Richmond real estate agent's response to the latest wave of optimism?

One of the biggest frustrations from some market watchers has been the failure of the market to 'crash' in spectacular fashion.

But if you have followed this blog for any length of time you have watched the progression.

First it was the outlining areas of B.C. Then it was Vancouver Island.

All last year we charted the periphery of the Lower Mainland, particularly Whistler. And this year it started here with the Fraser Valley and Richmond.

And now, within the Lower Mainland, it is the less desirable properties getting hit the hardest.

Those in the real estate industry tell you there will be no 'crash', just a slight correction - a 'flat market'.  Most significantly, prices will not come down.

But if there is no danger of that happening... why is CAAMP going to Ottawa to lobby for a return to loose mortgage regulations?

The answer is simple... for the bubble to grow there has to be access to easy credit.  Without it, the market will continue to wither.

(And for those who are frustrated at the slow pace of the decline, tomorrow we will hi-light how the pace of that decline has been more significant than most realize)

Real estate agents know the reality of this situation.  And once again, it is Richmond agent James Wong who succinctly summarizes the situation.

As Wong notes, the decline in listings is not a sign the market is strengthening... it is expected at this time of year:

The improvement in the Months-of-inventory (MOI) in Richmond from 12 months to 10 months was due to the 10% reduction in total listings. Many sellers either pulled their listings off the market or allowed their homes expired. The decline in listings is expected to continue for December. Seasonally this is not the time for home sellers to list their homes for sale.

 Sales are still abysmal and any sales that occur, happened because sellers cut their prices:

Sales in Richmond for November at 207 homes were slightly lower than the previously month sales of 225 units. Price discounting continued as motivated sellers tried to attract buyers. 

Will sales improve in the new year?

Many people in the real estate industry are hopeful that home sales will improve after January, 2013. An up-stick in sales can be expected in spring next year, but the overall market sentiment will likely remain subdued.

And why will it be subdued?

There is a marked difference for 2013 and 2012 as the number of active listings at the beginning of 2012 was around 1,655. The supply in 2013 is expected to take off from a higher base at around 1,950 homes by January 01, 2013. Many more new listings are expected to be added to the market after the new year.

What will the flood of listings do to the market?

The large number of listings in Richmond will result in more sellers lowering their prices to sell their homes. Current market sentiment is not expected to change much. Buying activities are likely to remain subdued. Many homes in Richmond are expected to sell below their city assessment values.

More price erosion can be expected as many home buyers are expected to stay on the sideline. Majority of these buyers know that it is to their advantage to wait for the market to continue its correction. Buyers when making offers, typically test sellers’ motivation by making low ball offers.

Why all the low ball offers?

The market situation for Richmond detached homes remained depressed. There are currently 540 homes for sale at prices above $1,000,000. With average past 3 months sale around 33 homes, the MOI is at 16.36 months.

This is a slight improvement from 17.88 months in October, partly due to expiry and 10 homes reducing their prices to below $1,000,000. There are 293 homes over $1,500,000 in Richmond. At an average sale pace of 12 homes the past 3 months, this translates into 24.42 months of supply.

2013 will be another difficult year for Richmond.

Wong summarizes exactly what the problem is... a problem CAAMP is also worried about:

The absence of home buyers, dampened market sentiment, and tightened lending rules are expected to continue into 2013.

The current MOI though better than the past 2 months, will likely be reversed when more new listings hit the market the next few weeks.

There are no signs of the Government changing or relaxing the current lending directives to Canadian Banks. Richmond’s market for 2013 is expected to have persistently high number of homes for sale and below average buying interest.

All of which is adding up to create the perfect storm in 2013... a reality real estate insiders are privately very afraid of.

Speaking of dealing with the current market dynamics, have you seen real estate agent Owen Bigland's reality check for seller's when it comes to listing you home for sale in today's market?

