Labour Day Weekend

Taking some time off for the long weekend.

See you Monday evening.

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Tidbits in the news...

A couple of interesting tidbits for you today.

Interesting quote from TD analyst Jason Bilodeau who was quoted in the Globe and Mail as saying:

“We have not had a single investor meeting in the past three months that has not focused significantly, if not exclusively, on the outlook for Canada’s housing market. We believe that the evidence is building that the sector is now in the early onset of what will ultimately prove to be a material deceleration in housing activity in this country.”

Speaking of deceleration, the Globe and Mail also had a story telling us who a "Jump in claims pinches CMHC's insurance business":

“Canada Mortgage and Housing Corp. saw profits at its mortgage insurance business fall sharply in the second quarter largely due to a jump in losses from claims. The rise in claims losses suggests that an increasing number of borrowers whose mortgages were insured by CMHC have been unable to make their payments and have lost their homes. Mortgage insurance pays the bank back when a borrower defaults.

In its second-quarter results, released Wednesday, CMHC said that its losses on mortgage insurance claims rose to $168-million for the three months ended in June, up from $144-million in the same period of 2011 and $154-million in the first quarter of this year.

That’s part of the reason why profits from CMHC’s core mortgage insurance business fell to $255-million, down from $341-million. The earnings were also hurt by paper losses on a mutual fund investment that suffered when international stock markets fell.

Part of the reason for the growing claims losses of late has been the dramatic increase in the amount of insurance that the Crown corporation has in force.”

CMHC claims against insurance jump and TD says we may be in early stages of material deceleration... how could this possibly end badly?

Well... how about this?

Vancouver is the second least affordable housing market according to the 8th Annual Demographia International Housing Affordability Survey, with a multiple of (10.6) times average household income, which means that Vancouver is approximately 253% overvalued.

Vancouver house prices would need to correct in excess of 70%, to bring house prices close to the 3 times average household income level considered affordable by the survey.

That's in excess of 70%.

Now where have you heard that before?

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Local Realtor says: "Make an impact with your price reductions"

You know the market has shifted when the major thread of a realtor's spiel is urging you to reduce your listing price significantly.

The latest from cam car realtor on the go... Ian Watt.

“A lot of people don’t understand that prices have started to come down and they’re still trying to get those huge numbers.”

“When you’re doing a price reduction make sure you go way below what you think it is in a declining market because you want to catch those numbers.”

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Sub-prime mortgage crisis explodes in Australia?

(hat tip PM)

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Canada Is Walking Right Into A Subprime Mortgage Crisis

The website blog Business Insider published an analysis of the Canadian Housing Market yesterday.

Titled "Canada Is Walking Right Into A Subprime Mortgage Crisis", the article is reposted here for your convenience.

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Canada Is Walking Right Into A Subprime Mortgage Crisis

Joelle Fricot and Chris Callahan, Euro Pacific Capital

It is almost four years after the global financial meltdown of 2008 and many parts of the world are still trying to recover. Given the impact of the crisis, which rocked financial markets across the globe, it is shocking to many that Canada seems to be following many of the same lending trends as we saw in the United States in 2006. These trends were at the core of the subprime mortgage crisis, which led to the global recession of 2008.

In the year and a half leading up to the crash, housing prices rapidly increased in the United States, with a corresponding increase in subprime lending. We are now seeing the same trends in Canada. When analyzing the Canadian housing market, housing prices increased almost 100 percent since 2000, with the average home in Canada costing roughly $348,000. 

This is almost double our U.S. counterparts.

Big banks have become stricter with lending policies, and have upped the stakes for those looking for mortgage financing. This has created a huge market for sub-prime lenders in the marketplace that didn’t exist before because more and more people who would have been approved five years ago are now being turned away. There is now a huge shift in the lending marketplace. Once small, Canada`s subprime mortgage industry is now booming. More and more Canadians with highly questionable credit are highly benefiting from the available financing.

The Canadian Government has been moving quite aggressively in attempts to cool down the Canadian housing market. As home prices are soaring there are fears that there is a bubble in the making. This is evident through the recent actions of Finance Minister Jim Flaherty who is now acting for a fourth time, reducing the maximum amortization period for government issued mortgages from 30 to 25 years. On top of this he is also lowering the amount of equity that can be borrowed against a property to 80 percent down from 85 percent.

More than $500B of Canada's estimated $1.1T housing market are considered to be high-risk mortgages. Recently Ottawa began increasing its scrutiny of the CMHC for allowing this level of high-risk mortgages to rise to the level that it’s at now.

The Conservative Government has started putting stops to banks using mortgages insured by the CHMC as collateral on covered bonds. In addition new legislation will be implemented to ensure that corporations will have to give more consideration to the broader implications of their decisions. Essentially the CHMC is being told that, for every mortgage they insure, they will have to put consideration into the potential risk that mortgage put on the full Canadian economy.

The CMHC has dramatically expanded use of insurance by banks for covered bonds. These securities are made up of a package of mortgages, which is partly due to the steep rise in CMHC`s mortgage portfolio according to Jim Flaherty, Canada's Finance Minister. CMHC has a legal limit of 600B for mortgage insurance which it is fast approaching. The $600B limit has already been raised twice since the end of 2007.

Another significant type of lending in Canada is Home Equity Lines of Credit (HELOCs). HELOCs are loans which are secured by the equity of a borrower’s home. These types of loans in Canada have increased almost 170 percent since 2001 (which is double the rate of increase on Canadian mortgages). In 2011 they accounted for approximately half of total Canadian consumer credit.

