Monday, May 11, 2009

The market drivers

In my last post I told you how RE has become a lot more affordable due to the 15% drop in prices from the peak and the drop in mortgage rates.

These two factors have reduced the cost of owning property by between 30-40%. No small amount.

Add this to the normal seasonal factors and the current strength in the market, which seems so inexplicable to many bloggers, is obvious.

Does that mean we are off to the races again and should expect double digit appreciation?

I don't think so. Why?

The economy will trump everything. In the US they had the same metrics and housing only stabilised temporarily before resuming it's downtrend.

Of course the US had crazy 0%-down, neg-am, interest only, no-doc mortgages which helped bring their house of cards down. We are not in such a bad shape, but we do have a lot of people who have got in way over their heads in upper and lower end RE. We are also very dependant on resources and the construction and service industries (eg building and selling houses to each other) and have a higher median age than Ontario or any other Western Province.
...................................................................................................................................

We are in a major recession, with more lay-off coming and if the economy doesn't turn soon, 'we could see a race for the exits', as some owners are forced to sell..

As the economy weakens, two factors will impact RE prices. Wages will not rise and family income drops as unemployment increases. So while affordability is increased, it may be cancelled out by lower income.

Secondly rents are likely to stagnate or even drop. Therefore the rent/buy comparison I made a few posts ago tend to favor renting, where costs are fixed- whereas owners will face the increased costs of repairs, increased taxes and changes in interest rates.

It may seem to my readers that I am arguing both sides of the coin, saying how much more affordable RE is in one post, how renting and owning are becoming comparable in another post and then explaining how I still think prices will fall further.

The truth is, there are many cross-currents affecting RE, as with any other investment, including some I haven't thought of, which may in fact be the critical ones!

However look at the housing boom of the last 7 years.... As affordability became more stretched, the bears became more convinced that a correction was inevitable. That was 2004! It caused a small drop and then we had fours more years of sizzling hot price inflation.

By 2006 I remember bears frothing at the mouth on the news that 50%+ of income was needed for housing costs. Sure enough there was another small and very short-lived blip down then, too. But by 2008, it had reached nearly 70%. Momentum and a speculative boom overwhelmed the lack of affordability much to the bears disbelief. (me included)

You can see the very short-term dips in 2004 and 2006 on this chart: http://www.chpc.biz/Vancouver_Real_Estate_Chart.htm

Now we have the opposite. Increased affordability has stopped the market from dropping, but the negative momentum and uncertainty will likely overcome the short-term stabilisation.

I think we have moved from a bull market in RE, ( and stocks) to a bear market in both. Both will have a bounce, but I think they will both eventually go lower.

At least that's how I see it. However, as I mentioned, there can always be some other factor which unexpectedly changes the equation. You can only make the guesstimates based on the information you have available. If I see a very strong summer/fall in RE and a solid turn around in the economy, then I will have to re-evaluate my theories. I don't expect either one.

21 comments:

  1. Fish what happened to the inventory that came off this fall and doesn't seem to have come back on despite bears calling for an 'explosion' of listings?

    and what signs are you looking for this summer and fall in market to tell you if the bull is back?

    ReplyDelete
  2. Anon- good question. I don't know where it went!

    But I suspect some of the inventory was panicked specuvestors, who have since refinanced and this taken some of the pressure off them, and they can hold on longer rather than sell at a minimal gain or loss.

    Also everyone seems to think that the recession is about over and we will all be printing money again. Once that mood changes, inventory will follow it.

    The signs I would be watching for:

    1) MOI
    2) Price is deceiving, since the mix of sales will influence the average and median. Benchmark would probably be more accurate, but I don't know enough about how they calculate this to decide on validity.
    3) Days on the market. Prices may not be dropping, but if DOM start to lengthen by late summer, price drops should follow.
    4) I will also keep one eye on the general economy. I think we will get a 'W' recover. Ie a small weak recovery and then another leg down. If I am right, the next leg down will feel very disappointing as everyone will have placed their bets on a rip-roaring bounce back and will feel cheated.

    ReplyDelete
  3. One more thing adds to the spring bounce. In the chinese media. They report shipload of chinese investors are buying. Canadian dollar has gotten a lot cheaper. Overseas chinese investor has more wiggle room than us even if the market drop another 20%.

    If you earn a paycheck here in vancouver. Various taxes have already eaten 40%. I feel it is harder and harder to get by.

    I myself already cut one of the family cars. So the government has one less thing to tax me.

    Family finance really doesn't really add up. If anyone interested, I can let you know how much I spend and how much i earn every month. As I think a lot of people are in the same boat like me trying to make ends meet. However, both political parties do not seem to get it.

    Fish, I can see you have soften your bearness. I guess this is the reality out there. I've also given up my hope for affordable housing in Vancouver. We will probably buy the end of this year as all my reasons to delay the purchase have proven "wrong".

    Good health to all.

    ReplyDelete
  4. Hello! My name is Jenifer and I just desired to say your
    web site is great! It really is amusing because I use to have a
    weblog that practically had an identical url: http:
    //www.blogger.com/comment.g?blogID=4251672323919283767&postID=1923219371559066226
    mine was only a few letters different. Nonetheless, I am a big supporter of your
    weblog and if you at any time want a guest post you should email me personally at:
    alisadobson@aol.com. I take pleasure in writing!

    Here is my webpage residential property management arizona

    ReplyDelete
  5. Amazing! I'm really enjoying the design of your site. Are you using a custom theme or is this readily available to all users? If you don't want
    to say the name of it out in the public, please be sure to e-mail me at: jana-yancey@gmail.
    com. I'd love to get my hands on this theme! Thanks.

