By Ozzie Jurock
This article appeared in The Vancouver Sun on February 15, 2003
The headlines are full of 'wither' the markets ... 'wither' the economy, 'wither, wither'? Confusion is the only constant. You know our view: We think that the deflationists have been around since the thirties - steady, steadfast and always wrong. But they are - oh so convincing ... just as they were in 1966, 1974, 1982, 1991 and a whole bunch of times in between. Perhaps one day they will be right but I would not bet on it. Rather JREI sees great similarities to the commodities boom of the seventies which launched us back into massive inflation. In a world that sees all governments report NO inflation or 1-2% inflation, only our esteemed Governor of the BOC, Mr. Dodge allows that inflation is a worry: "We need to get back to our 2% target," and that means that "it is just a question of time of when interest rates will rise." Now with a war, we doubt that rates will rise that soon (it is also good for Canada - higher oil prices are good for exporters like us). So, no inflation, eh? What about the higher parking fees, raising user fees on anything from swimming pool fees to higher fishing license fees to a myriad of government services - none of which are in our 'basket of goodies' that make up the numbers we base our inflation rate on. In the meantime this year gold is up 30%, oil is up 70% (300% from 4 years ago), soybeans are up 32%, coco is up 40%, platinum is at a 17 year high. In fact the whole CRB index is a full third higher in a year gone to a 5 year high. AND we are printing money. No, we are not going to deflate, but as I have been preaching for years ... buy hard assets ... HARD ASSETS. I do feel sorry for well meaning Canadians that wanted to be safe and invested only in 'good stocks'. This month their RRSP statements will give them 'ticker shock'.
Major Point: If you had put $10,000 last year into Disney (great company, right?), it would be worth $7,500 today. Or you picked GE (GRRREAT company, eh?), you would have $5,890 left over. Worse, had you bought Time Warner your $10,000 shrank to $4,360 in your trembling hands. Had you had absolutely no knowledge of the real estate market, and were a simple first time buyer purchasing a condo in Yaletown and bought ANY used unit for 5% down at $200,000, that $10,000 you invested would have grown to a $32,000 equity. (Average used condo in Vancouver rose by 11%.) Had you bought other type of properties, made 'sophisticated moves' you could have see increases from 18% to 30%. Oh, and by the way ... you could have done as well in Edmonton, Calgary, Toronto, Ottawa and Montreal. Oh and in most US markets as well.
THERE IS A LOT OF MONEY OUT THERE WANTING TO GO INTO (ANY KIND OF) REAL ESTATE
Royal LePage reports that while leasing of industrial property across Canada is down a bit over the previous year, sales are up dramatically. Sales in all markets are up a whopping 71%. LePage also reports that investors have accounted for more than 51% of all transactions over $1 million Canada-wide. We have reported to you all last year that there is a lot of money chasing fewer investment properties. The reason: a) the money is 'spooked' (as above), and b) the wealthy have easy access to cheap, cheap cash. That is also why worldwide resort real estate is soaring. Easy cash generated goes to the rich first and they drive up prices first. We see this trend continue as all the extra money swirls and swirls into hard assets.
Well, interest rate forecasts are a 'mugs game'. However, what is good enough for - "it is just a question of when interest rates will rise" - Governor Dodge, it behooves (yep, behooves) us once again to talk about pre-approvals. Get it in writing, even if your bank manager is your grandmother. If rates don't rise, roll it over for 60 or 90 days. If you have a property mortgage coming due later this year, but you don't want to pay it out because of penalties, get a pre-approval letter from another bank, keep rolling it over. That way, if rates should rise sharply out of the blue, you are protected. If they do not rise, just decide at renewal time what to do. Either way you are safe.
With a war pending we do not expect rates to rise - notwithstanding the above, but rates have a nasty history. They come down ever so slow but when they turn they can turn fast ... leaving everybody in the dust. We originally last year looked for a 2% increase this year. With Iraq and the US Central Bank stating last October 12, 2003 that it is fighting deflationary pressures - it may take longer. But with the amount of cash in circulation, easy cash, cheap cash this will not last. Investors be prudent. A five year term at 5.1% is well ... to die for. Ok, ok, to live for. Enjoy it while you can!
Following November's and December's (-8%) trend, unit sales volume in January dropped by 11% over January 2002. However, prices clocked in a whopping 12% higher on average and some sub sectors saw even more astounding increases. The sharp increase in new condos prices continues (December average new condo price came in at $335,000 - 43% higher, January 2003 at $378,000 -48% higher!). However, these increases in price are accompanied by a surprising drop in unit sales. New house sales declined by 31% to 69 units, used detached home sales dropped by 12% to 872 sales. New townhouse sales dropped by 31% to 44 units while used town home sales dropped by 26% to 244 units. Resale apartment sales were 5% lower at 636 unit sales. Only new condo sales rose by 24% to 103 units. The active listing sector shows still a healthy (healthy for a strong market to continue) decline of available product by some 4% to 9,300 units.
|January 03||January 02||%|
|Detached Prices new||461,500||413,000||+11%|
|Detached Prices used||419,600||258,900||+16%|
|Apartment Prices new||335,800||234,700||+43%|
|Apartment Prices used||181,600||163,500||+11%|
Major Point: Not much product usually forces prices higher. While new listings overall were higher during the month, it is only a 4% increase. Sellers are sitting on the sidelines, wondering whether it is wise to sell now or wait till 'spring'. In the meantime, buyers seeing fewer units available make offers. We see the trend continue to the spring.
REAL ESTATE ACTION GROUP
Your response to the first Real Estate Action Group has been tremendous ... .. and it was oversubscribed. We have had a lot of inquiries about it, AFTER we closed the first group off. We have decided to start a second group (March 10, 2003 first session). JREI subscribers are invited first. Please note, unlike the 'founding group' only the first 20 of the second group will have a one-on-one session with Ozzie in addition to the 14 monthly sessions. Again, this will be a fantastic group that will create and benefit from buying and selling real estate in a constructive and planned environment. Coaching and monthly 'hands-on' meetings will identify areas, case studies, financing modules and how to structure them. The goal: Growing a future of unearned income through investing smartly in real estate. If interested, we urge you to call Marc TODAY at 604-683-3870. This year get off the fence and act!
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