Sunday, September 30, 2012

The one day sale... coming to a condo near you.

Everyone knows the routine.

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
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, 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%?


Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Saturday, September 29, 2012

September Observations

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?

We shall see.


Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Friday, September 28, 2012


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.

                 - Whisperer


Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Thursday, September 27, 2012

The Fall(ing) Market

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?

Roy takes a look at Vancouver detached housing sales on the west side of Vancouver in Fall from the past 10 years and suggests this is exactly what is about to occur (click on image to enlarge).

Says Roy:
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.


Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Wednesday, September 26, 2012

Rear View

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.


Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Tuesday, September 25, 2012

Is October shaping up to be a truly scary month? One Realtor reports sales volume in September down as much as 77%

The big news early in this final week of September is that new home sales in Toronto have plunged 70%.

Pundits are calling the sales results the worst for the month of August EVER!

The collapse from July's sales was a stunning 45% in the big smoke.

As Garth Turner noted yesterday, the results are "scaring the poop out of an industry which has 93,000 condos being planned, marketed, constructed or completed. Supply is about to drown demand."

But if you think those numbers are scary, check out some of the data for September in Vancouver.  

For an industry who has spent the last year ramping up to deliver a huge spasm of inventory to our market, they are truly frightening.

The numbers come to us courtesy of Shaun Kimmins, a downtown condo realtor.

Kimmins offers us the following table which illustrates 2012 versus 2011 sales volumes in six areas and two different property types, over two time periods (click on image to enlarge):

These statistics tell us that the year-to-date sale volume in West Vancouver is down 51%, in Coal Harbour it's down 44%, and in Vancouver West it's down 43%.

But the year-to-date figures are nothing to compared to what has gone on in the last 30 days.  

In the 30 days ending September 18th, sales in Coal Harbour are down a staggering 77%, in West Vancouver 63%, and in Vancouver West 62%.

Kimmins says the collapse is indicative of the vaporization of HAM (Hot Asian Money).
"These are generally-speaking the highest-priced areas and those that have enjoyed significant price increases largely due to the influence of wealthy “offshore” buyers, in particular, investors from Mainland China. Areas containing more affordable homes, such as Yaletown with its many small condominiums, have fared better as they’re driven more by local incomes and affordability and less by international investment."
The question now is: will prices follow the collapse in sales volume.  Kimmins notes:
"The good news for potential sellers is that so far, prices have not followed in lockstep with volume. Luxury home/condo prices tend to be sticky on the way down and they are certainly showing resilience again in the light of this slowdown in volume. That said, prices typically lag volume so where prices are headed is anyone’s guess. CBC Canada has been running segments on The National (nightly news) that suggest prices are set to follow in time if volume remains low. Predictions range from a USA-style housing collapse to a continuation in price softening."
What was it that realtor Ian Watt said yesterday? "Vancouver is overpriced."

Imagine prices driven by local incomes and affordability? Scary indeed!


Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Monday, September 24, 2012

It isn't mortgage rules bringing down real estate. Vancouver is simply overpriced.

Cam-car realtor Ian Watt comes out and says that it's more than mortgage rules that are bringing down prices in Vancouver Real Estate... Vancouver is over priced - simple as that.


Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Sunday, September 23, 2012

Speaking of rising household debt...

Yesterday we posted about CTV squaring off Garth Turner vs Sommerville/Pastrick over the topic of a real estate collapse over rising household debt.

It's not a theme exclusive to Garth Turner.

In fact CBC was, on the very same day, discussing that very topic.

Reporter Neil MacDonald (pictured above) was describing how a US style housing nightmare could hit Canada and how Canada resembles a slow motion replay of the American crash.
Stories are now routinely surfacing in the Canadian media suggesting collective madness when it comes to affordable living. I watched America's nightmare unfold, and it appears pretty evident to me that a sequel of some sort is coming to Canada. So I ran that thesis past Robert Shiller, of Yale University, probably the foremost authority on real estate in America. He co-founded the Case-Shiller Home Price Index and predicted the American collapse in 2005, a year before it happened. "I worry," he told me, "that what is happening in Canada is kind of a slow-motion version of what happened in the U.S."

