No matter how you dress the statistics, the reality of what is going on in our real estate can no longer be ignored.
And Global is out with another story conveying how bad it is:
"Last month sales of detached homes, townhouses and condos were down 30% from the same month last year. September sales were also well below historical averages in the Greater Vancouver area. And although prices aren't falling at the same pace, sellers are learning it takes patience.
Look around and you'll see a lot of for sale signs in Greater Vancouver's suddenly very cold real estate market. It's a buyer's market with far too few buyers and far too many sellers. In fact sales have dropped so profoundly, they're almost 42% below the 10 year average...
Home sales last month fell a big 32% from a year ago. They're even down 8% from August and August was already gone into the record books as the 2nd lowest sales month in 14 years...
To put it simply, just six months ago for every 100 properties on the market 19 would sell in a reasonable time frame. Last month that dropped to just 8."
The silver lining for the industry is prices.
And they are quick to provide stats showing that prices are holding firm, stats which Global relayed to viewers:
"While sales have been dropping the same can't be said about prices, at least not to the same extent. Benchmark prices for a detached home in the Lower Mainland actually climbed, but only by half a percentage point. Townhouse prices declined by 2.7% and apartments were down 0.5%. And if you look at the five year trend you can see real estate prices in Greater Vancouver peaked in May this year and are now headed lower."
Of course these are the Industry provided stats.
The picture they paint is of a market holding firm.
But now even some in the the media are starting to question this data.
In yesterday's Financial Post, reporters are starting to question the methods used to derive the low price decline figures.
Organized real estate is unable, it seems, to admit the glory days may be behind it.
The Post takes aim at the latest outrageous twisting of statistics, this time from the Toronto Real Estate Board.
This month’s gem comes from the Toronto Real Estate Board: It complained September didn’t have enough working days — too many weekends.
I always thought people bought homes on weekends, but it seems the transactions are registered during the week.
“The number of transactions was down 21% in comparison to September 2011,” said TREB in a release. “However, it is important to note that there were two fewer working days in September 2012.”
This logic has produced a new measure from TREB: Sales were down only 12.5% — not the actual 21% — from a year ago on a “working-day basis.”
Presto-change-o and a 21% decline becomes only 12.5%.
Have you ever seen any real estate board reduce sales increases because some months had more working days in them?
Of course not. And the mere fact a real estate board would even attempt such nonsense shows you the level of panic permeating the Industry right now.
And the manipulation doesn't end there. As the Post notes:
Vancouver’s real estate board likes to tout what it calls the MLS HPI (home price index) composite benchmark price for all residential properties. It was down 0.8% to $606,100 in September from a year ago and off 2.3% over the past three months.
Doesn’t sound too bad.
But when you pull out actual sales data, you find year-over-year prices in August in Canada’s most expensive housing market were off 6.9%. For the first two-thirds of the year, prices fell 7.3%.
The decline is happening; it’s the severity that seems to be under dispute.
And the Industry will do all it can to mask that decline for as long as possible. For once seller's truly appreciate what is going on, prices won't be so sticky anymore.
Kudos to the Financial Post for finally starting to point out what is actually happening with prices instead of serving as an avenue to re-broadcast press releases from the various real estate boards.
Journalism needs to start scratching the surface and informing Canadians on what is really going on in real estate and how it is about to impact the economy.
I wonder how long it will be before a local reporter finally starts to take notice of these shenanagains?
Years from now, when tales of the housing bubble are told, one story sure to remain is the one about the yellow helicopter.
Made famous by realtor Cam Good, this subject is LEGEND with bear bloggers.
If you are new to blogs on the real estate bubble, Cam Good is a realtor who seems to have quite the knack for self-promotion.
In March of 2012 Cam - and his infamous yellow helicopter - were profiled on Global. It was actually the second media helicopter stunt Good had been involved in... but the optics of wheeling out a yellow helicopter to fly Asian investors around BC has been seared into the collective minds of those who watch R/E trends on the wet coast.
Here is that Global clip:
Global profiled Good's company, Key Marketing, and the story aired in the last week of March 2012.
11 months earlier, on April 21st, 2011, Cam was quoted in the Vancouver Sun as saying:
"In the last two months, we’ve sold over 700 condos in Toronto. Sixty per cent went to Mainland Chinese buyers. In meccas like Richmond, 98 per cent of the hundreds of homes we’ve sold are to buyers who are Chinese. Buyers from Mainland China are a driving force in our real estate market. The staggering truth is we’ve seen just the tip of the iceberg.”
Global is out with a story covering the dismal September real estate sales numbers and the Vancouver market is portrayed as having entered 'the Big Sleep'.
But as you check out the clip, take note of the reporter's comments near the end of the story:
"Many have felt Vancouver is overdue for a dip. The frenzied demand from last year is long gone possibly, some believe, because foreign demand has waned. Whatever the reason, the asset bubble that many worried was building - has clearly burst."
How many thought you would ever hear a reporter on Global TV make that statement?
(hat tip to LM. Thanks to GreenhornRET for uploading the clip to You Tube)
After dismal sales in March, April, May, June, July, and August; September was supposed to begin a fall surge that would lift real estate out of it's malaise this year.
