JBTC

Will you be able to provide some data to substantiate this?

I had to comment on this - in every bubble because the timing is unknown those who warn of the bust look stupid because the timing is unknowable. Speculators get more and more confident as the price signal confirms their hypothesis. In reality the price has absolutely nothing to do with value. Many thought Buffett was on old fool in the 1999/2000 internet bubble because he avoided tech. If you are going nuts because it has been 15 yrs - hang in there. Ireland was the same until it blew to smitherines. And the crash will likely be much more rapid and harsh. I am still doing research but Canada seems like a classic real estate bubble with low cap rates in many places. Key question- what are the rough owner cap rates of your city? I define owner cap rate as rent minus all expenses a tenant would not pay (real estate tax, insurance, etc excluding broker commission to rent the place out) in the numerator and in the denominator the unlevered home price. I am trying to get a sense of the unlevered return an owner is making by buying a home excluding appreciation depreciation. San Diego was ~2% at the peak in 2006 for an average apartment. Totally insane. Now we have centuries low interest rates and people think that is normal. I am not sure any single metric can define a bubble. But definitely look forward to anyone making a comprehensive case why Canadian housing is a bubble and ideally, putting forward suggestions what factors could cause the bubble to deflate, the probabilities of such triggers occurring, the possible time frame, and the potential magnitude of price declines. Any such analysis would be highly useful. Personal anecdotes are not entirely useless, but will more likely keep us trapped in our own biases and do not lead to superior insights and actionable investments.

http://www.fastcoexist.com/1679594/watch-las-vegass-growing-sprawl-from-space http://urbantoronto.ca/news/2013/05/examining-urban-sprawl-through-satellite-timelapse-imagery The prices in Vegas took off from 2000 to 2008 I believe. Not sure how big the change was in that period in vegas. From the HHC 2015 investor letter - The Las Vegas Valley has experienced more than 50% population growth since 2000, adding approximately 700,000 new residents. The area is projected by Experian to grow another 12% over the next five years or almost three times as fast as the overall U.S. population.

Interesting. I assume this doesn't include the buying of Chinese Canadians (20% of the local population) who likely punch above their weight in property purchases.

While some recent threads were not so great, it's encouraging to see this thread and the Mistakes by BigWigs and Me. We are here to learn and these threads can help. I think it's probably true that the members of COBF do exhibit crowd behavior which can be seen as contrary indicators. Recall not so long ago the board was full of threads that focused on macro, short-term market moves, and bearish takes of the world. One market observation is markets tend to bottom when small investors become shorts. It seems there may be some truth in that.

There may be reasons to be short, but most of the above are really reasons to be long. For now it's hard to see how the current trend reverses itself. My guess is a few years down the road the government may be forced to act. Their goal will be to slow the market, not make it fall. Outside of government intervention, you will need a potential shock which is not forecastable.

This is not rhetorical, I am reaching for help here! Any past experience or advice is appreciated. But please note that my companies are not run by a**hole management and none are money losers. If it has been 3 years and the stocks have not budged, you may want to reconsider. Although you haven't lost money, holding on to these stocks is still an opportunity cost. As for PE/BV, BAC and C have both been trading at less than 10 PE and below TBV for several years so cheap can stay cheap for long. And these are big caps which should trade more efficiently than small caps which have the added element of just getting ignored. Are you waiting for any company specific catalysts in these investments? ok when I think again, what I said isn't true. These stocks do move. A typical one is a japanese distributor, PE now is about 6, its a netnet, no debt..... but of course it has sh*ty ROE. On paper the stock has doubled in 3yrs. But in reality I factor in currency changes and the fact that you never get in 100% from day one. You build up a position. And it really frustrates me that the return is not where it should be. My question to all is when do the business metrics normalize. Or is this japanese company destined to trade at a 6x multiple? So I am waiting for no catalyst, except multiple expansion. I own a Greek insurer trading at 4x earnings. a Hong Kong real estate companies trading at 1/6 book. Looking at Hong Kong, its market is at 2007 levels, but last year it was 40% higher. So there is potential to break out, and to carry my stocks with it. If it doesn't happen then that's my mistake for waiting. sorry for the confusion post but my frustrations are clear..... I just want to add one point which has not been touched on so far. You seem to have quite a few positions in international markets. I don't do this type of investing personally but my impression is it's easier to find net-nets overseas. So naturally a Graham follower would spend a lot of time looking into those overseas markets. But Graham didn't invest in overseas markets himself (I assume). As value investors we buy stocks trusting they represent partial ownership in companies. But that is demonstrably not true in many markets. In many markets, more emerging than developed, a stock is just a piece of paper, nothing more. A stock certificate only becomes ownership when there is law, governance, reasonably accurate reporting, management integrity. Don't take these things for granted. Even in mature markets such as HK, you can certainly find so-called a 50-cent dollar, one example being a holding company trading at 50% of the value of its main asset. In general, buying things in far-flung geographies probably constitutes investing in things you don't know.

