Monday, May 6, 2013

Extrapolation

Yesterday it was 20 degrees, today it was 22.   At this rate we'll all be boiled into the ether by August.

In other words, extrapolations are mostly useless since market conditions are changing all the time.  However it's still fun to have a look at what would happen...  if current trends continue.


As we know, the market has been in a gentle slide since 2010, to the tune of about $17,000 a year on the median detached house.  Piddling amounts in percentage terms, but in the end our bank accounts are populated with dollars not percents.

200 comments:

koozdra said...

I guess in a declining market, being priced out can be seen as a forced savings plan.

TJ said...

This is not extrapolation. It's a trend line and there is a statistically significant downward trend in price based on 3 years of data. This plot shows that without doubt the market is sliding downward.

I've seen twice now in recent posts that the "trend" has been flat since 2008. That isn't exactly correct; current-day prices were hit on the way up in 2008, and now they are being hit on the way down. In order for the market to be "flat" the slope of the best-fit line would be zero. A flat line through all the price data from 2008 to 2013 isn't the right model, you can't really match the trend of the data with one flat line (i.e. it's the wrong model). In order to accurately match the overall trends two lines are needed not one.... one for the way up through May 2010, the other on the way down 2010 to 2013.

It is interesting the slope on the way up was steeper than the decline over the past 3 years. I wonder if the current momentum will gain speed, causing fear to set in and a sell-off, or if the market will gain equilibrium.

Leo S said...

The extrapolation is the forecast part of the trend. I agree that the claim that the market has been flat since 2008 requires an extremely rough definition of flat. Yes if you zoom out enough you can say +- $50,000 doesn't really matter, but ask most people and I think they will care whether their house gained or lost that much.

patriotz said...

I agree that the claim that the market has been flat since 2008 requires an extremely rough definition of flat.

It's the same definition that gives you "flat" prices in the US since 2002 or so. It's only the same price for someone who bought at the beginning of the series and sells at the end.

Also note if you have a linear price decline in time y = mx+b (m negative) the % rate of decline increases over time: m/(mx+b), denominator decreasing. That doesn't carry on indefinitely of course, there's eventually an inflection point where that % rate begins to decrease.

Marko said...

Someone who bought 5 years ago with a 300k mortgage has paid off approximately 40-45k in principal depending on the mortgage product. They just refinanced at a lower rate and will pay off another 10k of principal in the next year and more after that and so on.

Leo S said...

Depends on the property, but in most cases that someone would have been able to save more than that $40-45k by continuing to rent. Especially in 2008 when the going rate was still north of 5%, properties where it made sense to buy rather than rent were few and far between.

koozdra said...

Why do we need the new stricter rules for borrowing?

Don't we want to keep house prices up?

Don't we want more and more Canadians taking on more and more debt?

I just don't understand the government. They are hurting the 70%.

I say, we need to loosen the restrictions.

The bubble denier theory states that we are currently not in a bubble.

Then lets drive up prices some more by looser regulations.

Maybe when house prices quadruple or quintuple we'll be in a bubble.

Until then, no problem. Lend, borrow, lets keep the ball rolling.

Doesn't the government know that our economy is based on building houses and related industries. If we stop trading houses and going into more debt we'll be in a recession.

What are they doing up there?

koozdra said...

Interesting pricing strategy.

We have a house that isn't selling at $399,000 after multiple price reductions. $63,000 below assessed value. Built in 1999 on 1.38 acres. Four bedrooms, three bathrooms. Immediate possession and everything.

319722

Now we have a new listing coming to market in the same area. Let's take a look. Built in 1968, 1020 sqft rancher on an acre. Assessed $323,000. What should we try to sell it for?

How about $399,000? Great idea.

321683

"This quaint property is a perfect getaway or home cottage business?"

Home cottage business?

Well at least there's a stream running through the land. I guess you could consider it "water front".

dasmo said...

Yes, even Halibuts are not perfectly flat.... Since we are talking about what can't be done in terms of data analysis we should also talk about looking at a specific window that only supports your view. Bottom line is the more time / data you include the clearer the trend. In fact the trend is most clear looking back. If you look back, there isn't a straight line up to 2010 and then one heading back down. There is however a distinct point at 2008 where the brakes are applied. Sure, there is some pumping and some skidding but it's there....

totoro victoria said...

But this graph is so much more crashy without 2008-09.

a simple man said...

Need a cubic spline regression.

dasmo said...

He He, That's exactly what we need Simple. And not starting from July 2010. Start the data from the run up, say 2000. Then, you will see my upside-down hockey stick with the bend at the 2008 mark....

Leo S said...

Since we are talking about what can't be done in terms of data analysis we should also talk about looking at a specific window that only supports your view

Are you seriously trying to claim that more than 3 year trend is cherry picking?

Leo S said...

Yes, even Halibuts are not perfectly flat

What's your definition of a flat landing in percentage terms (say, measured by the 3 month median method)?

dasmo said...

"Are you seriously trying to claim that more than 3 year trend is cherry picking?" No, I would more call it selective logging.

Leo S said...

No, I would more call it selective logging.

Of course. When looking at what the current trend is in house prices, do you think it's a good idea to select a window that includes data from 5 years ago?

We can argue about the length of the time window of course. Is there any useful data in a 3 month trend? Probably not. 6 months? Maybe. 1 year? Likely.
In this case I choose 2010 as the starting point because that's where this trend started.
Before that we had the opposite trend of increasing prices, then before that decreasing, then increasing again.

dasmo said...

"What's your definition of a flat landing in percentage terms (say, measured by the 3 month median method)?" Well, my prediction is flat over a ten year period starting from 2008. So, I don't have an impulsive response to your question. The median price per quarter fluctuates seasonally anyway, by how much I don't know but there certainly is a big difference between winter and spring.
Let's just say I can see prices being the same five years from now +- 5% with the possibility of some larger spikes along the way.

info said...

This chart shows that Canada and the US had housing bubbles of equal size by 2006. Prior to 1999 (where the chart starts) Canadian and American house prices were on par. The chart shows that house prices in Canada and the US continued to be on part until 2006 when the US housing bubble burst and crashed.

Canada's housing bubble was as big as that of the US in 2006. As the chart shows, Canada's bubble has now grown to almost double that size.

This chart shows that once a national housing bubble reaches its peak, it always corrects back the same amount. This has held true for all national housing bubbles and there have been at least 50 examples of this over the past 40 years.

Canada's bubble has burst and the correction it now faces will be severe. Canada's enormous housing bubble will take many years to deflate.

Victoria and Vancouver experienced the biggest price run-ups of all Canadian cities. Victoria and Vancouver will also experience the biggest price corrections. We saw this happen in the US where the biggest price gainers were also the biggest price losers.

For those of you who think that Victoria's correction has almost reached bottom, think again. We have only seen a glimpse of what is yet to come.

koozdra said...

"We have only seen a glimpse of what is yet to come."

Shhh.. Info, your going to ruin the surprise.

info said...

@ Leo

In the US, the most rapid price declines happened once all US cities were in price decline mode.

Victoria started to correct a couple of years before most other Canadian cities. As was the case with US cities, the big price declines for Victoria will happen once the rest of the country is in an all-out price correction.

Therefore, the rate of Victoria's price correction will increase in the near future.

info said...
This comment has been removed by the author.
info said...

This chart shows that Canada's household debt to income ratio is still rising. Currently that ratio is sitting at more than 160% (a record high). Note that this ratio peaked in the US at a much lower number (120%) at the peak of the US housing bubble.

Arguably, it can be said that Canada's major housing correction will not really start until that ratio starts to go down.

A reversal of the trend of the household debt to income ratio in Canada will represent a major fundamental shift in the mindset of Canadians in terms of the way they borrow and spend. This will, obviously, negatively impact Canadian housing prices in a big way.

As long as Canadians are allowed to continue to borrow their brains out, Victoria's housing market correction will probably not pick up too much steam, although it will still decline.

Don't expect this amount of borrowing to continue.

totoro victoria said...

I'm with Dasmo - slightly down and evensy for ten years - barring rate hikes or economic crises.

Leo S said...

As was the case with US cities, the big price declines for Victoria will happen once the rest of the country is in an all-out price correction.

It's an interesting theory, but you have to explain why that might happen.
Let's say the condo market in Toronto absolutely craters, which is looking increasingly likely. Values collapse by 50% and investors lose their shirts. How does that affect valuations in Victoria?

