Five Charts: Predicting Future Vancouver Housing Prices

Only a lunatic makes real estate sell or buy decisions based solely on charts, but, conversely, only a fool would say that past price action is irrelevant. Technical analysis (‘TA’) involves the study of chart patterns for clues to future price movement. It looks at the places where buyers and sellers have met in the past, and uses charts to attempt to predict where they may do so in future.

To look at TA of the Vancouver RE market, we have used the REBGV chart of the average nominal price of a detached single-family house for the Greater Vancouver area. It would be methodologically better to have a look at a similar price chart of a benchmark house, or better still, a Case-Shiller type of same-house-resale price chart, and even better real (not nominal) Case-Shiller, but, as we don’t have such charts going back to the 1970′s, we’ll use average detached price here. We’d expect the general price action to look very similar for all of these charts over the next 10 years, but obviously the specific numbers will be different. So, keep in mind that you’re looking at average nominal detached price charts here. The chart is updated by the REBGV each month. As of the August 2010 numbers, that price was $999,400, essentially $1M.

This analysis is not going to need to make use of more exotic TA interpretations. We’re not looking at ‘cups and handles’, ‘saucers’, and will barely mention the common ‘head and shoulders’ pattern (for those interested, it’s visible in the scenario (2) chart below). What is far more important is evidence for levels of price support under the market. Even bulls are anticipating a pause or slowing, and the question isn’t so much “Will the Vancouver RE market pullback?” but rather “How big will the pullback be?”.

The recent and much publicized report from the Canadian Centre for Policy Alternatives, ‘Canada’s Housing Bubble: An Accident Waiting to Happen’, by David Macdonald, Aug 2010. (pdf here) predicted possible price drops of between 20%-31% peak to trough for the Vancouver market (using average residential housing prices adjusted for inflation). This report garnered much mainstream criticism, with claims that such pullbacks were inconceivably large. As you’ll see from the REBGV charts, the run-up since 2001 has itself been so large that the CCPA estimates are probably on the low side.

So, what does TA tell us about support ‘under the market’? There are four areas of price support to consider, as illustrated in the following chart [click on charts to enlarge]:

We consider two areas of support to be particularly crucial:

The first and arguably most important price level is that illustrated by ‘B’, the 740 area, 26% below the current price, as defined by horizontal support from lows of the 2008-2009 pullback. The psychological importance of this level is crucial. Thus far, those buyers who stepped in to buy the 2008-2009 pullback look smart, and they are pleased with their paper gains. It is thus likely that there is at least a small group of prospective buyers who would look at any fall to those levels as a buying opportunity. In a related sense, if and when the 740 area is penetrated to the downside, many prospective buyers will back off (asking themselves “how down far can this go?”) and at least some sellers will come into the market, fearing future losses. Remember, it only takes a small percent of owners to try and sell with some urgency for prices to fall precipitously. Thus, if 740 is broached to the downside, we’d expect prices to fall to the 500-600 area of support in relatively short order. We personally anticipate that the 740 area will indeed fail as support, perhaps after a bounce at that level first.

The second most important price support level is illustrated by ‘C’, the 500-600 area, 40-50% below the current price, as defined by long term support from the bottom rail of 1985-2000′s uptrend. This is where prices would be “if we hadn’t had a bubble”. At this moment that support is below 500, and thus suggests that RE prices in Vancouver are >2 times overvalued. This meshes very well with overvaluation estimates based on fundamental analysis using price:rent and price:income ratios, and we thus find this level of support a very persuasive target. We have a very high index of suspicion that prices will hit ‘C’ support at some point in coming years, likely by 2013.

The ‘D’ support line, coming in somewhat perversely at 444, may seem preposterously pessimistic to most market participants as it implies 55% price drops. However, when markets overextend to the upside they often react with overextension on the downside, and levels in the 400 area may be reached if past irrational optimism is replaced with similar degrees of irrational pessimism. These are realistic targets if RE becomes a truly detested asset class in Vancouver.

So, given the importance of the levels discussed above, how exactly may prices get there? This is where very precise bets are off, as there are almost an infinite number of ways in which price and time could dance around those support levels. Here are some possible scenarios:

(1) – ‘Crash to long term support’:

(2) – ‘Bounce at 2008-2009 support, then crash to LT support’:

(3) – ‘Crash and overextend’:

(4) – ‘Drop to 2008-2009 lows, then muddle through’:

(5) – ‘Bull fantasy; hyperinflation; Vancouver is the New Monaco’:

As anybody who frequents this site knows, we are currently very bearish the Vancouver RE markets; we believe there is a >80% chance of very significant price drops this decade. We have expanded on the reasons for this outlook elsewhere [‘Prediction 2010-2019′ (Dec 2009)]. If we were to put probability weightings on the above charts, we’d guesstimate likelihood of outcomes roughly like those above as:
1. 30%
2. 20%
3. 20%
4. 15%
5. 3%
6. (Other) 12%

Our weightings are not based on TA alone, obviously. We don’t see a drop to the lows of 2008-2009 as being enough to rid the market of the speculative excesses of the last decade, and we don’t see how enough buyers will step in to rescue the market at those levels, given debt levels, ownership rates, fundamental overvaluation, RE over-dependence, degree of speculator involvement, leverage, boomer supply, and economic outlook.
Perhaps readers will care to post their own probability estimates for each of the different chart scenarios in the comments section below.

