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The Canadian Real Estate Correction Chartbook





Last fall Paris based bank, Societe Generale, produced a<br /> comprehensive report on the impact of changing global demographics on<br /> consumer trends. The report points to the rapid development of property<br /> markets in much of the western world since the 1990s as a by-product of<br /> maturing baby boomers shifting into an asset-accumulation-phase of<br /> their consumer life.







Navigating a Sea of Opportunity

Canadian Economic DataCanadian Demographics
& Real Estate

Last
fall Paris based bank, Societe Generale, produced a comprehensive
report on the impact of changing global demographics on consumer
trends.  The report points to the rapid development of
property
markets in much of the western world since the 1990’s as a by-product
of
maturing baby boomers shifting into an asset-accumulation-phase of
their consumer life.  Although the drivers of the Canadian
housing
boom are best explained by the coalescence of many factors,
demographics
shifts are often an underappreciated and often misunderstood
contributor.
To
better understand current consumer age demographics in
Canada, Chart D1 below dissects Canada’s current population by age and
consumer behaviour groups.  As displayed in the chart a large
bulbous
mass of “experienced workers” will enter retirement in upcoming years –
a fact that should come as no surprise and one that is frequently
cited.  These retirees are generally asset rich but with
decreasing ability to generate revenue and with reduced
savings
potential.  But most relevant to real estate, retirees finance
consumption
in
large part through depletion of both: liquid-savings and illiquid
equity in hard assets (eg. real estate).

Chart
D1:
new
Housing Bubble


Click Here to view a larger version of
this chart.
 

An
interesting observation by Societe Generale (Soc Gen) is that most
housing
bubbles in industrialized nations appear when the share of the
pre-retiree population (i.e. aged 45-65) experiences rapid growth.
These two events, housing price appreciation and growth in the 45-65
year old population, are – as the report states, “no
coincidence”.  In other words, the run up in housing
prices
over this period of shifting demographics is largely explained by the
same group’s changes in consumer demand.

Applying Soc Gen’s observation to
present day Canada, we uncovered a significant break in trend over the
last two
decades.  The inital trend, as shown in Chart D2 below,
involved
the 45-to-65 year old cohort which remained a relatively constant
proportion of the total Canadian population at
just below 20%. The trend continued for two
decades, the 1970’s and
1980’s.  Yet over the
following two decades, the 1990’s and 2000’s, this same cohort swelled
to contain 10% more of the overall Canadian
population.   In
absolute numbers, there are approximately 4.3
million more Canadians in the 45-65 age group now than there were in
1990.
 
The
size of the shift in demographics is almost
equivalent to
the current population of Canada’s third largest province, British
Columbia. What should be taken from this is that the shift in
proportional population sizes had a tremendous impact in aggregate
Canadian consumer behaviour.

Chart
D2:
new

Canadian Population Proportions by Age Group


Click Here

to view a larger version of
this chart.

The
other interesting observation from the chart above is the
decreasing supply of
“young dependents”, or youth under the age of 20, that is now at
generational lows.  This cohort
in
past generations was plentiful enough to not only replenish older
workers exiting the Canadian labour force, but also fueled growth of
the labour force itself.  What is the impact of this shift?
Simply put, the potential labour force in Canada is forecast to shrink.
Barring changes to immigration, Canada is forecast to see an increasing
“dependency ratio”, or the number of child
dependents and elderly in relation
to the potential labour force (Chart D3
below).  These dependents will effectively act as a social
tax resulting from a shrinking labour force
carrying the social costs of a rapidly aging population.

To fully
appreciate Canadian historic and projected demographic shifts and their
impact on real estate pricing, one should pay attention to Chart D3
below.  The chart identifies that the economic boom witnessed
in
Canada over the last decade was not only a function of global commodity
demand and increasing leverage, but was also assisted by the tail end
of a massive demographics boom.  This demographics boom began
in
1965 and lasted until 2010.  The by-product of the boom was
rapid
growing demand for consumer products, consumer services, real estate
and anything else coveted or required by a young growing work force
powered by
expanding credit. Assuming United
Nations’ population forecasts for Canada hold, Canada’s
shifting
demographics will likely result in a headwind for some
consumer-sensitive components of the domestic economy. Components of
the economy that once serviced the needs of a younger population but
are out of favour by the elderly will come under pressure.   It is reasonable to
assume that future Canadian consumer behaviour will be markedly
different than what was witnessed over the last half century.