One connection is that if prices collapse and default rates increase in other parts of Canada, banks will cut back on lending, and thus reduce buyer demand everywhere. This happened in the US, but I'm not sure that it's a foregone conclusion that it will happen here.

Any other links?

koozdra said...

Our neighbour on the mainland is about to crash just as hard Toronto. BCers have the highest level of debt in the country.

dasmo said...

And now that the US housing market is running up again perhaps over the long run it will look like we continue to closely match them....

koozdra said...

"And now that the US housing market is running up again.."

Excellent, I'm looking forward to the next financial crisis.

dasmo said...

You expect houses to just remain undervalued down south indefinitely? I'm willing to bet that in the long run you will see that home ownership has a slight premium over renting, with windows of opportunity to buy in below that premium opening and closing over time....

koozdra said...

The US "recovery" will end when they stop printing 89 BILLION dollars per month.

on the other hand...


"At 1% it’s still providing significant stimulus to the economy,” said Mr. Alexander. “It’s extremely cheap to borrow."
...
"But more significantly they could adopt some of the unconventional methods adopted by other central banks such as quantitative easing, which essentially means printing money."

Why is the Bank of Canada so fixated on a 1% rate?

DavidL said...

From The Globe and Mail: Should everyone consider renting over buying right now? - http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/home-buying/should-everyone-consider-renting-over-buying-right-now/article11737098/

koozdra said...

"Many believe they are at least partly responsible for the country’s overheated housing market, cranking out mortgage loans faster than ever before even as consumers struggle with record debt loads."

Not our too big to fail big six. They would never do that to us. They are honest. Our friends.

"Mainly, it had to do with prudent Canadian values, according to the pundits."

I guess they haven't talked to Marnie.

"The fact the insurance is backed by the government makes it attractive to the banks, since it shifts the risk of default onto the shoulders of taxpayers. That makes the mortgage business easy money."
...
"Few economists are predicting a full-fledged housing meltdown, but there’s growing agreement what happens next will be painful."
...
"For their part, the banks insist Canada is not headed for a U.S.-style collapse because lending standards did not deteriorate in this country to the degree that they did south of the border."

Oh, nothing to worry about then. Disregard all the warning signs.

Canadian banks: Safe as houses?

info said...

"It's an interesting theory, but you have to explain why that might happen.
Let's say the condo market in Toronto absolutely craters, which is looking increasingly likely. Values collapse by 50% and investors lose their shirts. How does that affect valuations in Victoria?"

It always happens with national housing bubbles. The euphoria that people feel as a housing bubble inflates is very powerful and plays a big role in pushing prices higher and higher. The same happens (in reverse) on the way down as the bubble deflates. Emotions cause people to make bad decisions with money, we all know that.

I don't necessarily think that a condo crash in Toronto will cause SFHs in Victoria to crash. I think that there is a bigger force at play here. The reason Toronto condos experienced a bubble price run-up is the same reason that SFHs in Victoria experienced a bubble price run-up. That reason was excess credit caused by lax lending standards and emergency interest rates. So if Toronto condos crash (they likely will) then, for the same reason, Victoria SFHs will experience a major correction from current prices. The reason for the price run-up was the same in both cities and the reason for the major correction will be the same in both cities as well.

Once Victoria's market starts to correct more, people here will become increasingly anxious and negative toward the housing market. As Victorians hear of other major corrections in other Canadian cities it will significantly increase the local negativity toward the housing market.

This happened in the US and it wasn't until the US had (supposedly) reached a bottom as a country that people started to feel better about buying houses again.

info said...
This comment has been removed by the author.
info said...

"And now that the US housing market is running up again perhaps over the long run it will look like we continue to closely match them...."

You are completely missing the point here.

If US house prices shot up within a week to the level that Canadian prices are at, it wouldn't stop our major Canadian housing market correction from happening.

The reason for the price parity between the two countries (at least until 2006) was because of similar incomes, similar costs of living and similar amounts of housing market stimulus, etc. The US housing market crashed once it peaked far into bubble territory. Canada's housing bubble will deflate in a similar manner. The reason the Canadian bubble didn't deflate in 2006 was because the government intervened in a big way by loosening lending standards even more and this caused house prices to go even higher.

You need to look at how much the US housing market corrected and apply that potential to Canada instead of thinking that rising US house prices will stop the major housing market correction that has already started in Canada.

dasmo said...

As I have pointed before, even now we have similar house prices if you compare by household income. I might also add that we don't have cheap labour in Canada and we have way less landmass that favors human habitation. Our banking system did not collapse and we can't walk away from our mortgage debt so easy. Sorry info, we are not the bizarro United States....

info said...

"And now that the US housing market is running up again.."

"Excellent, I'm looking forward to the next financial crisis."

There is much written about this. Local financial experts in Phoenix, for example, are worried that their housing market could see another leg down as the price gains are not based on local, sustainable fundamentals from local buyers. Foreign investment is playing a big role in pushing prices higher. Many local buyers are furious.

The same forces that caused the US bubble that peaked in 2006 seem to be at play here in many US cities, especially those that have experienced the biggest price gains of late. This is not the way to create a stable housing market where the average family can afford the average house.

info said...

"As I have pointed before, even now we have similar house prices if you compare by household income. I might also add that we don't have cheap labour in Canada and we have way less landmass that favors human habitation. Our banking system did not collapse and we can't walk away from our mortgage debt so easy. Sorry info, we are not the bizarro United States...."

Canada's house price to income ratio is currently higher than that reached at the peak in the US. The US housing market corrected and the US house price to income ratio is currently much lower than Canada's right now.

We have plenty of cheap labour in Canada. Are you not aware of what is being talked about in the news? In Victoria, we have plenty of temporary foreign workers who continue to replace Canadians because they work for less money. This is going on all over Canada. Read about Fort Mac.

Our banking system received a bigger bailout (per capita) than the US banking system did in 2008-2010. Canadian banks were very vulnerable at the time of the world financial crisis. There will not be many problems with Canadian banks going forward, however, the major housing market correction that has started in Canada will not need a banking crisis to unfold. Canada's housing market will correct fully and completely without it.

The US is only one example of about 50 national housing bubbles that corrected fully over the past 40 years. That link is provided in my earlier post. Canada experienced one of the biggest and longest bubble price run-ups in the history of the world. Like all countries that experienced this, Canada will now go through a major housing market correction. It has already started.

Lax lending standards pushed house prices higher in the US, UK, Spain, Iceland... and many other countries throughout the world. The result is always the same - a major correction that takes prices back the same amount. Canada is next. Victoria is next.

reasonfirst said...

"bizarro United States'

That's extreme. North Korea is "bizarro".

dasmo said...

As in Bizarro Superman....well maybe we are actually since some of our powers are reversed ...

Marko said...

This is not the way to create a stable housing market where the average family can afford the average house.

Nothing average about the average 600k home in Victoria. Mansion by global standards.

Marko said...

We have plenty of cheap labour in Canada. Are you not aware of what is being talked about in the news? In Victoria, we have plenty of temporary foreign workers who continue to replace Canadians because they work for less money.

Define plenty?

koozdra said...

"Nothing average about the average 600k home in Victoria. Mansion by global standards."

They only built them that big because they know people will dish out big bucks for an orgy of granite and pot lights. Once the shine comes off of their "investments", people will be very grumpy that they bought so much house for so much money.

koozdra said...

Can't sell?
318556

Try to rent it out.
Executive House on Amylee Place


Assessed: $726,000
Listed: $729,000

They are hanging on to the "executive" dream.

MD80 said...

RE: They are hanging on to the "executive" dream.

Judging by the Flames and Oilers memorabilia in the photos they are hanging on to more than just the "executive" dream ;-) Go Canucks!

info said...

"We have plenty of cheap labour in Canada. Are you not aware of what is being talked about in the news? In Victoria, we have plenty of temporary foreign workers who continue to replace Canadians because they work for less money.

Define plenty?"

Take a look around Marko. Cfax did a show last week about temporary foreign workers in BC and Victoria. The government has the legislation in place to deal with this but they are not enforcing it. Recently in Victoria, for example, one fast food restaurant replaced 8 Canadian employees with 8 cheaper temporary foreign workers. There are plenty of other examples.

Fruit pickers in the Okanagan, hotel employees throughout BC, X ray techs, nurses, care givers in homes.... Do you need an exact number? I'm sure it is out there. I know plenty of people affected by this in Victoria and the rest of BC.

info said...

