Ain't Gonna Happen??? Hmm... perhaps it should be - How Low will it Go?

Our housing bubble is now mainstream news.

Sales of existing homes in Vancouver sank 15.5% from a year ago May, with the sales for the month coming in the lowest for any May since 2001.

At the same time the active inventory backlog surged 16.8% and new listings were up 14.4% from a year ago.

As listings soar and sales tank, the man on the street in now openly discussing 'The Bubble'.

But talk is now moving past whether or not there is a bubble. Gluskin Sheff chief economist David Rosenberg is in the Financial Post proclaiming that Vancouver’s housing bubble has burst."

It all comes on the heels of May data which shows Vancouver's single family houses are now down 12% with no signs the slide is going to stop anytime soon.

Garth Turner takes a look at the data and proclaims:

"The event’s just begun. This was a lesson bitterly learned by those early vultures who swept down on US real estate in early 2006, smelling blood, only to end up catching a falling knife. After doubling in value over the last eight years, with the economy marking time, salaries trailing inflation and unaffordability off the chart this market is not going to clock out at fifteen per cent. If prices can dip 12% in a few months, they can decline 40% over the next 18 months."

True... but for many 40% is just too hard to fathom.

Consider this musing from Vancouver realtor Larry Yatkowsky.  He broaches the concept of a 32% drop in prices and consider's it a level most of us would not imagine:

Let’s start at the highest average price ever reached in Vancouver for a detached home – a mere $1,235,244. Now let’s also assume this market is on the skids sliding down the drain faster than we think to bottom out at something most of us would not imagine – a market that drops so much it hits May 2009′s Average Price of $831,171. With a price drop of $404,073... that's a 32% drop from the all time high.

Of course some of us can imagine it.  We don't think it's all that hard, actually.  But the disbelief in daily discourse is more than palpable.

Even in our little corner of the blogosphere it draws comments of incredulity.

On Tuesday we made a post about Random Thoughts.

Among the commentary that followed, one faithful reader (DG) opined:

"I would agree with prices dropping but your prediction is beyond impossible. It is basic economics and as you can see from the various RE blogs that there are people sitting on the sidelines waiting for the drop to enter into the market. There are many. These people will support the price and keep them from dropping beyond 20 to 30% as rates continue to stay low."

So a 30% drop is impossible?

My prediction, as you know all too well, is for a drop of 70-85% when all is said and done.

But I can't help but be fascinated by the steadfast belief by so many (... I say this because I encounter it in day-to-day discussions as well) that prices simply won't drop beyond 30%.

Even Yatkowsky finds a drop of 32% unimaginable for most.

Thus our post.

Ain't Gonna Happen vs. How low will it go?

So the first major signpost on this journey is the 30% mark. We will watch and focus on it.

Unimaginable? Unattainable?

With apologies to Rod Serling...

"This highway leads to the shadowy tip of reality: you're on a through route to the land of the different, the bizarre, the unexplainable... Go as far as you like on this road. Its limits are only those of mind itself.  That's the signpost up ahead - Next stop... The Bubble Bursting Zone."

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