Apparently Dent has increased his retracement target from a 43% to a 64% drop from the highs of last year.
A few months ago I spent three days with world renown economist Harry Dent. We had a conversation regarding the state of Vancouver area real estate. He stated that he expected the real estate market to correct 43% in Vancouver from it’s high. This week his office sent me this chart which shows a projected crash of -64%. (FEB 19, 2017)
For a few years now a variety of analysts have been offering downside targets and depending on their bearish points of view, we have seen a rough correction range of anywhere from 10 to 50%. Obviously no one knows what the final number will be nor the duration of time it will take to unfold.
The classic Fibonacci retracements are 23.6%, 38.2%, 50%, 61.8% and 100%.
But there are just too many interference inputs that could either reinforce or cancel any potential arc of change. The most basic influence I point to is the ability to turn debt into equity. If one is highly leveraged against a real estate holding, it's not a problem as long as there is sufficient cash flow to service the debt. But this can be a very fragile relationship because of the risk from unaccounted inputs that began their historical arcs decades ago (Technology, Emerging Markets, Governance, Demographics etc).
The Bank of Canada estimated that more than 20 percent of all insured mortgages were contracted by households that have loan-to-income ratios of more than 450 percent. Hilliard MacBeth for MACLEANS October 12, 2016
As I say, my Plunge-O-Meter is a fantasy model based simply on the current snapshot of how much of the correction has already occurred and if the rate of change continues at the same tempo.
Dent figures the Vancouver bubble began in 2003. I suggest it began in 2005. Dent projects another 14 years (2032) before we reach the price lows; the Plunge-O-Meter currently targets the fall of 2021, or 4.75 years from now. Could it happen? Maybe.
On the price chart in the spring of 2005 there was a 4-6 month plateau period while buyers and sellers twitched like a herd. When the credit spreads narrowed and the yield curve began its journey towards inversion, the commodity stampede began. Plunge-O-Meter
We are on a cusp of change with regards to the yield curve to steepening and credit spreads to widening. (Bob Hoye JAN 27, 2017)
I suggest that there would probably need some very dramatic inputs to change the current sentiment of buyers in Vancouver who, although they have been thinning out according to sales volumes, are still willing to short cash at what appears to be the top of the market that has been in place since July 2016 and a clear divergence from the ebullience of today's Trumpian stock and bond markets.
I think the input drama that changes the Vancouver housing price regime has to come from these very liquid, fast moving stock and bond markets.
Whatever the sentiment shock is, that causes another extreme selloff (Wikipedia list of stock market crashes and bear markets), the need for speed to turn debt into equity will expose the weak hands very quickly, they need to act fast and get ahead of the competition.
Only deep pocketed knife jugglers will prevail until we approach the final lows and then new buyers will be rewarded without any technical market timing analysis. Long before that, we may see a rebirth of interest in the income approach fundamental.
Charles Nenner Interview February 21, 2017
Nenner's historical work suggests the stock market rolls over September 2017 (get out by July) and bottoms in 2020-2021 which dovetails with the Plunge-O-Meter. This is not correlation but we do know from history that the animal spirits can change very suddenly.
Market Crash Recession
History, Charts & Curated Readings
"Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense
"History, real solemn history, I cannot be interested in.... I read it a little as a duty; but it tells me nothing that does not either vex or weary me. The quarrels of popes and kings, with wars and pestilences in every page; the men all so good for nothing, and hardly any women at all - it is very tiresome." Jane Austen spoken by Catherine Morland in 'Northanger Abbey'