"This is not the way to create a stable housing market where the average family can afford the average house.

Nothing average about the average 600k home in Victoria. Mansion by global standards."

Extremely overpriced compared to the same sized house in any US city.

Leo S said...

>> Emotions cause people to make bad decisions with money, we all know that.

Emotions will influence things, that's for sure. Hard to predict how much effect this will have

>> So if Toronto condos crash (they likely will) then, for the same reason, Victoria SFHs will experience a major correction from current prices

The primary reason for Toronto's dangerous situation is massive overbuilding in the condo market. That is not the case in the Victoria SFH market so it does not follow that one market declining will be reflected in the other

Renter said...

Regarding "cheap labour":

Canada has a youth (15-25, some stats go 15-29) unemployment rate of 14.2%, higher if you look at underemployment as well. And yet companies across Canada fill unskilled and entry level jobs with temporary foreign workers. CBC Radio did a program on it on Sunday. It was pretty appalling.

Apparently, these unemployment levels can cause an 11% wage loss by age 33, with a continuing 7.6% loss by 42.

Not setting up the buyers of tomorrow with the opportunity to save any kind of downpayment, that's for sure.

Marko said...

Fruit pickers in the Okanagan, hotel employees throughout BC, X ray techs, nurses, care givers in homes.... Do you need an exact number? I'm sure it is out there. I know plenty of people affected by this in Victoria and the rest of BC.

I ran into a former VIHA colleague yesterday and she noted that a lot of the department staff is going to make $90,000+ this year due to a severe staffing shortage and the overtime associated with that.

If we have to bring in foreign X ray techs and nurses I view this as a positive. It means that there is plenty of work out there.

I guess it affects people by cutting down their overtime?

The situation is not that bad out there in terms of employment in Victoria if you are determined and willing to work hard.

Same with rental market, it is much different in reality than it is made out to be on HHV. I've had two sellers recent call me complaining about the lack of quality rentals now that they have sold. One couple, no kids, no pets, non-smokers got outbid on a $3,000/month house. They were willing to sign a 1 year lease while their new home is under construction.

Leo S said...

>> As I have pointed before, even now we have similar house prices if you compare by household income.

??????????? Not even close

Marko said...

Extremely overpriced compared to the same sized house in any US city.

Any US city is a bit of stretch.

Marko said...

Canada has a youth (15-25, some stats go 15-29) unemployment rate of 14.2%, higher if you look at underemployment as well. And yet companies across Canada fill unskilled and entry level jobs with temporary foreign workers. CBC Radio did a program on it on Sunday. It was pretty appalling.

Apparently, these unemployment levels can cause an 11% wage loss by age 33, with a continuing 7.6% loss by 42.

Not setting up the buyers of tomorrow with the opportunity to save any kind of downpayment, that's for sure.


Doesn't surprise, a lot of young adults these days are getting university degrees, many not so useful, and refusing to work entry level jobs. Would explain both high employment and foreign workers filling entry level jobs.

Alexandrahere said...

toronto on age demographic

patriotz said...

Someone who bought 5 years ago with a 300k mortgage has paid off approximately 40-45k in principal depending on the mortgage product.

So did someone who bought 5 years ago in the US, the Okanagan, or up-Island. That has nothing to do with whether the original purchase was a good idea. What matters is the purchase price.

Renter said...

Doesn't surprise, a lot of young adults these days are getting university degrees, many not so useful, and refusing to work entry level jobs. Would explain both high employment and foreign workers filling entry level jobs.

According to the program on CBC Radio, which included an economist, fingers can also be pointed at employers preferring not to pay to Canadian wage standards, preferring to offer casual and temporary posts over permanent ones, and keeping costs "under control" by both avoiding paying benefits and by offering unpaid internships instead of entry level positions. I guess an unpaid internship is fine if you happen to have parents who can continue to support you, but I know I couldn't have done that when I was 18-25. Couldn't do it now, either.

Also, do you happen to know lot of 15-22 yr olds with fancy degrees? Because I see a lot more of them still trying to work their way through school or starting out on their own. Seems a bit odd to claim that "they just don't want to work entry level".

patriotz said...

As I have pointed before, even now we have similar house prices if you compare by household income.

No you haven't. You compared US household income, which includes singles, with Canadian family income, which doesn't.

As I have pointed out.

info said...

There are currently 380 000 temporary foreign workers in Canada according to cfax

info said...

@ Marlo
Take a drive through James bay almost every apartment building has multiple units available. 4 years ago there was nothing available. I think your sources must be blind.

patriotz said...

Doesn't surprise, a lot of young adults these days are getting university degrees, many not so useful, and refusing to work entry level jobs. Would explain both high employment and foreign workers filling entry level jobs.

Just not true. The unemployment rate for recent grads is about the same as for the general public and lower than for non-grads the same age, although the gap is closing.

Most employment is among less-educated youth and older industrial workers who have lost their jobs.

Look at page 41

As for foreign workers, it's because employers want near slave labour and won't hire Canadians willing to work. This has been all over the media lately so I shouldn't have to elaborate.

Leo S said...

>> One couple, no kids, no pets, non-smokers got outbid on a $3,000/month house.

This is nonsense though. We were looking last fall and there was lots of selection for entire houses for rent under $2000. We ended up paying $1850 for a place in good condition, quite a bit bigger than we need, in a good area (university)

info said...

The economy in Victoria is very weak and has been for some time. That is the reason many young people are leaving Victoria for greener pastures.

Our housing market economy is being reduced in size dramatically. There will be many tough years ahead of us in this town.

Leo S said...

Also we have a pet. It would have been even easier to find a rental without one.

koozdra said...

From Patriotz's link above:

"Historically, youth has been a highly mobile segment of the Canadian
population accounting for some 40% of all adult individuals leaving their home
province seeking to settle in another region in 1980. However, the willingness
of youth to reallocate has declined signi cantly over the past decades; in 2011,
youth accounted for only 23% of all adults that migrated from one province
to another.23 Although migration patterns subdued for individuals of all ages,
youth was the major driving force accounting for the overall weakening in
workers’ movement across provinces."

CS said...

"However, the willingness
of youth to reallocate has declined signi cantly over the past decades"

probably reflects declining opportunities and wages. What's the point of migrating to another province if you're only going to make minimum wage and you'll no longer be able to live free of charge in your parents home?

CS said...

"However, the willingness
of youth to reallocate has declined signi cantly over the past decades"

probably reflects declining opportunities and wages. What's the point of migrating to another province if you're only going to make minimum wage and you'll no longer be able to live free of charge in your parents home?

koozdra said...

"Also we have a pet. It would have been even easier to find a rental without one."

Our cat doesn't seem to be welcome anywhere. We're possessing her covertly in our apartment right now.

koozdra said...

@CS

That makes sense. "failure to launch" is getting more and more common.

Leo S said...

Seemed to us that cats are easier to accommodate than dogs. Easiest is no pet, but we didn't really find the cat to be a major issue. Craigslist searches for cat ok still turned up lots of results

koozdra said...

Yeah a dog is tougher. My parents faced the same issue when they moved here.


Looks like comparatively speaking we aren't doing so badly on youth unemployment compared to the other OECD countries.

figure 6

Marko said...

This is nonsense though. We were looking last fall and there was lots of selection for entire houses for rent under $2000. We ended up paying $1850 for a place in good condition, quite a bit bigger than we need, in a good area (university)

Was one of your search criteria a two car garage and not in Langford?

Once you start looking at nice homes, in attractive areas, difficult to find for rent.

Marko said...

According to the program on CBC Radio, which included an economist, fingers can also be pointed at employers preferring not to pay to Canadian wage standards, preferring to offer casual and temporary posts over permanent ones, and keeping costs "under control" by both avoiding paying benefits and by offering unpaid internships instead of entry level positions.

Doesn't surprise me. One of my family members is a young engineer with Siemens in Croatia. Extremely intelligent guy, speaks near perfect English, salary $1,400 per month. It makes sense for an employer to look for non-Canadian wages in order to stay competitive.

Part of the reason I think standard of living, including home size, will be under pressure in Canada for decades to come.

koozdra said...

"Once you start looking at nice homes, in attractive areas, difficult to find for rent."

I feel so bad for these people. They can't take a break from the executive life style while their executive home is being built. We have plenty of Top Level Manager(TM) houses available for rent though.

patriotz said...

One of my family members is a young engineer with Siemens in Croatia. Extremely intelligent guy, speaks near perfect English, salary $1,400 per month.