Instead the worst September sales numbers on record has the real estate industry reeling in panic.
Unable to hide what's going on with their muddled statistics, the Federal Government is now getting the blame.
We all knew that was coming.
Never mind that sales were plummeting even before mortgage changes were enacted in July, the full court press is ramping up against the Federal Government to undo the mortgage regulations they recently imposed.
As if that was the cause of the problem.
The problem, as blog fans know all to0 well, is the housing bubble and the easy credit that fuelled this mess.
In 1999, the National Housing Act and the Canada Mortgage and Housing Corporation Act were modified allowing for the introduction of a 5% down payment. Just a few years earlier you needed to plunk down 25%.
In 2003 CMHC decided to remove price ceilings limitations and would now insure any mortgage regardless of the cost of the home.
In 2005 and 2006, CMHC went from insuring only 25 year amortized mortgages and to insuring 30, then 35 year amortizations.
In 2007, CMHC allowed people to purchase a home with no down payment and allowed them to amortize it over 40 years.
It was excess credit, credit which flooded the housing market... and prices soared.
And even though the 5% down payment was reintroduced in 2008 and maximum amortizations scaled back to 35 years in 2008, the Great Financial Crisis resulted in a tremendous slashing of interest rates. Emergency level interest rates negating the rule changes.
One only has to look at CMHC's allowable mortgage cap. The Crown Corp has gone from $100 Billion in mortgages in 2006 to $600 Billion in 2012.
In that one statistic alone lies the housing bubble.
Earlier this year the CEOs of Canada's banks began putting pressure on Finance Minister Flaherty and Prime Minister Harper to curb debt levels by raising down payment requirements and/or shortening maximum mortgage amortization lengths.
With mortgages representing nearly 70% of total household credit - and with household credit reaching record highs - limiting the expansion of that form of debt is crucial.
As real estate goes through withdrawal pangs from the partial removal of it's addictive drug (imagine the screaming if we had gone back to 25% down?), the Industry is having the shakes.
Rather than blaming liquidity for blowing a bubble to begin with, the Industry is attacking government for denying it the crucial drug they so desperately desire.
With the September surge now rendered a false hope, blame begins.
The federal government eliminated the approval of 30-year amortization periods on government-backed mortgages in June – and the decision’s impact can now be seen most vividly in the cooling off of Greater Vancouver’s market, with sales falling for everything from entry-level homes to luxury houses... Real estate sales across Greater Vancouver are sinking. There were 1,516 residential properties that changed hands in September in the region, down nearly 33 per cent from the same month last year. In West Vancouver, where the posh British Properties are located, the number of detached homes sold fell to 43 last month from 71 a year earlier.
The Industry's thrust is that the mortgage changes are hurting everyone, not just the entry level buyer. It's hurting you. Ergo... you should pressure the government to turn the taps back on.
But should the Canadian Federal Government back off on the changes to the mortgage rules they introduced in June?
Eugene Klein, President of the Real Estate Board of Greater Vancouver certainly thinks so:
“There’s been a clear reduction in buyer demand in the three months since the federal government eliminated the availability of a 30-year amortization on government-insured mortgages. This makes homes less affordable for the people of the region.”
Hmm... sounds like a problem, doesn't it?
Bank of Montreal senior economist Sal Guatieri also suggested that there has been a domino effect in the Vancouver region.
As condo sellers - who can’t unload their places - aren’t able to then purchase larger residences, the result is a dampening effect in the overall market.
Even in the higher end of real estate, buyers who could borrow heavily in the past are no longer able to qualify for as much mortgage funding.
So these government policies are really hurting the Real Estate industry - and by extension - average Canadians, right?
Well... there's some conflicting opinions on this. So let's ask some industry experts.
First up, Cameron Muir - Chief Economist of the BC Real Estate Association.
Mr. Muir... Eugene Klein is concerned buyers are staying away from buying real estate and that government policies are to blame. Your thoughts?
"I am predicting increased sales in 2013 because of continuing low interest rates, population growth and more full-time jobs."
Oh? Ummm... Ok. So Klein's concerns that there are no buyers right now, that won't be an issue in 2013.
But what about sales for the rest of this year, in 2012?
"Employment growth in the Greater Vancouver area in the first seven months of the year has been 3.5 to 4 per cent higher than the same period last year. I would expect to see sales pick up before the end of the year, at least on a seasonally adjusted basis."
So the position of the BCREA is that Eugene Klein and the REBGV are completely off the mark with their concerns that the outlook for real estate sales is bleak because of changes to government mortgage regulations?
Good to know.
Let's check with another local expert, Tsur Somerville of the UBC Sauder School of Business.
Mr. Somerville... Eugene Klein is worried that there has been a clear reduction in buyer demand and this is a threat to the market. Will prices be going down anytime soon because of the government tightening of mortgage regulations?
"If there was a large number of unsold units coming onto the market or a huge change in the economic environment, that would really cause prices to tank. 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?”
