LePage Expects Vancouver Housing Correction in 2017

HomelessinSD · Fri Jan 27, 2017 11:31 am

eyesthebye2 wrote:
So long as there is strong rental demand there will be housing sales.
I heard a professional estimate that for investment in a detached home, at 20% down, the return for rental each year is 8-9%. It only gets better with lower prices.

With this in mind I cant see the downturn lasting come spring

I'd be interested to see some examples of this for the Greater Vancouver market. I'm being completely serious.

MartyMcFly · Fri Jan 27, 2017 11:35 am

It’s been fun reading your comments and I agree with both sides.... But its my opinion that this is not going to go "to the moon". Sorry bud.
Few reasons

Since 1981 the market has grown by 6.63% compounded annually. The average home price was $181,000 (1981) vs 1,700,000 (Today). Assuming the same growth over another 35 years, the expected house price should be $16,077,860, which doesn’t seem realistic. Note that the average salary grows at 2.3% which does not justify these numbers.
[color=#000000][color=#303030]A big driver of growth has been due to the reduction in interest rates which devalues our currency and allows investors to take on more debt. Unless the BOC decides to drive rates to 0, up is the only option, which means less debt, lower prices.[/color][/color]
[color=#000000][color=#303030]Investors will soon realize that the stock market provides greater returns. During the same period, the S&P grew at 8.41%. If the same about was invested into an ETF, the market value would be $2,748981.35, over a $ million more.[/color][/color]

So will there be a correction, eventually, crash,perhaps, but this market will not go "to the moon". Nope.

http://www.conferenceboard.ca/press/newsrelease/15-10-29/modest_base_salary_increases_expected_to_continue_in_2016.aspx
http://globalnews.ca/news/2531266/one-chart-shows-how-unprecedented-vancouvers-real-estate-situation-is/
https://www.google.ca/#safe=off&q=s%26p+500+index

tdma800 · Fri Jan 27, 2017 2:13 pm

2000sqft wrote:
eyesthebye2 wrote:
So long as there is strong rental demand there will be housing sales.
I heard a professional estimate that for investment in a detached home, at 20% down, the return for rental each year is 8-9%. It only gets better with lower prices.

With this in mind I cant see the downturn lasting come spring

Oh wow at 8-9% ror and gets better if prices drop no wonder the numbers make sense to buy in

In addition to that, looks like its going to infinity and beyond. To the moon!

Experienced people saying its not different this time forget that interest is quite a bit different now, and that a salary has little meaning in relation to a mortgage unless someone is going for a high ration mortgage for which naturally the requirements are more strict.

As well, many people don't realize that the Government of BC cut the required amount of investment to immigrate to Vancouver in HALF from what it was before.

To top it off, once in a while people will attest to gambling in the stock market, while not realizing there are taxes to be paid lol.

2000sqft · Fri Jan 27, 2017 2:32 pm

MartyMcFly wrote:
It’s been fun reading your comments and I agree with both sides.... But its my opinion that this is not going to go "to the moon". Sorry bud.
Few reasons
Since 1981 the market has grown by 6.63% compounded annually. The average home price was $181,000 (1981) vs 1,700,000 (Today). Assuming the same growth over another 35 years, the expected house price should be $16,077,860, which doesn’t seem realistic. Note that the average salary grows at 2.3% which does not justify these numbers.
[color=#000000][color=#303030]A big driver of growth has been due to the reduction in interest rates which devalues our currency and allows investors to take on more debt. Unless the BOC decides to drive rates to 0, up is the only option, which means less debt, lower prices.[/color][/color]
[color=#000000][color=#303030]Investors will soon realize that the stock market provides greater returns. During the same period, the S&P grew at 8.41%. If the same about was invested into an ETF, the market value would be $2,748981.35, over a $ million more.[/color][/color]
So will there be a correction, eventually, crash,perhaps, but this market will not go "to the moon". Nope.

http://www.conferenceboard.ca/press/newsrelease/15-10-29/modest_base_salary_increases_expected_to_continue_in_2016.aspx
http://globalnews.ca/news/2531266/one-chart-shows-how-unprecedented-vancouvers-real-estate-situation-is/
https://www.google.ca/#safe=off&q=s%26p+500+index

Average salary is always under reported. Lots of people go around the honour system and don't declare a lot of income in which they are supposed to. Wealth does not always equate to good income. Lots of people have a decent piggy bank with little income.

