June 18 Market Update – Listings approach 2500
Total market inventory is still creeping upwards and is getting quite close to 2500 properties, which we’ll likely hit by the end of the month. Inventory for the year always peaks around June. When the market is heating up that gets pulled to May and if the market is slowing down it gets pushed to July. It’s hard to tell what will happen this year because the market is digesting so many changes but I suspect we will see very similar levels of inventory for the next 6 weeks or so.
Peak season for new listings is definitely behind us (that’s in May) so the rate of new properties coming on the market has slowed from about 400 to 300 per week. Comparing current residential inventory and new listings (June numbers projected) to the 10 year averages, we get the following picture.
A couple things I noticed from this chart:
- Inventory is increasing but still 25% below the long run average for June.
- New listings lagged the 10 year average substantially at the beginning of the year, but has now caught up. It seems like the tax changes are bringing new listings on the market. The speculation tax combined with the Victoria crackdown on AirBnB should bring more units on the market as both of those measures become more concrete towards the end of the year.
Also weekly sales numbers courtesy of the VREB.
| June 2018 |
June
2017
|
||||
|---|---|---|---|---|---|
| Wk 1 | Wk 2 | Wk 3 | Wk 4 | ||
| Unconditional Sales | 215 | 397 | 1008 | ||
| New Listings | 443 | 750 | 1358 | ||
| Active Listings | 2460 | 2488 | 1915 | ||
| Sales to New Listings | 49% | 53% | 74% | ||
| Sales Projection | 715 | 725 | |||
| Months of Inventory | 1.9 | ||||
Similar to last week, sales are down 28% compared to this time last year with listings up 25%.
Perhaps of interest to members of
the board — the effect of affluence on New York. I feel like we’re seeing something similar in Vancouver, and in the core in Victoria.
https://harpers.org/archive/2018/07/the-death-of-new-york-city-gentrification/?utm_source=newsletter_84&utm_medium=email&utm_campaign=web-curios-22-06-18
Here you go Introvert.
Last year, U-Haul recorded a 29 per cent year-over-year drop in one-way traffic to Vancouver. Local President Michelle Benson says that is mainly because housing here is just too out of reach.
“It seems that most of them are now going to Victoria because we’ve had a huge influx of equipment dropping in Victoria now than in Vancouver. On our standings, Victoria jumped up two spots where Vancouver dropped down two spots.”
https://www.news1130.com/2018/06/21/research-shows-fewer-movers-vancouver-bound/
When they realize, most of them will just shrug and life will go on as usual.
Re: Lightspeed, not using fiber optic Internet in the current year?
Fernwood and Oaklands is Hipster. Fairfield isn’t….
@AZ assessed value did jump by approx. 25% 5 months ago. It also could just reflect that to some degree, but yes, i dont disagree.
Lots of places coming up at or around assessed value. Certainly not something we’ve seen till very recently. How long till the sheeple realize prices are coming down? Or the fake HPI starts to show declines?
C-1047 Chamberlain on the market for less than assessed. Are they looking for bidding war or are the sellers trying to be realistic?
1484 Lang would need to sell for $650k for there to be even a chance of breaking even…and that’s ignoring opportunity cost.
The Lang St house… 645,000 tops.
Kinda nice to see greed go unrewarded.
The Lee Avenue house has dropped 25,000 butis still listed for over 1 million.
@ Leo S:
“You are going to see a lot fewer real estate teams with the new rules, especially the largest ones will be hit the hardest because they can no longer work with buyers and sellers on the same property.”
Is this new rule now in effect?
And
“If one member of the team is listing your house, and another member of the team has a buyer, that is considered dual agency and banned.”
What does that mean in the case of a buyer who wishes to purchase a property from a vendor represented by an agent with the buyer’s agent’s firm? Presumably under those circumstances a sale can still be negotiated. But how is it sorted out, and how much commission would normally be paid and by whom?
And in the case of a buyer represented by a firm that, prior to this new rule, offered dual agency, does the relationship now automatically lapse.
Sorry if these questions sound confused. I am confused. I don’t understand the mechanics here. An explanation would be appreciated.
Horrific.
90 Moss Street… ” CHARMING 1940’s California-style bungalow in the heart of Victoria’s “hipstoric” Fairfield neighbourhood”
hipstoric (Urban dictionary)
A place that’s historic in nature and redesigned to look hipster OR a place that’s totally hipster and designed to look historic.
Which one is it 😉
I see 2001 Carrick St V8Y 1B3 is up for sale. $979,900. We looked at this home back when it was for sale last summer.
31-Aug-2017 $800,000
11-Feb-2016 $602,500
You are going to see a lot fewer real estate teams with the new rules, especially the largest ones will be hit the hardest because they can no longer work with buyers and sellers on the same property. If one member of the team is listing your house, and another member of the team has a buyer, that is considered dual agency and banned. When there’s a large team working with dozens of buyers that’s a huge problem.
All I’ve seen happen in Australia for outright violations of the law (I mean in letter, i.e. a foreigner buying) is they have to sell. For example:
http://www.scmp.com/news/china/economy/article/2068892/australia-forced-sale-25-homes-china-buyers
“The mansion, located on scenic Point Piper in eastern Sydney, was sold to a Chinese-Australian shortly after the government ordered Xu to sell the property within 90 days or face prosecution in March 2015, according to a report from The Daily Telegraph”
Seems to me that Oz isn’t even trying to deal with citizens or PR’s of Chinese origin buying property with money from abroad. And I think that’s the bigger problem there as well as here.
The way they deal with this in Australia is that if you’re knowingly trying to skirt the law and they catch you, you forfeit the property.
De jure foreign ownership is pretty small, as evidenced by the statistics from the government. Pretty much all knowledgeable commentators say that purchases by de jure locals using funding of foreign origin are a lot bigger. Ban the former and you’re likely to see a lot of leakage to the latter. Appropriate tax policy can deal with both of them without a foreign ownership ban per se.
Trial lawyers oppose a cap. Colour me shocked.
Yes you are correct of course. A moment of mathlexia on my part.
Assuming you can by the exact same stock for half the price near at close to the same point in time, the half price purchase should give you exactly double the total return. The only actual exception I can think of is if the company goes bankrupt before paying any dividends in which case both situations have identical returns.
Nonetheless if you have a long holding period (20-30 years which is very realistic in terms of saving for retirement) there has been no bad time to invest in stocks in Canada or US since the Great Depression. There have merely been mediocre, good, and excellent times to invest.
I remember a few weeks back we had a discussion about ISPs around here. I’m about to call up to order service from Lightspeed because they seem to have the best pricing, but no one in my circle has heard of them… any opinions on reliability and service from this group?
Thanks for great posts and good discussion as usual.
Banning foreign ownership of BC real estate, particularly in Vancouver, Victoria, Kelowna and Nanaimo – Mr. Weaver has an interesting idea that would solve the affordability crisis, don’t you think.
An open registry disclosing ownership – a great first step to reaching Mr. Weaver’s goal. I like it.
By the way – visit http://www.roadbc.ca and consider signing the petition – an injustice is about to take place and you need to have your say before it is too late. the NDP never revealed this plan in the last election and, instead, promised “no caps” and “no nofault” for ICBC. Two types if lies: (a) lies and (b) damn lies.
And exactly who in the media is going to have the courage to suggest that the emperor has no clothing when they need the advertising revenue? I still think we are going to need a lot more inventory before any sense of panic infects the sellers.
Here is more info on the Benefecial Ownership Registry and opportunity for feedback until August 19th http://www.fin.gov.bc.ca/pld/fcsp/consultLOTA.htm
“MAJOR price reduction…owner says “sell this house”
OPEN HOUSE June 23 12 noon to 3 pm….drop by and have a look….new Tesla Model 3 will be on display!!”
Ha! He is the owner. I guess talking in 3rd person and driving around in his new tesla 3 might help the sale. I bet he’s into this house for ~ $600k.
I’m thinking a sale of 650 to 675. Or as you said 695 plus the car.
@Barrister
I think the sales are still chugging as the general public perception is still not negative. Verb, terb, BC real estate and all the others keep trying to put lipstick on a pig. Once this changes and the media changes tune the general public will start to become aware and things will change IMO.
I like today’s Better Dwelling article – it’s a quiz. I got number 4 wrong.
Can You Tell If These Central Bank Quotes Are About Canadian Real Estate In 2018, Or The US Before The Great Recession?
https://betterdwelling.com/can-you-tell-if-these-central-bank-quotes-are-about-canadian-real-estate-in-2018-or-the-us-before-the-great-recession/
Well yes. But the point is that too many people ignore it, particularly in the case of RE.
While days on market have definitely increased, there still seems to be a steady steam of sales for top dollar.