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How excessive are the number of properties for sale on Vancouver's West Side and Richmond right now?

Yesterday I came across the above chart (click on image to enlarge) courtesy of Makaya on VCI.

The chart is produced by Canadian Watchdog and puts the growth of listings for newly/recently built Single Family Houses in Richmond and Vancouver West in astonishing perspective.

Never before in history have so many properties been on the market for sale.

Should the housing correction pick up speed, the rush for the exits may truly become epic.

(Hat tip Makaya)

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Peter Schiff on Gold and Silver

I haven't written about Gold or Silver in quite a while... largely because the market has been in a state of basic equilibrium.

That may be about to change.

Peter Schiff offers an excellent analysis on why those who believe in Gold and Silver believe the market may be about to move dramatically.

For your consideration. Although real short term I personally I believe Friday will bring a significant raid to try and drive the price down.

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Media urges first time buyers to rent right now, not buy

Two days ago we told you have BC Real Estate Association Chief Apologist, err... Economist, Cameron Muir was insisting that there was no need to worry about real estate sales because one-third of our real estate market is first-time buyers.

Muir is adamant there is no shortage of those 'first time buyers' to keep greasing the wheels of our Lower Mainland property ladder:

“As long as we have first-time buyers that can get into the market to buy the homes from the people who are moving up, moving over, moving down, then the market should remain healthy.” 

With that in mind, you have to imagine that Muir is less than enthralled with the latest offering from the Globe and Mail Newspaper.

In an article titled, 'What’s the rush, first-time buyers? Now's the time to rent' the G and M proposes that the working title for the next phase of the housing market might just be titled: Revenge of the first-time buyer.

Rookie home buyers have been whip-sawed in recent years. They’ve been fed a line that renting is disastrous behaviour, and they’ve been witness to steep price increases that suggest they need to immediately buy a house, any house, before they’re priced out of the market. Last month, the federal government piled on with new rules that will result in higher mortgage payments for many first-time buyers.

But first-timers are about to get some leverage. Housing markets in a few cities are cooling, and some forecasters see national prices falling 10 to 25 per cent. Meantime, interest rates are expected to more or less remain at today’s fantastically low levels for a while longer.

Prudent first-time buyers will exploit this. They’ll build up their down payments, they’ll prepare themselves by researching the costs of owning a house and they’ll venture into the market with firm limits on what they’re willing to spend. First-timers account for just over one-third of the housing market, which means they have quite a bit of clout. If they were to take a buying hiatus, it could really slow the market down.

The obvious benefit of waiting to buy a home is that you have a chance to save a bigger down payment.

Listen closely... hear it?

That's the sound of Muir choking on his morning wheaties as he reads that.

The article continues:

TD’s forecast on prices reinforces the argument for first-time buyers to take their time. One of the prime motivators for rookie buyers in the past couple of years has been the fear that price increases would eventually make a house unaffordable. Market conditions across the country differ, but some of the hottest markets are now slowing. Nationally, TD has been forecasting an average decline of 10 to 15 per cent over the next three years. Mr. Alexander calls it a “steady cooling.”

Forecasts of more severe declines are out there. For example, the firm Capital Economics has said we have a housing bubble in Canada that will take housing prices down 25 per cent when it bursts over the next couple of years.

The logic is inescapable.

Buying right now, especially for first time buyers, is the wrong thing to do.

And the Globe finishes with the best piece of advice you can get right now:

Renting is not a waste of money. It’s what you sensibly do while waiting for the right time to buy a house. Right now, it makes sense to wait longer.

Amen to that!

(Hat tip: @YVRHousing tweet)

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Royal Bank says our real estate market is "vulnerable to a marked correction"

Well I think you can definitely say the alarm bells are ringing everywhere you turn now.

Royal Bank is the latest with warnings.  And this is no tiny warning.

No only does RBC tell us the Village on the Edge of the Rainforest may experience a correction.  Canada's biggest bank is now afraid we are vulnerable to a "marked correction."

Says the Huffington Post:

If you haven’t heard yet that Canada’s housing market is facing potentially serious problems, you’ve probably been hiding under a rock, but a recent study and comments from Canada’s top banker are bringing the point home once again.

A report from RBC released Thursday says Vancouver’s housing market is 'vulnerable to a marked correction.' For a market analysis from a major bank, those are pretty strong words.

Strong indeed.

Even scarier than the rhetoric about a looming catastrophe are the hard core statistics from the report:

“Typical Vancouver-area homebuyers would need to allocate 92 per cent of their income to carry the costs of a two-storey home (based on market price) and almost 45 per cent for a condominium apartment.”

RBC says they expect house prices in Vancouver to fall between 7 and 12%.

When you consider the average price is already down 20% from last May, this forecast from RBC is devastating news for a city whose economy is reported to be over 30% dependant on real estate.

Perhaps even more disturbing is that the numbers quote by RBC are very conservative compared to what Bank of Canada Governor Mark Carney hinted Wednesday might be the actual scale of a Canadian housing correction.

As the Huffington Post article noted:

In comments to the House of Commons finance committee, Carney said Canada’s housing market is overvalued by 35%! While house prices historically in Canada have hovered around 3.5 times average income, they are now at 4.75 times average income.

In some markets that ratio is worse.

Vancouver housing is estimated to cost 9.2 times the average income.

The tension between Canada’s booming housing market and the weakness in the global economy is at the heart of Carney’s dilemma: Whether to raise interest rates to halt a growing real estate bubble, risking an economic slowdown, or to keep them low, and risk blowing up even larger bubbles in Canada’s economy.