The worries Shiller was getting at — and the Bank of Canada — is the debt Canadians are carrying. Contrary to Sommerville and Pastrick, both Carney and Shiller agree with Turner that rising household debt is a serious threat.

Household debt in Canada has grown by leaps and bounds. In the early 1990s it was a manageable 75% of household income. Today it has ballooned to 150%. That's just about exactly the level Americans were at when everything imploded there in 2006. Worse, there are concerns about the way the debt is concentrated.
As the Bank of Canada has been pointing out, Canadian debt is disproportionately concentrated in the most vulnerable households, defined as those devoting 40% or more of household income to paying interest charges. That means those households are extremely sensitive to any sort of shock — be it a rise in interest rates, a drop in home prices, or, worst of all, job loss. The central bank's analysis suggests that if interest rates rise to 4.25 by mid-2015, fully one fifth of all Canadian debt would be held by those households least able to finance it.
Don Drummond, a former chief economist of the TD Bank, says that's "rather scary."

Robert Shiller says;
"People are investing in real estate that is tough for their budgets because they think it will make them rich, and that can continue only as long as [prices] keep increasing. "When they stop increasing," he says, people back off, and the bubble then collapses. "So it has its own internal dynamic."
And it's that internal dynamic which Turner was warning is the trigger which is starting to send values cascading down today.

Of course who are you going to believe? The likes of Garth Turner, Mark Carney, Don Drummond and Robert Shiller?

Or a man you makes his living teaching university courses in Real Estate Finance and depends on a growing real estate market for his academic income?

Not really a tough call to make now, is it?


Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Saturday, September 22, 2012

Are we heading for a Cataclysmic Correction? "That's bunk", says Sommerville

The war of words is heating up in Vancouver's housing bubble.

Yesterday it was CBC's profile of Vancouver and today CTV picked up on the story.

Former Member of Parliament, and noted critic of the Canadian housing bubble, Garth Turner was profiled on CTV with his warnings about our overblown Vancouver Real Estate.

CTV told viewers that Turner's message was simple: Metro Vancouver's real estate market is about to collapse.
"I hope people are listening. This message needs to be heard. Sales in August were pretty awful and they continued to deteriote through September. But you know what? This is going to be a year or two or three before we hit bottom. And I think the market could lose 30 or 40% of it's value."
To balance Turner's warnings, CTV turned to the resident market defenders we have come to know and love the last few years: Tsur Sommerville  - Associate Professor, Real Estate Foundation Professorship in Real Estate Finance; Director, UBC Centre for Urban Economics and Real Estate (As one VCI contributor said... can we possibly use the term 'real estate' any more often in a title?) and Helmut Pastrick, Chief Economist for Central One Credit Union.

CTV tells us these local economists are shrugging off suggestions that our real estate market is setting itself up for a collapse.

Our buddy Sommerville doesn't mince words as he tries to deflect the rising angst about the worsening market dynamics by attacking Turner directly.

"He's being saying this for like four or five years. So if you keep saying this then possibly one time you could be right and then you get to be a genius."
Oh? What are you saying Tsur? That the reality is that - at some point - the market is going to collapse 40% in value and that it's a no brainer Turner will be right if he keeps repeating this mantra?

It begs the question, if you believe the market will collapse by 40% at some point, when do you think that will occur?  But I digress.

As for suggestions that the market collapse will be triggered by rising household debt, Sommerville is even more blunt:
"That's bunk. In order to get dramatic change, dramatic drops in housing markets, there has to be... the market has to be pushed."
And rising, unsustainable household debt isn't the lever that will push the market?

Next we cut away to Helmut Pastrick to pick up the theme dismissing a possible collapse as a result of rising household debt:

"It could only be the result of a major economic recession, a downturn, or perhaps a financial crisis, a political crisis, typically outside of BC's borders."
Garth Turner counter's that our region is so overvalued, the outside forces Pastrick refers to aren't needed.
"The world doesn't need to change, the ground doesn't need to shift, interest rates don't need to pop up to have a cataclysmic correction."
CTV then quotes several 'average' people and captures them in quintessential denial that any such  collapse is possible. The whole dilemma is summarized as divergent opinions common to the spectre of real estate.

