JBTC

Post the US housing bubble I bought houses in Las Vegas and Phoenix in 2011, which are up nicely. Somehow I am not confident there will be a similar profit opportunity in Vancouver and Toronto. Too many people want to live there. You need a massive overbuild to offset the demand factor. Vancouver can easily be a speculator's paradise - it's pretty, the only warm town in a cold country, and has an ocean in the west, mountains in the north, and a border in the south, all limiting expansion. I hope you are right and I am wrong.

Hey wisdom, First let me apologize. I knew your statement of "10% a day" was a bit of an exaggeration, but I was too tempted to not tease a little. That wasn't nice. My bad. I also need to come clean. I was trolling. I don't live in Vancouver, but have a lot of interest in the housing market there. I am biased to a degree, because I have had direct property investments and always like them. For all sorts of reasons including luck, I never lost money in property. The same cannot be said of the stocks I own, despite I exert 10x more effort on the stock market. I don't doubt at all there's significant speculation in Vancouver. My view is large speculation can only take place in the presence of strong fundamentals. Not too many are speculating in Montreal. Why? The key task for me is to figure out how much of the prices can be justified by fundamentals, and how much due to speculation. If prices do fall, what price should I consider good? I am a little disappointed in some of the discussions that involve mostly opinions, anecdotes, and whining (sorry), rather than level-headed facts, data, and analysis. I would always want to hear both the bull case and bear case. Thanks for the articles though. So one article says that 5.58% of the homes sold since 2014 were sold twice. How bad is that? I have no idea. If you have an insight, I am all ears. In another article, quote - "We have no idea the scope of the problem, about how much it may be inflating the real estate market," Eby said. That's exactly what I was wondering. Too bad no one seems to know.

Can you please list the houses that moved 10% a day? How many? What are the quotes over time? Most houses don't have quotes most of the time. Because of this, housing value can be less certain. A 10% difference in prices offered by two different buyers is normal. In a competitive auction, prices can move up dramatically. A 10% move doesn't indicate anything unusual. Stocks move up 10% easily. Are those moves all speculation? Please explain your logic.

If this is accurate, it indicates the boom in V and T is mostly not due to nationwide factors, such as interest rate or mortgage policy. It likely reflects a combination of individual fundamental investment merits and fundamentals-fueled speculation. As scorpioncapital already suggested earlier, the key is to figure out how much of the boom is due to sustainable fundamentals vs. unsustainable speculation. That'd be a much more productive discussion.

Surely there's a lot of luck. But your comment that the US housing market looking back was not too overvalued is probably not valid. Compared to its own history, the US housing market at the time was conspicuously overvalued by almost all measures. Your sentiment comes from the fact that other markets have appeared way more overvalued (relative to income, rents, etc) but are still holding up - Canada, Australia, not to mention China, Hong Kong, Singapore. My personal view is you have got to be very careful when comparing property prices across countries. I almost want to say you just can't do it. For all sorts of reasons, Germans don't like to own homes, and they have low home prices. For many reasons, Chinese are crazy about homes, and the prices in key Chinese cities are high on an absolute and relative basis. (I'll be the first to question the long-term sustainability of Chinese home prices, but that's besides the point of this post.) If you really examine global property prices, the US is at the very low end of the spectrum. But because the US is such a major country and its data most readily available, many people have the tendency to declare any market that is more expensive than the US as overvalued. Plenty of posts on the Canadian RE thread make those claims. I am not here saying Canadian prices are not overvalued, but pointing out the basis for some of the claims is flawed. There is no short cut in analyzing property prices. You have to study all the supply and demand factors which are numerous, such as demography, income, rates, tax laws, zoning regulations, rents, new construction, different attitudes to treat homes as investment vs. consumption, and others.

Agree! Plenty of money managers talk pessimism but act quite rationally. I am not sure why that is. Maybe sounding cautious makes one look smart and conservative. Maybe in today's treacherous world, there is a market for it, as investors simply cannot bring themselves to trust anyone who doesn't sound worried. Too bad many tend to follow their words, not their actions.