Lastly, another bit of TA: The Vancouver MOI chart is mapping out a bottoming pattern. The 2008-2009 spike is likely heralding a much bigger upcoming spike:

—–

UPDATE, 11 Sep 2010 7:45pm:
Best place on meth at vancouvercondo.info 11 Sep 2010 3:39pm wrote “I’m wondering if you’ve considered a 6th possibility, that the entire past 1/4 century has been an aberration. Try putting a line under the 1976-86 period and see where it ends up.” Good suggestion, here it is:


This longer-term support line is in the 280-330 area. From 1998 to 2010 it increased at a rate equivalent to 2.84% pa compounded. Mean inflation rate was 2.6% 1986 to present. This essentially agrees with Shiller’s long term analysis showing that RE returns 0% after inflation. Suggesting price drops back to this support line implies a pullback of about 70%, the thought of which would make even the most ardent bear blush. As dreadful as it sounds, it could be a real possibility: deflationary waves, plus boomers liquidating, plus dearth of buyers could do it.

59 responses to “Five Charts: Predicting Future Vancouver Housing Prices

  1. New Monaco here we come! Buying an Olympic Village condo is going to look like a steal two years from now. But they’ll be raising my wage to keep up with inflation right?

  2. Interesting. The 20 year trend line is using nominal prices during a secular trend of disinflation. I wouldn’t bet on that trendline being realistic long term going forward.

  3. “The Shiller’s long term analysis shows that RE returns is 0% after inflation.”

    That’s all we need to know, really. Everything else is basically wishful thinking.

  4. This is a great piece of technical analysis. I’ve been looking at this average price chart since 2006. I was convinced that a head and shoulders top had formed between 2006 – 2008 period. But Harper, CMHC and BoC pumped the market back up again. Ironically a monster head and shoulders reversal pattern ( Scenario 2) may finally be forming now, although I would put my money on scenario 1 right now. But who knows what the government will do next to keep the bubble inflated!

    If you apply a fibonacci retracement analysis to the chart you get the following interesting results:

    100% – $1,000,000 ( April/ May 2010 all time high)
    76.4% – $764,000
    61.8% – $618,000
    50% – $500,000
    38.2% – $382,000
    23.6% – $236,000

    If you draw horizontal lines on the chart at these fibonacci levels they are pretty close to some important support/resistance zones. In particular the 76.4% level ( support area B) and the 61.8% level ( because that is where we are headed in my opinion). And if it breaks below that level, then I think it will find a bottom somewhere between the 50% and 38.2% retracement levels. The next few years is going to be interesting!

    Lardy boy

  5. Good analysis. My own feeling is 1, but after witnessing the mania for properties in Vancouver, a 3 scenario wouldn’t surprise me.

  6. I would wager scenario 2 for YVR’s most desirable ‘micro-markets’… and BPOM’s scenario 6 for the rest/’hinterlands’… essentially, a bifurcated outcome (wiki “bifurcation theory” for the mathematical underpinnings). As ever, Thank You VREAA… ;)

  7. There’s too much bubble money. _Lots_ of people cashed out in 2009, including all the smart speculators. I would bet on Scenario 2, but it could easily be Scenario 5. The macro economy is shaped by government credit and government can not really pay. The value of cash is going to zero.

  8. I’ll take option 6, right after the Aug 2011 crash. Prices *should* be around $300k but then again we live in a world of insanity so who knows.

  9. Just wondering, why do the trendlines always stay under the actual price?

    If price can overshoot the mean, then cant it undershoot it as well? To me it makes more sense to draw a line that keeps the average price roughly 50% over and 50% under as that would show when is a good time to buy historically and when is a bad time.

    If you draw a half above half below line from the beginning of the graph excluding the current bubble then you roughly end up around 600K, which is pretty much where your line C ends up anyway, but with a lower slope.

  10. Real estate prices, that is if the region isn’t simply a millionaire’s haven like Honolulu a/o Maui, tend to go back towards 3x income after a bubble bursts. This happened to the oil patch (Houston, Dallas, etc), after the oil prices dropped in the 80s. Thus, a number 3 scenario is highly feasible provided that Vancouver isn’t just another millionaire type of town where income is really international capital gains. If so, then number 4 is more likely.

