From $13,000 to $1.1 million since 1960

(October 28, 2011 )

Vancouver housing prices have soared, but in between there have been lots of valleys

Featured in theVANCOUVER SUN

In 1960, a chocolate bar and an ice cream cone competed for that 10 cents in your pocket and your home sold for an average price of $13,105. Yes! By 1970 we reached $24,000, by 1980 we clocked in at $100,000, by 1990 $230,000 and by 2000 $296,000. In the last 11 years we rocketed from there to where we now are at $1.1 million (average used home sale price between Lions Bay and Mission). And that ice cream cone? Approaches $4!

And that is what happens when you have inflation in hard assets. Milton Friedman stated 20 years ago: "Inflation is primarily a monetary problem." Money that is created out of thin air and competes with the money you and I earn makes all hard assets dearer. And, boy are we ever creating money out of thin air - worldwide.

Now we can argue that we have an inflation rate of only 2.1 per cent (poppycock). Realize that today's inflation basket does not allow for most food, housing and oil. Go to www.shadowstats.com to compare to the Volker basket. However, whatever your view, we have had massive inflation in housing prices, driven by excess, cheap easily available money and today we are doing more - much more - of the same.

Of course, we did not get to that million-dollar average price in a straight line. Real estate by its very nature is local, based on our collective confidence and is thus cyclical.

We had a lot of valleys to go through. Throughout the 1960s the largest mortgage you could get was 66 per cent of the home's value and you paid 9.5 per cent for a fiveyear term.

Almost every transaction needed a second mortgage and that one stood you 16.5 per cent. Throughout the 70s, 80s and 90s rates were over 10.5 per cent.

In 1974 the Dow Jones Industrial Average hit 1,000 for the first time only to collapse by 40 per cent within eight months. And our papers were full of: Real estate is next and Realtors are prowling like hungry tigers.

And the naysayers (the dried food, deflation, depression crowd) were out in force: We will collapse.

In 1979 when our average price stood at $71,000 we saw an inflationary boom of some magnitude, culminating in the spring of 1981 at $181,000. However, by the fall of 1982 we collapsed by almost 40 per cent to $110,000. Of course, a fiveyear mortgage term that soared to 16.5 per cent was the culprit. Short-term money was 21 per cent. Canada savings bonds paid 19.5 per cent!

The naysayers brought out the champagne.

Yet by 1990 the average price had doubled to $230,000 even with a five-year rate of 13.5 per cent, but the bad news from the U.S. spilled over (787 banks collapsed in 1990 in the Savings and Loan scandal and U.S. housing prices crashed by 40 per cent) and the early 90s were tough slugging. But by May 1995 our average price had roared back to $340,000. Alas, we had overbuilt, the immigrants fleeing Hong Kong failed to materialize (mainland China having masterfully handled the Hong Kong repatriation into China) and down we went in price (-17 per cent) to $278,000 by 1998.

I wrote a book in 1998 Forget About Location, Location, Location in which I steadfastly argued that inflation was the culprit and if we kept printing money our average price would shoot to $6 million by 2036. You know the rest. Today, we stand at $1.1 million. Yet, naysayers are out in force again.

Real estate remains cyclical. I have told my subscribers to expect a downturn in the Interior and Vancouver Island over a year ago and a slowdown in Vancouver, too. But, I remain convinced that the naysayers will be wrong again. Yes, the numbers are bigger, the zeros larger and yet each time - after climbing a wall of worry - we muddle through with the result that hard assets will be even higher five to 10 years later.

House hunting is a little like duck hunting. When duck hunting one has to lead the duck. You have to shoot ahead to allow for the distance the duck is going to fly while your shotgun pellets are getting to him.

If you don't you'll always be shooting where the duck was, not where the duck is. Same thing with the real estate market. It is always changing. You have to know what's happening with the aspects involved in your potential purchase and the management of your existing property portfolio.

Chris Frederickson | Sutton Group West Coast Realty | 604.306.1062 | chris@chrisfrederickson.ca

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