Castlegar News, Page 0024, 31-Oct-2007Unbiased by me for your reading pleasure. Comment away.
Income Earnings – Where do you Rank?
By Debbie Pereversoff CFP, CSA
Last week, I searched the internet looking for interesting data from the good folks at Statistics Canada regarding retirement savings. I wanted to find out a little bit about income earnings. Specifically, how much money people make out there, and where do we as individuals stack up?
All the data here is for the 2004 calendar year, which is the most recent income data available.
Just prepare to brace yourself; we'll start with “median” total income. The median is the mid-point, where half the included population is higher and half is lower.
“Total income” in this case includes income from employment, investment, government transfers, private pensions, registered retirement savings plans and other income. What I found out was that the median total income for Canadians was…$24,400. If you made more than $24,400 in 2004 – congratulations - you were in the top half of income earners!
Now, before you calculate that fully half of Canadians work for less than $12.20 an hour, bear in mind that “total income” will capture part-time employees, after-school student jobs, etc. Those people will pull down the average with a low income that may not be representative of hardship. That being said, the bottom half of total income earners is also populated by people who are out of the work force and living on low incomes provided by pensions and government benefits.
Many of those people do indeed have financial hardship.
The median employment income for Canadians in 2004 was $25,400 - that's just counting the working folks. The highest median employment income by province was the Northwest Territories by a wide margin ($35,400), followed by the Yukon ($28,300), Ontario ($27,900) and Alberta ($27,500).
Newfoundland was the lowest at $17,000.
But let's move back to total income for Canadians, and climb further up the scale to see where the meat is. Let's move all the way up to where about 2/3rds of individuals have lower incomes. In 2004, you were in the top third of income earners if you made more than…are you ready? - $35,000!
I know what you're saying. Let's go higher! Okay, let's move up to the top quintile line. At this level of income, 80 percent of people made less than you – the number? – 19.8 percent of Canadians with an income made $50,000 or more in 2004!
Now, although a bit over 12 percent of individuals had incomes between $50,000 and $75,000, the atmosphere thins out pretty quickly above that. Only 7.6 percent of people had incomes of $75,000 or more in 2004. Only 3.4 percent made $100,000 or more. And by the time we get to the $150,000 or more category, we're down to just 1.3 percent of income recipients.
People with 2004 incomes of $200,000 or more were a rounding error: only 0.7 percent made $200,000 or more. And you can be 99.5 percent sure that any randomly selected Canadian earned less than $250,000.
OK - those are the stats for individuals. The nice folks at Stats Canada also track the incomes of various family groupings, so we can get an idea of where entire households compare by income. “Couple families” are couples (married or common-law, including same-sex couples) living at the same address, with or without children. No singles or lone parents are included. The median total income from all sources for all members of such families in 2004 was $64,800. Less than a quarter of such households had total incomes of $100,000 or more and just over 8 percent had incomes of $150,000 or greater.
So, there are the stats, and that's what we make. Now, consider some of the implications of this information. If there were folks who made $50,000 a year and didn't feel like they were making enough to get by (and there are), it would be useful for them to consider that based on 2004 figures, 80 percent of Canadians with an income actually make less than that. If their individual income was close to $65,000 – it would be enough to push them into the top ten percent of incomes, received by Canadians.
Ninety percent of the 23.4 million people with an income in Canada made less. If they felt they weren't getting by at an income level that's higher than that of the vast majority of the people, in one of the richest countries in the history of the world, do they have an income problem or is it a problem related to something else, like choices or expectations?
Looking at the statistics of what we all make, it sure gives you something to think about – doesn’t it?
Debbie Pereversoff CFP CSA is a Certified Financial Planner and a Certified Seniors Advisor with her company The Affolter Financial Group Inc. in Castlegar.
Wednesday, October 31, 2007
Monday, October 29, 2007
Back then we were talking a lot about the stock market crash in 2000. We figured that, like most cycles in economic history, the bull market in housing was a direct result of capital fleeing out of risky equities into stable real estate. We both saw signs of economic growth in equities and figured that the local RE market wouldn't have legs to sustain the growth it had experienced over the past 18 months. I was decidedly bearish. He owned a house and of course didn't want to see a correction.
At that time, I was earning great money in a job I didn't want to do anymore. My dad was urging me to buy a home. I decided that a mortgage would be a life sentence to a less-than-satisfying job and decided to go back to school and get a university degree to open new employment doors. I could play the what if scenario forever here, so I won't. I don't regret the decision I made. Hindsight being 20/20, I realize I could have done both.
Fast forward to today. We have a rarely witnessed situation: parallel bull markets in both local RE and world equity markets. One seems to have endless legs, the other, I'm not so convinced. RE prices in the western world are correcting: everywhere except Canada. East of Manitoba, the market didn't have the heat that the West did, and manufacturing is getting hammered, so I believe the RE market will soften there very soon. West I don't know. I want to believe that Alberta will continue it's downward trend to a negative year over year loss. But I doubt it will. Currently it's negative month over month; it will take a massive hit for it to go below the 30% or so it had gained already this year.
So what is the Bear's Dilemma? Roger asked an interesting question over the weekend: "how low does the VREB published median price have to go before they jump in?" And that question my friends outlines exactly what the Bear's Dilemma is: when is low enough?
I've maintained on this site for some time that being an owner of a property is better than being a renter. There are many reasons for this:
- pride of ownership
- building of financial equity
- flexibility and security in living arrangements
- asset appreciation
The trouble for us is we can't find those kinds of places; either we'll be unhappy in the unit/neighbourhood for any great length of time or we'd be stretching our budget to the point where we can't afford to save for our other financial goals, like eating and retiring. So we wait for our income to explode or this bubble to burst. I wonder which will come first?
When prices start falling, how will we judge when is the right time to buy? All around us we're inundated with media extolling the benefits of buying property right now by telling us how good it would have been if we bought a year or more ago. When the market goes down the opposite will be true: societal reinforcer's--media and our peers--will be saying the opposite: "don't buy now you'll be losing money."
To which I state the only answer I can come up with for the Bear's Dilemma: "If you are happy with your purchase, you don't blow your budget, you don't compromise on your retirement and other savings, and you can live in the place you buy for 7-8 years or more, you will have nothing to worry about."
To answer Roger's question: for us, I figure that a 30% correction on the median SFH price in Victoria will give us the legs to get into the market and stay there.
