What Housing Price Crashes Really Look Like

– from ‘Australian House Prices down 10% from Peak’, Steve Keen at debt deflation.com, 1 May 2012

Show these charts to anyone still claiming that the Vancouver RE price hiccup of 2008-2009 was the popping of our bubble.
Like Australia, Vancouver is very likely at the very beginning of the process you see charted above.
– vreaa

37 responses to “What Housing Price Crashes Really Look Like

  1. That’s what Vancouver (and Australia…) looked like too in 2008-2009. Then, well, you know…

    On the plus side, Japan looks like it had a gracefully soft landing, so maybe the soft landing talk in Australia has something!

    • nominal $/Y, and in real terms, jp has another leg down coming – 30%-ish for the Y, if the boyz at hayman cap are to be believed … they’re betting on it.

    • If Vancouver crashes, it will not be for the same reasons as Japan or the US.

      Completely different set of rules.

      Did you know most SFH are worth about 0 in structural value after 25 years when assessed by banks partly due to earthquakes?

      This chart still worth keeping an eye on for Australia. They just slashed rates which may mean RE will find support and some new carry trade/HAM may find its way to Canada.

      I am most keen to see if the BOC will keep rates where they are or reduce it. An increase looks very unlikely.

      • In real yen terms Japan hasn’t fully crashed yet. Vancouver will crash because prices don’t match locally-generated incomes. I don’t think it’s any more complicated than looking at the earnings, same as any other investment.

      • Speculative manias are all different and they are all the same; the same because everywhere people are the same. The exact flavour of our bubble and our crash may be slightly different, but, in the end all bubbles crash for the same reason: they have an ever expanding need for fuel, and they run out.

      • Have we seen major crashes in such low rate environments? When inflation hits, and boy will it ever, can we count on govnments to take the bitter medicine? If not, we may see inflation exacerbating the pains of cash long renters.

        We both agree now is a terrible time for leveraged first time buyers. I think we just disagree on how existing homeowners or the exceptional first time buyers who require little or no leverage should view this market.

  2. OK, now I’ve seen a lot of charts and graphs showing what a Bubble Pop looks like. Anyone have real evidence of a slow burn/deflation? As of now never seen any such thing documented…. I’d be interested to see if such a thing exists 🙂

  3. Kondratieff was right.

  4. Real estate and gold never change in value. Only our perception of them changes. Fiat money/debt sort of oscillate between the two, and whichever one is closer to the fiat at the given moment is valued higher in fiat currency. So the move from real estate/stocks began about 10 years ago into commodities, and will peak around 2020 according to the K-man. Canada/Austrailia/China are simply a few years behind the US. Japan was 20 years ahead of the US. This transfer of value will be more pronounced this time around, because of the global nature of the economy nowadays. Just take a look at the new BRICS bank. Other countries are dumping the debt-ridden dollar.



    • That’s not true. There is very little dumping of the US dollar. It’s bond market, vis-a-via, the USD is the largest and most liquid market by a light year.

      Even central banks around the world who print money need USD in the vault for their own currency to be worth what they are.

      Dumping of USD is another one of those stats that have been taken out of context.

      • I disagree.

        “There is very little dumping of the US dollar. It’s bond market, vis-a-via, the USD is the largest and most liquid market by a light year.”

        What you’re seeing is a the dollar being propped up by countries like China buying short term T-bills. They had to do this to keep a trade imbalance from forming in the shorter term. But they’re selling long term. Some of this money was also put into the Euro zone to keep that economy propped up, as it’s their largest trading partner (567 billion to the 446 billion with the US).

        “Even central banks around the world who print money need USD in the vault for their own currency to be worth what they are. ”

        This is a logical fallacy. It’s like saying, “The reason the US dollar is the world’s reserve currency is because it’s the world’s reserve currency.”

        Check out Exter’s money pyramid. Money goes into cash after treasuries and bonds, which is still for the time being the US dollar, right before it goes back into hard assets.

      • Sterling, there’s much truth in what you say but it is not the full picture.

        Trade balance aside, the Chinese buy T-Bills for its liquidity, safety and it’s ability to absorb their investment without actually ‘significantly making the market’. If the Chinese put even a fraction of their reserves into physical gold at one go it would bubble up the market instantly to astronomic levels which is why they don’t do it (buy into a self created bubble?). The mind boggling amount of reserves that the Chinese have cannot go into any other investable market in large quantities. Only the US treasury market is large enough to absorb Chinese reserves and liquid and safe enough to meet central bank requirements.

        Besides, every central bank in the world needs to diversify their reserves into something and again there just aren’t any safe, large and liquid markets out there.