Carney has hinted in recent interest rate decisions that the day is nearing when Canadians will no longer be able to count on historically low interest rates.

The RBC report makes it clear that interest rates will be a major factor in determining the dierction of house prices in the months to come, but highlights a wild card in the equation: Foreign real estate investors who have been snapping up residential properties and driving up house prices.

“Risks will be further heightened by Vancouver-area valuation’s dependence on a strong and steady flow of wealthy foreign buyers and recent immigrants — a phenomenon that is both poorly documented and potentially vulnerable to adverse external shocks."

And that's the kicker.

If the market starts plummeting, not only will the "strong and steady flow of wealthy foreign buyers" further evaporate... you could see those same foreign buyers start dumping properties to cut their losses.

At which point calling it a "marked correction" will be a generous understatement.

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Canadian price declines called the "Vancouver Manouevre" - Royal Bank declares Vancouver market in a correction

Well it certainly appears the concern about what is going to happen in the Real Estate market this Autumn is ramping up.

After an abysmal summer and all the negative press, the fall market usually see a resurgence in listings... but will there be buyers?

Judging by the comments of Bank Economists, it appears everyone is bracing for dismal times.

The Financial Post tells us that Canadian home prices are falling steadily.

Much of the decline in the national Canadian average is being blamed on Vancouver.

An economist at BMO Financial Group called it the “Vancouver Manouevre”. Our city's price drops have brought down the national average despite 19 of 26 cities experiencing year-over-year increases.

As we have mentioned here before, Vancouver's average sale price dropped more than 12% year over year and 20% since May 2012.

RBC economist Robert Hogue said:

"We still believe that Vancouver is probably the most stressed market right now because of extremely poor affordability. Plot the resale figures over the last year or so and you see a fairly significant decline in resales, so I think that this does the fit the definition of correction.”

Of course it does. When you have prices collapsing 20%, what other conclusion could you come to?

Naturally the British Columbia Real Estate Association (BCREA) disagrees.

(Surprise!)

BCREA chief economist Cameron Muir says:

“Typically to see a price correction you need to see a macroeconomic shock — recession, very high unemployment, for example — or you need to see interest rates go up very dramatically in a short period of time. Both of those we don’t see on the horizon.”

Cameron claims one-third of our market is first-time buyers and he insists there is no shortage of those 'first time buyers' to keep greasing the wheels of the property ladder:

“As long as we have first-time buyers that can get into the market to buy the homes from the people who are moving up, moving over, moving down, then the market should remain healthy.”

But if tighter mortgage regulations are making more difficult for potential first time buyers - and buyers are watching the market prices fall - when enter the market right now?

Watch for an unprecedented full out media campaign this fall promoting young first time buyers to do the 'smart' thing and get into the market.

In the absence of 'Hot Asian Money', what else will keep the ponzi going?

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The Media gets bolder in describing market conditions - now it's "Vancouver Sales PLUMMETING"

You can only imagine that media image focused types like Bob Rennie must be pulling what little hair they have out of the scalp with the on-going headlines that keep appearing.

Yesterday we told you how ScotiaBank had not only declared that Vancouver was in a housing correction, but that it was ongoing with a definite risk of a "difficult adjustment."

On the same day Scotia was declaring an on-going housing correction here, the Vancouver Province screamed:Vancouver home resales plummeting

Can the psychology of the current media stories be any worse? And it's the way they are saying it.

Vancouver's resale housing market plunged sharply in July compared with July 2011... The bigger drops in dollar volumes are owed in part to falling home prices: The average price of a home in Greater Vancouver in July was $667,462 - down 12.4 per cent from $761,673 in July 2011.

Kinda kicks the whole "but the HPI is rising" crap right in the teeth, doesn't it?

Greater Vancouver's declines were among the most dramatic and dragged down national statistics. But home prices also continued to decline across the rest of the country in July and the pace of the depreciation is picking up, according to the CREA.

The pace of depreciation is picking up?

Nah... did they really just say that?

I think Rennie might actually be bald by Spring if this nonsense keeps up.

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Scotia Bank comes out and declares Vancouver's in a full blown "Continuing Housing Market Correction"

Everything you have read from the Real Estate Industry for the past 3 months has talked about the market shifting towards becoming "balance" or that what we are experiencing is a typical summer 'slowdown' as buyer's take a 'break' during the hot summer months.

Some have even dared to suggest the market is 'softening'.

But few have dared to characterize what's going on for what it is - the start of a correction.

Well that all changed yesterday as ScotiaBank came out with a report that calls a spade a spade - that Vancouver is not only caught up in s market correction... but has been in that correction for a while and it is "continuing."

On page 5/6 of their August 17th, 2012 weekly commentary on economic and financial market developments, ScotiaBank has the following...

Vancouver’s Continuing Housing Market Correction

Strained affordability, a continuing high level of new construction and rising unsold inventory suggest there are further downside risks to the Vancouver housing market, notwithstanding the notable cooling in both sales and pricing over the past year.

The turnaround in Vancouver’s housing market performance over the past year has been dramatic. Existing home sales over the first seven months of 2012 have fallen 20% from a year ago, to their lowest level in over a decade outside of the 2008-2009 recession. Given a smaller decline in new listings relative to sales, overall market conditions have shifted modestly into buyers’ territory, in turn putting downward pressure on home prices. The benchmark resale price for both single-family homes and apartments has essentially levelled out over the past 12 months.

Growing affordability pressures are likely the main contributor to the slowdown, with the falloff in demand most pronounced at the high-end of market and/or for expensive detached homes.