I think that having full disclosure of who owns real estate in the province in terms of beneficial ownership is a great idea. I am wondering how they are going to deal with large companies that own some residential real estate. Obviously if Amazon owns a corporate condo in Victoria it is not practical to report every transfer of shares considering the volume of shares traded every day. Obviously there has to be an exclusion for publicly traded corporations.
He’s also been quoted repeatedly saying he’d rather buy a great company at a fair price than a good company at a great price.
My god man do you suffer a fit of paralysis every time you decide to invest?
Non-sequitur. What you are stating is the basic principle of good, conservative investing. Buffet is just better than everyone else at it.
Depends on whether you think you need twice as much money I guess. But the real point is that the reason why BH has had such great returns is that Warren Buffett cares very much whether the price per share he pays for companies is justified. He does not expect someone just to come around later and pay him more than he paid.
It’s right because if you buy a stock for $25 instead of $50 you get twice as many stocks for the same amount of money and twice the amount of dividends in the future.
That makes me happy.
Same with this: http://www.cbc.ca/news/world/mossack-fonseca-panama-papers-new-leak-1.4714187
I see Global News has a tough time with the difference between “it’s” and “its” (second sentence).
B.C. Government to launch registry of who owns real estate in province:
https://globalnews.ca/news/4286029/b-c-government-to-launch-registry-of-who-owns-real-estate-in-province/
Anecdote alert: Just came back from an evening walk in the neighbourhood. Went through about 4km of side-streets. I haven’t seen this many house for sale signs in years, including several on my street. Not one of them had a sold sticker on them, either. I recall a year ago the odd for sale sign that did go up, the “sold” sticker practically went up with it. Quite striking to see the physicality of what we are increasingly seeing in the data.
Ah yes, 1484 Lang Street (MLS 391677). What did it start out at, $900k?
Like the study that showed that the investors that performed best were the ones that had forgotten they even had investment accounts so they didn’t meddle. Retail investors are on average horrendously bad at it because they believe they are smarter than the market and purchase high fee products.
There are generally two statuses that you will see outside of current, pending, and sold.
Inactive is rarely used, but is generally seen as a more temporary condition (say temporarily used if there are some issues with clearing conditions that might take longer but the deal is expected to go through). Usually it would be triggered by the selling agent that wants to temporarily remove the listing from visibility and may indicate something unique is going on.
Thanks, y’all. I learned something new about how stupid mortgage lenders are!
Hey Leo, is there any difference between inactive and cancelled listings? I have noticed some inactive listings pop up, for example: 978 Fir Tree Glen in Broadmead which is assessed at $1,137,000 with the following asks:
Ask 1: $1,230,000, cancelled
Ask 2: $1,199,900, cancelled
Ask 3: $1,149,900, cancelled
Ask 4: $1,099,800, now inactive
Does inactive mean the ad expired due to time rather than cancelled by agent?
RE: University Students
The part of the equation that most people are missing is the distinction between operating expenses and the huge outlay in capital costs. They come out of separate budgets when talking about Canadian Universities. Foreign students are profitable and allow more staff to be hired only because the capital costs of buildings land and a number of other items come out of a different budget by the government. In point of fact, foreign students are still subsidized by the Canadian government when you take into account the global total budget. Everybody, except the ever expanding bureaucracy that runs the Universities, would be better off without the foreign students.
If I bought Berkshire shares at $50 instead of $25 fifty years ago and then sell at $400,000 per share today , do I really care I paid $50 per share as opposed to $25? I think that is his point.
@Leif
I’ve learned not to guess house sale prices as I’m often surprised.
You may be correct though! Another price drop, now $695k!
From MLS:
But I’ll “guess” anyways : $695k plus a “free Tesla 3″… 🙂
Somewhat lucky. But investing in the Canadian stock market at even the “worst” point on your picture would still have produced great returns
That’s wrong because over time dividends account for a significant portion of total returns.
In deciding whether to buy a $50 stock one of the most irrelevant factors to consider is whether it was once a $25 stock.
30 years ago there were far fewer university students per capita in BC. The government simply cannot afford the funding per student that it used to. The more students go to university the less advantage it gets them and the more money it costs them. Germany gets by with about 1/2 the university grads per capita that Canada does.
RBC did not require earthquake insurance at least not when we got ours there two years ago.
If you buy a stock for $50, you will have 1/2 the return than if you bought it for $25, no matter how long you hold it.
That was near the bottom of a bear market and the start of the biggest bull market ever. If they’d bought a bit earlier or later they’d have a lot less money today. They were lucky. Most retail stock market investors don’t have to be lucky because they buy a little every year.
https://imgur.com/a/frd1hoc
@ Patriotz
“That is what has supported house prices rising faster then inflation.”
I believe your argument preceding that conclusion is correct. But here’s the weird thing. Why do houses cost as much as people can possibly afford to pay. It’s crazy. A house is a manufactured product. As the industry evolves, house prices should, if anything decrease, at least in real dollar terms. So why have real house prices risen in accordance with the ability to pay? The answer seems clear. Zoning bylaws designed to ensure people pay for houses as much as the can possibly afford. Otherwise, there would always be a supply of serviced lots for, something like $50,000 or so a piece, where folks could have modest new homes at the current cost of construction, i.e., $150 – 300 per square foot. Instead we have half and one acre lots in the Uplands, and in Saanich square kilometers of “farmland” producing nothing much more than a few tons of hay, while people pay millions for clapped out Oak Bay bungalows.
Nope – and it’s with First National which is a very large lender (largest non bank mortgage lender in Canada and with very good rates as well FYI). It is surprising isn’t it? I mean what are the odds a house burns down in a fire vs being deemed uninhabitable due to an earthquake? I’d think the odds are similar enough that if you need fire insurance you’d need earthquake insurance.
Yes, fwiw I call my theory “another helping of the same… with sprinkles”.
We don’t t have earthquake insurance. Not when we lived in Victoria and not upisland. I remember it being very expensive. Also doesn’t cover much..or at least that is my memory.
Your mortgage institution does not require earthquake coverage? That is surprising to me, but I am no expert on mortgage lenders.
From what I understand there is no hard cap on international enrolment, and since domestic student enrolment is (supposedly) not affected, they are essentially adding headcount to help cover their out of control budgets (that and the massive inflation on domestic tuition).
Most reports seem to show falling government funding as a percentage of per capita funding costs, which makes sense if university administrative staff counts have ballooned by 220% on average in the past few decades, given that the lion’s share of university budgets go to staff compensation.
Dangerous thinking. If I invested in the stock market in December 2009 I will forever be behind someone who invested in Mar 2009 at the cycle low. That doesn’t change the fact that investing in December 2009 was a wise decision at the time. Worrying about the returns of someone who was smarter or luckier than you with timing is irrelevant at best and downright harmful at worst. As another poster here has often said – “there is only the deal of the day” (dasmo I think?)
For a more real example. I bought a house in 2008. I will forever be behind someone who bought in 2002 (and not just by 20%). Although somewhat painful and sad to contemplate that fact, it never entered my decision making. Getting anchored on previous price points is proven to be harmful to your financial health.
The longer you hold the less relevant the purchase price becomes. This point was driven home to me recently when I helped my parents review their investment portfolio. Most of their investments were conservative run of the mill Canadian stocks bought in the mid 70’s when they received a small inheritance. Very few changes to the portfolio over the years. Every holding had gone up by many, many multiples of purchase price except for a few that had gone to zero (bankruptcy). Net result was way way up. These are not financial geniuses – just time in the market.
Well, with a mortgage it literally is impossible to not get insurance – the lender insists on it. Mill Bay is only ranked as at Moderate earthquake risk, compared to most of Victoria which is High, Very High or Extreme (https://www.iclr.org/earthquake-risk/)
Regardless, I’ve decided to add earthquake for the dwelling only and went with a slightly higher premium to get away from the 10% deductible. Hopefully it is money “wasted”.
“B.C. creates public registry to track real estate owners”
https://www.saanichnews.com/news/b-c-creates-public-registry-to-track-real-estate-owners/
Anyone know where to get some details? This article says essentially nothing.
If you don’t get earthquake insurance on the Island, then don’t bother with insurance.
There are lots and lots of earthquake scenarios here that are not the “big one”. A nice 7.0 under Langford (Leech River Fault) could cause loads of scattered damage without rendering the city inoperable.
CS was mentioning GE stock and asked, “What do others think of this stock at 12 bucks, a p/e of 16…”
I’m not a stock investor, but for the past several months I’ve been reading about a stock market indicator called cyclically adjusted price-to-earnings ratio, commonly known as CAPE.
It is a long term valuation measure defined as price divided by the average of ten years of earnings (moving average), adjusted for inflation and it’s often applied broadly to the US S&P 500 equity market, but it’s also used more focused on individual sectors and industries.
