Wednesday, October 24, 2012

After insisting prices would remain flat, Tsur Somerville concedes prices could drop 10% next year

Was it only last month, on September 5th, 2012, that everyone's favourite industry shill Tsur Somerville was trotted out to declare prices would not come down!:
Tsur Somerville, who holds a real estate foundation professorship at the University of B.C., expects prices to stay flat for a while “because our prices are high relative to what people think they should be,” Somerville said. “Our price adjustment will come from prices being flat for awhile and letting income catch up to where prices are.”
If fact it was just after this, on September 14th, 2012 that Somerville came out and tried to halt all concerns and worries about a possible collapsing of prices by infamously declaring you can't burst a bubble that isn't there.
If there was a large number of unsold units coming onto the market or a huge change in the economic environment, Somerville said, “that would really cause prices to tank.” 
“Most people don’t have to sell their house,” he said. “You bought it for $200,000. The price is now $150,000. Unless you have to, why would you sell it?” 
For prices to go down ­significantly, contended Somerville, “You need people who have to sell, either because the economy has collapsed and they don’t have any income or developers have built a whole bunch of units that are unsold and the bank is screaming at them or foreclosing or something like that.”
None of those conditions appears imminent. 
Somerville said it would take “some negative shock,” such as an ­economic meltdown or mortgage interest rates jumping from four per cent to nine or 10 per cent, to trigger lower prices.
So no lower prices then?

What a difference a month makes.

Yesterday the Vancouver Province headlined Somerville's latest comments by trumpeting Vancouver home prices could drop by 10% next year.

Prices could drop?

So much for remaining flat.  As noted in the Province article:
“As home sales continue to plummet in Vancouver, it wouldn’t be surprising to see 10-per-cent price declines next year." That’s the view of University of B.C. real-estate economist Tsur Somerville, who was asked to respond to new market forecasts released by the B.C. Real Estate Association.
So what is this forecast from the BCREA that has changed Somerville's outlook?
On Tuesday, BCREA chief economist Cameron Muir said tighter mortgage rules implemented by Ottawa this summer triggered a 20.5-per-cent drop in Vancouver home sales, in a market that was already softening. The plunge in sales will cause a six-per-cent price decline in Vancouver’s average home price, Muir said, to $734,000. The association sees sales rebounding by 13.7 per cent in 2013, but predicts prices will slide by another two per cent, to $720,000.
So prices will slide but sales will rebound?  

Hmm... sounds like another prediction to be revised at a later date to me.

The best quote from the article is this one:
These declines should be seen in the context of unrealistic gains in 2011, Muir said.
Say wha????

Unrealistic gains in 2011. Quick... search those BCREA monthly market reports. Does anyone recall the BCREA proclaiming "unrealistic market gains" at any time in 2011?

But don't worry, homeowners, Somerville hasn't abandoned the flat prices theory.  You assets might fall 10% in value next year, but:
"(Somerville) expects prices to be more or less flat in 2014."
As for Cameron Muir, he wants to disuade all those bargain hunters sitting on the sidelines:
Right now, buyers seem content to sit on the sidelines in Vancouver, but people expecting to win massive discounts a few years down the road will be disappointed, Muir says. “We don’t see a recession on the horizon, and we don’t see interest rates going up any time soon, so what kind of financial calamity is going to happen in Vancouver to get people to sell for 75 cents on the dollar?” Muir asked.
I dunno... the same 'calamity' that already has them selling for 23% below assessed value in Vancouver  and 25% below assessed value in Richmond?

Just a thought.


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  1. We all cant be fashion models someone has to pimp.

  2. It's amazing how these guys can't predict from month-to-month but can forecast "accurately" several years into the future.

  3. Great post and always a delight to read !

  4. Tsur + Cameron = Comical Ali of Vancouver RE

    But to be honest, not everyone who hears their quotes will remember what they said previously.

    There's no obligation to be truthful or accurate in this industry.

    That's what keeps us entertained!

