Real Estate

Vancouver housing bubble?

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Feb 15, 2008
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flyordrive wrote: While I may not always agree with him, he IS correct in that, unemployment #'s AND Inflation are tools for political manipulation and relatively easy to "massage" so to speak. Here's just ONE example:
CPI is a lie.
"The Feds hide this economic nightmare by simply not counting those who are unemployed (lower the denominator in the fraction and your unemployment ratio falls), and by using bogus deflators in their GDP growth numbers (the current CPI is 2.1%... but the Feds calculating the first quarter GDP growth numbers use an inflationary measure of 1.2%).

Change your measurements and BOOM you've got a recovery. It works if you're a Government bean counter trying to keep your job. It doesn't work so well for everyone else." - Phoenix Capital Research
Yeah that's problematic, but I think a lot of people who comment on the CPI issue don't really understand the definition of a 'basket' of consumption, or how housing features in that 'basket' of consumption, ie: owners equivalent rent is a component of the basket, not house prices themselves.

But seriously, if CPI increases were so understated, do you really think people would be lining up to bid the long-term bonds down to these currently unheard-of low yields, even in Canada where we don't have QE? Do you think that good long term inflation hedges such as the stock market and even gold would be priced at such low levels?

CPI rigging makes for good conspiracy theory, but I've not seen any evidence that its actually happening. Certainly not in my own consumption basket.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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May 28, 2006
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This is just hypothetical but in the Vancouver scenario who's losing in this 'housing crash'? If it's foreigner's money does it really make it a crash or a boom for the locals and Canadians?
Jr. Member
Jun 26, 2009
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24 upvotes
^
Just how much real estate do you think is being bought by foreigners? If 10% of real estate is bought by foreigners, that's a huge number. Even then, the overwhelming majority of real estate is bought by locals.

But the crash affects those who bought property 10+ years ago too, because the assumed price gains for many have already been spent via HELOCs. HELOCs are just as much a part of this bubble as the high-ratio mortgages and low interest rates. Bubbles are about debt and debt is everywhere.

Lastly, if there's a crash (which I believe is underway), the local economy is in for a very hard landing.

So, yeah, this will be a crash for locals and Canadians.
Sr. Member
Sep 15, 2010
535 posts
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Mark77 wrote: Yeah that's problematic, but I think a lot of people who comment on the CPI issue don't really understand the definition of a 'basket' of consumption, or how housing features in that 'basket' of consumption, ie: owners equivalent rent is a component of the basket, not house prices themselves.

But seriously, if CPI increases were so understated, do you really think people would be lining up to bid the long-term bonds down to these currently unheard-of low yields, even in Canada where we don't have QE? Do you think that good long term inflation hedges such as the stock market and even gold would be priced at such low levels?

CPI rigging makes for good conspiracy theory, but I've not seen any evidence that its actually happening. Certainly not in my own consumption basket.
Lol!!
It's not people who are "lining up to bid long term bonds down" Lol
It's a supply and demand problem affecting the oversupply of global sovereign debt due to massive devaluation of currency and the massive corresponding bulge of sovereign debt as a result of that. (Plus the bailout worldwide of private banking and equity by gov'ts... Transferring private debt onto the citizens and TAXPAYERS of each sovereign nation.)
This massive increase of sovereign debt worldwide is causing a glut of oversupply of debt (Bonds etc) and buyers of bonds like PIMCO (worlds largest institutional buyer of US gov Bonds) etc and nations like China etc
are looking at ways of greatly REDUCING their Bond "Purchases". ("Purchases" eg China through trade produce goods to US, Canada, Japan and EU Countries etc in return for IOU's such as Bonds, T Bills etc)
This aversion to Bonds and reduction of "demand" of Bonds SHOULD result in an oversupply of Bonds and SHOULD result in the need to RAISE RATES (Bond yields) to increase demand and therefore "purchases" of excess Bonds.
BUT...
The US Fed Reserve has intervened in re purchasing excess Bonds to attempt to KEEP RATES LOW (manipulation of the free market). As have a number of Central Banks worldwide.
THAT is WHY Bond rates are low. ;-) (Not from "bidding it down.")
Sr. Member
Sep 15, 2010
535 posts
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If the Fed Reserve (which is not Federal but a Private co. Although a separate topic altogether.) did not go on a massive Bond Buying Binge the US would be that much closer to defaulting on their unsustainable debt. Their debtload can NOT afford an increase in rates so... They continue to borrow now at unprecedented levels! You could not climb out of debt on a personal level this way and nor can the US gov! It is perhaps a futile attempt at delaying the inevitable!
The US and their taxpayers are not alone in this either. Pretty much all nations including China and Japan are massively increasing their debt as they play global "chicken" through what's called "Currency Wars".
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Feb 15, 2008
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Psycho44 wrote: This is just hypothetical but in the Vancouver scenario who's losing in this 'housing crash'? If it's foreigner's money does it really make it a crash or a boom for the locals and Canadians?
Everyone who owns, or supplies to owners, new and existing. The highly leveraged probably suffering the worse as the banks will soon start to ask the question of just how creditworthy people with minimal or no equity are. After all, equity is the definition of creditworthiness.

