Monday, June 11, 2012

Mon Post #2: Real Estate Forecast - Part 2

Did you catch the recent real estate forecast by TD Bank?

You will recall back on June 1st, we posted the May 2012 detached average home price in Vancouver.  May's total was $1,037,331, down from February’s high of $1,235,244. It means the average single family home price has now dropped 12% Year Over Year (YOY).

Some concluded that this means we are a mere 3% away from the TD prediction of a 15% drop.

But is that what TD said?

TD Economists Derek Burleton and Leslie Preston said that they expect:
"house prices in Toronto and Vancouver to sink by at least 15% over the next two to three years."
They are saying prices could sink 15% over the next 2-3 years. That suggests its in ADDITION to the 12% drop we have already experienced.

That would take the Vancouver slide to almost 30%.

More significantly:
"Mr. Burleton and Ms. Preston expect a price decline of that size over the next two to three years... having said that, a "severe shock" from overseas could speed that up."

Is TD telling us we could see a 30% collapse in Vancouver housing prices within the next year?

Seems to be a pretty stunning forecast to me.

Wasn't it just the other day we were discussing how some thought a 30% drop was unimaginable?

It seems TD doesn't have a problem conjuring that vision.


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  1. Here's the original TD report:

  2. The report's text calls for a decline of "at least 15%". That makes a 30% decline the best case scenario.

  3. Your like Garth Turner. Are you his brother? You twist peoples words. I dont remember any posts that said 30% was impossible. I remember people rebutting your projection of 70% and up.
    You must have taken the same creative writing class as GT.
    Maybe he find a place in his investors group. Mind you he isn't that keen on precious metals.
    Should call you the twisted lexicon sisters.
    I like the blog just don't like the inaccurate spin some times. All the best, DG

    1. I believe it was Larry Yatkowsky who described a 30% drop as something "most of us would not imagine."

  4. Whisperer - Good point on the call-out that this is 15% on top of the already dropped 12%.

    The thought that keeps hitting me is in essence that the TD Bank has a vested interested in price stability and that any decline is orderly. Their call-out of 15% must be the best case scenario.

    Another thought was to play out these actual drops in a quick run-down, of a low-end buyer of a $1,000,000 home last year and what it really looks like. It's easy to say 30%, it's another to see a number. In fact it is sobering.

    Purchase Price
    5% down = $50k
    $950,000 owed assuming other fees not wrapped in (maybe a stretch..)

    New Price in 2 yrs after TD's 15% drop

    - $120,000 (12% current YOY Drop)
    = $880,000
    -$132,000 (15% over 2 years)
    = $748,000

    After fees to sell, it's not out of the realm of possibility to walk with $700k or so.

    So the best case scenario has turned $1,000,000 into $700k, after all the payments to boot in just 3 short years.

    But this person likely can't come up with the $300k out of pocket to sell. In fact if they were using a heloc to subsidize their payments, it's likely been rolled back by the bank and no longer available forcing a more urgent path. This person is in fact now at stage where history has shown in the US people will walk and take bankruptcy rather than keep paying and see the decline more and more, thus priming the pumps for more and more declines.

    I have to imagine the typical case is paying on a VRM and not locked in longer on rates. When the rates go up, distress will follow.

    It is my hope that anyone leveraged out or in a tight cashflow position sells quickly, because the coming realty will be worse than their wildest dreams. I hold belief of a 50-70% drop as the minimum.


  5. With regards to the "severe shock" that was mentioned, it is interesting to note that the top headline on the cover of Friday's Globe and Mail was "Prepare for euro pain, Carney warns" - with the subheadline of "Bank of Canada Governor says Canada could feel 'major shock'; Stephen Harper readies for G20 summit"