 Please note, the reliability of even basic demographic
forecasts begin
to
severely erode after approximately 20 years, however, for illustrative
purposes we have included the UN’s projections to 2100 in the chart
below.

Chart
D3:
new

Canadian dependency ratio


Click
Here

to view a larger version of
this chart.

Real Estate Review – The
last six months

    Real estate looking riskyReal Estate 6 month reviewSince
    our last chartbook update in July 2012, the Canadian housing market has
    been anything but uneventful.  The headline news of the period
    was
    the change to mortgage rules by the Finance Minster, Jim Flaherty, that
    were put into effect in early July with the goal of curbing aggressive
    expansion of Canadian mortgage debt (read more).
     
    In the same
    month that new mortgage rules were put into place, Standard
    &
    Poor’s Rating Services revised its credit outlook from stable to
    negative on several Canadian Banks due to exposure to consumer debt and
    unsustainable home prices (read more). The change in
    S&P’s credit outlook
    was in addition to a later warning by credit
    rating agency Moody’s, indicating that it too was reviewing the credit
    rating of six Canadian banks and downgrades could follow (read more). 
    Additionally in October the International Monetary Fund (IMF) cut
    Canada’s economic growth forecasts also citing overvalued Canadian
    housing market and heightened consumer debt levels (read more).

    Even
    esteemed Yale economist and US housing expert Dr. Robert Shiller
    weighed in on Canadian housing in a CBC interview in September in which
    he stated, “I worry that
    what is happening in Canada is kind of a
    slow-motion version of what happened in the US
    ” (read more).

    At the
    data level, Credit reporting agency TransUnion reported that Canadian
    debt loads grew at the fastest pace in two years during the Summer of
    2012, despite numerous warnings by Mark Carney and Jim Flaherty to
    Canadians on the risks of excessive leverage (read more).  Statistics
    Canada also released data revisions indicating that Canadian debt had
    risen
    to 163% of disposable income, placing Canadian ahead of indebted
    Americans and British consumers on credit consumption (read more)

    Added
    to all of this activity was yet another standard-issue warning by Mark
    Carney, Governor of the Bank of Canada, on the dangers of excessive
    household debt (read more). 
    Unfortunately, Governor Carney’s warning
    came only weeks before announcing he was leaving the Bank of Canada for
    the equivalent seat at the Bank of England, a country that has already
    experienced its housing correction. 

    Our gauge of
    consumer real-estate sentiment, powered by Google search volume for
    bearish real estate terms, spiked in mid 2012 as the
    aforementioned events began
    to unfold (Table 1).

    Significant price weakness also occurred. In
    Vancouver, (Chart 11),
    quarter over quarter home prices have experienced
    the largest drop since the 2008 financial crisis and the second largest
    drop in a decade.  Average single family detached home prices,
    which can be skewed by non-representative sales, have dropped almost
    13% between April and October.  Meanwhile price appreciation
    for
    Vancouver town houses and condos is non-existent with current prices
    nearing early 2008 levels and trending lower (monthly averages courtesy
    of Brian Ripley).  Yet,
    Vancouver still remains 38% overvalued when
    compared to its historical valuation ratio (Table
    2
    ).  Edmonton,
    Calgary, Toronto, and Montreal appear similarly overvalued. 

    Policy Analysis: Errors and
    Heroes

    Real Estate 6 month reviewThe
    recent decrease in home sales has been incorrectly blamed on the July
    change in government insured mortgages.  Under most scenarios,
    the
    reduction in max amortization had the equivalent impact on monthly
    mortgage payments of roughly a 1% increase in mortgage lending
    rates.  Thus the weakness in housing that followed sent a
    clear
    signal that the real estate market was dependent on low rates and
    expanding credit to fuel further price appreciation.  The
    tightening of amortization periods served more as a real-time stress
    test for the Canadian real estate market than an attack on the Canadian
    consumers.
      Unfortunately in this stress test
    Canadian
    real-estate failed to display any resilience.  