I cannot think of anything more difficult than investing in China. I think there are people who are doing it well, but it takes massive efforts. Good luck to you all. The Chinese stock indices are mostly dominated by state-owned banks, oil companies, and telcos. For the banks at least, the books are so poorly marked that no one believes them. Even though a lot of local people speculate in China's A share market, they wisely avoid the banks and go after the profitless tech startups. So it's quite sad that MSCI says because China has a market of stocks, they have to be in the global indices and the weighting will be lifted over time. This to me is a big problem with passive investing.

It's because when 3/4 of people own homes/mortgages, and most of these people have their whole net worth tied to those assets (even when the net worth is deeply negative), you don't win votes by doing anything that might stop the rapid inflation of that asset. All the timid measures are to hope for a slow leveling off and plateauing, but the longer they kick the can down the road (hopefully to the next government, is their thinking), the more delicate things become. A few more years of this and the median house in Canada will be $600k+, an then what? A few more years and it's $800k? $1m? How fast are incomes rising? How fast are debt levels rising? I'd say that over 98% of home owners in Canada are decidedly not wealthy chinese princelings, so what next? You are absolutely right the government has an enormous self-interest in maintaining high housing prices. This is partly why most of time owning a house is a rational choice for most people. Here the issue is if the prices are going up too quickly, they make a reversal more likely. Therefore, if the authorities are wise and experienced, it's better to intervene early, and then back off when prices soften. In high-priced markets such as HK, Singapore, Australia, and New Zealand, the authorities do that often. In the news article I sent earlier about Australia, it says prices weakened due to regulatory crackdown. There are numerous things the government can do and they will be effective. My guess is the Canadian government is still not too worried. And with weak commodity prices, they probably want housing to support the economy. In terms of how much more prices can run, although Canada has done a great job catching up, Australian home prices are still 30% higher. I hope Canada doesn't get there soon.

"Sydney home values fell the most in seven years in the December quarter as a regulatory crackdown amid record prices pushed up mortgage rates and sapped demand. The residential property index in Australia’s biggest city dropped 1.6 percent, the first decline in 13 quarters, according to government statistics released Tuesday. Sydney prices have, however, recovered in the first two months of the year, more recent data from research firm CoreLogic Inc. showed March 1. Home-price growth in Australia’s biggest cities is expected to slow as mortgage-rate increases and tightening lending standards, introduced as prices climbed to a record, hurt buyer affordability. Sydney home values have climbed about 70 percent since the end of 2007, while in Melbourne they have risen about 50 percent, data from the statistics bureau show. Home values across the largest cities in the country expanded 0.2 percent in the December quarter, according to the data. The total value of Australia’s 9.6 million residential dwellings increased A$31.6 billion ($24 billion) to A$5.9 trillion, the data show."

+1 God grant me the serenity when I see nothing intelligent to do the courage to do something when I see an opportunity and the wisdom to know the difference

It's a great list, thank you.

The governments can always do plenty. It's curious why they haven't done much. Maybe they are not worried enough. In other hot markets, government actions can often slow the market meaningfully. But for anyone hoping for a crash, it's best to let the speculators run wild and prices go as high as possible.

+1 But it is enjoyable to try and expand the circle no? It is. But I feel I have to do it in a very methodical way, to build on what I am already familiar with. Because knowing a little can be as dangerous as helpful. Enjoyment is important. So is progress. For me at least progress requires me to slow down and focus. So when I read about a manager who asserts his advantage is to invest globally looking over 10,000 stocks and questions why restricting yourself to large cap or developed markets or certain sectors, I can only say "wow".

