Sunday, September 16, 2012

Richmond: "No signs of market getting better. A real estate down cycle is in motion" - Realtor James Wong

Richmond, once the darling of the Hot Asian Money (HAM) crowd now seems to be ground zero the for the real estate crash in the Lower Mainland.

Richmond Realtor James Wong is out with his September 2012 report on sales in Richmond and it seems to get worse with each passing month.

Wong's September Report offers a veritable cornucopia of quotes...
August home sales in Richmond turned out to be worst than in July and the month before in June. The number of homes sold for the month was 179 which was 17% lower than the previous month sales of 216 homes. Active listings for detached homes, townhomes and condos/apartments in Richmond at the end of July, 2012 totalled 2,677 units, was marginally lower than the previous month’s listings at 2,700 homes.

August was another disappointment for many home sellers who were hopeful of selling their homes. Homes that were sold were mostly found to have aggressively cut their prices, or sellers accepting low-ball offers.

The real estate market in Richmond deteriorated further in August. The supply of homes in Richmond reached 12.51 months compared to the previous month of 11.02 months of supply. The lack of buying activities and large number of listings continued to exert pressure on home sellers to cut their prices in order to sell their homes. There are many more homes listed at or below their city assessment values.

There are no signs of the market in Richmond getting better. With the onset of the seasonally slower months in the fall, it is unlikely the last 3 months of 2012 will bring any relief to home sellers who are desperate to sell. Many homes that were priced according to the market, failed to generate much interest from buyers. Many of the homes that were sold were homes that offer better values, or priced significantly lower than comparable sales in the past 3 months.

Market sentiment is now working to reverse the gains in home prices. Condo prices in Richmond had stagnant for more than two years. Similarly, townhome prices remained at about the same level a year ago. For sellers who have to sell, the only way out is to cut prices… not just 5%, a much deeper cut of 10% to 15% is required.

A prolonged period of low sales, and declining home prices could take many years to play out. Declining home prices will erode seller confidence, resulting in more motivated home sellers to cut prices to sell before home prices drop further.

A real estate down cycle is already in motion, and just like from 1995 to 2001, the real estate market in Richmond will have a persistent high level or homes for sale, and few buyers willing or able to buy due to tighter lending rules.

Richmond detached homes over $1,000,000 are not seeing much buying interest. With total active listings of 721 and average sale around 26 homes the past 3 months, there are 26 months supply of homes. For detached homes over $1,500,000, there are currently 366 homes for sale. With an average past 3 months sale of 12 homes, this translates into 30 months supply of homes.

Even a small percentage of these sellers having to slash prices to sell, it will result in prices cascading downward. Early sellers would consider themselves the smart ones, cashing out long before others!

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