    Real estate looking riskyThe maximum
    insured mortgage amortization period that took effect in July is now 25
    years. It was reduced from 30 years which itself
    was set after an earlier reduction from 35 years.  Yet an
    even
    earlier reduction in insured mortgage max amortization periods from 40
    years to 35 years was put into effect in 2008.  The recent
    tightening of max amortization, however, was not anything
    new. 

    Instead, the changes only served to reverse a 2006 decision by the then
    governing Federal Conservative party to raise the maximum amortization
    period from the then 25 year max (what it is again now) to 40
    years. 
    This
    one decision may be remembered in Canadian economic history books
    as an extremely grievous policy error.

    Prior to the 2006
    loosening of government insured mortgages; the Canadian real estate
    sector had already experienced a half decade of surging
    prices. 
    The National Bank – Teranet home price index for the aggregate Canadian
    housing market indicated a 50% rise in home prices between January 2000
    and December 2005 (Chart 27).  Thus the
    policy change of 2006 was counter to basic Keynesian economics
    which advocates the use of fiscal and monetary policy for smoothing of
    business cycles.
    This is achieved by stimulating
    slow
    growth environments and enacting policies to cool excessively high
    growth economic environments.  The 2006 policy
    change, however, served a contrary
    goal of
    stimulating an already surging market. 
    What
    followed was a 26% increase in outstanding mortgage credit between mid
    2006 and mid 2008 (
    Chart 2). 
    Meanwhile, Canadian
    nominal GDP grew by half as much, only 13% (
    Chart
    5
    )
    and weekly
    Canadian Wages grew at slightly more than one-quarter at only 7% (
    Chart 6).

    In a recent statement the Canadian Finance Minister, Jim
    Flaherty, is now attempting to take credit for his recent actions,
    which in truth, only served to reverse his critical 2006 policy
    error.  Minister Flaherty exact statement was, “The housing
    market
    has softened somewhat in part because of steps that I’ve taken and I’m
    happy about that,” (read more).   In
    truth, the only policy
    maker
    in Canada that should be held in high regard is former Bank of Canada
    Governor, Dr. David Dodge, who in June of 2006 angrily criticised the
    Canada Mortgage and Housing Corp for utilizing new mortgage products
    which would lead to housing price inflation and reduce affordability

    (read
    more
    ).  It is now apparent that Dr. Dodge was
    correct.

    Liquidity Crisis – Why
    Volume Matters.

    Real Estate 6 month reviewThe
    fall of 2012 also witnessed the start of a Canadian real estate market
    slowdown as observed through rising unsold-home inventory levels, and
    falling sales volumes.  Even in Canada’s previous hotbed of
    real
    estate activity, Vancouver, sales volumes slowed significantly and
    inventory builds followed.  The Real Estate Board of Greater
    Vancouver reported that November 2012 sales were 28.6% lower than they
    were the same month last year (read more).  
    The Toronto Real
    Estate Board reported similar findings with November mid month sales
    down 17.5% with the same period of 2011 (read more).

    The
    drastic slowdown in sales volume in some Canadian markets has important
    impacts on future pricing. This is because a slowdown in home sales
    can create a build in unsold housing inventory as we are seeing in
    various regional markets.  As
    with any consumer good, in order to
    liquidate excess inventory back to a long term average, the price of
    the goods must be reduced.
    Essentially, homes have to be
    put on bargain
    pricing to entice buying and reduce inventory.
     
    Homeowners
    are naturally reluctant to lower prices and will first attempt to
    remove listing and re-list in a more favorable environment. 
    However, home prices are determined not by idle
    inventory but the price that units are exchanged at.  During
    periods of decreased sales volume, the few sales that occur will set
    the prices for the entire market.  
    This is what
    took place in the US real estate correction over the last half decade.