(video posted 2 days ago):

"Let's talk about pricing. One of the biggest mistakes people make, or seller's make, is they price the home according to their needs as opposed to what the market is dictating.

In other words they say we paid $800,000 for the home 3 years ago, we need to net $800,000 today.

Well, unfortunately, the market doesn't work that way. A home is priced based on the current fundamentals."

And the current fundamentals say you need to lower your expectations. What a paradigm shift from only 12 months ago.

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Will this be the next Richmond property that sells for -50% below assessed value?

Yesterday we told you about a condo in Richmond which sold for -50% below it's assessed value.

It was Unit #204-3411 Springfield Drive.

There's another court-ordered sale in the building, this time it's Unit #125. 

This one seems to be a little better looking than #204, which probably explains why it's assessed at a higher value:

#125 is assessed at $289,400.

As we mentioned with #204, there are no special assessments pending in this older building (built 1972) and amenities do include an outdoor pool.

Like #204, this one is a 3 bed, 2 bath unit.  However #125 is larger by 140 square feet (1345 vs 1205). So will #125 fair better than #204?

Assessed at $289,400, the current asking price is $195,000 - $94,400 and 33% below assessed value.

Will this unit sell for 40-50% below assessed value now that #204 has sold so low?

Meanwhile Scotiabank has declared the threat of a housing collapse over saying the Canadian housing market appears to have achieved "a soft landing"... so far.

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Richmond records a property sale at -50% below assessed value.

Last Thursday we asked: How low will it go?

#204-3411 Springfield Drive, a foreclosure sale in Richmond, had dramatically dropped it's asking price. 

Listed as a spacious 3 bedroom, 2 bath, end unit condo overlooking the courtyard, it has languished on the market since May.

Assessment value: $265,900.

The asking price two weeks ago?: $185,000... 30% below assessed value.

Last Thursday another $45,100 had been chopped off that asking price and was now listed for  $139,900

(click on image to enlarge):

That's $126,000 below assessed value or 47% under assessed value.

In the comments section we were urged not to get excited because this was a marketing strategy.  Wait until the offers came into court and then see what happens. (the argument being a bidding war in court would push the value up significantly from that 47%  below assessed value listing price).

Well... #204-3411 Springfield Drive has posted at sale now (hat tip: bopeep @ Vancouver Price Drop).

No bidding war, though.

It sold for $135,000.

That's $4,900 below the last listing price and a full -50% BELOW assessed value.

Good thing we waited to see what would happen in court because now we know that Richmond has officially recorded a sale of a property at -50% below assessed value.  

For those who complain that these dramatic drops only represent the 'shit properties' (as one contributor observed yesterday), foreclosure court in Richmond has another sale on Monday.

This is #135-8880 Jones Road in Richmond.

The listing describes the property this way:

North-West corner large one bedroom with windows on 2 sides. Huge sundrenched 300 sq ft patio, gas fireplace, insuite laundry. Less than 10 steps to elevator & courtyard. Central location, just 5 blocks away from bus stop & 2 blocks from shopping mall. PCDS dates October 26, 2012. Parking stall #220, 2 small pets (cats or dogs) allowed. Rentals restricted to 15 currently at maximum. Priced over $50,000 below city assessed value for immediate sale.

#135-8880 Jones Road is assessed at $249,000.

It posted a sale in foreclosure court on Monday for $195,000 ($5,000 below the listing price, a listing price which was $50,000 below assessed value).

Was the low asking price part of a strategy?  If so, there were no bidding wars in foreclosure court on this property either.

Now this sale price is only -22% under assessed value.  Buy think about that for a moment.  Only -22% under assessed value?

Let's recall that it wasn't even 12 months ago we were telling you about properties in Richmond engrossed in bidding wars and selling for $200,000 - $300,000 over asking prices (which in themselves were hundreds of thousands over assessed value).

#135-8880 Jones Road is the new reality.  As bopeep reminds us, this condo sold in 2007 for $215,000.