Vancouver is by far Canada’s most expensive housing market, and has seen larger price increases over the past decade relative to the majority of major centres, including Toronto. Tighter mortgage rules and the eventual rise in interest rates will worsen affordability constraints over the next several years.

However, there appear additional factors behind the decline in sales, including reduced population inflows. Net interprovincial migration to the province has been negative for the past five consecutive quarters, reversing an almost decade-long trend of steady population inflows from other parts of the country. Meanwhile, international immigration, the primary source of the province’s population growth, too has slowed sharply. While ‘hard’ data on investor and/or foreign purchases are limited, weakening sales may also be indicative of reduced interest from offshore buyers, including from China.

Despite softening resale market conditions, new homebuilding has yet to show any discernible sign of slowing. Housing starts have accelerated over the past year, led by new high-rise projects, and are currently tracking over 19,000 annualized units. This compares to an estimated underlying annual demographic requirement of around 16,000-17,000. Completions remain relatively low at just over 15,000 annualized units in the first half of 2012, but will climb higher over the coming year based on the level of units under construction.

The Vancouver new home market is not significantly oversupplied. Over the 2006-2011 period, annual housing starts and completions averaged about 16,500 units, consistent with annual household formation trends. The total number of completed and unoccupied units has moved above its long-term average, but remains well below prior peaks of the mid- to late-1990s (chart 5). The increase is primarily in multi-unit developments, while the unsold inventory of single- and semi-detached homes remains low.

The current level of unsold inventory appears manageable. Relative affordability will continue to support demand for condominiums over single-family homes. Vancouver’s rental market, which absorbs a large share of new condominium units, remains tight: the apartment vacancy rate was 2.6% in April 2012, down from 2.8% April 2011. The vacancy rate for rented condos was just 0.9% (as of October 2011). Just over 25% of condominium units in the Vancouver CMA are rented, among the highest share in Canada. However, the risk of a more difficult adjustment will increase if builders do not soon begin to slow the pace of new construction.

If you read the whole article it tries to paint a pretty balanced picture, but you can't escape the headline.

It's almost as if Scotia, in the pit of their stomach, knows the looming risk of a "more difficult adjustment" is far greater than they are willing to publicly acknowledge at this point.

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How deep will the 'softening' of the market be? Deep enough that the Industry has begun shifting from 'training' the buyers to 'educating' the sellers.

Last Wednesday we introduced you to Shaun Kimmins, the latest realtor who has taken to telling you about the way the market is truly suffering as opposed to the standard industry spin.

Kimmins went a step further, venting his frustration at the misleading statistics being put out by the REBGV and how a much rosier picture is painted for his downtown condo market that is in complete contrast with reality.

Kimmins message to his customers right now?

"Sales volume is down considerably. Sharpen your prices if you want to sell."

Now that's a message many of his clients probably don't want to hear from him. Kimmins, no doubt, must spend considerable time and effort justifying that message.

And it's doubtful he's alone.

Perhaps that's why BC Magazine was moved last week to come out with an article headlined: Realty Check: B.C. Realtors Not to Blame For Softening Market.

Despite rumours to the contrary, real estate agents are just the messengers when it comes to Vancouver’s volatile home prices.

Agents do not drive the price of the real estate market.... There is no collusion or price fixing. There is no “propping up” of price points. The reality is Realtors will help sellers decide a price threshold for a property, but the seller approves it. In many cases, the seller will dictate the price.

When a home doesn't sell, the seller, if actually motivated, will drop the price to the point where the market finds it attractive. Seller's thoughts on prices vary greatly from the buyer's perspective. The cumulative mass of buyers and sellers create the market. Agents don't set the market — the consumer does. An increase in product (listings) with few buyers creates a buyer's market.

When sellers don’t lower their price to meet the market’s perception of value, those houses sit unsold and are joined by other listings, creating a build up that result in softening prices as those sellers all lower their prices to meet the market’s expectations. 

Now we have the question of the day: How deep will the market soften?

Hmmm... sounds to me like realtors are taking a lot of flack from prospective property sellers and the 'education' of sellers has begun.

Is a shift in the R/E propaganda machine underway?

For years now, media stories have been 'training' buyers that they have to get on the property ladder, they have to find ways to scrimp and save, have to take on that excessive debt or "be priced out forever."

Is this the first sign of a teutonic shift in tactics?

Has the offensive begun in an effort to now 'educate' sellers to be receptive to realtor suggestions to lower expectations and asking prices?

It seems they have. Note how BC Business answer's their rhetorical question about how deep will the market soften:

Apparently, pretty deep.

David Madani, economist with Capital Economics, has forecasted a 25-per-cent price drop in the next two years. Chinese investment dollars are gone. U.S. agents are seeing record numbers of Chinese buyers who are enjoying the rock-bottom prices of new construction in Miami, Los Angeles and New York. We still have consistent immigration to B.C., low inflation and high employment to celebrate, but the lack of interest rate increase and the new borrowing thresholds for insured mortgages will not jumpstart price increases (or sales) anytime soon.

The softening of the market is a harbinger of what is to come.

This isn’t the fault of organized real estate.

Thus the lesson ends for today: Don't blame the real estate agent for a market where properties don't move... lower your asking price.

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Flaherty: People getting mortgages that would be unaffordable when rates go up!

Interesting comment from Federal Finance Minister Jim Flaherty on Tuesday.

