Thursday, May 22, 2008

Back to Fundamentals

I've been silently watching the "blog drama" that has been going on for the last few days. I really have nothing to say on it, except that everyone should be polite and when not in agreement, respectfully disagreeable.

Also, there were some false 'spam flags' on this blog causing it to be locked out. That's why there were no new postings in the last few days. And google blogger takes its own sweet time to manually review the blog(over a week in this case). Perhaps a lot of people clicked on the 'report objectionable' button at the top of this blog! There are may be quite a few people who want this blog to be shut down.

Closer to the real topic, inventory is gradually inching upwards while the statistical measures (median, 'special case median' etc) have moved slightly downwards. But bulls are still clinging to their original stories of "we’ve reached a permanently high plateau of prices." Or perhaps, according to them the current prices are entirely in line with fundamentals. That is fundamentals of the 'high energy prices', 'recession in Ontario', 'real estate always goes up' variety.

I came across this very valuable study from OECD that compares Canadian real estate prices to the real fundamentals-yes, the stories without the price of oil or weather in them-the price to rent ratio and price to income ratios.

Here's the link to the actual data


It only goes back to 2006, but it should tell us a lot about the state of the market inasmuch as we do know how things were like in early part of 2007.

It doesn’t focus exclusively on Alberta, but on Canada as a whole.

Price to rent wise, Canada as a whole is only slightly better than the biggest bubble places of all-Spain. We are far worse than the UK or even the much maligned US.

Of course, as mentioned numerous times, the real estate game is that of patience. That is if you are not a get rich quick speculator spoilt by the markets of last few years. Reversion to mean is a common place occurrence in all markets, and it will happen one way or the other- either prices will drop or prices will stagnate for a long time to erode all the gains of last several years.

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