Current median: $520,000
30% correction is: $156,000
New median: $364,000
Is this realistic? We hope so. If it's not, who knows what we'll do.
Friday, October 26, 2007
I have a lot of respect for the accounting profession. Sure, they were partly responsible for some of the dot.com mess in the US and Nortel in Canada, but those are largely isolated incidents and aren't reflective of what kind of service an accountant can give an individual or family on a financial planning level.
The Institute of Chartered Accountants of BC released a recommendation during the recent BC budget consultations. It contains the most recent income and affordable-living stats for BCers.
Here's what they had to say:
Real personal disposable income per capita is the amount of income available after taxes and net of inflation. It illustrates changes in potential purchasing power and savings.You can read the full report here. So much for wage inflation being the reason why housing prices are so high. I'm surprised that the COL ratio is so low. This is perhaps because I'm not an accountant or economist and don't understand the stats they used to come up with that. Or it's perhaps indicative of the fact that real rents are considerably lower than mortgage payments and thus drag the 42.1% ratio down to 20.2%? What do you think?
Financial vulnerability is measured by total debt (both personal and mortgage) calculated as a ratio to personal disposable income.
Cost of living is expressed as the percentage of household expenditure spent on basic shelter and reflects the trend in actual household purchasing power.
As a place in which to LIVE, BC enjoyed a decreasing crime rate and decreasing cost of living, increasing disposable income, and high government health care spending. At the same time, however, personal debt continued to grow (largely as a result of high housing prices).
There are, however, areas in which BC still needs improvement: disposable income ($23,339); personal debt (1.24); and cost of living, as expressed by the percentage of household income spent on shelter (20.2%).
When comparing 2005 with 2004, disposable income in BC grew by 1.5%, bettering the Canadian average growth rate of 0.9%. (MY ADD: we're still below national average; Alberta and Ontario beat us by 4.1% and 0.2%; and our disposable income to debt ratios almost twice that of the national average).
BC’s real per capita disposable income rate was 3% below the national average in 2005.
BC’s higher disposable income gain is attributed to the 10.3% cut in real direct taxes (MY ADD: not income growth!)
Financial vulnerability is measured by total debt (both personal and mortgage) calculated as a ratio to personal disposable income. BC’s debt to personal disposable income ratio rose by 6% last year (the highest increase in our comparison), reaching a record high of 1.24 and leading our comparison for the tenth consecutive year. This increase was primarily due to increased mortgage debt, which rose by 11.7% in 2005.
Vancouver is the least affordable city in Canada and the 15th most expensive city in the world. Owning an average home requires 42.1% of British Columbians’ (not Vancouver, that's BC-wide) median pre-tax household income. Not surprisingly, mortgages comprise 75% of BC’s total debt.
BC’s cost of living in 2004, as expressed by the percentage of total household spending on shelter, was 20.2%, comparable to Ontario’s rate of 20.5%. This is not surprising given that both provinces have the highest housing prices in the country. (While housing prices in BC are 25% higher than in Ontario, other costs, including taxes, water, fuel, and electricity are lower in BC). (MY ADD: That ratio must be dragged down by real rents).
BC has less post-secondary educated citizen's than Alberta, Ontario and is below the national average.
BC’s wages, adjusted for inflation, decreased by 0.5% between 2004 and 2005, dropping to $21.05 per hour as a result of strong growth in the wholesale and retail trade sectors, which typically pay lower wages. (MY ADD: that number, based on a 40 hour work-week and 52 weeks/year = $43, 784 gross annual average income).
The number of British Columbians working in construction trades grew by 16.7%
in 2005, which led to an increase of 4.1% in average hourly earnings in this sector from January to November 2005.
Thursday, October 25, 2007
CMHC is an arms-length crown corporation. What this means is that they receive no government direction, and they don't, and that they receive little government funding, and they do; so they must be self-serving and self-sufficient, and they are.
I do agree with Mohican over at the Financial Planning Personal Sanity blog, it is nucking futs. But that said, I don't believe this will have any impact whatsoever on the Victoria real estate market. And here is why (Yes, I've purposefully picked the cheapest investment property I can think of):
2-bed 1-bath condo worth $200K with $1200/year property tax and $150/monthly assessment.
With a 0% down mortgage you'd be mortgaging $215K ($15K insurance premium to CMHC) for a monthly mortgage payment of:
Say you're a RE "investor," you take out this mortgage on this dumpy condo, you rent it out for market rates of around $1.25/SF. So you're getting around $1000/month. But you're paying out
$1222 in mortgage, $100 in tax, $175 in MA for $1497 or a $500ish loss every month. Let's say you squeak out a bit more for rent. You won't get $500, maybe $200. That's irrelevant.
The only "investor" for this deal is actually a speculator betting that they'll make their money in inflation and mortgage paydown. CMHC already ate up 7.5% of your inflation (before interest) and considering that condos are overbuilt and already coming down in price (new ones especially) I don't think we'll see too many banks willing to do this deal. So the "investor" will have to go to the alternative market which means they are paying more interest (not to mention that alt-mortgage funds are extremely threadbare with the credit crunch) and their already negative margins just got more negative.
Now this new product may have broader implications in other segments or markets, but in the local Victoria rental pool where rents are barely 60% of carrying costs for the most part, a 100% down mortgage makes no economic sense whatsoever.
Anyone stupid enough to get into this product deserves to lose their shirt when the market corrects. CMHC may get caught holding the bag, but the debtors get taken into bankruptcy first. The premiums that CMHC will charge are designed to make them money. Pure and simple. This is a huge risk that they are aware of; they built that into their business model. In other less-inflated markets, pretty much anywhere east of Manitoba, this product will be a big time money-maker with limited market implications. CMHC is facing increased competition, they got some free advertising today, I doubt if they got much else.
Wednesday, October 24, 2007
The Daily Courier (Kelowna), Page A11, 24-Oct-2007Mo, I'm guessing you'll have line-ups of Realtors wanting to sell your home. I'm pretty sure that in your neck of the woods they've been too busy selling homes to read the paper.
History shows house prices will come down
By Mo Rajabally
This letter is as a result of The Courier's Steve MacNaull's Home out of reach' piece (Oct. 16) and Damon Enns' letter 'Home aren't out of reach...' (Oct. 18).
The intent is to caution any person who may think it is now or never time to own a home. I have lived in this valley for 32 years, and I have observed the ebb and flow cycle of real estate. It is not a line that goes straight up indefinitely. At most, it plateaus and perhaps gradually, it comes down.