In an interview, Flaherty said that sources in the financial industry, as well as developers, had been telling him that:

“the situation was evolving where expectations by purchasers were excessive with respect to single family dwellings, and ultimately unaffordable when mortgage rates go up.”

This little revelation should drive a stake through the hearts of groups who are hoping that Flaherty will look at the declining sales in the Vancouver and Toronto markets and loosen up on the recent changes to mortgage regulations.

Flaherty even went so far as to say:

“I’d rather see some softening in the markets, particularly in Toronto and Vancouver, than have a rapid decline."

You may recall the post we made a week ago about Peter Simpson, president and CEO of the Greater Vancouver Home Builders’ Association.

Simpson was optimistic that "Finance Minister Jim Flaherty may intervene in amortization period for home mortgages"

Simpson said:

“I hope he looks at markets where affordability is already an issue, like Vancouver."

Simpson was deeply troubled by the dreadful summer real estate market. And while builders are trying to rationalize that during the summer months home sales traditionally slow down - the reality is that this summer's sales have been horrendous.

There is valid concern that if the monthly sales volume continues to tank after the Labour Day weekend, the situation will become dire for home builders.

Enter Simpson's attempt to exert a little public pressure on Flaherty:

"The real threat to the economy is if a real-estate slowdown leads to a sharp reduction in housing starts. That’s because new-home construction stimulates the sale of appliances, carpets, and other products. For every housing start, there are 2.8 person years of employment that are create.That’s direct and indirect jobs. If it continues to fall, they’re going to have to take a good hard look at what their actions have caused — and be prepared to make some adjustments. ”

Unfortunately the statements made yesterday by Flaherty reinforce that the Conservative Government knows all too well that they cannot turn back from the recent mortgage rule changes that eliminated the 30-year mortgage and directed CHMC to stop offering insurance on mortgages for any house selling over $1 million.

Simpson will no doubt be quite dismayed that those changes are just the start... more changes are on the way.

The Office of the Superintendent of Financial Institutions (OSFI) are about to mandate far-reaching changes in how big banks make real estate loans.

Beginning October 31st,  home equity lines of credit will be trimmed again.

The amount you can borrow from the value of your homes will be reduced from 80% to 65%.

If you want to borrow more,  the amount between 65% and 80% will have to amortized like a mortgage. 

This will have a significant impact on groups like the Greater Vancouver Home Builders’ Association because the primary uses of HELOC money goes toward renovating houses and buying rental properties.

In addition to this, mortgages will be made harder to get. The OFSI will require borrowers to qualify to “the greater of the contractual mortgage rate or the five-year benchmark rate published by the Bank of Canada.” That's a huge change from qualifying for the Variable Mortgage Rate.

The OFSI will also eliminate cash-back mortgages, a kick-back cash-cow for new homeowners equal to the 5% downpayment required to get CMHC insurance.

And, finally, liar loans will be eliminated.

History tells us all booms created by excess credit will ultimately bust.

CMHC has grown from $100 Billion in mortgages in 2006 to an astounding $600 Billion in 2012. Excess credit... it is what created our housing boom.

And now that stimulus is being choked off.

Shorter mortgages, higher rates and tougher borrowing... all resulting in less credit.

It doesn't take a crystal ball to foresee the cumulative effect this will create.

The howls of complaint from developers and realtors have only just begun. But Flaherty knows the alternative is worse.

“I’d rather see some softening in the markets, particularly in Toronto and Vancouver, than have a rapid decline."

Rapid or not, a decline is coming.

All booms created by excess credit always bust... always,

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Wed post #2: Another realtor telling it like it is... and in the process basically says the HPI is "horsesh*t" - updated

So how is the downtown Vancouver condo market doing in this 'softening' period we're going through?

Meet Shaun Kimmins, a realtor who specializes in downtown condos. His take on the market right now?

"Sales volume is down considerably. Sharpen your prices if you want to sell."

Kimmins, like many realtors, puts out a monthly market update. This one is dated July 25th, 2012 and his snapshot of the downtown core is not a pretty one.

Kimmins wants you to know that when it comes to downtown, the sales climate is abysmal. Ignore all those press releases from the REBGV... they don't capture the downtown market in any way shape or form:

"It's always interesting for me to read the Real Estate Board of Greater Vancouver's (REBGV)stats and see media reporting on the "Vancouver Market." The reality of the current market is that different sub-areas and property-types are experiencing very different activity levels and resulting pricing trends and these trends do not always relate closely to the Board's averages."

What Kimmins is referring to is the downtown market, a market exclusively comprised of condos. And when he says downtown doesn't relate to the REBGV's averages, he's not kidding.

According to the REBGV's stats summary there has been a year-over-year decrease of 18.8% in sales volume for the condo category and an increase of 0.3% in the Benchmark Price of condos for June 2012 vs June 2011.

But as Kimmins tells us, that doesn't tell the downtown story in any way, shape or form.

How bad were sales in June 2012 in downtown?

In the uber high-end district of Coal Harbour there were 212 active listings for this period. Kimmins tells us this is actually down from the same period last year when there were 275 listings. The major difference is sales. 

How many condos sold in the 30 day period? 8.

Last year in the same period there were 37 sales. This means there is 27 months of active inventory (MOI). More significantly it translates into a 78% decrease in sales volume year over year!

Ouch.

The West End is not much better. There are 275 active listings and only 18 condos have sold in the 30 day period (June 2012). Last year 51 condos sold in the same period. MOI ballooned to 15 months of inventory and sales volume decreased 65% year over year!