Great thread, thanks. My mistakes are too numerous and tedious to list. One kind of mistake is when I make analytical errors. I think something will happen, but the opposite happens. To me these are honest mistakes. To be able to not make them tomorrow, I have to make them today, so I can reflect and learn. I will be forever making them, but hopefully less. Another kind of mistake is I pretend to know something when I don't. This is where the gurus sometimes come in and trap me. I look at a potential investment, which looks appealing although I am not sure. But I will invest anyway because some gurus have it. Of course it's never the gurus' fault. It's 100% my own. To ensure I only invest in something I think I understand, increasingly I feel my job is not to expand my circle of competence, but to narrow it. To know everything is just impossible.

Hottest housing market in the world at the moment, according to the article below. 1) New Zealand 2) Australia 3) Sweden 4) Ireland 5) Canada Somehow I am not very surprised. http://www.valuewalk.com/2016/03/hottest-housing-market-world/?utm_source=mailchimp&utm_medium=email&utm_campaign=EMAIL_DAILY&utm_content=quick_link&utm_source=ValueWalk+Newsletter&utm_campaign=4549b8ca67-%3DUTMDaily&utm_medium=email&utm_term=0_299e40291b-4549b8ca67-50202589&mc_cid=4549b8ca67&mc_eid=afd3376b93

wisdom, Thanks for pointing out a seeming inconsistency on my part. But let me make myself clear. I don't encourage blind comparisons, not housing prices, not debt. I listed the debt data to suggest one thing - just like Canada, many other countries also have the highest debt level now in their entire history. Not suggesting Canada is not bad; it's worse than most. But this fact helps think about what other factors than Canadian housing might also be at play. Out of all countries, I cautiously mentioned we may need to look at Australia, because of the relative similarity. Australia is worse than Canada in ramping up debt and housing prices, and is holding up for now. But even they are different. For example, Australia allows negative gearing. But let's see. I would not think Denmark is comparable to Canada. I have no clue about what's happening there. But it does us good when we are aware (not comparing) of such debt levels. Denmark and Sweden are among the most prosperous nations on the face of the planet. Maybe they collapse tomorrow, but how are they even sustaining their debt levels? Can some of you live in the Nordic countries help us out? My general approach - the more data the better, generally respect the differences in the world, not in a hurry to conclude, but when data is overwhelming, conclude and invest accordingly. Charlie Munger said it best - All reality must respect all other reality. Our job is to gather these realities and make them respect each other.

This is bad. These people will dump when the tide turns. Would be good to know the size of this market indeed. Out of curiosity - do they belong to certain ethic groups, or are they everybody?

There's some good data in the earlier posts. I'll make a few observations. 1) Rising debt is not unique to Canada, although Canada has indeed behaved worse than most. See the article below. Of the G7, only Germany and Japan delevered during 2000-14. http://business.financialpost.com/investing/outlook-2016/canadians-household-debt-highest-in-g7-with-crunch-on-brink-of-historic-levels-pbo-warns 2) Debt has increased as interest rates have fallen. So debt servicing capacity didn't increase nearly as much. RBC's affordability report is useful in this regard (thanks to mcliu). 3) As of 2014, Canada's household debt to disposable income was 166%, just behind Sweden, Australia, Ireland, Norway, Netherlands, and Denmark. Denmark was the global champion at 305%. See data below. The debt ratios vary greatly by country. This to me reinforces the notion that there is hardly any ironclad law in economics. https://data.oecd.org/hha/household-debt.htm 4) In terms of debt level, Vancouver seems the canary in a coal mine for Canada. Globally, perhaps Australia is the one to watch. The two countries are highly similar - key immigration destinations and commodity-driven, and Australia has higher housing prices and debt. 5) For Vancouver, the RBC report suggests that condo affordability has in fact improved. So it's really the single detached that has gone crazy. This is important - so a large portion of the market is mostly ok, and only the high-end is the most problematic. 6) The question becomes - how worrying is the high-end market in Vancouver? What's the consequence if this part of the market falls? I assume these houses are most likely bought by high-income people, but there is no data. If the poor people fake their incomes and get into these houses, then risk is high. If, as gary suggested, it's the rich Asians who buy them to store their wealth, then risk is low. Then there are other factors to consider - will the rest of the Canadian economy decline, and drag down housing? Could rates go up? If not, then debt servicing may be ok for now. Any other potential shocks? I'll stop. Let's dig some more.