For prices to go down significantly, 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. 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 all these concerns that sales are stagnating, that this will prevent move up buyers, which will - in turn - fail to keep the market moving thus creating a domino effect leading to a drop in prices... this is all a load of shite?
Good to know.
Did you catch that Mr. Harper, Flaherty and Carney?
Haven't done too many posts on precious metals for you lately, but your dutiful scribe has not changed his outlook on the precious metals front.
The mainstream media is alive with precious metals talk.
Above, Bloomberg is out with a story telling us Silver could hit $50 by the end of 2012.
Meanwhile, over on CNBC, the latest CNBC Commodities Corner was discussing Gold. With the yellow metal nearing $1,800 again the panel attempted to claim gold is ‘in a bubble’ and that ‘nobody actually needs gold.‘ Therefore those wishing to allocate a portion of their funds to gold should utilize an ETF.
One of their guest's, Managing Director & CIO at Swiss Asia Capital - Juerg Kiener, calmly shot down all of CNBC’s arguments stating, ‘Gold is actually money. When you believe that gold is actually money, would you rather have your money in your pocket, or give it to a loan shark? Physical ownership in your own hands is key!‘
Regarding CNBC’s claims gold is in a bubble Kiener replied: ‘I’ve never seen a bubble in which investors’ allocation is under 1%‘.
Nothing to sway the debate for either side, but interesting to see the discussions in the MSM.
Finally, for those interested in the topic... the latest report from Eric Sprott.
Do Western Central Banks Have Any Gold Left???
By: Eric Sprott & David Baker
Somewhere deep in the bowels of the world’s Western central banks lie vaults holding gargantuan piles of physical gold bars… or at least that’s what they all claim. The gold bars are part of their respective foreign currency reserves, which include all the usual fiat currencies like the dollar, the pound, the yen and the euro.
Collectively, the governments/central banks of the United States, United Kingdom, Japan, Switzerland, Eurozone and the International Monetary Fund (IMF) are believed to hold an impressive 23,349 tonnes of gold in their respective reserves, representing more than $1.3 trillion at today’s gold price. Beyond the suggested tonnage, however, very little is actually known about the gold that makes up this massive stockpile. Western central banks disclose next to nothing about where it’s stored, in what form, or how much of the gold reserves are utilized for other purposes. We are assured that it’s all there, of course, but little effort has ever been made by the central banks to provide any details beyond the arbitrary references in their various financial reserve reports.
Twelve years ago, few would have cared what central banks did with their gold. Gold had suffered a twenty year bear cycle and didn’t engender much excitement at $255 per ounce. It made perfect sense for Western governments to lend out (or in the case of Canada – outright sell) their gold reserves in order to generate some interest income from their holdings. And that’s exactly what many central banks did from the late 1980’s through to the late 2000’s. The times have changed however, and today it absolutely does matter what they’re doing with their reserves, and where the reserves are actually held. Why? Because the countries in question are now all grossly over-indebted and printing their respective currencies with reckless abandon. It would be reassuring to know that they still have some of the ‘barbarous relic’ kicking around, collecting dust, just in case their experiment with collusive monetary accommodation doesn’t work out as planned.
You may be interested to know that central bank gold sales were actually the crux of the original investment thesis that first got us interested in the gold space back in 2000. We were introduced to it through the work of Frank Veneroso, who published an outstanding report on the gold market in 1998 aptly titled, “The 1998 Gold Book Annual”. In it, Mr. Veneroso inferred that central bank gold sales had artificially suppressed the full extent of gold demand to the tune of approximately 1,600 tonnes per year (in an approximately 4,000 tonne market of annual supply). Of the 35,000 tonnes that the central banks were officially stated to own at the time, Mr. Veneroso estimated that they were already down to 18,000 tonnes of actual physical. Once the central banks ran out of gold to sell, he surmised, the gold market would be poised for a powerful bull market… and he turned out to be completely right – although central banks did continue to be net sellers of gold for many years to come.
As the gold bull market developed throughout the 2000’s, central banks didn’t become net buyers of physical gold until 2009, which coincided with gold’s final break-out above US$1,000 per ounce. The entirety of this buying was performed by central banks in the non-Western world, however, by countries like Russia, Turkey, Kazakhstan, Ukraine and the Philippines… and they have continued buying gold ever since. According to Thomson Reuters GFMS, a precious metals research agency, non-Western central banks purchased 457 tonnes of gold in 2011, and are expected to purchase another 493 tonnes of gold this year as they expand their reserves.1 Our estimates suggest they will likely purchase even more than that. The Western central banks, meanwhile, have essentially remained silent on the topic of gold, and have not publicly disclosed any sales or purchases of gold at all over the past three years. Although there is a “Central Bank Gold Agreement” currently in place that covers the gold sales of the Eurosystem central banks, Sweden and Switzerland, there has been no mention of gold sales by the very entities that are purported to own the largest stockpiles of the precious metal. The silence is telling.