        For all of the US’ woes, US treasuries are still the (repeated for emphasis) safest, largest and most liquid investments in the universe – for the foreseeable future. For that reason there is no true dumping of the USD and will continue to be the world’s currency for some time.

      • BLM, here’s my take: I agree with you about treasuries in the short term. China buys them to balance out it’s money system. But long term they’re still sellers.

        If China owns too much risky assets at the top of the inverted Exter pyramid, it also must balance it with increased Gold stores (which we’ve seen in a big way over the last few years — demand doubled since ’04) and all lower mid-tier assets like Treasuries and Bonds. China is the largest owner of US government debt (1.1 trillion) other than the fed itself (6.6 trillion).

        The fact that the US will have to inflate it’s own currency to pay back the debt is a mathematical inevitability.

        So don’t get me wrong, I think that US economy compared to China is much more dynamic than China’s command style economy. The US will recover from a crisis much quicker, and China isn’t shielded from a downturn either.

        With China’s 2 largest trading partners having declining economies, and China being an export driven economy, they’ve got problems of their own.

        To borrow this line from another blog, it’s “Mao money, Mao problems.”

        It’s not so much that the dollar is being dumped, per se, but sidestepped, which equals the same thing with time.

      • @sterling We see eye to eye on your last post. The very long term future is indeed a worry. All I was trying to dispute, for the joy of debating, was rampant dumping of the USD – or danger of that at all for now.

        You points in China are definitely concerns worth noting. Other things that stand out are that the best universities will still be in the West for at least a few generations – why bother with putonghua?

        The most worrying, beside political instability, is their demographics. It is set to follow Japan in a bigger way thanks to the one child policy.

    • whenever there’s a crisis in the world people stock up on USD and gold. Shows me that in times of trouble people/govt’s need a currency to trade. Until the USD is replaced as the world reserve currency you won’t see much dumping.

    • God, looking back at my posts, I’m realizing I’m starting to sound like bloody doomer 😛 Gotta go out and get some sun … lol

      • you’re just retracting misplaced optimism … there’s a whole lotta preying going on … rockabilly is the answer

  5. GVREB sales stats for April http://i46.tinypic.com/2wbvmsi.png

    Total Sales Volume – Type/Apr11/Apr12
    Detached $2,162,233,665 $1,309,205,989 -39.5%
    Attached $380,109,834 $290,366,500 -23.6%
    Apartment $784,113,728 $530,540,478 -32.3%

    On average, there was 30% less money circulating on the market in April—this is not a good sign considering it’s peak season.

    • intuitively, that translates to a 30% rev drop for all businesses indexed to transaction $ volume. am i correct?

      • Yep. Now you have a negative multiplier effect that reduces business for banks, brokers, agents, real estate boards, lawyers, construction workers, engineers, building suppliers,….even the sign maker. Forget average prices for the moment, sales and total volume is what matters.

      • thx for the logic conf, cw. with a local ec so inbred, that’s a big hit in debt servicing revs … so unless there is an opportunity to lever up further, we should see how stressed/sturdy the marginal components are … @basement, if help doesn’t come, this would be a mechanism by which you get some -ve ‘air time’ in the absence of a rate hike.

      • I was working in a So Cal Architecture firm in the Summer of 2006 when the partners called a special meeting. They were ashen faced and announced “Our billings just dropped by 30%….”. 6 months later half the firm of 300 had been let go. Prices remained very high. It was a bloodbath.

        This drop in YVR RE volume is probably directly correlated to the tightening of credit and is a leading indicator of what VREAA is so carefully documenting – the defining social event of Vancouver’s recent history.

        My own personal irony is I was headhunted out of YVR because of my high rise condo knowledge! Getting laid off after moving my family was fun. Surviving the last 6 years has been fun. Vancouver is in for lots of fun. I look forward to moving back some day.

      • Basement Suite

        @chubster “if help doesn’t come, this would be a mechanism by which you get some -ve ‘air time’ in the absence of a rate hike”

        Well if it can collapse sans a hike I’ll take it, even though I don’t yet believe it, and still want a substantial hike. Gotta admit though those numbers by Canadian Watchdog are pretty promising, thanks Watchdog. But lets wait to see if this is just another 20% pullback before we start celebrating too hard.

      • all too easy … fluid today … seems vans pretty fluid too-day 😮

  6. CanuckDownUnder

    The pimps here are getting pretty desperate.

    Check out this neat trick. APM reported a median price of $536,011 in the September 2011 quarter and $535,080 in the March 2012 quarter. Yet they’ve reported prices increases the last two quarters. How? Simply by quietly revising down their numbers the next quarter so it looks like prices keep going up!


    The new scare tactic by the RE industry here involves “reporting” dramatic rent increases, according to real estate agencies rents are going up 10% a year!

  7. keep the dream alive buddy!

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