The reason I’m mentioning this is that although CAPE is not intended as an indicator of booms or busts, it’s history, in hindsight, has been a fairly accurate predictor of overvalued and undervalued markets.
The current CAPE clearly indicates a highly overvalued stock market.
CAPE is currently 32
MarketWatch quote:
“The U.S. is selling at 32 times cyclically adjusted price-to-earnings (PE) ratio, which is an all-time high,” he said. “Surely it’s time for a major correction anyway.” More overvalued than in 1929 and 2000? According to Mellon, yes.”
https://www.marketwatch.com/story/billionaire-investor-jim-mellon-this-is-the-start-of-a-very-major-correction-2018-06-19
All investment markets seem highly overvalued these days, and real estate has clearly become an investment industry to many people
I call that theory “gravity”, but as you say time will tell.
I see you have a theory, I just disagree with it. Time will tell. Appreciation doesn’t cause collapse imo, there are natural cycles and appreciation over the norm is a factor, but when prices diverge from income, anywhere in the world, new buyers buy lower on the property ladder, have parental help whether with down payments or co-signing, use suites and room rentals, and rely on inheritance – setting aside the issue of foreign capital.
44% of millennials have or expect parental help with buying their first home:
https://www.theglobeandmail.com/report-on-business/mom-and-dad-place-their-bets-on-property/article32050692/
IMO there is a huge market coming up for multi-gen co-ownership.
Also, foreign students bring a lot of money into Canada. Their tuition makes up half of U of T’s tuition revenues right now and 25% of incoming students are foreign.
http://www.international.gc.ca/education/report-rapport/impact-2016/index.aspx?lang=eng
https://www.cbc.ca/news/canada/toronto/international-students-universities-ontario-tuition-1.4199489
i have earthquake insurance. Like others have said, its a few hundred bucks a year for a policy with a 30k deductible that covers full equivalent building replacement.
BC Hydro to charge extra fee for ‘crisis fund’ to help customers who can’t pay bill
https://globalnews.ca/news/4284779/bc-hydro-crisis-fund-fee/
Fun fact:
What if you buy a house for $X and then after nine years it’s worth 40% more than $X. Would the person who bought at $X be forever ahead of the person who didn’t buy at $X? Asking for a friend.
“if you buy a house for $X, and then someone else buys an equivalent house for (e.g.) 20% less, that person will be ahead of you forever. The idea that holding an asset a long time will make up for paying too much is a fallacy”
Real Victoria stories are the opposite paying 20% more waiting for that 20% less. No win there.
“No they’re not. The extra tuition that the university receives is simply compensation for the lack of provincial government grant that would be received for a local student”
I reread what you posted are you not actually saying an international student is more valuable to a university because they no longer get enough grant.
Patriotz
Not the case. Adds money for programs (research labs and programs) and plugs budget gaps
https://www.theglobeandmail.com/news/national/education/international-admissions-to-canadian-universities-see-significant-increase/article34984977/
RM Kennedy, Centennial College professor and Ontario Public Service Employees Union (OPSEU) chair, said the influx of international students in Ontario’s colleges and universities is a result of “funding shortfalls.”
“They key is that we are having a gap between the increased enrolment and the number of services that are put in place to support those students so they can be successful in the environment.”
http://www.cbc.ca/news/canada/windsor/international-student-recruiter-institution-exploitation-1.4668831
Local tuition plus gov funding does not equal what international students pay not a chance. That is why the push to let in more international student than lower acceptance requirements for Locals.
if you buy a house for $X, and then someone else buys an equivalent house for (e.g.) 20% less, that person will be ahead of you forever. The idea that holding an asset a long time will make up for paying too much is a fallacy.
No they’re not. The extra tuition that the university receives is simply compensation for the lack of provincial government grant that would be received for a local student.
The reason universities are admitting more foreign students is that it’s the only way for them to grow with limited provincial funding. They’d be just as happy to take more locals if the provincial government was willing to pay up.
Curious are having international students at UVIC taking away spots for locals or actually giving the university more funds to educate more locals and provide better facilities. Interesting to understand what the answer is?
The insurance company may not go bankrupt but they can make one’s life miserable by denying claims, offering substantially less than value, performing shoddy work, etc.
2 years after Katrina:
https://www.nytimes.com/2007/09/02/business/worldbusiness/02iht-orleans.4.7353442.html
3 years after Sandy:
https://www.npr.org/2016/05/24/478868270/business-of-disaster-insurance-firms-profited-400-million-after-sandy
After Harvey:
https://www.click2houston.com/news/hurricane-harvey-victims-complain-about-insurance-companies-in-wake-of-storm
So while insurance companies tend to not go bankrupt, it doesn’t mean they are paying out as expected from the policy purchased.
Andy7- thanks for that regional snapshot of MOI. Very interesting.
Seems plausible to me.
I’m guessing this type of thing doesn’t happen very much in Saskatoon, Winnipeg, St Jean’s, or Moncton.
Neither is money in the stock market.
It Can’t Be Happening Here™
I have it.
Believe it or not, insurance companies have insurance companies.
Also, if I’m not mistaken, insurance companies didn’t go bankrupt during Katrina, Sandy, or Harvey.
Mind you, insurance companies are evil, so they’ll try to lowball settlements. There will be a lot of lawsuits.
That doesn’t mean we should raise the white flag and accept the worst possible deal, IMO.
Yes from a long-term investing perspective I completely agree. It’s a good part of why Buffett is the financial wizard he is. My talk about the cycle was more towards the immediate (and dangerous) climate of what I consider to be financial craziness for a lot of hard-working families out there.
I read a report of a study recently that showed, over the last 30 something years, the number of professors at universities in North America has increased by about 20%. The number of university administrative staff over that same period has increased 220%. Talk about out of control.
Beancounter I agree the “blips” can be pretty damn important. People get wiped out by the blips within the generally exponential up trend. And some of the blips are pretty significant at the time (stock market down 50% + for instance).
Still have to put the blips in long term context. Time in the market really does matter. The longer you are in the market (housing, equity), the more the general uptrend asserts itself and the less the blips matter.
Thanks, Leo. I’m sorry I’m such a dunderhead, but why is it a good idea, then, to do the conduit at the same time as the new roof?
Trade wars benefit no one. Trump is playing to his base – he ran on this and wants to be able to say he followed through. He has little choice. This is entirely inflationary – both sides and globally. Trump is targeting every major trading partner they have. The tariffs are passed on to the consumer in higher prices, so the substitution effect takes place and the prices of those go up. So, central bankers have to raise interest rates and eventually economies slow and unemployment rises.
TSX hot an all-time high today. Victoria RE market…..mmmm….not so much.
International students are about 3times more valuable to a University so that is the reason and it will keep going as Universities look for $$$
Interesting you mention that. I have noticed a major increase in the number of international students on the UVic campus within just the past 5 years. I know a professor down at the University of Washington in Seattle was in the news awhile back because he started a petition to remove some international students in his classes because of how intentionally poor their academic discipline was (not showing up for class, etc.). Apparently they had no intention of completing studies there, and he was upset with administration for prioritizing these students because of the amount of tuition they were paying over students who would be actually interested in furthering their education.
Aside from stronger eyebrow glue, his cutesy “we won’t be pushed around” might please Canadian diary workers, but it’s not realistic regardless of whether Trump’s reasoning is sound. Canada would be more hurt in a trade war than the US would, and there’s no way our leadership doesn’t know that. Then there’s the 200 billion dollar game Trump is contemplating with China. Even though that trade deficit is significant by some measures, China has other ways of hitting back; US treasury holdings and Yuan devaluation comes to mind.
Torn on what this could mean for real estate. Bad economy could mean lower rates, but then again these developments could be inflationary in the States, with us going along with the Fed, kicking and screaming.
True, and in any trade war with the US, Canada will lose. But the US is starting a trade war with China and Europe and Mexico and others as well as Canada. And if they are fighting everyone at once, the US loses. One would imagine they will have to back down at some point. But there is no logic at play here so anything could happen.
This is hilarious – I now think we are performing mathematical operations on two different things. I see now why – my comment set this entire exchange off was that the “rate of growth does not increase exponentially as a function of time.” So my y has been growth, so the dy/dt in my replies has been rate of change of growth (which obviously means that x cannot be a constant). Your y is activity, and your dy/dt is growth. It looks like we are a derivative level apart. Crap, in any case….
Absurdities aside, the original statement was that the business cycle is not an exponential function. Meaning we will have contraction at some point. Caveat’s original comment was that they are just “blips” on the 400 year timescale of something close to an exponential function. Interesting to think about, but I’m pretty sure the “blips” are mostly all the real world cares about. Businesses and financial lives are made and destroyed in those blips.