Over the past several years, we’ve collected data on physical demand for gold as it has developed over time. The consistent annual growth in demand for physical gold bullion has increasingly puzzled us with regard to supply. Global annual gold mine supply ex Russia and China (who do not export domestic production) is actually lower than it was in year 2000, and ever since the IMF announced the completion of its sale of 403 tonnes of gold in December 2010, there hasn’t been any large, publicly-disclosed seller of physical gold in the market for almost two years.4 Given the significant increase in physical demand that we’ve seen over the past decade, particularly from buyers in Asia, it suffices to say that we cannot identify where all the gold is coming from to supply it… but it has to be coming from somewhere.
To give you a sense of how much the demand for physical gold has increased over the past decade, we’ve listed a select number of physical gold buyers and calculated their net change in annual demand in tonnes from 2000 to 2012 (see Chart A).
CHART A (click on image to enlarge):
Numbers quoted in metric tonnes.
† Source: CBGA1, CBGA2, CBGA3, International Monetary Fund Statistics, Sprott Estimates.
†† Source: Royal Canadian Mint and United States Mint.
††† Includes closed-end funds such as Sprott Physical Gold Trust and Central Fund of Canada.
^ Source: World Gold Council, Sprott Estimates.
^^ Source: World Gold Council, Sprott Estimates.
^^^ Refers to annualized increase over the past eight years.
As can be seen, the mere combination of only five separate sources of demand results in a 2,268 tonne net change in physical demand for gold over the past twelve years – meaning that there is roughly 2,268 tonnes of new annual demand today that didn’t exist 12 years ago. According to the CPM Group, one of the main purveyors of gold statistics, the total annual gold supply is estimated to be roughly 3,700 tonnes of gold this year. Of that, the World Gold Council estimates that only 2,687 tonnes are expected to come from actual mine production, while the rest is attributed to recycled scrap gold, mainly from old jewelry. The reporting agencies have a tendency to insist that total physical demand perfectly matches physical supply every year, and use the “Net Private Investment” as a plug to shore up the difference between the demand they attribute to industry, jewelry and ‘official transactions’ by central banks versus their annual supply estimate (which is relatively verifiable). Their “Net Private Investment” figures are implied, however, and do not measure the actual investment demand purchases that take place every year. If more accurate data was ever incorporated into their market summary for demand, it would reveal a huge discrepancy, with the demand side vastly exceeding their estimation of annual supply. In fact, we know it would exceed it based purely on China’s Hong Kong gold imports, which are now up to 458 tonnes year-to-date as of July, representing a 367% increase over its purchases during the same period last year. If the imports continue at their current rate, China will reach 785 tonnes of gold imports by year-end. That’s 785 tonnes in a market that’s only expected to produce roughly 2,700 tonnes of mine supply, and that’s just one buyer.
Then there are all the private buyers whose purchases go unreported and unacknowledged, like that of Greenlight Capital, the hedge fund managed by David Einhorn, that is reported to have purchased $500 million worth of physical gold starting in 2009. Or the $1 billion of physical gold purchased by the University of Texas Investment Management Co. in April 2011… or the myriad of other private investors (like Saudi Sheiks, Russian billionaires, this writer, probably many of our readers, etc.) who have purchased physical gold for their accounts over the past decade. None of these private purchases are ever considered in the research agencies’ summaries for investment demand, and yet these are real purchases of physical gold, not ETF’s or gold ‘certificates’. They require real, physical gold bars to be delivered to the buyer. So once we acknowledge how big the discrepancy is between the actual true level of physical gold demand versus the annual “supply”, the obvious questions present themselves: who are the sellers delivering the gold to match the enormous increase in physical demand? What entities are releasing physical gold onto the market without reporting it? Where is all the gold coming from?
There is only one possible candidate: the Western central banks. It may very well be that a large portion of physical gold currently flowing to new buyers is actually coming from the Western central banks themselves. They are the only holders of physical gold who are capable of supplying gold in a quantity and manner that cannot be readily tracked. They are also the very entities whose actions have driven investors back into gold in the first place. Gold is, after all, a hedge against their collective irresponsibility – and they have showcased their capacity in that regard quite enthusiastically over the past decade, especially since 2008.
If the Western central banks are indeed leasing out their physical reserves, they would not actually have to disclose the specific amounts of gold that leave their respective vaults. According to a document on the European Central Bank’s (ECB) website regarding the statistical treatment of the Eurosystem’s International Reserves, current reporting guidelines do not require central banks to differentiate between gold owned outright versus gold lent out or swapped with another party. The document states that, “reversible transactions in gold do not have any effect on the level of monetary gold regardless of the type of transaction (i.e. gold swaps, repos, deposits or loans), in line with the recommendations contained in the IMF guidelines.” (Emphasis theirs).
Under current reporting guidelines, therefore, central banks are permitted to continue carrying the entry of physical gold on their balance sheet even if they’ve swapped it or lent it out entirely. You can see this in the way Western central banks refer to their gold reserves. The UK Government, for example, refers to its gold allocation as, “Gold (incl. gold swapped or on loan)”.
