September 2009 Projections

The Fish has invited me to post GVREB MLS monthly projections on his blog. I'll try to post weekly updates on Friday/Saturday plus an end-of-month final summary. It may take a couple tries to tune my format to suit the blog and it's audience. Feedback is welcome.

These projections are based on a linear model driven by the daily stats published by Gavin Hughes (http://www.nvcondos.ca/). I also need to credit Canadian from RE talks for initiating these projections and Jesse for helping to fill in missing historic data.

The intent of these posts is to get an early or predictive feel for how the month's numbers may end up, and discuss the impact and ramifications to our local real estate market. Please remember, that all models are wrong, but some models can be useful.

Projection from	25-Sep-2009	: 17 of 21 days
Listings:	5614	(-9% yoy)	(+24% mom)
Sales:	3547	(+124% yoy)	(+3% mom)
Sell/List:	63%	(+37 pp yoy)	(-13 pp mom)
MOI:	3.8	(-71% yoy)	(+2% mom)
Actives:	13,643	(-35% yoy)	(+5% mom)
Rate of Increase:	46 per day
Avg Price SFH:	$857,048	(+8.5% yoy)	(-3.7% mom)	(-6.9% from peak)
Avg Price Condo:	$434,517	(+7.3% yoy)	(+3.0% mom)	(-3.5% from peak)
5-day Average SFH:	$911,863	(+6.4% from current month)
5-day Average Condo:	$423,588	(-2.5% from current month)
Median Price SFH:	$701,271		(+0.8% mom)
Median price Condo:	$375,051		(+0.4% mom)
Month to date:
Total Listings:	4545	(Avg 267 per day)
Total Sales:	2871	(Avg 169 per day)

We're still seeing very strong sales for this time of year, but new listings are on the rise. September will have the highest monthly total of new listings this year.

It looks like we have more sellers trying to take advantage of the recent price increases and sales activity. If sales hold up this fall, we may be able to reach an awkward balance. If sales decline and listings remain high, prices may begin to recede. This fall will be a good test of the strength of the market.

Note: Missing data for September 21. (Not published by Gavin). Baseline numbers will be posted in the comments.


* Disclaimer: These projections are not produced or endorsed by the REBGV.

malpf feature on New York street ...

malpf - not noticed by a walk by .....

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If you plan to buy sell a lot this coming month, this should be a good opportunity. Else just go for the free fried mee.

Fall is darker and more gloomy

The optimism of summer has passed, reality is sinking in. An Angus Reid poll showed Canadians more concerned about their finances and work situation than July, even though the stock market and commodities and RE have been strong in the last two months.

I think people are realising that, while we will not have an-end-of-the-world-as-we-know-it scenario, things are NOT back to normal. The economies of the world have only been prevented from falling off the cliff by the tax-payers assuming a large portion of the private sector's debt obligations.

If people are more concerned about their finances they will reign in spending and we will have another round of pressure on assets world-wide.

I don't think we have had enough of a purge to make up for the years of excess.

BTW here is Mish's thoughts on Canada's/Vancouver's RE:

http://globaleconomicanalysis.blogspot.com/2009/09/mish-mailbag-how-does-one-tell-if.html

He is saying the same things us bears have been saying for some time.

Inventory does seem to be moving up as the list/sell number drops.

Investment Link Insurance products

Insurance is an industry that is most dedicated to the complete picture of our personal finances. This has become even more apparent when Investment Link Products (ILP) are introduced to the market.

There is really nothing new to ILP other than it actually reveals the elements of insurance to agents and buyers. Which used to be secrets and all they told you was "Don't worry, we will be able to pay you 6% interest every year".

Now with ILP, agents and insurance buyers can decide

1. What elements to put in their policies

2. How much of each element to put in

3. to change the allocation from time to time

This can go either way, good or bad, for you. Before there was ILP, the proffesionals inside the insurance company decide all these for you. In return they can vaguely promise you a 6% return ( in quotation but not in policy ). So in the simplest term, if you can DO BETTER than the pro, then ILP is better for you. Else you may not even get the return like others who are just paying premium, without the need to understand anything else, as in a truly 'passive' tool.

There are 4 to 5 important elemetns to understand in ILP but for simplicity we can group into 2 first; protection elements and invesments.

Protection element in ILP is almost the same as Term Insurance.

Investment element in ILP is the same as mutual fund.

So basically ILP = Buy Term Invest The Rest, which is one of the best ways to build your personal finance portfolio.