The backbone of any economy is the middle class. I would like someone to tell me if this class has had a 10 per cent pay raise per year over the past five or six years.
This is how much the value of real estate has appreciated in Kelowna. When I read the statistics Irene Wilkinson of Express Mortgage Services provided (Courier, Oct. 18), I shudder. Now that the price of a home has jumped over the $500,000 mark, what will be the average mortgage with a 10 per cent down payment?
And, how could a young couple with two incomes pay a monthly mortgage of over $2,689? What happens if there is an accident, an illness, a transfer, or worse still, a loss of a job, not to mention an interest rate hike?
I remember being told in 1988 by a real estate agent if people didn't buy a home then, they would never own one.
Soon after, the market had peaked and I had sold my home. I rented for a year. The following year I bought a lot half the asking price when it came on the market in 1988 because the market had taken a plunge.
It is going to happen again; at least this is what I think, but perhaps not to the same extent. I would request any economist/statistician from UBC Okanagan, or Okanagan College, to do the math.
Of all the baby boomers retiring all across Canada, what percentage would retire in Kelowna?
Also, how many people in Kelowna have cashed in on their house equity and have moved on to cheaper locations?
Everywhere I go, I see apartment buildings, townhouses, and single-family homes under construction.
Will they all be sold at the asking price? Well, it depends on what the market will bear. There is always the possibility some developers could end up holding a bagful because they have missed the last ferry.
The one thing we have going for us in Canada right now is low interest rate and a solid economy.
Recently, MP Garth Turner, visited the Valley. I used to read his investment newsletter and even read his column in one of the local papers.
He warned Kelowna the boom could not continue. Frankly, one does not have to be a rocket scientist to know there is always a goal post and that the sky is not the limit, except perhaps if you sell real estate.
I would, however, caution any prospective buyer to make his or her own decision and not to rely on my observations and comments.
Now I believe in the process of writing this letter, I have created a problem for myself.
Will I find a real estate agent to sell my home? Well there is an open invitation.
Strathmore condos in Langford dropped their prices today.
Tuesday, October 23, 2007
For this one, we had to go waaaaay back. Check out MLS# 225591. It's an older unit (pre-leaky), it hadn't seen a stitch of work in about 25 years. It was downtown, but not "Central Park" or other less than sunny sides of downtown. We'd only consider a downtown condo. In our hunting experience, they don't hang around long, so we'd look at this as a more liquid purchase than a lot of others we could make in this market.
Original ask was $229,900. It sold for $225K. We'd put 5% down and pay cash for closing costs. We'd also have $10-$15K for "updating" which this particular unit needed in order for us to feel good about the purchase. For full disclosure, we actually made the call to put in an offer on this unit after watching it for 3 weeks, but it had a conditional offer accepted that day. That was March 2007. And we're relieved.
Here's what it looks like for us:
We'd pay bi-weekly rapid. Even with taxes, monthly assessment, and bills, we'd fall well under the recommended 30% of gross income (we'd actually be 30% or less of net) which is just fine. On this purchase, we'd even likely go 5-year closed variable which would save us 0.1%. Not much, but it adds up and we can easily handle a 1%-2% interest rate hike.
So what does this look like 5 years from now? Again, we'll make some assumptions similar to yesterday.
Here's the 6% growth side:
Present value (actual): $225,000.
Future value (assumed): $301,100.
Mortgage principle paydown: $23,500
Total equity: about $100K.
Wow. I am honestly surprised. My risk is roughly half of what it was yesterday. My equity is only $60K less. That's like a kilometer to a mile really. OK. No it's not. But for barely being a blip on the risk factor side for us, I'd say a $100K equity in 5 years is a pretty good return. Too bad I know people who have hit that mark, with less risk, in less time, in better condos, over the past 3 years, and therefore tainting my expectations and those of everyone around us. But I digress.
Let's look at the downside now. There was some reasonable debate about my assumptions on the period 1994-1999 in town. I'm OK with that. Condo's on VREB aren't counted until 1995. So I have to shift my 5 year period ahead by a year. So we'll use downtown units from 1995-2001.
Difference: $7K or a whopping 5%.
This basically means you lost money. But not that much. You'd even come out ahead with equity on the principle pay down to the tune of almost $16K. If we did the upgrades of $10-$15K we figure we'd get 50 cents on the dollar come sale time (conservative) so we'd probably even break even.
I won't be commentating for a while, we're out condo shopping.
OK. No we're not.
What would happen if the condo market dropped 6% annually?
Present value: $225,000.
Future value: $149,000.
Difference less principle paydown: $52,600.
If it was only a 3% drop over 5 years?
Present value: $225K.
Future value: $186,500.
Difference less principle paydown: $15K.
Maybe we'll wait till we sell the place to do renos? Then we'd be even. Or maybe not.
Again, I've left out the taxes, MA and other expenses. This isn't a who wins the wealth war post. Just a little math playing around analysis for you folks to rip to shreds.
Monday, October 22, 2007
Here it is: MLS# 231005. Original asking was $419,900, it sold after 108 days for $371,000. I picked this one on purpose; if we went after a house we'd be looking for a "motivated seller" so this fit.
Anyway, here's our particular economic situation with it: 5% down, 25 year amortization, 5.85% locked-in over 5 years. It looks like this:
We'll pay bi-weekly rapid. We won't overpay our mortgage because we prefer to max out our RRSP contributions. Any disposable income left over will go into other investment products, not the mortgage. You can debate the intelligence of that, but at relatively cheap money (5.85%), paying down the mortgage isn't huge on our priority list. We anticipate feeling comfortable in this house in this neighbourhood for 5 years.
Growth continues as it trends right now, roughly 6%/year.
Current value (actual): $371,000.
Future value at 5 years (assumed): $496,481.
Mortgage principle paydown: $36,000 (approximate)
Total approximate (possible?) equity at sale time: $160,000 ish.
Now of course you're thinking, $160K, no wonder everyone's getting rich off real estate! It's not that simple though. We have all sorts of other considerations here: taxes, interest, maintenance, months of vacancies etc. Here's the thing: we can afford the monthly payments on this. We can do so without sacrificing our savings, but the days of eating out would be done.