What would he think if Siemens laid him off and replaced him with someone from Albania (or how about Serbia or Macedonia) being paid $1,000/month? I mean working in Croatia.

CS said...

Extremely intelligent guy, speaks near perfect English, salary $1,400 per month. It makes sense for an employer to look for non-Canadian wages in order to stay competitive.


Which raises the question, what kind of a democracy is it that imports folks to take jobs off the less bright, less aggressive, less well trained native citizens?

Answer: a democracy run by puppets of the corporate and plutocratic elite, whose job it is to persuade the natives that globalization is somehow good for them even though it lowers their standard of living and makes rich people richer.

That's the same democracy that induces people commit a huge proportion of their life-time earnings to paying interest on debt.

Canadian bankers, like the globalist corporations such as Apple, IBM and Microsoft, must love the Government of Canada.

Introvert said...

I just watched The Retirement Gamble, the most recent and extremely fascinating episode of PBS's Frontline.

If you have a spare hour to kill, I really recommend watching it. It's an excellent overview of how Joe Public is getting screwed by Wall Street and how it wasn't always this way.

Just one specific fact that blew my mind:

The "tyranny of compounding costs": assume you are invested in a mutual fund with a gross return of 7 percent, but that the mutual fund charges you an annual fee of 2 percent.

Over a 50-year investing lifetime, that little 2 percent fee will erode 63 percent of what you would have had.


Good thing I have always been philosophically opposed to the stock market...

Marko said...

Just not true. The unemployment rate for recent grads is about the same as for the general public and lower than for non-grads the same age, although the gap is closing.

Most employment is among less-educated youth and older industrial workers who have lost their jobs.


I looked at Page #41..."The labour market advantage of obtaining a higher level of university education (e.g. graduate or post-graduate degree) may also be fading away for youth"

As for foreign workers, it's because employers want near slave labour and won't hire Canadians willing to work. This has been all over the media lately so I shouldn't have to elaborate.

Nurse or x-ray tech slave labour? Not really, just not enough people willing to do it when there are better options out there.

When I worked for VIHA I felt like I was underpaid and that is why I quit; however, certainly not slave labour.

Leo S said...

Was one of your search criteria a two car garage and not in Langford?

This is rare in town regardless of rent or buy. A niche within a niche.

Marko said...

What would he think if Siemens laid him off and replaced him with someone from Albania (or how about Serbia or Macedonia) being paid $1,000/month? I mean working in Croatia.

That is life, you adapt. His wife is a Phd chemist and also makes about $1,400 per month. They have a three year old and they bought a 1 bedroom condo as that is all they could afford in Zagreb. Still, I visited them this summer and they don't complain. There is a park beside their condo building, they exercise plenty, eat well, good quality of life overall.

Overall, the standard of living and opportunity in Canada is amazing; however, many take it for granted.

Leo S said...

And it doesn't seem too hard to find a nice rental to me with $3000 to spend for 2 people.
First world problems..

Marko said...

This is rare in town regardless of rent or buy. A niche within a niche.

I would say quite a bit rarer in terms of renting.

Marko said...

And it doesn't seem too hard to find a nice rental to me with $3000 to spend for 2 people.
First world problems..


When you start filtering the list shrinks quickly.

There are people asking $2,700 for a $500,000 Langford home? Ha Ha.

Chris said...

Marko

$1400 Full house, pets allowed, killer location beside parliament & harbor
http://victoria.en.craigslist.ca/apa/3773116197.html

Took me a whole 30 seconds to find ;) If you want more let me know.

CS said...

Overall, the standard of living and opportunity in Canada is amazing; however, many take it for granted.

That's globalist claptrap.

"Overall" includes th 14.2% of youth who are unemployed. It's easy enough to smear such people as lazy, lacking in drive or initiative, etc. But the fact is there is hardly a single Canadian who could not be replaced by a better qualified, better motivated and generally more useful foreign worker glad to exchange a third world wage for a first world wage.

Chris said...

Introvert said
"Good thing I have always been philosophically opposed to the stock market..."

Wouldn't you rather have made 50% return since 2010? I mean, instead of losing your entire down payment and more (-200%?) I believe you said you bought near the peak. No offence, lots of people did.

Not only that, you would have big rental savings in your pocket each month for three years now.

CS said...

... how Joe Public is getting screwed by Wall Street and how it wasn't always this way.

Just one specific fact that blew my mind:

The "tyranny of compounding costs": assume you are invested in a mutual fund with a gross return of 7 percent, but that the mutual fund charges you an annual fee of 2 percent.

Over a 50-year investing lifetime, that little 2 percent fee will erode 63 percent of what you would have had.


In what way is the investor being screwed by a fund that charges a 2% management fee (Some charge a lot more.)?

People don't manage your money for the good of their health, and the market for financial products is highly competitive. If you don't like paying a management fee of 2%, buy index funds with much lower expenses.

Much more of a scam, I would have thought, is the use by the government of Canada of taxpayers' money to insure mortgages, thus enabling banks to make dodgy loans profitably, driving up the price of real estate in the process, thereby forcing most families to pay a huge proportion of their life-time earnings in interest to banks.

totoro victoria said...

950 square feet for only $1400/month plus utilities! One bathroom, two bedrooms... doesn't seem like much of a deal to me.

And, yes, we do have an extremely high quality of life here compared to most countries. Globalist claptrap to some is what others know to be real based on first hand experience. I have some.

Even koozdra might have to agree...

koozdra said...

"Even koozdra might have to agree..."

Haha, yes I do agree. Despite all my ranting, I love Canada and I love Victoria.

I just think we've woven ourselves into a bit of a mess.

dasmo said...

Median Household income for Victoria is: 77,820 (2010)
"Census families include couple families, with or without children, and lone-parent families."
http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil107a-eng.htm

The closest city in the US matching that is SanFran with a Median household income of: $63,024
http://en.wikipedia.org/wiki/Highest-income_metropolitan_statistical_areas_in_the_United_States

"Household income is not to be confused with family or personal income. Household income is often the combination of two income earners pooling the resources and should therefore not be confused with an individual's earnings."

San Francisco Median sales price as of april is $805,000 (up 20% y-o-y)
http://www.trulia.com/real_estate/San_Francisco-California/

Leo S said...

950 square feet for only $1400/month plus utilities! One bathroom, two bedrooms... doesn't seem like much of a deal to me.

I think the point is that someone willing to spend $3000/month claiming that there are no houses suitable for two people to rent is laughable.

By the way, that property (411 Kingston St) is assessed at $545,000. $1400 in rent is a price/rent of 390.

koozdra said...

Victoria: 77,820

Ottawa–Gatineau (Ont. part, Ont.–Que.): 94,700

Houses out there must be crazy expensive compared to here.

Leo S said...

@dasmo

Do we really need to have this exact same conversation again? This nonsense with San Francisco and incomes was debunked only 2 weeks ago.

koozdra said...

Is the US in recovery?

dasmo said...

So I'm the only one that's not allowed to repeat myself?

dasmo said...

Plus, I wanted to clarify that the "household income" is the same definition....

Leo S said...

Nope, I'll give anyone shit that wants to make bad analogies

dasmo said...

Seattle Median household income: $60,665
Median house price: $462,375 or 13.12%

Victoria $77,820 / $542,000 or 14.36%

So houses are slightly more affordable here than Seattle....

totoro victoria said...

Oh come on, who remembers two weeks ago? I personally don't remember how many times Leo has called "nonsense"...

dasmo said...

Not an analogy at all. Comparing similar house price to income statistics. I'm not saying anything is like something else...

Leo S said...

Seattle Median household income: $60,665
Median house price: $462,375 or 13.12%

Victoria $77,820 / $542,000 or 14.36%


You're still using the wrong income data. You're using the Median total income, all families from Table 111-0009. That excludes people not in census families (unattached individuals I assume, but I'm no expert in the definitions).

What you want is the median total income for all family units in Table 020-0401, which includes unattached individuals.
Median income for Victoria as of 2010 is $53,500.

So houses are slightly more affordable here than Seattle....

In other words: Nonsense
(I'll help you count Totoro. That's 2 so far today.)

dasmo said...

Seattle's total median household income is $45,736....

dasmo said...

So Victoria = $53,500 / $542,000 = 9.87%
Seattle = $45,736 / $462,375 = 9.89%
OK, Seattle is more affordable....

Leo S said...

Seattle's total median household income is $45,736....

