"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'
 CLICK CHART TO ENLARGE Sales Slowing for U.S. Existing Housing? Relative to new home sales, yes. This sales ratio was fairly stable from the early 1970's through 2006, and then the Titanic hit the berg and a flood of distressed sales kept the number of existing home sales elevated, peaking in 2011 and outpacing new home sales. The latest mania that started up again in 2012 stoked by big money buying up bank foreclosures to rent out against negative yields maybe maturing because existing house prices in the hot markets have zoomed and so has the 10 Year T-Bond Yield making a 2.5% yield on a no risk government bond way more attractive than waiting for the possibility of a capital gain on flipping a buy, rent and hold asset that may never come. Real estate has a habit of depreciating. New housing can now also compete on price, and sales of new houses are picking up which is pushing the ratio of Existing/New home sales down. Bill McBride from CalculatedRisk.com on June 35, 2013 comments: "I've been tracking inventory weekly, and it appears inventory levels are starting to increase (even after seasonal adjustment). Also I've heard reports from several real estate agents that the market has "slowed" (fewer multiple offer situations), even before mortgage rates increased.  CLICK CHART TO ENLARGE Canadian Energy Sector Earnings Advantage
Average Canadians Work 30.4 hours per week, but if you work just 2 more hrs/wk in the Canadian Energy Sector Provinces, you can increase your earnings dramatically. Earnings chart here.  CLICK TO CHART TO ENLARGE The Number Millionaires in Canada grew by 6.5% Y/Y. In Australia they're up 15.1% Y/Y. From The Economist (Jun 22nd 2013 Print Edition) comes an update on the global millionaire population. Last year 12m people in the world had $1m or more in investible assets. That is 1m more “high-net-worth individuals” than in 2011. After falling in two of the previous five years, their combined wealth increased by 10% in 2012 to a record $46.2 trillion. America, home to 3.4m very rich folk, Japan (1.9m) and Germany (over 1m) account for more than half of the world’s wealthy. Of the 12 countries with the most super-rich people, only Brazil failed to swell its numbers last year, as its economy slowed. North America reclaimed its position from Asia-Pacific as home to more extremely wealthy people than any other region, but its lead is unlikely to last, as Asia has many of the fastest-growing economies. In Vancouver, one no longer needs a million bucks to buy a crappy house on a busy street close to town; but in Toronto house buyers can't get rid of their savings fast enough, dropping the differential between the two cities to 36%. More whale watching here.
 CLICK TO ENLARGE TABLE How Affordable is Canadian Housing?
Source Rob Carrick Globe & Mail "Royal Bank of Canada's housing affordability measure takes a quarterly look at what percentage of median pre-tax household income is needed to pay the cost of a mortgage on an average-priced detached bungalow, plus property taxes and utilities. Lenders deem a house to be affordable if the associated costs account for no more than 32 per cent of the borrower’s gross income." The bidding up of property values in the last decade by 10-20% per year is well beyond the rate of growth of the real economy at 2-4% per year and slowing (the last GDP print was 1.4%/yr). Low interest rates have not allowed most people to qualify for uninsured "conventional" mortgages at the best rates with 20-25% down payment and a 32% gross debt service ratio because prices are at fundamental bubble levels and the thinning number of buyers who believe prices will not correct deeply are still willing to take on high ratio debt insured by tax payers. I say the disparity between housing affordability and the productive economy will correct unless we get a big surge in private sector household earnings. In the absence of earnings growth which at the moment is only happening in Alberta, the continuation of housing inflation is not a good bet since we are at money laundering price levels; a service not required by most of us.  CLICK TABLE ABOVE TO ENLARGE Snag 'em and Flip 'em
It's been well reported by the media this last week that Vancouver is in the record book for what is thought to be the highest price paid for a single condo in Canada via MLS ($25,000,000). The CBC reported that a "Mystery buyer snags 14-room, two-floor penthouse condo" That's a curious verb to use unless of course it is only the beginning of the blowoff phase of the real estate mania or if you prefer, the rational behaviour of investors betting on inflation? I looked up "snag" and assumed the reporter used it to convey that the buyer wanted to "catch unexpectedly and quickly, ie: snag a bargain", and was not imagining a toothless grinning fisherman accidentally catching his prize other than by hook in mouth. We don't know the buyer's motivation, but clearly the buyer has an excess of cash well beyond the sale price and it could very well be the unit was indeed "snagged" up as a trophy of sorts. It wasn't purchased as an investment unless the buyer believes that inflation will provide him with a capital gain at some point that will return the sale price of $25mm and the accumulating $10k monthly nut for strata fees, taxes and insurance with no allowance for maintenance and depreciation. The seller on the other hand snagged the opportunity of a 47% capital gain, less 3 years of holding costs on his $17mm 2010 purchase. Wow. The phrase "real estate tourist" identifies transient flippers; "accidental investor" works as well. "In Coal Harbour (where the $25mm unit is), about one in four condos are “non-resident occupied” (and vacant), said Andy Yan, a senior researcher with BTAworks, the research division of Bing Thom Architects." Coal Harbour is a sea level shelf of trophies in a rumpus room apparently not worth living in. Click on the pink/green table image above and take a look at my back of the napkin comparison between two people with $25mm each wanting to go short cash and long concrete and steel. Both buildings are similar, both were built as hotels with dedicated residential floors. |
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 Archives
November 2019
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