I wouldn’t worry about that, it’s very unlikely. I have clients in insurance and re-insurance and you can rest assured that they spread their risks out quite effectively. Insurance companies are full of actuaries, essentially a bunch of math nerds who crunch numbers all day and understand risk and probabilities very, very well.
Hard to find anything wrong with Garth`s article. Trump is running the US like he would run a company. The 2 are not the same and the potential global damage is real. That is the reason I brought up negative interest rates. Hoping clearer heads prevail. Trudeau just needs to shut up give Trump some sort of win he can boast about and we move on. Not doing this could lead to a decade of real pain where no jobs are safe even government ones.
Whether we like it or not we are 10% of the US and we need them….
Did anyone read garths take on Trumps global trade wars and essentially TD`s take on auto tariffs will devestate Ontarios workforce. I see the loonies is crashing out heading to a year low so the market sees issues ahead.
http://www.greaterfool.ca/2018/06/19/hopeless-4/
@Grant – I have earthquake coverage, but for that portion of the insurance the deductible is 10% of the insured value of the structure. From what I understand this is standard for earthquake coverage. This adds $480 to the annual bill. Not entirely sold on the value of the earthquake insurance as a catastrophic quake would probably just bankrupt the insurers and we wouldn’t get any money anyway. I may not include it upon renewal.
I acknowledge that argument especially in relation to investment concerns and how we’ve followed them historically, but
1) I really question how far the US will be able to go. And
2) Even if they do increase a lot, then it’ll depend on how the economy in Canada is doing. If it’s struggling the choice of increasing rates and strangling the economy further will simply not be politically palatable.
James when you have trade issues and you would like a cheap Canadian $ it is real easy to do.
I’m debating whether to add earthquake insurance to my upcoming policy. When I lived in California earthquake insurance was prohibitively expensive and I was surprised to find out that I can add it to our new Mill Bay home for a 50% premium increase – about $600 (So from $1200 without to $1800 with). Percentage wise it’s still expensive but it’s much cheaper than I was expecting. That $600 covers 3/4 Million in dwelling coverge, no contents coverage and $2500 deductible. Even in a bigger quake I’d expect the building to still be standing but essentially need to be rebuilt so that’s why I’d forgo contents coverage.
Of the homeowners here who has earthquake insurance?
First wages go up then rates….
Pretty easy to lower your interest rates when the US is. Not so easy when the US is increasing theirs.
The point about interest rates is they do not need to stop a zero they can go negative. I do not believe it will happen. I think Trump is trying to inflate the economy. Not sure it will work or instead destroy economies around the world. If he is successful I would own commodities.
Nan
Assuming this is true. That needs to stop with the University. But the $$$ they receive I doubt it. Also a spot is being taken away from someone.
“When the central bank lowers its rate to a negative 2%, the bank may have to charge a negative 0.5% rate, which means that the bank owes the borrower 0.5% interest. Banks in Denmark have sent borrowers checks for this reverse interest. ”
https://www.investopedia.com/articles/personal-finance/081016/how-negative-interest-rates-affect-mortgages.asp
Sigh.
This is true. However, equity in a home is never a definite proposition. When you say I have a lot of equity in the house, what you’re really saying, is,
I have paid a notable portion of my mortgage off, and, more importantly, if I went to sell, a buyer would come along and pay me the price I want.
In other words, the ability to extract or liquidate equity for any purpose is a function of what a buyer is willing to pay you for it, or whether a lender believes they can recoup the loss if you are unable to repay.
We’ve beaten this to death. You can’t sustain an equity-based market, where only established owners flip houses back and forth to each other at ever higher prices. Gifting can temporarily increase its mileage to a point, but ultimately you must have new money coming in via first time buyers, or the entire edifice eventually collapses.
Nan:
I can’t imagine that a student, when asked a question like that by their professor, would provide the professor with that kind of detailed answer, which actually has nothing to do with the question. I call shenanigans.
Heard an interesting anecdote yesterday. A friend of mine is a Uvic professor. This year he had about a half dozen students in his faculty from China that didnt come to a single class. He asked them what their plan was to pass and they said “they didnt care, we’re only here to use the student Visa to stay in Canada longer so we can shop for real estate with family money from back home.
Lots wrong here…
It doesn’t need to be lowered. Staying at a relatively low rate is (for all of those but the most severely overleveraged) sufficient. Some see huge rate increases on the horizon but my bet is they aren’t coming to the degree some expect. They will try to push them up as much as they can but you’re right there IS too much debt held by Canadians and if rates go too high it will crater the economy and rates will necessarily go right back down as they try to inject the patient with adrenaline again. Poloz knows this and has stated as much. QE and the drastic lowering of interest rates in response to the financial crisis has created a situation that will take a very long time to unwind.
People can and do pay more also because of equity accumulation. It funds increasing prices and transfers through families to assist the next generation. People see value in buying a home here because it is a home and because it appreciates so confidence is generally high. These factors combined with the best financing terms you can find and the capital gains tax exemption and the need for shelter which costs money whether rented or owned will continue to make a primary residence an attractive proposition imo.
The long-term rate of appreciation has not been the same everywhere. You can see this by comparing average house prices in various cities which do not have declining populations or industry loss. The average house in Saskatoon is $295,100, Winnipeg is $289,155, St John’s is $295,482 and Moncton is $176,000. It is clear that the exponential increase in land values in places like Victoria and Kelowna has far outstripped other places in Canada. You can see the same long-term cumulative effect in the US when comparing more desirable areas on the west or east coast to other capital cities in the middle and south of the country.
https://www.qmm.com/canada-house-prices-where-are-the-cheapest-provinces-to-buy-a-home-article
Every now and then I see a listing that really makes me wonder if people have lost their collective minds. Today it is 953 Victoria Ave. in Oak Bay. asking 1.449. Last bought in April 2016 for 817k. This is a small cottage house that has been renovated with half the floor space in the basement and a tiny attic that sits on a small lot of 5000 sq. feet.
So why the hell is this worth 1.5 million to anybody? End of grumpy old man rant. Maybe it has solid gold facets and door handles.
That is true almost everywhere (except cities with declining population or industry loss). Why? Up until about 1980, wages outpaced inflation. So it makes sense that house prices outpaced inflation too. Since the late 1970’s, the norm has gone from a one income household to two. That means household incomes outpaced inflation even after individual incomes stopped. Finally from 1982 until very recently, interest rates have declined. That supported higher house prices even with static household incomes.
That is what has supported house prices rising faster then inflation. It’s not some magic inertial property of housing. It’s simply about what people have been able to pay.
Rate of growth means the amount of change divided by the current value of the function, e.g. a 1% growth rate, 5% growth rate, etc. That means for rate of growth x over time t, d(y)/dt = x/100 * y which defines an exponential function. It’s exactly the same as what caveat emptor said (in the post with the graph), I suggest you read it as he gave a more complete explanation with examples.
That is the rate the mortgage lender is paying buyers of its bonds.
It depends on your design, type of wiring that you use, and built in micro inverter solar panels or regular DC solar panels.
For aesthetic reasons most people would have conduit from at least the roof junction box at the side/base of the solar panels to the roof penetration. However, you can continue the conduit run from the roof penetration to the inverter/disconnect (I would go with a pull out disconnect type for safety reason, or at the very least a lock out type).
I would go with a penetration/distribution/junction box on a new roof if you are looking at having solar panel in the future.
The big one will decimate values and both insured and uninsured owners will lose hundreds of thousands.
And that will be the least of our concerns.
I have looked at that data in the past expecting the same patterns you talked about, and found it to be entirely un-enlightening. I’ll take another look.
In case anyone wants to look back at their predictions (will be publishing a mid-year review to see how we are all doing) they are here: https://househuntvictoria.ca/2017/12/28/magic-8-ball-says-predictions-are-difficult/
Those estimates are just Landcor estimates that have been around for years and years (but not free). Remax simply licensed the tool.
An electrician can do this but I wouldn’t poke it through the roof until you are ready to install the solar. You don’t know where the best place to do that will be until you design the layout of the panels.
Yes. However as I wrote out my full journey of self discovery and exponential appreciation I figured it was getting long enough to be a post, so I’ll just publish that in a day or two instead.
No, it is a housing market in which, over the long-term, price appreciation has exceeded inflation. These markets are in areas that are more desirable for reasons of geography, climate, jobs etc.
In these markets SFHs in desirable eventually outpace income-based affordability as gains grow exponentially so new buyers buy further out, have suites, get family help, buy smaller, become long-term renters, or leave. Values may fall in value or stagnate in the short-term, but over the long-term you will see appreciation at work at rates above inflation.
