Buried in a piece of about the economy, Global reports that Vancouver Real Estate will drop another 10% in 2013.
Naturally is is couched with the rationalization that this drop will be - at best - a correction, not a crash because interest rates aren't heading up anytime soon.
But it's significant to note we have now moved from the "prices are flat" mantra to this is a "correction, not a crash" mantra.
Many economists balk at using the “B-word” to describe Canada’s housing market. Gluskin/Sheff’s David Rosenberg doesn’t.
And remember, he was the guy who called the U.S. housing bubble.
In a report out this week, Mr. Rosenberg describes the different real-estate market landscapes on either side of the Canada-U.S. border–”bubble versus the rubble.”
Rosenberg is highly respected in the United States as an economist who pulls no punches and he gained a high profile in financial markets when as the chief economist of Merrill Lynch he rang some early warning bells on the housing market crisis and subsequent recession in the U.S.
Mr. Rosenberg’s message now: Housing prices in Canada and the U.S. have never been this polarized, with Canada’s prices on average twice that south of the border. Historically, they have been close to parity, he says, and they can’t stay this far apart forever.
Toronto and Vancouver are “undeniably desirable places to live,” but that doesn’t mean that prices in Vancouver should be 4.4 times above the U.S. average, and Toronto three times higher.
Activity in the Canadian market should cool off, with condo sales vulnerable to a 20% drop in hot spots like Vancouver and Toronto. And another tightening of Canadian mortgage rules—which went into effect this week–is sure to bite into demand.
If there was any doubt before, you can't ignore it now. The word is out across America and the world about our housing bubble and that a crash is not only imminent, but expected.
Rosenberg summarizes the situation succinctly by declaring; “Not sustainable, my friends.”
Wasn't it Tsur Sommerville who insisted that wealth would continue to pour into Vancouver to support our housing prices?
I wonder if the Sauder School of Business will come out with a report analysing how wealth ignores the evidence when making investment decisions.
I mean, don't they already believe fundamentals don't apply?
So what if the mainstream media is abuzz with talk of a Canadian Housing bubble.
And yes, articles abound that trouble looms on the horizon.
Sales are tanking. Listings are soaring. So what's a realtor to do?
Trash all this bubble talk, of course.
Enter Condo King Bob Rennie;
"It’s not a bubble. With the 80% of the [condo] market that traded in [Metro] Vancouver last year, you only needed a household income of $52,800 to purchase. That’s not a bubble story.”
Rennie's comments come courtesy of an interview with the Vancouver Sun following his keynote address to the Urban Development Institute Thursday.
Rennie sees aging baby boomers with billions of dollars in equity becoming a much greater force in the condo market as they increasingly downsize from expensive single-detached homes, and put money aside for their children.
Rather than seeing a market crash as hundreds of thousands of boomers dump bubble inflated single family houses and downsize, Rennie has a different take.
Noting that the number of people between 55 and 64 will increase 38% between 2009 and 2018, those between 65 and 74 will increase 56%, and those between 35 and 54 will only increase by 4.6%, Rennie views this as positive - particularly for his niche focus in condos.
“I believe the leaner, meaner baby boomer is the game changer. Baby boomers are sitting on $88 billion in equity in Greater Vancouver and they’re looking at their retirement years. That equity will be freed up over the next 15 years [and] when they sell their home, they’ll buy down and help their kids.”
Rennie said there were about 19,000 condo sales in Metro Vancouver in 2011, and that while the average price for 80% of those condos was $315,000, the overall average price was $427,000, which required an income of $66,000 to finance.
And, as we noted in our discussion about Marine Gateway, Rennie has a number of big projects coming to market this year... ergo the never-ending sales pitch continues.
Meanwhile our buddy Tsur Somerville, director, centre for urban economics and real estate at UBC's Sauder School of Business, chimes in as well.
He also doesn’t believe there’s a real estate bubble in Metro Vancouver because there’s not an explosion in housing starts.
Somerville says that while the affordability numbers have been skewed by the higher end parts of the market – “there were double-digit increases in Richmond, Vancouver, Burnaby and West Vancouver, with single-digit increases everywhere else” — the region is still very expensive compared to other cities in Canada.
