After insisting prices would remain flat, Tsur Somerville concedes prices could drop 10% next year

Was it only last month, on September 5th, 2012, that everyone's favourite industry shill Tsur Somerville was trotted out to declare prices would not come down!:

Tsur Somerville, who holds a real estate foundation professorship at the University of B.C., expects prices to stay flat for a while “because our prices are high relative to what people think they should be,” Somerville said. “Our price adjustment will come from prices being flat for awhile and letting income catch up to where prices are.”

If fact it was just after this, on September 14th, 2012 that Somerville came out and tried to halt all concerns and worries about a possible collapsing of prices by infamously declaring you can't burst a bubble that isn't there.

If there was a large number of unsold units coming onto the market or a huge change in the economic environment, Somerville said, “that would really cause prices to tank.” 

“Most people don’t have to sell their house,” he said. “You bought it for $200,000. The price is now $150,000. Unless you have to, why would you sell it?” 

For prices to go down ­significantly, contended Somerville, “You need people who have to sell, either because the economy has collapsed and they don’t have any income or developers have built a whole bunch of units that are unsold and the bank is screaming at them or foreclosing or something like that.”

None of those conditions appears imminent. 

Somerville said it would take “some negative shock,” such as an ­economic meltdown or mortgage interest rates jumping from four per cent to nine or 10 per cent, to trigger lower prices.

So no lower prices then?

What a difference a month makes.

Yesterday the Vancouver Province headlined Somerville's latest comments by trumpeting Vancouver home prices could drop by 10% next year.

Prices could drop?

So much for remaining flat.  As noted in the Province article:

“As home sales continue to plummet in Vancouver, it wouldn’t be surprising to see 10-per-cent price declines next year." That’s the view of University of B.C. real-estate economist Tsur Somerville, who was asked to respond to new market forecasts released by the B.C. Real Estate Association.

So what is this forecast from the BCREA that has changed Somerville's outlook?

On Tuesday, BCREA chief economist Cameron Muir said tighter mortgage rules implemented by Ottawa this summer triggered a 20.5-per-cent drop in Vancouver home sales, in a market that was already softening. The plunge in sales will cause a six-per-cent price decline in Vancouver’s average home price, Muir said, to $734,000. The association sees sales rebounding by 13.7 per cent in 2013, but predicts prices will slide by another two per cent, to $720,000.

So prices will slide but sales will rebound?  

Hmm... sounds like another prediction to be revised at a later date to me.

The best quote from the article is this one:

These declines should be seen in the context of unrealistic gains in 2011, Muir said.

Say wha????

Unrealistic gains in 2011. Quick... search those BCREA monthly market reports. Does anyone recall the BCREA proclaiming "unrealistic market gains" at any time in 2011?

But don't worry, homeowners, Somerville hasn't abandoned the flat prices theory.  You assets might fall 10% in value next year, but:

"(Somerville) expects prices to be more or less flat in 2014."

As for Cameron Muir, he wants to disuade all those bargain hunters sitting on the sidelines:

Right now, buyers seem content to sit on the sidelines in Vancouver, but people expecting to win massive discounts a few years down the road will be disappointed, Muir says. “We don’t see a recession on the horizon, and we don’t see interest rates going up any time soon, so what kind of financial calamity is going to happen in Vancouver to get people to sell for 75 cents on the dollar?” Muir asked.

I dunno... the same 'calamity' that already has them selling for 23% below assessed value in Vancouver  and 25% below assessed value in Richmond?

Just a thought.

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Tsur says "No lower home prices for you?" Fail... more examples of Vancouver homes below assessment value

As summer came to an end and the fall real estate season was set to begin, there was optimism in some quarters that the fall market would resuscitate sales after 5 months of dismal results.

The silver lining among all the negativity had been housing prices themselves.  

Monthly sales had tanked but the real estate industry hyped that Metro Vancouver prices remain high as home sales slow. 

Everyone's favourite industry defender, Tsur Somerville, was trotted out to declare prices would not come down! A theme he has publicly espoused several times during the summer:

Tsur Somerville, who holds a real estate foundation professorship at the University of B.C., expects prices to stay flat for a while “because our prices are high relative to what people think they should be,” Somerville said. “Our price adjustment will come from prices being flat for awhile and letting income catch up to where prices are.”

If fact it was just after this that Somerville came out and tried to halt all concerns and worries about a possible collapsing of prices by infamously declaring you can't burst a bubble that isn't there.

If there was a large number of unsold units coming onto the market or a huge change in the economic environment, Somerville said, “that would really cause prices to tank.” 

“Most people don’t have to sell their house,” he said. “You bought it for $200,000. The price is now $150,000. Unless you have to, why would you sell it?” 

For prices to go down ­significantly, contended Somerville, “You need people who have to sell, either because the economy has collapsed and they don’t have any income or developers have built a whole bunch of units that are unsold and the bank is screaming at them or foreclosing or something like that.”   

None of those conditions appears imminent. 

Somerville said it would take “some negative shock,” such as an ­economic meltdown or mortgage interest rates jumping from four per cent to nine or 10 per cent, to trigger lower prices.

So no lower prices for you!

Kinda reminds you of Seinfeld's soup nazi, doesn't it? Tsur shouting "no lower prices for you!"

Fast forward one month later.

Yesterday we relayed realtor Andrew Hasman's observation that "the media always seem to be somewhat behind what is really happening on the front lines."

And behind they are.  

We have shown you that prices in Richmond certainly aren't remaining flat.  Houses are selling 25% below assessed value right now in the former HAM hotspot.

As per Hasman, westside Vancouver inventory has ballooned with 12 months of supply for single family houses. This glut of inventory forced the likes of those who owned the house we profiled at 3888 W. 30th Avenue to drop their asking price below assessed value and sell for 12% below assessment.

What was it Somerville said? “Most people don’t have to sell their house. You bought it for $200,000. The price is now $150,000. Unless you have to, why would you sell it?”... to escape a collapsing market, perhaps?

To demonstrate that 3888 W. 30th was just the tip of the iceberg, one faithful reader offered the following five examples of other westside Vancouver properties who have cut their asking prices anywhere from 10% to 23% below market assessed value without any buyers in sight.

Paying attention, Tsur?

(all images can be enlarged by clicking on them)

1998 Cedar Crescent

This house is assessed at $5,203,000.

Current asking price $4,488,000

Already $715,000 or 13.74% below assessed value and still no sale.

1903 Cedar Crescent

This house is assessed at $5,145,000.

Current asking price $3,980,000

Already $1,165,000 or 22.64% below assessed value and still no sale.

2168 West 20th Avenue

This house is assessed at $3,313,000.

Current asking price $2,980,000

Already $333,000 or 10.05% below assessed value and still no sale.

4055 West 41st Avenue

This house is assessed at $1,892,000.

Current asking price $1,498,000

Already $394,000 or 20.82% below assessed value and still no sale.

1966 West 13th Avenue

This house is assessed at $1,902,000.

Current asking price $1,475,000

Already $427,000 or 22.45% below assessed value and still no sale.

With asking prices trending 10% - 23% below assessed value, we may have to ask Somerville to redefine the term 'flat'. I don't think local sellers will agree with his current definition.

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Email: village_whisperer@live.ca
Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.