Tuesday, October 16, 2012

Touching a nerve: Was a Richmond real estate agent forced to remove a graph plotting a potential 70% decline in housing prices?

On Sunday we told you about Richmond real estate agent James Wong.

Wong has, over the past few months, regularly published the abysmal real estate sales statistics from the former HAM infused Vancouver suburb and given clients his frank and honest assessment of what it would take to sell your home in these conditions.

On August 9th, Wong wrote:
"In Richmond, there is a high probability of a price decline for detached homes in excess of 30%... Sellers who need to sell will have to cut their prices more deeply to attract buyers. This could be the beginning of a real estate down cycle... The cascading effect of declining home prices will snowball, causing more home sellers to sell before home prices drop further... The biggest problem faced by home buyers are getting their mortgages approved. Canadian banks are now required to underwrite their mortgages based on borrowers’ ability to debt service their loans. The cascading effect of declining home prices will snowball, causing more home sellers to sell before home prices drop further. Unlike 2009, even if home prices drop 20% or more, many home buyers and investors would be prevented from buying due to the difficulty in getting financing.
Wong's commentary is a refreshing change from the rah-rah boosterism we are used to hearing from the real estate industry.

With each passing month, as conditions continue to worsen, Wong has become even more straightforward with his analysis.

The ultimate from Wong was released this past Sunday.

Titled, Are We Headed For a Housing Market Downturn? Wong outlined a very bearish scenario for real estate over the coming months and years and predicted (with a graph) a 70% decline in real estate values.

However, if you go to his site today, you will not see the exact same article as you would have seen if you went there on Sunday.

Oh, don't get the wrong idea.  James Wong still makes the same case he did two days ago. But a significant element has been removed.

Here are 2 screen shots that capture Wong's original Sunday post. Click on these images to enlarge them and see if you can spot what has changed:

Contrast those screen shots with this screen shot of his current post:

Notice what's missing?

In the original post Wong took a stab at predicting where things might be going by plotitng a “reverse image” of the Greater Vancouver price chart (with home price topping around March 2011). He hypothesized how a down cycle for real estate might play out, including the potential duration and extend of the price decline over the next few years.

Wong's chart was a classic tracing of the formation of a bubble and how a bubble unwinds.

(For a great video on 'Bubbles and how they unwind' by Chris Martenson, see this post from June 5, 2009).

Regrettably it appears Wong's chart was censured because the chart has been removed and replaced by this passage (click on image to enlarge):

A disclaimer was also added at the bottom of the post which reads:

Clearly Wong's chart touched a nerve and so much negative feedback that he was forced to remove the industry graph he modified to make his case.

To Wong's credit, he maintains his belief in his original message.

But it gives you an indication of just how significantly his observations have touched a nerve.


Email: village_whisperer@live.ca
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  1. It's hard :) Society just can't admit what is staring it in the face.

  2. It's "1984" for the Real Estate "industry"...

  3. I guess the REBGV made Mr Wong make it........jeese, I can't say it.

  4. Poor Mr. Wong. But let me tell you, by sticking his neck out like that he will convince more than a few people he has their best long-term interests at heart, and from what I've heard many investors errr homeowners are in it for the long term!

  5. The worst are the one who are buying from todays prices. 100% Sure to go underwater soon.

  6. In all fairness... I don't think Mr. Wong was predicting a 70% fall in prices. If he was, showing a mirror image graph of the inflating prices is pretty much useless.

    Also included in the graph was average growth lines for various housing types. If prices fall and meet those, you're looking at closer to a 40% drop. Probably more realistic.

    He probably realized it himself, or someone else pointed out just how unscientific it was.

    1. Exactly my thoughts on the matter.

    2. Probably not any less scientific than a bank/economist forecast saying 1.1% drop for this year but 2.3% gain in 2013.

    3. Agreed. It's just as unscientific. But to try and infer that a 70% drop is what Mr. Wong is predicting, doesn't accurately portray the meaning of his report.

      I don't think it helps readers when ever anyone either overestimates or underestimates reality.

    4. In his post Wong stated, We are now witnessing the unwinding of the housing market... At current price point, getting financing for a family earning $65,000 a year with 5% down payment will allow the buyer to afford a home valued at $294,000. It will take many years before owning a home makes sense again. Home prices are not going up now or holding. Instead, the housing market is coming down in values. The rush to exit the market will take its toll on sellers who bought their homes recently.

      I don't think it was coincidence that Mr. Wong's graph charted a decline in average price values to bring that average price in line with value he used in his example above.

      I think a 70% drop is exactly what Mr. Wong was predicting (more significantly, I agree with his assessment).

    5. I read this blog because I think it provides a much more honest reflection of the RE market in Vancouver than you can get from the Media, Bank Economists and RE Boards. But when you start to extrapolate and state extreme views, I think it only marginalizes readers with more moderate opinions. I believe it could make this blog seem as unreliable as as the MSM.

      For the record, I also believe that Vancouver (justifiably so) has entered into a long overdue correction that will be both substantial and protracted.

      But get real! Depending on who you believe, if a average home (in greater Van) was around $700,000 at the peak - do you really believe that one day it will be worth $210,000?

    6. If the right conditions come together at the same time - yes.

      And it's not a stretch to appreciate why. I'll expand on it in a post again soon.

  7. Wong just stated what is obvious to everyone but the industry. The Greater Vancouver real estate market is in the midst of a crash because incomes and demand do not support current prices.

    1. Obvious to every outside observer, anyways.

  8. Torn between the posters who tell the truth and the posters who stand to lose a lot in the coming "correction".

    You can spot them even here. 700k to 210k - "Lions and tigers and losses, oh my!"

    If you're reading it here or any other blog for that matter, it has already happened. Get ahead of your loss.

    1. So, why are you here if it's old news?

  9. For those who think a 70% correction of the Vancouver real estate market is impossible, consider some of the US cities that corrected 50% to 85%. This list includes such cities as Miami, Phoenix, Las Vegas and parts of California. Note that these cities were in a smaller bubble back then compared to what Vancouver is in right now (price/income ratio).

    I challenge anyone to come up with some factual information that refutes this.

    1. Impossible no...

      ... but more than a 40% over all correction is highly unlikely.

    2. There are some current rediculous listings that are asking 3 times the assessed value. If they end up selling 25% below assessed value, that would be a drop of 75% of the original asking price. I can see that.

      In this crazy inflationary period, I read that on average, homes were selling at about 25% above assessed value.

      Taking 50% off of the assessed value off every home in greater Vancouver is extremely unlikely.

  10. If there is a 70% drop in prices, there will be no one left working in Real Estate related jobs. No construction workers, almost no RE agents. Banks will lay off mortgage brokers. Home Depot & Rona will close a few stores. Furniture stores will close. Etc...

    With all of these jobs gone combined with the remaining homeowners who feel so poor, who will eat in the restaurants?

    That's all Vancouver has - Real Estate and restaurants.

    1. Move to Drayton Valley, Alberta. Lots of jobs, and of course $$$ here!