But the mere fact bubble busting news is now common place on the nightly media and that gloomy sales statistics are undeniable means it is clear the desperate fight for market perception is ramping up to new level

If you want to see the full CTV story, it could not be embedded. You can watch it here.


Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Friday, September 21, 2012

CBC National: Vancouver Housing - Bubble or Bust


Last night on CBC's The National, Vancouver's overheated market was profiled.  Above you can watch the full segment.

As you watch it, however, you might be interested in this update to the story.

One of the key interviews is with Philip Chan, a realtor who also developed and built a house at 2575 West 7th Avenue in Vancouver which he currently has for sale.

Chan is trying to sell a new 1,700 square foot unit in this house which is part of a triplex. Originally the unit was listed for $1,790,000.

As the CBC piece outlines, Chan cut the asking price to $1,570,000...

... a price cut the National notes amounts to a drop of 12%...

Chan describes the $200,000 price drop as an adjustment, a classification CBC pounces on as a "sugar coating which attempts to cover the reality that prices are tanking".

Chan disagree's and argue's that it can't possibly drop much more.  The story then cuts away to Garth Turner who explains that the market can - and will - drop a lot more.

At the end of the piece, CBC tells you about a confident Philip Chan who doesn't believe the market can drop much more below the 12% it already has for his property.

What the story doesn't tell you is that Chan's property has in fact already dropped - a lot more.

As you can see here, the property's asking price has been cut significantly below that $1,570,000 asking price and is now on the market for $1,373,000...

Even more interesting is the fact this lower price is not recent.  As noted on Observer's excellent website Vancouver Price Drop, this property was profiled in the 17th position in the Observer's Weekly Drop segment for September 10th.

At the end of the CBC segment (and what they described was a 12% drop in the value of his property), Mr. Chan is quoted denying the market can drop much more.  He asks, "how much more can it drop?"

Well... that drop is now 23% and still no buyers in sight.

Why CBC was hesitant to profile how dramatic the collapse is becoming is unclear.

But one thing you can be sure about is that there is no doubt Mr. Chan is a lot less confident now than the CBC story would lead you to believe.

(hat tip s Says on VCI)


Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Wednesday, September 19, 2012

Transcript of full Canadian Business Magazine article: Canada's Housing Crash Begins

Last Saturday we posted excerpts from an article in Canadian Business Magazine proclaiming "Canada's Housing Crash Begins".  Along with the title, a link to the article was posted.

Problem is that link now comes up dead (as many faithful readers have pointed out).

Fortunately the article is still in the public domain and is still available. Here is the entire article, posted here for posterity.


