wisdom

Looks like the mainstream media is starting to talk about deflation. https://finance.yahoo.com/news/banks-in-europe-are-charging-to-hold-deposits--could-it-happen-here-195532627.html

You know when high inflation emerging markets lke India have infaltion under control - this is not something I have seen in my lifetime. This was even before oil's drop has fed through the global economy. It will be interesting to see how this works out - we have slow growth in the developed world. China keeps adding capacity while it is slowing. Check out recent interviews by Chinese individuals involved in real estate such as Soho, etc. According to Zhang - Chinese government will manage the slow down because they have always managed it in the past. I would not have as much faith in anyone to manage the enromous increase in debt they have experienced over the last 6 years.

http://www.bloomberg.com/news/articles/2015-02-13/5-reasons-sweden-s-red-hot-housing-market-won-t-crumble Canada could be like Sweden - in answer to why housing prices could keep increasing.

http://www.ft.com/intl/cms/s/0/ca01eaee-b2da-11e4-b0d2-00144feab7de.html?siteedition=intl#axzz3RdV3q1hq negative rates in Sweden and BOoE opening the door to lower rates.

Range I probably did not word it right.: I was trying to invert. Assuming prices double in 15 odd years - what could the reasons be. cwericb - just because something was right or worked for 30 years does not imply it will automatically work for the next 10 years. Again - all of us our looking at the same data and interpreting it differently - we do not need to convince anyone. It is just that I see odds not favoring owning. I could be wrong. Only time will tell and hopefully I will be wiser either way.

I live in Vancouver - so I am biased by our local market.

I run through this thought process and this is where i get stuck - In a an environment where interest rates stay flat or decline will - 1) incomes increase to sustain future price appreciation. 2) will we go to 200% private debt to GDP for the next double on houses. 3) will foreigners buy enough houses in Canada to lead to another double. 4) where is the future demand going to come from at 2x the house prices. If interest rates normalize - 1) will incomes increase enough to lead to the next doubling of housing prices as debt payments increase. 2) will this attract new buyers. I cant think of others - but it would be great if you could point out scenarios which would allow for further price increases for this to be a good investment. EDIT: Where and what is my margin of safety here.

The rates could stay low for the next 40 years, but, if they do normalize - this may apply. http://www.rbc.com/newsroom/_assets-custom/pdf/20141126-HA.pdf EDIT: It is an individuals choice whether to put their capital at risk based on the data available. Some may see this data as proving that prices will increase and others may come to a different conclusion.

Job losses due to an economy dependent on a few industries.

Fair enough.

The square foot prices mean nothing unless we have other details - such as local incomes, population, population density, etc. Tokyo prices are similar to Vancouver - Tokyo has as many people as all of Canada. It doesnt tell me anything useful.

An average house in NY metro is in the $300-400k range.

I think we were comparing great neighbourhoods.

I beleive the median house price in metro San Fran and greater Vancouver is around the same. The median household income in SF is just below $100k whereas in Vancouver it is $69,000. I believe SF might have more billionaires and millionaires than Vancouver. Does that explain the high debt levels individuals have? SF and Vancouver have land restrictions. Both have low rates.

Is the median income in Manhattan and East Harlem the same as the neighbourhood in Toronto?

That is true at this point in time. Is it different in US, Japan or Europe? Why are their houses cheaper? I do not anticiapte everyone to have trouble with their mortgages. Just on the margins. So what matters is the number of individuals who will have trouble servicing the debt during financial stress: 1) longterm home ownership rates in Canada are around 63%. Today around 70%. In the long run could it go back to 63% or is it different this time. 2) debt to disposable income was around .90 until the late 1990s. Now 163%. Is this a permanent state where we can carry 60% more debt over the long run. 3) Consumer debt per capita in early 2000s was around $19,000. Today $29,000. In British Columbia it is at $38,000. 4) total private debt is close to 100% of GDP at a historical high. 5) Can first time buyers afford to buy. Where is the future demand coming from? 6) A median house is 5.5x median income. In the US it is 2.5x. Are the rates not low there? Are their incomes that much lower? This is the same point Liberty raised when he talked about - individuals are looking at the payments and not the total cost of owning. What is the difference between a $200,000 mortgage v $400,000 using the long term average 5 year mortgage rate in Canada - most mortgages in Canada are amortized over 30 to 40 years. What will the total cost over the 30 or 40 years be.

Don't NY or San Francisco have land restrictions? If yes, why is that any different in Canada - why does it result in higher prices in Canada. NY median houses are cheaper than Toronto. Does that imply Toronto is more desirable and people will leave NY to move to Toronto. Does Canada have less desirable cities (as a %age) or is it just Toronto and Vancouver that everyone lives in? Would someone move from Windsor/Winnipeg to Miami. Not sure how that makes any difference to affordibility, highest ever debt levels, highest ever homeownership. All I can say is all the power to individuals that think this is a good bet to make and a place to have their capital as I am not comfortable putting my hard earned capital at risk when the odds aren't in my favour. We should list - numbers/facts that are at historical highs in Canada - those are easier to layout rather than stories that can be used to rationalize what has happened. If most of the numbers are against buying - then the odds are your capital is at risk. I do not expect everyone to agree as there is always some story that can be used to rationalize any decision. Nor does it imply a crash is imminent. But, once the music stops watch out. EDIT: That should read NY metro and GTA, not NY and Toronto.

Another number to check out - if this has been true for a while - better quality builds - why has an average house in the US been more expensive until 2008. Or did these codes come into effect after 2008.

The oil crash is a possible catalyst and things tend to stay irrational longer than one can imagine - even though it sounds like a cop out - it is true.

Is it that much different from the US - our demographics or the cost to build.

If regulated FIs could lend with 0% down and looked at financing based on stated income or equity based lending. I wonder what the unregulated sector would have had to do to stay in business. They had to go further out on the curve to stay in business. It is very easy to beat the system here and enough individuals have been doing it as they see this as a guaranteed route to riches - why because apparently everyone wants to live in Canada so foriegners will keep paying higher prices.

Higher interest rates lead to a slower economy which inturn leads to job losses. This leads to housing bubbles being pricked. How does it matter what the reason for high paying jobs being lost is? If the commodity crash casuses widespread job losses in an economy that is dependent on that sector - the end result should be the same.

This is why I believe 50cent$s maybe be right.

I look at real life examples for what can happen - in Europe, US and Japan - housing prices in several countries are lower even though interest rates today are much lower than at the peak of the housing cycle. To me this is enough evidence to show that prices can be lower as interest rates drop if debt levels are too high. Human behaviour in the market breaks all the rules taught in economics - lower interest rates do not lead to higher asset prices in these instances.

Same here - Vancouver 2 kids and renting. Rent a house. Have more cashflow than most I know who are house rich but cash poor. But, they would brag at every dinner how much money they had made and how much their house was worth. Not so much over the last couple of years as most of the prices have plateaued. I can sense the psychology changing. It is still considered an Alberta issue at this point. Easier to bury my head in the sand than accept something terrible is about to transpire. To be seen how it plays out.