The rental income on the suite (1-bed) we'd calculate at $800/month. That's the high side of the rental market, but it's in a convenient location, we'd clean the place up and replace anything needed. We pay close to that now, so we anticipate being able to have that kind of income come in. That income would go directly towards maintenance of the house and property taxes. Our tax bracket wouldn't change, so our taxes would be based on an additional $9600 to our income, which we can eliminate by maxing out our RRSP contributions--we both have ample room from our years in college and low-income employment. The room is there for five years.
So why wouldn't we do this? It looks like a no brainer on paper. Even for a boisterous bear like me.
What if we changed the assumptions to something like this:
We experience a moderate correction of 6%/year. I don't think even an ardent bull could argue that this is well in the realm of normal possibility and is fairly indicative of the 94-2001 correction which witnessed just modest price reductions. When compounded though, those modest corrections can hurt.
Current value (actual): $371,000.
Future sales value at 5 years (assumed): $245,519.
Mortgage principle paydown: $36,000 (approximate).
Approximate loss: $89,481.
Again we've used the rental income to cover taxes and maintenance as a simplistic way to remove those variables out of this complicated analysis. Regardless. When the market increases, you obviously come out ahead. But when the market decreases, you really do get hurt if you have to sell.
If you don't have to sell, you may find yourself living in a place with negative amortization, so you can't go get a HELOC and renovate to make it more comfortable.
It's this possibility that keeps us out of entering into this kind of scenario. It is just too much risk. That 6% decline over 5 years is a compounded 30% correction. That could very well be a reality. It could be less, it could be more, it could be faster, it could be slower. Even if we halved that assumption to 3%, that would still be a $30K loss all things considered. That's my master's degree I want to do over the next few years. That's approximately one-third of our income. That's a lot of money. Did I say a lot?
All signs point to a slowdown in both sales and growth. All signs point towards a looming economic downturn. Dodge is calling on the government to let the market correct the debt crisis, which means some pain is predicted, including raising interest rates. The federal government is trying hard to orchestrate their own defeat because come October 2009's scheduled election there is a highly likely scenario of a less-rosy economic (dare I say recession?) situation.
And this analysis is why we will rent for at least another 6 months. Unless we buy, gulp, a condo; which we'll run over tomorrow.
Friday, October 19, 2007
Letters to the editor are often used by non-governmental organizations to advance a particular political viewpoint or belief. Rarely are letters to the editor a commercial venture meant to sell a product.
I guess someone forgot to tell the editors of Kelowna's The Daily Courier. A few days ago they published a story House out of reach for average family. It centred around one oft-kicked-around-here theme:
The average annual household income of a family in Kelowna is $65,139, well below the $88,000 a year needed to support the mortgage on a home selling for $500,000 – the average price for a single-family home in the city.It was balanced and included a number of quotes from one relatively impartial expert and one from a totally commission compensated mortgage salesperson who stated:
Despite all the barriers, Wilkinson says now is the time to buy a home, be it an average single-family home or a little condo, because prices will only go up. Once you‘re in the housing market, you‘ll see your equity grow, allowing you to accumulate a down payment that can be used to move into a bigger and better place.Hardly accurate or impartial. Don't believe me? Ask all the Americans who "begged, borrowed and stole down payments, or took out negative amortization (zero down) or got parents to co-sign," and still lost their shirts. Even though they were told real estate had nowhere to go but up. Remember that Canada isn't the only North American country with a baby-boom generation demographic bubble. Regardless, that statement offset the earlier statement by an impartial economist that claimed an average family income could not support an average single family HOUSE (not condo or townhouse, but HOUSE). That is accurate.
This story gets better. A Realtor by the name of Damon Enns wrote a letter to the editor that was published yesterday. It's a dandy. And it's conveniently not available online, so I'll republish it here in its entirety for your reading pleasure. Enns "felt" the story was inaccurate so he needed to "clarify"--read repeat what Wilkinson said; but what Enns was really doing was getting a plug for himself and his property listings.
The Daily Courier (Kelowna), Page A11, 18-Oct-2007Check out my bolds. How the F&%$ did those get past the editor! The guy is getting free advertising. Now in all likelihood, he's actually paid for this advertising through his copious contributions to the classifieds and real estate sections of the Daily Courier. This guy is a gem. Almost as much as the editor of the paper is.
Homes aren't out of reach for new buyers
By Damon Enns
This letter is in reply to the article Home out of reach in Tuesday's Daily Courier.
I want to encourage all the renters, and those who are tempted to give up on buying a home, that owning a house is not an impossibility.
In a matter of two short years, I went from being unemployed, broke, and living in the home of a benevolent family, to owning my own five-bedroom house with a two-bedroom in-law suite.
I was able to perform this "miracle" by getting a job, saving some money, buying a condo, getting married, selling the condo for a profit, using my real estate profit as a down payment, and using the combined income of my wife, myself, and two bedroom in-law suite to qualify for a loan.
I am employed by Re/Max now, and my wife and I have a heart and mission to help people fight the giant that we faced, and to get into their own home.
Many of my clients who bought homes when I first started as a realtor have already sold their "starter" homes and have moved up a level or two.
I strongly encourage everyone who dreams of owning their own home, as I did, to find out what they can afford right now, and find out how to buy it. Get on the train because it isn't stopping anytime soon. I am currently marketing an $80-million condominium project on KLO Road called Orchard Springs.
Sales start soon, but the condominium will not be completed for approximately 18 months. But what an excellent opportunity to step up into a house. CMHC has a "flex down" program, and different lending institutions and bond companies have informed me that they may even "spot" qualifying buyers their 10 per cent deposit. What an opportunity.
All a person has to do is save and/or borrow some money for the deposit, and then watch their leveraged investment grow to the point where they have the down payment for the house that they want.
Unless the hundreds of thousands of Easterners "fixin' to retire" in the Okanagan change their minds, fine condo projects like Orchard Springs (with its rich interiors, indoor pool, and beautiful landscaping) will continue to be a hot commodity.
I should mention that there were other important motivating factors for getting married besides home ownership, but the point remains the same. House ownership is not out of the reach of the average Okanagan family - there just may be a couple of extra steps to make the dream home a reality.
I have to continue with my BS-o-meter analysis. I'll cut and paste statements this guy passes off as "facts" in his "letter."
- Get on the train because it isn't stopping anytime soon.
- All a person has to do is... watch their leveraged investment grow to the point where they have the down payment for the house that they want.
- Unless the hundreds of thousands of Easterners "fixin' to retire" in the Okanagan change their minds...
