"The Sizzle is coming off the Vancouver housing market" - BMO

The Bank of Montreal has a chilling report out that should send shivers down the spines of all speculators out there.  BMO is predicting that Vancouver's housing market could face a bumpy landing.

As reported by News1130 radio, BMO says Vancouver's home prices will fall over the next couple of years.

Year-over-year home re-sales are down by more than 13% in April and sales in the first four months of this year compared to last year are down 20%.

"I can best describe it as a softening of a market," says BMO Mortgage Expert Carolyn Heaney. 

BMO Senior Economist Sal Guatieri says the price of homes in Vancouver and uncertainty over long-term mortgage rates are creating a buyer's market. He also says rich foreign investors who have driven up real-estate prices in Vancouver are now looking at cities that are less expensive.

"The sizzle is coming off the Vancouver housing market," Guateri says.

The report also says condos are being overbuilt in Vancouver and that is curbing demand.

Meanwhile, over at Vancouver Condo Info, regular contributor ZRH2YVR shares some additional inventory facts.

The west side of Vancouver exceeded 1,000 available detached listings on Thursday. Sales are off 17% and listings are up 25%.

In addition to single family houses, a serious flood of apartments is going up for sale on the west side – current pace is for 1,230 of attached units (Apartment/townhouse combined).

Meanwhile Richmond will likely have a 'months-of-inventory' total which is over 12 months by the end of May. More significantly the vast majority of transactions are now for less than the tax-assessed value of the properties. Sales are plummeting by 47%.

Interesting times.

Also... don't forget about out 20,000 listings prediction competition. Put in a comment and let us know when you think Vancouver will hit 20,000 available properties for sale.

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Email: village_whisperer@live.ca
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I can see clearly now...

There is an old saying that goes "hope clouds observation."

A wise saying to remember as events heat up on the real estate front.

As the 2008 Financial Crisis took hold in early 2009, real estate watchers in Vancouver eagerly anticipated a housing implosion.

But ultra low interest rates and the on-going expansion of CMHC's balance sheet resuscitated a real estate dependant economy.

The anticipated collapse morphed into a small correction.

And it was not by chance.  Our government purposefully intervened to make it so.

It was a huge gamble for our federal government. The Conservatives gambled that if Canadians could be nursed through the worldwide recession (which normally last 4-5 years, at most), then economic growth would mitigate the huge surge in debt that the government stimulus would create.

One small problem.

Not only has this not been your garden variety recession.  It isn't contained to being a severe recession (on the world stage - the efforts have rendered the worldwide recession a curiosity in Canada).

The worldwide situation is turning out to be a once-in-a-multigenerational downturn that may well last 10-15 years (if not turn out to be something worse).

But this turn of worldwide events has transformed what had been an 'economic plan' into a quandary.

As bears sit on pins and needles waiting for a condition that defies economic sense to collapse upon itself, the Canadian federal government now shifts their focus from blowing up the housing bubble to now trying to engineer a 'soft landing' without triggering a housing crash.

From Carney (the Bank of Canada governor) and Flaherty (the Minister of Finance) we have endless jawboning about the hazards of the massive household debt they were responsible for creating.

Both men huff that the number one risk to the Canadian economy continues to be household debt  - which currently stands at a record 153% of disposable annual income.

The dilemma, of course, is that interest rates must be kept low to try and stimulate business spending and give businesses a break on their borrowing. But it's the consumer who continues to do all of the borrowing and the money is funnelled into the housing bubble - aided and abetted by a banking industry addicted and dependant on the revenue generated from these mortgages.

So jawboning moves to small steps to 'engineer' the soft landing.

The 0% down/40 year mortgage conditions were eliminated.

And it's replacement, the 5% down/35 year amortizations, were subsequently axed as well.

Now the 5% down/30 year amortizations are supposed to be doing the job.

But still no soft landing. Rumours now swirl that we will have 5% down/25 year amortizations at the end of the month... or perhaps even 10% down.

Meanwhile a tight rope is walked trying to prevent participants in the housing bubble from panicking.

Bank economists issue reports and forecasts attempting to ensure public confidence doesn't collapse and trigger a wave of sellers without buyers.

Each bank echo's statements like this one from Bank of Montreal's chief economist Sherry Cooper and senior economist Sal Guatieri who said last month that there is no housing crash coming, rather Canadians should......

“Expect the housing boom to cool rather than crash… While the housing boom is unlikely to continue unless mortgage rates drop much further, neither is it likely to bust… In our view, the national housing market is more like a balloon than a bubble… While bubbles always burst, a balloon often deflates slowly in the absence of a pin.”