Canada's housing crash begins

By Joe Castaldo  | September 14, 2012

(Photo: Sam Javanrouh)
In just one year, Vancouver house prices have dropped by 12%, and unit sales are plummeting in both Vancouver and Toronto. How the meltdown will play out this fall
Last spring, Keith Roy noticed his phone wasn’t ringing so often. The Vancouver real estate agent typically booked at least 10 showings a week for the properties he sells in the city. But requests gradually slowed to a trickle. Something was up. His suspicions were confirmed as he watched the market data roll in. On the desirable west side of Vancouver, which Roy considers a bellwether for the region, home sales fell and listings rose. This continued for four straight months. In July, Roy took to his blog to issue an unusual proclamation for a real estate agent: anyone thinking about selling should cash out now. By then, Roy had even sold his own home, convinced it was about to decrease in value. “This is Econ. 101,” he says in an interview. “Supply is up, sales are down. Prices will adjust.”
Roy’s post, which he edited after offending a few realtors, should be viewed with some skepticism. It does, after all, encourage potential sellers to call a real estate agent—and hey, why not call Roy? But he may be right that the Vancouver market has peaked. In August, the number of sales in Greater Vancouver fell 21.4% from the previous month, after dropping 11.2% in July and 17.2% in June. The Real Estate Board of Greater Vancouver chalked it up to a “summer lull,” but the numbers suggest a trend that can’t be dismissed as simply seasonal. Last month, unit sales were the lowest for any August in the past dozen years, and nearly 40% below the 10-year August norm. Even more worrying, the average home price in Vancouver is now down more than 12% from a year ago—a worrying sign for the country’s priciest city.
People have been predicting a crash in Vancouver for years, of course. What’s different now is the growing number of trends suggesting its imminence. The poor global economy is souring foreign investors’ appetite for expensive property overseas. The federal government, meanwhile, is trying to tame the market by tightening mortgage lending standards and warning the public at every opportunity that Vancouver is a risky city for buying real estate. Interest rates are still low, but the Bank of Canada keeps promising to raise them, which would quickly lower affordability. All of which leads David Madani, an economist with Capital Economics, to conclude: “The Vancouver market has cracked.”
Vancouver won’t be the only one. The next market to crack will be Toronto, starting with the city’s overheated condo segment. Overall sales of existing homes were down by 12.4% this August over last, and condo sales have fallen by double digits for three months in a row. The pre-construction condo sector is also weakening, with sales down 21% in the second quarter. Overbuilding is a major concern: a record 52,695 units are currently under construction, with another 35,000 in the pipeline, a rate that economists say is well ahead of demographic trends in the region. Investors also play a big role in the Toronto condo market, raising concerns that waves of them will try to cash out at the same time.
For months, policy-makers have expressed concerns about the country’s two biggest real estate markets. Now it’s clear that trouble is ahead. The weakness in both cities marks the start of a reversal in the long boom for Canadian real estate. The doubling in home prices that happened over the past 10 years is not likely to repeat itself. Royal LePage even conceded in a July report that the Canadian housing market has reached a “tipping point.” Forecasts from private economists vary widely. Some are calling for relatively flat prices, while Madani at Capital Economics predicts a 25% decline in Canada’s major cities over the next few years. No markets will feel the slowdown more than Vancouver and Toronto.
What’s surprising about the weakness on the West Coast is the absence of any change in economic fundamentals, such as a spike in unemployment, to explain it. The Vancouver market was cooling even before the latest round of mortgage tightening by Ottawa, which took effect in July.
Nevertheless, theories abound. One explanation favoured by realtors is that foreign investors, particularly those from China, are pulling back. Though there has never been hard data on the presence of wealthy Asian investors, enough anecdotal evidence exists to suggest they have played at least some role in the multimillion-dollar home segment. There are a few reasons why their enthusiasm could now be dampening. China’s economy itself is slowing down and its government imposed new rules that make it more difficult to move money out of the country. “People are much less bullish right now, especially people overseas,” says Brian Persaud, a Toronto real estate agent and investor. “They’re just getting wisps of the story from the big newspapers about how crazy the Toronto market is. So they’re holding off.” In Canada, the banks are also taking a much closer look at the income and assets of wealthy buyers before issuing huge mortgages, according to Roy. “It used to be if you showed up from China and said you owned a business, the bank would just give you the 80% financing,” he says.