    Table
    V1 below displays the S&P Case Shiller home price index
    for
    seasonal “sales pair” data, an approximation for aggregate home sales
    in major US housing markets.  The table tracks the
    relative
    proportion of sales per year and per season to the same period’s ten
    year
    moving average.  What we glean from this is that the surge in
    US
    home prices leading up to the 2006 housing crisis was on the back of
    increasing sales volume. Alternatively, the severe drops in US home
    prices occurred during periods of shrinking sales volume. 
    Effectively, US home prices dropped on a housing liquidity drought in
    which home prices for the entire market were determined by a shrinking
    number of transactions  at lower and lower prices.

     The
    US home sellers who refused to budge on price themselves, had their
    homes forcibly re-valued by the market through lower priced comparable
    sales.  

    Table
    V1:
    new

    Canadian dependency ratio


    Click
    Here

    to view a larger version of
    this table
    .
    An
    update to this Chartbook will be published in April/May 2013.


    Real Estate Chartbook Library

    Real Estate 6 month reviewChart
    summaries are provided below and are divided into the following
    six categories:

    Section A
    (table 1 & 2 charts 1 to
    4):
    Canadian
    Real Estate Sentiment
    ,  Canadian Consumer Credit
    Growth,
    Household Debt as a Percentage of GDP, Real Estate Supply &
    Demand,
    Canadian Real Estate Valuation and Correction Table

    Section
    B
    (charts 5 through 10):
    Canadian Real Estate Market Trends, Valuations, and Drivers of Home
    Prices

    Section
    C
    (charts 11 through 18):
    Canadian Real Estate Unemployment, Vacancy Rates, and Home Price Growth
    in Major Canadian Cities

    Section
    D
    (charts 19 through 22):
    Canadian and US Real Estate versus Stock Markets (TSX and S&P
    500)

    Section
    E
    (charts 23 through 26):
    US Housing Price Performance vs.  Major Canadian Cities

    Section
    F
    (charts 27 through 33):
    Home Price and Sales Pair Volume Change for Major Canadian Cities
     


     

    Section A (Tables 1 & 2 and Charts 1 to 4):
    Canadian Real Estate Sentiment, Wage Growth, and Housing Supply


     

    Table
    1)
    Housing Bubble Sentiment
    Indicator 

    Canadian
    Real Estate bulls have continued to cite the fact that real estate
    valuations have appeared “expensive” for years, yet, the momentum
    has continued to take prices higher.  Real estate bears, on
    the other
    hand, claim that home prices have been so stretched from fundamental
    valuations that past price momentum is irrelevant.  As with
    all asset classes, a change to investor sentiment regardless
    of the
    catalyst that triggers the change (eg. rising interest rates,
    government policy, extreme valuations, etc.) will dictate future real
    estate returns.  

    To attempt to monitor real estate sentiment analytically, we examine
    the proportion of
    Google searches for the combined terms “housing
    bubble
    “, summarized by the originating city of the
    searches.  The table below displays the top six cities
    globally in which the term “housing bubble”  searched in each
    year
    from 2005 to 2012.  The
    highest proportion of city-sourced searches for
    “housing bubble” arise from two Canadian cities,
    Vancouver and
    Toronto. 
    The
    progression of the
    trend is ominous
    as California cities dominated much of the top searches until 2009,
    after which Canadian and Australian cities began to emerge.
     Absolute search volume for all of Canada is also plotted.
     Note, the spike in search volume in mid 2012 corresponding
    with a slow-down in housing sales volume and mortgage lending rule
    changes.

    The data below reflects recent updates to Google-Trend’s data.

    Canadian Real Estate
    Click Here to view a larger version of
    this table
    .  

     


     

    Chart 1)
    Canadian Consumer Credit Growth Rates

    Despite
    falling interest rates,
    Canadian consumer credit growth has slowed to the lowest levels in more
    than 12 years.  This observation is despite the fact that real
    bond yields, or inflation adjusted yields, have dropped
    significantly.  The axis on the right in red tracks 3
    to 5
    year real
    Canadian government bond yields which are now below zero.  In
    other words, interest income on these bonds are no longer sufficient to
    overcome lost purchasing power from the effects of inflation. 
    Should consumer and mortgage credit begin to contract then this
    will serve as a major headwind to future real estate appreciation.
     

