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, 2012, October 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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What lies ahead? One local real estate agent calls the bottom.

As the news about November's real estate sales circulates in the media, the main emphasis shifts from declining sales to actual prices.

The mantra being pushed is that prices aren't (and won't) be coming down.  We saw that message on November 30th:

"If you've been staying out of the housing market, waiting for a big drop, you might be in for a long wait."

And it's been a theme Tsur Somerville has pushed since early October.

Yesterday it was Eugene Klein, president of the Real Estate Board of Greater Vancouver (REBGV):

November home sales in the Vancouver area fell 28.6 per cent compared with a year ago as what was once the country's hottest real estate market continued to cool.

Despite the sharp drop in sales, the board said the MLS home price index composite benchmark for homes Greater Vancouver was $596,900, down just 1.7 per cent compared with a year ago. The index peaked in May at $625,100.

"Home sellers appear more inclined to remove their properties from the market today rather than lower prices to sell their properties," said Eugen Klein, president of the Real Estate Board of Greater Vancouver.

At this stage of the process, it's no surprise that listings are being pulled to wait out conditions.  And it isn't really surprising that the real estate industry is focusing on the convoluted HPI to dampen the impact of any price drop.

For while the HPI is only down 1.7%, the average detached home price is now down 14% from the February 2012 peak.  Who wants that figure prominently publicized?

Conditions are mimicking what we saw in 2008 when the Financial Crisis started.  As Garth Turner noted, the parallels are eerily similar. 2008 saw a huge drop in sales and the average price started to plummet:

Of course the collapse was resuscitated. "In 2008 a variable-rate mortgage was 6% and a five-year loan was 5.75%. The world fell into a financial... and the Bank of Canada rushed in emergency interest rates. By May of 2009 a VRM had collapsed to just 2.25% – the lowest point in history. With rates almost 4% lower than they’d been months earlier, and mortgage payments slashed by more than half, the collapse in real estate prices and sales was quickly reversed"

The efforts were complimented by the federal government's bailout of the banks through the Insured Mortgage Purchase Program (IMPP).

Not only was the collapse halted, but the bubble blew even higher as Canadians plunged themselves into historic levels of debt:

But as the crack cocaine of cheap easy money has run it's course and the government has started to pull back on those emergency measures, the slide is happening again (despite the HPI only dropping 1.7%):

So as the average price mimics 2008, what divine intervention will occur to see that prices only 'flatline'?

What is going to cause prices to resume their upward trajectory?

The changes to the mortgage rules have frozen out the entry level buyer, the ones who used to be balt o to get into the market with nothing down.

Without their business the market freezes, as Thomas Neal of Royal LePage Estate Realty noted in the Globe and Mail:

While people are still coveting single-family houses, those move-up buyers who already own a condo are more hesitant to purchase a house because they don’t know how long it will take to sell the condo. That’s a change from the dynamic of the last eight years or so when condo owners would often list the unit first, reap more than they expected in a bidding contest, and then in turn funnel that money into winning the competition for a house.

“Now they’re not buying first; they’re selling first,” says Mr. Neal. With that shift, he explains, the number of buyers out there is cut roughly in half.

Enter the current industry campaign: "buy now because prices won't be going down."

I have a feeling this theme is going to ramp up over the winter months before the Spring re-listing begins in earnest:

It’s a market that’s winding down in the dwindling days of November. Few new listings will arrive on the market in December. Those sellers who do list now have likely already purchased another property.

“If you don’t have to sell I think you’re going to wait until the spring,” says Mr. Neal.

As for those sellers whose condos and houses are already lingering on the market, Mr. Neal predicts many of those people will be taking down the “for sale” sign by Christmas.

“People who don’t sell in December will be back out on the market in February,” he says.

And when they come back in Spring, they want to hear that there will be people to buy their homes.

Perhaps that's why some bearish agents are starting to change their tune about market conditions.  Let's face it, who wants to list with an agent who tells you it's only going to get worse.

Perhaps this explains the about-face in attitude from real estate agent Andrew Hasman.

In 2011, when prices were going crazy on the west side, he was calling the market 'unhealthy' and warning about the consequences:

"The local person is completely out of this market," he said. While skyrocketing prices have made business good, Hasman said that the current market, with housing prices rising 10-15 per cent each year, is unhealthy.

