Friday, March 15, 2013

Optimism become Hopium, but it's still a failed strategy



Real estate sales are down, way down.

"But low sales can only mean one thing:  the pool of eager buyers is building and the damn will burst, you just have to wait it out."

Essentially that's the message from BC Real Estate Association (BCREA) as they report on the dismal February sales statistics.

"B.C. real estate sales decline helps fuel drop in home prices" is the headline, which has to be frustrating because BCREA's Cameron Muir and Tsur Somerville (UBC Sauder School of Business) have spent so much time telling us prices won't be coming down.

But as buyers continue to stay away, Muir sends out a not-so-subtle message to sellers to bolster their confidence and hold firm on prices.
B.C. home sales continued at a modest pace in February," Muir said.  "Despite improved affordability, many potential buyers and sellers remain in a holding pattern.”

Muir’s estimate is that with sales down for such a long period, there are enough potential buyers who have put off decisions that there is what economists call “pent-up demand” building in the market and “it’s not a matter of if, but when home sales rise above their current pace.”

"Most B.C. markets have experienced relatively stable price levels during the first two months of the year."
Optimism or just Hopium?

In Vancouver, sales were down over 29% last month.

Across BC sales were down 24% in February compared to a year ago. This has brought the average BC price down 8%.

The South Okanagan Real Estate Board was worse.  They experienced a 33% sales decline.  The average South Okanagan price was down almost 20%. This region takes in Penticton and Osoyoos.

In Northern Lights, the area around Dawson Creek, sales in February were down 38%.

Perhaps it's time for another sermon from our buddy Somerville so he can tell us how prices simply can't come down any further and buyers shouldn't wait. Of course they would be much like the sermons he gave us on September 5th, 2012October 13, 2012, and November30th,2012.

Which reminds us, spring is here.

Wasn't it west side realtor Andrew Hasman who was echo'd the Muir/Somerville mime and told us in December and that if you wait until March 2013, you will have 'missed the boat' on a huge Spring surge in sales?

Hasman swallowed the Muir/Somerville Koolaid and told us:
We continued to see slow sluggish sales activity on the Westside during November. That being said there is some promising news. The number of homes on the market at the end of November has dropped substantially since peaking in mid-September. I have also noticed a lot more calls on our listed properties combining with more viewings too. Even though sales volumes continue to remain well below last year’s levels, the shrinking supply and stable sales volume over the past 6 months points to a stable market moving forward. In fact, I’m going to go out on a limb and predict a robust Winter Market with brisk activity in January and February.

For home owners thinking about selling in 2013, keep in mind if you list your home in March (based on the last 4 years of sales activity) you missed the best time for selling. Home owners that listed their homes just before Chinese New Year achieved the highest selling prices. The period of Late January to end of the February was the busiest time for housing sales the last 4 years. Why should this year be any different?
Seems that limb broke on poor Andrew. How did that whole Spring surge thing play out? Here's Andrew's month end review for February 2013:
When you read the real estate market stats in the newspaper and hear it in the media its quite evident that Vancouver’s housing market continues to remain cool. Sales in February across the region were down again in February some 29% compared to last year and year to date are down 23%... There have been some generous price declines on some properties where home owners need to sell. For those that do not have to sell, many homeowners have taken their homes off the market waiting for better times.
Why is it so many in the industry think that buyers 'have to buy' whereas sellers 'don't have to sell' and can wait out the buyers?

The reality is that neither side has to do anything. But with credit rates at historic lows, little to no sales occurring, and no chance whatsoever that the Federal Government is going to ease up on mortgage regulations; it won't be buyers making the first move here.

There is only one solution: -lower prices. And no amount of lecturing or hopium is going to change that.

Rather than focus on brow beating buyers, it's time for the Industry to focus it's efforts on educating sellers on the realities of the current economic situation.

Our markets need a painful adjustment to heal themselves.  The quicker it happens, the better things will be for everyone.

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17 comments:

  1. And the Anti-Muir said:

    "Anti-Muir’s estimate is that with sales up for such a long period, there were more actual buyers who had advanced their buying decisions that there was what economists call “demand brought forward” building in the market and “it was not a matter of if, but when home sales would lower above their current pace.”

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  2. "Why is it so many in the industry think that buyers 'have to buy' whereas sellers 'don't have to sell' and can wait out the buyers?


    The reality is that neither side has to do anything."


    Actually, some sellers do have to sell. Divorce, death, and job transfers tend to force the issue.

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    Replies
    1. Agree about sellers.

      On the other hand, I can't think of a situation where someone HAS to buy. And with the "Buy now or forever be priced out" realtor schtick rapidly losing it's validity, me thinks many stubborn buyers will "remain in a holding pattern"...alone.

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  3. Damn realtors cannot even use the correct damn/dam in their press release. Shows the true professionalism of the entire industry right there.


