Saturday, August 8, 2009

Ok bears make or break time...

I have posted the graph of price bubbles I often refer to on this blog. Below that is the REBGV Average price graph.
The similarity in the shapes of these two charts is clearly obvious.
At each of the turning points, human nature being what it is, there is almost complete despair and capitulation by bears and bulls.
Last fall it was the bulls who were shell-shocked as 'nothing sold' and MOI reached 20+. Now we have bears in utter disbelief as sales have exploded and MOI is down to 3 months.
So now what?
Well if we are still on the bubble implosion script, then we can have prices hang around here for longer or start to drop, but NOT go up much more. Any significant rise which threatens to match or beat the recent bubble highs would make me seriously reconsider the bubble-bursting scenario.
This is it bears...


  1. Best place on methAugust 8, 2009 at 12:07 PM

    I just love the head & shoulders pattern on the Vancouver chart.
    Everyone knows what a head & shoulders pattern means, right?
    Hello? Bulls?

  2. I must say it is quite impressive how the prices have followed the bubble graph almost exactly. Of course this doesn't guarantee we will keep following this trend, but it looks quite convincing.

  3. What 'event' would cause the second part of that graph to play out?

    It seems inconcievable that we are just on the edge of another major drop, but anything is possible.

  4. No Condo in the 604August 8, 2009 at 8:16 PM

    this IS it, isn't it? fear, capitulation, bring it on. please, finally. looks like we are on track -- according to the graph.

    but ... it's just a graph. and we live in a some wacked out bizarro temporal anomaly called "Metro Vancouver.

    Fish, i remember the first, second, third base, home plate scenario. thought we had that smack on too. and then things went sideways with low interest rates.

    to borrow from Axl Rose: "where do we go now?"

    near world-wide financial armageddon in stocks couldn't stall this market for long. collapse of the US economy, their housing market and credit market couldn't do it. the near decimation of our forestry industry couldn't do it. huge rise in unemployement could't do it. massive provincial and national deficits couldn't dissuade people from jumping in.

    the idea of paying a debt for rental money for 35 years (terrifying to me) seems like "the thing to do" now. going into massive credit card debt is the new normal.

    if everyone who got in over their heads suddenly woke up tomorrow realizing they made the biggest mistakes of their lives, that would do it. but there is so much "reality fogging" out there in media, in conversation, in delusion, in granite countertops.

    i look at my locked and loaded six figure downpayment, saved up over years and years of living frugally and (somewhat reasonable) investments. even to get a crummy condo i would be kicking myself in the nuts. and then i see a couple, both elementary school teachers, qualifying for a $600,000 mortage with just 5% down, and i wonder if didn't fail math in highschool.

    Fish: in those graphs, what finally brought the market down?

  5. What will bring prices down? I really think it's as simple as higher interest rates. The world economy doesn't revolve around Vancouver. The coincidence of low rates and the start of the spring selling season has propelled prices high again. If Vancouver lags in job growth, as it usually does, rates could rise before employment can recover. Then it's a 1-2 punch.

    If rates do edge up again the spring is that much more coiled. I think, though, that such an event is several years away.

  6. Anon- there are lots of possible 'events'- will do a post on that soon.

    No Condo - to be fair the first base, etc where count downs to the correction. Rising inventory, dropping sales, increasing DOM and finally lower prices- home base. We got there last fall.

    this is a new game now :)

    Lets see if the pattern repeats.

    As to what triggered the drop. There is often a 'triggering factor' which is quoted afterwards as having set off the collapse of any bubble.

    In fact it is just so super-inflated that it would pop anyways and was just looking for an excuse.

    Look at the US stock-market in 2008. We had already had a couple of years of US housing losses. Banks were losing money. Bear Stearn went bankrupt early in 2008. And yet the S and P went up 15%!

    Go figure.

    It was only when Lehman Brothers started to fall apart last summer that the market started to head south in a big way.

    So the Lehman Bk was called the defining moment, followed quickly by the collossal BK and bail-out of the gamblers at AIG.

    However it could just as easily have come after Bear's Bankruptcy.

    So we will only know with hindsight what the trigger was.

  7. No Condo in the 604August 8, 2009 at 10:30 PM

    the BOC has promised to keep rates low until next year (is that right?), so will prices continue to "float"? they're still building, but i can't imagine there are any more FTB ready to be suckered into half-million dollar condos. and what happens when the HST kicks in, July 2010?

    i've been reading this and other bear blogs for about two years now. (Fish: THANK YOU!) really comforting knowing that i wasn't the only one thinking the kool-aid smelled a bit funny. but i only very recently started posting -- mainly because i want to scream "this is madness!"

    i just can't believe what people are doing with their debt, their futures. and i have a hard time swallowing this "reprieve", especially when the bull mentality is running rampant. friends, family all saying "see, real estate is never going to get cheaper here. you should have bought in 2006." (well, actually, i should have bought in 2002!)

    like most bears, i'd like to own someday. but more than that, i'd like to see a return to normalcy and reason. a return to the promise of hard work, saving, living with your means, and and being patient. but in August 2009, i think those days may be gone for good.

    at what point does putting all your eggs and the entire FREAKIN' hen in one basket make sense? and how can it make sense for SO MANY PEOPLE?

    someone cue the Twilight Zone music.

    or the Jaws theme.

