Fool’s Game

House it Going in the Real Estate Market?

So this is the kind of house you can expect to buy in Vancouver today for about $1.19 million.



To put this into context, the same $1.19 million could be used instead to create a dividend growth portfolio that would generate $40,000 each year of tax advantaged income for a lifetime. 🙂 Have homeowners completely lost their noodles in this city?

The economy has stagnated. The U.S. stock market is down about 10% over the last 12 month period. The TSX in Canada has seen worse, falling by 20% since this time last year. Canada lost more jobs than it gained last month, pushing the unemployment rate up to 7.2%. Low oil and commodities prices is costing us a lot of jobs not just in this country but also in emerging markets that export metals and other resources. Negative interest rates are as common as the flu. Asia’s growth is slowing down. U.S. Treasury yields have fallen from 2.0%+ to just 1.6% over the last 6 months. And as Lenore Hawkins, chief economist at Meritas Advisors, says, the slowdown of growth in “global trades is at levels we haven’t seen since around 1958.” It’s almost like the entire world is in recession.

But despite all the negative news and market volatility out there, local real estate as a whole has remained stubbornly bullish for the last 4 decades.


What the wise man usually does in the beginning, the fool does in the end. But due to market inefficiency and human nature there’s now an adage which assumes that even if we are fools to overpay for a piece of property, some greater fool will eventually come by and pay more for it, lol. But this risky game of hot potato probably won’t end well. Nobody wants to be the last fool. But at some point in the future prices will correct and someone is going to lose a lot of equity in their home. I just hope it won’t be me.

Disclosure: I own Vancouver real estate. 😛

Random Useless Fact:

Arnold Schwarzenegger was caught touching himself in public ?



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02/11/2016 6:50 am

Don’t worry, Christie Clark says she’ll fix everything! L. O. L.

Dividend Growth Investor
02/11/2016 6:51 am

As I said on Twitter, perhaps I should re-think my exposure to the big 5 Canadian Banks. I don’t like the combinations of a potential housing correction and energy correction causing a financial correction that could affect those banks profits.

02/11/2016 7:27 am

Wouldn’t worry about the banks. They will get bailed-out or bailed-in (whatever it’s called these days), just like last time.

Dividend Growth Investor
02/11/2016 11:07 am
Reply to  Anon

A company can be bailed out by the government, and shareholders can still experience devastating losses like some US banks, US insurers or US auto manufacturers. So the worry is not about the banks themselves, but the shareholders of those banks. A dividend cut will be a sure sign to get out.

02/11/2016 11:20 am

The U.S. has a different banking system than Canada, thus their failure rate. All you have to do is look at the performance of CAN banks during the 2008-09 crisis to have a general assumption of how a severe housing downturn will effect them and their stock, including dividends.

We definitely don’t have the same bullets to fire as we did back then, so really, who knows how it would play out.

Dividend Growth Investor
02/11/2016 1:18 pm
Reply to  Anon

This is a discussion in which I root against what I think. So I will be happy if the big 5 banks prove me wrong and keep raising dividends for the next 3 – 4 decades, and never cut them. Happy Investing to everyone!

02/12/2016 4:22 am

Silicon Valley would like to apologize for exporting the excess heat from its housing market. Still have no idea where to vent it all without melting ice caps ….

Veronica Boog
Veronica Boog
02/12/2016 7:23 am

Once prices start declining (which they will) then Vancouver will no longer seem like a safe place to park your money. People relying on foreign money to prop the market don’t realize the foreign investors are rational actors and will not keep buying if the value of the asset is going down

No Nonsense Landlord
No Nonsense Landlord
02/13/2016 7:26 am

I see investors do it all the time too. Housing prices cannot outpace incomes forever. Something has to break.

02/13/2016 8:46 am

With Van and TO stripped out, the national house:income ratio is ~4x (16x for Van). To reach a ratio of 6x, the average house price in Vancouver has to drop 65% — on a permenent basis. Good luck with that. Even at the depths of the US housing bust only one market, Las Vegas, experienced a cut that deep.

Foreigners and the wealthy own the big cities, get used to it.

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