Ultimately the great debate about real estate in the Village on the Edge of the Rainforest will come down to prices.
Will prices go up, stagnate or decline?
All these discussions about declining year over year monthly sales and building months of inventory, while indicators of what comes next, are moot until the 'what-comes-next' happens.
And it is the 'hard facts' which are now starting to appear.
What is fascinating is the depth of the declines we are seeing from the get-go with developers.
We've posted about prices being down 40-50% in the Okanagan. We've talked about Bob Rennie slashing 40% off new units at Invue in Kelowna and at Fairmont Estates in Vancouver. Up in Whistler we took a look at a condo which had been put up for court-ordered sale at 40% off the original 2002 sale price (it has now sold). Two days ago we profiled Watermark Developments discounting prices 35% below 2006 pre-sales prices.
Even to the casual observer, this is a steep and shocking start to this chapter in the real estate saga.
But as I have posted before, despite these examples, this will be a slow melt. The mainstream public is still oblivious to what is going on.
Those who don't have to sell, won't... at least for a little while yet.
They will pull listings or steadfastly refuse to budge on outrageous asking prices convinced that what we are experiencing is a temporary 'dip'... which is what most mainstream owners view the 2008/2009 pullback as. A temporary dip.
Only those who have to sell, will cut prices. Those going through divorce, settling estates because of a family member's death, or those displaced and forced to move elsewhere.
There is a another dynamic we will see though. And is it the looming wave of retiring boomers.
Boomers have never been great savers. Spending what they have and 'enjoying life', their plan has long been to use their massively appreciated real estate as their retirement fund.
Statistics show that 70% of boomers have not saved adequately for retirement if at all. Their retirement 'plan' lies in tapping the giant equity jackpot of the massive real estate bubble that has blown around us.
But as sales drop dramatically, as months of inventory build... a stagnating real estate market is fodder for the one demographic beyond the three D's (divorce, death, displacement) who will reduce their price to sell.
Faithful readers will recall one such example we cited in the middle of July.
Promoted as an outstanding Dunbar character home in immaculate, move-in condition, this 3,359 square foot 4 bedroom, 2 bathroom home which sits on a 6,700 square foot lot was offered for sale.
And with no one jumping in on that, the seller obviously received an offer from a buyer sensing the desperation and on July 6th, 2010 the home sold for $1,340,000 (another $109,000 shaved off the latest asking price).
That's a total drop of $209,000 (or 13.5%) off the original asking price with a property only on the market for a month.
More recently is this example at 3042 West 33rd Avenue in Dunbar from our friends over at VREAA.
This 2,489 sqft home on a 50×133 lot was listed on May 28th, 2010 for $1,638,000.
On June 22nd, 2010 the asking price was dropped to $1,580,000, then to $1,550,000 and then yanked from the market on Aug 31st, 2010.
Later that day the property was relisted with and asking price of $1,499,000.
It finally sold on September 19th, 2010 for $1,370,000... $268,000 less than the original asking price (just over 16%).
Both of these are a far cry from the 40-50% examples above, but provide evidence that there are desperate sellers who will move their price to see a sale.
If the market continues to stagnate, more and more boomers who have to sell will overcome resistance and cut prices.
That 'stubbornness' giving way to compromise can be seen in this Kelowna offering which a faithful reader has passed on to us.
Located at 740 Wilson Avenue, faithful reader advises that they have been watching this house for the past 6 months when it was listed in late April or early May.
Mortgage free, the now retired owner was hoping to reap the capital gains from a home which has appreciated rapidly these past 15 years.
The house was originally listed at $429,000 and quickly dropped to $399,000.
With no offers received whatsoever, the owner was no doubt shocked when a similar house across the street was listed for $340,000 - an asking almost $89,000 less that her original asking price. That lowball house sold within a month!
In July, the owner was offered $375,000... and promptly rejected.
Now, several months later, the asking price has been reduced to $344,000. Stubbornness is beginning to give way to desperation.
Faithful reader offers this observation on the Kelowna market:
- "I know other people in Kelowna who are also trying to sell their houses. Unfortunately many of them are mortgaged to the max and can't drop the price even a penny. And so they linger on the market for months and months. And there are many others, people in their 30s, who bought at the height of the boom (presales happened in Kelowna too), and are now sitting in negative equity territory, or pretty close. I know a few who are amateur landlords-and the rent doesn't even cover the mortgage! Everyone was convinced they would get rich by owning real estate. Why buy one place when you can buy 2 or 3? And I don't think it will get any better... there are lots of condos for sale, and according a realtor friend of mine, a huge inventory of condos that aren't listed-people waiting for the market to "recover" before they list.?"
MOI, declining year over year monthly sales totals... they are only symptoms.
It's all about results... about values.
The developers are slashing 40-50% and saying, "SHOW ME THE MONEY".
The boomers who are depending on their homes as retirement funds have to sell and are starting to say, "SHOW ME THE MONEY".
We will see what the result is in the coming months.
(What about you? Are there any properties you have been watching that have been dropping their asking price? If yes, drop me an email and tell me about it.)
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