Wednesday, August 31, 2011

Wed Post #2: Another R/E Bubble Warning

We last heard from Capital Economics (CE) back in June 2011.

 They are an economic think tank founded in 1999 to provide "independent macro economic research in the US, Canada, Europe, Asia, Latin America, the Middle East and the UK, on the property sector", had concluded that Canada's housing market was in a bubble that's set to burst.

They say housing prices could plunge by as much as 25%.
  • “Housing valuations have lost all touch with fundamentals and household debt is at a record high. Canadian house prices are overvalued at close to the excessive levels seen in the frothy U.S. market at its 2006 peak.”
Two months later the group continues to pump the same message.  The Globe and Mail put out an interesting chart on Monday by the group which shows 'house price to income per capita'. As you can see we are nearing the same levels the Americans had just before their crash took hold (click to enlarge):

CE notes that our current boom has produced the largest increase ever seen in Canadian housing prices and has wrenched real estate out of its usual alignment to people’s income and concludes that all signs increasingly point to a housing bubble.

“The stories we hear about people buying homes to rent out as investment properties, and others buying homes fearing that if they wait they will be priced out of the market, only convince us even more,” CE's David Madani (pictured above) writes in a research note.

Madani restates the same concerns as those articulated in June.  Mass psychology – “animal spirits” – have driven housing prices to unsustainable levels and that it can only lead to a collapse of at least 25% over the next few years.

In the short term, Mr. Madani sees any further gains as modest. “Housing affordability is already stretched, with costs accounting for a very large share of household income, over 40 per cent according to some estimates.”

Olympic Village - Millennium Water

Speaking of bubbles and a declining market, have you seen the latest bit of promotional desperation over at the former Olympic Village (now Millennium Water)?

Our friends over at Vancouver Condo Info are reporting today on the latest from the sales team team at Rennie Marketing,

The website hails: "We’re kicking off a brand new promotion tomorrow—an amazing move-in package of essentials for every buyer—it’s everything you’ll need for life at The Village!"

And almost as if you are watching a Ron Popeil commerical, the list of goodies carries on missing only Popeil's trademark "but that's not all... you will also receive..."

The package includes:
  • A hybrid bicycle – for your 5KM ride along the seawall to Stanley Park
  • A portable BBQ – for Saturday’s BBQ with the in-law’s, on your balcony or at Hinge Park
  • A one-year Aquabus ferry pass – for a last minute trip to Granville Island or Yaletown
  • A single person kayak – get to know the neighbourhood sea life
  • A year’s worth of one-zone Translink FareCards – the skytrain is only 5 minutes away
  • A coffee per day for a year at Terra Breads Café – just downstairs
  • A pair of running shoes – run the seawall in style
  • A year’s worth of groceries from Urban Fare – an elevator ride away
  • A year’s membership to Modo Car Co-op – for your day trip to Seattle
  • A set of All-Clad cookware – for your Miele kitchen

I wonder if Rennie could get Weird Al to redo his Popeil song for him?  "Now how much would you pay?"

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1 comment:

  1. So.. whats your plan W? Once this whole thing packs up... and goes where ever it goes. Ive been working on a very small cap investor pool... and seeing what opportunities occur... over coffee or beer... every week. But then, a part of me wants to buy a 4 ha plot on a river, and just write for a couple years.