wisdom

The only question I have is: Can you confirm most of the deals are being done in cash. If you have lived in Canada for less than 5 years, you can qualify for a 65% mortgage with no income and no credit. I believe it is called the new immigrant program. I have seen this with many $10 mil purchases in Vancouver. And I do not expect a person who has bought a house for $ 10 mil to say I have financed it. I would look a bit deeper than just the anecdotes for evidence. EDIT: Agree with most of the the stuff you are saying. But, here are my other thoughts: 1) Majority of individuals are doing this with $ 1 mil homes - 65% no questions financing. But, I have also seen that most struggle to get good employment once in Canada - for whatever reason. They are currently managing because the housing values have been increasing. What happens when those values aren't rising and they are still struggling for good jobs? 2) In most cases that I have come across this scenario - the money comes from sale of an apartment in a Chinese city ($1 mil range). Let's say I sell a condo for $ 1 mil CAD (after taxes) in Beijing. Move to Vancouver - put down 35% on a million dollar home and live off the $650,000. But, at some point I will need to get a good paying job when the $650,000 is gone. Today, on a $650,000 mortgage your monthly payments would be around $3,000. I do believe this could continue until either of the 2 things happen: 1) something causes real estate price in Vancouver to fall scaring buyers away from this arrangement 2) anything that causes large real estate losses in China

Ideology can be dangerous.

http://www.cbc.ca/news/business/real-estate-woes-the-secret-lives-of-house-poor-canadians-1.3086793

Don't forget that the iron curtain limited global trade. There is a slide going around that shows that free global trade leads to low inflation. I believe it was in one of the slides by FFH a while back.

I would agree that all assets are inflated but all cash sounds like a bit extreme. Just a thought!

Chances of higher rates in the US are low until europeans, Japanese and the chinese are easing. Even then there should be a lag - when the rates are raised and by the time the impact is truly felt in the markets. This is why I believe while it is good to be conservative it may be a bit premature to totally pull away. This is just one of the many possible scenarios for no one knows how things will actually play out.

It has been a one way bet in Vancouver for 15 years now. It is amazing how long things can run. Markets can be irrational longer than....

Lacy Hunt interview

Vancouver RE has been there for a few years. You can look at European debt for example - why would people buy an asset that guarantees them a loss. Obviously the majority does not think about the outcomes of their actions.

http://www.bloomberg.com/news/articles/2015-04-09/we-travelled-across-china-and-returned-terrified-for-the-economy Bloomberg on China

From what I recall, in the US an argument that was often used was that they have never had a nation wide drop in housing prices. That real estate was local. But, after a long run up in RE prices across the country prices dropped on average 34%. RE prices have been a one way bet in Canada since 1999 - 15+ years. What are the odds that this continues? If this does stop and Canadians realize they have taken on too much debt and sucked up future demand, what happens? The norm in recessions is for immigration to drop as the locals struggle to get jobs and do not like additional competition for jobs. Investments coming into the country drop because money coming from outside can find a better home. What happens, if after a 15 year run up in housing prices it comes to halt and 7% of our GDP is housing. In the US it was 6% at peak and currenlty it is running at 3%. Personal debts are going to be tough to pay back unless commodities rebound in a big way or the loonie drops a lot to bring back manufacturing. I am unable to figure out how this can continue. Though it has for longer than I would have expected.

I have a question - Is there any data backing up the statement - "high end houses are being bought with cash." Canadian banks have a new immigrant program - no income, no credit requirements as long as you have been in Canada less than 5 years and can put down 35%.

Prices are elevated everywhere from long term averages - it seems there is agreement on this. The only question is: the risk/reward still good, or do we keep dancing till the music is playing.

mcliu, do you want to base a $500k to $800k decision based on what if rates are negative. I personally would not. Also what kind of environment/conditions would lead to negative rates. What are the implications of debt in a deflationary environment? Again - is this sustainable in the long run - negative rates, rising assets, higher unemployment?

Rules that I use: Anything not sustainable in the long run has to end. Low interest rates, high debt, rising unemployment, rising housing prices is not a combination that is sustainable. You do not have to play if something does not add up. No one is forcing my hand to invest in real estate. Maybe I need to develop a hobby outside investing or real estate and wait for the opportunity that I have prepared for. Do not create false expectations that the market will correct in a given amount of time. You will know when the time is right. It will be obvious went it happens. Life is a marathon.

http://choufunds.com/pdf/2015%20AR%20v9.pdf

Any notes from the meeting would be appreciated. TIA

http://www.economist.com/blogs/freeexchange/2015/03/inflation-britain Inflation at 0% in Britain

http://business.financialpost.com/2015/03/24/now-and-then-do-canadian-homes-really-cost-that-much-more-than-30-years-ago/ More articles such as this are starting to appear in mainstream media which is what should happen before things turn according to Bob Shiller. This article uses Toronto as an example. In 1989 it was considered a bubble in Toronto as housing took up 50% of the average income. In Vancouver, even at the lowest historical interest rates (assuming 25% down) an average mortgage still takes over 80% of average household income. How does one justify that?

http://business.financialpost.com/2015/03/13/the-world-must-prepare-for-its-dollar-binge-punishment-and-it-wont-be-pretty/ Write up on global debt in USD and it's implications.

- Currency wars to generate growth could lead to deflation. - decrease in capital spending in energy and commodity industry - one of the largest sources for employment and capex over the last 7 odd years. Could further impact demand.

http://business.financialpost.com/2015/03/06/only-mass-default-will-end-the-worlds-addiction-to-debt/ A good read.

Remember this is the same guy who bought BRK over $0.125. Winters was trying to make a name for himself because Buffett usually does not respond to anything said about him and people use his name to make money/a name for themselves. Wintergreen miscalculated and went too far and now it is coming back to bite him.

It may be worth looking at insurance companies in Japan over the last 25 years. They haven't done well during deflation that lasts that long.

http://www.bloomberg.com/news/articles/2015-02-13/-9-trillion-question-is-how-tighter-fed-will-impact-world potential fallout of fed raising rates. How it will impact countries like China, etc.