  11. Scenario 4.

  12. I agree with Meth. All factors indicate that the post ’80s period is out of line with reality.

    Fundamental analysis of rent vs. cost to buy, median wage vs. median house price supports this hypothesis. With a median wage in the bottom 1/4 of Canadian cities we have prices which are double the Canadian average. In what world does that make sense to anyone? Especially considering that all factors point to a Canada-wide bubble highly comparable to the US bubble peak a few years back.

  13. While i’m sure that prices would revert to the usual price/rent, price/income ratios with all other things being equal, i think there are at least 2 major obstacles:
    1) The government through CMHC, QE or other forms of institutionalized theft, would do ANYTHING to keep the bubble from bursting.
    2) Although people say that the rates have nowhere to go but up, it does not seem so sure in the deflationary environment. All those long term RE trends were based on much higher interest rates and might not apply now.

  14. @ Philometor

    The govt might do anything to stop it bursting, just as the US govt did, but look at how that turned out. $8000 gifts to anyone buying a home, mortgage interest as a tax deduction, historically low rates- all had zero effect on stopping the inevitable.

    The govt can lower interest rates or keep them steady. that will not change the fact that house prices are too detached from fundamentals.

    You can study the major bubbles in the last few centuries (Tulips, South Sea, Mississippi, Railroads) and in the latter stages of all of them was talk or hope of the government or some other agent “doing something” to prevent the very negative reality of the bubble bursting . In all cases it only postponed the inevitable.

    I recommend reading “Panics, Manias and Crashes”. It will remind you how we think that situations which have persisted for 10-15 years must be permanent.

  15. @Andrew

    I really hope that you’re right. But i’ve been waiting for “inevitable” to happen since 2003. Yes, i believe that already then the prices were diverging from fundamentals. And yet now, 7 years later, the same insanity is still with us.
    I’m already tired of waiting…

  16. For reference, an eyeball estimate of the case shiller data shows that prices crashed down below the trend line in the worst areas (Las Vegas, Florida, California), but for areas where the bubble was somewhat smaller, prices began to stabilize this year around the longterm trendline.

    Will that stabilization hold is the big question? We could be looking at another down leg here after effects of our homebuying tax credit wear off, and decreased sales volume sinks in.

  17. Re: deducting mortgage interest in the US — it keeps being brought up as some sort of measure akin to the the $8000 homebuyers credit. But the mortgage interest deductability has been around, like, forever (i.e., not an attempt by the government to keep the market from crashing), and is almost alway accounted for in a home price. The $8000 credit, on the other hand, nicely pulled up demand, just when we were trying to sell our place. Now that was a desperation measure.

  18. All of you are forgetting one key thing in the market place – DEMAND.
    Vancouver has a market more equivalent to London UK, than it does with Toronto, LA, Vegas etc. As long as more people flood to the region (and let’s face it they are still) we will experience new highs. The ability to own is going to be eroded in every posters lifetime. This market will not rise and fall with the price of oil, but rather with the rise and fall of foreign investment money. We’re talking about people who can drop a million in cash, not us mortal salary families. Don’t kid yourselves – all the charts in the world will not overcome DEMAND!!!!

  19. i have lived in vancouver all my 54 years.
    JC is 100% correct,its offshore money buying those 3.5 million condos etc.
    in the next 2-3 years high end stuff will do well,mid priced,IE:$450,000 to $650,000 will be hard to move,just wait til mortgages are back to 8.5 %.
    wages are being squeezed,taxes are going up,it will be difficult for younger people to own a home on a $30,000 income.

  20. JC is right, it is about demand. The problem though is that even those wealthy offshore investors will hold off investing in a down market and will choose to wait until they think the bleeding has stopped. Demand then will drop off. Where were the wealthy when Miami’s high end condos began to plummet in price? Or should we forget what happened in Dubai too? As the overheated Vancouver market begins its roller coaster ride down, watch investor confidence fade just as fast. No JC, “DEMAND” as you shout it out, doesn’t mean real estate prices will continue to rise forever. And those charts you diss, with income to house price ratios for example, really mean something.

  21. I love it – why do people keep using the wrong comparissons to Vancouver. In what way are we like Miami, in what way Dubai? These cities are high risk investment due to the fact, well, lets face it, who is rushing to live there? I challenge anyone to tell me that Miami or Dubai generates strong demand. Who wants to live in either location so badly? One city is not safe and the other is strapped with religious and political intollerance.
    Vancouver appeals to the moderate, safe investor. And guess what – there will always be DEMAND from these folks. They are the safe ones who will not squander their family nest-egg.
    As for the 30-something salary person, they are not left out quite yet. But soon they will be – just like in London UK, the average young person is not able to afford a single family house. They might club together with other people and buy shares. They might have inheritence from their family given earlier. In order to get on the ladder, people like this will have to be more creative than ever before. But the demand will always be here for property!!!