Since the elements are configurable now and that the agents are trained but most buyers have not caught up to the idea yet, the agents can configure in a way that;

High Protection Low Investment ~~> Cheaper than Traditional Products

Low Protection High Investment ~~> Gives Better Return than Traditional Products

without properly educating on the side effects

High Protection Low Investment ~~> May Not have enough cash value to keep the policy alive in future

Low Protection High Investment ~~> Not enough protection for initial years

So if the buyer is only stressing on one aspect only ie. Low Price OR High Return, then very likely the buyer may be getting an un-balance ILP, which carries a higher-than-you-can-take kind of risk. In addition, such a buyer may as well;

High Protection Low Investment ~~> Buy Term Insurance

Low Protection High Investment ~~> Buy Mutual Fund

The justifying detail factors may be too much to share here but generally in developed nations, one can expect to use 0.8 to 0.9 times of traditional insurance premium to achieve a good balance ILP. However, in developing nations, one may need to use 1.5 to 2x of traditional insurance premium in order to build a safe and solid ILP.

Do you agree with this rule of thumb ? Why or why not ?

Demographics and all that

There is a discussion on the Real Estate Forum about whether BC should continue to attract young people. Migrants from other Provinces or immigrants to keep the tax base high.

There are lots of opinions but no data.

Well here is one piece of data- median age:

http://www.bcstats.gov.bc.ca/data/InstantAtlas/demographic/atlasdemog.html

As you can see we are sitting at a pretty high median age in most parts of the Province. Some parts like South Okanagan are over 50. That means half the population is over 50 years of age!

Lots of areas are over 40, and the curves are pointing upwards. BC's over-all median is 40 and is likely to keep moving up. Even if we had a baby boom now, and the median age came crashing down, those bouncing babes wont be paying tax for two another two decades.

Take out the children and students and retired folks and that doesn't leave a lot of people left to carry the increasingly heavy tax burden. WE NEED YOUNG PEOPLE NOW.

By contrast China's Median age is 33. In India it is 25. Canada is 39. Ontario is 37.

The fight in the near future will be to how attract young people. Countries which have low birth rates and low immigration, and an elderly population who expect good benefits are near implosion.

eg Japan which has been a two decade long deflation partly due to demographics.. has a debt to GDP of...wait for it...of 197%!!

How are young Japanese going to pay this huge debt, when there are less of them and lots of older folks who will need care and support? It defies belief.

http://news.bbc.co.uk/2/hi/asia-pacific/7084749.stm

This graph demonstrates the shift that is going on quite dramatically:

http://tinyurl.com/l8j564

Is Gold Pawning ALL BAD ?

There was an article that says gold pawning is strategically disadvantaged, usually by a 0.X% This implies that you will most probably lose out when you pawn more often (1) longer of time (2). So does that mean gold pawning is an all bad thing ?

The answer is NO!

There are 2 words in relation, Gold and Pawn. Gold is an investable commodity. As a matter of fact, gold could be viewed as the god of all commodities. There is an old saying "When you don't know what to do with your money, buy gold!". Gold is a well known hedge against inflation. So overall if there is Gold involved, it cann't be too bad.

Pawn on the other hand is a not-so-good-thing in general. Basicaly you exchange your valuable items for cash. Your item will be safe kept for a certain period. You can buy back your item before an expiration date. Usually total buying back is lower than initial surrender price so that the pawn shop can earn a profit. On cases where the opposite may happens, the pawn shop enforces a safe keeping fee to minimize loses.

Although pawning is not a good thing, as in you have cash flow problem and you pay extra fee to safe keep your own stuff, but if there is anything a person should pawn it is Gold and Silver.

So gold pawning is not bad at all.

Rob has Rich Dad in his life, as a matter of fact I went through a similar life path as his, but I have Rich Friend instead of Rich Dad. From where I grew up, gold pawning is a way of life. My Rich Friend runs a gold pawn shop. Despite the fact pawning is disadvantaged both strategically and psychologically but over the years we cann't ignore another fact that some people who pawn their golds are still surviving and some doing pretty well indeed.

Lets review some facts again, a 0.X% disadvantaged investment is still better than gambling, borrow money from illegal sources ( Ah Long ), over draft, credit card interests etc.

Some of the key reasons why quite a number of people can make it through their whole lives simply by pawning golds are;

1. Gold's trend growth is REALLY more than inflation rate and

2. Gold provides an excellent cash flow facility today.

If you are earning an interest that is higher than inflation rate, then minus it with a 0.X% disadvantage by adopting some not-so-good strategy ( pawning ), the worst it gets is you are still hurt a bit by the inflation. Relatively, most people do not save at all! Hence,

Earning Gold trend - pawning disadvantage rate > Not doing anything at all

After all, that is why there is the saying when you don't know what to do, just buy gold ! But there is NEVER a saying "Pawn your gold to get Rich".

The delusion of pawning gold strategy is because it does actually increase cash flow. And sometimes some people mistakenly take extra cash flow as wealth. Pawning gold is also a very valid leverage technique. Hence combining its leveraging 'fun' and extra 'cash flow', people easily mistaken it as a way of 'wealth path'.

Gold is an excellent tool to hedge againsts inflation,

Gold can provide you great cash flow especially at bad times,

but pawning will lower all the advantages you get above although in small scale only.

Pawning your gold is not an all bad thing but its NEVER going to be the best thing you can do in your personal finance.