Source? US Census Bureau says $61,000, which seems to include everyone. I see wikipedia says $45,000 but has no source or definition.

Definition: Income of Households - This includes the income of the householder and all other individuals 15 years old and over in the household, whether they are related to the householder or not. Because many households consist of only one person, average household income is usually less than average family income.

a simple man said...

"One couple, no kids, no pets, non-smokers got outbid on a $3,000/month house."

The house on my block in OB could be rented for a little over half of that and has three bedrooms and a great yard. Close to Willows Beach. Live the life. Vacant for over 6 months now.

Three houses on my block coming up for sale very soon.

Marko said...

The house on my block in OB could be rented for a little over half of that and has three bedrooms and a great yard. Close to Willows Beach. Live the life. Vacant for over 6 months now.

Can you provide a link to this gem in Oak Bay where the asking rent is a little over $1,500 per month?

koozdra said...

Housing construction slows in April, but no crash yet

totoro victoria said...

I count three "nonsenses" on this post so far. We'll see what today brings.

As far as rentals go, I know the market around OB and the University well. Depends what you are looking for but a nice place with 3 beds and 2 baths is generally going to be over $2000 a month unless you are in Gordon Head where it could be slightly under.

As far as the six-month vacancy in OB at just over 1500 a month for a 3 bedroom whole house... something is not adding up. The place to advertise is CL and I don't see any such property there.

What is available in this area under 2000 - or in OB anywhere - are suites only.

Willows Beach area four full houses advertised at the following prices: $2395, $4250, $4800 and $5000/month.

On another related front, I note the weather has changed. Temperatures are not as high today. If we wait a whole year we might see a trend...

http://victoria.en.craigslist.ca/search/apa?zoomToPosting=&query=oak+bay&srchType=A&minAsk=&maxAsk=&bedrooms=3


koozdra said...

"A fabulous way to get your foothold in the market.."

Get in the game quick youngens. Soon this closet will be worth $300,000!

Nice bathroom though.

323107

Just Jack said...

Slowing construction starts in itself will not erase the glut of housing.

Another indicator of how bad Victoria is when it comes to a housing glut is the number of people per household. According to the 2011 Census Victoria City has a population of 80,017 and 47,691 dwellings. That's 1.68 people per household.

Vancouver city has 2.1 people per household.

It has been an orgy of new construction in Victoria over the last decade. There are too many homes for too few people.

And it will not be getting better in the immediate future. The increasing unemployment and vacancy rates are leading indicators that we'll be experiencing a net loss in population in the near future. If we are not already experiencing a net loss.

dasmo said...

I admit my source was Wikipedia....
but feast on this!
http://www.city-data.com/income/income-Seattle-Washington.html

totoro victoria said...

I don't know, in 2012, B.C.’s population increased by 38,943 (+0.85%). So far this year we are up 4,640.

Greater Victoria's population is projected to grow by 4-5% between 2010-2015.

At 1% per year we are lower than Vancouver and Kelowna though.

koozdra said...

"Getting closer to market value this bright top floor suite.."

A little bit of a different take on price reduced.

"Don't be afraid to be the first to make an offer on this court ordered sale"

I don't think it's fear that is pushing people away. I think the price is too high.

317581

Chris said...

“Housing construction slows”

The price of lumber foretells that the States recovery has fizzled.
Our island economy relies heavily on timber production.

totoro victoria said...

Nice to see that American Indians and Native Alaskans have experienced a 65% increase in income in a nine-year period. I wonder if it is real or a data collection issue.

dasmo said...

JJ, how does that indicate a glut? What is the number of people in living each household? How many dwellings are vacation and secondary homes? I would think a number of downtown condos are single people for instance. I certainly don't think the Mosaic is full of families with 400 sqft single room pads being the norm.... Personally I think Victoria proper needs more density....

I see an over building problem as one leaves Victoria and heads north....

Chris said...

totoro said
“Greater Victoria's population is projected to grow by 4-5% between 2010-2015.
At 1% per year we are lower than Vancouver and Kelowna though.”

Whichever party is chosen to govern British Columbia in the next term, it will come face-to-face with an economic gorilla. The gorilla may remain relatively tranquil for a few years, but it will become increasingly agitated and forceful.
B.C.’s economic growth rate, which has closely matched that of the rest of the country for the past few years, is destined to slip below the national average over the next decade.

http://www.vancouversun.com/opinion/op-ed/Opinion+faces+challenging+economic+future+demographics/8345724/story.html

Ernie Fallows said...

Too bad the Rogers area is so expensive. I'd love to live there.

totoro victoria said...

Nonsense. Accurately predicting the BC economy in 2035 is about as possible as predicting the weather next month.

Go north and you will see what is happening with natural gas/oil/mining. Could def be a boom up there. Things can change quickly. This would affect the demographics of the province dramatically.

As for Victoria, the article does not counter the assertion that we will have positive population growth over the next ten years.

a simple man said...

"Can you provide a link to this gem in Oak Bay where the asking rent is a little over $1,500 per month?"

I just looked for it and can't find it now - perhaps it has rented and they removed the ad, although there is no-one in there yet and there were people looking at it last week. I know the landlord had it on craigslist for a while and then on UsedVictoria. I will find out the status from the people in the know.

Just Jack said...

Don't usually get many sales in the Uplands hood. So when one happens its nice to take a look to see how the "über-rich" are fairing in house appreciation.

Nice home on Norfolk sold this week for $1,013,000. You have to go way back, some 6 years ago, to February 2007 to find a home like this that sold at this price level.

I would think this home might have an economic rent of $3,000 per month including gardener.

Introvert said...

I mean, instead of losing your entire down payment and more (-200%?)

Pardon me, but I haven't lost my down payment.

Not only that, you would have big rental savings in your pocket each month for three years now.

My rent/buy decision-making wasn't and isn't influenced exclusively by financial considerations.

Ernie Fallows said...

My rent/buy decision-making wasn't and isn't influenced exclusively by financial considerations.


Agreed. There are perks to home ownership outside of as an investment. The satisfaction that it's YOUR home, your property. A satisfaction I wouldn't get from renting. Everyone is different though. The fact is, you only live once, life is short, and I wouldn't want to spend my life renting, it's a lifestyle I would rather not have. I'm glad I'm paying down on my house and it's something I can call my own.

a simple man said...

"I wouldn't want to spend my life renting, it's a lifestyle I would rather not have."

It is not a binary thing for life - rent or not rent. There are times when it makes sense to rent and times when it makes sense to own.

And there is the emotional side of it, which you have alluded to. Having ownership, being able to say that it is "mine".

"I'm glad I'm paying down on my house and it's something I can call my own."

But what if it starts losing more money per month than you are paying down on it per month?

Ernie Fallows said...

But what if it starts losing more money per month than you are paying down on it per month?

Yep, for sure. That wouldn't be comfortable. But if it's within my means then it's not going to kill me. I'm still looking at is as my place, and a roof over my head. I'm still able to afford my payments, it will be paid off at some point etc., and the market could always go back up. It really depends on what you want out of life, but I agree you still have to balance your decisions on purchase with common sense.

dasmo said...

Then just call it renting!

Introvert said...

In what way is the investor being screwed by a fund that charges a 2% management fee (Some charge a lot more.)?

People don't manage your money for the good of their health, and the market for financial products is highly competitive. If you don't like paying a management fee of 2%, buy index funds with much lower expenses.


I guess it's mostly that the regulations meant to protect the consumer from the dubious practices of the financial services industry have been eroded, and that public-benefiting reforms tend to die in Congress primarily as a result of Wall Street lobbying.

Introvert said...

But what if it starts losing more money per month than you are paying down on it per month?

Um, wait for it to go back up? And the money's not gone unless you sell--an inconvenient fact, I know.

I won't speak for others, but my house would have to drop by 50% before I would even begin to contemplate other options. And that's contemplate, not panic and sell instantly.

a simple man said...

I agree that over the long run the chances that houses will be worth less than today is very low (>20 years).

But, since emotions are often tied to the need to have home ownership it is those same emotions that erode your confidence when you watch your monthly payment not keep pace with your losses over 4-5 years. Then the emotions become crippling for some and they cash out.

CS said...

the regulations meant to protect the consumer from the dubious practices of the financial services industry have been eroded, and that public-benefiting reforms tend to die in Congress primarily as a result of Wall Street lobbying.