    Also visit my site: professional handyman

    ReplyDelete
  6. Howdy! Someone in my Myspace group shared this website with us so I
    came to give it a look. I'm definitely enjoying the information. I'm bookmarking and will be tweeting this to
    my followers! Superb blog and excellent design.

    Stop by my web-site - fashionphile san francisco

    ReplyDelete
  7. Gday! My name is Emmett and I really just wanted
    to say your blog site is awesome! It really is amusing because
    I use to have a website that almost had an identical url: http://www.
    blogger.com/comment.g?blogID=4251672323919283767&postID=1923219371559066226 mine was only a few
    characters different. Anyways, I am a big admirer of your blog and if
    you at any time would like a guest article you
    should email me at: israel-schulze@gmail.com. I absolutely adore writing!



    my web-site; gymnastics clothing

    ReplyDelete
  8. Hello! It appears as though we both have a passion for the same thing.
    Your blog, "Blogger: Vancouver RE and then some" and mine are very similar.
    Have you ever thought about authoring a guest post for
    a related website? It will surely help gain publicity to
    your website (my site recieves a lot of targeted traffic).

    If you happen to be interested, email me at:
    rosalynstallworth@gmail.com. Appreciate it

    my homepage; street fashion blogs

    ReplyDelete
  9. I absolutely love your blog and find the majority of your
    post's to be just what I'm looking for. Does
    one offer guest writers to write content for you personally?
    I wouldn't mind publishing a post or elaborating on some of the subjects you write about here. Again, awesome web log!

    my web site http://www.supernova.com/misize/blog/1422197/Fitness-Is-The-Key-To-Feeling-Good--Studio-Shoes-
    my webpage > nine west

    ReplyDelete
  10. Howdy, I'm new to running a blog and websites in general and was wanting to know how you got the "www" included in your domain name? I see your domain, "http://www.blogger.com/comment.g?blogID=4251672323919283767&postID=1923219371559066226" has the www and my domain looks like, "http://mydomain.com". Do you know the simplest way I can change this? I'm
    using Wordpress platform. Thank you so much

    my homepage; supra footwear twitter

    ReplyDelete
  11. Hey! I'm at work surfing around your blog from my new apple iphone! Just wanted to say I love reading through your blog and look forward to all your posts! Carry on the great work!

    Also visit my webpage - digital signal processing principles

    ReplyDelete
  12. Hey there! I just found your internet site: Blogger: Vancouver RE and then some when
    I was browsing delicious.com. It looks as though someone loved your
    site so much they decided to bookmark it. I'll unquestionably be returning here more often.

    my web page - http://psih.org/groups/how-you-can-restore-an-electric-furnace/

    ReplyDelete
  13. Have you ever thought about writing an ebook or guest authoring on
    other websites? I have a blog based upon on the same topics you discuss and
    would really like to have you share some stories/information.
    I know my viewers would value your work. If you are even remotely interested, feel free to send me an email.


    Check out my web site ... home repair and Maintenance

    ReplyDelete
  14. This design is incredible! You certainly know how to keep
    a reader amused. Between your wit and your videos, I was almost
    moved to start my own blog (well, almost...
    HaHa!) Great job. I really loved what you had to say, and more than
    that, how you presented it. Too cool!

    Take a look at my blog post: toddler ballet shoes size 6

    ReplyDelete
  15. Would you mind if I quote a several of your posts as long as I provide credit and sources returning to your
    weblog: http://www.blogger.com/comment.g?blogID=4251672323919283767&postID=1923219371559066226.
    I'm going to aslo ensure to give you the appropriate anchortext hyperlink using your blog title: Blogger: Vancouver RE and then some. Be sure to let me know if this is acceptable with you. With thanks

    Have a look at my web page: http://tbrga.net/groups/the-use-of-soi-wafers-in-mems-production

    ReplyDelete
  16. Hello would you mind sharing which blog platform you're working with? I'm going to start my
    own blog soon but I'm having a difficult time selecting between BlogEngine/Wordpress/B2evolution and Drupal. The reason I ask is because your design seems different then most blogs and I'm looking for something unique.
    P.S My apologies for getting off-topic but I had to ask!



    my web page: semiconductor equipment corp moorpark

    ReplyDelete
  17. Hello would you mind sharing which blog platform you're working with? I'm going to start my
    own blog soon but I'm having a difficult time selecting between BlogEngine/Wordpress/B2evolution and Drupal. The reason I ask is because your design seems different then most blogs and I'm looking for something unique.
    P.S My apologies for getting off-topic but I had to ask!


    Also visit my website; semiconductor equipment corp moorpark

    ReplyDelete
  18. Good day! I know this is kinda off topic however I'd figured I'd ask.

    Would you be interested in exchanging links or
    maybe guest authoring a blog article or vice-versa?
    My site addresses a lot of the same topics as yours and
    I think we could greatly benefit from each other. If you might be
    interested feel free to shoot me an email. I look
    forward to hearing from you! Excellent blog by the way!



    My web-site furnished apartments nyc upper east side

    ReplyDelete
  19. Hey there just wanted to give you a quick heads up.
    The text in your article seem to be running off the screen in
    Firefox. I'm not sure if this is a formatting issue or something to do with internet browser compatibility but I thought I'd post to let you know.
    The design look great though! Hope you get the issue resolved
    soon. Cheers

    Take a look at my site ... furnished apartments near nashville tn

    ReplyDelete
  20. This is really interesting, You're a very skilled blogger. I have joined your rss feed and look forward to seeking more of your great post. Also, I have shared your web site in my social networks!

    Feel free to visit my page - nail fungus infections

    ReplyDelete
  21. I'm curious to find out what blog system you have been working with? I'm having
    some minor security problems with my latest site and I'd like to find something more risk-free. Do you have any recommendations?

    Look at my web page ... buy volume pills

    ReplyDelete