Friday, May 14, 2010

The SEVEN year ITCH....


Speak to old time Realtors and investors in this town and they will tell you about the seven year cycle.

Now it is not an exact science like aeronautical engineering, but it does seem rather interesting that RE tends to top and bottom in 7 or so year cycles.

It would be even more noticeable if the price chart was adjusted for inflation, since a flat year would in fact be a price drop. However even on a regular chart it is pretty obvious.

Take a look above. Our first top is 1980-1981. The bottom came around 1987-8. The next top came in 1994-5. We then had a perfect drop to 2001-2. Finally we had a peak in 2008 exactly where you would expect it and then....??!!??

Has the seven year formula failed us? Has it just been delayed by zero rates?

I am moving more towards a 5 wave structure. The third waves are the most violent up-moves.
We have that from 2001-2008. Then we get a 4th wave drop and finally the last 5 wave to top the pattern. No-body knows where and when fifth waves top.

Like I said before, the stage is set for the start of the drop this year. We have listed the reasons a million times, the same crazy number that the average detached house sells for in this crazy town.



20 comments:

  1. Just something for the bears to chew on. I'm not saying the bulls are right or the bears are right, just some points that I don't see mentioned often. I constantly see that inflation adjusted prices are way overextended, the issue with that argument is judging inflation is not an exact science by any means. To be honest the best measure of inflation is probably gold prices, and Vancouver real estate is NO WHERE CLOSE to record highs priced in gold.. so how extended are we really? Also with the situation in Europe it's going to be difficult for central banks to raise rates while Europeans may look to move to a more stable region of the world and Canada is one of the best.. what city pops into mind if moving to Canada from Europe? Vancouver.... Furthermore, gold prices are suggesting rampant inflation, if we have high inflation along with a currency contagion in which central banks have trouble raising rates dramatically, you have a perfect storm for continued higher real estate prices. Just food for thought, not saying any of these scenarios will play out.

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  2. See this:

    http://my.texterity.com/cgaresearchreports/debt2010#pg42

    ole's notes. Canadians are amongst the most indebted people in the world.

    I guess we all think that mommy Government will pay for our retirement and healthcare costs. Just like the Greeks who are getting a very shock now.

    We are all Greeks. It's just a matter of time.

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  3. How do you respond to the RE priced in gold argument?

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  4. All assets have been a liquidity play. RE, commodities, Gold .

    Anyone who was smart- and I wasn't one of them- noticed that the central banks were going to flood the market with money whenever anyone got into trouble, so assets would fly in this lax environment.

    So it did. Fortunes have been made in this town by those who started little gold and commodity companies or bought land in anticipation of this.

    However we are in the final cycle of this IMVHO. RE has dropped in many parts of the world, commodities are well off their highs - think oil $140 and now half that- and as Governments now bail each other out- gold is making the last fly up of the assets.

    Then I think we we deflate (as we done in many things) as it all starts to unravel.

    That's if the Central banks don't just print with abandon- in which case gold could see $3000.

    In any case pricing our RE in gold makes as much sense as pricing it in Yen. It actually has a better correllation with the TSE.

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  5. Oh you have that so incredibly wrong... gold is the truest measure of inflation and judging the inflation adjusted price of an asset by plotting it against gold is a far better measure than any other.

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  6. Gold is not a measure of inflation.

    I just has a good correllation with inflation.

    However look at the graph of inflation for the last two years. It has been on a down-trend, whereas Gold has been on an up-trend.

    Gold is now reacting to fear of default and FUTURE possible inflation.

    If the Euro stabilizes I think gold would drop a good chunk in a heart-beat

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  7. As idiotic as it is to argue with Chad guy (he is a troll - maybe Austin from RET), I would just put one statement. Why is that only Vancouver real estate should be measured in Gold. What does one measure California RE against. OIL? Tarot Cards??

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  8. Measure it in gold as well "Anonymous" -- in 2006 Cali real estate was hitting new highs when adjusted for movements in gold.. now it's getting back to historical norms, go do some research. Listen, I've been bullish for a very long time, and I've been right, you bears are the most pathetic group I have ever seen, praying on your knees for RE to go lower so you can buy because you're simply not smart enough to make a decent income to afford a nice home in the city so you need a huge discount. Nice chart you posted Fish, looks like attached is ready to make it's turn for another leg up.