This is an important point - thank you for making it. Just mentioning some scary (or bullish) outcomes without attaching odds is a very bad practice, whether intentional or not. Investors often become enamored with the magnitude of certain outcomes, but forget that odds are all important in investing.

Just some blogger's data. Overall debt doesn't appear to be high. But there may be an issue with debt distribution as Watsa seems to suggest. "Table 3 sets out some basic parameters by which to judge the vulnerability of the housing market from the perspective of household wealth. In the past 12 months, households' net worth to disposable income has increased by more than 2%. At the same time, debt-to-assets remain constant at a very low level of 17%. And, most importantly, owner's equity in their homes remains constant at 73%, indicating that homeowners have amassed a considerable amount of equity. Hence, there is an adequate buffer within the household sector, providing stability in the housing market." http://soberlook.com/2016/03/canadas-changing-financial-landscape_13.html

Precisely because of the problem with starting/ending dates, it makes sense for you to test your formula over a longer period (than just 1995-2015). That should be done before you speculate on future returns. Yes the indexes may be flawed or inconsistent. That does make your exercise difficult. I hope you can see that why it's not easy to draw conclusions based on macro data. Macro data can often be bad data, because it's simply too tough to add up the efforts by hundreds of millions of people and compare them over many decades. In contrast, company specific numbers are infinitely better, even though they can be flawed too. Hmm, this may be a source of misunderstanding. It's not a formula and I'm not looking to get "the answer" on future returns. I'm trying to work out the parameters. Buying an index fund means buying the underlying companies, plus or minus whatever comes and goes from the index while you own it. So analyzing the companies in aggregate is not very different from analyzing any one company. It'll still come down to what's being earning relative to price paid and how the market decides to value that over time. Sales, margins, valuation, dividends will almost definition get you there, plus or minus something for buybacks and options, other smaller things. Of the relevant variables, valuation and profitability will drive returns over shorter periods, but those things tend to do some mean-reverting over time. (How much is up for question.) Check out Warren Buffett's pieces on equity returns from 1999 and 2001 -- he gets at similar points. I'm more or less trying to recreate that today. Yup, you are doing what Buffett does. One difference is that Buffett made his rare market call in 2000 after 18 years of the biggest bull run in history. You seem to be looking into a relatively bleak future after 16 years of the market having gone nowhere. While he was cautious in 2000, in the past 16 years he loaded up assets pretty much all the time. He's busy loading up Phillips 66 and Precision Cast Parts just now. There is no misunderstanding. Of course valuations and margins are important. I get that. The difference is how to go about it. Studying Phillips 66's profitability is tough enough. With oil prices moving so much, it's probably not easy to think about the spreads. Precision Cast Parts? Will it be able to make more acquisitions? Will the two key customers pressure on prices? Is there more cost-out? Buffett's main focus is on studying individual companies' margins, which is hard. You seem to be lumping 500 companies of varying sizes and geographies and industries together and trying to guess where their margins will move. The thing is when you compare across periods, you are not even comparing the same 500 companies. 20 years ago, none of Google, Facebook, and Apple are in S&P 500. The only thing comparable here is the number 500. Just seems you are trying to do something awfully hard. Good luck. Do post when you figure it all out. And I hope you have saved enough of your time and effort on individual companies like Buffett does.

So A does not equal B. I don't see anything interesting so far. Where is the analysis? Can you arbitrage? Economists call housing nontradable goods for a reason.

The latest from Dalio on China - "To reiterate, we believe that China is going through the same sort of debt and economic adjustment processes that all countries have gone through at one time or another. These adjustments are healthy and China will come out of them stronger, though it will be weaker while it is going through them. We believe that to characterize China either as not having significant challenges or as facing a terrible situation would be inaccurate. Yet, because many in the media prefer to use more dramatic characterizations, they distort and take our comments out of context." I don't recall he said Europe, the US, or Japan will come out of their problems stronger. Sounds like he's more bullish on China.