"Anytime you have extremes in markets, it's never healthy," he said. "You end up with a bubble. If the local economic base can't support these levels, then at some point you're going to have a lot of people burned big time. It's not sustainable."

In July 2012 he told us that:

This feels like the first Normal Real Estate market in many years. That is if you can even define or remember what 'Normal' really feels like.  Gone are the bidding wars and gone (for now) are the days when homes were selling in mere days. For buyers there is now good selection and no pressure to make that big commitment... Sales of homes across the Greater area of Vancouver are at levels not seen since 2000!

Overall, prices still seem to be holding with some price softening in specific markets only. Vancouver’s Westside looks to be one of those markets.  Fewer buyers from China, tougher mortgage regulations and concerns over the global economy are all weighing on consumer confidence. I predict these market conditions will continue through the balance of 2012 with further price softening.

So does Hasman see more dismal times ahead for when all those disgrunted sellers re-list in the Spring?  Apparently not, according to his December 4th market report:

We continued to 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.

Really? And what are we going to hang our hopes on for this resurgence in the market?

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?

Ummm... because that period in 2012 also wasn't like the years before it?  Based on 2012, that period was a disaster. Are we really going to continue to hang out hats on Hot Asian Money (HAM) again this Spring? 

It appears so. Hasman not only pins his clients hopes on HAM, he goes further than that and calls a bottom for the market:

I do not see any housing crash or even much more downside to house prices. Prices have already slipped 10-15% in some cases and I feel that is as far as it will go.

So there you have it: Buy now, because prices aren't going to go down.

Pardon me if I read the tea leaves a little differently.

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Are Vancouver homes starting to melt below assessed value like they are in Richmond?

On Wednesday we showed you more million dollars homes in the Vancouver suburb of Richmond selling for below their government assessed value (by about 25%).

Richmond, along with the City of West Vancouver and the west side of the City of Vancouver, had for years been HAM (hot asian money) hotspots.

So it begs the question that if values are melting in Richmond, how are things going in Vancouver right now?  

For a summary of market conditions, let's check in with realtor Andrew Hasman who reminds us in his October Update that "the media always seem to be somewhat behind what is really happening on the front lines," which is interesting because the media 'experts' have been insisting the market is flat right now.

Here's his latest:

After several months of slowing sales and increasing supply the new media have made it official. That Vancouver’s Housing Market is now officially slowing and it’s a “Buyer’s Market”. 

September sales activity (on the Westside) continues to remain at levels not seen since the late 1990’s. We now have over 12 month’s housing supply and home prices were down (on average 6% ) in September this year’s verses last year. 

This all being said, a correctly priced home that presents well will still attract offers and a sale within 30 days. There’s a lot of supply and choice for buyers right now. It’s critical for sellers to make their home stand out from the crowd. Pricing and Presentation is now more important than ever. 

Here’s how the numbers stack up: 

Westside Single Family Homes: During the month of September there were 86 homes sold compared to 104 last September. Year to date the sales are down by 39% from 1683 homes sold in 2011 to 1013 sold this year. 

The average selling price of a home was down 6% this September verses last year to $2,259,214. Year to date the average selling price is up 2% to $ 2,434,759. There were 1044 homes listed for sale at September 30th this year verses 823 one year ago. That’s an increase of 26% 

Months of supply has climbed from 7.91 last year to 12.13 this year. We are very much in a Buyer’s Market.

Dismal numbers, to be sure.  Months of supply up from 7.91 to over a year! 

Wow.

But as Hasman says, a 'correctly priced home' will sell in this market.

So what is the 'correct' price on the west side right now given that the 'correct' price in Richmond is 25% below assessed value?

Perhaps this house at 3888 W. 30th Ave in the prestigious Dunbar neighbourhood will give us an idea.

Described in the realtor listing as a custom built, 2,548 square foot, 5 bedroom home, it has a sunny south facing backyard and is billed as being close to the best private and public schools (Lord Kitchener, Lord Byng, and one block to St. George's).

Original asking price: $1,790,000.

The assessed value of the property: $1,751,000

The property sat on the market for just over three months during which the owners cut their asking price to $1,640,000.

It just sold for $1,540,000.

