"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'
The bottom half is my own chart that I update monthly. This mashup is a real time example of "Price is what you pay, value is what you get." Vancouverites are chasing price with the herd, Calgarians are calculating value because earnings have dropped 4% from their October 2014 peak in Alberta (as of January 2016 data) and the employment rate in Calgary and Alberta has dropped below the 2010 lows as of March 2016 data). Calculating value takes work to establish. Price is just a number and to date (March 2016 data) in Calgary, the average prices of Single Family Detached houses, Townhouses and Condos are down from their 2014 peaks by 6.2%, 10.3% and 15% respectively.
"One of the things that was supporting Alberta home prices was the fact that our incomes were 40 to 50 per cent higher than the rest of Canada, and that's changing very rapidly," said Hilliard MacBeth "One of the things that was supporting Alberta home prices was the fact that our incomes were 40 to 50 per cent higher than the rest of Canada, and that's changing very rapidly," (CBC NEWS April 18, 2016)
The ratios of average housing prices to average incomes are 13.2 in Vancouver and 7.7 in Toronto. These can only be the result of demand from external purchasers much wealthier than domestic residents. They far exceed the historical average ratio of three, and are well above the ratio of five, at which housing is considered “seriously unaffordable.” Financial Post, April 13, 2016
Just as surely as prices can and do temporarily defy the gravitational tug of value, in the end the hard laws of physics trump the soft science of crowd psychology. The farther prices rise above or fall below their fundamental value, the greater the store of potential energy to be released in the resulting disequilibrium. Once the reversal process begins, momentum develops and markets generally overreact.
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