Precisely because of the problem with starting/ending dates, it makes sense for you to test your formula over a longer period (than just 1995-2015). That should be done before you speculate on future returns. Yes the indexes may be flawed or inconsistent. That does make your exercise difficult. I hope you can see that why it's not easy to draw conclusions based on macro data. Macro data can often be bad data, because it's simply too tough to add up the efforts by hundreds of millions of people and compare them over many decades. In contrast, company specific numbers are infinitely better, even though they can be flawed too.

coc, Have you tried to apply your formula to the roughly 10% US equity return in the past 100 years (break it into the little pieces - revenue growth, margin, etc)? Would be curious to see if it holds historically, before we try to kill ourselves by projecting future GDP and profit margins.

I wonder about that too. It just seems like the housing market is too big for foreign capital to have such a big impact. Too bad there's no data on this. I was looking at this BBC article on Australian housing: "Last year Chinese buyers spent a record A$12bn on Australian property, boosting house prices at a time when locals were already feeling anxious about the rocketing cost of property." http://www.bbc.com/news/world-australia-35601102 Not sure if that's accurate, but if it is, then it's tiny compared to Australia's outstanding housing-related debt of $1.5 trillion. The growth in housing credit (7.6%) last year or $108 billion is significantly higher than the $12 billion of Chinese buyers. http://www.rba.gov.au/statistics/tables/xls/d02hist.xls?v=2016-03-09-11-13-12 mcliu, I think two factors may help you understand the numbers cited better. 1) The Chinese buyers mentioned here could be foreigners buying only. Once you become a citizen/resident, you are likely counted as domestic buyers. 2) Roughly half of the Chinese population in Australia live in Sydney. So their buying is very concentrated and has a large impact to the local market. Sydney prices are far away the most expensive in Australia and serve as the most important guidepost for the overall Australian market.

The article doesn't say that at all. It says vacancy rates are low for detached homes, and are high for condos. It seems the overall vacancy rates are relatively low in Canada. I recall seeing data suggesting 10% of all homes in Australia are vacant. All else being equal, low vacancy rates indicate fewer speculative activity.

Oh, there is no bear case yet on the immigration front - Canada’s Liberal Party, headed by Prime Minister Justin Trudeau, promised to create a more welcoming immigration program and to “fix the problems” created by his predecessor, Stephen Harper. Last week, they made good on that promise, introducing amendments to Canada’s Citizenship Act. “The main point I think is that I want to do more to help international students become permanent residents because Canada needs immigrants,” Canada’s immigration minister, John McCallum, said at a news conference today. “We are an aging society. We need more immigrants for sure. I think international students are arguably the most fertile ground, the best place to find new immigrants because they know about Canada.” http://www.barrons.com/articles/canada-fast-tracks-asian-students-for-residency-1457491661?mod=BOL_hp_highlight_5

These would seem the logical outcomes and are what the central banks are looking for. The question is why haven't they shown up? Or is it just a matter of time?

These beliefs are coincident indicators. It seems the market is strong for now. There is probably stock broker research that analyzes the supply/demand picture. One of the key factors to future pricing in my view is if the current housing construction will continue to grow and at some point exceed demand (as the property developers too extrapolate the past trend). A bad downturn would require a few things to take place, ideally simultaneously - weak economy and job losses, inflation failing to fall and hence limiting rate cuts, new supply coming on stream and exceeding demand, China going through a huge slowdown and wealth being destructed, Canada deciding to tighten immigration rules, banks tightening lending due to regulators' concerns, etc. A proper bear case needs to examine all these factors and weigh the negatives and positives.