That's 15% below the original asking price and 12% below assessed value.

Is this what market shills like Tsur Somerville mean when they say the market is 'flat'?

(Hat tip to Lurker on VCI)

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Like sand through the hourglass... the fall listings watch begins.

Besides the dismal sales numbers from August (and the debate over whether or not the trend will continue into Fall) the hot topic du jour is inventory.

July and August are typical months where inventory drops off sharply. This summer there was a drop but it was no where near as large as the typical summer.

Total inventory dropped -110 on August 1st (as July's numbers came in) and -606 on September 4th (as August numbers came in)

Normally, after the summer lull,  listings really start to pick up in September and sales remain constant through September with what they were in July/August.

But will the a new pattern play out in Autumn as it did in Summer?

Since there wasn't a huge drop off in listings over July/August... does that mean there won't be a typeical listings surge in Fall because all those listings are already on the market?

Yesterday we brought you the latest musing from realtor Andrew Hasman. Hasman had the following thoughts on the Fall listings question:

August was stable compared to July in that the supply of houses relative the the actual sales remained fairly stable... Another interesting statistic is the drop in supply from Aug 31st to Sept 1st of approximately 60 houses. For the first time in several months we have under 1000 houses for sale but I predict this number to quickly move up as more homes enter the market in time for the Fall.

Hasman may be proved right when he predicts listings will "quickly move up as more homes enter the market in time for the Fall." Since the big month-end drop we saw on the first sales day of September (-606), total inventory has surged a stunning 414 in just four days.

If we were to maintain this pace all month, the market would add another 1,552 listings to the total and the month would end +1,967 making September the 2nd biggest gain of the year after January.

But not everyone shares Hasman's optimistic appraisal of the inventory situation.

Realtor Rob Chipman has a different prognostication. He predicts that inventory has peaked in the Lower Mainland and that an inventory decline has begun.

Inventory in the Lower Mainland real estate market has decisively peaked, and the decline has begun... 2012 inventory took off in January, and eventually exceeded the levels seen in 2010, and almost eclipsed the swollen inventory numbers of 2008.

Both years led to drops in prices, with 2008 being the worse of the two. There were fears/hopes among some that this year’s ballooning inventory would spell the end of our decade plus trend of climbing prices and result in a marked price decrease and a prolonged period of falling prices.

I was of the opinion that this would not occur. in fact, I suspected that the new trend would be a more or less stagnant market with prices moving with a 10%-15% trading band for the foreseeable future.

Chipman's contribution abruptly ends there but he is clear in his belief that Inventory will now decline and prices will stagnate without dropping significantly.

Interestingly we continue to sit on an all time record streak of 18 consecutive days with daily sales totalling less than 100 per day - despite the fact this is the week after a three day long weekend when normally we see a bump in sales from the longer non-reporting weekend sales.

Are all the potential listings that would have come on the market, already listed?

Will others pull their listings as some sellers prepare to ride out this period of stagnation?

Or will this week's listings surge continue?

The developing saga is better than any soap opera.

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Westside Realtor's report on the dismal August 2012 numbers

On July 29th we introduced you to Andrew Hasman, another realtor from the west side of Vancouver who has been calling the market for what it is... a bubble.

A year ago, when prices were going crazy on the west side, he wasn't one of the cheerleaders for what was going on. Quite the contrary, he was calling the market 'unhealthy' and warning about the consequences:

"The local person is completely out of this market," he said. While skyrocketing prices have made business good, Hasman said that the current market, with housing prices rising 10-15 per cent each year, is unhealthy.

"Anytime you have extremes in markets, it's never healthy," he said. "You end up with a bubble. If the local economic base can't support these levels, then at some point you're going to have a lot of people burned big time. It's not sustainable."

In July he told us that:

This feels like the first Normal Real Estate market in many years. That is if you can even define or remember what 'Normal' really feels like.  Gone are the bidding wars and gone (for now) are the days when homes were selling in mere days. For buyers there is now good selection and no pressure to make that big commitment... Sales of homes across the Greater area of Vancouver are at levels not seen since 2000!

Overall, prices still seem to be holding with some price softening in specific markets only. Vancouver’s Westside looks to be one of those markets.  Fewer buyers from China, tougher mortgage regulations and concerns over the global economy are all weighing on consumer confidence. I predict these market conditions will continue through the balance of 2012 with further price softening.