  22. I agree that Vancouver is safer than Miami, and Dubai is just a hypey joke, but the ‘rich’ did buy into it. Also, the weather in Vancouver flat out sucks, although if you’re rich, that doesn’t matter. Vancouver does have a vibe that I must admit is infectious, and its a good mix of progressive and entertaining, with enough pull for world class anything. Plus, it’s a North American city away from the nightmare that is America, and it’s West Coast. A good deal depends on the wealthy of Asia, but then, even if things go bad there, they will just run to Vancouver. I have to agree that nothing short of China and the world hitting the skids that Vancouver is going to stay the North American destination of choice. The only thing that sucks, and it sucks bad, as demonstrated this year, is the weather. But to the wealthy, who cares? That said, I’ve looked at both places, and Seattle has far more tech work, and really is not that different a city, just more uptight Americans, but I hardly think it’s substantially more dangerous, although it’s trying, and foreigners think of the US as dangerous. Then again, the wealthy can operate in LA safely, and they know it. Maybe Van’s hype is overdone. Charts do matter. Are there any bubbles that have never burst?
    Nope.

  23. crackhousevsmansion

    “As for the 30-something salary person, they are not left out quite yet.”

    Hahahahahahahahahahahaha. Two 30-something salary people with a 800K-mortgage-for-a-fixer-upper-with-prostitutes-around-the-corner will not be able to afford Alpo if interest rates climb above 5% OR if unemployment hits 10% OR foreign investment on property reverses OR the Canadian dollar continues to climb. So if everything IS absolutely perfect then the housing market will be flat.

    You are so obviously in denial.

  24. The demand has often not been for property. Property has no value except for its ability to earn income and as somewhere to live and exist. If real rents lag behind property price increases, sooner or later the marginal investment in property does not payoff other than being a super expensive place to “be”. Unless Vancouver is that place (and with that weather, I doubt it), sometime soon property will yield nothing other than good feelings, and then it will be a comparative poor bargain, and people will start heading for the exits.

  25. Vancouver is about to get a colossal kick to the head. I will state this from a worldwide experience that nowhere you will find a city more narcissistically in love with itself, and we know what an idiot a person in love can become. It’s also filled with a culture of speculation mentality originating with the gold rush and continuing with the utterly currupt stock exchange, however this city is also filled with Asians who, if you care to investigate for yourself, are completely culturally wired to own property (as opposed to rent). It is a question of family prestige stemming from a culture of mainland China which attributed ownership of land and property not just as a luxury but as a survivial necessity. No rice field, no money. They are a driving force in this town and have been since the early 80′s when the Hong Kong’d mobile affluents prepared themselves for the long planned take over by China at century’s end. There is now another influence, the wealthy mainland Chinese who are pre emptively buying high end (again prestige factor) real estate to shift their families to the West. The interesting thing here is that they do not buy real estate as an investment but as social proof of accomplishment. Prestige of where you live, how large your home is, what car you drive and the brand mentality are all factors here. By the way, nowhere in the world is it easier for Chinese nationals to acquire real estate and landed immigration status than Canada, and nowhere in Canada is there a more attractive place for them to settle than Vancouver which already has the highest concentration of Chinese population (with the exception of Richmond). So here is the gist for what is about to happen. The affordabilty ceiling is about to come down hard, as more and more people realize the impossibility of paying 90% of their salaries on mortgage, and the insanity of opting for a 40 year + mortgage terms (which more that 60% of mortgages where in 2009) they will pull back and wait or buy elsewhere. Vancouver is not the be all end all, particularly with the upcoming fiscal crisis as a result of the almost criminally misguided olympic overspending (and taking on the white elephant that is the Olympic village costs). Watch for massive property tax hikes in Vancouver to cover the billion dollar hole, which along with HST and increasing interest rates will further deteriorate affordability. So the high end homes will continue to sell (mostly to offshore buyers as the trend has been in the last few years) and the rest of the market will take a dive. Anyone who compares Vancouver to London, Dubai or other similarly priced cities is sucking on crack fumes, as comparitively speaking our average incomes are mere fractions of what you will find in those cities along with a fraction of the industrial, finacial services industries base. If anything we should be comparing ourselves to recreational cities like Vegas, Palm Springs and Phoenix (sans weather). The other speculators, who buy in Vancouver because they like the vibe here and to hang out for a few months of the year, will also dump their holdings when the prices begin to take a real nose dive as they have far less vested interest in the properties and will not be tolerrant of the excessive losses. I see a drop of at least 30% by the end of 2011, if multiple dynamics get triggered this % could increase further dramatically. You’ve been forwarned.

  26. Done – over – a retracement of 50-70% is likely.
    No jobs, debt – and just wait ’til people find out their Government Pension managers had increased holdings in Commerk RE.
    Yikes, what a mess.