This condo may have "only" sold for 22% below assessed value, but it sold for $20,000 less than what the condo exchanged hands for in 2007.

That's five years of so-called real estate appreciation wiped out in a heartbeat.  The seller LOST $20,000 in the actual transaction, not to mention five years of condo fees, interest on mortgage, realtor transaction fees and lost income by not investing elsewhere.

Doesn't real estate always go up?

The melt gathers momentum.

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We now have an entry in the -60% below assessed value category

Even I have to admit that it's a surprise to see an entry in the -60% below assessed value category this early into the collapse of our housing bubble. I wasn't expecting the first one until at least late spring of 2013.

Naturally it is another property with 'issues' that breaks this barrier.  As we have noted before, these are the properties that will lead the way.

That doesn't mean their dropping value isn't impressive. A year ago it would have been unthinkable to even conceive they would listed for 25% below assessed, let alone -30%, -40%, -50% and now... -60%.

And today's entry is a new one for us.

Courtesy of Observer and Vancouver Price Drop, this is 28241 108th Ave, Maple Ridge (click on image to enlarge):

As the description notes, this 16 acre parcel with a slight slope sits in an area of nicer homes.

It only has a 1 bedroom, 1 bathroom 1,200 square foot structure on it, so the interest is - obviously - in the 16 acres of land.

This is a court ordered sale. And not a simple foreclosure, either.

As the listing notes, you can't get a mortgage for this property because the site is in violation of Ministry of the Environment, the Agricultural Land Commission and the District of Maple Ridge's Regulations and Bylaws because the property has been used as a dump site.

But for those who are liquid enough to take advantage (and can cover the cleanup costs) this property - assessed at $800,000 - is currently listed for $300,000.

Will it get bid up in the foreclosure process?

Or is this another property which will dance the price limbo to see how low it will go?

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A 'Softening' Market

It's the second Sunday of December and time to trim the Christmas Tree.

But before I settle down for some steamed eggnog and an evening of holiday memories, I'll quickly type out a Sunday missive for you.

Did you get a change to see yesterday's post about the West Van home that was originally listed for $4.2 million, was assessed at $3.4 million and  just sold for $2.5 million - 27% below assessed value ($912,000 below) and $400,000 less than what the seller paid for the property in 2009?

Keep that in mind as you check out this treatise from real estate agent Mike Stewart, posted in the Vancouver Observer on Friday:

Vancouver real estate market crash? Not so much...

by Mike Stewart Posted: Dec 6th, 2012

For quite some time, many in the media have been predicting doom and gloom for Vancouver’s real estate market. The predictions are for a flood of new listings and falling demand; the reality, though, is it’s just not that bad.

The November 2012 REBGV statistics confirm that supply is contracting and Sellers are actually pulling out of the market, as illustrated by the large drop in the amount of properties listed for sale across the region.

A common assumption among more alarmist and less informed commentators is that recent softness in the Vancouver market is the beginning of a huge drop in prices. They contend that deeply indebted sellers will be forced to sell and buyers will not be able to buy. Many predict or allude to Canada experiencing a housing crash, not unlike what happened in the United States.

Thankfully the data is proving these theories wrong. Sellers in Vancouver are sitting on a significant amount of equity (value in the home after subtracting the mortgage balance). Many property owners who have been trying to sell have decided to take their properties off the market to wait for better market conditions. They are doing this because they can. This suggests we are not seeing panic in our current market.

Unemployment remains relatively low in Vancouver, interest rates are at all time lows, mortgages are easy to get, and the economy in BC is performing quite well.

This all means that buyers can and are able to buy property. Many are waiting to buy, but Vancouver is not in a situation where buyers cannot buy.

What all this means for buyers and sellers is that the Vancouver real estate market is softening gradually. Buyers are able to negotiate a far better deal than they could have 6-18 months ago. Sellers are able to get their property sold, though it may take longer and they may have to concede a bit more in negotiations than in previous markets.