That’s the verbatim phrase they use in their official statement. Same goes for the US Treasury and the ECB, which report their gold holdings as “Gold (including gold deposits and, if appropriate, gold swapped)” and “Gold (including gold deposits and gold swapped)”, respectively (see Chart B). Unfortunately, that’s as far as their description goes, as each institution does not break down what percentage of their stated gold reserves are held in physical, versus what percentage has been loaned out or swapped for something else.
The fact that they do not differentiate between the two is astounding, (Ed. As is the “including gold deposits” verbiage that they use – what else is “gold” supposed to refer to?) but at the same time not at all surprising. It would not lend much credence to central bank credibility if they admitted they were leasing their gold reserves to ‘bullion bank’ intermediaries who were then turning around and selling their gold to China, for example. But the numbers strongly suggest that that is exactly what has happened. The central banks’ gold is likely gone, and the bullion banks that sold it have no realistic chance of getting it back.
ECB Data as of July 2012. Bank of Japan data as of March 31, 2012.
* European Central Bank reserves is composed of reserves held by the ECB, Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, The Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.
** Bank of Japan only lists its gold reserves in Yen at book value.
Our analysis of the physical gold market shows that central banks have most likely been a massive unreported supplier of physical gold, and strongly implies that their gold reserves are negligible today. If Frank Veneroso’s conclusions were even close to accurate back in 1998 (and we believe they were), when coupled with the 2,300 tonne net change in annual demand we can easily identify above, it can only lead to the conclusion that a large portion of the Western central banks’ stated 23,000 tonnes of gold reserves are merely a paper entry on their balance sheets – completely un-backed by anything tangible other than an IOU from whatever counterparty leased it from them in years past. At this stage of the game, we don’t believe these central banks will be able to get their gold back without extreme difficulty, especially if it turns out the gold has left their countries entirely.
We can also only wonder how much gold within the central bank system has been ‘rehypothecated’ in the process, since the central banks in question seem so reluctant to divulge any meaningful details on their reserves in a way that would shed light on the various “swaps” and “loans” they imply to be participating in. We might also suggest that if a proper audit of Western central bank gold reserves was ever launched, as per Ron Paul’s recent proposal to audit the US Federal Reserve, the proverbial cat would be let out of the bag – with explosive implications for the gold price.
Notwithstanding the recent conversions of PIMCO’s Bill Gross, Bridegwater’s Ray Dalio and Ned Davis Research to gold, we realize that many mainstream institutional investors still continue to struggle with the topic. We also realize that some readers may scoff at any analysis of the gold market that hints at “conspiracy”. We’re not talking about conspiracy here however, we’re talking about stupidity. After all, Western central banks are probably under the impression that the gold they’ve swapped and/or lent out is still legally theirs, which technically it may be.
But if what we are proposing turns out to be true, and those reserves are not physically theirs; not physically in their possession… then all bets are off regarding the future of our monetary system. As a general rule of common sense, when one embarks on an unlimited quantitative easing program targeted at the employment rate (see QE3), one had better make sure to have something in the vault as backup in case the ‘unlimited’ part actually ends up really meaning unlimited. We hope that it does not, for the sake of our monetary system, but given our analysis of the physical gold market, we’ll stick with our gold bars and take comfort as they collect more dust in our vaults, untouched.
Last year, on November 22, 2011, we told you about this house at 3390 The Crescent in Vancouver's Shaughnessy neighbourhood.
Profiled in the Vancouver Sun newspaper, the mansion had gone on the market for $31.9 million.
The Crescent lies at the heart of one of Vancouver's most upscale neighbourhood's. The street itself is a circular road with a lovely park in the middle and 3390 is a palatial white house that sits on an acre sized lot where The Crescent meets Osler Street.
The house is 10,516 sq. ft spread over three storeys. There are six bedrooms, eight bathrooms and five fireplaces, along with a wine cellar, a games room, a gym and staff quarters. With a backyard pool, a koi pond, a greenhouse, and large, beautifully landscaped grounds; the home is 'palatial' in every sense of the word.
What makes this mansion stand out is it's selling history.
The current owners bought the home in April 2004 for $6 million.
Last year they listed it for sale for $17.9 million... but there were no takers at that 'bargain' price.
And we say 'bargain' because after casting an eye at the high prices mansions were commanding in area in 2011 (for example: a house had sold in 2010 on Angus Drive for $5.7 million. It was assessed in October 2011 at $9 million, a reflection of our extreme bubble condition), the owners of 3390 The Crescent decided to raise the asking price from $17.9 million to $31.9 million.
That's right.
The home they bought for $6 million had failed to sell for $17.9 million... so they doubled the asking price to $31.9 million.
Who says there's a disconnect in our real estate market?
Well it seems something resembling reality (if you can call it that) is starting to enter our market.
Yes... the outrageous has morphed to the merely obscene.
As Observer (from the blog Vancouver Price Drop) notes the sellers revoked their $31.9 million listing on September 25th, 2012 and have relisted the property on September 27th for $22.8 million.
That's a reduction of 29%.
Will this become the City's largest price drop vis-a-vis price reductions from highest listing price by the time all is said and done?
Chop 60% off that original asking price and you would come down to $13.3 million. An amount that would still be more than twice what they paid for it in 2004.