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     


     

    Chart
    2)
    Canadian household credit
    as a percentage of nominal GDP

    Canadian
    household credit, both consumer credit and residential
    mortgage credit, has increased sharply over the last decade. 
    Total
    credit as a percentage of nominal GDP increased from under 60% during
    the third quarter of 2001, to the current levels
    of 90%.  The
    surge in Canadian
    household debt is predominantly comprised of residential mortgage
    credit as can be observed from the chart below.  Canadian
    consumer debt
    accumulation appears to have been exhausted and is currently in a stall
    state of approximately 90% of GDP.  Lack of debt accumulation
    is a headwind for further real estate price appreciation.  

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     


     

    Chart 3)
    Real Estate Supply and
    Demand Growth: Vancouver,
    Calgary, Edmonton, Winnipeg, Ottawa, Toronto,
    Montreal, Halifax

    In
    all major Canadian housing markets housing capacity
    growth has exceeded population increases between 2001 and Sept
    2012.  Calgary, Edmonton, Ottawa, Montreal and Halifax are
    what we
    would
    consider to be “severely overbuilt” with excess housing capacity
    of 50% or more than population growth over the same
    period. 
    Vancouver, Toronto, and Winnipeg, are “overbuilt” with excess
    housing capacity 20% more than population growth over the examined
    period. 

    Housing capacity is defined
    as the number of individuals that can be reasonably housed in new
    housing units, whether or not a new housing unit sits unoccupied,
    under-occupied, or over-occupied.  Assumptions made may be
    more appropriate for some markets over others.  

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     


     

    Chart 4)
    Canadian home prices over
    discounted rent valuation: Vancouver,
    Calgary, Edmonton, Toronto, and
    Montreal

    In
    theory, residential real estate prices should equal the discounted
    sum of future rental income.  As a result, we have attempted
    to estimate
    fair values for residential real estate in major cities by comparing
    actual prices to theoretical discounted prices (valuation
    ratio).  In theory, this ratio
    should equal one and deviations from this value should regress back to
    the value one over time.  Note, discounted cash flow
    calculations are highly volatile
    and dependent on underlying model assumptions. 
    However based
    off of this
    methodology, Canadian real estate appears extremely expensive in most
    major markets.  Canadian real
    estate only appears somewhat reasonably priced if the assumption that
    current
    emergency low interest rates continue indefinitely into the
    future.  Any increase
    in interest rates to even pre recession levels (which were also
    historically low) causes Canadian real estate as a whole to appear
    grossly overvalued.

    Table
    2 below attempts to quantify the degree of price correction
    necessary to return the valuation ratio  in these
    five real
    estate markets back to the historical average valuation ratio.
     

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     


     

    Table
    2)
    Canadian home prices over
    discounted rent valuation: Vancouver,
    Calgary, Edmonton, Toronto, and
    Montreal

    Using
    the data from Chart 5 above, the following table attempts to
    quantify the degree of price correction necessary to return
    the
    valuation ratio in these five real estate markets back to
    the historical average valuation ratio.  The price
    corrections
    necessary to return the valuation ratio to the historical moving
    average
    range from -39% in Vancouver, to -31% in Edmonton.  

    Canadian Real Estate
    Click Here to view a larger version of
    this table.  

     


     

    Section B
    (charts 5 through 10):
    Canadian Real Estate
    Market Trends, Valuations, and Drivers of Home Prices


     

    Chart 5)
    Growth of Canadian home
    prices in comparison to nominal GDP growth and mortgage credit


    Appreciation in Canadian home prices (from January 2000 onward) has
    more
    closely reflected growth in mortgage credit rather than growth in
    Canadian nominal GDP.  

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     


     

    Chart 6)
    Provincial wage growth
    versus home price appreciation:  Vancouver, Calgary,
    Edmonton, Winnipeg, Ottawa, Toronto, Montreal, and Halifax

    Canadian
    wage growth versus home price appreciation from 2001 to 2012 is
    reported below.  Average weekly wage growth per home province
    of each city is reported.  Also, only wages of full time
    workers between the ages of 25 and 54 were examined in an attempt to
    capture changes to the buying power potential of
    first-time-homebuyers.  In all ten markets examined, home
    price appreciation far surpassed
    average weekly wage growth.  The markets with the largest
    difference between wage growth and home price appreciation in
    descending
    order are:   Winnipeg, Vancouver, Montreal, Edmonton,
    Calgary, Ottawa, Toronto, Halifax

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     


     

    Chart 7)
    Canadian misery index –
    National,
    Vancouver, Toronto, and Montreal

    The
    Canadian misery index (inflation + unemployment rate) had been
    climbing since hitting a low at the end of the first quarter
    2008.  It has since peaked in 2012 as a result of lower
    inflationary pressure. Calgary is approaching multi year lows in
    misery.  The three largest
    Canadian cities have misery levels above the lows reached prior to the
    2008 financial crisis. 