The snowbirds are mostly older people who spend 6 months of the year in the US. Because they need to go back to Canada after the winter, they must maintain a home in Canada too. If they were allowed to stay for 12 months, I suspect some of them might sell their homes in Canada which would increase housing supply. For most people who still work, moving to the US is not easy. Of course the highly skilled Canadians can find work in the US easily (say Justin Bieber). The border between the US and Canada is real. This is different from other rich neighboring countries. In Western Europe, there is complete freedom for people to move and settle across countries. London has higher prices than Paris, partly because numerous Frenchmen now work and live in London, not vice versa. In Australia and New Zealand, citizens of the two countries can live and work anywhere completely freely. The immigration flow is mostly from New Zealand to Australia because of better weather and higher pay. This forces the New Zealand government to adopt a very generous policy to attract Asian immigrants. I agree that the quantities of leverage and speculative buyers are important to future outlook. Which is why we want to quantify both as much as we can, not merely pointing out they exist. I posted the link below before. It shows Canadian household debt to assets is 17% and owner's equity in housing is 73%. These are benign numbers. Are there other data that look more worrying? Are there certain market segments that are more vulnerable? http://soberlook.com/2016/03/canadas-changing-financial-landscape_13.html

If your personal circumstance allows that, I can see that makes sense. But the majority of people in Vancouver don't have that choice. This is because there is a border between Vancouver and California. Just two hours drive south of Vancouver, Seattle is cheaper in housing and almost everything else. It has more jobs and higher income. It has lower mortgage rates. But most Canadians cannot simply move there to live. This is why comparing housing prices across countries has limited practical value most of the time. And the Vancouver housing speculators know this too well. ;)

It's generally caused by a number of factors happening at the same time. In 2008, business cycle started to turn down and jobs were lost. Mortgage rates started to go up after the teaser rate period. As sentiment weakened, prices began to fall. There were too many speculators heavily leveraged, and their game was up once prices fell. People overstated their incomes. They were able to keep their homes initially only because prices were going up. Once that stopped, they had trouble making monthly payments. In other words, if jobs are stable, rates are stable, not too many leveraged speculators, mortgages are properly underwritten, the owner occupiers should be able to withstand certain price falls. Of course in 2008 the bad mortgages ultimately caused the entire financial system to break down, which in turn made the housing bust worse.

mcliu, Thanks for the data. By fundamentals, I don't mean just valuation. It's both the demand factors (population growth, household formation, tendency to own vs. rent, income growth, wealth growth, interest rates, mortgage and tax policy, climate and livability, quality of schools, and more) and the supply factors (new construction volume, land availability, land release policy, competition between builders, zoning policy, etc). Without going through all the key items, it would be difficult to make a conclusion. I haven't had a chance to go through the data book you sent. Just on p22, it seems ownership housing starts didn't increase much at all during 2011-14. That's crazy, isn't it? You have home prices going through the roof, but new construction didn't increase. Why? I know nothing about the specific circumstance here, but the general reasons are: 1) there is no more land. 2) there is land but the government refuses to release (citing greenbelts, protecting the environment, all sorts of things). 3) there is land but the developers are hoarding it. 4) some other reasons that don't offer developers incentives to build. Hope your guys who live in Vancouver can provide some insights. Also in 2011, 65% of the households in Vancouver were owners, and the rest were renters. Thanks about it, the vast majority of the residents are beneficiaries of the boom and happy. These people are rich, more powerful, and have greater representation in politics. So chances are the government policy is skewed towards protecting these people's interests. This in my humble opinion is partly why housing is generally a good investment most of the time in most places.

So enough of the anecdotes. I was trying to look at population data, but Canadian census is done every five years and the last one was in 2011. From 2006 to 2011, the metro population growth Vancouver +9.3% Toronto +9.0% Montreal +5.2% Calgary +11% Looks like we don't any data for the last few years. Population growth is the first thing a property investor should look at. Every person moving into a city needs a roof.

So didn't HK have a real estate crash before? Didn't Londo , Paris , New York , etc do too? But why do they continue to be the most expensive places on the planet? +1 Speculation is real, but fundamentals are also real. We'll all learn more and analyze better if we are open-minded about all the possibilities.