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  4. I'm a future buyer, but I don't look on buying till maybe 2014/2015. I've been renting since selling RE and it's great : saviing cash every month for kid's education and RRSP. Only fools would rush in to buy now and that is what the bank hopes to see....fools.

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  5. Now that "value" is a moving target lenders may be forced to think harder about LTVs (to stay in compliance with OSFI).

    Might even complicate the securing of financing for a recent Three Harbour Green purchase?

    It definitely should make refinancing harder.

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  6. OR:

    Muir’s estimate is that with sales down for such a long period, there are enough potential sellers who haven't been able to sell that there is what economists call “pent-up supply” building in the market

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  7. Sellors will resist like mad. But some will have to sell and set the ball rolling as re sales agents point to local comps to price property.

    First occurance will be estate sales. Usually these are a true "must sell" proposition.

    Second will be flippers and builders that will get out asap - either to preserve invested dollars or as lenders put additional pressure to protect the loans.

    Third will be lender forced sales.

    Forth, Joe6pak gets a reality check.

    Outcomes:
    Mov'in on up will be difficult 'cause unless you are shopping w/ cash it will be hard to sell the first home, and sales will swill - toilet style

    Munis will see revenue shortfalls and begin to reevaluate budgets

    Labor will be less mobile

    Lending will become more difficult and first time buyers will be shunned (add to this the mortgage insurance tightening)
    Keep in mind, most morts are five years...so the count starts now as far as how far most newer buyers will be underwater

    More consumer sadness (negative wealth effect) will dampen retail/consumer sales. Further, as prices go down, expectations will be set into motion - "Marge, we can get a house cheaper next year"

    The credit cycle tell us interest rates wont be going down very much so the prospect is some what higher interest rates in the future

    Unknowns
    How cash rich are local folks
    How leverged are local folks
    How job secure are local folks

    Positives
    Home owners insurance will or should go down in price

    Land Taxes might do down

    Home improvement costs will fall (I'd give that 2-4 years)

    Conclusions
    Bubble. The re cycle is 6-7 years, typically.

    The higher and bigger it swelled amplifies the contraction.

    If you bought at or near the top or re-fided to do improvements or wanted a new 150 - a lot of pain on the horizen.

    Recommendation: If one was looking forward to having a nice retirement using a place as equity - get out asap...cash out now...oh yea, rents should follow the decline in re values.

    Editorial Comments
    I'd guess the job market in the Lower mailland is a tough one. Looking at income levels I see not much of a middle class w/ disposable income and good savinga rates - working comfortably and living a modest life. The top have already cashed out. Whats left?

    Sorry - That last bit came off as a snark...but Im leaving it in. Feel free to dis me :)

    Got popcorn?

    AB

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  8. Lower prices mean lower commissions for used home sellers. There is no way they are going to start educating sellers on the reality of today's market until any commission finally looks better than none at all.

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    Replies
    1. And yet even lower sales volumes mean even lower commissions. I have to disagree, if I were a Realtor I'd rather get commission on two properties sold at 80% of their assessed value than sell zero properties at 100% (or higher).

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    2. Exactly right, anon@2:28pm!

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  9. There are hundreds of houses asking for 2 millions +. I guess realtors had a hard time convincing sellers that house price peaked a year ago.

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  10. Seeking KnowledgeMarch 15, 2013 at 4:45 PM

    I often wondered why RE agents charge a % rate for the commission. Is it really twice as much work to sell a 1M property vs. 500k one?

    ReplyDelete
    Replies
    1. Simple...because they can (as sad as that is).

      Delete
  11. I think you can get a very good idea where house prices and the overall economy in Canada are going in the not too distant future by checking out the following information from a credit market summary data table on Statistics Canada's web site:

    The total debt outstanding in Canada at the end of December 2012 (bottom line of the data table) was $5.25 Trillion. From the end of December 2011 to the end of December 2012 the total debt outstanding in Canada increased by $269 Billion. For that 366 day period the total debt outstanding in Canada increased at a rate of $735 Million per day.

    http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&p2=33&id=3780122

    With a total credit market debt of $5.25 Trillion and a gdp (at current prices) of $1.83 Trillion Canada's total credit market debt is 2.86 times the size of our gdp.

    http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/dsbbcan-eng.htm

    Most people know all too well that the size of the hangover incurred the morning after is directly proportional to the amount of partying that went on the night before. The hangover that is coming to Canada and the rest of the so-called advanced economies of the world as a result of the debt-fueled party which has been going on for the last 40 years is going to be a doozy.

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  12. Hey Whisperer, on the topic of conspiracies, do you have any leads on whatever happened to the pre-sale buyers at the Olympic Village who were scrambling to get out of their contract? Did the City quietly settle on condition of silence?

    Kim Campbell is bailing out of the Georgia Hotel:
    http://www.cbc.ca/news/canada/british-columbia/story/2013/03/15/bc-kim-campbell-hotel-georgia.html

    ReplyDelete