Housing and the Economy are the main items in the news that grab our attention on this Bank Failure Friday (updates from the FDIC as they come in).
Royal Bank came out with it's latest Housing Trends and Affordability Report. Many news outlets reported on the story with the headline "Home Ownership Got More Affordable at end of 2008", but that was highly misleading if you didn't read the report.
Regarding British Columbia:
- Housing markets remain under heavy downward pressure in British Columbia. With the sharp rise in unemployment since last summer worrying households in the province, demand is generally weak and falls well short of available supply. This is sustaining the declining trend in prices for both existing and new homes. Nonetheless, there are signs that the situation might be close to stabilizing. After falling precipitously since hitting nearly record high levels in 2007, sales of existing homes appeared to have found a floor in the closing months of 2008 and the first two in 2009 – although at historically depressed levels. This, in part, might reflect a notable improvement in affordability, which removes a thorn in the B.C. markets’ side that emerged in the aftermath of the boom. From the end of 2007 to the end of 2008, RBC’s affordability measures in the province improved between 4.1 and 6.3 percentage points, depending on the housing type. Still, the restoration process has much further to go as measures remain significantly worse than historical averages.
- To say that things continue to be tough in the Vancouver housing market would be an understatement. A small up-tick in existing home sales since December has brought only cold comfort after the collapse of more than 60% in the preceding 15 months. Prices are down 4% to 9% from peak – or more than 30% if no account is made for the changing mix of housing types being sold – and still sliding. Pricing power remains firmly in the hands of buyers with the sales-to-new listings ratio at historical lows, indicating an enormous imbalance and suggesting that prices will likely correct further in the months ahead. Despite the price decline to date and the break on mortgage rates in the past year, the cost of homeownership in Vancouver is still exorbitant both in absolute terms and relative to income or rent. As families in the area worry increasingly about dwindling job prospects, poor affordability will continue to weigh on the market.
Meanwhile news on the Economy continues to create conditions that will drive real estate prices down in BC.
Montreal based forestry giant AbitibiBowater filed for bankruptcy protection in the United States as sales of newsprint have collapsed. 4,000 workers are out of work in Ontario and BC mills have been dealt another blow.
Meanwhile stats are out on the number of bankruptcies in February. Across Canada filings jumped by 22.1% from a year earlier and 13.1% higher than in January. But bankruptcies were up 67.4% year-over-year in Alberta and 44.8% in B.C.
The Alberta number is significant because the Okanagan is driven by Albertans with summer property there.
The dominos continue to fall in advance of the collapse of the summer tourism season. It doesn't take a degree in rocket science to understand why.