I'll leave the rest of the discussion up to you, folks. I'd especially like to hear from the 3 or 4 Realtors that I know are frequently reading this blog (you people really should stop reading from your office if you want to remain incognito). Please feel free to comment anonymously. How do you justify or defend this kind of BS? Is it a savvy marketing strategy? Is this "gorilla marketing" or "viral marketing"? Do you take sales and marketing seminars on this sh&t? Inquiring minds would like to know.
The TSX has been open for 45 minutes as at this writing. It's down 135 points. Seems like history can repeat itself. Hopefully it doesn't.
Seems like people lost some money today too... as the index fell 2.3%, certainly no Black Friday, but a dark day none the less.
Thursday, October 18, 2007
The life insurance/mutual fund people who have finished the financial planning courses offered through their professional organizations can call themselves Certified Financial Planners. No one else can use that CFP designation.
CSI offers a professional financial planning designation, those certified use the PFP acronym.
Accountants can offer financial advice too. CGA, CPA, CMA are all designations that require a huge commitment to achieve.
The stuff you read about written by analysts are usually from people who have achieved the Financial Analyst designation through CSI.
Realtors tout themselves as financial advisors when it comes to that forced savings plan that is your mortgage/house.
So with all the different designations, who do you get your advice from?
The best analysis I've read about financial advice is you get what you pay for. Now most advisors/planners don't actually charge you anything at all. Instead they get commissions on products they sell or deals they broker. So in this case are you really getting advice? I'll say yes and no. You get some advice, but that advice isn't always given without an attempt to influence you in a direction which you may not choose if you got that advice for a fee.
The accountants in this world charge you a fee before dishing out advice. So when they speak up, I usually listen. And today they spoke up. Loud.
Bold was me. So let's see: housing prices went up, which means equity and savings should have gone up, but we spent more, saved less, and basically looked this economic boom gift horse in the mouth. Do you think that may have been because we listened to people who were rewarded not for dishing out advice but for dolling out products?
- Canadians are in debt denial
- a quarter of those who answered didn't think an interest rate hike would hurt them financially
- one in five said they wouldn't be able to handle an unforeseen expenditure of $5,000
- Canadians are increasingly relying on borrowed money to finance day-to-day living expenses
- Debt levels have risen by an average of 5.9 per cent a year since 2000, the report said
- But only 14 per cent of Canadians reported their own debt levels had gone up significantly over the past three years Me thinks someone's fibbing here, eh?
- 20 per cent were raiding their RRSPs before retirement — mainly to pay for daily living expenses
Remember I'm not a financial advisor. But I will tell you what I plan to do very soon now that I'm working again: pay a fee for service planner or accountant, even just once, to review our economic situation and recommend a plan to achieve our economic goals.
I should add that not all FAs, CFPs and Realtors are shyster salespeople. Nothing could be farther from the truth. But very few can claim to have universal access to products and none can claim to give unbiased advice truthfully. That said, I'd happily recommend people I know in all three designations to my friends and family. But that won't prevent me from getting a truly unbiased opinion.
UPDATE: want more reading on designations and how they glean their incomes? Check out this article from the Van Sun, Oct 19, 2007.
Wednesday, October 17, 2007
Feel free to refer back to the great discussion at this post.
For the past few years on late night and Saturday afternoon TV we've been inundated with infomercials convincing us to attend "free" seminars offering to teach us how to dump our jobs, get rich quick and lead the lifestyle that Bill Gates wishes he could. And just what are these "gurus" offering to teach us? How to flip real estate and how to trade trends and use options.
Now again, I'M NOT A FINANCIAL ADVISOR, nor am I a trading expert. If you asked me over a beer how much I know about options, I'd say more than most people but less than someone who trades them. I've never touched the things. But man do I want to.
I'll admit, I enjoy a good game of poker. There is something about gambling with skill and a bit of intelligence that is oddly exciting. I figure options would be the poker equivalent of the stock trading world. And they certainly don't qualify as an investment using our definition form the above-linked post. Nope, pure speculation.
Here's how it works: you borrow stocks betting their prices will go up or you lend stocks betting the prices will go down. The price you agree to pay is the price they were worth at the time of the contract. You collect the difference between the two prices if the contract is exercised. Really sophisticated options traders can even borrow stocks to lend out and thus play the game at both ends. These transactions are called "puts" and "calls." And they are complicated by time limits, so just when you think things may be looking your way finally, ding, ding goes the bell.
This is an overly simplistic explanation that is full of inaccuracies, but you get the idea, non? It's trading on margin and you can lose as big or even bigger than you can win. Think buying a house right now and watching its value drop 40% in 6-months and you still owe the bank and you can't sell the house.
Last I checked, you had to have considerable experience with a brokerage and considerable wealth to get into this game and stellar credit. You also had to have a brass jock or jill; these kinds of investments when they go wrong feel like a swift kick to the groin, I'm willing to bet.
The best way you and I can get a taste of the action, without the knowledge or finances to back it up, is through investing in hedge funds. Even those are super risky. Just ask those people invested in the Bear Sterns hedgies that got dragged down to their death by the US housing market downturn.
Anyone reading this playing this game? How's it going for you? Do you do it through an online trading system like Action Direct or E-trade? Inquiring minds would like to know.
If I went to the meat counter at my local grocer and bought a package of hamburger that was two weeks old but marked as packaged yesterday, that would be fraud. If I bought a used car that showed 50,000 km on the odometer but had really been rolled back from 200,000 km - fraud as well. So, why is it perfectly acceptable to do the same thing with houses?H/T to comments at Victoria's Truth.
Tuesday, October 16, 2007
Let's look at some of what we feel at HHV are the benefits to investing using mutual funds:
- cheap access to diversification
- cheap access to equities, many funds have $25 minimum investments
- very liquid, in some cases 24 hours to get your money back
- RRSP eligible (unlike a second or third house)
- professional management, sometimes even relatively cheap
- dollar cost averaging
- sometimes less volatile than individual stocks
- Canadian mutual funds rate poorly on expense related to management (MERs) compared to their international peers
- the sales game, many mutual fund (financial) advisors try to sell you funds of funds, which usually end up costing you more and making you less
- capital gains tax paid from within the fund year-to-year AND when you sell your shares outside a registered plan
- crazy commission structures that can be punishing at times and hard to understand
I'm a value investor before anything else. What this means is I look for good deals. I like the price to sales ratio the best (not to be confused with price to earnings). There is a great performing fund family from investment guru James O'Shaughnessy sold through RBC securities. This is where I learned the price to sales ratio. James suggests that companies that you can buy $1 of their sales for less than $1 of your money, and that are over $250 Million in market cap, chances are pretty good you'll beat the market. His funds almost always beat the market. And he charges well below the average MER to do that.