I don’t see an end to this phenomena within my lifetime although, again, short-term, a crash is always possible and an earthquake could see prices fall for several years and uninsured individuals could lose a lot on the value of their structures.
Other markets have not appreciated in this manner and may be better for those looking to invest in cash flow positive rentals.
“Yes, prices are dipping now, but the fact remains that BC is a desirable retirement destination for Canadians, so demand will remain-unless the NDP figures out how to install Canadian winters and remove the mountains, ocean and the trees. Even if they buck historically average dip of 2% and go down 10% , we will be nowhere near “affordability”. Here’s a little discussed factor that will keep prices buoyant”
High housing costs in BC seem to be doing the exact opposite the past year. People do not move to a city where they are forced to drown themselves in debt for housing. The following stats show a large decline of Canadians from other provinces moving to BC in the second half of 2017 and BC residents are leaving in larger numbers to other provinces. Will be interesting to see if this continues
“Over the second half of last year, a surprising development occurred – the net inflow of people moving to B.C. from other provinces fell sharply. By mid-2014, interprovincial migration was adding more than 5,000 people to B.C.’s population every quarter – upwards of 20,000 annually. Over the subsequent three years, net interprovincial migration ranged between 4,000 and 6,000 per quarter. But in the third quarter of 2017, the net inflow plummeted to 500, and it stayed low (at 800) in Q4.
The other side of the interprovincial migration ledger is British Columbians who leave home. Out-migration to both Alberta and Ontario has risen over the past year. A more buoyant job market in these provinces is one reason. But “push” factors, notably the high cost of housing in B.C.’s urban centres, are probably more important. The combination of unusually steep local housing costs and brighter job prospects in other regions may be prompting more British Columbians to pick up sticks. High housing costs are also discouraging some potential migrants from other provinces from relocating to B.C. ”
https://biv.com/article/2018/06/housing-costs-put-brakes-migration-bc-other-provinces
That’s helpful, thanks.
Who should I get to install the conduit?
Would I have the conduit run all the way to my circuit breaker at this point, or are we talking about just a covered opening in the roof as access for future cables?
I really enjoyed this back-and-forth between two math nazis.
https://www.realtor.ca/Residential/Single-Family/19585526/144-Eberts-St-Victoria-British-Columbia-V8S3H7
144 Eberts. Selling 116k below assessed in Fairfield. Recent price drop from ~1.05mil
Yeah good question, the short answer is that I don’t know – in reality I guess it depends on the market conditions, namely what the competition is doing and whether they can absorb the hit without going into the image damaging territory of charging customers to hold their money. Retail is a lot about image, so they would need to be very cautious with this. But at the end of the day the bank is not wanting to lose money. They will pass the cost that the BOC would be charging them somehow.
I think at the end of the article it stated the banks could just call it an account maintenance fee instead of negative interest. There have been several banks in Europe that have charged negative interest to depositors already.
When will Ebys team start to uncover fraud in BC just like this?
https://www.cbc.ca/news/canada/bmo-settles-with-most-in-alberta-mortgage-fraud-lawsuit-1.1367196
All indications are there: foreign money, corruption and inflated appraisals. This is going to be one hell of a scandal!
You defined x as the rate of growth to be a constant, or d(y)/dt defined as x. Unfortunately taking the derivative results in d(y)/dt = (x^t)(ln x), which is not a constant.
Grief, my original comment has run a tangent so far from what was actually stated, I feel like this is not worth any more commentary.
Irwin Industries told me it would be about $10,500 last year. That’s their back of the envelope estimate based on just a picture.
The latter, but definitely run conduit when you are doing the roof. It’s cheap, and even if you never put solar on it is a selling feature (small one) for the future. Building code requires it for new builds.
Anything is possible on a global scale, I was reading Japanese lenders are offering 0.76% 10 year fixed, 35 year amortization. Imagine shorter term rates, if things keep trending in this direction for them negative interest is possible.
Danske Bank, the second-largest mortgage lender, on Friday concluded the latest batch of auctions over ‘flex-loans’, one-year adjustable rate-loans, with an interest rate of negative 0.20 percent, the lowest ever for that bank.
https://mobile.reuters.com/article/amp/idUSL8N1NU223
@LeoS
Might be of interest… SFH months of inventory, as of May 2018, pulled from Macdonald Realty stats:
8+ months of inventory:
Whistler: 21 months
West Vancouver: 15.8
White Rock/South Surrey: 10.8
Squamish: 10
Vancouver-West: 9.9
6-8 months months of inventory:
Coquitlam: 6.6
Port Moody: 6.3
Vancouver-East: 6.1
4-6 months of inventory:
North Shore: 5.1
Sunshine Coast: 5.1
Port Coquitlam: 4.5
Surrey Central: 4.5
Maple Ridge: 4.3
2- 4 months:
Langley: 3.8
Surrey – North: 3.4
Surrey- Cloverdale: 3.2
Abborsford: 3
Mission: 2.8
Nanaimo: 2.8
Greater Victoria: 2.4*
Under 2 months:
Comox Valley: 1.8
Campbell River: 1.7
*Macdonald Realty Stats
@ Leif
“Who was the GE pumper on here again?”
GE begins to look interesting. They make lots of windmills, which are very popular these days, and their aero engine business looks set to take business off Rolls Royce, whose latest Trent engine is not performing to spec.
But the big issue is, perhaps, how the stock will be affected by US protectionism. Does anyone have any ideas on that?
GE is not quite down to it’s post-2008 low, but it’s near. What do others think of this stock at 12 bucks, a p/e of 16 and a 3.69% dividend?
This is an interesting comment on the US RE market:
… housing prices are making new highs because of a “lack of inventory,” but homeownership rates are at 1980s levels.
Beancounter,
The article you linked me to seemed to describe what I said, just in better terms. It sounds like whether the bank decides to charge you to keep your money with them, is another matter from what the BoC charges banks. Thoughts?
That is the rate the central bank is giving for bank reserves. Consumer interest rates in Japan are positive.
Nice work again this week LeoS, great graph as usual.
Looks like my January prediction for the following 24 month period is right on track.
If my PSC account is representative of the core, then the active listings (and re-listing) will steadily keep increasing exponentially for the foreseeable future, or as I predicted in January, for at least 24 months from January 2018. By February 2020, I won’t be surprised to see active listings at around 8000, and many sellers will be desperate, and listing prices will start at or below BC Assessment values.
First of all a power function of t is of the form t^n. My example
y = y0 * (1+x/100)^t is an exponential function of t.
It is the same as your example a * b ^ t, just expressing the parameters differently.
Who was the GE pumper on here again?
GE booted from the Dow, to be replaced by Walgreens
https://www.cnbc.com/2018/06/19/walgreens-replacing-ge-on-the-dow.html
A primer:
https://www.theglobeandmail.com/report-on-business/economy/what-are-negative-interest-rates-and-how-do-they-work/article27669897/
Either keep it in the mattress or spend like there’s no tomorrow.
I have continued to watch the drop in asking prices day after day, but note that the volume and $$ size of these drops has been increasing over the last 30 days. At the same time, many that have had multiple cuts in asking price are either being taken off the market by the seller OR they just let the listing expire and not renew. The latter is becoming a daily occurrence now.
So, Leo S – is there data you could mine and make understandable for us in respect of the homes being taken off the selling block / listings expired and not renewed? This is a telling sign of the weakness in the market where sellers dejected because buyers are not showing up.
Now there’s a conservative argument if I ever saw one.
Someone can correct me, but I don’t think that’s what negative rates mean. My understanding is NR is where the central bank charges a fee to the regular bank to hold the money, encouraging borrowing. I’m not sure that means usurping client’s accounts…?
Holding deposits (your money, not theirs) at a negative interest rate means the bank would be charging you money to hold your money. Doesn’t that sound great?
Yes but then you cannot have exponential expansion. It’s one way or the other, you cannot have both exponential contraction and expansion in one equation is my point. Please see my earlier post regarding your equation example. Your growth rate x cannot be a constant if growth is a power function of t.
Japan is currently offering negative short term interest rates so anything is possible.
You will never see negative interest rates to the consumer. There is no reason for any lender to lend money to the consumer and take less than the principal back.
Sure it does. Just choose 0 < b < 1. Better known as an exponential decay, where the decline of something is proportional to the amount. Radioactive decay is the best known example. BTW your formula is the same as mine, the parameter labeling is just different.
Yes, and I bet if we did experience a major economic shock it would not surprise me to see negative interest rates of up to -5%. Holding cash would be equivalent to bubonic plague.
I don’t know that much, but I do know markets are rarely perfectly efficient or logical – markets are a reflection of the human psyche. Watching people acting like fools with their finances annoys me just the same. But then again, I pay for my studiousness by not making 50% (or in some cases, apparently 500%) returns.
