canada won’t?

    Also, don’t you think that an increasing disparity in rents between different parts of Canada will give people more insentive to move away from Vancouver to other parts where rents have not increased?

    Noname,

  18. tqn

    “Given that house prices are out whack (compared to rents) to a certain extent all over Canada, why would rents only increase in Vancouver? Why wouldn’t they go up in Calgary? Or Edmonton? Will housing prices collapse there, but they will not in Vancouver? Only Vancouver will experience localized inflation but the rest of Canada won’t?”

    you have to seriously look again when you said rent would not go up in calgary or edmonton; you must be a couple years behind the calendar.

  19. Noname

    Tqn,

    I did not say that.

    It is Skeptic that is arguing that a rent increase in Vancouver would be minor when it comes to the overall inflation of the country as a whole.

    As a response, I was wondering if he would expect this rent increase to be restricted only to Vancouver. As you point out Alberta’s rent increases, it’s pretty evident that inflation is not restricted to Vancouver hence say hello to future interest rate hikes.

    Noname

  20. Snick

    I f you want to see a housing collapse in progress, visit Florida. I just got back from spending 10 days there.
    There are places for sale everywhere. It is not uncommon to see five or six houses for sale in a two block stretch in nice places such as Clearwater or St. Petersburg. The same for Orlando and the Cocoa Beach area on the Atlantic coast.

    The large builders are stuck with huge inventories.

    In general, the touisty spots are “quiet”. Merchants are complaining about how “slow” it is.

    It’s a mess alright and it’s coming to a town near you.

    It’s a mess and it coming our way.

  21. Snick

    Delete last line!

  22. Priced Out

    As we head into a huge recession, I’m thankful for our the financial health of our governments. The US doesn’t have the strength anymore to avoid anything extremely ugly.

  23. e

    Priced Out: i hope that doesn’t mean you have faith in our gov’t.

    our gov’t is likely to increase spending at times like these, such that when the ____ hits the fan, they are stuck with large commitments, deficits, etc. its like any “bubble”, etc.

    ideally one should be saving even more when times are good, such that when blood is on the streets, he/she can take advantage.

  24. Priced Out

    Its relative, compared to the looming disaster south of the border. I think the Iraq War and the incompetence of their current government will break the American empire. Iraq is to the USA what Afghanistan was to the USSR. Meanwhile, Finland/Canada will carry on.

  25. Priced Out

    Check it out

  26. Priced Out

    thats true to some extent, but if the “American Empire” is broken, then the effects will be felt world-wide. i agree that in minor cases, Canada and other countries may be able to survive, but if US really takes a dive, it will not be pretty for us.

    don’t forget US’s GDP is the largest BY FAR. over 25% of the world’s GDP is from US. japan (2nd), accounts for only 9% or so. Canada is 2.5% or so.

    over 80% of canadian exports go to US.

  27. e

    sorry, misnamed the above post. meant to address to Priced Out 🙂

    e

  28. -A-

    Not an original thought, but worth noting

    “The best summary explanation, from Business Week:”

    “Today’s housing prices are predicated on an impossible combination: the strong growth in income and asset values of a strong economy, plus the ultra-low interest rates of a weak economy. Either the economy’s long-term prospects will get worse or rates will rise. In either scenario, housing will weaken.”

  29. vanreal

    snick florida is a mess for many reasons. two of which are out of control insurance costs and property taxes.

  30. robchipman

    Noname:

    I’m implying nothing of the sort. As I see it the imbalance you describe is irrelevant (maybe that’s because I don’t know what you mean by rent/own imbalance).

    I’m simply saying that landlords generally want more money and tenants generally want to pay less. If there is more demand for housing than supply (2 tenants for every rental) landlords will demand, and get, more rent. If there is more housing supply than demand then tenants will be able to offer less rent and still get accomodation.

    I haven’t answered the consumer spending argument because its a weak one, and based on some pretty wild assumptions (“…if tenants have no disposable income….”) and I think its designed to trap your perceived opponents. Every consumer has a limited supply of money, and their wants generally exceed their purchasing power. They make choices. It has always been thus.

    Landlords will never get enough of an upper hand to really effect consumer spending, and the net effect of rent increases on inflation will be gradual (we have rent control, right?)

  31. Snick

    Vanreal,

    I’m sure those reasons re: Florida’s RE market are important and have a part to play. However, those same reasons didn’t seem to have any effect on the initial run-up.

  32. vanreal

    The insurance costs didn’t go through the roof till after Katrina due to the high hurricane risk.

  33. vanreal

    no name, inflation is pretty much only happening in the west as it is. the bank of canada interest rate increase is going to screw the east but they needed it to keep the west under control. so why not rents only increasing in the west.

  34. Priced Out

    e — Canada needs to break away from the US, that is true. Instead, we’ve tied ourselves to them with “free trade” I’m fairly certain that the US share of GDP will be in steady decline.

    vanreal — Maybe the West has been screwed as the interest rates should have risen further by now.

  35. Noname

    Thanks Rob,

    I appreciate your answer.

    Noname

  36. Priced Out

    Wow, you are asking $1350 for a one bedroom in Coquitlam. I know people rent who decent one bedrooms here for half that price. Even check Craigslist you’ll see that even there, most ASKING prices for 1 bdrms in Coquitlam are $700-$800, with the most expensive maybe $1000. I am renting a 3 bdrm/1.5 bathroom in Coquitlam for only $1180 and I moved in three months ago. Granted I have 70’s shag carpet in the living room, but the place is in decent condition with a newish appliances and a respectable landlord.

    If you get some fool to pay that price for your Coquitlam rental, I wouldn’t know whether to shake your hand for being such a crafty businessman or hiss at you for undermining affordability in this suburb of the struggling middle class.

  37. Snick

    Vanreal,

    Further to our earlier discussion re: Florida RE.

    I noticed in Wednesday’s post, you mentioned the deductibilty of mortgage interest for US homeowners.

    Would some of these write-offs not offset higher Floridal rsidential insurance premiums/property taxes?

  38. Skeptic

    Noname, I don’t have much idea about RE prices or rents in other Canadian cities. I think Toronto has been hit a bit by the auto workers layoffs. Others are probably more qualified to comment.

  39. robchipman

    Priced Out:

    I believe that’s a typo and that the unit is a two bedroom. The rent seems a little high, but its a very nice place and has a great view. It doesn’t have shag carpet. Thanks for picking up on the error.

  40. fish

    Rob- do you have friday’s numbers?
    Thanks.

  41. robchipman

    Just doing them now (but I did get a lot of windows in my house this weekend ;-))

  42. Realist

    Rob-
    “Every consumer has a limited supply of money, and their wants generally exceed their purchasing power. They make choices. It has always been thus. ”

    To that, at this time, I would say “probably not exactly”…..
    THIS time around, a lot of consumers have simply marched up to their Financial institutions, and BORROWED MORE “cheap” money to satisfy all of their consumption wants, and then some…

  43. robchipman

    Realist-

    It amounts to the same thing, though, right? Borrow today for today’s consumption and you have to pay it off tomorrow. I’m not bright enough to figure out the solution. Inflation seems attractive, but its got to be too simple an answer.

  44. Anonymous

    Snick of course it would offset some but certainly not all of the higher costs.

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