For all the benefits of mutual funds, I strongly believe that when you get over the $10,000 net assets invested mark you are better off investing directly into companies (10 plus). You have to pay more attention to your investments, but isn't that part of the fun? Since I've been doing this (paying attention), I've not only learned more, but had more fun saving and investing than in reading mandatory mutual fund prospectus statements.
I'm not sure if this will spark the kind of discussion we enjoyed earlier today, but we'd like to hear your thoughts on mutual funds. Are you in or are you out?
Monday, October 15, 2007
I figured we'd have a little fun around here this week. Each day I'm going to comment on some commonplace investments and offer my opinions only--SEEK PROFESSIONAL ADVICE ELSEWHERE BEFORE ACTING ON ANYTHING I SAY, I AM NOT A FINANCIAL ADVISOR--on whether they qualify as investments in the HHV household. If you have a particular product you'd like to see pumped or dumped, email us using the link at the top right.
On with the show...
Is your house an investment? By your house I mean the one you are living in. Here's my answer: probably not.
If you live in a home that you rent, it may qualify as an investment using my definition if it is wholly owned AND providing a net income to the owner. This is the only circumstance where I would say that a home is an investment. But in this case it's someone else's.
How do I get to make that assertion? Because many, not all, but many financial advisors require an investment to provide an almost-immediate financial return.
If you buy a blue-chip stock, you're likely purchasing stable long-term growth and a DIVIDEND--which is an almost immediate return on your investment. If you buy a small cap stock, you're likely speculating on a story and hoping for greater returns in the short term in exchange for waiving your right to demand an almost-immediate return on your investment (few if any small caps pay out dividends). Trading small caps, which I frequently do, is speculating, not investing, and is akin to little more than gambling, but with better odds than a Vegas craps table.
So the rental house you live in is not likely paying out a dividend unless the landlord collects more than she puts out in mortgage, tax and maintenance. The same can be said for owner occupied homes.
How can an owner occupied home possibly be an investment using my definition offered above? Some may argue that having a two-bed mortgage helping suite downstairs means their house qualifies as an investment property. I say Nay Nay. That mortgage helper means you pay less of your own income to your mortgage, but considering that the bank will only count half of what you take in in rent towards earned income for mortgage qualification, you can see how they feel about the "quality" of that "investment." We here at HHV tend to agree with that practice for the most part.
Most people, us included, believe owning is better than renting in the housing market. You're better off to own eventually than never to own at all. Real estate returns in Victoria are averaging about 6% per year for the last 30-odd years. Adjusted for inflation, and again we'll defer to the pros, who advise 4% assumptions, 2% real growth isn't exactly stellar. Stable, yes. Tax preferred, yes. But "outperforms the market", I say Nay Nay.
The only time you realize a gain from your house is when you sell it or borrow against the "equity." I don't think taking a loan out is a good investment, but many real estate flippers turned financial "educators," recommending you leverage your equity to buy and sell distressed properties in dirty neighbourhoods, will argue I am nothing but a nay-sayer who is risk adverse. I'd tell you I'm just not risk-tolerant enough to buy into the shill and suffer the Casey-like consequences. Yes, some people make a lot of money buying and selling distressed properties. But the average income earning citizen in Victoria, in these current market conditions, won't.
Now my previous post was about a friend of mine who is likely to experience a significant financial gain by selling his house and buying another one. He'd argue me blue in the face about how his two homes were the best investments he'd ever made. I wouldn't have much to say to him other than if you weren't leaving town, would you feel the same way buying across or up in this market that clearly has little upward room to grow?
Their income supports their current mortgage comfortably. They could stretch up another $100K or $500-$600/month. But that would be the difference between owning a nicer home and having a family. Yes, that's a personal decision. But it affects financial planning and once again takes money out, not puts money in, so his house isn't an investment if he stays in it, or moves to a more expensive one in town.
Let's recap: a home is an investment when the owner realizes a positive net gain in her income. That's income minus expenses, so the rental suite doesn't count unless it's paying all of your mortgage, taxes and maintenance too. Sure you get a tax-preferred capital gain if you live in it and it gains in value over a year's period. But considering that real YOY real estate returns are hovering around 2% over 30 years, your home is far more likely defined as a forced savings plan rather than an investment.
Tomorrow we'll move on to mutual funds. Post your suggestions for other product topics in comments or via email. And as I always, I invite, or actually in this case I beggingly-demand, that you pick my opinions apart in the comments. I'm hoping this stirs up a lively debate.
Friday, October 12, 2007
And he's leaving. And I can't say I blame him. Sure he's married, but he's not uprooting kids and his wife will have better teaching opportunities. Not that it will matter.
They have about $300K in equity in their Gordon Head house. They bought first in 2002. Took out a 14 year mortgage and paid it down as fast as they could. Bought and sold again in 2006.
Best part for them? When they buy an above average house in a nice neighbourhood in Regina they will be mortgage free. And they'll feel good about having the 2-3 kids they want but don't think they can afford here. And they will be able to have one parent at home until the kids start school.
Sure the winters are cold. But the sister who grew up here and now lives there with her four kids and husband love their lifestyle. When they come here to visit, they don't talk about how much they miss Victoria, they talk about how great Regina is for their family.
And so my friend and his wife will leave. And I can't say I don't understand. Early thirties and mortgage free. I have to wonder why more of Victoria's young workers aren't leaving? Maybe they are.
Check out this article from the TC today. Apparently markets are cooling. Apparently builders aren't getting much for their investments here. But apparently anyone who has owned a home in Victoria, for 5 years responsibly, has a pretty good opportunity to move to a more family friendly place and live with little to nothing in the way of a mortgage.
I should add that wages are pretty similar between Victoria and Regina. I should know. I've been looking very intently.
Thursday, October 11, 2007
I'm not sure what historical rents are here. I don't know what price per square foot has been. But I'm guessing that plus or minus 20% of $1/SF is reasonable depending on what and where you are renting.
Case in point, here's a listing obviously aimed at students on the Uvic off-campus rental site. Three beds plus den, 1500SF $1500/month.