I believe Warren Buffet himself actually said that knowingly participating in bubbles is not necessarily illogical. I can’t find the quote though. It’s a valid point. It’s the “different this time” that wipes people out. I couldn’t do it, but that’s only because I know I’m not shrewd enough to get out at the right time.
Fear can cost big money. But then again, so can exuberance – most especially in housing.
not sure this has been on here
https://www.remax.ca/home-estimates?utm_source=TimesColonist&utm_medium=paid_content&utm_campaign=2018_remax_evaluator&utm_term=article&utm_content=evaluator
Many pointed to the same thing in ’08-’09. Prices rose dramatically anyway.
In my house hangs a cross with low interest rates nailed on it. Everyday I thank my saviour! Low interest rates died for my 40% price appreciation. Praise be to low interest rates.
Local you know what your problem is. I have said this before.
You know too much and expect the market to be efficient and logical.
The housing market is meant for the foolish and uninformed or those that just want a house and pay what it is now without delving into all the economics around it.
Same thing with pot stocks. I like pot so I will buy pot stocks. They have been rewarded for totally ignoring fundamentals on what they should be worth. All Canadians would have to be stoned 24/7 to be any where near the value those stocks have.
I would argue the melt-up occurring this cycle was more impressive. While less in percentage gains, the absolute dollar gains are much larger than that seen in the last melt-up (a little like CE’s explanation earlier). That’s part of what’s chaffing Poloz.
Oh yes it is. That’s an even bigger part of what’s chaffing Poloz.
Of course. It’s the demonstrated value of history which illuminates in spades, the notion that the more things change, the more they remain the same. Thanks for adding in the ™, btw.
James never say never. This world is so screwed up anything is possible
https://www.huffingtonpost.ca/2017/02/07/interest-free-mortgages_n_14636132.html
Not on your mortgage.
Caveat, thanks for taking the time to inject some commentary. Unfortunately, somehow we have ended up talking apple and oranges from my original assertion, which is that the business cycle is not an exponential function. (this happens often on the internet I’ve noticed) The business cycle is much more relevant when we are talking on the timescale of booms and busts. What you are talking about is what I referred earlier to as an envelope function (to borrow a term from wave transmission theory), and what I am talking about is the business cycle, which sits inside the trend you posted and obviously involves both expansion and contraction.
As a technical aside, an exponential function has the form ab^t, where a and b are constant, which does not allow for contraction, thus my issue with patriot’s example equation. So on a purely academic level, absolutely nothing in the real world, including economic growth, is an exponential function. Well, on second thought perhaps the expansion of the universe…
Oh yes the can James. Negative interest rates are possible….. Not predicting it but they are possible.
150 vs 170 not exactly a huge difference in debt over 10 years
https://tradingeconomics.com/canada/households-debt-to-income
Except that there’s an obscene amount of debt in Canada, and they can’t lower the interest rate enough to save you this time.
http://www.torontohomes-for-sale.com/account/461083ac0e597a15/pages/2578_15.jpg
Toronto interesting graph not sure why but caught my eye. The 4 year period before 1990 is truly amazing….
Time for another installment of HHV History!
In the aftermath of the global financial crisis, the bears were on here mocking the It’s Different This Time™ arguments being put forth, just like they’re doing today.
But, as time went by, it turned out it was different that time:
Today, things are kinda like ’08-’09: we can all see the market is cooling. And just like back then, the bears are mocking the It’s Different This Time™ arguments.
Who will be right and who will be wrong this time? There could be hundreds of thousands of dollars, per person, riding on the answer.
Thanks
Merged todays and yesterdays conversation nicely. 🙂 You are a good sport.
That’s what a million will get you in 10 years….
Gwac,
That was awesome. If I was still sticking pictures into gravatar, I might just use it as a profile picture. 😛
Local waiting for the big correction 🙂
Local Those same excuses for a crash were used 400K ago. ouch.
Yes, totally. Explains why everywhere else in Canada crashed in 2009 while Victoria didn’t.
Wait.
Nope.
In Hawk’s stead, I’ll take you on, Cam. 😀
No question of a huge run up. At all. However, that phenomenon has been seen in almost every medium and larger Canadian market since around 2000. You’re also using numbers that don’t compensate for inflation, so the real rate of gain (while still considerable) is increasingly misrepresented the further you go back in your data. Some areas including here, have had price inflation and corresponding leverage occur to a greater degree. What’s your point? That it will continue almost or exactly unabated? No market works like that. You can throw those numbers up to make your case; I can just as easily use those same numbers to make mine.
Retirees tend to view preservation of their familial relationships and community connections first. Atmospheric temperature, cellulose, imposing granite and dihydrogen monoxide might be nice, but it’s not the factor for most. Victoria is not experiencing any unusual migration patterns AFAIK. Only in BC would people suggest that retirees will somehow hold up an entire market at extreme valuations. What we’ve seen in the last few years has nothing to do with retirees, which have been a part of our market for many decades.
And even better, that figure excludes net worth though housing. So then, will it support entire metropolitan markets at current valuations? There were far, far more millionaires in the USA 10 years ago…did it help them?
Anyone want a T-shirt?
Victoria is clearly not an appreciation market. I can’t see any appreciation happening.
Hawk must be out getting ice cream
gwac: yes, they are quite quiet now aren’t they?
Most “standing seam” metal roofs can have the panels clipped directly to the seams so you don’t have to put extra holes through your roofing to hold it all down.
The panels add weight to the roof, but the metal is lighter than shingles so it should balance out. However it would be smart to confirm with your roofing contractor to see if they had any concerns about the support structure of your roof.
If you re-do the roof before getting panels, you should look into putting conduit up to the roof for future wiring. Others may have more suggestions.
Cam stop with logic and actual history. Its makes the Bears angry.
Somehow were are still number 1:
http://www.moneysense.ca/save/retirement/best-places-to-retire-canada-2017/image/10/
“If this downturn is anything like the previous one, the bears will be waiting for a drop of [insert some high number]% and, because prices never drop anywhere near that number, they don’t buy, and then all of a sudden we have a crazy spring that no one sees coming (even bulls) and prices rise 20 or 30% in a very short time, and then the bears are priced out even more than they were before.”
Yep, we got caught in this in 2009-hoped the market would “crash” so we could buy, which of course it didn’t.
Average selling prices in Victoria acc to vreb stats:
’98 $231000
’99 $227000
’00 $231000
’01 $243000
’02 $256000
’03 $317000
’04 $359000
’05 $445000
’06 $490000
’07 $535000
’08 $569000
’09 $556000
’10 $600000
’11 $611000
’12 $623000
’13 $603000
’14 $612000
’15 $651000
’16 $801000
’17 $905000
Only three times in the past 20 years has the average sales price gone down y o y, and one was in 2009 during the crash -by only just over 2%- when the S&P had tanked 50% since 2007. Yes, prices are dipping now, but the fact remains that BC is a desirable retirement destination for Canadians, so demand will remain-unless the NDP figures out how to install Canadian winters and remove the mountains, ocean and the trees. Even if they buck historically average dip of 2% and go down 10% , we will be nowhere near “affordability”. Here’s a little discussed factor that will keep prices buoyant:
Canada minted some 36,000 new millionaires in 2016, according to a new report from consulting firm Capgemini, an increase of 11.3 per cent in one yearend many of these are nearing retirement. That’s considerably faster than the global average. Worldwide, the number of U.S.-dollar millionaires grew by 7.5 per cent, to a total of just above 16.5 million people. Their wealth grew by 8.2 per cent in a year, to a total of $63.5 trillion.
Yes. It’s a word I’ve only seen two people ever employ to describe this market, both of them post here. It postulates that this market will continue to appreciate at a rate well above inflation with few exceptions, ie she actually states “I don’t see an end to this phenomena within my lifetime.”
It uses reasoning which I have trouble finding forward looking support for, as most of the factors that led to that appreciation (rise of the dual income families, increasing density, 35 years of declining interest rates) have already been priced in or even overshot in the market. The reason the market is slowing is that it’s starting to buckle under its own weight. People can assume that housing can run away from wages forever, but it isn’t going to happen. We’ve seen time and time, and time again, that our local market responds readily with declines or stagnation when affordability becomes too stretched. Kind of like now.
That’s one where prices always go up I suppose? 🙂
An important digression, though. I’m pretty sure the world is going to have to move to some sort of steady-state economic model. And the insanity of infinite growth doesn’t apply only to economics but also to human population.
If this downturn is anything like the previous one, the bears will be waiting for a drop of [insert some high number]% and, because prices never drop anywhere near that number, they don’t buy, and then all of a sudden we have a crazy spring that no one sees coming (even bulls) and prices rise 20 or 30% in a very short time, and then the bears are priced out even more than they were before.
