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I can just imagine the pain and suffering of active traders who are trying to trade things like energy and bonds on a short-term basis.

One moment energy is crashing, then there are days like this with 6% rallies across the board... really crazy. I'm still guessing the trend is up but who knows.

I still think summer will be directionless, and the action starts in Q4.
I would take the opposite stance. Volatility is a trader's friend. Definitely requires nerves of steel but traders can make (or lose) a fortune in our current market volatility. I agree that pricing will be erratic over the summer. I will keep adding as cash becomes available even though prices will bounce all over the map. some think tech is at or near the bottom. I am hoping for another leg down for big tech names. Not sure it will happen.
 

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Discussion Starter · #163 ·
But that chart does not normalize for age. They are all shown on the same x-axis (year)... it's logical and expected for older people to have more wealth in RE.

Isn't it normal for the oldest generation (at any given time) to have more RE holdings?
 

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But that chart does not normalize for age. They are all shown on the same x-axis (year)... it's logical and expected for older people to have more wealth in RE.

Isn't it normal for the oldest generation (at any given time) to have more RE holdings?
The second chart is old and came up by mistake

The first one is new. Look at those spikes
 

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Discussion Starter · #165 ·
The second chart is old and came up by mistake

The first one is new. Look at those spikes
Oh yeah no question these are insane increases in RE, happening now.

Way out of the ordinary. Obviously stimulus driven and I think it's catastrophic for the younger generations.
 

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The last two years will go down in history as an experiment of what can go wrong when governments lose control of the vehicle. It was reasonable for governments to flood taxpayers with support in the early stages of the pandemic when it was not clear where the pandemic was going to take us, i.e. whether we'd have body bags 100 deep on the edges of our cities and a complete shutdown of society, or whether there would be a vaccine (light) at the end of the tunnel. The problem was in not shutting the valves nearly soon enough and targeting support on a means tested basis to those penniless in the streets. There was no discipline.

All that liquidity (and lack of discretionary spend elsewhere) ended up fueling an RE binge with essentially zero percent mortgages. Twenty or thirty years from now, central bankers and governments will look back on this period with astonishment just like they do today on how we (didn't) manage inflation 50 years ago.

I believe the RE story as it is today will have a great reset, i.e. reversion to the mean, in some form. Either flat lining for years, or with a major correction. Mortgage rates are not returning to what they were just a year ago.
 

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Discussion Starter · #167 ·
All that liquidity (and lack of discretionary spend elsewhere) ended up fueling an RE binge with essentially zero percent mortgages. Twenty or thirty years from now, central bankers and governments will look back on this period with astonishment just like they do today on how we (didn't) manage inflation 50 years ago.
I'm worried that they don't even connect the dots like this, and will not acknowledge a mistake.

Look at what the Federal Reserve did in the early 2000s. Greenspan explicitly encouraged Americans to take ARMs, and talked about how great the low interest rates were for real estate. Greenspan deliberately kick-started a bull market in real estate which turned into one of the greatest financial disasters of modern times.

So this isn't the first time they've done this. To me it looks like they just do this over and over again.
 

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I believe the RE story as it is today will have a great reset, i.e. reversion to the mean, in some form. Either flat lining for years, or with a major correction. Mortgage rates are not returning to what they were just a year ago.
Real estate is destined for a bear market and a buyers market. The music stopped in March almost instantly. There are houses listed in early March that had 10+ offers and sold in hours, and there are houses listed in mid-March that are still on the market today. Mortgages rates are firmly at 5% or higher. The odds of a variable rate today at 3.3% being above 5% by the end of the year are extremely high. Houses will sell if priced lower but there is a lot of denial by homeowners who want to "cash out big" and are over-pricing and not negotiating - those days are long gone. If I was buying today, I would have a ton of selection and negotiating power, and especially for houses above the median price.
 

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those days are long gone
I think those days are gone... but not long gone.

Rates are peaking, inflation is peaking, recession is coming and high interests won't solve supply issues, there's still lots of people looking for a roof.

I'm looking at stats in the province of Quebec and June 2022 has much fewer sales than June 2021, but average sale time is about the same and median price is about 5% to 20% higher.

As per this graph about my neighbourhood, we're still deep in a seller's market.

Product Rectangle Line Font Parallel
 

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That graphic is hopelessly out of date. Dec 2021 is ancient history.

As Doctrine said, March (maybe April) was the turning point for sales volume and sales practices (multiple bids) in a number of locations. Timing will vary by geographic location but there was an abrupt and huge change here locally at that time, where there market became as hot as GVR albeit not at the same absolute price levels. Prices are off only 1.6% total over the past 2 months in aggregate but that is going to change as soon as sellers who need to sell have to substantially lower prices to get their properties sold. There is always a lag, sometimes as long as 6 months, before prices start to follow reduced sales activity. I am convinced our prices here will be substantially lower by September.

Quebec will most likely hit the wall just as hard in the not so distant future. I don't know about Calgary/Edmonton though. The surge in O&G prices and the depression that existed in house pricing for 5 years may actually keep those markets rising somewhat for the foreseeable future.
 

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Here's a more up-to-date graph including Q1 2022 for Montreal area. So far, all flat exception made for plex. I guess they'll soon release the data for Q2. I don't know how fast can things turn, but in Q1 rates were already moving fast.

Rectangle Line Font Parallel Screenshot


Interestingly, I guess that with the new reality of work-from-home, some people simply moved out of the big Montreal area, turning other nice cities into an ever more seller's market and with prices still rising in the +20% range over 12 months.


