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Sunday, December 30, 2012

You can almost smell the desperation - buyer's once again told prices will not be coming down


It was back in the middle of October that Tsur Somerville first admonished home buyers who were sitting on the sidelines waiting for housing prices to 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 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.
“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.
In that October post we profiled some Vancouver westside properties that have dropped their asking prices to between 10%-23%, with no buyers in sight.

The response of Somerville et al?  Prices are flat... there is no decline.

Two and half months later, with the market still suffering with the start of the Spring Market looming, Somerville is back with BCREA Chief Economist Cameron Muir to trumpet the same message: Vancouver real estate buyers waiting for a price collapse in 2013 could be in for a long wait.
While prospective sellers are waiting, the numbers indicate that prospective buyers are a bit shy as well. “The market right now is both slow and tentative. There are a lot of people out there being very tentative because they’re not really sure where things are going,” Somerville said. “I can’t say how many buyers are in the market — I want to differentiate between that and the prices they are willing to pay. Maybe there are people who are actually interested in buying, but they’re either waiting for prices to be at a certain point, or they’re making offers that aren’t being accepted. I can’t differentiate between those things.”
And this is the frustrating thing for the industry right now.  They know there is an incredible amount of pent up demand - demand that knows the market is overvalued and they are prepared to wait for it to come down.

Hence the message:
“To get prices to really tank, you’ve got to have something happen. Either you’ve got to have overbuilding, or you’ve got to have some big change in the world of finance, such as large movement in interest rates or a financial disruption, or you’ve got to have a real negative economic shock,” Somerville said. “You’ve got to have some combination of those, or one of those to make prices drop dramatically.”

Overbuilding of single-family homes in Metro Vancouver is difficult because land is so limited, Somerville said.
It was left to Muir to deliver the R/E message of import:
Cameron Muir, B.C. Real Estate Association chief economist, thinks if buyers are waiting, they could be waiting a long time.

“Three years ago we saw the largest financial crisis since the Great Depression and an ensuing global recession. If that’s wasn’t enough to trigger a correction in an asset bubble, I don’t know what is,” Muir said.

“The condo market in Vancouver has not been ‘hot’ since 2009, and perhaps even earlier than that. Prices on the condominium side have been relatively flat for three years, so that doesn’t signal any kind of asset bubble welling up,” Muir said. “There has also been little speculation in the marketplace over the past few years and home builders have been kept in check in terms of their total units in production.
You almost have to fall out of your chair with laughter here.
  • The condo market in Vancouver hasn't been hot since 2009? 
  • Little speculation in the market place? 
  • Home builders have been kept in check in terms of total units in production?
Riiight.

Wasn't it just last August that ScotiaBank declared the Vancouver market was in a full blown correction  and warned:
the risk of a more difficult adjustment will increase if builders do not soon begin to slow the pace of new construction.
Faithful readers will recall back in February 2012, Ozzie Jurock made reference to the exploding condo inventory on his Face Book page and described the spring/summer condo market as:
"a market that will have a lot of units for sale and more coming on stream."
In an OpEd piece in the Vancouver Sun, Jurock noted:
As of Feb. 29, 2012, there were 6,000-plus condos for sale through the Vancouver Real Estate Board - up 15% compared to the previous year.

At the same time, sales of used condos were down by 18%.

Add to this the fact that - according to MPC Intelligence - there are some 8,000 pre-sale condos being launched in the first six months of this year.
Ultimately Somerville and Muir are going for the soundbite... for the headline.  That's how you mould public opinion.

The problem is their target market - the buyer sitting on the sidelines - is not like Joe Q. Public who browses the media and pays half hearted attention to those headlines.

The buyer on the sidelines is keenly aware of the what is going on.

The buyer on the sidelines is keenly aware that prices have been coming down.

And the buyer on the sidelines is keenly aware Somerville and Muir are full of it.

Which is why they are not biting at those listings currently asking 25% below assessed value.

They are willing to wait.  And it's going to take more than Somerville and Muir berating them for waiting, to get them to buy.

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6 comments:

  1. The forces of a collapsing bubble cannot be mitigated by admonishment and shaming by perceived authorities. The stern fingers waging at the disobedient buyers will do nothing but make these people irrelevant as their days in the sun wither. These guys will be the focus of future jokes and ridicule. Anyone remember David Lereah?

    http://www.time.com/time/specials/packages/article/0,28804,1877351_1877350_1877336,00.html

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  2. Someone who really cares about Tsur needs to pull him aside, sit him down, and quietly tell him to stop talking--- he is only making it worse for himself.

    Question: So people actually pay money to go to school and "learn" from this guy?

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  3. Second guessing individual buyers is a great line, alas akin to idiot clown game theory. There is a strong negative correlation between price changes and the ratio of inventory to sales. Despite all the talk of "nobody needs to sell so they won't" that strong relationship is there, meaning that indeed there are those who need to sell and are willing to discount to do so.

    But in everything there is some truth, the truth being that the relationship is logarithmic: as MOI increases its power is reduced. That means that an MOI of 20 won't mean price drops twice as fast as an MOI of 10. Real estate bear markets are indeed funny beasts, the funniest of traits being abject denial of reality as Rome burns.

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  4. Are these industry shills paid to spew this BS or do they really believe what they are saying? Maybe it's some of both.

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    1. I recently took part of the closure of a local plant and had a first hand look at a collapse. The managers basically did what they were told, including lying and acting what ever role they were told to enact. Most of them did not believe the message but understood it as part of their duty to their paychecks. Very few people can stomach the constant devious political maneuvering, and few enjoy it. The people in charge of the "message" probably enjoy playing the game and pleasing their constituents.

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  5. Since homeownership rates in Canada and Vancouver are at the highest percentages in decades, that would also mean that the percentage of potential new buyers is at the lowest in decades.

    Much of the market has been driven by investors. The baby boomers have spent 10 years investing for their retirement. I would guess there is a limit to their resources and that's been spent.

    Every boom causes demand to be brought forward from the future... then the future arrives. I doubt that there is really that much 'pent-up' demand.

    Unless Cam Good can organize a whole Air Cav of yellow helicopters full of HAM, flying over the horizon, blaring Wagner.

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