“Compared to other cities, that income [$52,800] gets you a house. Here, it gets you a condo. That means we’re expensive, but that’s the reality of what we are. It’s still an expensive place to live, but it’s not unaffordable. You’ll end up smaller and further away from the core.”
Bubble? What bubble?
That's clearly what's emerging as the counter offensive theme by the industry right now, a theme which continued over on Global TV.
Adding to the 'non-bubble' message is this treatsie... "just because sales are slumping, don't bank on prices doing the same":
Announcer: “Is the Canadian housing market a bubble ready to burst, or is it steady as she goes? Finance Minister Jim Flaherty is warning Canadians against taking too much debt against the value of their homes, but the latest report from the Canadian Mortgage and Housing Corporation is dismissing those fears saying there is no clear evidence of a real estate bubble.”
Tsur Sommerville: “There is clearly a slowing down in the market you see an increase in the number of listings, drop in sales, all things that create less pressure on the market.”
Announcer: “According to the Real Estate Board of Greater Vancouver home sales were down 19% compared with this time last year.”
Helmut Pastrick: “The comparison to last year was heavily influenced by the change in the federal government’s mortgage insurance criteria which pulled forward a large number of sales into early 2011. So we’re comparing that high point to activity so far this year.”
Announcer: “But don’t get too excited, even though sales are down, home price indexes show a 4% increase in the price of a home in greater Vancouver. … The message to buyers, the economy is in reasonable shape, there’s a lot of supplier there, and interest rates are low. So just because sales are slumping don’t bank on prices doing the same.”
Tsur Sommerville: “We don’t have a sort of financial environment where people are looking at major financial corrections, you know, double digit increase in interest rates, or, you know, huge tightening of liquidity, that just doesn’t seem to be on the horizon, you know, to expect across-the-board 10%, 15%, 20% drop in house prices, I think that being rather, er, hopeful, for a buyer to expect that.”
The message is clear. Don't be deceived by slumping sales and burgeoning listings. Prices aren't coming down so stop waiting.
Now is the time to buy. What are you waiting for?
(hat tip to Greenhorn for the video archive and VREAA for the transcript of the Global clip)
So I was sitting in a cafe near Canada Place this morning with a group of 'friends of friends' who had just finished running the Vancouver Marathon (or in their case... the half marathon) and the topic turned to real estate.
One astute member for the 'friends of friends' clan was explaining to a colleague about why downtown condo prices, which have been falling recently, will continue to fall.
Our table was long, but my ears had not deceived me. The bear case was being eloquently laid out!
Listening in, my heart shone as this learned individual explained the current market dynamics.
It wasn't long before your faithful scribe chimed in about the impending OSFI changes to LTV mortgage renewals to complete the discussion when he turned and said, "ah... so you know all to well what's going on!"
Indeed... and clearly I'm not alone as one glance at the weekend papers indicate enlightenment isn't just occurring in local cafe's.
For several years now this, and other blogs, have ruminated that the phenomena of HAM (Hot Asian Money) was not a panacea to the everlasting inflation of our housing bubble.
And as the Spring market fails to materialize, it becoming very evident to all that Chinese buyers are not going to save the market.
It's so evident that even the local newspaper columnist Frances Bula is now writing about it.
Bula writes that the:
"boom of sky-high prices for Vancouver west-side houses – one that provoked media around the world to claim with scant proof that mainland Chinese investors were buying up the city – is fizzling out."
Bula notes that a house in the 3000 block of West 24th Anenue, first listed at near $4.5-million six months ago, sold on April 15 for $3.35-million, over $1 million chopped off the asking price.
Fresh statistics from the Greater Vancouver Real Estate Board show the number of sales on the west side is down by nearly 40% for the first four months of the year. Only a third of the nearly 400 homes listed in April have sold – one of the lowest rates in the region.
And Bula quotes west-side realtor Marty Pospischil, who specializes in selling single-family homes owned by long-term residents, who says that last year, 90% of his 100 house sales were to “offshore buyers”. This year, it’s less than a tenth of that.
Pospischil also noted:
“We’re now seeing a 50% collapse rate in deals, when it’s usually more like 5%.”
The reason?
In addition to the lack of money flowing from China, there is another factor hitting sales hard.
