Vancouver crash would be major macro event.

[Taipan]

Regular readers will remember my comments regarding how this property bubble was created and how it will be busted. How F.I.T created and will crash this property bubble!

My mate Mr Semven suggested

It`s different here

No Mr Semven, it isnt different. Just the mania has been massive, to the point that only those thinking clearly can identify that the longer this goes on, the larger will be the damage.

Ben Rabidoux Reviews the Status and Implications of the Vancouver RE Market as recounted over at Vancouver Real estate archive.

Couple of great graphs that smash the emotion to pieces.



Some on here have argued that Vancouver didnt have inflation. But one of the key necessities of life went through the roof. If the increase in housing prices had been correctly factored into inflation, your interest rates would 8%-10%. The fact it isnt, shows how far the system is broken.



House price to rent index is now at 3x standard deviations. What does that mean. Its like an elastic band, stretched to its maximum. Its coming back and coming back fast and its going to sting!

And what this has always been about. Masses of debt driving prices up!



Check out the full article here.

Vancouver housing in full correction mode: Implications for Canadian banks

Makes very sobering reading for those who "think its different here".

[gobigorgohome]

Couple of great graphs that smash the emotion to pieces.

IMHO, this isn't a sophisticated analysis.

The first graph basically shows that since 1989, house prices have never really been affordable, and it appears, at least by this graph, that house prices have loosely corresponded as a % of unaffordability to the other variables since 1989. All this really tells me is that Vancouver is a desirable place to live.

The second graph could be interpreted a couple ways. Either prices will come down, or rents will go up.

The final graph simply tells me that as money supply has exploded - M2 money supply in Canada has grown some 45% in the last 5 years - so have debt levels. No surprises there.

Like all boom periods prior, we'll see a leveling off, where desirable places near transit corridors will retain value, while other places sustain declines. House prices are sticky and 40+-% of Canadians have 100% equity in their homes.

I could replicate all these charts of yours to make a similar argument that during the 1950s, houses in Kitsilano had no business jumping from 14,000 to 16,000 dollars (just an example). Thats why I would argue these graphs carry little value.

[Taipan]

Graphs and a table. ill take all the emotion out of it. Just hard numbers for what 90% of the population can financially achieve.

The emotion of granite bench tops, buy now or be priced out forever, chinese mainlanders, limited supply with massive demand is all a myth to emote a response.



And with 19000 vendors there is now plenty of supply.

Even when prices fall 50% Vancouver will still be an expensive city to live in.

[gobigorgohome]

Graphs and a table. ill take all the emotion out of it.

That's it? That's your response? Those graphs have little explanatory power. The first graph shows that as a % ratio, prices to GDP per capita have ALWAYS been very expensive, and are not particularly out of synch with the long term trend. In fact, 1994 appears to show a higher price to GDP per capita ratio then today.

The second graph doesn't have any explanatory power - it simply illustrates that renters have been and will likely continue to get screwed. This isn't surprising as real estate is proofed against the debasement of the CDN dollar....

The third graph has to be contextualized to the fact that M2 money supply has increased 48% over the last 5 years. Therefore, Ceteris paribus, the chart is meaningless.

[Taipan]

F. Finance = Credit loose and too easily available over the last ten years, but in particular the last 7.

And what this has always been about. Masses of debt driving prices up!



I.Interest rates = Interest rates at emergency settings and even now well below longer term neutral positions.

T.Terms. From 5/25 to 0/40 and then 5/35 and then 5/30 and then 5/25. But the real damage was done by the 0/40 which really got the market juiced up and everybody thinking they were on a sure bet at the races for a race that would never end.

So we go back to this simple table. Look at the affect of variations to terms and interest rates.




And then look at prices.



As can be seen from my table, in that case a buyers income and spending pattern didnt change, yet government changes had a massive affect on prices.

Likewise the ability of people to pay rent during this time didnt vary Personal disposable income changed little, rents didnt vary much, inflation didnt change much. Just prices. How far out of whack from the ability of people to pay rent. (Note IMHO the inflation figure is rubbish because it doesnt factor in cost of housing and shelter. Maybe rental costs but not home prices. If home prices had been factored in Inflation would have sored like home prices and it would have been met by quickly higher interest rates to rail inflation back in.)



Im sorry it isnt sexy. Numbers are boring, but they change the world. The only question is whether people understand there impact.

[gobigorgohome]

F. Finance = Credit loose and too easily available over the last ten years, but in particular the last 7.

Then what would you accredit the 1994 valuations too? Easy credit?