  27. Pingback: The ‘soft landing’ thesis: Valid, but highly unlikely | Financial Insights

  28. Pingback: Five Charts: Predicting Future Vancouver Housing Prices | Vancouver Real Estate Anecdote Archive « Closing Bell Cafe

  29. Sorry, but you’re wasting your time with these charts. they mean nothing. There are only three factors (two related):
    - Supply of Buyers, and
    - Buyer’s access to funds
    - Supply of Sellers

    Like it or not you have to agree that there is a large enough pool of buyers out there right now and that will not likely dissipate over the next two years (as your hopeful charts try to say). Many of these buyers are not of local means. As long as these buyers have access to cheap money (be it offshore or through low interest rates) they will buy. The price balance and pressure is due to the small availability of homes for sale. As long as many homeowners are living in their homes and not listing them, supply will remain tight.

    What happened in 2008 was an incredible event of such mind boggling reach. From media and those “in the know” a global crisis of confidence occurred. I knew (but did not realize its magnitude) of it coming about a year before it did from some higher-up bank VPs (no, I will not disclose who said what to me but they were a client who did not go forward on a deal and then proceeded to lose quite a bit of their investment equity, at least on paper). It stretched out into every sector of the consumer’s mind and retailers/sellers struggled to move any sort of product. What a great time to buy it was (in hindsight). How bad was it? Uber-bear Garth Turner was calling for obscene amounts of money ($300, I believe) being exchanged for cords of wood as we would be thrust into a depression so bad that our grandparents wouldn’t recognize it. Huh… didn’t quite occur, did it?

    Now, what would have happened if that bubble didn’t burst? If there was no 2008 crisis? And where would we be today if the 2009 recovery didn’t happen? Doesn’t matter.

    Fact: We don’t have enough land in the areas people most want to live for the type of homes most people want (westside detached).
    Fact: We don’t have a high turnover of homes coming onto the market and likely won’t for a very long time.
    Fact: Vancouver is desirable for a great many people, particularly those from outside Vancouver. I see that every day and hear it from tourists and foreign buyers.
    Fact: Interest rates are low and general consensus is that they are unlikely to rise much over the next year or two. Beyond that, unknown.
    Fact: Yes, unaffordability for locals is obscene. You’re talking average prices but as you know, that average house is pretty darn poor. While the average may be $1m for REBGV, on the West side it is $1.6m. The result is that locals will continue to migrate East where it is *cough* “affordable” while only those of generous means will be buying up the West maintaining that high average.

    My bet: somewhere between 4 and 5. Not as low as 4 and not as high as 5. Unless another crisis of confidence spurs a massive dump of listings and a disappearance of money.

    BTW, my opinion doesn’t matter, either. Que sera sera.

    • Fact: We don’t have enough land in the areas people most want to live for the type of homes most people want (westside detached).

      Want and can have are two different things. There are a lot of things I want but won’t be able to get (That Bugatti Veyron still isn’t in my garage).

      In the end a shrinking resource and energy base will force change, not overnight and not tomorrow but we will start seeing these changes in this decade.

      Fact: We don’t have a high turnover of homes coming onto the market and likely won’t for a very long time.

      The question is why this currently is the case. I can see two reasons:

      1. People just like where they live, can comfortably make the payments and that’s that.
      2. People can’t break even or don’t think they can break even on a sale or don’t think they can get a good deal in whatever they would want to buy.

      If the first one is the case then it will be hard times for people like you. If it is the second then all we need is another downturn in the economy with the associated layoffs and those people will have to sell in order to downsize if they like to or not.

      If that happens the big buck homes will take a serious hit while the price for small spaces in contrast will increase as more people are trying to buy in.

      My bet is on the second scenario.

      Fact: Vancouver is desirable for a great many people, particularly those from outside Vancouver. I see that every day and hear it from tourists and foreign buyers.

      On what basis? What is their reasoning? The Pretty scenery? It can’t be the high paying jobs or the great nightlife, can it?

      Fact: Interest rates are low and general consensus is that they are unlikely to rise much over the next year or two. Beyond that, unknown.

      You know (or should know) that the rates are set at the bond market. If the market gets spooked again the rates will rise, if you like to or not.

      But quite frankly the deciding point will be 2013 and onward when many of the low interest mortgages are about to reset and people need to refinance. THAT Is when we will see if this continues or not. A lot can happen in 2 years.

      Fact: Yes, unaffordability for locals is obscene. You’re talking average prices but as you know, that average house is pretty darn poor. While the average may be $1m for REBGV, on the West side it is $1.6m. The result is that locals will continue to migrate East where it is *cough* “affordable” while only those of generous means will be buying up the West maintaining that high average.