A change in buyer psychology may also be occurring, says Madani. “I don’t think there are enough people now who believe we can continue these outsized price gains we’ve seen over the past decade,” he says. “As those expectations change, potential buyers step back.” With Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney constantly warning about Vancouver real estate, it’s not surprising their pleas for restraint are being heeded.
If this change in mindset truly takes hold, the entire Vancouver market will be affected, not just the multimillion-dollar homes. The city’s real estate has always been mind-boggling to outsiders, but reached a particularly confounding peak this year in terms of affordability. The median house price in Vancouver is 10.6 times greater than the median income, according to urban policy consulting firm Demographia. That makes it the second-most-unaffordable major city on the planet after Hong Kong. The only way to account for the market becoming so detached from fundamentals, in Madani’s view, is a pervasive belief among buyers that prices will keep rising. “Vancouver is far, far beyond what anyone would expect, based on trends in immigration, income or interest rates,” he says. “That’s just not sustainable.”
Of course, easy access to credit is necessary for people to act on their beliefs. Interest rates have been at record lows since the financial crisis in 2008, making it relatively easy to obtain large mortgages. Rates have, in fact, been falling steadily since the 1990s, helping push the home-ownership rate in Canada to a record high of 68.4%, according to Statistics Canada. Household debt has ballooned, whereas wages have not. “If home prices rise substantially above income growth, the only way you’re bridging that gap usually is through mortgage debt,” says Ben Rabidoux, an analyst with boutique research firm M Hanson Advisors.
Some have taken issue with the notion that cheap credit alone is responsible for Vancouver’s exorbitant home prices. Central 1 Credit Union in Vancouver produced a report in June arguing that lack of supply and land constraints explain the pricey local real estate market. As a coastal city, Vancouver just can’t expand easily to accommodate population growth. Rabidoux isn’t convinced by that argument. While he agrees that Vancouver will always command a premium because of its geography, land constraints haven’t exactly impeded construction. Vancouver added one new dwelling for every two additional residents between 2001 and 2011, which is only slightly behind the national average. Secondly, a lack of supply should also push up the average rent in the region. But while the average resale home price has jumped nearly 128% since 2000, rents have risen by just 16.7%, as measured by the Consumer Price Index. “In order to sustain prices at these elevated levels, you need a continuous supply of new buyers willing to take that mortgage debt, and [able to] get it cheaply,” he says. Those buyers may not be forthcoming. Interest rates will inevitably rise, as the Bank of Canada keeps pointing out, and the federal government has instituted numerous changes over the past few years that will make a home purchase more difficult for first-time buyers.
“It seems like Vancouver is past the tipping point,” says Sonya Gulati, a senior economist with Toronto-Dominion Bank. Gulati estimates the market is overvalued by 15% to 20%, and says prices could fall by an equivalent amount over the next two to three years. Rabidoux foresees an even greater decline, perhaps a 30% to 40% fall in average price. The weakness in sales and the rise in inventory is uncomfortably similar to the market drop in late 2008, he says. Back then, the Bank of Canada slashed interest rates and the federal government launched a program to repurchase mortgages from the banks, which sent the housing market rallying. This time, the authorities are taking away support for the housing market. In the past four years, the maximum amortization period for government-insured mortgages has fallen from 40 years to 25. Such tightening makes an immediate rebound unlikely.
While Vancouver took a dive, Toronto has continued to set new price records. But it’s only a matter of time before it, too, slows down, particularly its red-hot condo market. Charles Hanes, a Toronto real estate agent for more than three decades, doesn’t like what he’s seeing today. There has been a big surge in so-called VIP sales events, in which condo developers offer agents and their clients the opportunity to purchase pre-construction units before they go on sale to the general public. Such events cultivate a faux sense of exclusivity and create an urgency to buy immediately, Hanes says. Lately, developers seem increasingly desperate, willing to accept low down-payments and throw in special offers, such as free maintenance for a year, to entice buyers. “That’s a sign the developers know things aren’t rosy. They don’t give anything away—ever,” he says. But what most worries him is that investors are far too exuberant about condos. Typically, investors are concerned about “cash flow,” the money earned through rental income. But prices for new units in Toronto are so high that it’s tough for investors to use rental income to cover the mortgage and maintenance fees and still have something left over for themselves. They’re essentially banking on one thing: price appreciation, which is more akin to speculation. “They’d be better off going to a craps table at Casino Rama,” Hanes says.