There is a huge similarity between Canada, Australia, and New Zealand. They offer the most mature and systematic schemes for foreigners to move into their country. They are English speaking, so attract people from every country (Unlike Spain is attractive only to South Americans). All three countries offer both good job/business opportunities and social welfare. And luckily for the immigrants all three countries have cities that are highly livable by global standards. On this issue the US is very different. The US mostly takes in people with family ties. So while you can pretty much fill out a few forms (after meeting certain standards) and then wait for your turn to get into Canada, you can't do that to get into the US. Now as I said repeatedly, many demand/supply factors influence housing prices. The US is a particularly curious case. Despite having one of the highest incomes in the world, the US homes to my knowledge are probably the cheapest on an absolutely basis when adjusted for quality and certainly the cheapest relative to income globally. There is not enough space and time to get into why that is the case. But this means if Canada is merely more expensive than the US, Canada is not expensive at all. Every country is more expensive than the US. The Yanks are quite lucky.

These are just multiples to median income, so currency is not a factor. Chicago is an interesting case. One obvious difference is that chicago population has actually shrunk over the past couple decades. The us median multiple is really helped by rust belt cities like Detroit. http://www.demographia.com/dhi.pdf This goes to show that income is really just one factor, and far away from being able to explain housing prices. Much of the discussion has been focused on the demand side of the equation, especially related to immigration and population increase. The Chicago example is interesting. While there's plenty of similarity between Toronto and Chicago in terms of climate and geography, the glaring difference is Toronto is adding people while Chicago is likely losing. This is due to both the difference in immigration policy between the US and Canada and the difference in the relative competitive position of these two cities in each country. Toronto remains competitive in Canada, whereas Chicago faces numerous other cities that offer good job opportunities and lifestyle choices. What has been mostly missing from this discussion so far is the supply. Is Canada building enough houses to the meet the rising demand? If not, then prices can surely rise. This is just a question and I haven't looked up the answer. Anyone who has the answer please contribute.

At least 3 bullsh*t macro threads going on at the same time on this board. If some of these characters put as much time into actually studying companies, and learning the practical side of trading, they might actually find something to invest in that didn't have S&P in its title. When I posted earlier in this thread last week, the TSX was in bear territory. It is up several percent since then, while people moaned about S&P market valuations, and fretted about whether a rally is real or not. I bought stocks up to last week, and was selling into the rally yesterday. +1 :)

merkhet, First I want to thank you for making the effort to drill down on Dalio's remarks (including body language), and I think it adds much clarity to this discussion. As you have pointed out, people may take different bits out of Dalio's statements, and think they are expressing Dalio's view when they may not be. But you are too kind to Dalio. Aren't his views a bit confusing, and isn't there some kind of contradiction in them? If I say I am not bearish on stocks, but there are asymmetric risks to the downside, you would think I am just a clueless amateur. But Dalio can say those things, puzzling all of you, but remains the awesome macro hero. Can I say all of you are sufficiently intelligent to understand him, if he did have a clear message? In the end, we don't know what he's doing, or not doing. I recall someone mentioned he doesn't change much of his all-weather portfolio. If he is the best macro forecaster and he doesn't change his portfolio based on his views, why do you bother? This is completely a guess - could it be that he doesn't totally trust whatever he says himself?

If you can 1) make English the first language of the Swiss people (perhaps harder than making Montreal adopt English) and 2) change the Swiss law on immigration (probably easier to simply invade the country) then a 30% rise could be in the cards! :)

First, let me say rising population is a key factor to housing prices. This is so simple because this is demand. Second, no one was saying rising population is the only factor. Trying to imply what others didn't say is not the way to discuss. Third, let me leave out Delhi because I know nothing about it. For the US housing bubble, I think the major cause was low rates and irresponsible lending. But the major bubble cities had huge internal migration - Las Vegas, Phoenix, and Miami. They helped the boom. In HK and Singapore, both direct immigration and other foreign buying all contributed to the high property prices. As a result, in both markets the government has put in restrictive measures on non-resident buyers. Despite both markets have softened in recent months, those restrictions are still in place.

I personally don't think they are cheap. But I appreciate the fact that they are perennially ranked among the most livable cities on the planet and they attract people to move there. And for the many thousands moving from HK, Beijing, and Shanghai to Canada every year, there can be no doubt the prices in V/T are very reasonable when compared to their home markets.