      Again. If I am a rich foreign guy, why would I chose to buy in Vancouver and not, say, Portland, Seattle, San Francisco (if I want to be in North America and on the West Coast”? What makes Vancouver so much more desirable than these other cities?

      You sell these kind of properties I take it, so tell me: What rationale do you hear from your customers for Vancouver?

  30. Wow, Agent Will is obviously getting nervous…and winded

  31. Sadly i tend to agree with the “it’s different here” posters. Say what you want about fundamentals, price-income ratios etc, but it would appear that it simply doesn’t matter. Those who caught the falling knife in 2008 are now enjoying gains of 30%+. Prices today have reaches the kind of levels that in 2007/08 bears would have said, “What! Only an idiot bull would claim average prices will one day be over $1m!” Well here they are – enjoy.

  32. I know three of those (myself included) late 2008 knife-catching flippers you’re referring to. Two of them are now panicking, wishing they would have unloaded shortly after the Olympics like i warned. Both of them will be lucky to get out with a profit if all expenses are considered (they never are).

  33. Shaz-bot! Agent Will is obviously getting nervous.

  34. Not to be critical of your suppositions as they apply to Detached properties in isolation but, to be a little more global in your proposition which may provide a more balanced perspective you might want to compare the detached scale to the attached and apartment segments where you may find that your A,B,C lines will offer a more sedate view.
    Consider this change in price –
    Detached – Attached – Apartment
    Jan-84 121800 97800 77000

  35. Sorry! – so much for formatting
    Continuing here’s the rest of those numbers
    detached- attached- apartment : average prices
    Nov-10 1043161 539429 416702

    If averages skew numbers then certainly the skew in detached compared to the other 50 of 60% of the market being attached and apartment will not paint a pretty picture as is the case of using detached in isolation.

  36. I am a little confused about why you are using straight lines in this graph. Inflation and interest compound upon themselves, why would you not consider this in your analysis? I would suggest looking at a 3-point exponential fit to the upper and lower peaks to see where things could or should be.

    • Fair comment.
      My preference would be to use straight line analysis on long term logarithmic plots of real prices. As I said in the posts preamble, I didn’t have charts like that at hand (real Case-Shiller benchmarks on log scale would be idea).
      Anybody have access to such charting?

      • CrackadileDundee

        UHhhh, doesn’t Excel do that? Well log graphing for sure. Oh, I guess that would mean you’d have to generate the graphs yourself – is that the problem? But even if you don’t have access to the original data you could just read points off the linear graphs you have. It’s true – linear graphs are not usually the most enlightening. If Excel can’t do what you want then Matlab, Maple, MathCAD, etc, those will graph anything you could possibly need . . . there might even be places on the web where they’re available at a significant discount. No need to feel guilty if you’re using them to help people avoid making a terrible mistake, and clearly not profiting from it.

        I assume since you’re obviously into this stuff generating the graphs shouldn’t be overly daunting in terms of the time investment required, and again from reading some of your other posts I doubt the math involved would trouble you . . . so, no excuse really. (I’m smiling as I write that OK?)

        Also, could you please look at and answer the post (business part at least) I added at the bottom, I should have ‘replied to’ one of your comments but this is one of the first times I have ever posted to a forum – as such I am not savvy.

        Thx

  37. I don’t think Agent Will actually knows the meaning of the word “fact”, he might want to invest in a dictionary. Most of what he said isn’t fact at all but opinion.

    Consider this statement, “Fact: We don’t have enough land in the areas people most want to live for the type of homes most people want (westside detached).” — This same reasoning was behind the huge real estate boom in Japan in the late 80′s (scarcity of developable land) – at one point the land under the imperial palace was estimated to be worth more than all the land in Canada. Tokyo has 9 x more inhabitants than Vancouver and even less room for it to grow – and by 2002 property prices had fallen 90%. If it can happen there it can happen here.

    Okay, so let’s try another of Agent Will’s ‘Facts’: We don’t have a high turnover of homes coming onto the market and likely won’t for a very long time. — 9 out of 10 baby boomers polled in Ontarion indicated that they wished to downsize their homes 61% plan to a smaller detached house and 24% to a condo – I couldn’t find any numbers for Vancouver, but I don’t imagine Vancouver’s boomers are that much different from Ontario’s. As you get older caring for a huge house becomes a burden. So Will’s claim that there won’t be a turnover of homes coming onto the market isn’t such a certain one.

    Another one: “Fact”: Vancouver is desirable for a great many people, particularly those from outside Vancouver. I see that every day and hear it from tourists and foreign buyers.

    ACTUALLY: Vancouver has a massive homeless population; A huge gang problem (care to get shot in a drive by shooting, anyone?); Is DARK & WET for six months of the year; and has nowhere near enough high paying jobs. I talk to tourists too, and they aren’t talking about moving here – they are horrified.