The economics started turning negative for new condo investment in Toronto a couple of years ago, but construction boomed nevertheless. There are 343 condo projects under construction or in the sales phase, a record for the Toronto area. (For comparison, there are approximately 20 underway in Chicago.) Over the coming years, more than 87,000 units will be completed, according to research firm Urbanation. The good news is that nearly 80% of those units are already sold. But a large number of those buyers are likely investors who may try to flip their units upon completion. Worse, they could panic when they realize that rental income alone isn’t enough to turn a profit, and flee the market. That would result in an additional supply glut, sending prices down substantially. Signs of oversupply are already showing up. Right now, “people who have bought new condos as an investment are having a difficult time selling them once the building is ready,” says Toronto agent Brian Persaud.
Anticipating what investors will do—and even how many of them are active in the market—is tricky. Don Campbell, founder of the Real Estate Investment Network, a membership-based education and research outfit for individual investors, says those in his network who have purchased new condos tell him they’re financially sound enough to deal with monthly losses until prices rise and they can make an exit. Campbell himself is dubious. “They’re going to be disappointed because the market is not going to perform as well as it has over the last four years,” he says. “The incredible number of units that are going to be coming on the market over the next little while will really start to put a damper on the average sale price of the new condos.”
Not everyone shares these concerns. Royal Bank of Canada put out a report in July that argued the booming condo market “does not imply a bubble.” According to RBC, the influx of new residents to Toronto over the next few years will be enough to populate the tens of thousands of condo units. A “structural shift” in housing is also happening. Few single-family homes are being built in the city today, which means young families will have to turn to condos.
There are caveats to both arguments. Immigration to Toronto is slowing, with newcomers increasingly choosing to settle outside the traditional destinations of Toronto, Vancouver and Montreal. And the average condo size in Toronto is actually shrinking, making such units less attractive to families.
Toronto prices are still on fire, but even there, some buyers are noticing a slight cooling. Jean Farrugia and her boyfriend have been house hunting since spring, and she’s noticed that recently selling prices have drifted down closer to asking prices. “Some people are buying for $5,000 or $10,000 over asking, whereas in the spring time that was nearly impossible to find.” Farrugia believes that rising interest rates will drive overextended owners to sell. “And I think that will cause prices to go down.”
What’s happening in Toronto and Vancouver today marks the start of a much broader slowdown in housing. Affordability is becoming an issue in other cities, especially Montreal, Kelowna and Abbotsford, B.C., according to Demographia. Nationwide, the average home price is 5.6 times the average income, says Madani, whereas the norm stretching back to 1975 is 3.5. He admits the price-to-income ratio is not a perfect measure, but says it’s one clear warning sign the market is overheated. Prices ultimately have to fall in line with income. The federal government’s mortgage-tightening efforts will cool the market further, and borrowing costs will rise at some point, slowing demand in a country where the average household debt is already more than 150% of income.
We’re starting to see the signs of a cool-down already. National home sales are falling back in line with the 10-year average, and the Canadian Real Estate Association reported the average home price fell 2% in July compared to the same period the year before. Some markets will no doubt perform quite well over the coming years, as real estate is inherently local, but they will likely be bucking a national trend. Scotiabank estimates Canadian home prices will fall 10% over the next two to three years, followed by a long period of modest gains.
After past housing booms in Canada, the subsequent hangovers lasted many years. The average price in Vancouver fell by more than 20% in real terms between 1995 and 2001 after a steady run-up. Real home prices fell by the same amount during the 1990s in Toronto. Scotiabank, for one, isn’t forecasting anything that dramatic, but even a modest slowdown will affect the economy. People who buy homes spend more on home-related items, and the housing sector has contributed significantly to the country’s economic growth over the past decade. That support would largely disappear. A U.S.-style crash is not on the horizon, but that doesn’t mean Canada won’t feel some pain.
A price adjustment may sound scary, but some say it’s necessary to restore affordability to the housing market and stop Canadians from piling on debt. “We’ve had a very good run in housing over the last decade,” Madani says. “At some point, it just runs out of gas.”

