Tuesday, March 5, 2013

The industry spins, but did pigs just fly? Somerville concedes prices could drop significantly!

February real estate sales statistics are out and the news is now hitting the media.

"Greater Vancouver home sales, prices plummet," says the 24 Hours newspaper.

This one catches the eye because it is devoid of any of the P/R spin from the regular players. In fact the opening sentence is almost like a cheap-shot directed towards industry rationalization of the last few months:
While Vancouver’s housing market has remained relatively strong since the 2008 financial crisis compared to most of North America, home sales took a dramatic dip last month compared to the same time last year. 
You can almost feel the word 'zing' brush past your face.

The basic numbers for February:
Residential property sales plummeted 29.4% in February versus the year before, reaching their second lowest total in more than a decade, according to figures released Monday by the Real Estate Board of Greater Vancouver.

The 1,797 homes sold represented a 30.9% decrease for the month’s 10-year sales average.

Home prices dropped noticeably last month compared to a year before.

Apartment prices in Greater Vancouver decreased 3% to a benchmark $360,400, while detached properties fell 4.5% to $901,500. Attached properties were least affected by this latest downward trend, dropping 0.7% to a benchmark price of $455,500.
Industry spin isn't completely absent, however. As noted in Business in Vancouver, "Vancouver home sales drop 29% but turnaround in sight: REBGV"

The 'turnaround' that the Real Estate Board of Greater Vancouver (REBGV) is hanging their hopes on is their belief that a few indicators hint the trend toward recent weakness is subsiding.

The hints lie in what the REBGV believes are positive signs from a much higher sales-to-listings ratio and slightly higher prices.

So amidst the highest listings totals for this time of year ever and an average price that was skewed higher because of low sales impacted with three large sales , this is a sign of a turnaround?

LOL... I think they call this 'hopium'?

Meanwhile the spin from other quarters is that 'traction' is emerging as the masses grow tired of waiting for the bubble to pop. 

This time it's CIBC's Benny Tal:
Canada’s housing market may still be cooling, but there are fears in some quarters that “bubble fatigue” will pump it back up heading into the spring season.

What economist Benjamin Tal means when he uses that phrase is that home buyers are skeptical about whether the residential real estate market is heading for a sharp price and sales drop. At the same time, mortgage rates are declining, not rising.

Just this weekend, Bank of Montreal cut the price on its five-year, fixed-rate mortgage to 2.99 per cent from 3.09 per cent. That’s the lowest advertised rate among Canada’s big banks, and lower rates are available in the market.

“I think the spring will surprise on the upside,” the CIBC World Markets economist said on Monday.

Indeed, “bubble fatigue” may well prove wrong the forecast for dismal sales this spring, he added.

“People have been talking about a collapse for two years, so many are becoming a bit skeptical about that,” he said. “As well, rates are in fact going down, not up.”
What for 'bubble fatigue' to catch on as the latest way to rationalize a turnaround is coming.

But perhaps the most telling comment comes from our old friend Tsur Somerville.

Faithful readers know Somerville as the one you keeps telling us "prices are flat" and that holding our breath for prices to fall is pointless because it ain't going to happen.

But in this News1130 report,  Somerville appears to utter heresy:
A new report says homes in Metro Vancouver are overpriced by about 26 per cent...

“One thing that I find striking, though is that [with] current interest rates prices, make some sense, when compared to rents,” says Tsur Sommerville
(sic) with UBC’s Sauder School of Business...
Relief might be on the way; the Fitch report says Vancouver’s overvalued real estate could correct by up to 15 per cent “over the next several years.”

“A lot depends on where interest rates go over the next few years,” explains Sommerville. “[If] interest rates three, four, five years from now are substantially higher than what they are now then housing prices will correct.”

Sommerville adds local home values could drop even more than the 15 per cent predicted by Fitch.

“If there was to be a correction, you might expect to see a bigger correction in house prices than in condos,” he explains.
So today becomes a historic day as even Somerville publicly concedes home prices could actually drop.

If one of the Province's chief bubble deniers is beginning to hedge his rhetoric, you know things are looking bad.


Email: village_whisperer@live.ca
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  1. It didn't take long (including misspelling!)...