A wise person offering wise advice (that no bear will heed).
If they throw in a 24 of Lucky, I’ll demand another 50% off the listing price. Gross. >:(
And, thank you for the explanation below. Actually quite interesting.
Market data can be instructive only to a point—and that’s also assuming one is even interpreting data halfway well.
Interesting. I’m also in the market for a new roof quite soon.
Leo, can you please tell me what the approximate price difference is between metal and the typical shingled roof?
Also, does the metal roof have to be constructed specifically with an eye toward easy later solar panel installation, or would solar panel installation be pretty easy on a metal roof no matter what?
Throw in a 24 of Lucky and we might have a deal.
US economic growth since 1800.
A number of economies have been on more or less exponential growth paths since the 1700 or 1800s.
For many people “exponential growth” is loosely used as term for “really fast”. But exponential growth really means growth (of something) at a rate proportional to the current quantity (of that something). Something growing by x% a year is growing exponentially.The percentage growth stays constant but the absolute growth is bigger with each year as the percentage applies to a larger and larger quantity. Something doubling in quantity every X years is also growing exponentially.
Compound interest is a common example of exponential growth. If you are counting on the stock market to keep returning 7% a year (on average) then you are banking on a continuation of exponential growth. Growth of bacteria populations follows an exponential curve initially but then often crashes as bacteria numbers exceed the resources available.
Of course simple mathematical models don’t describe the real world THAT well. Growth rates change. Recessions or depressions happen with temporary periods of negative growth. The stock market does not move smoothly upwards at 7% a year.
How long an economic model based on exponential growth can last is an open question to me. In nature exponential growth tends to eventually level off or crash.
Ha! A pizza? I love it!
Though there is a lot of mud-slinging here, I do like this board. Anything that makes me feel like I am cleaning cobwebs out of my head is a good thing. Please tell me that I am missing something obvious – very possible since I have not had any caffeine yet:
The equation above is nonsensical and also cannot account for contraction, thus it cannot model economic reality. You have an equation for expansion (y) as a function of t, but you have defined the rate of growth of that expansion x as a constant. Because y is a function to the power of t (a power function), and t grows as time moves forward, x cannot possibly be a constant.
Still, I am holding fast that economic expansion is just one leg of the economic cycle, it’s unpopular brother being contraction. Economic growth without contraction – this has never happened in the history of the world to my knowledge.
Marko was giving away a free TV with his listing about 5 years ago. Not sure if it worked though!
Let the incentives begin?
Perhaps a tall request, but I’ll try it anyways. For the less mathematically inclined (basically myself) would it be possible for you (or whoever else) to demonstrate this principle visually?
RE markets are local and there is a big difference between buying a primary residence and “investing” in RE otherwise.
If you are buying in an appreciation market and a house to live in for at least seven years I would buy when ready and not try to time the market. This board has many examples of people who waited to buy and are now priced out of the home or area they were hoping for. The tax and financing advantages of home ownership, long-term rate of appreciation, and the fact you would pay rent otherwise favour primary residence ownership in Victoria.
If you are talking about RE as an investment that will be rented out, well, experienced investors will probably not be buying in Victoria right now unless they can carry a cash flow negative property for many years or can buy for cash and don’t want to invest in the stock market for some reason.
So important to understand this. Way too many people draw straight lines on graphs to indicate trends that should be exponential and come to the wrong conclusions
Looks correct to me
Seasoned stock market investors don’t put ~8x% of their income with 95% leverage into the stock market in one shot. They put a fraction of their income into the stock market every year with no leverage. They also diversify and rebalance when any one asset class represents too much of their holdings.
Exponential expansion is in fact the norm. Any growth rate with a long run trend of x% a year (regardless of the value of x) is exponential.
y = y0 * (1 + x/100)^t
Ditto. I’m not some loony with a cardboard sign reading “the end is near”. I just think what we have in BC real estate is not sustainable and getting worse. That can’t go on forever.
@Grant
With all due respect, not true in the RE market. Seasoned RE investors won’t invest at certain times if the numbers don’t work.
Yeah, I think metal is definitely the way to go if you can afford the upfront cost.
Cool. Let me know and I will try to make some time to lend a hand. I figure that seeing some of the details of a solar system install would be worthwhile if I want to do my own some day. Also, you give away a lot of your expertise for free, so I am happy to give something back.
It would be great if the feds or province decide to provide more incentive, but it just doesn’t seem to be a big enough political issue at the moment. Right now the FedLibs seem to be intent on removing every tax incentive they can find. For BC, we have more Hydro power than we need at the moment, so we have to happy with net metering for the time being.
There are cycles in real estate, there are cycles in the stock market. What do all the successful and seasoned investors say? Invest and forget about it. Don’t try to time the market. etc. Why? Because you never know what is going to happen at any given point in time BUT the entire system is built for never ending growth. (Which I’ve always thought is ridiculous, the earth is finite and we’re gobbling it up awfully quickly, destroying ecosystems left and right but even for those who understand this the argument then shifts to a matter of when exactly the paradigm will change… but I digress) So until the system is fundamentally changed, there will always be that unrelenting upward pressure because that’s how the system is setup and everyone here with a property, or any sort of investment vehicle, or a pension is counting on it continuing. Only the Ted Kaczynski’s of the world are without skin in this game.
Maybe the bears are right and the cycle is about to turn, maybe the smart bears will be committed to waiting but will have the fortitude to buy when the market drops X%… if they do, well done! But if they don’t, what exactly is the point? To me the loudest bears, the ones who refuse or are unable to view things from the other side are always perpetually a bear because it belies a perpetual mindset of negativity. Or perhaps a less harsh characterization is a refusal to see the rules as they currently are. Because even with cycles up and down, the bulls are going to be right more often than the bears in this game..
@leo
I’m pretty sure you have the legend switched in your Active and New Residental Listings graph for your Active Listings and your 10 Year Average ……the green and the blue.
If there wasn’t such a price explosion in real estate, the province probably wouldn’t have taken away self regulation from the real estate industry. The gold rush inspired most of the truly shady behaviour.
Single family percent sold over ask.
At least the nonsense of nearly half the properties going in bidding wars is over.
Generally price decreases start with months of inventory around 7 or 8. So if we get 750 sales in June we would need inventory of around 5000-6000 instead of the 2500 we’ll have. External shocks which put a halt to buying completely can accelerate this but in general that’s the market balance you need.
The “headline number” so to speak is all properties, including commercial. This is the number that you will see in every VREB press release and thus every media story about the market. Problem is I guess most people here don’t care about commercial property.
The graph is just residential, and excluding the Gulf Islands which again very few people here care about. Anyone?
Sure thing I’ll send you a note. I am definitely going to put panels up, but roof is within a few years of requiring replacement so doesn’t make sense at the moment. New roof will be metal, and then they just clip on without penetrating the roof.
My brother was holding off on potential for some federal incentives, but doesn’t look like it’s gonna happen. Hopefully will start with a small system this year or next.
Correct me if I am wrong but I cannot think of a single country on earth whose rate of expansion has increased exponentially as a function of time. Still the fact the remains that irrespective of the envelope, the business cycle is a period of alternating contraction and expansion that is inherent to capitalism. And we have not seen contraction for quite some time.
@Leif re: Lands End Road
I hope that the predicted ocean rise is a hoax or perhaps that is why it is now listed?
Wow it is finally up for sale… 1850 Lands End Road.
I was out on the boat the other day admiring that this is the only true section of waterfront left on Lands End that has not been developed. I had some friends as kids with places on the water near there but none of the families ever kept them. There are only a few massive lots left out there and this being the one on the water.
The house on that property is pretty awesome. It sits all by itself out at the water with a nice wharf beside it in the unwindy bay. I always though it would be a great development plan to create a large strata sub division with a strata dock that all the owners can keep boats at. That is probably one of the only bays that is quite well protected.
What ever happened to Roger Garside and his development on Horth Hill off Greenpark and Littlewood? They were originally scheduled to be well into building out the lots by now.
I haven’t seen much. I wished they were able to put in the original 1/3 acre lots to allow for cheaper lot costs and development out here.
On another note 1580 Lands End looks cool in the photos but for almost $7 million dollars it really does not have water access and you do not get the sunset. It has a massive for sale sign hanging off the front of it. We saw a few people swimming in the infinity pool though which would have a pretty epic view.
@AZ
1484 Lang St. what’s your guess on its sale price? 1000 sqft oaklands… Maybe if he wasn’t so greedy he could have sold it for $800k at the start of spring instead of trying for 950k. I saw lots of places in the Oaklands for around that price that blew my mind in the start of this spring market.
I’m going to say $690k.