You can invest in the stock market all you want and go to the library to make your trades since you will have no primary residence to live in.

HomelessinSD · Fri Jan 27, 2017 4:15 pm

MartyMcFly wrote:
It’s been fun reading your comments and I agree with both sides.... But its my opinion that this is not going to go "to the moon". Sorry bud.
Few reasons
Since 1981 the market has grown by 6.63% compounded annually. The average home price was $181,000 (1981) vs 1,700,000 (Today). Assuming the same growth over another 35 years, the expected house price should be $16,077,860, which doesn’t seem realistic. Note that the average salary grows at 2.3% which does not justify these numbers.
[color=#000000][color=#303030]A big driver of growth has been due to the reduction in interest rates which devalues our currency and allows investors to take on more debt. Unless the BOC decides to drive rates to 0, up is the only option, which means less debt, lower prices.[/color][/color]
[color=#000000][color=#303030]Investors will soon realize that the stock market provides greater returns. During the same period, the S&P grew at 8.41%. If the same about was invested into an ETF, the market value would be $2,748981.35, over a $ million more.[/color][/color]
So will there be a correction, eventually, crash,perhaps, but this market will not go "to the moon". Nope.

http://www.conferenceboard.ca/press/newsrelease/15-10-29/modest_base_salary_increases_expected_to_continue_in_2016.aspx
http://globalnews.ca/news/2531266/one-chart-shows-how-unprecedented-vancouvers-real-estate-situation-is/
https://www.google.ca/#safe=off&q=s%26p+500+index

The home purchase would have likely been a leveraged investment, probably with 25% down (possibly less), so that $45k would have turned into $1.7million and you would have lived rent free for the past 10 years.
Or if purchased in cash, you would have to consider the dividends from the home (either collected rent or free rent if you lived there) as part of the investment.

eyesthebye2 · Fri Jan 27, 2017 7:18 pm

HomelessinSD wrote:
eyesthebye2 wrote:
So long as there is strong rental demand there will be housing sales.
I heard a professional estimate that for investment in a detached home, at 20% down, the return for rental each year is 8-9%. It only gets better with lower prices.

With this in mind I cant see the downturn lasting come spring

I'd be interested to see some examples of this for the Greater Vancouver market. I'm being completely serious.

There's a real estate show on CKNW every Saturday. The comments are from last week, 21-Jan.
I'm sure you can listen to it on the CKNW archives

westcoastfella · Sat Jan 28, 2017 12:55 pm

MartyMcFly wrote:
It’s been fun reading your comments and I agree with both sides.... But its my opinion that this is not going to go "to the moon". Sorry bud.
Few reasons
Since 1981 the market has grown by 6.63% compounded annually. The average home price was $181,000 (1981) vs 1,700,000 (Today). Assuming the same growth over another 35 years, the expected house price should be $16,077,860, which doesn’t seem realistic. Note that the average salary grows at 2.3% which does not justify these numbers.
[color=#000000][color=#303030]A big driver of growth has been due to the reduction in interest rates which devalues our currency and allows investors to take on more debt. Unless the BOC decides to drive rates to 0, up is the only option, which means less debt, lower prices.[/color][/color]
[color=#000000][color=#303030]Investors will soon realize that the stock market provides greater returns. During the same period, the S&P grew at 8.41%. If the same about was invested into an ETF, the market value would be $2,748981.35, over a $ million more.[/color][/color]
So will there be a correction, eventually, crash,perhaps, but this market will not go "to the moon". Nope.

http://www.conferenceboard.ca/press/newsrelease/15-10-29/modest_base_salary_increases_expected_to_continue_in_2016.aspx
http://globalnews.ca/news/2531266/one-chart-shows-how-unprecedented-vancouvers-real-estate-situation-is/
https://www.google.ca/#safe=off&q=s%26p+500+index