A quick perusal of craigslist.org doesn't show too much deviance from the $1/SF norm I'm suggesting. Anything that does typically includes utilities or offers "individual living" which I read as being only big enough for one.
Over at usedvictoria.com we see much of the same: places for rent, and prices that are not completely out of whack with incomes.
Yes it is not cheap, or really "affordable" to rent in Victoria. But rents have not even come close to keeping pace with the hyper-inflated prices being asked for condos and SFH in this town. In my observations renting is almost 50% less than owning a similar unit right now. Which means no one should be buying revenue properties with anything less than 100% down right now.
Tuesday, October 9, 2007
I agree. Fair. Balanced. Accurate. 'Nuff said. H/T to VG.
The bloom is still on the real estate rose
Despite collapsing markets elsewhere, Metro Vancouver is less vulnerable to normal economic forces
Vancouver SunPublished: Tuesday, October 09, 2007
Vancouver's housing prices continue to defy the laws of gravity, but they won't be able to indefinitely thwart the laws of economics.
All markets -- from tulips to tech stocks -- are subject to supply and demand and the housing market is no exception. The question then is not if prices will eventually be subdued but whether that re-alignment will come abruptly, and painfully -- or gradually and gently.
While we await the inevitable, however, sales of residential real estate in British Columbia are expected to reach the second-highest level in history this year, about 5,000 transactions shy of the record 106,310 sales set in 2005. The average home price in the province will be up 12 per cent this year to $437,000. After that, if the B.C. Real Estate Association has it right, the number of sales will drop to 96,671 and the pace of price increases will subside to about eight per cent.
Of course, Metro Vancouver is in a league of its own, with an average price of $589,916 and forecasts calling for it to rise to $620,000 next year. In the City of Vancouver, prices are higher still: $787,500 for the average bungalow and $879,000 for the average two-storey home, according to realty firm Royal Lepage.
Home ownership costs would consume more than 70 per cent of the typical household's pre-tax income, based on an affordability index devised by the RBC Financial Group. Forbes magazine declared last month that Vancouver real estate was the second most over-priced in North America, after Los Angeles, and sixth most over-priced in the world. As such, analysts agree, house prices are out of sync with local incomes and are unsustainable.
Population growth, baby-boomer affluence and a robust economy are often cited as reasons for the relentless rise in real estate prices. Low interest rates and mortgages with 10 per cent down, extended amortization, and interest-only payments (not to mention subprime loans), are attracting buyers who otherwise would not qualify.
But just as the typical wage earner cannot afford the Lotus, Ferrari, Lamborghini and Mercedes-Benz SL automobiles parked in so many driveways, the ordinary household cannot spend nearly three-quarters of its pre-tax income on housing.
So who's buying? Theories abound about their identity. Some say offshore buyers from Europe and Asia are scooping up property, particularly downtown condominiums, while wealthy foreign buyers, especially from China and Iran, are buying homes to house their families, many paying in hard, cold cash. Another theory has it that drug dealers are buying property to turn their illicit gains into hard assets.
That might help explain why Vancouver real estate prices seem less vulnerable to normal economic forces, but sooner or later the gorilla in the room will makes its presence known.
Vancouver's real estate market may be influenced by unique circumstances, but it cannot remain immune from the credit crisis spilling over from the United States. Sales of new homes in the U.S. dropped by an annualized rate of 8.3 per cent in August. That was more than forecast and the largest drop since 1970, bringing the number of transactions to 795,000, the lowest level in more than seven years. The median price dropped by 7.5 per cent from a year earlier.
If the U.S. credit malaise spreads -- and the Bank of Canada's injection of nearly $5 billion to shore up money markets over the past few weeks suggests it has -- real estate prices could either plateau or plummet. So far, the market's defiance has made fools of analysts predicting an end to the boom.
Friday, October 5, 2007
Here's your open thread to discuss whatever you'd like.
If you post links, here's a little trick to make them clickable:
<a href="http://webaddress.com">link text</a>
Just cut and paste the above into the comments section. You can then change the web address to http://www.househuntvictoria.blogspot.com (or whatever you want) and then change the link text to read whatever. Here's an example linking to Victoria's Truth:
<a href="http://victoriastruth.blogspot.com">Victoria's Truth</a>
Have a great weekend.
Thursday, October 4, 2007
First-time buyers "save and save," Bev McIvor said in an interview yesterday -- and "to find out they are going to have to pay some kind of property-purchase tax really makes a difference."Sorry, Bev. Some FTBs "save and save" but many FTBs "borrow and borrow" from their parents, banks and credit cards just to come up with a down payment. And now that you don't need a down payment, many FTBs are getting into the market when they otherwise couldn't have, and when some economists would argue, that they shouldn't have. Dropping $7,000-$10,000 on a house priced between $430,000-$480,000 will not make a lick of difference for affordability.
"Government can argue that the threshold still nicely applies to the condominium market but we believe the intent of the program was not to restrict assistance to only buyers of condominiums."I haven't heard that argument from government. And guess what? FTBs can leave Victoria and Vancouver and buy a really nice house and qualify for the exemption. Which, it seems, many are considering, and actually doing.
Wednesday, October 3, 2007
Here's an article. H/T to Mohican at Financial Planning/Personal Sanity... who has a great rant today by the way...
Take this key paragraph:
This is the precise point of entry for the new money that the Fed creates out of thin air. To repeat: When the Fed buys (say) $1 million in bonds from Bank XYZ, Bank XYZ surrenders ownership of the bonds but sees that its deposits of reserves at the Fed go up by $1 million. But the Fed didn't transfer this money from some other account. No, it simply increased the electronic entry representing Bank XYZ's total reserves on deposit. There is no offsetting debit anywhere in the banking system. Bank XYZ now has $1 million more in reserves, while no other bank has less. Bank XYZ is now free to go out and loan more reserves to other banks, or to make loans to its own customers. (In fact, due to the fractional-reserve system, the bank could make up to $10 million in new loans to customers.) The money supply has increased, putting upward pressure on prices measured in dollars.If you think this problem is isolated to the US, think again. Over the last few weeks, and quietly over the last few days, the Bank of Canada has been doing much the same thing in Canada. Billions, I say that again, Billions of dollars have been DUMPED into the overnight financial system in order to defend the key overnight interest rate. What does this mean? If the BoC had not printed money, it would of either triggered a catastrophic financial event that would send the markets reeling or it would have had to lower the interest rate and increase inflation.