The business cycle is small blips on something that actually is close to an exponential function.
CS:
Thanks for the book recommendation; I will see if I can get my hands on it. I do appreciate it when someone mentions a book they enjoyed.
“It’s not about population.”
No, not solely. But population is undoubtedly a major factor.
cf. The fundamentals of land prices and urban growth
Author links open overlay panelDennis R.CapozzaRobert W.Helsley
Show more
https://doi.org/10.1016/0094-1190(89)90003-XGet rights and content
Abstract
In a very simple model in which capital is durable and landowners have perfect foresight, the price of urban land has four additive components: the value of agricultural land rent, the cost of conversion, the value of accessibility, and the value of expected future rent increases, a growth premium. In rapidly growing cities, the growth premium may easily account for half of the average price of land and may create a large gap between the price of land at the boundary (minus conversion cost) and the value of agricultural land rent.
The value of accessibility explains why a villa in London’s St. Johns Wood, or Hamstead costs ten million plus versus a million or so in a small town 50 miles out of London.
“No, there will be a limit. ”
Sure there are cycles and the indications are that the present one is coming to a peak. But in practical terms there seems to be no limit. It just depends on how far the CB is willing to go in debasing the currency, plus a few other factors.
Houses in the core of Vancouver were still affordable with metro population approaching 2 million. Likewise Toronto, with metro population approaching 4 million. I’m talking circa 2000. Montreal is still quite affordable in some core areas, and far cheaper than Victoria, despite being 10 times bigger.
It’s not about population.
Great post, Beancounter…
No, there will be a limit. And a recession will be the equivalent of the receding tide to expose who is swimming naked. This RE circus has gone on long enough. It is so utterly ridiculous. I know so many families who are stretched to the hilt, one hiccup with finances and they are doomed. This is crazy. I was taught very early in my career to have at least a year’s worth of savings as a cushion for any income disruption. These families I speak of cannot afford to miss a single paycheque. It is very sad. We are lucky not to have yet experienced a real crash where jobs are being lost. But to anyone who knows anything about the business cycle, is that it is a cycle. It is not an exponential function.
I cannot believe we have turned RE into such a gong show. It has become a parasitic monster to both so many working families and the economy at large. And produced so much stress on young families. There is so little return for the amount of their take-home income RE is eating up, and thus less money is spent to keep the real economy going (local businesses, etc.).
I have noticed there is quite a “bear/bull” division on this board. I suppose this puts me in the bear category, but not because I like doomsday scenarios, but because I see such massive financial irresponsibility. I guess that has been the good thing about being in business. People are getting themselves way over their heads. We are not the land of Amazon, Microsoft, Boeing – a bedrock of industry in my eyes needed to sustain these RE prices. Hell not even Seattle has anywhere near the prices of Vancouver.
LeoS, if you ever decide to put up solar panels, let me know (or if you put them on your brother’s place). I might be up to offering some free labour in exchange for seeing how a system goes up first-hand. I can schlep panels, swing a hammer, and even do basic measurement arithmetic in my head.
😉
Local fool v. gwac – the data [see above] favours one of your arguments, not the other. One is under a delusion and the other is seeing what is there to be seen. One is experiencing Plato’s allegory of the cave, while the other has his or her head in the proverbial sand.
Hmmm………which is which?
Oh, I’m having fun. 😀 Not sure I’m looking forward to my padded room, though. Aside, I don’t have a leader. I work alone.
That’ll be when you know things are really sideways – when those that call for a bull run in the market are deemed writ large to be fit for the funny farm.
“Vancouver schools losing teachers due to ‘impossible’ housing market, low wages”
This seems to be a key aspect of the evolution of cities.
As population increases, home prices in the core escalate without limit, which means that the core is increasingly populated by the wealthy, plus an underclass of menials living in public housing or under bridges.
Increasingly, the middle class, including many teachers are driven out. Thus schools are either elite private schools for the children of the rich, often with resident staff who are thus insulated from the RE market, and “inner city” schools where kids of the under class are taught by a few saints and angels plus teachers otherwise unemployable elsewhere.
@ Barrister:
“Back to reading my book:– “Into Thin Air”. A good read but it does make one wonder about how some people think.”
Have you read “Into the silence” by BC author, Wade Davies, an account of the British 1920’s Everest Expedition, which tells you a lot about how strangely another lot of people thought?
Local
Hawk is your leader. He took over from info (last I heard he was in a padded room shouting its falling its falling). I have seen you push your dominance lately so not yet but soon the mantel may fall on you.
Just having fun.
All that I’m missing are the T-shirts and chocolate chip cookies. Maybe a spooky website too, with a picture of a glowing outhouse in the center. I’d be a lousy guru though, if it’s not already obvious.
Yes, both sides always have the same arguments. No creativity award for me. A market turn isn’t really doomsday, though. It’s just the way it goes; then we do it all over again.
I wouldn’t believe a thing I say, personally. Blind or extrapolated belief isn’t really thinking critically. Check the market data yourself, and come to your own conclusions. 🙂
Local omg too funny. I think I saw those comments in 2009/ 2010/2011 and so on. The warnings are similar to a dooms day cult. Each one fails so just keep changing the date to when the end will come. We are right this time…..believe us.
Why does it look like the current active listings is in the 2250 range for June this year instead of much closer to 2500?
Gotcha. Well the jury’s out on whether that will work. But, I suspect that the folks ending up at “the bottom of an outhouse” will be recent buyers who acquired/leveraged on spec, not the folks warning them against such.
1850 Lands End Road, assessed at $9,591,000. Just under 25 acres.
Asking $18,000,000, advertised as an “incredible opportunity for investors”. Quite a bit of lot potential.
Well well, if you’re buying today, you better be planning to live there, and for quite a while. The downward momentum in the housing market is continuing to grow, despite the ardent wishes and prognostications of so many. It’s not a surprise; it’s how a market works. It’s yin to yang, seller to buyer, up to down, down to up, greed to despair and back to greed. It’s a story as old as time, if only we understood. Blame B20 all you want, the cycle will assert itself regardless. Hence I bleat yet again – there is no New Era™, New Paradigm™, World Class BC™ or Permanently High Plateau™. And, there never was.
London House Prices Continue Their Descent
https://www.bloomberg.com/news/articles/2018-06-17/london-house-prices-continue-descent-as-buying-season-ends
Sydney, Melbourne property market cooling
https://www.sbs.com.au/news/sydney-melbourne-property-market-cooling
Canadian Real Estate Sales Have Worst May In Over 10 Years
https://betterdwelling.com/canadian-real-estate-sales-have-worst-may-in-over-10-years/
Real Estate Sales Across BC Drop to Five Year Low in April
http://vancitycondoguide.com/bc-real-estate-sales-in-april/
It’ll be funny to see the next peak, when all the same age-old arguments for its perpetuity will be re-branded anew.
1484 Lang bought in April 2017 for 532k. Depends how much money they put into it. But the profit margin might be getting thin.
Thanks Leo S. This does support my thesis. I also tend to agree with Barrister as he notes below. I have followed a number of “luxury” listings and note that many have been pulled from the market after 3 or 4 price drops – no takers, which is what one expects to see late in the cycle and particularly with the current policy measures. Luxury listings at or above $3 million are not selling and being taken off the market {April and May}. Now, in mid-June I am seeing a similar trend for the $2 million to $3 million.
The first chart above is telling – active listings have been rising at a rising rate [new listings and lack of sales = rising inventory] – we have not hit the inflection point which we may see within 2 months, which brings us to September in front of us. The next shoe to drop is likely price which must occur to reach some equilibrium, once inventory sits stale. Or, asking prices just keep rising to feed the delusion expressed in posts and then we can see these lovely For Sale signs with their rainbow of colours lining the streets of Victoria as far as the eye can see right through to the New Year when the speculation tax comes in full force. Fear not, prices will keep rising and rising…………yeah, right.
Vancouver schools losing teachers due to ‘impossible’ housing market, low wages
http://www.cbc.ca/news/canada/british-columbia/bc-teacher-shortage-vancouver-housing-students-school-short-staffed-1.4708831
1484 Lang St.
Now priced $749k. 200k worth of price drops in ~2 month.
Probably getting close to break even.
My guess is that we will not see any major price decreases until inventory is well over 3000 and not before September. Having said that, I am noticing that the luxury inventory seems to be really building up.
Back to reading my book:– “Into Thin Air”. A good read but it does make one wonder about how some people think.
The increase in inventory is starting to be noticeable to the proverbial “man in the street” now. More for sale signs than we have seen for a couple of years it seems. Though as Leo points out it is still low relative to average.
Local fool all good. Just like to bring reality back to the people who wallow in the bottom of a outhouse (market going to shit). 🙂