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     


     

    Chart 8)
    Canadian real (inflation
    adjusted) rent index: Calgary,
    Vancouver, Edmonton, Winnipeg, Montreal,
    Halifax, Ottawa, Toronto

    Canadian
    residential rent increases have not historically kept pace with
    inflation.  While Canadian housing prices have surged higher,
    renting
    has become relatively cheaper.  This is evident from the chart
    below
    indicating long term trend of real-rents (inflation adjusted) has been
    downward in most Canadian cities.  This
    has implications for retirees expecting to utilize
    rental income to finance long term retirement expenditures. 
    As
    with non
    inflation indexed bonds, cash flows from Canadian real estate may prove
    to be ineffective to satisfy future increases in the cost of
    living.  This is in addition to the fact that residential real
    estate
    in Canada already possess low rental yields, or the net annual rental
    income generated from a property dividend by the current market value
    of the property.  

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     


     

    Chart 9)
    Canadian real (inflation
    adjusted) home price index: Vancouver,
    Edmonton, Toronto, Calgary,
    Regina, Montreal, Victoria, Winnipeg

    Long
    term real (inflation adjusted) annual home price returns have
    exceeded 3% in Vancouver and Victoria BC, while exceeding 1.5% in
    most other large Canadian cities.  Edmonton is the only
    exception with a
    compounded annual house price appreciation of 0.64% over the examined
    period.  To put this into perspective, numerous examinations
    of long term real
    US home price appreciation
    indicate that they have only slightly exceeded inflation at an
    approximate annual
    compounded rate of 0.5% per year.  

    Canadian Real Estate
    Click Here
    to view a larger version of
    this chart
    .  

     


     

    Chart 10)
    Canadian home prices to
    rents: Vancouver, Calgary,
    Edmonton, Toronto, Montreal

    Canadian
    home prices are currently not in line with historic multiples
    of residential rental prices.  Most extended from historical
    norms are
    Vancouver, Montreal, and Toronto.  While Edmonton and Calgary,
    are
    elevated from historic averages but below previous witnessed
    highs.  

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     


      

    Section C (charts
    11 through 18):
    Canadian Real Estate
    Unemployment, Vacancy Rates,
    and Home Price Growth in Major Canadian
    Cities


     

    The following charts display a time
    series of unemployment, vacancy rates, and quarterly home price changes
    for: Vancouver, Calgary, Edmonton, Winnipeg, Ottawa, Toronto, Montreal,
    and Halifax.  

    Chart 11)
    Vancouver unemployment,
    vacancy rates, and home price growth

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 12)
    Edmonton unemployment,
    vacancy rates, and home price growth

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 13)
    Calgary unemployment,
    vacancy rates, and home price growth

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 14) Winnipeg unemployment,
    vacancy rates, and home price growth

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 15) Ottawa unemployment,
    vacancy rates, and home price growth

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 16) Toronto unemployment,
    vacancy rates, and home price growth

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 17) Montreal unemployment,
    vacancy rates, and home price growth

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 18) Halifax unemployment,
    vacancy rates, and home price growth

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Section D
    (charts 19 through 22):
    Canadian and US Real Estate versus Stock Markets (TSX and S&P
    500)


     

    Chart 19) From 1977 – Canadian real
    estate
    versus the TSX index

    Displayed
    in the chart below are Canadian home prices as a ratio of the
    TSX index (Canadian stock market) from 1977.  Seven cities are
    included:
    Vancouver,
    Victoria, Calgary, Edmonton, Regina, Toronto, and Montreal. 
    Over the
    long term, home prices in Canada have
    lagged price appreciation of stocks.  Note, the stock index
    below is a
    “price index” and therefore, excludes payment of dividends.  