But a curious dynamic is developing,  the 'soft landing' is quickly morphing into signs of a collapse. It's difficult to see outright, because statistics skew what is happening.

 Sales are plummeting but what little sales that are occurring are at the high end of the market and the numbers distort the averages.

Witness what we are seeing in Greater Vancouver right now.

March sales throughout the Lower Mainland region are on track to collapsed 30% from March of 2011. Sales of detached homes in Richmond are off 55%. On the west side of Vancouver (HAM central) sales are down by 50%.

In Burnaby sales are on pace to be off by 40%.

In the midst of this carnage there have been 5 sales this week of properties which changed hands for over $7 million, including 2 for over $10 million.  This will trigger a record average price for a single week of real estate sales.

See what I mean... the statistics are going to be royally skewed.

But the mortgage divisions of the various banks are not fooled... they can clearly see through the aberrant  numbers... and they are concerned.

Bank of Montreal (BMO) has suddenly brought back its 2.99% special mortgage, a half point drop off it's five year term. 

BMO has also slashed their 10-year mortgage to just 3.99%.  This is the first time a major lender has ever offered such a low rate for a 10 year term.  What was it BMO's Sherry Cooper said about the "housing boom being unlikely to continue unless mortgage rates drop further?"

On Thursday afternoon TD Canada Trust matched BMO's 2.99%, but for a four-year loan. Other banks are sure to follow in a desperate attempt to stimulate the market and match the competition.

Which brings us back to where we started this post.

"Hope clouds observation."

Many bears are all hyped up in anticipation that the crash has started. As Sean Connery said in the movie, The Untouchables:

"Don't wait for it to happen. Don't even want it to happen. Just watch what does happen."

There are still many twists ahead. 

But if you are a bear, take heart by this recent quote from BMO chief economist Sherry Cooper. 

Cooper - who told us that unless rates dropped further, the housing market would deflate rather than burst - has suddenly had a change of heart (not too surprising since it is her own bank that has launched a new mortgage war with the lowest rates in Canadian history):

“We’ve always said the market remains vulnerable to a correction in the face of a shock. It could also 'pop' in the absence of a shock should current frothy trends persist.

The next few weeks will, no doubt, generate significant 'froth.' Watch what happens, don't be disappointed, don't be surprised.

Just watch what does happen... and allow events to play out.  Don't let hope cloud your vision.

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Everyone's a bear now - even Ozzie Jurock?

As mentioned several times over the last week, everyone seems to be coming to the realization that the Real Estate market is in for a correction.

Douglas Porter, deputy chief economist with the Bank of Montreal says, “while the timing of said slowdown remains up in the air (and it’s no foregone conclusion it will start this year), it is highly unlikely that Canada’s housing market can continue its recent winning ways.”

Porter’s colleague at BMO, senior economist Sal Guatieri, doesn’t expect the “nastier” turn, saying in a separate report that the market is losing steam, and that valuations remain a worry, but that there will still be “modest gains” in overall sales this year, along with steady prices.  "If you listen closely you can hear the sound of air seeping out of Canada's housing balloon," Guatieri said.

Jacques Marcil, senior economist of Toronto-Dominion Bank, believes housing markets will weigh on the economies of British Columbia and Ontario and he projected a “significant correction” this year, noting that the hot Vancouver market probably peaked in 2011.

Even the Real Estate Board of Greater Vancouver reported this week that sales last year climbed 5.9% from 2010, but slowed at the end of the year. Sales in December fell 12.7% from the same month a year earlier. And while prices were still up by 7.6%, the REBGV tells us they were 1.5% below their peak of June, 2011.

But perhaps most astonishing is to see even Ozzie Jurock cast disparaging words on the ever inflating real estate market.

Jurock headlines that Vancouver prices are the same this December over last December but then goes on to give you some very bearish analysis which includes some very uncharacteristic negative comparisons:

"Well, YES (Vancouver prices are the same this December over last December) ... BUT the December average price of $ 691,000 is a whopping $141,000 or a full 17% lower than the May 2011 average price, which clocked in at $834,000. In fact overall sales decreased 13% over last December but a WHOPPING 34.1% decrease over the 2,515 residential sales in December 2009. Sales of detached properties a decrease of 18.1% from the 769 detached sales recorded in December 2010, and a WHOPPING 30.2% decrease from the 902 units sold in December 2009."

Jurock even goes on to offer you some very bearish advice.  "If you are a seller - list now! Prices usually rise January to May as do sales... and fall after that. If you are a buyer... take your time... the market will not run away from you."

Imagine if everyone were to follow Ozzie's advice, i.e. a rush of listings while buyers patiently wait and stay away?

It could make for a very interesting spring.

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Email: village_whisperer@live.ca
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