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  9. There is no doubt that bears have been wrong for a long time. Then very right for late 2008 and early 2009 and then wrong again.

    We all get a chance to gloat at each other's expense. Enjoy it and don't pat yourself on the back too much.

    Unless you correctly forecast the credit bust, zero interest rates, the rapid Chinese rebound, an influx of retirees from the East Coast, the CHMC shenanigans...etc etc then you were only on the right side of this trade due to chance.

    The US bears were wrong for a very long time too, and then VERY right.

    As to gold and inflation. Lets put that one to rest. Gold held's value during the greatest deflation of the last Century- the GREAT DEPRESSION...why because folks worried that everything else would default.

    It also rose in the 70's when inflation was rampant but defaults were not. So the relationship is more complex than just inflation.

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  10. Chad has the reasoning and emotions of an angry ten year old. Yawn. Next.

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  11. He is a f*$*ing clown. He thinks california with 40% of fortune 500 companies and at 30% lower than Gangcouver is fairly priced, but Gangcouver is underpriced. Go and compare prices in Santa Monica with our West Gangcouver.

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  12. I said in May 2009 that the market was going to head higher, what happened? You guys have said for years that the market was going to head lower, what happened? Who's the clown. Let's try some facts here for once guys, market is about to make new highs... you guys have become so used to being wrong that it no longer bothers you.

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  13. Y'know, you still have to pay for housing with the wages you're making, and most people aren't living on gold. Wages have been stagnant in real terms.

    If inflation really is rampant but undocumented, buying Chad's argument for a second, than there will be less and not more purchasing power in Joe Blow's pocket, because inflation's been putting prices but not wages up.

    Which is unsustainable (to a first world) economy, no matter which way you slice it. So. Sure, it's taken a long time, and it may even take longer. But it's economic constipation, and it can't keep going forever.

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  14. I came late to this party and just wanted to throw in a few points.


    "To be honest the best measure of inflation is probably gold prices"

    Why? Gold, like many things (oil, RE...) will track inflation reasonably well over time. But all of these things can change price quite quickly in the short term. If gold halves in price does that mean RE just doubled? (or vice versa?) I agree adjusting everything for inflation is no easy task, but I dont agree that gold alone is the best way to do it.



    The graph is interesting though. Ive seen it dozens of times and just realized something. It makes the current bubble look bigger than it might actually be. If you draw a trendline then it assumes that RE increases about 20K per year. (and should continue on this path for the future).

    But this doesnt make any sense. If you invest $1000 and get 100/year (and reinvest that money, because in houses you cant really cash out equity earned) then after 10 years you have $2000, and it still only yeilds 100/year. The investment basically halved its output in terms of % return.

    Whats more important is the doubling time. Or even better, %gain/year. If RE increased at a constant rate, it wouldnt be a $ value, it would be a constant percentage.

    From 89-95 detached doubled from 200K-400K. Then it had a small $ drop and recovered to 400K around 2002.

    We then went from 400K to about 900K in the next 6 years. The graph makes this look like a lot more, but it really isnt all that much different than 89-95.

    This is probably obvious to anyone who knows about investments, but I just figured it out.

    Regardless, I still think its a bad time to buy a house, but it does make me thing the correction may look different that I previously expected.

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  15. Davers you're very right IMHO. When I got bullish in late spring/early summer 2009 I compared the market to the one in 1991. I think we're in about 1993 in regards to that template and that would mean we have about another year or two of price increases before we correct 10 or more %.

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  16. Lol.. he starts off with "Just something for the bears to chew on. I'm not saying the bulls are right or the bears are right, just some points that I don't see mentioned often." Then as soon as people disagree with him, he throws a tantrum.

    "I've been bullish for a very long time, and I've been right, you bears are the most pathetic group I have ever seen"

    Hey Chad, bad mood because you wet your bed again?

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  17. Bad mood? I own real estate, I'm happy as a clam.. like an earlier post Fish made earlier here, it's quite sad how bitter bears are that they were not intelligent enough to get on the train before it left them behind.

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  18. I own real estate too, but unlike you I don't think that gives me the license to sport a "better than you" attitude towards anyone else. It has nothing to do with intelligence, it has to do with circumstances and people's personal situations, which you have no right to judge.

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  19. @ Chad..
    a lot of peple own real estate and don't have the "holier than thou" attitude.

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