Looking at all of downtown, active listings sat at 1,402 in June 2012 with 99 condos having sold in the previous 30 days (last year 216 sold). MOI sat at 14 months of inventory and sales volume had plunged 54% year over year.

Kimmins then offers this critique of those nefarious REBGV statistics:

"So, in the 'Downtown' area, sales volume is off between 54% - 78% while according to the Board's latest stats summary they publish a year-over-year decrease of 18.8% in sales volume for the condo category and an increase of 0.3% in the Benchmark Price of condos for June 2012 vs June 2011.

Given these stats and the recent sale of a north-west corner suite at Fairmont Pacific Rim at a price more than $1,000,000 below two more or less identical suites that sold in the same building a year and a half ago, it's difficult to convince Coal Harbour buyers that prices are up."

Can't say we disagree with your take on those REBGV statistics, Shaun.

(Whisperer's note: Kimmins update was put out at the end of July [July 25th, 2012] and summarizes the data for June 2012.  Kimmins has not released a summary of July data yet. Presumably he will do so towards the end of August 2012.)

In another section of his website, Kimmins looks at data for all of Vancouver:

Detached Housing Listing/Sales activity in the following areas:

East Vancouver: Active listings for the end of June 2012 were 722. Sales June 2012 were 59 (last year 152, MOI sat at 12. That’s an 61% decrease in volume year over year.

West Vancouver: Active listings for the end of June 2012 were 550. Sales June 2012 were 22 (last year 114, MOI sat at 25. That’s an 80% decrease in volume year over year.

North Vancouver: Active listings for the end of June 2012 were 416. Sales June 2012 were 44 (last year 102, MOI sat at 9.5. That’s an 57% decrease in volume year over year.

Vancouver West: Active listings for the end of June 2012 were 1038. Sales June 2012 were 48 (last year 151, MOI sat at 22. That’s an 68% decrease in volume year over year.

Kimmins editorial on the statistics:

The Board publishes a 37.4% decrease in sales year-over-year for detached houses with an increase in values of 3.3%. Again, it might be difficult to convince a West Vancouver detached buyer, where there are 25 months of active listing inventory, that prices are up. I’m not in any way suggesting that the Board is incorrect or inaccurate when it comes to board-wide averages. What I am suggesting is that different properties in different areas may not be experiencing fluctuations in value in line with the averages so one must look at each property on a case-by-case basis.

I don’t want to set off alarm bells but this current market has created a moving target in terms of valuations and in the minds of most buyers I have spoken to recently, prices are well off their previous highs. Condo-buyer motivation seems to be quite low.

The media is not affecting values positively, at least not from a seller’s point of view. Where the market goes from here is unclear but it is becoming clear that in order to sell in the current market one must price sharply and be willing to adjust if one wants to sell within a reasonable time frame.

Kimmins says, "I’m not in any way suggesting that the Board is incorrect or inaccurate when it comes to board-wide averages."

But you can see he is clearly frustrated when the board comes out and sales sales volume is only off 18% across all regions of the REBGV and the benchmark price is actually up!

For a realtor like Kimmins, this isn't an accurate reflection of his downtown market at all.

Kimmins is clearly frustrated by the REBGV attempts to spin the current news because that news is unmistakable... Iit isn't a 'buyer's market' downtown right now - it's a vultures's market.

And for potential buyers there's still lots of circling to be done before moving in to pick at the carcass.

Convincing sellers that have to set their asking price for the market is difficult when the REBGV is so desperate to paint the market as 'balanced'.

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Wed post #1: What constitutes a price drop?

As we pointed out yesterday, Ozzie Jurock advised his followers that the recent 'adjustment' in average Vancouver prices is far worse than the spin would have you believe:

The real estate market is down 12% on the average price - July over July ... but down a whopping 20% in price over May 2011!!!

July 2012 - $669,000 to July 2011 - $762,000: down 12%

July 2012 - $669,000 to May 2011 - $834,000: down 20% !!

Volume is down too. Listings are higher.

As Ozzie succinctly notes, the average is down 12% on a simply year to year comparison, but go back a couple of months more and the reality is that the average is down a full 20%.

It is in this milieu that some sellers, those hoping to ride the bubble frenzy, are forced to come to grips with reality.

No blog is better for charting this that Vancouver Price Drop.

One faithful reader termed the site 'price drop porn' and it's an apt description as we watch wild real estate speculation crash on the shores of market reality... a trend with are seeing at all levels of the market as asking prices begin to melt to assessed value levels (or in the case of Richmond, often below assessed value).

One can only imagine how huge the drop end up being if we were charting the plunge from asking price to what a property actually sells for.

Take, for example, the land in the outlying suburb of Maple Ridge.

Promoted as a potential high rise site in the town core, the asking price on June 14 was $3,900,000!

Currently the asking price is $1,750,000... a 55% drop.

The assessed value of the property is only $898,000. 

If this property eventually sells at, or near, the assessed value... the asking price will have fallen an astounding 77%. 

If we do have a significant property value correction, this property could conceivably drop over 90% from it's June asking price.

Such is the breadth and depth of the wild speculative mania in our housing bubble.

Ultimately the true measurement of the collapsing of the bubble will be measured by what people paid for a property at the height of the mania vs what they end up selling the same property for once the mania fully implodes.

In the meantime, the blog Vancouver Price Drop is like watching a train wreck.

You are simply mesmerized by what you see.

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CMHC insists there will be no housing crash in Canada

The Canada Mortgage and Housing Corporation (CMHC) insists there will be no housing market crash in Canada.

CMHC has been saying for some time that it expects housing prices in most local markets will grow more slowly than they have been recently.