A claim in support of which you offer the fact that some investment funds have a 2% management fee. But as no one is compelled to pay such a fee, since anyone can invest in primary financial assets without the mediation of a fund manager, your claim was a non sequitur.

The irrational denigration of stock markets and those who manage them is one of the factors giving rise to irrational exuberance in the real estate market.

Equally irrational confidence in banks perhaps explains why the majority of savers have their money in deposit accounts or in GICs that earn less than the inflation rate after taxation.

It is true that naive investors in financial assets are vulnerable to bad advice or fraud. But one only needs to read a couple of decent books on the subject of investment to avoid the main pitfalls, e.g., Ben Graham's Classic: The Intelligent Investor.

totoro victoria said...

"Not only that, you would have big rental savings in your pocket each month for three years now."

You forget that Introvert has rental income. You also completely fail to account for principal paydown.

I can look at the one place I bought at peak. I am currently covering the mortgage and expenses with rental income. Yes, it is possible in Victoria if you don't buy a 2 bed 1 bath elderly home in James Bay for over $500 000.

In five years the principal paydown amounts to $63 000. In ten years principal pay down is $140 000. All paid for by renters.

What are the chances that my house will be worth less in ten years than what I purchased it for?

Now, what is the alternative? I suppose I could take my initial investment and try to make a profit of $140 000 in ten years. I'd have to make 11% per year though.

Oh wait, that pay-down was near to tax free because I could deduct mortgage interest and expenses from rental income.. When sold, principal paydown is not taxable.

Imagine if in ten years the house had actually appreciated in value?

Of course, if you have to sell in a down market things aren't so rosy. But stocks take tumbles too.

CS said...

I agree that over the long run the chances that houses will be worth less than today is very low

In constant dollars, the chance is perhaps not so low.

It depends on the trend in not only interest rates but also real wages.

Are real wages rising? For the 90%, they are probably declining.

That is the logic of globalization: to put you in competition with four billion third worlders earning pennies an hour — and they certainly cannot afford a house at Victoria prices.

But as real wages fall, the profits of the globalized corporations rise, for as David Ricardo stated:

As the wages of labour fall, the profits of stock rise, and they be together always of the same value...

Which is another good reason for ignoring Introvert's advice on the stock market.

totoro victoria said...

I personally know of a number of people who have... gasp... lost money in the stock market and paid horrendous fees for the privilege.

Not saying that you shouldn't invest, but I am saying that you should have some knowledge about how to minimize fees and a strategy going in. Kind of like home ownership...

Now, not to repeat myself, but you gotta live somewhere and will probably have to pay something for it. Given that our wonderful country offers up insured mortgages at low rates you need to do the math for yourself.

I personally know no-one in Canada who has owned more than ten years and has not benefitted from it vs. renting.

This is not to say there couldn't be a crash or that there are these industrious renters who invest more than they would if they were home owners don't exist, they just might be an endangered species is all.

Home ownership needs to be analyzed and understood. It can be an investment and a place to live. It can be a pure investment. You can time it sometimes but your life is time limited - balance it.

Just Jack said...
This comment has been removed by the author.
Ernie Fallows said...

You definitely have to balance things out to suite your budget and life style, but if it's affordable, I'd much rather pay down my own place than hand someone else rent money for their investments.

Just Jack said...

I think the worse happens at renewal time when you see how little you've paid down in relation to how much the house has cost you over the years. After all, it's called the burden of home ownership.

Granted if you've owned your home more than 6 years, there's a chance the home is worth more today - in nominal value that is. Unless you were a complete twat and just bought what the hucksters were promoting to "get into the market."

I think most people would say that home prices will be higher 20, 30, 40 years from now- at least in nominal value. Which means your home has gone up in price but at the same time a Big Mac now cost $156 plus $275 in MST. (The Mother of all Sales Tax)

Of course our understanding of price appreciation has been based on our knowledge of the last 20, 30, 40 years when the largest group of people were buying properties and inflation dominated the economies of the world.

Now we're looking at the only thing Baby Boomers will be buying are Cremation Urns while the world slips into deflation.

Then there is a big chunk of the marketplace that will never bathe in the warm waters of price appreciation or even chose when they can sell. Estates, divorce, relocation, illness, court sales, bankruptcy. And they'll form an increasing proportion of the dwindling sales activity in the future marketplace.

Yet there are others who believe that they can chose when to sell and become headlines like "Cat eats owner, news at 11".

All of us sell.

koozdra said...

The real question is how strongly will home owners stick to their convictions in the decline. I can see homeowners on this blog not caring that their neighbour bought a house on their block for much less than they did. They won't care that a suite will be seen more of a nuisance than a necessity.

A rational person doesn't base their happiness on the relative success of others around them.

Unfortunately for us most of society is governed by emotions and not rationality.

People will get pissed off that their house is worth less than what they paid for it. They were PROMISED appreciation. They were PROMISED economic growth. They were PROMISED low interest rates (sort of).

After all, Canada is an island of stability amongst a turbulent economic world.

When people realize that these are lies, they will be very grumpy.

How dare the government use our tax dollars to provide insurance to the banks? How come nobody was warning us? I thought house prices just went up.

Chris said...

“Nonsense. Accurately predicting the BC economy in 2035 is about as possible as predicting the weather next month.”

Not only is it predictable now, it was predictable twenty years ago. The one certainty in life is that people grow old. Our 50 + year property tailwind, now becomes a headwind. Canada’s uphill battle will be far worse than the States. Immigration can only slightly lessen the slope as the rest of the world has the same problem. World governments will fiercely compete for young immigrants.

Ernie Fallows said...

I think at the end of the day, most folks would want to purchase a home if the environment was right for them to do so. But, there are some folks that simply cannot do it in this market, and I can understand and sympathize why they're bitter about it, desperately anticipating the market to tank so they can finally take that step. Having said that, I have no problem with market prices going down overall to make things more affordable.

Chris said...

“Go north and you will see what is happening with natural gas/oil/mining. Could def be a boom up there.”

Not a chance. The States is not only becoming energy independent, but will become a giant exporter of natural gas. They have over 5 times the gas reserves as Canada. Have a look. Takes 2 seconds to conclude BC’s natural gas glory days are behind us. Natural gas is back to the 90’s levels.

Leo S said...

I admit my source was Wikipedia....
but feast on this!
http://www.city-data.com/income/income-Seattle-Washington.html


From that page:
"Median household income in Seattle in 2009:
Seattle: $60,843
State: $56,548"

I do see that $45,000 number floating around various sites though, also marked as "median household income". I can't explain what that refers to though, since the $60,000 figure seems to include unattached individuals, so it should already be the lower one (census says the median family income is over $90,000)

CS said...

I personally know of a number of people who have... gasp... lost money in the stock market and paid horrendous fees for the privilege.

In the age of discount brokerages owned by those trusty Canadian banks, e.g., bmoinvestorline, TDWaterhouse, etc., it is difficult to understand people who pay horrendous fees for the privilege of owning stocks. Discount brokerages charge around $10.00 or less for a transaction up to a $100,000.00 or so — a negligible amount. However, if you don't watch it, they will scam you on currency exchanges, charging, typically, 1% each way. (The thing is to look for cheaper exchange facilities and to avoid switching currencies on a regular basis. That's not difficult, since you can invest in most of the world's largest corporations via the US exchanges.

As for losing on the market, yes it's quite possible even though the Dow is up almost 100% over the last 10 years. But it's not difficult to avoid losing in an up market: just stay widely diversified and avoid following tips and hunches. Picking stocks at random, is a better bet. Though best of all, perhaps, is to study the market carefully, analyze individual stocks and what the financial press have to say about them, then having made up you mind what is the best thing to do, do the exact opposite.

Chris said...

LMAO
"cat eats owner & MST"
Thanks JJ :)

Introvert said...

... analyze individual stocks and what the financial press have to say about them, then having made up you mind what is the best thing to do, do the exact opposite.

Do what you think is best, then do the opposite: the fact that this advice is often valid, from what I can tell, says a lot about the stock market itself.

Introvert said...

Not saying that you shouldn't invest, but I am saying that you should have some knowledge about how to minimize fees and a strategy going in.

Those fortunate enough to have a pension don't have to worry about fees, where to invest, when to invest, how much to invest, etc. The fact that pension availability has steadily declined over the last several decades and that corporate profits have never been higher is not a coincidence.

Leo S said...

Nonsense. Accurately predicting the BC economy in 2035 is about as possible as predicting the weather next month.

See, isn't it fun?