This underhanded move--quietly dumping cash into the system to keep lenders liquid--has the same effect, without the psychological ramifications of an interest rate drop. Look out. The BoC using the CPI has turned steak into hamburger, lobster into prawns, SUV's into sub-compacts, and chicken into tofu. This has had the effect of artificially driving inflation rates down. Inflation is high. Much higher than you and I would like to admit. This has huge economic ramifications. Do your homework. And then teach the rest of us here at HHV.
Tuesday, October 2, 2007
Normally anything I steal from websites I italicize so that you aren't confused that I wrote it. I don't do that here because I italicize bull terms and bold bear terms. Here's the count: Bulls: 11 Bears: 10. I point out the one statement that can be construed either way, some think 17 sales over a mill is great for the market, some think it inappropriately skews the average. So I counted as 1 each. That said, the MSM has picked up the cooling story. Even given it a tag in the sub-headline. Times are changing. This is almost balanced.
Housing prices hit record high
New levels in average and median, but signs of cooling are showing
Carla Wilson, Times ColonistPublished: Tuesday, October 02, 2007
The average price of a single-family home in Greater Victoria has once again hit a record high, reaching $584,193 in September.
The new mark mashed the previous record of $576,632 set in August.
Last month, the median price of houses -- the midway point of everything sold -- also moved up to $520,000, from $515,000 in August.
But while the average and median prices are rising, there is a buzz in the industry that the market is starting to cool.
September saw a total of 632 sales through the Multiple Listing Service, down from 846 in August, the Victoria Real Estate Board said. Even so, overall sales for the first nine months of this year are running 12 per cent above the same months in 2006.
As is usual in this market, several sales of high-priced homes went through last month. Board president Bev McIvor said there were 17 single-family home sales of over $1 million and this had a significant impact on the overall average.
She said nearly a quarter of all single-family homes sold during September for less than $425,000.
The average price for condominiums sold last month was $341,014 and the median was $288,500. And townhouses earned an average price of $402,313 last month, with a median price of $375,000.
A total of 3,381 properties were listed on the local MLS at the end of last month, down from 3,449 in September 2006.
Of the single-family houses that sold in September, the average time on the market was 43 days, down from 56 days in September 2006, board numbers show.
Daniel Clover, of Genesis Group Real Estate Inc., said days-on-the-market statistics are showing that if homes are priced correctly, they get sold.
Clover has been talking to fellow real estate agents and the sense is that while the market is still active, it is beginning to settle. "We have got fewer people showing up at open houses, we've got fewer sales going through, price reductions are becoming more prevalent ... The buzz phrase right now is, 'If it isn't priced right, it won't sell.'"
Greater Victoria is a "price-sensitive" market, Clover said. "There is a change going on out there. Buyers are not jumping at the first home they see."
When prices come down, the drop is often larger than normally seen in the past few years in order to catch the attention of buyers, Clover said. He believes that homes are staying on the market longer than a year ago, referring to all residential properties, not just those sold.
Even so, the market remains healthy because there is a demand for Victoria properties, Clover said. Disaster is not looming and the economic indicators back that up, he said. "We have not overbuilt to excess," Clover added.
This is a good time for buyers because they are in a position to negotiate, he said.
Local MLS sales last month included 335 single-family houses, 150 condos, 77 townhouses, and 21 manufactured homes, the real estate board said. Total residential sales value was just over $279 million.
Saanich East saw the largest number of single-family sales, with 62 sales at average price of $616,027. Langford followed with 35 single-family sales, with an average price of $490,379. Langford topped the number of townhouse sales with a total of 28 and an average price of $326,021.
Victoria beat other areas in condo sales with 69 and an average price of $322,914. Saanich East and Langford tied for second place with 15 sales each.
I ran with a Realtor I know tonight. I was asked, "still looking?" I responded with, "um, not seriously, but still blogging about the market. Kinda funny right now. You still renting?" The response to my question: "You'd have to be crazy to be buying right now." That came from the horses mouth.
Considering that since last Friday the BoC has dumped a billion dollars a day to prevent having to drop the interest rate, I'd say that the storm is brewing. If the BoC does the right thing and checks inflation now with a rate hike or at minimum no rate changes, and no more dumping cash into the market, we may be saved from long term pain. If they don't, I'm thinking the similarities to 1981 are too striking to believe that a different outcome is a given.
Monday, October 1, 2007
Anyway, enough about that, you'll get far superior analysis from PB at VT. So go there, then come back and buy some books from Amazon through this site so I can quit my day job and live the dot.com dream ;-)
On with the real show now...
I peruse statistics at work in my own research fairly often. I came across this dandy gem today:
CMHC is forecasting that housing starts in BC will total 14,100 this year, down 13.5% from the 1999 level. A surge in demand for high-end homes (those costing $500,000 or more) is not expected to be strong enough to offset the effect that higher interest rates and construction and land costs have had on the market for entry-level home buyers.When was this from? October 13, 2000. And they say Victoria is different. What was happening back then? Stock market was uber-bullish, the NDP government of BC was on the way out, and developers were ready for a pro-business change. Even then they claimed no one could afford the product on offer. So what does this mean? Just more confusion for yours truly unfortunately. My best guess: the markets change, but the rhetoric doesn't. Man, do times ever change fast in the RE market. That was 7 years ago, almost to the day. Someone. Please. Help. Us.
The cost of new housing in BC’s two biggest urban centres continued to fall in August. The new housing price index (NHPI) in Victoria was down 4.4% from a year earlier, while Vancouver’s NHPI slipped 1.0%. Elsewhere in Canada, only two urban areas–Saint John-Moncton-Fredericton (-0.4%) and Sudbury/Thunder Bay (-1.3%)–saw the cost of new housing decline. Prices are rising in other cities, at rates ranging from +0.9% in Windsor to +7.2% in Ottawa/Hull. Overall, new housing prices were up 2.4% from August 1999.
Since 1992, the cost of new housing in Victoria has fallen 28%, while average prices for new housing in the Vancouver area have dropped 17%. Prices for new housing in the province have been declining steadily since the mid-1990s. In Vancouver, the rate of decline is slowing but this has not yet occurred in Victoria. Land prices are beginning to stabilize, but the cost of homes built in the city has continued to drop. New housing prices are affected by a combination of factors, including the state of the housing market, the availability of land on which to build, and the type and size of housing that is being constructed. The long-run decline in the NHPI is a reflection of falling prices for both the land and housing components of the index. (emphasis mine)