Saturday, March 6, 2010

Faint Hope Clause

Take a look at the two charts above.

The first is the graph of the price of RE for the bubbliest town in the Universe, courtesy of Larry Yatter.

The second graph is the typical graph of a Elliott Wave, 5-stage bull-run.

Sorta fits the first graph. Wave 3 is always the most dramatic upwards (or down), and so it was with our RE . Wave 5 has to pop up over wave 4 and can go a long way or not. The problem is no-one knows where wave 5 ends.

What does this all mean. Not a lot yet. We have to see a good drop, to say that wave 5 is over.

We have HST, tighter CHMC lending, a drift higher in rates, all time low affordibility- if this doesn't make us come to the inflection point- what will? An imminent asteroid??!!


  1. The sell list ratio at yatter matter is pathetic for past few days. I was expecting the market to be pretty hot given all those new rules setting in past Apr 19. Guess not!!! Whether it is a trend or not, got to be seen. But a couple of weeks like this, can send the whole market to a tailspin. Keeping fingers crossed.

  2. This is silly, it's a double top. Look at the teranet data.

  3. What makes you think 2008 wasn't wave 2 and we're going towards 3?

    I'm not a bear nor bull, but you can't say the graphs above match until this bull run has completely run its course.

    I do not forsee a huge drop in RE values in the coming years.

    Did you miss the news about the huge influx of immigrants in lower mainland?

    Immigrants generally prefer to own homes than rent and do not think much of the fundamentals.

  4. There was no double top in Phoenix. Technical analysis seems to be rather geographically selective.

  5. The infection point?

    Interest Rates... it's going to all be about interest rates.

    The US Federal Reserve, through complete domination of the entire capital market courtesy of ZIRP and Quantitative Easing, have turned market logic upside down by 180 degrees.

    But the US is reaching a nexxus point. Either QE is going to halted and the US is forced to deal with a Greek-style debt tragedy (which will trigger sky high interest rates) or we will have QE to infinity, which will trigger rampant inflation as the funds enter the money supply.

    How many people can support a $500,000 plus mortgage at 8-15% interest rates?

    They can't.

    And anyone overseas who has the cash on hand, will watch asset prices collapse inward on themselves before picking over the bones.

    Like a watched kettle that never boils, things are heating up notwithstanding.

    It's coming.

  6. You bears are pathetic, keep grasping onto everything like you have been for the past 5 ears and continue to be comically wrong.

  7. Rizo

    If we starting wave three, then we are really skewered!

    All charts are best read in high-sight. This one will only start to prove itself once a good sized drop comes to end wave 5.

    We would then have a 3 wave correction, according to elliott wave theories.

    We will book-mark this post so I can dance a jig of victory if it comes to pass, or be adequately remorseful if it doesn't.

  8. Chad! Your back. Hows it going man? Hows owning that house working out for you?

    I was beginning to think you had stopped caring about us bears after you bought, but then you come roaring back with some sound financial advice for our misguided souls.

  9. David, it's going quite well as you can see by the data you're seeing. As you recall from when I became bullish and bought back in May the market has skyrocketed so obviously I'm quite pleased with my purchase. I don't like to rub it in the bears faces too much, it was more interesting when we were still well below 2008 highs and bears still thought they had a chance, now that we've surpassed the highs and the market has surged since my bullish call it just doesn't seem fair to kick you guys when you're down.

  10. Glad to hear things are working out for you Chad.

    Hopefully for you the recent listing surge (be it blip or trend, too soon to tell) doesnt take the air out from under the wings of prices.

    Thanks for not kicking us (too hard) when we are down. Everyone knows how delicate we can be when we are losing. :)

  11. Fish- I went to see an apartment which has been empty for three months, nice building, but the suite was bit dated.

    I asked the agent if the owner would take a lower offer, as it was priced high and it has been empty for three months.

    The ganet says no chance. Why? The owner, from Mainland China, has one suite on almost every floor of the building (6 in that building alone) and by dropping the rent, he reduces their rental and sales prices too.