Slash a further 75% from that and, in my opinion, $4 million would still be overpriced.
If you happen to come across this week's Macleans Magazine, you will see the above small excerpt in a segment Macleans calls Good News/Bad News.
"The US housing market is back on sold ground. Housing prices rose for the third straight month in July in all 20 cities in the Standard and Poor's Case-Shiller index. With homeowners feeling richer, consumer spending is likely to increase, leading to a wider economic boots. Indeed, this week consumer confidence in the US rose to the highest level since February. There is some reassuring news here, too, for Canada, which appears to be in the midst of a housing correction, if not a crash. Where the US economy goes, Canada's always follows, sooner or later."
Reassuring words, to be sure. Except when you consider that if we are to follow the US 'sooner or later', we have a significant drop to traverse before we begin to recover.
Besides that 'not-so-minor' point, to say that the US housing market is on solid ground right now is a stretch, at best.
Especially when you scratch the surface to discover the source for some of that resurgence.
One of those cities on the rise is Phoenix, Arizona.
Phoenix was one of the cities at the epicentre of the subprime mortgage implosion and witnessed property values which plunged more than 50%.
Now Phoenix is on the rise.
Why?
Apparently Canadians have been flocking there for the past few years and have been buying everything in sight.
Macleans focuses on this a few pages later in the same edition with a story titled, "Attack of the Snowbirds".
According to Macleans, Canadians were the largest foreign buyers of American real estate last year representing a quarter of all international buyers. Contrast that with who came second (Chinese buyers - the infamous HAM). Chinese buyers represented 11%.
And when it comes to Phoenix, Canadians represented 96% of all the foreign buyers there (and most of those were from Alberta and British Columbia).
All of this Canadian 'investment' has helped move Phoenix into the top 10 US markets for foreign commercial real estate investment in the second quarter of this year.
The high Canadian dollar and cheap real estate are proving to be an irresistible lure.
But the kicker comes when you take a look at how Canadians are financing their purchases.
Banks in both the US and Canada are refusing to provide mortgages for foreign investment properties. So where is the money coming from?
Apparently some of it is from cash, but a lot more is coming from lines of credit. Home equity lines of credit to be precise and studies show HELOC withdrawals are the most popular way for Canadians to access the cash they are using to buy Phoenix property.
The influx of cash has caused home prices to rise so quickly in Phoenix that prices are up 10% in the past year (compared to the historical average of 2-3%).
Locals say that investors have been bidding up foreclosed properties to the point where the foreclosed properties are selling much higher than for what neighbouring properties are selling for on the open market.
Macleans quotes Lynda Person, a Scottsdale real estate agent who buys properties at auction and flips them, who says;
"It's kind of alarming when investors are paying, in some cases, more than anything that's been on the Multiple Listings Service and the stuff on the MLS is not distressed."
This exuberance has banks now holding back onto their foreclosed inventory in the hopes that prices will be pushed up even more.
Says Macleans:
A study last year found that banks were holding onto around 11,000 foreclosed properties in the Phoenix area. That number doesn't include the roughly half of Phoenix homeowners who are still underwater on their mortgages (a number well above the national average of 30%).
It is expected that many of those underwater homeowners will be walking away at some point, severely exacerbating Phoenix's shadow foreclosed property inventory.
It is a looming situation that has many local experts predicting that Phoenix's property values could go plunging once more.
And when it does, all those Albertans and BC'ers will be trapped.
Add it all up an you have an insane, perfect storm brewing.
As Canadian real estate melts away even further, pressure will build on our huge debt situation. The tightening of HELOC regulations has already begun to restrict money Canadians have to buy Phoenix property.
As the melt continues, Canadians with massive HELOC's will be threatened in Phoenix and at home.
Canadian buying in cities like Phoenix (coming largely from BC'ers and Albertans) will evaporate. The massive Phoenix shadow foreclosed home inventory will again flood the market.
Not only will these BC'ers get hit hard by evaporating equity in Canada... but their US properties will collapse as well.
This double whammy will trigger an unanticipated wave of foreclosures in BC that could conceivably hit Tsunami levels.
It won't be a complete replay of the California experience. There will be no US-style housing collapse in Canada.
Not at all.
Incredibly we have managed to find a way to forge our own, unique, Canadian collapse.
A retailer has a one day sale in an attempt to get you off your ass and make the purchase.
But is this really an approach for condos?
Infamous realtor Cam Good (absent the yellow helicopter) is back in the news again with another marketing gimmick. From BCLocalNews.com:
This Saturday (Sept. 29), Cornerstone in Langley is offering homebuyers 15 to 21 per cent off as they sell off their remaining 18 condo units.
Cornerstone was developed by Marcon.
The deal is being offered through through CONDOday, a new group-buying service for real estate where buyers get deals when they buy together with others interested in the same homes.
“CONDOday targets respected home builders that have a genuine business reason to offer homebuyers a really good deal,” said Ben Hurlbutt, manager of CONDOday.
“In this case, Marcon will sell all of its existing inventory and close the presentation centre so it can move onto the next building.