I don't necessarily agree or disagree with you, but a couple of counter points to consider.
1. If you'd told someone that just purchased a house in 1981 for 181K, that it would be worth 1.7M in 2016, I wonder if they would have thought that was "realistic"... and yet here we are. I agree with you that a 16M house in 30 years sounds crazy, but then future projections that amalgamate years of slow inflation into one final big number always do.
2. Rates don't have to go up or down from this point, they could actually stay low-ish for quite a while. BOC policy decisions hinge on several factors, and if the economy continues to stagnate, I would expect our rates to continue to do the same. US policy may throw a wrench in any plans the BOC might have, but predicting the future with Trump in charge is like throwing darts in a blackout - forget a bullseye, you may not even hit the same wall.
3. Investors, if they care to look, should already be well aware that the stock market produces better returns in the long run, this is not news. And yet, some investors continue to plow money into real estate through good times and bad. What makes you think that investors that value real estate as an investment will switch over to the stock market?

eyesthebye2 · Sat Jan 28, 2017 5:04 pm

Your stock is a piece if paper. Your investment can disappear like it was never there. Real estate is quite the opposite

westcoastfella · Sat Jan 28, 2017 5:28 pm

eyesthebye2 wrote:
Your stock is a piece if paper. Your investment can disappear like it was never there. Real estate is quite the opposite

Tell me, how does an investment simply "disappear like it was never there"?

eyesthebye2 · Sat Jan 28, 2017 6:51 pm

Ask Nortel and Blackberry shareholders

reallyreal2 · Sun Jan 29, 2017 9:41 am

eyesthebye2 wrote:
Your stock is a piece if paper. Your investment can disappear like it was never there. Real estate is quite the opposite

I know! Nobody has ever lost their house...and been left with debt on top of no home!

ETB - pretty clear that your logic extends to one step up the stairs. Don't assume people have the same lack of logic that you might have though.

And according to etb - the paper money in his wallet is "'merely a piece of paper". LOL

VanLord · Sun Jan 29, 2017 11:30 am

westcoastfella wrote:
eyesthebye2 wrote:
Your stock is a piece if paper. Your investment can disappear like it was never there. Real estate is quite the opposite

Tell me, how does an investment simply "disappear like it was never there"?

Its interesting to discuss the Stock Market vs. Real Estate, and the statement that buying stocks is a much better idea. I personally believe in a balanced approach and that stocks and real estate are important investments that need a place in a person's savings and investment portfolio.
We have seen the Dow hit 20k, which is quite an exciting accomplishment, and I wonder how long it will take to hit 30, 40 and 50k. I hope to see these numbers in my lifetime. I bet we will.

However the indexes are rigged so of course these numbers will continue to grow and outperform real estate and other investments. Today we have great companies like Disney, Microsoft, Apple, Visa, Pfizer, etc. But using the example of buying the house in 1981, if instead you had bought great DOW companies of the day such as Eastman Kodak, Sears Roebuck, Woolworths, or American Can Company you might have regretted those investments. In 30 years from now, the greatest companies of today will most likely suffer the same fate, as they decline and new companies take their place.

The Dow touched 1000 in Apr 1981, so if you had dropped 181k into a DJIA ETF (not sure if that type of fund existed back then) you would have 3.6M today...However more likely you only had a 25% downpayment, so if you took 45k and put that into the fund, you would have 905k today. That would be considerably less if you had purchased those 30 DOW companies individually.

So its difficult to compare blindly the differences between different investment types. Sure if you were able to follow Warren Buffets investments over those years, you would have done extremely well, but on the other hand if you underperformed the market by a few percentage points, or maybe you put all your eggs in the Nortel basket, flying high in the 90's...things could be very different.

Real Estate should be a slow and steady wealth builder, and has proven over the long term to be a great hedge against inflation, a way to leverage your downpayment and turn it into a healthy nest egg over a person's lifetime. The Stock Market can be the same, but generally is a much wilder ride, especially over the past 10 - 20 years, its quite difficult to play the game as a minnow swimming with the big sharks.

Much of the Boomers wealth was generated through Real Estate and the simple idea of purchasing a family home to raise a family. Some Boomers did great in the Markets, but I would say most of the wealth was a result of buying a home with a slow and steady forced savings plan, paying that mortgage down over 25 years. This was helped along by Inflation, which in real terms made their debt smaller and lowered the mortgage payment vs. that slow increase in the home's value.