Leo S said...

I won't speak for others, but my house would have to drop by 50% before I would even begin to contemplate other options. And that's contemplate, not panic and sell instantly.

I don't know about others, but when my investments go down, I wait until they're really far down before selling them. I mean if you're going to sell low, let's not go halfway.

(kidding of course, I don't recommend anyone sell their houses in an attempt to buy them back after a correction).

Leo S said...

What are the chances that my house will be worth less in ten years than what I purchased it for?

That's not the question. The question is would it have been a good idea to wait and buy that rental place, or buy it at the peak?
You keep presenting this false dichotomy as "buy now or buy never" when it actually is "buy now or buy at some point in future".

Leo S said...

Given that our wonderful country offers up insured mortgages at low rates you need to do the math for yourself.

Luckily we have the benefit of Roger's excellent rent vs buy tool for that.

I personally know no-one in Canada who has owned more than ten years and has not benefitted from it vs. renting.

You mean to tell me that during the largest increase in home valuations it was a good idea to own?

info said...
This comment has been removed by the author.
CS said...

Do what you think is best, then do the opposite: the fact that this advice is often valid, from what I can tell, says a lot about the stock market itself.

What it tells you is that without insider information (upon which it is illegal to trade) you cannot predict the future of the market or of particular assets. So just pick some stocks at random, or more sensibly, buy the whole index, US, Canada, Emerging markets, Small cap, large cap, industrials, commodities, consumer products, REITS etc., then you cannot fail to experience something very close to the same result as the market as a whole, which may be no worse and may possibly better than investing all you've got in real estate.

Sure, if world market in everything plunge in value, then so will your investments. But then you'll have plenty of company in poverty so it won't seem so bad.

CS said...

Those fortunate enough to have a pension don't have to worry about fees, where to invest, when to invest, how much to invest, etc.

Those fortunate enough to have a pension depend on others investing for them, a service for which they pay fees, hidden or otherwise.

The fact that pension availability has steadily declined over the last several decades and that corporate profits have never been higher is not a coincidence.

So investing in corporations with rising profits is a way in which those with declining incomes can capture in the form of corporate profits what they are losing in wages and pensions.

Sure, if wages increased at the expense of corporate profits many would applaud that. But that would be to reverse the process of globalization which everyone applauds. At least the people everyone votes into office appear to applaud it.

koozdra said...

Interesting move US.

"Beginning on July 1, interest rates on subsidized Stafford loans for college undergraduates are expected to double from 3.4 to 6.8 percent."

* These are only going to apply to newly issued student loans.

US student loan interest rates expected to double

info said...

Let's review some of the many reasons that house prices in Victoria will be undergoing a major correction that will take many years to play out.

1. Maximum amortization is now 25 years, down from 40.

2. Debt servicing ratios have been scaled back.

3. Minimum down payment is 5%, up from 0% and banks are no longer allowed to give 7% cash back loans.

4. CMHC will no longer be used the way it once was, covering far too many high-risk, high-ratio loans.

5. CMHC coverage is no longer available for properties worth more than $1 M.

6. BC residents have the highest household debt levels in Canada.

7. BC residents have a negative savings rate (by far the worst in Canada).

8. Victoria's economy, in general, is struggling and many young people are moving away in search of greener pastures elsewhere.

9. As is the case with any housing bubble, the economy takes a big hit for many years once house prices start to fall.

10. Canada has more than its share of temporary foreign workers (380,000), showing that many Canadian companies and businesses are hiring them to save money on wages.

11. Victoria has the second highest price to household income ratio in Canada. In the US, the cities that were the biggest price gainers were also the biggest price losers.

12. Canada has the least affordable housing in the world, according to multiple studies (using price to income and price to rent ratios).

13. Canada's housing bubble is bigger than the bubble that had formed in the US in 2006.

14. The average Canadian house costs about twice as much as the average house in the US (historically there was price parity until 2006).

15. Emergency interest rates will not last forever.

16. The B.C. first-time new home buyers' bonus ended April 1, 2013.

17. Canada's housing is overbuilt and, as is the case with any housing bubble, the oversupply doesn't become apparent until prices really start to fall.

18. Home ownership is at a record high in Canada at 70%, which is higher than the peak level in the US before their housing market crashed.

19. The household debt to income ratio is at a record high in Canada at more than 160% (the US hit a maximum of 120% before their housing market crashed).

20. Housing investment as a share of GDP in Canada is over 7%, which is extremely high. Only twice has this number climbed over 7% and both times Canada's housing market crashed within 2 years.

21. As is the case with any national housing bubble, once a price peak is reached, prices always correct back the same amount (50 countries and 40 years worth of data prove this to be true).

22. Victoria is as vulnerable to a housing price crash as any Canadian city. In 2009 it took about 6 months for prices in Victoria to crash 15%. That crash would have continued but a massive, unprecedented, emergency intervention turned the market around.

23. Many boomers will be selling over the next number of years. Their buying helped push house prices higher over the last 30 years and now their selling will push prices lower for many years.

24. As is the case with any housing bubble price run-up, the wealth effect has a positive effect on the economy and house prices. Now that Canada's housing bubble has burst, the wealth effect will disappear and this will have a negative impact on the economy and house prices.

25. A house is the most emotional asset. The higher house prices climb, the more people want them. However, the opposite is also true. People's emotions helped push house prices higher and now they will help push prices lower for a number of years.

CS said...

7. BC residents have a negative savings rate (by far the worst in Canada).

So we're still plunging deeper into debt, thus keeping RE on its ever upward trend.

Housing investment as a share of GDP in Canada is over 7%, which is extremely high.

Why not 14%?

All we need is a super new emergency low interest rate. The BoC still have room for another 0.99% cut to 0.01%. Then, with 5-year mortgage rates down to 1.75%, we could see the world's first housing hyper-bubble.

With nothing much else to hold up an economy with a hollowed out industrial sector, an influx of cheap labor, and a faltering commodity sector, further rate reductions seem inevitable.

koozdra said...

"Then, with 5-year mortgage rates down to 1.75%, we could see the world's first housing hyper-bubble."

At least Dasmo and Introvert will be happy.

totoro victoria said...

CS, I agree with you re. discount brokerages but how many of us know people who don't use these?

I know lots ... and lots of "financial planners". It is a learning curve that many find daunting (or uninteresting) to manage their own investments.

I myself know far more about real estate than I do about other types of investing and it has been a learning curve over the past few years.

I had to laugh when my bank sent me an email to schedule an appointment for a free "review my investment portfolio" with my new account manager. They did not ask if I was interested in this, they were letting me know dates for the meeting. No thanks.

Leo - what is all this false dichotomy nonsense? It is not "buy now or buy never", it is what does it mean to buy now or later for you. If you want to wait great.

If you want to buy now for various reasons like:

1. low interest rates
2. emotional connection to a "home"
3. income stability
4. family circumstances
5. blah blah blah

then analyze your numbers and your timing and decide if it is worth it to wait knowing prices could drop and won't likely go up for a longish bit.

Also knowing that the "crash" may never occur or could occur and then running your rent vs. buy for the scenarios - taking into account principal paydown of course and any rental income.

And this claptrap about natural gas, give me a break. Have you been up North? I have. Some pretty smart folks are spending big money on this.

http://www.theglobeandmail.com/news/british-columbia/bennett-predicts-a-natural-gas-boom-as-way-cleared-for-lng-plant/article7649911/

dasmo said...

"I do see that $45,000 number floating around various sites though, also marked as "median household income". I can't explain what that refers to though, since the $60,000 figure seems to include unattached individuals, so it should already be the lower one (census says the median family income is over $90,000)"

I think it's possibly the latest median "per capita" income. 2009= $40,743

dasmo said...

Best financial thing I ever did was invest in the stock market. Second best was buying a house. Third was firing my financial adviser and selling all my mutual funds.... My investments have outperformed my real estate by far. (irobot is up 39.5% since I mentioned it on this blog). I just didn't invest as much into the stock market as I did real estate. I don't think I would have the stones to borrow 250k to invest and I doubt any bank would have lent me that back when I bought my first house. Now they would probably....

info said...

"And this claptrap about natural gas, give me a break. Have you been up North? I have. Some pretty smart folks are spending big money on this."

Consider the source of the information. You have to understand that there are pumpers out there - stock pumpers, house pumpers, commodity pumpers...

The price of natural gas is only a fraction of what it was in 2008. The US has recently discovered reserves of natural gas that will supply it for many decades. Have you heard of the bakken play?

koozdra said...

