Correctus Interruptus

A funny thing happened on the way to real estate sanity in Vancouver. Interest rates went up.

Canadian 10 Year Bond 1 Year Chart

Canadian 10 Year Bond 6 Month Chart

In the US, rising rates had the effect of cooling the market. Not so in real estate crazy Vancouver. It caused people to jump into the market before their rate-hold expired. After all, who cares if you overpay by hundreds of thousands? As long as you can save $150/month on your mortgage payment!

As a result of this latest round of buying activity, prices are once again increasing.

Vancouver House Price Index

Vancouver House Price Index

At some point in the future, housing prices in Vancouver will have to revert to fundamental value – that is a certainty. The current state of the market is simply unsustainable.

Vancouver Housing Affordability

Vancouver Housing Affordability

Canadian Price To Rent Ratios

Canadian Price To Rent Ratios

As is obvious from these charts, Vancouver housing prices have been ridiculously overvalued for at least six years. Over the past year, rising inventories, falling sales, tighter mortgage lending requirements and rising interest rates appeared to be the perfect conditions to finally cause the market to correct.

Unfortunately, the rise in rates seems to have put an end to the correction – at least for now. What happens in the short term is anyone’s guess. Is this the last gasp of air before the market goes under? Probably. Or is it the start of yet another few years of delaying the inevitable? Possibly. Either way, it doesn’t make sense to continue posting at this time.

When the market correction resumes, I might resume posting (if I’m still here). There’s a really nice city in the US that the wife and I are going to be visiting soon…

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22 thoughts on “Correctus Interruptus

  1. Sorry to see you stop posting.
    I’m sure that even in this market there are still plenty of examples where ‘owners’ are selling at a loss.
    I’ll check the “Notify me of new posts via e-mail” below and hope to see an e-mail from your site soon 🙂

  2. Michael, I think this was the last gasp of air before a serious and prolonged multi-year market downturn. Clearly many transactions were pulled forward in advance of higher rates, new CMHC guarantee limits and continued mortgage rule tightening from the Feds. Many are confusing this activity as an “all clear” signal when in fact it is more likely the calm before the storm. The wind is now blowing in the faces of RE bulls (after having enjoyed the free ride for years), so don’t run too far away now, ok?

    Cheers.

  3. I look forward to more posts in the future, and with more severe corrections as the market adjusts back to historical norms.

    What US city are you looking at?

  4. I really enjoyed your posts. Thank you for sharing your thoughts with us. I hope that you will return soon. Meanwhile, this crazy market sustains for a little while longer.

  5. The ‘Bull Market trap’ and ‘Return to Normal’ stages are significant stages and crucial to any bubble unwinding. Celebrate them. Don’t let them discourage you.

    • The problem is, those stages appeared to be happening in 2009. Four years later and we’re still waiting. I’m not sure how much longer I’m willing to wait…

      • What happened in 2008-09 was just a tremor. I think many were fooled/conned into believing that was the “big one” as it was classified as a financial meltdown of historical proportions by the powers that be and have as a result gotten way too complacent about the present situation (ie. the worst is behind us, we survived the depression, it’s all good again, so resume living beyond our means). Well, nothing was actually fixed in the years that followed as bandaid after bandaid was simply reapplied over the same festering wound. Honestly, given the record debt levels, changing market conditions and widespread feeling nothing can and will go wrong ever again (thanks to the Fed et al), things are actually riskier than ever (esp in Cda).

  6. I don’t blame you one bit. They say that bubbles burst when the last bear has given up hope and been stopped out and the ‘new reality’ has been accepted widely.

    I have also stated that if we do not hit the down-trend in September then I will pack it in, as it really will not make sense to talk about something that defies all logic.

    • While I completely understand why some bears may be reaching their breaking points, I’d argue that more patience is required. Monitoring this on a daily, weekly or even monthly basis is probably not the best idea. Give it to the end of the year and see where things settle out. That so called tipping point is not far off now.

      Remember, when the powers that be declare all is good and fine and that there is nothing to worry about, we should all take notice. These fools have a habit of repeating the same mistakes over and over again.

      Also, here is a quote from the other day which I believe will prove to be very timely.

      “That deafening silence you hear is the sound of the Canadian housing bears gone quiet,”
      Robert Kavcic, BMO
      August 30, 2013

      (read more: http://www.theglobeandmail.com/report-on-business/economy/housing/regulator-eyes-tighter-mortgage-rules/article14072417)

  7. A bunch of clowns exercising their rate holds is, by definition, unsustainable. Smells like a last gasp to me….. barring massive State intervention of course.

    😉

  8. Take care Michael. I really enjoyed your posts. I have been waiting for the market to fall for awhile now too. My friends and family are sick of hearing it from me, so far I’ve been wrong, I feel like crap. I really want to be right, the market will fall. But when???

  9. I hope you continue to post. I’ve enjoyed your perspective and really, just a voice of sanity. I think local bloggers become very busy in the next few years.

  10. Too bad you’re leaving. I really enjoyed reading your site. It was a great snap shot of some of the greedy speculators that had it coming to them.

    But, at least you’re honest enough to admit that this crazy, overheated, irrational market may not be about to crater just yet. Who knows.

    Hopefully you return soon. Your blog is an asset to us all. Thanks.

  11. Pingback: FFFA! August, Prices, Flippers, Slumlords & Richmond

  12. Should maybe change the title of the blog to “Ottawa Flippers in Trouble”…

    😉

    http://www.cbc.ca/news/canada/ottawa/ottawa-condo-surplus-causing-prices-to-drop-1.2159075

    “…Ron Hu said he thought it made sense to buy a two-bedroom condo with a great view of downtown Ottawa in January, fix it up and flip it for a tidy profit.

    “The location is very close to ByWard Market. Excellent night life, restaurants, shopping. So we thought this would be a great investment,” he said.

    Hu and his wife, a real-estate agent, spent about $40,000 to renovate the unit before putting it up for sale.

    Six months later, the couple hasn’t received a single written offer.

    “It’s mind boggling that with all this money spent and the property’s not selling, we’re going to end up losing money,” Hu said….”

  13. I loved seeing the concrete examples of real-life losses you posted and think you should keep going. However: aren’t the buyers the ones who pay the property transfer taxes? Not the sellers? Might change the calculations quite a bit for some of the smaller losses you cataloged here. Take care!

    • Property transfer had to be paid when you originally purchased the property. so it is a cost to buying the house. Then you sell it and it has to be paid again by the purchaser. So it is an expense that needs to be considered for the seller as part of the original investment.

  14. Michael: I hope you pop in every now and then to check for new msgs. imho, it may soon be time to reactivate this blog in a serious way. Lots of balls flying through the air as we speak. In fact, i think the odds of a hard landing have increased dramatically while the timing of all this comes as no surprise to me.

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