What happens next...my bet is that in the long term it won't be much different for the next generation.

reallyreal2 · Sun Jan 29, 2017 1:18 pm

Excellent post Vanlord.

tdma800 · Sun Jan 29, 2017 1:38 pm

Buying a house should be quick and rapid way to make money, and you dont need to pay tax if its your own place that you sell

MartyMcFly · Sun Jan 29, 2017 3:56 pm

westcoastfella wrote:
MartyMcFly wrote:
It’s been fun reading your comments and I agree with both sides.... But its my opinion that this is not going to go "to the moon". Sorry bud.
Few reasons
Since 1981 the market has grown by 6.63% compounded annually. The average home price was $181,000 (1981) vs 1,700,000 (Today). Assuming the same growth over another 35 years, the expected house price should be $16,077,860, which doesn’t seem realistic. Note that the average salary grows at 2.3% which does not justify these numbers.
[color=#000000][color=#303030]A big driver of growth has been due to the reduction in interest rates which devalues our currency and allows investors to take on more debt. Unless the BOC decides to drive rates to 0, up is the only option, which means less debt, lower prices.[/color][/color]
[color=#000000][color=#303030]Investors will soon realize that the stock market provides greater returns. During the same period, the S&P grew at 8.41%. If the same about was invested into an ETF, the market value would be $2,748981.35, over a $ million more.[/color][/color]
So will there be a correction, eventually, crash,perhaps, but this market will not go "to the moon". Nope.

http://www.conferenceboard.ca/press/newsrelease/15-10-29/modest_base_salary_increases_expected_to_continue_in_2016.aspx
http://globalnews.ca/news/2531266/one-chart-shows-how-unprecedented-vancouvers-real-estate-situation-is/
https://www.google.ca/#safe=off&q=s%26p+500+index

I don't necessarily agree or disagree with you, but a couple of counter points to consider.
1. If you'd told someone that just purchased a house in 1981 for 181K, that it would be worth 1.7M in 2016, I wonder if they would have thought that was "realistic"... and yet here we are. I agree with you that a 16M house in 30 years sounds crazy, but then future projections that amalgamate years of slow inflation into one final big number always do.
2. Rates don't have to go up or down from this point, they could actually stay low-ish for quite a while. BOC policy decisions hinge on several factors, and if the economy continues to stagnate, I would expect our rates to continue to do the same. US policy may throw a wrench in any plans the BOC might have, but predicting the future with Trump in charge is like throwing darts in a blackout - forget a bullseye, you may not even hit the same wall.
3. Investors, if they care to look, should already be well aware that the stock market produces better returns in the long run, this is not news. And yet, some investors continue to plow money into real estate through good times and bad. What makes you think that investors that value real estate as an investment will switch over to the stock market?

First, let me start by saying that I am a strong believer in real estate holdings as an asset, especially as your principal residency. Although seeing as Vancouver real estate is such a hot topic of conversation, I enjoy speculating on where it’s going in the short & long term.

To answer your questions:
2. Since the Financial Crisis, central banks have been using monetary policy to stimulate the economy, by reducing rates and providing liquidity in the market/economy. I think those days are over and governments will use Fiscal policy to create growth. Both Trudeau and Trump have pledged to spend on infrastructure instead of balancing the budget. If this is the case, the Fed and BOC could raise rates as a tool to fight inflation.
3. I don’t believe long term real estate investors will suddenly decide to put their money in the stock market, but I do think there people who are having doubts about current prices in Vancouver. The bad publicity it’s been getting lately doesn’t help the cause. Therefore, I think there will be people looking invest and think about other options than real estate. Also, the moves by the Canadian government have made it more difficult for investors to purchase real estate.

Lastly, let me repeat myself and say that I think real estate is a good asset to hold. If I didn’t own a home and was comparing buying a home or renting, I’d probably buy. Main reason, I think rates are going higher which would increase those mortgage payments. So even if the housing price dropped, I don’t know if it would help the cause. But as an investment, not sure if I’d buy….

LePage Expects Vancouver Housing Correction in 2017

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