This whole conversation is a bit absurd, IMHO, as RE tracks inflation of money supply. We can both agree on that. A 48% increase in M2 money supply over the last 5 years and presto, high property valuations. I think its that simple. Your price graph even shows that property prices in Vancouver are always overpriced, and seem to follow a boom to flat-line to boom cycle.

I predict a 10-15% drop in AVERAGE (NOT MEDIAN) prices and then a long boring thaw where inflation will catch up to these prices, making them seem rational, followed by sharp increases later in this decade (2020+-).

I guess we'll see!

[Austin]

This whole conversation is a bit absurd, IMHO, as RE tracks inflation of money supply. We can both agree on that. A 48% increase in M2 money supply over the last 5 years and presto, high property valuations. I think its that simple. Your price graph even shows that property prices in Vancouver are always overpriced, and seem to follow a boom to flat-line to boom cycle.

It is that simple.

[jesse1]

I think its that simple

Still boils down to Vancouver being different. Taipan has been stating quite the opposite. Just saying.

[Austin]

Vancouver and Sydney are different.

[rofina]

F. Finance = Credit loose and too easily available over the last ten years, but in particular the last 7.

Then what would you accredit the 1994 valuations too? Easy credit?

This whole conversation is a bit absurd, IMHO, as RE tracks inflation of money supply. We can both agree on that. A 48% increase in M2 money supply over the last 5 years and presto, high property valuations. I think its that simple. Your price graph even shows that property prices in Vancouver are always overpriced, and seem to follow a boom to flat-line to boom cycle.

I predict a 10-15% drop in AVERAGE (NOT MEDIAN) prices and then a long boring thaw where inflation will catch up to these prices, making them seem rational, followed by sharp increases later in this decade (2020+-).

I guess we'll see!

Already there. Worse is behind us?

[semven]

Ive been showing comparisons to the folks over on MonteCarlorealestatetalks.com and all those pwicks do is keep saying "c'est différent ici" Whatever that means

[gobigorgohome]

Ive been showing comparisons to the folks over on MonteCarlorealestatetalks.com and all those pwicks do is keep saying "c'est différent ici" Whatever that means

I know - don't people from Monaco know that they are in store for a return to fundamentals? A 400 square foot apartment in Monaco goes for about 1.5M Euros. That's well over 7X the average per capita annual income of 200K! 7X!!!!!!! Who can afford that!!!??? I can't wait to gloat when it returns to fundamentals (+-600K or the equivalent of 3X the average per capita income of 200K). Then I can really vulch.

[timber2012]

Monte Carlo:



Vancouver:



You guys are right.... comparing Monte Carlo to Vancouver makes sense. I can't tell which is which. They might as well be twins.

[ArthurFonzarelli]

Couple of great graphs that smash the emotion to pieces.

IMHO, this isn't a sophisticated analysis.

The first graph basically shows that since 1989, house prices have never really been affordable...

The final graph simply tells me that as money supply has exploded - M2 money supply in Canada has grown some 45% in the last 5 years - so have debt levels. No surprises there.

Like all boom periods prior, we'll see a leveling off...

These graphs carry little value.

Taipan's graphs show that fundamentals like price:rent have exploded in the past 6-8 years. The ratio was within one standard deviation from 1989-1994, which you cite as being evidence that we've always been overpriced. Do you know what a standard deviation is?

Per "like all boom periods prior"... interesting interpretation of the history of boom-bust cycles. Unfortunately wrong in 97.3% of circumstances. (Jesse can probably give you the actual stat... So perhaps according to you we should also interpret Newton's second law to mean that if you throw an apple in the air it will just sit at the top of its arc like Wile-E Coyote, then slowly drift sideways.

Per money supply I think Taipan is saying that it is contracting and will contract more, especially per the OSFI guidelines. That's part of his point.

You can throw as many Latin terms as you want, but, ad iudicium, you will still be wrong. And you should note that the "H" in "IMHO" is humble...

[gobigorgohome]

You guys are right.... comparing Monte Carlo to Vancouver makes sense. I can't tell which is which. They might as well be twins.

Oh, I see. It's different there. You bulls are all the same.

Despite its fancy buildings and "desirable" (whatever that means! LOL) location, Monaco is ripe for reversion to the mean. Hold on to your hat, because their market has price to income ratios of +-20X annual salaries for detached housing!!!!!!! Crummy 2 bedroom ground floor condos are going for 1.5M Euros (7.5X annual salaries)!!!!!

Either way, I'm keeping my powder dry and recommending people rent. Once Monaco returns to fundamentals (right around the corner), I'll be ready to jump into the market and vulch vulch vulch!!!!!!!