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Tuesday, September 18, 2012

And the walls, they came a tumbling down.

In our last post we brought you Richmond realtor James Wong's September Real Estate Market Report.

Wong told us that: 
The lack of buying activities and large number of listings continues to exert pressure on home sellers to cut their prices in order to sell their homes. There are many more homes listed at or below their city assessment values. Homes that were sold were ones that aggressively cut their prices, or were sold by sellers who accepted low-ball offers.
Chilling news.

And if you had any doubts about the accuracy of Wong's take on conditions, one has only to look at recent Richmond real estate transactions for confirmation.

Transactions like this one.

This is 7920 Shackleton Drive in Richmond which sold this past week (click on images to enlarge).

Billed as a 4 bedroom, 2.5 bathroom, family home, it's 2000 sq ft plus floor plan was hailed as spacious and well kept.  High vaulted ceilings in the living room,  double car garage, good sized east facing backyard and it's location close to Richmond dyke's were all contributors to a property assessment by the BC Assessment Authority as a million dollar home.

Assessed value of $1,010,000 to be exact.

And how did this million dollar home fair in a milieu Realtor James Wong described as so dire that "the only way out of this market is to cut prices… not just 5%, but with much deeper cuts of 10% to 15%?"

Exactly as he described.

Instead of asking above assessed value, the sellers recent ask price didn't even come close to assessment value.

Here you can see this single family home being flogged for $849,000:

And with that discount not working, the asking price was slashed again... this time to $799,000.

As we said, 7920 Shackleton Drive sold this past week.

We are told the final price was $765,000 (hat tip VMD and gokou3 on VCI).

From an assessed value of $1,010,000 down to $765,000.

In the words of James Wong, "A real estate down cycle is already in motion. Even a small percentage of these sellers having to slash prices to sell will result in prices cascading downward. Early sellers would consider themselves the smart ones, cashing out long before others."

That cascade has now begun.

The only question now is - how many will be smart enough to cash out before the crash begins to pick up speed in earnest?

The seller of this million dollar home might get $750,000 now... but in a few months they might well be lucky if they fetch much more than $650,000.

It's all a question of how quick sellers will stampede for the exits? For in this game... holding out might mean you might only be able to get $550,000 by next Summer.


Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Sunday, September 16, 2012

Richmond: "No signs of market getting better. A real estate down cycle is in motion" - Realtor James Wong

Richmond, once the darling of the Hot Asian Money (HAM) crowd now seems to be ground zero the for the real estate crash in the Lower Mainland.

Richmond Realtor James Wong is out with his September 2012 report on sales in Richmond and it seems to get worse with each passing month.

Wong's September Report offers a veritable cornucopia of quotes...
August home sales in Richmond turned out to be worst than in July and the month before in June. The number of homes sold for the month was 179 which was 17% lower than the previous month sales of 216 homes. Active listings for detached homes, townhomes and condos/apartments in Richmond at the end of July, 2012 totalled 2,677 units, was marginally lower than the previous month’s listings at 2,700 homes.

August was another disappointment for many home sellers who were hopeful of selling their homes. Homes that were sold were mostly found to have aggressively cut their prices, or sellers accepting low-ball offers.

The real estate market in Richmond deteriorated further in August. The supply of homes in Richmond reached 12.51 months compared to the previous month of 11.02 months of supply. The lack of buying activities and large number of listings continued to exert pressure on home sellers to cut their prices in order to sell their homes. There are many more homes listed at or below their city assessment values.

There are no signs of the market in Richmond getting better. With the onset of the seasonally slower months in the fall, it is unlikely the last 3 months of 2012 will bring any relief to home sellers who are desperate to sell. Many homes that were priced according to the market, failed to generate much interest from buyers. Many of the homes that were sold were homes that offer better values, or priced significantly lower than comparable sales in the past 3 months.

Market sentiment is now working to reverse the gains in home prices. Condo prices in Richmond had stagnant for more than two years. Similarly, townhome prices remained at about the same level a year ago. For sellers who have to sell, the only way out is to cut prices… not just 5%, a much deeper cut of 10% to 15% is required.

A prolonged period of low sales, and declining home prices could take many years to play out. Declining home prices will erode seller confidence, resulting in more motivated home sellers to cut prices to sell before home prices drop further.

A real estate down cycle is already in motion, and just like from 1995 to 2001, the real estate market in Richmond will have a persistent high level or homes for sale, and few buyers willing or able to buy due to tighter lending rules.

Richmond detached homes over $1,000,000 are not seeing much buying interest. With total active listings of 721 and average sale around 26 homes the past 3 months, there are 26 months supply of homes. For detached homes over $1,500,000, there are currently 366 homes for sale. With an average past 3 months sale of 12 homes, this translates into 30 months supply of homes.

Even a small percentage of these sellers having to slash prices to sell, it will result in prices cascading downward. Early sellers would consider themselves the smart ones, cashing out long before others!

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.