The Ottawa-based federal agency isn’t calling for a major decline, but its latest forecast suggests next year will be somewhat softer than estimates CMHC issued in June while 2012 may be somewhat stronger than previously expected.

(In other words, they keep getting it wrong and have to 'revise' their forecast constantly)

Mathieu Laberge, CMCH’s deputy chief economist, said:

“Balanced market conditions in most local housing markets will result in a slowing in house price growth”

Is that why they call it right now? A 'slowing in house price growth'?

(Prices never go down, you see... growth simply 'slows')

Contrast this with the normally always upbeat and optimistic Ozzie Jurock. On August 4th, Jurock pulled no punches in analyzing what is currently happening in the real estate market.  Rather than spin the numbers, he offered a very succinct (and negative) take on the drop in the average price.

The real estate market is down 12% on the average price - July over July ... but down a whopping 20% in price over May 2011!!!

July 2012 - $669,000 to July 2011 - $762,000: down 12%

July 2012 - $669,000 to May 2011 - $834,000: down 20% !!

Volume is down too. Listings are higher.

As Ozzie succinctly notes, the average is down 12% on a simply year to year comparison, but go back a couple of months more and it's down a full 20%.

So if a 20% decline in prices is a 'softening', what will they call a decline of 50%?

One thing we know for sure... they won't call it a 'crash'.

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Half of all job losses that occurred in Canada, happened in BC

Perhaps one of the most chilling statistics for the real estate industry came out late this past week.

Many in the real estate industry have comforted themselves lately by saying prices in Vancouver aren't going to fall significantly. They rationalize prices will just stabilize or maybe they will drop a bit.

One thing R/E people insist is that prices in our little Village on the Edge of the Rainforest will not crash. They insist "you won’t see a crash here in Vancouver unless there economy takes a sudden turn for the worse."

Well Stats Can just announced that BC lost half of all the jobs lost in Canada last month.

Statistics Canada says of the 30,400 jobs that disappeared across Canada, 14,500 were in B.C., pushing up the provincial jobless rate four-tenths of a point to an even seven per cent in July.

And the bottom line is that people who don't have jobs... they don't buy houses.

Things get more interesting with each passing day.

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"Housing Sales Plummet"- the media stories intensify as one expert says we're at a turning point.

The nightmare scenario for the real estate industry is starting to take hold as another dreadful headline trumpets the obvious in the mainstream media.

This time it's the NOW chain of municipal newspapers (which serves Coquitlam, Port Moody, Port Coquitlam, Belcarra and Anmore). The latest real estate healine screams "Housing Sales Plummet" and the article starts off telling us:

If you've been eyeing the housing market in Metro Vancouver with astonishment over the last few years, that feeling could soon change.

Last month, property sales in Metro Vancouver fell to a 10-year low, and parts of the Tri-Cities were in the same basement.

Of course the spin-meister's are out in full force.

Sandra Wyant, president-elect of REBGV, tells us that:

"July is typically a slow month for real estate sales. Buyers and real estate agents alike often tend to be on holidays. In the case of Port Coquitlam, the community is attracting more first-time buyers because of the price. The sluggish sales haven't been reflected in a major adjustment in home prices just yet.

Ahh, yes... not just yet!

The real kicker in the article comes at the end as SFU professor of Finance, Andrey Pavlov, utters words that will have bears everywhere salivating:

But one financial expert believes Lower Mainland real estate has reached a turning point.

Andrey Pavlov, a professor of finance with Simon Fraser University, noted prices in Vancouver have rocketed past those in places like New York and San Francisco, and in the case of the Tri-Cities, are comparable to suburbs of those major cities.

He suggested the pace will not continue and predicts prices will likely drop in the Vancouver area.

Pavlov argued home prices rose dramatically in the Lower Mainland, not out of income or general economic growth, but rather debt accumulation.

With low interest rates and easy qualification terms, people have been taking on more and more debt.

"I think this engine of real estate price growth is now done," Pavlov told The NOW in an e-mail.

"So I don't see where the future support for real estate can come from."

And he's especially concerned for the condo market.

He explained that singlefamily properties would always hold their value to some extent because usable land in the Lower Mainland is limited.

But he contends condos have absolutely nothing that can support them. And in cases where the quality of a new development might be in question, he can see prices of condos in the suburbs dropping by half or more.

Prices dropping by half or more, eh?

Betcha our buddy Tsur Sommerville won't be inviting this guy over for lunch at the UBC Sauder School of Business anytime soon.

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Did the Greater Vancouver Home Builders’ Association just have the rug pulled out from under their media offensive?

On Wednesday we told you how Peter Simpson, president and CEO of the Greater Vancouver Home Builders’ Association, had launched a bit of a media campaign to try and apply some public pressure on Federal Finance Minister Jim Flaherty.

Simpson was hoping to play the 'economic' card and frame the recent mortgage issue as an economic threat for the government:

"The real threat to the economy is if a real-estate slowdown leads to a sharp reduction in housing starts. That’s because new-home construction stimulates the sale of appliances, carpets, and other products. For every housing start, there are 2.8 person years of employment that are create.That’s direct and indirect jobs. If it continues to fall, they’re going to have to take a good hard look at what their actions have caused — and be prepared to make some adjustments. I don’t know what those adjustments are.”

Even the headline tried to create the impression Flaherty's resolve on the issue was not that strong:

"Finance Minister Jim Flaherty may intervene in amortization period for home mortgages"

Somehow it only seems fitting that, only a day later, Bank of Canada Governor Mark Carney comes out with a strong statement on the topic of real estate and advises Canadians to "invest in 'productive capital,' not houses or condos."