    ” Fact: Interest rates are low and general consensus is that they are unlikely to rise much over the next year or two. Beyond that, unknown.”

    I think the general consensus is that they have been artificially low and that it is inevitable that they will have to go up at some point.

    and lastly – Fact: Yes, unaffordability for locals is obscene. You’re talking average prices but as you know, that average house is pretty darn poor. While the average may be $1m for REBGV, on the West side it is $1.6m. The result is that locals will continue to migrate East where it is *cough* “affordable” while only those of generous means will be buying up the West maintaining that high average.

    – all one has to do is peruse the craigslist ads to see that it is not just eastsiders renting out their basement suites – but westsiders too. Not many people anywhere in this city have “generous means” everyone is just scraping by spending 90% of their salary on their mortgage + subsidizing the rest of their lifestyle with credit cards

    And lastly – 5. Unless another crisis of confidence spurs a massive dump of listings and a disappearance of money. — it’s Not unless it’s when the crisis of confidence occurs.

    This isn’t something I’m happy about – I don’t want to be a bear. But, since it is inevitable — the sooner the market crashes the better — the longer this drags out, the more painful it is going to be for all of us, even us thrifty savers.

  38. Pingback: Will's comment headlined: Local Realtor’s Bullish Predictions – “Sorry, but you’re wasting your time with these charts. They mean nothing. There are only three factors: Supply of Buyers, Buyer’s access to funds, Supply of Sellers.” | Vancouver

  39. Agent Will must have made a fortune pre 2008 with such insiders’ knowledge, no doubt he is friends with Taleb, Chanos and Buffett too.

  40. I think scenario #1 is the path. We are experiencing the calm before the real storm. Historically when bubbles burst, they revert back to the mean. When it happens, I think it will be fast and furious and end in capitulation near historical mean trend line.

  41. Will is talking through his size 3 hat.
    When Bill Gross at PIMCO, who controls a trillion bucks in Bonds says run, R U N.
    There are already examples of the bust all around you – like at the brilliant Millennial Waters. Take a look at the crazed people on Craigslist, trying to rent out the shoebox they bought in Yaletown ( built on landfill and a prayer).

    TTMAR.

  42. CrackadileDundee

    @ vreaa:

    Please respond as I am interested to hear your thoughts about the first part, second part is opinion. Currently contemplating ‘upgrading’ from a 1/4 share in a westside condo to 1/3 share in eastside house. Forgive me as I’m no economist, just some thoughts off the top of my head . . .

    I agree with your central premise that RE prices here seem to have seriously diverged from ‘reality’, and therefore logically should/must come down. However I must ask – in 2008 we experienced what was widely called the worst economic calamity in 80 years. A ‘contagion’ that spread around the world causing a huge decrease in investor confidence in every market. A chain reaction where one sector/area after another went down and in so doing pulled others with it, etc, etc . . . If that didn’t precipitate the Van RE market crash you’re anticipating then what will? Honestly it doesn’t seem like there could possibly (or likely anyway) be a worse set of coincident circumstances than there was then, AND the sell off started – RE dropped by 15% in a short amount of time, so why didn’t the panicked frenzy of selling you’re predicting happen? Seriously I’m not even challenging your ideas I’m just asking – why didn’t it happen then? But also you would have to admit that since it didn’t happen then there’s a good chance it will take more than a slow .5% / year increase in interest rates to cause it. And what? What set of events could possibly be worse?

    There’s a saying I heard (not RE specific) that maybe fits:
    ‘The market can stay irrational longer than you can stay solvent’
    . . . ??

    Also I feel obliged to mention some points about Van that all these posters seem to have overlooked – and yes believe me I hate that here I have to settle for a home that is far less than I could afford anywhere else in Canada and jobs here pay poorly even for many professionals.

    First off – let’s say you want to live in North America (not incl Mex – sorry) (Australia is probably the only other equivalent I can think of) because the cities/lifestyles here are ‘nicer’ than those in Europe or Asia (specifically the developed nations), and if you’ve been to some of those major cities you probably know what I’m alluding to whether you agree that it’s ‘nicer’ here or not. Also let’s say you don’t want to live in the US, and face it there are many reasons for feeling that way. Finally, you don’t want to deal with Canadian winters . . . well that leaves you with precisely one place to live (besides dip shit little towns like Victoria).

    People are so down on the weather here? Try moving to CGY, TO or MTL and see how that compares Nov- Mar. Rain’s not so bad. Canada has crappy weather half the year, but in the summer VAN is amazing. All those places we vacation to and think have such great weather – try going rollerblading in PHX in July and let me know how much fun that is for more than half an hour. Or wearing a suit in 40 deg instead of a bathing suit.