“Developers often spend months, or even a year, selling their last remaining homes at great expense.
CONDOday negotiates with developers and organizes buyers into groups that save big on opportunities like this. And the homes are guaranteed to never sell for less.”
CONDOday’s one day sale prices will range from $159,900 for a spacious one bedroom plan to $235,365 for a two bedroom, two bathroom home.
For those who sign up to join the group – for free – on CONDOday.ca, they will save between $29,000 and $46,000.
With savings from CONDOday deals, first-time homebuyers really can find homes that aren’t out of reach financially.
“This is a no brainer for buyers,” says Cam Good, president of The Key, the launch pad for CONDOday. “With CONDOday, buyers get a better deal than they could ever get on their own, and it’s free.”
These homes at Cornerstone normally start at $199,900 but with this CONDOday deal, they will be starting at $159,900 for the one day.
The launch is at noon on Saturday. Cornerstone is located at 21009 56 Ave (corner of 56 Avenue and 210A Street).
Is it a sign of the looming desperation?
Can you really market condo's based on "one day only" sale?
Are you really going to tell me you can't walk in tomorrow and get the same deal?
The news release seems to suggest that you have to 'sign up' with CondoDay to get the deals. But faithful reader TS happened by The Cornerstone development, and it pretty much seems to be a sale open to one and all who wander by...
It's a site with balloons and signs everywhere, all that seems missing is a checkout aisle and a cashier.
One day only? I wonder if that's until the price drops 30%?
Real Estate sales for the month of September are now officially over.
Vancouver Realtor Paul Boenisch, who provides the figures you see on your right, hasn't provided an update yet so we don't have figures for September 28th at this time.
Another realtor (Rob Chipman) has indicated that we closed out the last sales day of September with only 64 sales.
That will make September 2012 worse than September 2008 and the worst sales total for the month of September since 1994 - when they started compiling these records. This, as you know, follows a summer that was just as abysmal.
The chart below shows you those monthly sales (2012 lacks the reported 64 sales on Sept. 28).
Sales in the suburb of Richmond (formerly a HAM hotbed) continue to be horrendous as well. Early speculation was that there would be an increase in sales (from homes that had drastically reduced prices below assessment), but even this trend collapsed.
There are currently 1,187 single family houses listed for sale in Richmond. As of yesterday there had only been 53 sales.
That puts also Richmond on pace for the worst September since 1994.
(hat tip to Inventory on VCI for both of these charts)
Observer (from Vancouver Price Drop) notes that the downtown core is starting to see price movement on condos available for sale.
It has everyone keenly watching to see what will happen now in October.
As we noted on Thursday, one Vancouver realtor is forecasting weaker sales in the coming months based on historical data. This is a trend which Jesse, from the excellent blog Housing Analysis, originally identified early in September.
Will be see surging inventory to match this anticipated drop in sales?
October/November historically see the pace of listing decline significantly. If someone was going to list for fall, they usually do it in September. Does this mean listings have peaked for the year?
Regular VCI contributor YVR2ZRH offers this insightful analysis:
Van West and East SFH were really some of the only places that were up last month over the previous month. West Van was up but Aug was really low so no surpirse.
Richmond actually fell even more. It is now down really to a basic trickle. However, Richmond sold way more new builds on large price reductions than tear-downs, which did not seem to sell at all. Condo prices are down. On an average basis, we are down pretty much 5% from last month. SFH prices were actually down on average but there were some really odd movements in median. There has been a recent slow down of the lower priced tear downs but an increase in the higher priced properties (who have not moved for months – so are now getting big price reductions). It’s like a wave motion where these high priced places finally take price reductions – some after 10-18 months.
Burnaby, North Van and West Van sold about the same at approx 40 units.
Inventory increases were large in Van-East attached (13%), North Van SFH (22%) and Burnaby (9%) from the previous month. MOI has just reached 12.0 for REBGV (remember that PaulB includes land/multi which REBGV excludes.)
Sales in final half of month was at a pace which was 5% above the first half. This is typical. September is supposed to be busy – it wasn’t – no matter how you slice it – it was terrible – but September did tick up from August.
Thus we should see about 1900 units sold this October. It’s a bit to do with the business days / weekend but 1900 is really possible at today’s sales volumes – this will lead to MOI of 9.8 for Oct. That is not really great but it is a turn from Sep.
October 2012 will not fall to the 2008 levels – not even close – it’s just not possible. Although we are at 12 for MOI now, we can not expect that to continue and can not expect inventory to increase any more. It may end Oct at the same level as Sep – but we are done. The year is over – it was bad. If you take the YTD sales, I think we are the worst in 15 years. Perhaps when we are done, we will be below 2008.
As always the unfolding story of the real estate bubble is fascinating to watch.
In 2008 the dismal sales were triggered by the Financial Crisis.
This time around sales are coming in worse than 2008. But, unlike in 2008, collapsing sales will not see intervention from government to prop up the market this time around.
Have we only delayed the reckoning that should have occurred in 2009, and it is finally playing out now?
I'd like to take a brief moment today to say thank you, dear readers.