How's that for a kick in the gonad's, Peter? Apparently your entire industry has been written off as the centre of massive Canadian mal-investment.

You could see the footprints of the spin machine in high gear in the Globe and Mail article:

Canada Mortgage and Housing Corp. reported that construction starts slipped in July to an annual pace of 208,500 from June's 222,100. That was largely due to a decline in multiple units, such as condominiums and apartments, in British Columbia.

"Canadian housing starts, particularly the multi-unit sector, have ebbed from extremely robust spring levels," said Robert Kavcic of BMO Nesbitt Burns.

"With stricter mortgage rules likely to cool demand in the remainder of the year, construction activity should moderate further to a more sustainable pace."

Seems Simpson's challenge to government that "if housing starts continue to fall in a declining real estate market, then government is going to have to take a good hard look at what their actions have caused", has been met and rebuffed.

The message: construction activity should reduce to a more 'sustainable' pace.

If Simpson thought he had Flaherty's ear on this topic, then Carney just played the role of Lucy to Simpson's Charlie Brown.

And just like in the Peanuts classic, you just knew what the outcome was going to be... and it still made you smile.

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Richmond realtor warns:"price declines in excess of 30% coming, price collapse looks inevitable!"

Two months ago we introduced you to Richmond realtor James Wong.

Mr. Wong was the first of a growing legion of realtors we profiled in the Greater Vancouver area who have been telling you that if you want to sell "deep price cuts are needed."

He's out with his latest monthly report and comes to a conclusion that should send a chill down the back of any Richmond homeowner looking (or planning) to sell.

"In Richmond, there is a high probability of a price decline for detached homes in excess of 30%."

Wong sees the events over the next few months following the pattern we saw in 2008/2009. But, instead of a recovery like 2009, Wong thinks sales will stay at their current dismal rates with home prices declining even more.

As that happens, Wong finally connects the dots to paint the picture we know all too well is coming:

"Sellers who need to sell will have to cut their prices more deeply to attract buyers. This could be the beginning of a real estate down cycle. The momentum will pick up when more sellers realize that a real estate downturn is in motion."

And by then, of course, it will be too late.

The writing is on the wall. More from Wong:

"The cascading effect of declining home prices will snowball, causing more home sellers to sell before home prices drop further... The in-balance in supply and demand is massive for million dollar homes in Richmond. A price collapse in Richmond detached homes looks inevitable!"

That imbalance Wong speaks of is epic.

There are a total of 722 listings in Richmond right now for homes over $1,000,000. With average sale around 27 homes the past 2 months, there are 27 months supply of homes.

For detached homes over $1,500,000, the past 2 month’s sale averaging 11 units against 361 listings. This translates into a staggering 33 months supply of homes.

As prices implode on the million dollar homes in Richmond, sub-million dollar homes will be dragged down accordingly.

And as Richmond collapses, the contagion will spread quickly around the Lower Mainland.

Here is Wong's full July 2012 month end report....

July home sales in Richmond turned out to be worst than in June and the month before in May. The number of homes sold for the month was 216 which was 13% lower than the previous month sales of 248 homes. Active listings for detached homes, townhomes and condos/apartments in Richmond at the end of July, 2012 totalled 2,700 units, just 30 units shy of the previous month high of 2,730. Home sellers are faced with a dilemma, cutting prices more aggressively to sell or to take their properties off the market.

The real estate market in Richmond deteriorated further at the end of July. The supply of homes now reached 11.02 months compared to the previous month of 9.93 months of supply. The higher ratio was due to lower average sales, although the total listings were around the same level as the month before. Some home sellers were making drastic price reductions and generous concessions in selling their homes. More homes were now listed and sold at prices significantly below their city assessment values for 2012.

Richmond real estate market outlook

The next few months are expected to remain lacklustre. The next few weeks and months would probably follow what happened in 2008. But, instead of a recovery like 2009, home sales could stayed low at current level with home prices declining. In Richmond, there is a high probability of a price decline for detached homes in excess of 30%, and attached homes in the range of 20% or more over the next 3 years.

The biggest problem faced by home buyers are getting their mortgages approved. Canadian banks are now required to underwrite their mortgages based on borrowers’ ability to debt service their loans”.

The cascading effect of declining home prices will snowball, causing more home sellers to sell before home prices drop further. Unlike 2009, even if home prices drop 20% or more, many home buyers and investors would be prevented from buying due to the difficulty in getting financing.

Richmond detached homes over $1,000,000 are not seeing much buying interest. With total listings of 722 and average sale around 27 homes the past 2 months, there are 27 months supply of homes. For detached homes over $1,500,000, the past 2 month’s sale averaging 11 units against 361 listings, translates into 33 months supply of homes. The in-balance in supply and demand is massive million dollar homes in Richmond. A price collapse in Richmond detached homes looks inevitable!

Sellers who need to sell will have to cut their prices more deeply to attract buyers. This could be the beginning of a real estate down cycle. The momentum will pick up when more sellers realize that a real estate downturn is in motion. This could take a few years for home prices in Richmond to reach a more sensible level.

The smart Richmond Boomer is making that minimum 30% price cut right now.

Because, as Wong says, when "sellers realize that a real estate downturn is in motion" - a 30% reduction in asking price won't even begin to attract interest. "The cascading effect of declining home prices will snowball, causing more home sellers to sell before home prices drop further."

Can you say 'Boomer Trigger'?

Sure you can.

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