Hasman is out with his September market report. Here are some of the hilights of the results from last month:

August was stable compared to July in that the supply of houses relative the the actual sales remained fairly stable. The one notable statistic was the Average sale price of a house. In August the average was pulled higher by 14% over the 2011 average sale price. This increase is due to two very large sales on the Westside during the month. Of the 75 houses sold, there were two sales over $12 million which have brought the average sale price up.

Another interesting statistic is the drop in supply from Aug 31st to Sept 1st of approximately 60 houses. For the first time in several months we have under 1000 houses for sale but I predict this number to quickly move up as more homes enter the market in time for the Fall.

In the past three weeks I personally noticed a pick-up in the number of buyers looking at houses and the number of offers received. So far we have not seen this translate into increased house sales. With September upon us it will be a matter of time before we see if our market will see increased sales activity or not. Stay tuned!

Here’s how the numbers stack up for Westside Real Estate Activity in August:

Single Family Homes

• During the month of August there were 75 homes sold compared to 130 last August and 83 one month ago. Year to date house sales are down 41%

• Average selling price of a house was up 14% from last August to $ 2,859,945. I believe this increase is due to two homes sold over $ 12 million during the month. This has no doubt pulled up the average. Year to date the average sale price is up 2% to $ 2,451,044.

• There were 995 homes listed for sale at Aug 31st this year compared to 643 one year ago. An increase of 54%

• At August 31st we have 13 month’s supply versus 5 month’s 1 year ago.

Sales of all Single Family Houses in all Vancouver areas was down 39% from this August compared to last August.

Year to date sales are down 28%.

Average sale price year to date is down 5% to $ 1,120,411 with 12.6 month’s supply of houses available compared to 6 month’s supply 1 year ago.

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Mon Post #1: August 2012 real estate market report from a west side realtor who calls our conditions 'a bubble'.

On July 29th we introduced you to Andrew Hasman, another realtor from the west side of Vancouver who has been calling the market for what it is... a bubble.

A year ago, when prices were going crazy on the west side, he wasn't one of the cheerleaders for what was going on. Quite the contrary, he was calling the market 'unhealthy' and warning about the consequences:

"The local person is completely out of this market," he said. While skyrocketing prices have made business good, Hasman said that the current market, with housing prices rising 10-15 per cent each year, is unhealthy.

"Anytime you have extremes in markets, it's never healthy," he said. "You end up with a bubble. If the local economic base can't support these levels, then at some point you're going to have a lot of people burned big time. It's not sustainable."

Last month he told us that:

This feels like the first Normal Real Estate market in many years. That is if you can even define or remember what 'Normal' really feels like.  Gone are the bidding wars and gone (for now) are the days when homes were selling in mere days. For buyers there is now good selection and no pressure to make that big commitment... Sales of homes across the Greater area of Vancouver are at levels not seen since 2000!

Overall, prices still seem to be holding with some price softening in specific markets only. Vancouver’s Westside looks to be one of those markets.  Fewer buyers from China, tougher mortgage regulations and concerns over the global economy are all weighing on consumer confidence. I predict these market conditions will continue through the balance of 2012 with further price softening.

Hasman is out with his August market report. Here are some of the hilights of the results from last month from a realtor who seems to recognize this bubble market for what it is.

Take note of the statistics about Single Family Homes on both Vancouver's west side and Greater Vancouver. They are quite striking:

As expected ( after four months of declining sales ) the Summer market continues to chug along with house sales at levels not seen since 2009. There are now 12.5 month’s supply of houses for sale on the Westside which technically puts us in a Buyer’s Market. This is quite a change from where we were one year ago when we had 4.5 month’s supply. I expect the level of homes on the market to remain stable though August with sales hovering around 70 to 90 sales for the month.

September and October typically bring an increase in demand but also an increase in inventory. This year may see many home owners de list their properties not willing to sell at prices the market is willing to pay. If this is the case we should see inventory levels remain stable.

On Vancouver’s Westside home prices continue to be far out of line with economic fundamentals meaning we have become fully reliable on foreign buyers supporting our current price levels. If we continue to see an absence of these buyers then prices ( in my opinion) will trend lower. You only have to look at the High End of the market above $ 3 million and there is a glut of homes for sale. Where have all the buyers gone?

