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. 

As noted in the Globe and Mail: "Home sales slip further, but signs of traction emerge."

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.

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Average Detached Price soars to over $1.2 million

It's the start of a new month and, as always, Larry Yatkowsky is out with his month-end stats.  As faithful readers know, we are always impressed with Mr. Yatkowsky's regular statistical updates.

Vancouver’s detached average home price of $1,221,037 eclipsed January’s high of $1,152,851. Parallel to February of 2012, February 2013 has recorded an exceptional average price.

Note: Average prices are prone to being skewed. Evidence points to this month’s swollen number being the result of a bite from three Vancouver West Side sales that clocked in at $18, $14, and $11 million dollars.

Larry's last comment is significant. In a posting he made yesterday, Yatkowsky notes there were only 71 sales on the west side of Vancouver in February 2013.  And most were below their asking prices with some selling significantly lower what they were listed for. 

In a market with few sales, the presence of those three hight end sales (despite being as much as $3.7 and $3.2 million below their original asking price) will skew the average price significantly upwards.

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Is it any wonder you are seeing manipulation of the media by some in the real estate industry?

On of the most important stories that is not making it into the mainstream media is the breadth and depth of the unwinding of our current housing bubble.

We hear hype about 'flat' markets and how sellers are refusing to lower their prices, but it's real estate industry obfuscation.

On February 8th, we showed you how Vancouver is 8 months into a market collapse. 8 months ago Vancouver hit's it's market highs using the MLS HPI. 

Since then it has dropped dramatically.

What is particularly chilling is that when you compare Vancouver at the 8 month point into the unwinding of our housing bubble with the 8 month point of US cities like Phoenix, Los Angeles, San Diego, Washington, Miami, Tampa Bay, Chicago, Boston, Minneapolis, Las Vegas, New York, Portland, and Seattle... you discover that Vancouver has plunged faster than all those other cities did - with the exception of Miami.

No wonder condo market companies are so desperate to fake images of Asian buyers lining up to buy in Vancouver!

Over on the blog Vancouver Condo Info, frequent contributor yvr2zhr provides some shocking statistics on the state of our current market.

Here are some single family house Months Of Inventory (MOI) projections for February, 2013 as of last weekend:

West Van – 24 MOI

Richmond – 14 MOI

Burnaby South – 12 MOI

Port Moody – 12 MOI

Van West – 11 MOI

Maple Ridge – 11 MOI

Tsawwassen– 10 MOI

Burnaby East – 8 MOI

Ladner – 7 MOI

Coquitlam – 7 MOI

Van East – 6.5 MOI

Burnaby North – 6 MOI

New West – 5 MOI

North Van – 4.5 MOI

Port Coquitlam – 4 MOI

Total Real Estate Board of Greater Vancouver – 9 MOI

Sales volumes have plunged and inventory is piling up.

How bad is it?  Instead of comparing sales volumes to just last year, yvr2shr compares sales volumes to 2011.  And when you do, you see single family house (SFH) sales volume is down significantly everywhere.

On the west side of Vancouver, volume is down - 61%

In Richmond sales volume is down – 69%

East side of Vancouver is down – 52%

West Vancouver volume is down – 75%

North Vancouver volume is down – 24%

And Burnaby sales volume is down – 56%

When it comes to house prices, yvr2zhr tells us that the middle class buyer is disappearing from SFH house sales. This is causing some changes in the mix which is pushing the average price up. Despite that, however, decreases are very significant in Van West / Richmond and West Van.  He tells us:

"prices are solidly down 10% in past 10 months. The average / median and benchmark prices are all steadily down and it is a clear trend without sales mix issues. Many sales are now occurring for 30-40% off the asking from last Spring."

The easy credit that inflated our housing bubble is being withdrawn as the Federal Government returns mortgage regulations to what they were prior to 2006.

And as that credit is withdrawn, our bubble will deflate. The R/E industry can only hide that fact for so long.

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