This blog was started as a way of passing on thoughts and articles about the housing bubble and monetary policy to co-workers - it being easier to post things and discuss later than repeating the concepts over and over again.
Being the internet, anyone could tune in and read... if they so desired.
Much to my surprise, people did.
From about 30 people a day in the beginning, the daily viewership on this blog has grown to approximately 2,500.
I'm flattered.
In the wee hours this morning the counter at the bottom of the blog sat at 997,550. Based on the average daily hits we will probably click over the million mark sometime this evening or tomorrow.
So as we pass this little milestone, let me take the time to thank each and every one who pops in today.
I hope the blog has entertained, enlightened and provided something worthwhile.
You may recall our post about Vancouver realtor Keith Roy whose July declaration that it was time to cash out of the Vancouver housing market garnered national headlines.
Well Roy is back with another local housing analysis. And it might just surprise you.
Real Estate sales in September are rivalling the benchmark dismal month of 2008, and may close out worse than that fateful month during the GFC.
These September sales totals come, as you know, after what has been a absolutely abysmal summer.
But what if results for the rest of Fall are even worse than the dreadful summer of 2012?
If we can agree that ‘summer’ is June, July and August and ‘fall’ is September, October and November, then for 8 of the last 9 years, summer has been busier than fall - in up and down markets.
Given that today’s market is widely considered to be slower than last year’s and buyers are much more hesitant than they have been in the past, coupled with the fact that many prospective buyers have yet to sell their home, I can easily suggest that fall will once again be slower than summer.
But that's just detached houses. What about the rest of the market?
Roy takes a look at the MLS sales numbers for all product types on the west side of Vancouver - houses, condos and townhomes combined - and while the results are a little bit different, Roy states that, once again, for 8 of the last 9 years sales have been busier in the summer than they were in the fall. The only difference is that when attached homes are included, the only fall that was better than summer was 2003 - which had an anomalous month in October 2003.
So Roy thinks sales will continue to suck. What about prices?
Once again realtor Keith Roy offers a very un-realtor-like assessment of what will happen to prices (while also taking a shot at the REBGV and BCREA):
The real estate board has taken great pains to assure and calm the public that the Greater Vancouver real estate market is strong and stable - particularly after my last blog post received so much media attention suggesting that the current trend of high supply and low demand will lead to an adjustment of prices.
Unless someone can convince me otherwise, when it comes to short term pricing in the Vancouver market only two variables matter: Supply and Demand.
Since my last blog post, supply has remained relatively static and sales have been slower that at any time in the last 10 years (with the exception of the August prior to the 2008 crash).
As of September 16, 2012 there were 1014 homes for sale on the west side of Vancouver, down slightly from June’s 10 year high of 1078 available homes. After peak sales volume in February, sales in every month in 2012 have been lower than the month that preceded it reaching a low of only 75 home sales in August - 46% lower than the 10 year August average and 55 homes less than August 2011.
We are only hearing anecdotal evidence of a busy fall market with new listings popping up, buyers coming to open houses again and some houses selling in multiple offers. But the typical fall buzz has yet to be seen.
Many Realtors are struggling to get offers on listings. In hopes of prices declining or another home coming on the market, many buyers are reluctant to write offers.
September is not proving to be the saving grace many thought it would be.
In the end Roy believes the autumn market may best be re-termed the Fall(ing) Market as the dynamics of supply and demand play themselves out.
As many market observers are recognizing, perceptions about the market by the 'average joe' are being dramatically influenced by the barrage of negative real estate sales news stories hitting the mainstream media.
It seems that everywhere you turn, bubble deniers are slowly beginning to admit the market is changing.
No where is the change in attitude more entertaining to watch than with our favourite cam-car realtor, Ian Watt.
As we noted two days ago, Watt is out with his latest video clip and he says that it's more than mortgage rules that are bringing down prices in Vancouver Real Estate... Vancouver is over priced - simple as that.
In fact, in the above video clip, Watt states:
"Vancouver may have been 10% overpriced"
May have been?
As the poster 'crashcow' on VCI notes, this is a bit of a change from just a couple of months ago.
Faithful readers will recall that is was only July 9th when Ian was singing a slightly different tune in a video we posted here.
In this July 9th vid, Watt was telling us the stats were out for June 2012 for the downtown condo market.
Ian said June was the worst month, as far as activity was concerned, in Greater Vancouver in 10 years.
Market sales were down 20% and Watt conceded we were slipping into a buyer's market.
His prescient crystal ball told him that prices "may correct 5%" and then he then gets giddy as he suggests you might want to get out there and look around to buy because:
"someone might be desperate, someone might be motivated, someone might be fearful of all this news."
With a correction of 5%, July was the time to buy! 3 months later,Watt now tells us the market is 10% overvalued... Gee Ian, how fearful will sellers be now that the market is 10% overvalued instead of 5%?
How long before we post the next Ian Watt car cam clip telling us the market was actually 20% overvalued?
Maybe this is why Watt always records these clips in his car. The rear view mirror outlook is easily facilitated as he chases the market downward.
“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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