  12. David,

    If you recall my thesis a year ago was for much higher prices from those levels followed by a correction back down to a more reasonable level. Like I've always said I agree that a correction is coming, I just disagreed in a very big way a year ago that the correction was imminent and I still think we have some higher to go before we see some sort of pullback.

  13. Hmmm. Check out Agent Will's stats. Scary how similar to 2008 the inventory numbers are. 2008 benchmarks peaked around April/May of that year. Will we see declines in the June benchmark?

  14. Anon-
    Some countries eg Switzerland and Singapore have residency requirements to purchase property, but most other countries have open doors, that allow investors to accumulate as much as they want.

    It brings in capital and pays the City taxes and keep the assessed levels high, so I doubt it will ever change. However I doubt local, tax-paid money could even compete with funds from some country where paying taxes is not a high priority and where nepotism brings wealth.

    Panda- I certainly think the next few months are critically important. This latest boom seems to be much more narrow in it's scope. However we will be dependant on many factors.

    Unemployment, commodity prices, the world economy, China, interest rates etc I would have trouble trying to guesstimate one of these never mind all of them.

    So far being historically unaffordable seems not to have been a hinderance for the price recovery.

  15. Chad,

    I agree that prices could still rise further. How much further we may have different opinions. I just dont see the point in buying when I can rent for so much cheaper. Even knowing what I know now I still probably wouldnt have bought in spring 2009 as renting has been much cheaper. Also it has given me the chance to live somewhere else which helps me understand what is important to me in a home.

    It is great that you are happy with your purchase but just because it was a good time for you to buy doesnt mean it was a good time for everyone. Calling us pathetic for not buying makes you seem bitter, even though you claim to be happy with your purchase.

    Just because you value owning enough to pay much more than renting, doesnt mean everyone does. Until you have a large chunk of the mortgage paid off you havent been proven right, so you might want to hold of on the victory dance for now.

  16. Why would I be bitter? If i sold now I would make quite a significant profit. I am actually considering selling now for that reason, we shall see. I just get annoyed at the bears that refuse to look at the facts and have for a while, they come up with every ridiculous excuse in the book. Unfortunately the bears have an inherent bias which blinds them from reality, I will be bearish when it is time to get bearish, I have zero bias, if I was bearish I would be out of the market, I don't think things are turning too soon but if I can make a good enough profit on the sale of my house then I will sell, I can't pick bottoms or tops so I'm not looking to top tick the market so if it continues going higher after I potentially sell then so be it as long as I made a good profit then the transaction was a good one.

  17. LOL chad you are priceless. If you are thinking of selling now to realize profit, how on earth can you be saying we should buy? Laugh at our reasons if you want, but if you are considering selling you must at least partially agree with our overall case.

    I didnt say you were bitter, I said it made you seem bitter. What you are doing would be like be like me buying a stock, telling my friend to do the same but he declines. The stock goes up. I then tell him "Man you are so stupid". Thanks for the advice, you have been very helpful. What do you care if we are wrong?

    Are you saying we should buy now, or just pointing out that we have been wrong? For the record Ive only been watching housing for 2 years. I thought the market was overpriced and thought prices would fall. I was right almost half of that time.

    This post is called faint hope clause. We know we are being rediculous. I still believe the market will fall for many reasons.

    You keep saying we have been wrong. This is true. But thats the great thing about being a bear. We are only wrong if we give up and buy and prices fall, or if prices never fall below the level we first started being bearish. Since I started watching RE in summer 2008, I am almost positive I will get to purchase at lower levels than that. And I really only have to be right once. I can be wrong for 5 years and if I have saved more by renting than I would have built equity, I was right. Despite being wrong for 5 long years. It could never happen, but I doubt it.

    'I will be bearish when it is time to get bearish'

    Nice crystal ball there Chad. When exactly is bear o'clock?

    "they come up with every ridiculous excuse in the book"

    I could say the same thing for many bull cases. Please give me 3 solid reasons why prices will CONTINUE to rise, not why they have risen thus far. They have, I get that, but for me to buy for much more than renting, I need an air tight case why my investment wont fail.