"Sellers need to price accordingly, and be ready to make less on the sale, which they'll likely make up on their next purchase."

Nanaimo home sales are up by 12 per cent
* Prices down 9% yoy

totoro victoria said...

Maybe. Only my personal observations having spent some time up North recently. It is not talk, it is action there. I def saw a mini-boom. Where it goes, we'll see.

I'm glad re. your stock market returns dasmo. Very good. I wouldn't borrow to invest in stocks, just not hands-on enough for me to feel confident that they will outperform the interest charges.

caveat emptor said...

Dow is up almost 100% over the last 10 years

30% in the last 13 years which is less impressive. The S&P 500 is less than that. It hasn't been a great decade for buy and hold investors in the US market. Particularly Canadian buy and hold investors in the US since currency movements cancelled out your gains.

There have been lots of opportunities to make money in the stock market, but not lately through buy and hold of the big us indices

dasmo said...

It's easier to time the stock market. I bought as much as I could in 2009. I mean everything was half off! It was that or start digging a hole for a bunker...

koozdra said...

A real estate decline is going to be very bad news for our public transportation system. Almost every bus has at least one real estate ad. Bus shelters are plastered with ads.

Will there be another industry to take it's place?

patriotz said...

30% in the last 13 years which is less impressive.

Not too bad considering you've picked the top of the dot-com bubble as your starting point.

How has US housing done over the last 7 years?

Ernie Fallows said...

Rent - paying for someone else's investments.

koozdra said...

"Rent - paying for someone else's investments."

Deep.

Ernie Fallows said...

Deep.

Indeed.

Leo S said...

It is not "buy now or buy never", it is what does it mean to buy now or later for you

Can anyone help me parse this sentence? Introvert I need your language skills here.

koozdra said...

The biggest bubbles pop first.

Canada’s condo sector slowing as developers hit credit crisis

totoro victoria said...

nonsense, makes perfect sense.

reasonfirst said...
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subprime11 said...

@ CS agreed but one additional thought.

"23. Many boomers will be selling over the next number of years. Their buying helped push house prices higher over the last 30 years and now their selling will push prices lower for many years."

CS These boomers that are selling need to live somewhere. Victoria will attract a many of them due to climate and services for the elderly. We may be underestimating how this may support Victoria real estate prices.

reasonfirst said...
This comment has been removed by the author.
reasonfirst said...

"Grocery shopping - paying for someone else's investments"

Chris said...

@suprime11

“Victoria will attract a many of them due to climate and services for the elderly. We may be underestimating how this may support Victoria real estate prices.”

If that were true, I don't think Victoria would be the weakest market in the country the last three years and running. After all, the Boomers started turning 65 in 2010.

koozdra said...

I wonder if they'll fire Benjamin Tal. He is terrible at his job.

"Mr. Tal says if the majority of investors have 20% down — something he believes to be true — there will not be a mass exodus from the market."

Yeah, amateur investors will remain calm while all of their savings get wiped away.

dasmo said...

talk to me when it's like this here... "Foreclosure-related sales made up 21 percent of all U.S. sales in 2012 and short sales, when the home is sold for less than the value of the mortgage, made up 22 percent, according to a new report from RealtyTrac. Add it up and 43 percent of all 2012 sales were of distressed properties."

Chris said...

I caught up on some articles above. This line is worth repeating:

“What is remarkable about the findings is that the highest debt levels occur in the 50-to-59 age group, where unsecured debt is more than $84,000. And one in three in the older age group still supports at least one dependent, and – if a home owner – still carries a significant mortgage, it says.” (emphasis added)

The unsecured 84,000 doesn’t even include their significant mortgages! Boomers are one financially daft generation. Or, if enough survive to maintain a voting majority, maybe the spoon feeding can continue. Fat pensions and Fancy Feast for all. Genius!

koozdra said...

Toronto will look kind of post apocalyptic for a while. As the incomplete towers start to age and collect rust because the city doesn't have enough money to demolish them.

Just Jack said...

Renting is paying for someone else's mortgage is a statement used by real estate hucksters to sell an under performing asset to the financially illiterate. What the statement really means is that this property is really overpriced - but you being poor, desperate and with the IQ of a warm cantaloupe will buy it anyway. It isn't worth bothering to go into any great deal about the upcoming $15,000 roof repairs, $7,000 furnace or the windows that have lost their thermal seals so that you might as well be living in a tent in the Artic tundra come this November. Nope, much easier to say "at least you won't be paying someone else's mortgage"


I suppose it could be followed with: "you are paying for location" which means the house has rats, it's infested with carpenter ants, and we just finished rubbing out the chalk outlines of the last inhabitants.

"The house will pay for itself" I suppose that means that after a dozen payments the house taps you on the shoulder and says "hey -this months on me"

dasmo said...

Are you really thinking of all the angles on the boomers?

Chris said...

“MetLife Mature Market Institute, reports that Boomers will inherit $8.4 trillion at 2009 levels. The median per person figure is $64,000; $2.4 trillion has already been received.”

64,000 per Boomer ! They will be able to pay off their credit cards. Well, the ones who still have some coming.

“Even parents who want to leave a bequest may be forced to revise their plans
based on fluctuations in the value of their assets. Potentially, some may exhaust their wealth
due to medical and long-term care costs. An anticipated inheritance may not materialize,
and if it does, recipients generally get the money when they are older and the amounts are
typically not life-changing.”

Damn it gramps, I was counting on life-changing moola!

Chris said...

The angle I'm concerned about is the numerous lenders (taxpayers) about to take a hit, as the debt-full Boomers are already croaking.

Then again, deceased Boomers' debts and tax bills will end up partially having to be paid by their children. Esp if in business together.

Just Jack said...

I wouldn't bet on seeing a wave of Baby Boomers beaching themselves on our shores in the next few years.

Because most are already here.

What do you think has been happening over the last decade?

No sense in moving to the rain forest to hike the trails if you have to drag an oxygen tank behind you and your stroller keeps getting stuck in the mud. Moving here after 65 means all you have to look forward to is staring out the window during the monsoon season with a pack of razor blades laying on the table beside you.

The Baby Boomers began moving here back in 2000 as they started turning 55. Most came here because they had some relatives in Victoria. A sister, brother, parents or children. Far different story when you're 65, then you only come to Victoria for the funerals.

You must have noticed how the adds for new homes and condos has changed from come to Victoria for your retirement to adds pitching the young urban professional.

totoro victoria said...

Ummm.. no-one can leave you their debts as a special inheritance bonus. In fact, they cannot even leave them to their spouse unless their spouse was a party to the debt to start with.

Leo S said...

>> talk to me when it's like this here

At that point we can stop talking, because the crash will have already happened.

Leo S said...

>> no-one can leave you their debts as a special inheritance bonus

Debts are settled out of the estate before it is disbursed. So you can't inherit debt but you can certainly inherit nothing because of debt

koozdra said...

Does this make sense?

318191

318233

totoro victoria said...

No right to an inheritance Leo - as it should be imo.

totoro victoria said...

Makes perfect sense to me.

koozdra said...

Which is the more desirable property?

totoro victoria said...

I don't own a tractor so...

dasmo said...

No Kooz, that 70's crapper in the boonies is way over priced!

Leo S said...

>> No right to an inheritance Leo - as it should be imo.

I believe that we need freedom and choice when it comes to our ice-cream.

CS said...

Renting is paying for someone else's mortgage ...

Just Jack, hope you're writing a book on RE investment. I'd buy it for the jokes.

koozdra said...

Totoro, would you say that historically speaking these two properties would be priced comparatively to each other? Or is this a recent phenomenon? That a completely refinished Oak Bay character home would be asking the same amount as a rural acreage with an older house on it?

totoro victoria said...

Whole nother level of nonsense Leo.

I have no idea. Metchosin has never been on my wish list. You can do your own research on the values though.

koozdra said...

The recovery is scheduled in a couple of years.

"For the next few years "the mortgage market is going to be flat," he predicted. It will be "a couple of years until we see [the mortgage market] back to the 5-6% growth rate.”"

The Market Pulse from Genworth

caveat emptor said...

re inheriting debt.

Wouldn't it be great if you could time your exit perfectly to have given all your assets to your heirs and then run up debt on all your credit cards.

It would be like a final thank you to the banks

dasmo said...

It is prudent to sign over your assets before you die... Speaking of which I must do that will....