Making Sense Of Canadian Real Estate Prices

Is there are direct relationship between Canadian real estate prices and money supply?

Real estate is subject to supply and demand like any other goods that are in demand by people. The increase in Canadian home prices when compared to the increase in the prices of crude oil and gold, showed a close relationship with the supply of money (both in Canada and the global supply of money).

The table below clearly show the gain in prices for real estate, crude oil and gold are directly related to the supply of money over a 20 years period.

Time Period	Jan/1990	Jan/2000	Inc. 1st 10 Yr	Jan/2010	Inc. 2nd 10 Yr	Inc. 20 Yr
Van SFH	$300K	$380K	27%	$950K	150%	216%
Van Thse	$190K	$220K	16%	$355K	61%	87%
Cdn $ Supply	$18 Billion	$33 Billion	83%	$55 Billion	67%	205%
Global $ Supply	US$17 Trillion	US$26 Trillion	52%	US$64 Trillion	146%	276%
Crude Oil/barrel	US$20	US$27	35%	US$68	152%	240%
Gold/oz	US$380	US$280	-27%	US$1100	293%	189%

Charts and data source: Real Estate Board of Greater Vancouver, DollarDaze.org and Kitco.

First 10 years - 1990 to 2000

The gain in home prices for single family homes and townhomes in Greater Vancouver were 27% and 16% respectively. The increase in crude oil price and the supply of money were 2 to 3 times more. During this period, there was a rapid gain in home prices from 1990 to 1994, followed by 5 years of price decline when capitals were moved back from Canada to China. Immigrants from Hongkong and Taiwan sold their homes and move money out of Canada after the hand over of Hongkong to China.

Second 10 years period - 2000 to 2010

The rise in Vancouver single family home prices, crude oil and gold followed closely with the global supply of money. Although the Canadian money supply was increasing at half the rate of global money supply, money from around the world and China could have been recycled and invested in Canadian real estates. The rapid expansion in liquidity around the world resulted in real estate prices all over the world, making double digit gains.

New money fueling home sales

The rapid rise in home prices, easy money policy from CMHC and low interest rates all helped to fuel the real estate boom in Canada. Canadian banks were very liberal in granting “home equity lines of credit” to home owners whose homes had doubled in values. Home owners and investors made very handsome gains in their real estate purchases over the past 10 years.

Will real estate prices collapse?

After a huge run-up in prices since 2001, many are wondering when they will be a correction in home prices. There were time periods when the market appeared to crack and roll over. But, this has not happened.

The above data showed that real estate prices seemed to co-relate with the global supply of money. The Chinese economy over the past 10 years had grown at just over 10% a year, and the momentum appears to be able to be sustained for the foreseeable future.

Money from China has a direct and significant impact on Canadian real estate prices. Canada is a favoured country for immigration by mainland Chinese families and immigrants from around the world. British Columbia will continue to enjoy positive inflow of money and new immigrants. Rich Chinese immigrants are making an impact on home prices in Vancouver Westside. Overall, real estate in BC will benefit from the demand for housing by new immigrants.

Read other Metro Vancouver real estate news here.

Foreclosures in US could grow much bigger over the coming year

Below is an article by Renae Merle, Washington Post Staff Writer - Friday, March 12, 2010

New round of foreclosures threatens housing market

The housing market is facing swelling ranks of homeowners who are seriously delinquent but have yet to lose their homes, and this is threatening a new wave of foreclosures that could hit just as the real estate market has begun to stabilize.

About 5 million to 7 million properties are potentially eligible for foreclosure but have not yet been repossessed and put up for sale. Some economists project it could take nearly three years before all these homes have been put on the market and purchased by new owners. And the number of pending foreclosures could grow much bigger over the coming year as more distressed borrowers become delinquent and then, if they can't obtain mortgage relief, wade through the foreclosure process, which often takes more than a year to complete.

Read the article here>.

When It's OK to Walk Away From Your Home

below is an article by By BRETT ARENDS, published on February 26, 2010 in the online.wsj.com.

Millions of Americans are now deeply underwater on their mortgage. If you're among them, you need to stop living in a dream world and give serious thought to walking away from the debt.

No, you shouldn't feel bad about it, and you shouldn't feel guilty. The lenders would do the same to you—in a heartbeat. You need to put yourself and your family's finances first.

How widespread is this? More than 11 million families are in "negative equity"—that is, they owe more on their home than it is worth—according to a report out this week by FirstAmerican Core Logic, a real-estate data firm. That's a quarter of all families with mortgages. And for more than five million of those borrowers, the crisis is extreme: They are more than 25% underwater—the equivalent of having a $100,000 loan on a property now worth just $75,000 or less. That's true for a fifth of mortgage holders in California, nearly a third in Florida and an incredible 50% in Nevada.

Read the blog here.