    Often overlooked but very important to me – Vancouver is the most socially progressive city in Canada and possibly North America (possibly the world – look how xenophobic those European countries are becoming) as evidenced by opinion polls about gay rights, immigrants, treatment of drug offenders, dis-incenting (what’s the actual word?) car driving (I don’t actually like that one but it is progressive), secularism (that it’s good!), and the list could go on. For the all the high paying jobs in CGY, do you really want to live somewhere that is the Canadian equivalent of Alabama/Texas? BTW I have lots of friends and family in CGY, it’s much more like a giant Prince George (where I grew up) than a half Vancouver, and that’s not a compliment. It’s like cities come to take on a mindset, and I would put the tolerance and open mindedness of Vancouverites, even if materialistic and vain, up against the down-to-earth hate mongering (that’s exaggerating but it’s also a gross exaggeration to say all Vancouverites are stuck up like several of the other posters did) of other cities/ares of Canada/Earth any day of the week.

    So yeah RE here sucks . . . but what are the viable alternatives?

  43. looks like (5) Vancouver is the new Monaco

  44. It looks like you called the high a little early. The 2008 plunge was likely a 4th wave and the 5th impulse wave completed in mid-2011. The market has already started to move down and most likely will show as a 3 wave ABC move down, taking possibly a couple years to complete. Yes, this is elliot-wave theory which isn’t as accurate with real estate prices as it is with equites. However, the risk in holding real estate in this region is too high at this point, considering the possibilities that we are already in Wave A of the ABC move, which could take us to 600 or lower. I sold my house in July 2011 at the top the market in anticipation for this move down.

  45. I have done some spreadsheet voodoo and created some logarithmic plots and compared the data with exponential curves. If anyone is interested, I would be happy to share or post, but am not sure how I can do that on this site.

    • Elliot Waves are just fine for Vancouver housing. I would be interested in seeing anything you have if you can figure out how to put it up. Have you tried the Tiny-URL site?

    • Steve -> e-mail them to me at the address on the ‘contact’ page.
      Provided they aren’t complete astrology, I’ll headline them. ;)

      • Let’s try to be open minded. If we have to put up with Gregory Klump and Tsur Sommerville along with the daily crud from the Sun and Province we can at least entertain a little voodoo astrology for a change.

        I might even lighten up a little.

  46. Hi everyone,

    I was working in New York from 2007 to 2009. I worked at Lehman Brothers and then left to join a hedge fund after that, that made a lot of money shorting bank stocks and commodities.

    The phenomenon of escalating Real Estate prices in Vancouver since 08 has been happening in various places throughout the world. Hong Kong, Singapore, Shanghai, Australia, etc, ex-Europe. Europe’s bubble coincided with the US bubble and burst simultaneously and has been dragging on since.

    The fundamental forces of migration/population growth are important and will always be in place. However, the overriding factor in the past 3-4 years has been the money. If you want to know why prices have sky-rocketed, you just have to follow the money.

    The US fed expanded its balance sheet in the last crisis, brought rates to zero, and enacted various other emergency clauses designed to repair US bank balance sheets and reinflate the US economy and housing prices. These haven’t worked the way Bernanke wanted them to. Rather, because the USD is the world funding currency, there has been a massive creation of US dollars outside America. The transmission mechanism is through the banking systems. The creation of offshore dollars has resulted in inflation in the rest of the world while keeping US domestic inflation tamed. Crude oil prices are also linked to this.

    The countries that have experienced the greatest leveraging and asset price inflation have been the countries with exchange rate policies implicitly or explicitly linking their currency to the USD. This means importing US interest rates, making their countries undergo a destructive leveraging boom that will result in pain. These include Canada, HK, Singapore, China, many asian countries, etc. Sidetracking back to Europe, you’ll see Germany was the exception in the European leveraging fiasco even though interest rates were low because since hyperinflation under the Weimar republic, they have it written into their banking system and culture that they don’t lever up to buy houses.

    With the next economic downturn, perhaps led by european debt problems and china slowdown (they’ve delayed and postpone the inevitable for long enough, and dozens of millions of apartments in china continue to sit empty), US dollars will flow back to America. In fact this is already happening (just look at FX levels and their forward rates). This will inevitably drive up domestic inflation in the United States, at which point Bernanke would grudgingly have to raise interest rates. That would pretty much kill the global asset bubble. Raising rates 1% from 10% to 11% doesn’t affect affordability much. But raising rates from 0% to 1%, or from 0.5% to 1.5% has a tremendous % impact on payments and affordability.

    The world should really go back to less of a fiat system, or have more responsible central bankers. Canada has one of the best, i hear. US could definitely be better.

  47. Excellent set of graphs, would love to see updates to the present day (Summer/Fall 2012). Thank you for an excellent analysis!

  48. Easy short term solution

    For all non-home-owner residents of Vancouver: Want to help the housing ownership costs go down? Stop buying!!!!! and pass the word.

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