Here’s how the numbers stack up for Vancouver’s Westside:

Single Family Homes:

• During the month of July there were 83 homes sold versus 139 one year ago. A decline of 40%. Year to date home sales are down by 41% compared to 2011.

• Average selling price of a home was $ 2,397,045 almost unchanged from 1 year ago. Year to date the average sale price is also even with last year at $ 2,415,050.

• There were 1038 homes listed for sale at July 31st this year compared to 632 1 year ago. That is an increase of 64%

• There were 12.5 month’s supply of houses at July 31st versus 4.5 month’s one year ago.

Greater Vancouver Real Estate Market (single family houses)

• Sales of all detached properties on MLS in July fell 28% from 1101 units last July to 790 units this year. Year to date sales are down 26%.

• Average selling price has fallen by 8% from $ 1,133,357 to $ 1,041,325.

• The supply of houses has increased by 24% and the month’s of supply has increased from 5.8 to 10 month’s this year.

Overall our market seems to be gradually cooling . That being said, it is summer and this is probably what a “Normal Summer” market should feel like. For most Vancouverites this market feels slow but remember so many of the past years we have had booming conditions. A Booming market is only sustainable for so long.

Wow!

Westside Single Family Home (SFH) inventory has increased 64% from a year ago. The months of inventory (MOI) has increased from 4.5 MOI to 12.5 MOI in that time period.

In Greater Vancouver the SFH inventory has increased from 5.8 MOI to 10 MOI.

Imagine what it will be like if the traditional post-summer inventory surge materializes?

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Another Vancouver West Side Realtor with an honest assessment of conditions

Meet Andrew Hasman. 

He's another realtor from the west side of Vancouver who has been calling the market for what it is... a bubble.

A year ago, when prices were going crazy on the west side, he wasn't one of the cheerleaders for what was going on. Quite the contrary, he was calling the market 'unhealthy' and warning about the consequences:

"The local person is completely out of this market," he said. While skyrocketing prices have made business good, Hasman said that the current market, with housing prices rising 10-15 per cent each year, is unhealthy.

"Anytime you have extremes in markets, it's never healthy," he said. "You end up with a bubble. If the local economic base can't support these levels, then at some point you're going to have a lot of people burned big time. It's not sustainable."

A realtor telling you that a bubble is forming and that if you get caught up in it you could get burned?

Wow! And... he was saying that in May 2011!

So as July 2012 unfolds into what is possibly becoming one of the worst months for sales since he became a realtor in 1993, let's take a look at his observations for last month on Vancouver's West Side:

This feels like the first Normal Real Estate market in many years. That is if you can even define or remember what 'Normal' really feels like.

Gone are the bidding wars and gone (for now) are the days when homes were selling in mere days. For buyers there is now good selection and no pressure to make that big commitment. For home owners trying to sell, patience is required and making sure you list your home at 2012 price levels which may be 5 to 10% below where they were a year ago. This all being said, when you price your home correctly we are seeing buyers show up with offers.

Sales of home across the Greater area of Vancouver are at levels not seen since 2000!

Overall, prices still seem to be holding with some price softening in specific markets only. Vancouver’s Westside looks to be one of those markets.

Fewer buyers from China, tougher mortgage regulations and concerns over the global economy are all weighing on consumer confidence. I predict these market conditions will continue through the balance of 2012 with further price softening.

• During the month of June there were 102 single family homes sold ( slowest sales since Jan 2012) versus 213 one year ago. A decline of 52%. Year to dates house sales are off 41%.

• Average selling price of a house was $ 2,401,547 which represents a 2% decline from June 2011 and an increase of 2% year to date.

• There were 1078 homes listed for sale at June 30th versus 603 last year. An increase of 78%

• There were 10.5 month’s supply at June 30th versus 2.8 month’s last year. This is considered a buyer’s market.

In the past three years the houses saw most of the run up in prices with huge demand from Immigrant buyers. It’s now this market that seems to be experiencing the most price softening.

It seems Hasman is another of those rare realtors giving us an accurate snapshot of what is going on out there.

It will be interesting to see how he summarizes the month of July, 2012.

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