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Canadian House
Prices |
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Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montréal Prices |
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This chart shows the detached housing
prices for Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montréal. In
June 2010 all cities covered saw their prices retreat except for Montreal
which set a new all time record high under the weight of plunging sales
(scorecard). Despite falling
prices nationally, affordability is an issue as earnings slump (Earnings
Chart). In Montreal you now need need 1.3 average wage earners to qualify
for an average house purchase. In Toronto you need 2, in Calgary you need 1.9,
and in
Vancouver you need 3.8 average wage earners to make the payments.
See the Affordability
Table to see that fundamentals have been traded for wishful thinking.
Thanks to
patrick.net they offer: "The only true sign of a bottom is a price low
enough so that you could rent out the house and make a profit. The basic
buying safety rule is to divide annual rent by the purchase price: If annual
rent / purchase price = 3% then do not buy. If it is 6% then consider
purchasing and if the ratio is 9%, then buy." |
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Vancouver
Real Estate Prices |
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Vancouver detached, attached and apartment prices |
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This chart shows Vancouver detached,
attached (townhouse) and apartment (condo) prices. In June 2010, the average
detached house price slumped another 2% M/M
It took 7 years to run the prices up from the flat price channel of
2001 to the first peak in April 2008. Then an 8 month 16% decline
and a loss of $123,000 in equity led
to a relief rally beginning in January 2009 which zoomed for 16 months but
then blew out in April 2010 and currently sits below the peak by 3%. Vancouver is the most unaffordable place to buy real estate
out of 272
international cites according to demographia.com
as the average earnings in BC remain 3.3% below Canada's average and 17.4% below
Alberta (Earnings
Chart). |
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Year/Year Rate of Change |
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Price rate of change Vancouver, Calgary, Toronto and TSX Real Estate Index |
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This chart shows the year over year rate of change in the price of Vancouver, Calgary, and Toronto detached housing as well as the S&P TSX
Real Estate Index. In June 2010 the trend continued to the
downside. The cash
and margin buyers of the TSX Real Estate Index
pushed momentum up into the Gonzo Bumpkin level of 67% Y/Y in March and the
quick retreat from that Fibonacci look-a-like resistance has chilled the
national market. The
extreme TSX reading and subsequent reversal is the prelude to sentiment and price
reversal for physical assets. |
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Real Estate vs.
TSX Indices |
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TSX Real Estate, Gold, Energy, Financial Services Indices and the CRB |
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This chart shows the S&P TSX Real Estate, Gold, Energy and Financial Services Indices
as well as the Bank of Canada Commodities Index (CRB) all valued in CA$.
In June 2010 the Real Estate, Financials and
Energy indices continued to slump while Gold continued zooming. The CRB broke out in December 2009 as the US$
rally got traction and took the CA$ unit with it. The
focus on commodity dollars caused a rush in
excitement but ultimately provided an opportunity for sellers to shed debt. Since the crash
lows of 2009, Gold has recovered 112% of its last high, the Financials have
recovered 33% and Energy and Real Estate have recovered 32% and 39%. Real Estate is a "slow"
asset. Check your asset value with this
evaluator before you are forced
to. |
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Ratio of Gold/RE & CRB/RE |
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Ratios of Gold over TSX Real Estate and CRB over TSX Real Estate |
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This chart shows the ratio
of CA$ Gold
Bullion over the TSX Real Estate Index (Gold/RE) as well as
the ratio of the CA$ CRB (Commodities) Index over the TSX Real Estate Index (CRB/RE). Housing is a bundled
commodity (lumber, steel, copper, materials) and the CRB/RE and the
Gold/RE ratios had been moving parallel to each other up
until the fall of 2008 when the Gold/RE ratio began to
diverge with the massive sell off of real estate and the spike in gold and by
February 2009 the ratio peaked at a reading of 12.2. From the summer of 2007 Gold (money)
traded inversely to real estate up until September 2009 when both
gold and real estate headed into new highs and began trading in the same
direction. In June 2010, it looks like Gold and Real Estate are back into
divergence. |
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Housing Valued in Gold |
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Vancouver, Calgary and Toronto detached housing priced in Gold |
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This chart shows Vancouver, Calgary and Toronto detached housing priced in ounces of gold valued in CA$. Gold
bullion loses demand when commodities and financial assets boom but rises in value as
those assets sell off. Gold mining
share prices rise as the "real price" of gold rises (eg: the
Gold/Commodities ratio
http://stockcharts.com/h-sc/ui?s=%24gold%3A%24CRB)
because the commodity cost (fuel, materials, equipment) is falling against the
nominal price. Bullion attracts investment when credit
markets contract because of its classic use as a hedge against currency
depreciation and its ability to act as money. The millionaire metric allows
you to see what your dollar is worth and the (declining) amount of gold you
need to be a millionaire. In June 2010 gold continued up on its long term
trend and despite the weakening CA$, the Millionaire metric
maintained trend. It requires 59% less gold to
be a millionaire than it did 5 years ago. |
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Yield Curve |
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1mo, 2yr, 10yr and 30yr BoC treasury yields and 5 yr fixed mortgage rate |
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This chart shows the 10 Year Less the 2
Year Canadian Bond Yield Curve (dotted yellow line) as well as the 1 month,
2 year, 10 year and 30 year
Bank of Canada treasury yields and the retail 5 Year Fixed
Mortgage Rate. In the spring
and summer of 2004 the 10's less 2's renewed its trend
to narrowing as the demand for speculative short term money
ballooned and the curve set off on a path towards inversion igniting along
the way a 3-4 year buying spree of over-leveraged assets,
(commodities, real estate, junk bonds). In the
spring of 2008, the curve shot up
as short administered rates plummeted against firming long
rates and the party kept on going. In June 2010 the market's
sharp drop in the 10yr of 27 bps outmatched the BoC raising their rate 25
bps and so lenders shaved 10 bps off their 5 year mortgage rates to see if
they can get some action. But
credit growth is stalling. The inevitable return of risk management and rate increases at the long end is a future of
progressively greater compounding expense for debtors. |
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Interest Rate
Spreads |
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Spread between Bank of Canada rate and 5 year fixed mortgage rate |
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This chart
shows that in June 2010 the spread between the Bank of Canada rate
and the residential 5 year fixed mortgage rate narrowed another
35 bps (61 bps since April 2010) as the BoC raised its rate a quarter point
and the commercial banks dropped their posted 5 year fixed mortgage rate 10
bps to 5.89%. Despite the narrowing of spreads, demand for credit is falling
as the last buyers for overpriced Canadian real estate have come and gone. For more
evidence on the effects
of high debt levels in Canada, see the
selected news items, and for a quick and easy way out of government's
stupid tax policies at every level, see this note
worthy solution.
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