Rectangle Line Font Parallel Screenshot


I am convinced our prices here will be substantially lower by September.
I'm sure that will happen too, but mainly because we've just had a bubble of median prices rising more than +30% over the past 2 years, so even if prices drop -20% it's just a correction. Obviously, like in the stock market, it'll hurt those who bought the bubble.

And, yes, when looking at median price for plex in Montreal which have been hit the "hardest" since April 2022, it's starting to move down. I bought a plex in 2019 and the plex market would have to crash -30% from its peak for me to be below my purchase price... And yet that would mean buying at a higher mortgage rate anyways...

Rectangle Azure Slope Plot Font
 

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We're already moving into a balanced market here. If history is any guide I expect that to be a buyer's market before long.

Slope Rectangle Plot Line Parallel


I calculated some price drops for selected areas since the market peak in February.

Font Line Material property Parallel Rectangle


I prefer median prices because they cover a wide range of price points. The median is the mid point, so it represents the typical home (not to be confused with the average, which can be skewed by a few expensive properties). The benchmark price is the one most often quoted by the industry, but it's based on a formula that is not very responsive to market conditions. It tends to mask the initial stages of a housing correction, so it's no wonder the RE industry likes to use it. It also only applies to a specific type of home, so it's only useful for certain people.
 

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There's also all the current buyers (shoppers) who are on the clock with their mortgage pre-approvals at 4% from a few months ago. One of my relatives being one of them - I'm advising them to wait, but no dice - need to get that house fast before the pre-approval expires or need to re-do the mortgage at 5.2%. Spending 20k more on interest to save 50k on house price seems like a good deal to me... but oh well.

So there's an ongoing brief surge in buyers who might hold the market from crashing for another month or two, and then everyone who rushed in and were on the clock will be off the market, and people who dawdled around will now have higher mortgage payments and will not tolerate paying the same price as months before.
 

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This article by Tom Bradley provides an optimistic view of the current bear market. I think it does a good job in summarizing the current state and provides a vague but apt prognosis of where things are headed going forward. The statement that companies that have strong balance sheets will be rewarded is welcome news for those that believe in sound financial operations. Growth did have a good run and many expect value to have a bit of a run over the next while. I still expect a bumpy couple of quarters based on response to inflation data and interest rate response.
 

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Discussion Starter · #175 ·
Do any of you remember how in late 2007 / early 2008, there was an inflation scare? Commodities and energy in particular were rallying like crazy.

Energy became a very popular and overcrowded trade. While people thought they were protecting themselves from inflation, they were actually buying commodities right at the peak before an extremely sharp downturn. It turned into deflation and deleveraging.

I wonder if something similar is happening this year. I will actually applaud the central banks if they successfully fight inflation and knock down commodity prices.
 

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I will do the same if they can do it without causing mass unemployment and a major recession.
We are talking about the same group of people that have been consistently wrong, month after month, for over 2 years now? "We will keep interest rates low for a long, long time." As recently as a few months ago, they were predicting inflation would be normal by March of next year and now they are already talking about 2024.

Rectangle Slope Plot Font Line
 

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Discussion Starter · #180 ·
Stepping back a moment, let's remember that there has been intense financial stimulus thanks to the Federal Reserve (and BoC, ECB, BoJ) ever since 2008. This is when Quantitative Easing (QE) was combined with zero interest rate policy (ZIRP). The combined QE + ZIRP stimulus has been pumping liquidity into financial markets for many years.

We've now had 14 years in an environment with QE + negative real interest rates. That's incredible stimulus. It still continues today by the way.

And there was a massive stock market and real estate rally, something many of us have benefited from. But I think we've all forgotten how much of this was amped up by QE and ZIRP. They accelerated and fuelled the rise; it was a liquidity-driven bull market.

Conversely, I really think these asset prices will weaken very significantly if QE and ZIRP are taken away. It's the same liquidity story at play. You pump liquidity into markets, assets rise. Take away the liquidity and assets fall, or at least, perform poorly for a while.

So now you might ask, why do I remain invested if I expect the end of QE and ZIRP. The answer is that I'm not convinced that central banks have the balls to take away QE and ZIRP. They talk a big game, but are they really going to follow through? I'll believe it when I see it.

Right now we're more than a year into very high inflation, and there's a tiny bit of Quantitative Tightening (QT), and still effectively zero interest rates. We still have negative real interest rates.

The central banks haven't really tightened yet, and QT hasn't started (seriously) yet.

Central banks claim they will start significantly reducing the balance sheet (QT) in the fourth quarter, but they haven't done it yet. I can't predict what central banks will do, so that's why I'm not going to try to predict market direction or get out of stocks.

Also notice how the stock market has become extremely sensitive to comments from the Fed. This is rational IMO... it's showing that stock prices are basically determined by liquidity and stimulus policy. That's something I've talked about for many years: liquidity fuels the rise in stocks.

Many years ago, even the BMO published a report showing the amazingly high correlation between the Fed balance sheet and S&P 500. This is a well known relationship.

@MrBlackhill you'll notice that on the 'Rational Reminder' forum, people seem to think it's crazy and irrational when stock prices swing around as Powell opens his mouth. I think it's totally rational, and those people don't get it -- they don't understand the forces that move stocks. Liquidity and central bank policy is the biggest factor in the S&P 500 level.
 
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