    Heres 3 decent ones for the bear case. I know you know them all, but I think they are the best ones, and there are many more. They are still relevant, but dont have a countdown clock.

    1. Price to income is highest in history. Also highest in the world.
    2. Price to rent is very high, I dont know if it is the highest in history, but it is historically high.
    3. Interest rates are the lowest in history. They will probably go up at some point. For sure they cant go any lower.

  18. David, you're sounding like every other bitter illogical bear. I'm not getting into this again, I clearly stated in my last post as with all my posts last year on another forum that I agreed that Vancouver real estate was inflated but it was going to head higher and wasn't going to deflate anytime soon. Since my call the market is up 20% so my call has been very good and if I want to realize a very handsome profit because of my foresight then I will. I understand you bears are bitter and would rather eventually be "right" than make a large profit buying into the market last year, to each their own. To say bears haven't lost is an interesting argument, depending on how long you have been bearish for you have either missed out on big profits or bigger profits which are tax free by the way :) . I really don't care if I didn't convince the stubborn bears that the market was headed higher last year, the people I was trying to get through to were the casual observers of these forums that now may be paying 30% higher for a house or a condo because uneducated bears scared them away with their pathetic arguments stating how the market would fall 50-70%, those are the people I feel bad for.

  19. But Chad, I dont want to buy a house and sell it in a year or 2. I want to buy a house at a price that makes more sense than renting, and live there for a long time.

    I posted this a week or so ago on VCI.

    "Also living anywhere costs money. If you dont own a home then you rent, which costs money. So I would say that owning the home is like paying dividends because it saves you money every month.

    BUT (this is a big but), if the cost of owning said home is greater than equivilant rent then it is not a good investment (still an investment, just a losing one). If you had $1million and bought a house with cash, your monthly cost would be less than renting (except in extreme situations). At this point you are saving rent – expenses each month.

    Now you could say that $1million could be off earning money in a bond or stock. Very true, but who is to say that the house wont increase in value? I doubt it in Vancouver, but I am talking in a general sense. If you live in this house long enough, it will, in theory, pay for itself by saving you money every month. If you sell this house for more than you paid, it was also a winning investment.

    The problem comes in when you have loan interest. It becomes a far worse investment when you are paying much more than rent to cover interest, maintaince, taxes… so the only way to earn money is to live there well after the loan is repaid or to sell for more than you paid plus enough profit to cover all the months you lost money. "

    And this

    "I would do it like this. Figure out what it costs to rent the place. Figure out how much it costs to own the place (mortgage, strata, taxes…) and find the difference each month. At the end of the mortgage (or anytime in between) total up how much more it cost you to own rather than rent.

    If you can sell the place for more than the extra cost of owning, after all fees, you made a profit.

    I look at it in the way that you can rent or own. At the end of 25 or so years of owning, you have a house, but it cost you more, how much more varries.

    Then there is also the added risk of owning. If you need a cheaper place, move. If you need a bigger one, move. If you own it costs a whole bunch more to change places and you dont know what the market will be like at that time.

    Then again, if you own you can renovate, dont need to worry about evictions… so its a trade off.

    You gotta weight it all out, and my scale tips heavily to the renting side right now."

    Those are my basic ideas about a home as an investment and renting vs buying.

    Tell me if you think any of it sounds illogical.

    Basically I want to buy when I can likely sell at almost any time and have the total cost of owning total up to less than renting for the same period of time.

    I dont want to time the market and sell when it's hot, I want to sell when it makes sense in my life. Since you agree the market is over valued and will fall I think we can both agree buying now doesnt make sense in my definition.

    I still havent heard a rational reason why prices will rise signifigantly from here.

    You could say "people will continue to pay higher prices because they think its worth it." That could be true, but that is what we are arguing. Prices go up if people pay them. The question is, why would people continue to pay these prices for reasons other than they think the market will rise?

  20. Chad is convinced he has made a good investment. We should congratulate him on his conviction; may it serve him as well in the years ahead as it has in years past.