Price is what you pay, value is what you get.
I'm waiting for the Ottawa Real Estate Board to publish their March housing data (their data supplier is having a problem) before I update the balance of my charts that include Ottawa data, probably in the 3rd week of April. There's no rush; lunacy still prevails. The top half of today's chart came from my Twitter Feed via @theemilyjackson
"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.
Encouragement can be found in Warren Buffett’s admonition in the Berkshire 2006 annual report, which I (Frank Martin) paraphrase only slightly: Being aware that a single, big mistake can wipe out a lifetime of successes, a wealth manager must be hardwired to recognize and avoid grave risks, including those never experienced before. Buffett went on to add that, “…fierce independence of thought and action, equanimity of temperament, abiding rationality and a keen understanding of human nature are essential.” Frank Martin, CFA September 2014