“Banks are now requiring borrowers to disclose incomes and assets before mortgages are approved, as of the last six weeks.”
Meanwhile Bula quotes another west side realtor, who specializes in single family homes. He notes:
“I always thought that market was not sustainable. Every local person was juiced out of the market. The average household income on the west side doesn’t support those prices.”
Wow!
Not that we haven't been saying the exact same thing.
But to see these types of headlines coming from mainstream media in the Vancouver real estate scene, it tells you this is a market in trouble.
For if HAM is evaporating, mortgage rules are tightening and local incomes can't support the current bubble prices; it means there is only one way the market can go.
As long time residents painlessly slash $1 million dollars off those sky high prices for homes they only paid $60,000 to $80,000 for back in the mid-1970s, you have to wonder how long before the free-fall in prices starts?
Everywhere you look these days, it seems the media is screaming about the housing bubble.
The latest is CBC who tell us the Canadian housing market is overpriced and bubbly in many areas.
Meanwhile real setae sales data from Vancouver is just plain ugly.
Listings are shooting upward and sales are slowing dramatically. Sales for April 2012 are down 13.2% from April 2011. They dropped 2.6% from the March 2012 total, a month which was down 29.6% from March 2011.
Detached home sales are down 19.7% and the average single family house price has plummeted by $100,000 so far this year. The surprising gain of last month has been quickly and suddenly wiped out as you can see in realtor Larry Yatkowsky's graph (click on image to enlarge):
The always strong 'Spring Market' is a complete no show.
Garth Turnerreports that in the Vancouver suburb of Richmond over 75% of property deals are now going for less than the assessed value. Says Turner:
Forget bidding wars. This is becoming a realtor graveyard. Suddenly owners are doing what always happens in a market dive – realizing their paper profits will turn vaporous if they don’t cash out. Listings rise, sales don’t and prices fade – the classic vicious cycle.
But despite all the media hype, the average joe on the street is still oblivious to what is going on.
In the US, when the real estate bubble burst, many real estate investors found themselves blindsided. When everything fell apart, they never saw it coming.
Chatting with a few people today... despite all the media attention, so many are going to get blindsided by what's coming.
Robert Hogue, senior economist at RBC, says there are fundamental factors supporting what he acknowledges is a "volatile" market.
In an RBC report Hogue wrote that prices are expected to decline for two key reasons: high prices and the dependence on wealthy foreign investors.
Hogue says these factors:
"... make the Vancouver-area market more vulnerable to a significant downturn than other Canadian markets if an unfavourable economic scenario or unforeseen shock (such as a change in China's policy regarding capital outflow) were to unfold. The constant flow of wealthy buyers coming from abroad is poorly documented, leaving the dynamics of the city's market rather opaque and opening up the possibility that critical market developments could be missed. For this reason, and the fact that the extremely poor affordability levels, quite frankly, make us uncomfortable, we urge caution."
Tsur Somerville, director at the University of B.C. Centre for Urban Economics and Real Estate at the Sauder School of Business, is often chided by bear bloggers for his pro-bull market analysis. But even Somerville is changing his tune.
"Were the inflow of capital from immigrants and investors to dry up or be reduced, that would put downward pressure on housing prices."
Somerville wouldn't predict how much prices would drop but did say;
"I have no idea and given what we don't know, you can't really model the market. It's very hard to figure out what's going on in the Vancouver because there are all kinds of don't knows. We don't know how many of those buyers are foreign buyers, you don't know how many are strict investment, you don't know how many are permanent residents, and you don't know how many are occupying their units."
How's that for turning on a dime? Sommerville out and out admits you really can't model the Vancouver market.
Perhaps he should stop allowing himself to be quoted as an expert on the subject, then. But I digress.
Hogue, who hedges his comments by hesitating to call for an out and out collapse, does note that the market is subject to "extreme unaffordability" and says that a typical Vancouver-area homebuyer would need to spend 92% of their income to carry the costs of a two-storey home, and as much as 45%of their income for a condo.
That this market will correct, and correct significantly, is gradually becoming obvious to anyone who doesn't let hope cloud observation.
“The Federal Reserve is now a government within a government. It is totally out of control. Congress doesn't control it. It's funded by the banks and we either have constitutional government or we don't."
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