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 20) From 1998 – Canadian real
    estate
    versus the TSX index

    Displayed
    in the chart below are Canadian home prices as a ratio of the
    TSX index (Canadian stock market) from 1998.  Nine cities are
    included:
    Vancouver,
    Victoria, Calgary, Edmonton, Regina, Ottawa, Toronto, Montreal, and
    Halifax.  Over the medium term, home prices in Canada have
    outperformed price appreciation of stocks.  Note, the spike on
    the
    charts observed at March 2009 represent the stock market bottom during
    the financial crisis.  

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 21) From 1987 – US real
    estate versus the S&P 500 index

    For
    comparison purposes the following two charts (Chart 20 and Chart
    21) have also been
    included which display US home prices as a multiple of the
    S&P 500 (US stock market).  The chart immediately
    below displays US home prices as a ratio of the
    S&P
    500 index (US stock market) from 1987 onward.  Fourteen US
    cities are
    included in the chart below as well as a composite index of ten major
    US Cities.  Over the medium term, home prices in Canada have
    outperformed price appreciation of stocks.  Note, the spike on
    the
    charts observed at March 2009 represent the stock market bottom during
    the financial crisis.  

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 22) From 1998 – US Real
    Estate versus the S&P 500 Index


    For comparison purposes the following chart and the chart above have
    been included which display US home prices as a multiple of the
    S&P 500 (US stock market).  The chart below displays
    US home prices as a ratio of the S&P
    500 index (US stock market) from 1987 onward.  Fourteen US
    cities are
    included in the chart below as well as a composite index of ten major
    US Cities.  Over the medium term, home prices in Canada have
    outperformed price appreciation of stocks.  Note, the spike on
    the
    charts observed at March 2009 represent the stock market bottom during
    the financial crisis.  

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Section E (charts
    23 through 26):
    US Housing Price Performance vs.  Major Canadian Cities


     

    The following charts indicate relative
    performance of US home prices
    to Canadian home prices in four Canadian markets: Vancouver, Calgary,
    Toronto, and Montreal.  US home prices reflect Canadian
    dollars by
    applying a timely CAD/USD exchange rate to the US home price index.
     

    Chart 23) US Home Prices versus
    Vancouver Home Prices

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 24) US Home Prices versus
    Calgary Home Prices

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 25) US Home Prices versus
    Toronto Home Prices

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 26) US Home Prices versus
    Montreal Home Prices

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Section F
    (charts 27 through 33):
    Price and Sales Pair Volume Change for Major Canadian Cities


     

    The following charts indicate annual
    changes in monthly home prices and “sales pair” volume.  Data
    has been
    generously made available by Teranet – National Bank for: Canada,
    Vancouver, Calgary, Ottawa, Toronto, Montreal, and Halifax. 
    Please visit http://www.housepriceindex.ca/
    for the definitions and methodologies used
    calculating their indices.  

    Chart
    27) Canadian Home Price and
    Sales Volume Change

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 28) Vancouver Home Price and
    Sales Volume Change

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 29) Calgary Home Price and
    Sales Volume Change

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 30) Ottawa Home Price and
    Sales Volume Change

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 31) Toronto Home Price and
    Sales Volume Change

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 32) Montreal Home Price and
    Sales Volume Change

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

     

    Chart 33) Halifax Home Price and
    Sales Volume Change

    Canadian Real Estate
    Click Here to view a larger version of
    this chart
    .  

     

    Pacifica
    Partners – Capital Management

    Navigating
    a Sea of Opportunity

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    Disclaimer:

    This report is for information
    purposes only and is neither a solicitation for the purchase of
    securities nor an offer of securities. The information contained in
    this report has been compiled from sources we believe to be reliable,
    however, we make no guarantee, representation or warranty, expressed or
    implied, as to such information’s accuracy or completeness. All
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    date of the report and are subject to change without notice. Past
    performance is not indicative of future performance. Please note that,
    as at the date of this report, our firm may hold positions in some of
    the companies mentioned. 




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