    "Are you worn out by the harangue purporting an imminent real estate collapse of the Vancouver real estate market? Are you wishing you could just find a quiet place? If so, you may be suffering from real estate ‘bubble fatique?”"

    It looks like the new "spin angle" is: "you might as well capitulate and buy now, price won't go down". Lol...


    1. I had Yatters on my blog b-list for a while but I've given up. His thinking seems to be as erratic as his writing, and I consider passable literacy to be a requirement for an informed commentator.

      He appears to be trying to emulate Garth Turner in adopting a weirdly belabored writing style. He hasn't got the chops; regardless, if I were him, I'd pick a better role model.

    2. I gave Yatters such a hard time over the last 2 years that his writing style is absolutely horrible and unreadable... that he finally looked me up by my email on LinkedIn just to make sure I existed as a real person. And I existed!

      or translated into Yatter speech:

      Existed is such that Ray is on LinkedIn that wondered why he gives me such a hard time about my writing style on my blog. Unreadable is the essence of my writing like 2 years on an empty canvass that needs my creating.

    3. I call it "Yatter patter."

      Larry, I'm a big fan of constructive criticism over pointless slagging, so if you're reading this: Spell check. Tone down the tortured metaphors. Have someone else proof-read before you post (I volunteer). Those three things would give you a big boost in professional credibility.

    4. I had Larry actually email me too and basically called me a loser because I didn't "own any property", I kid you not! Where he drew that conclusion from is beyond me because that was not what I was asking him about. It started about 1% commissions and discount agents in general and he really went off about it. I still have the email. Anyways, I stopped reading his missives about two years ago and can't be bothered with him or his random thoughts.

  2. Give it a year and he'll say he predicted the crash.

    1. Ha-ha! Larry is just positioning himself as the Wise Yoda of Vancouver Real Estate...

    2. What exactly is Fatique exactly? He makes the same spelling mistake 5 times in his article. Even worse, the cut & paste portions have it spelled correctly so all he had to do is look. Careless and uneducated.

  3. Having said all that, there is such a thing as bubble fatigue. I get it every Spring. It's basically just an anxiety disorder that diminishes in the fall when exciting price drops show up in all the indicators.

  4. Ooohh this is getting fun.

    This is how it works:

    Sales volumes start to decline. Volumes are a leading indicator for prices, we haven't had an above average month (vs. 10 year average) in terms of sales volumes since March 2011 which was essentially the peak excluding some seasonal strength early last year.

    This trend doesn't appear to be getting any better. As prices start to decline, consumer confidence starts to weaken, less projects get off the ground, we start to see employment losses in the construction industry. We've already seen this in Vancouver. Canada has been growing at only 0.6% the last couple quarters, BC had an absolutely brutal January jobs report -6000 jobs. It will be interesting to see how we do this Friday when the February jobs report is released.

    The decline in sales and prices of residential real estate has a big impact on the whole economy. One of the biggest fallicies these professors and real estate industry sponsored economists repeatedly trot out is that the recession caused prices to decline dramatically in the US. The reality is that the real estate crash lead the US into recession, in most markets prices peaked in late 2006/early 2007, the recession started in late 2007.

    This is just the beginning. The correction will continue to weaken the economy which will accelerate the correction at some point, likely in the second half of this year, consistent with what we've seen in other real estate corections. 1 month of positive HPI isn't really worth focusing on, I'd focus on the change over 6-12 months.

  5. What else is Benajmin Tal going to say? Really? He has staked his reputation in the R/E industry to date about rising prices which served him and CIBC well.

    Now all spokesmen quoted from any lending institution is going to paint a rosy picture or else they are out of a job.

    I have bought October Puts on CIBC and Royal Bank, BMO new rate war is clear indication the the banks are desperate and need the origination business.

  6. Bingo! Well put. Just as the up phase of the bubble creates re-enforcing factors, so does the down phase. And they take time to play out. The size of the bubble and the timing can be altered by the debt equivalent of crack cocaine – nothing down, 40 year mortgages - and a flood of wealth from off shore but all housing bubbles have similar trajectories with similar disastrous social consequences. There is an element of fun watching this happen but I predict that, even among real estate bears, there will be few laughs once the full impact of the bubble’s collapse is upon us.