  5. I assume he means a 10% drop for 2013, which is on top of the already confirmed 10 - 15% slide in prices (or worse) that occurred in Vancouver city's condo/SFH market in 2012.

  6. That last quote by Muir is misleading. Either he has his blinders on, thus he can't see it, or the recession is already underway (likely).

    The other thing that would force people to sell would be unemployment: construction workers and RE agents that can't make the monthly "nut" anymore.

  7. These guys are like stunned bunnies. They really have no idea what is taking place nor how steep the decline will be. I sometimes think they are being willfully blind and actually know better but it is probably closer to the truth that they have just taken too much of the Kool-aid and actually believe what they are saying.

  8. I was reading an interview with Roubini and one of the comments he made was that when he travels he talks as much as he can with every day people: the cab driver, the waiter, the shops owners, people who are the pulse of the real economy. He asks them how they view the economy and what they are worried about.

    When you insulate yourself from everyday people it's hard to relate to their concerns and struggles. I'm sure these guys mentioned above have no comprehension how many people are struggling just to get by. They just see people with wads of money where RE "investments" are of no consequence.

  9. Tsur and Muir I'm sure make great salaries. But it strikes me as a sad position in life to be such obvious shills offering constantly-changing "forecasts" that unflinchingly support their corporate masters' interests.

  10. Rats leaving the sinking ship.

  11. This guy has changed his word a few times by now. His job title reads: "Real Estate Foundation Professorship in Real Estate Finance Director, UBC Centre for Urban Economics and Real Estate"

    What a load of &$#*ing hooey. At some point he said if Garth Turner keeps saying the prices will fall, they will eventually fall at some point. Then, if Garth repeatedly said Canada was going to be annihilated, would it actually happen? Is there a science to this?

    Mr. Sommerville are you making this sh!t up as you go by? or do you really know something? Your title has "real estate" written all over it, are you paid by them, or are you a "real" scientist?

    Here is his home page:

  12. t's a pretty cool gig being the village jester:

    Name Somerville Craig T
    Title Assoc Professor (tenure), The Sauder School of Business
    Agency University of B.C.
    Sector Universities and Colleges
    Remuneration $243,810
    Expenses $8,670
    Year 2010/11 Fiscal Year

  13. For a 243,000 salary and fat pension even I might start boosting the real estate market. Now what is that they say about scholars living in an ivory tower again.....?

  14. "For prices to go down ­significantly, contended Somerville, You need people who have to sell, either because the economy has collapsed and they don’t have any income or...."

    The foolishness of this comment is self evident. Hopefully everyone noticed the flaw in Tsurs thought process. What he does not appear to understand is that rapidly rising prices do not occur during hard times. As we can see from the experiences of many other countries (Spain, Ireland, USA) it is the implosion of a real estate bubble that brings about the collapse of an economy and the loss of incomes, not the other way around. Tsur is confused. He has put the cart before the horse. More simply, the end of a period of euphoria is brought on by exhaustion of both credit and demand for credit sympathetic with a herd sentiment that a reversal is at hand. We are seeing that now. Steep job losses that follow only magnify the downturn but let us be clear...they are symptomatic of the conclusion of a period of excess, not the reason it happens. In the case of Spain this has led to one of the highest unemployment rates amongst Western economies and a resurgent separatist movement. The aftermath of bursting bubbles in their more extreme forms is challenging to say the least and while I do not anticipate our country will be so badly affected, neither do I think we will escape unscathed. There is a shitstorm coming.

    1. Well, that's what Tsur is supposed to be able to explain to us, or at least analyze. If a tenure track prof. in "Real estate" (whatever his title is) cannot even identify the factors involved, then why is where he is today?

      By the way, he makes more than a BC judge and some of that 6 digit salary comes out of tax payer's pocket. You may want to check UBC's financing.

  15. What scares me is that Sommerville is a professor. If he's teaching the industry leaders of tomorrow, we should all worry.
    This guy should get the boot. He really doesn't seem to understand industry fundamentals. Never mind... he really doesn't understand econ101. Since when did income catch up to prices?