Wednesday, November 18, 2009

New record? Not quite- but close

Rob Chipman has pointed out on his blog how close we are to the record (average) prices of 2008.

Here is his chart:

http://www.robchipman.net/blog/images/AvgPriceGraphs/REBGVAveragePriceGraphOctober2009.pdf

Hard to believe that we would see record prices at a time when the US, our major trading partner, was in such difficulty- when our main exports- natural gas and lumbar are down significantly from a year ago, when major employers are cutting back or closing and even the City and Province are pulling in their horns.

I guess it is the very low rates, the pre-Olympic hype and building boom and.....a sense amongst buyers that they may have already missed the boat and have to dive in regardless of the price.

In any case the market is strong and if it goes much higher then we have to re-evaluate the 'bubble bursting graph' which we have been following so far.

It wold be unusual, compared with other bubbles, if the price bounces straight back higher. As I have said several times, if the prices exceed their previous highs then we have a different ball game.

http://2.bp.blogspot.com/_mJmwQtPmusk/R8qBvunTR1I/AAAAAAAABik/1xij0kBSJ30/s400/bubble-lifecycle.gif

However, I must admit the market 'feels' different from the record prices in late 2007 - early 2008. At that time houses were often selling over list, as buyers panicked to buy. There were less than 20 SFH under $1 Million in West Van, now there is 40.

Sellers are dropping their prices (albeit from high levels and by small increments) quickly. It is as if they think that this could be the sweet spot for sellers and may not last.

The Fraser Valley was nearly as hot as down-town, but after the crash of a year ago, the recovery has been much more muted outside of Vancouver.

Lets wait and see. I posted almost 8 months ago, that the huge drop in interest rates, coupled with the 15-20% drop in prices, had reduced the effective cost of ownership by 35% or more from the peak. Well we have given back most of the price drop.

If and when it does drop again, and the banks and CHMC struggle, unemployment rises...I doubt we will have much money left in the kitty to bail us out:

http://www.debtclock.ca/

15 comments:

  1. There is one graph of a bubble bursting that did meander around at the top before collapsing:

    http://tinyurl.com/ybp9qme

    Could we do the same? We could. But once we retake the old highs, all bets are off.

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  2. The problem is the government interference is so huge with the bubble now. That could mess with the peaks theory.

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  3. I think people have lost their minds. I know several people who are in their early 30s or even 40s who are running out and buying not just one, but 2 or 3 houses! All in the name of "investment" with huge, long term mortgages. If that isn't the sign of a bubble, I don't know what is.
    I have this ominous feeling that it's all about to come crashing down. You know it's going to happen, can't wait to buy your house for 50% off and yet, feel a bit sad for all the people whose lives are going to be financially devastated by this crash.

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  4. Hmmm... I may have had an epiphany. I've been thinking about that bubble graph, too, and something you said in your post, Fish got me thinking. The bubble graph reflects house prices, right? Well, as you said, we came about 10% off the purchase prices highs, and we've nearly regained all of that. However, let's be realistic - people aren't looking at the purchase price - they're looking at the monthly payments, and those are (were) about 30% off the high. I think the bubble graph needs to be recalculated to reflect AFFORDABILITY, not PRICE, and then it would be clear that the second wave up of the housing graph would mirror the typical bubble graph. Please tell me what you think!
    GM

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  5. Anon - Government interference definately skews things in an unpredictable way.

    Anon2- if we crash that bad, with the CHMC and banks on the hook for so much, we will all pay for it. Us bears have to be careful what we wish for in case it comes true!

    GM- very intriguing indeed. Except affordibility would be the inverse of the bubble graph. ie affordability is now falling not rising.

    How about this- we plot monthly payments to buy a SFH??

    Then it makes sense. We had a big drop late 2008/early 2009. Since then we had a rebound up in monthly payments but not as high as the peak, as interest rates are so low.

    In that case we would expect the monthly payment number to drop again (soon!) - however if that is the case, then it would be unlikely that it would fall from higher interest rates but from the weight of it's own price and economic weakness.

    Lets see. However, good analysis.

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  6. Yes - plot monthly payments to buy a SFH! You've said it so much more clearly. Anybody willing to graph this out?
    GM

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  7. I think Mortgage arear would be an interesting number to follow. Alberta is almost at all time high. BC is .49% in Sept.

    Can't predict house prices will be next few months, but this arrear number FOR SURE can only go up cos it is more related to employment.

    The whole will be odder than an odd ball. All time mortgage arrear rate and all time high prices.

    If you put two together, you can conclude people are rushing to have a big mortgage, so they can be arrear on the mortgage.

    btw, can anyone find out the BC arrear number leading to early 80s correction?

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  8. Building permits in the lower mainland are down about 60% in dollar volume this year. There is significant unemployment coming in construction, nevermind all other industries and I'm sure most of us know of a few people who have already been laid off.

    Unemployment went up 1% last month, it should easily be above 10% when the olympics are here. If Cam or Helmut or whoever is right about prices rising in 2010 I'll go to Still Creek and eat crow.

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  9. Gm- not me :0'

    That would be a time consuming job.

    You cold get a good enough proxy for it though by dividing the average home price (taken off the REBV site) by the 5 year fixed or variable mortgage rate (which ever fits better -ha ha)

    Not sure where you would find the exact hsitorical rates. The Bank of Canada site is out of date.

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  10. Ok found it. Lets see if I have time this week-end, unless someone else beats me to it.

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  11. There is deceptively a lot of housing out there, but not as many safe options as would seem. Buyers aren't blind, and neither are lenders. A leaky condo is still a leaky condo, even after repairs. Thre's supply, and then theres the real supply. Everybody else is just listing too high and wasting people's time. Either way, a lower effective supply is a price driver.

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  12. People are still living in those leaky condos so they are real supply.

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  13. I tried to put together some graphs, but it didn't work out. They were too small and the data diidn't look right, so after a couple of hours I gave up.

    However eye-balling it I think GM's idea that affordibility may be following the bubble burst gaph better than prices is correct.

    We had a huge spike in monthly carrying costs in late 2007/early 2008 when prices were high AND we had high mortgage rates.

    The carrying costs dropped dramatically late 2008 and early 209 as prices dropped and mortgage rates fell.

    Since then we have had a rise in prices, causing the second bump up in monthly costs.

    Where to now?

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  14. Anonymous 19 Nov 2009 9:22 am (above)

    I've taken the liberty of archiving your above comment at VREAA.
    Do you have an further info you'd care to share about those folks (part of town?, buy price range?, income?, rental income?). Thanks!

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  15. Sorry- there are no psts guys. Nothing to say. Very few listings and sales as everyone gets wet and waits

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