  8. The bubble will collapse from it's own weight. It was always a largely psychological phenomenon, and that popped last summer as prices peaked, sales dived, and inventory exploded. Then came the stock market crash and everyone was fearful. Now we have people shrugging off the worst financial crisis in 80 years like nothing happened! This is why you always go to war in the spring :)

    Financial crises do not end in a year, and regardless of media spin the raw data (world trade, gdp) suggests that we have farther to fall. China has stockpiled commodities but will do so no more, the forest industry is tits up, and the high Canadian dollar is hurting everyone who's left. Unemployment is still going up, regardless of how many people they stop counting. The underlying problems have not been fixed.

    Instead, governments have slashed interest rates to zero and in Canada credit has exploded. One read of the following post should make the picture perfectly clear - this country has gone subprime.

    And even with all this craziness, free money and everything, prices failed to surpass previous highs. So what drives prices higher now ?
    Answer: *nothing*.

    Everything that can be done has been done, and now there is unmitigated downside risk. No upside at all. Anyone who thinks house prices are going up now is delusional. Here is one such person:

    The forecast calls for 1% price increases on 27,000 sales by the end of 2009. I'm sure that checks out according to some model, but as of the end of July the same article says we have had 11,146 sales. How do we get to 27,000 ? Christmas presents ?

    I just can't resist making fun of this some more. It is the most wrong forecast you will ever see. This "real-estate expert" is actually predicting that for the first time in history, spring will no longer be the peak buying season! Hear that everyone ? Now it's hip to move in January!

  9. Wow have a look at rob chipmans blog MOI almost doubled from last week. This could be it boys and girls.

  10. That is quite a swing around, even with a shortened week.

    Lets see if it is the start of a trend change.

  11. Prices have more than doubled since 2002. Has the population doubled? Have incomes doubled? Did half the land mass of the Lower Mainland sink like Atlantis? No. But people here believe in real estate like a religion. Everyone I know has reverted to thinking I am mad and that 2008 was just "a blip". Vancouver real estate is propelled by mass psychology and a federal government that as been pumping the market since the 80s. No government wants the market to crash on their watch (nearly 70% own). A rising housing market creates oodles of jobs from realtors to bankers to contractors and the manufacturers of all the materials and appliances that go into those homes. And so we have gone from 25% down payments to 10 then 5 then zero and now, technically 5 but you can still get zero if you work it. We have gone from not being able to cash in your RRSP to being able to take $10K then 20 and now 25. I thought interest rates couldn't go lower and they cut the BOC rate to .25%! Every time I think the government has run out of rabbits to pull from the hat, they fnd a new one. I've been reading blogs like this for nearly 5 years (not a typo). Surely it has to end, but sometimes I wonder...

  12. I know what you mean Markoz- for some reason the governments have decided that this bubble must be kept inflated at all costs.

    Unfortunately, all these attempts just heaps more debt on this over-valued asset and makes the final unwinding worse.

    As it is we now have a lot of people with either little or no skin in the game or all their RRSPs and net worth. Both are bizarre and would not be recommended for any other asset.

    I share your frustration. I have been blogging for two years now, but I have been reading VHB and other bloggers who were out there 4-5 years ago and had very valid arguments and graphs and charts as to why we were over-priced.

    We just got more over-priced.

    As least now we have had the first significant correction in the market, some didn't even expect that, thinking we would have a straight line up forever.

    I have difficulty believing that was it for the correction in all assets; RE , stocks, gold, oil etc. But what I expect and what will happen often bear little relation to each other, or I would be working with Goerge Soros and not writing this blog.

    The market has the final say.

  13. No Condo in the 604August 11, 2009 at 12:44 AM

    skin game, indeed.

    overpriced asset, overloaded credit and risk, hedging on a fantasy ponzi-like future instead of saving+planning. welcome to the new Canadian lifestyle. welcome to the 24-hr casino where all bets are winners.

    Bob Farrell's Rule #8: we had the Sharp Down last fall. we had the Reflexive rebound this Spring/Summer. is it not time for the Drawn-out Fundamental downtrend?

  14. Sales still look strong. Has the correction been postponed for another month?