Since housing is such a broadly held asset class, housing declines (if not crashes) can knock an enormous amount of consumptive capacity out of a very large number of households. Contrast this with the Nortel bubble collapsing, in which case, it was mostly Nortel employees and engineers that suffered (a relatively small number of Canadians), and wealthy stock owners who generally weren't large consumptive forces in the economy anyways.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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flyordrive wrote: If the Fed Reserve (which is not Federal but a Private co. Although a separate topic altogether.) did not go on a massive Bond Buying Binge the US would be that much closer to defaulting on their unsustainable debt. Their debtload can NOT afford an increase in rates so... They continue to borrow now at unprecedented levels! You could not climb out of debt on a personal level this way and nor can the US gov! It is perhaps a futile attempt at delaying the inevitable!
The US and their taxpayers are not alone in this either. Pretty much all nations including China and Japan are massively increasing their debt as they play global "chicken" through what's called "Currency Wars".
Sure, and thank heavens that Canadian businesses are basically at the helm of an industry, the precious metals mining industry, that is basically the antithesis of paper money.

1930s...1970s...2010s? Could be a 40-year cycle. To the topic of this thread, if this industry explodes and we see $5000 gold and $200 silver, maybe a predicted crash in Vancouver/Toronto RE won't be as severe as the raw numbers would predict.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Sep 15, 2010
535 posts
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Wondering if one is hoping for a vancouver real estate crash as to purpose of thread??
[OP]
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Dec 3, 2004
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MisterM wrote: But the crash affects those who bought property 10+ years ago too, because the assumed price gains for many have already been spent via HELOCs. HELOCs are just as much a part of this bubble as the high-ratio mortgages and low interest rates. Bubbles are about debt and debt is everywhere.
Bingo!
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adamtheman wrote: Bingo!
Even if a person has healthy equity, if they have debt, and its against housing -- a housing decline probably means higher interest rate spreads, as banks systemically re-evaluate the risk of lending to the entire sector. As I showed in a previous post, the cost of housing credit relative to (larger) business credit is at historic lows.

After all, banks generally do not want to increase lending against collateral and creditworthiness that is falling.

This is going to, IMHO, have a very nasty effect on the small business sector. Not only will they suffer a slowdown in business, but they'll probably be faced with higher financing costs. How many Subway sandwich counters, and other small businesses, have been started with and largely financed against HELOCs? The experience in the US taught us that the numbers were huge.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
Sr. Member
Sep 15, 2010
535 posts
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Mark77 wrote: Yeah that's problematic, but I think a lot of people who comment on the CPI issue don't really understand the definition of a 'basket' of consumption, or how housing features in that 'basket' of consumption, ie: owners equivalent rent is a component of the basket, not house prices themselves.

But seriously, if CPI increases were so understated, do you really think people would be lining up to bid the long-term bonds down to these currently unheard-of low yields, even in Canada where we don't have QE? Do you think that good long term inflation hedges such as the stock market and even gold would be priced at such low levels?

CPI rigging makes for good conspiracy theory, but I've not seen any evidence that its actually happening. Certainly not in my own consumption basket.
Could you elaborate? Especially in relation to your view on "the basket of consumption" (goods) and why many "do not understand cpi"
On a side note: As I mentioned the bond rate is not held down by the laughable description of "consumers lining to bid the bonds down."
The comments re: "Understanding CPI" and Basket etc, require clarity and elaboration on your views. ;-)
I trust you wouldn't mind obliging??
Thanks
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Feb 15, 2008
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flyordrive wrote: Could you elaborate? Especially in relation to your view on "the basket of consumption" (goods) and why many "do not understand cpi"

Well, for starters, many people who comment on the issue demand that house prices be included in the CPI. Or other asset prices. And they take exception to the quality-adjustments that are inherent in CPI calculations.

For instance, cars built 50 years ago were lucky to be able to go 100,000 miles before they were junk (160k km's). Today, the car costs more, in inflation-adjusted terms, but most cars can easily provide 200,000 miles of service (320k km's). Hence, the quality of the item has improved, and the CPI methodology adjusts for the fact that you're buying a more enduring asset today in a car, than you were buying 50 years ago.

Also, maintenance inputs required on cars are substantially less, so their presence in the consumption basket has to be adjusted downwards. Tune-ups and oil changes used to be required every 3000-5000km. Most cars these days only require a 'tune-up' every 100k, and an oil change every 15-20k.
On a side note: As I mentioned the bond rate is not held down by the laughable description of "consumers lining to bid the bonds down."
Who's buying all these bonds and GICs? Who keeps funding the Canadian banks into oblivion with cheap money that they, in turn, lend out? Its the GIC buyers, the 'grandmas' who are scared to death of the stock market and are gladly funding the banks. This has kept housing expensive, while stocks are relatively cheap compared to their earnings.
The comments re: "Understanding CPI" and Basket etc, require clarity and elaboration on your views. ;-)
I trust you wouldn't mind obliging??
Thanks
The purpose of this thread is specifically RE, but if there wasn't confidence in inflation being low, certainly funding costs for the banks and the housing market in general would not be this low. Now, at some point, the capital of the economy will be depleted, and capacity will disappear -- in which case, inflation may start to be a problem. But that's very likely a long ways off. I'd personally be very worried about deflation at this point, especially considering the sort of currency devaluation that is likely needed in the United States to get their economy moving again.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Dec 10, 2008
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I've been on vacation for a week, has RE crashed and burned yet?
Let's hug it out
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Feb 7, 2008
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RCGA wrote: I've been on vacation for a week, has RE crashed and burned yet?
Let me check....

Nope!
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Jan 16, 2009
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RCGA wrote: I've been on vacation for a week, has RE crashed and burned yet?
it took about 5 years to blow the bubble and will take quite some time to deflate it.

I think we only start to see decrease of sales volume this year and price deduction later next year.

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