Sorry doom and gloomers, the market is just not crashing.

Mike Stewart is a Vancouver realtor

Don't be too hard on Mike, he's actually bang on with that assessment.

The market is softening gradually.

This time last year pundits were adamant that the market 'might' go down 5% - 10% at best.

Now listings with asking prices below assessed value are commonplace.  In Richmond real estate agents tell us you must 10% - 15% below assessed value if you even want to have people look at your house.  Many Richmond single family houses are selling 25% below assessed value.

Listings 30% below assessed value are popping up.  Sales 30% below assessed value are not surprising anymore.

When all is said and done, people will look back and say that those lucky enough to have gotten out now (at 30% below assessed value); they were getting out just as the market was 'softening'.

Stewart is right, the market is not crashing.

The real crash is yet to pick up steam.

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West Van house sells for almost 30% below assessed value

On Thursday we talked about the current R/E media theme, specifically that Vancouver homeowners are pulling properties off the market rather than settle for lower prices.

The free-falling Vancouver housing market shows no signs of reversing its slide with the latest figures showing November sales 30.3% below the 10-year average for the month.

The Real Estate Board of Greater Vancouver now says consumers have begun pulling their homes off the market rather than settle for a lower prices in what is still the country’s most expensive market to buy a home... Home sellers appear more inclined to remove their properties from the market today rather than lower prices to sell their properties.

Toss in supporting articles by industry 'experts' about how prices simply 'won't be coming down' and you can see the framework for the current campaign to mould the mindset of the market.

Never mind that there are Richmond homes selling for more than 30% below assessed value.

Never mind that there are a number of Surrey properties listed for more than 30% below assessed value.

Heck, we've even seen a westside Vancouver home that sold for more than 30% below assessed value.

Instead we are treated to a media campaign that attempts to leverage the traditional December decline in listings as proof positive prices won't decline, that owners would rather pull their homes off the market than be insulted by below market offers.

Of course that doesn't mean the collapse doesn't continue.

Allow me to introduce you to 3529 Mathers Avenue in venerable West Vancouver:

This 5 bedroom, 8 bathroom (eight bathrooms? Was this place built for the incontinent?) home is 5,530 square feet in size.

Here's the way the listing described the home:

Situated on a lush south-facing property in sought-after West Bay, this magnificent home showcases 3 levels of living and features many exciting attributes including 5 spacious ensuited bedrooms, a breathtaking master with spa-like ensuite, spectacular gourmet kitchen with fantastic island, breakfast bar, butler’s coffee centre, adjoining eating area and large family room with roaring fireplace. 

Additionally, this home features a wonderful living and dining room for entertaining, rich harwood flooring, private den, exercise room, pre-wired media/theatre room, wine cellar, rec room, oversized 3 car garage, heated driveway, and home entertainment centres. 

All rooms open out through ‘eclipse’ doors to lush, manicured landscaping, private sundrenched patios and a surrounding entertainment paradise including an outdoor barbeque centre, bubbling hot tub and timed rinse shower. 

This fabulous custom home captures sparkling ocean views of Stanley Park and Vancouver's Inner Harbour, Point Grey and the West Side. Walking distance to all local amenities, McKechnie Park, schools and beaches, this sensational residence offers meticulous craftsmanship, impeccable quality, a practical layout and modern amenities making this the perfect family home!

Now 3529 Mathers came onto the market in January 2012 with an asking price of $4,200,000.

Priced with bubble conditions in mind, that original asking price was almost a mil over the assessed value - which is $3,412,000 (click on image to enlarge):

Of course, reality intervened on these optimistic selling dreams.

Which is okay, because the sellers bought the place in 2009 for only $2,950,000, they had room to move on that $4.2 million asking price.

And move they did.

Just like the ones who sold in Richmond and in Vancouver for 30% below assessed value, the owners of 3529 Mathers were prepared to move below assessed value too.

3529 Mathers sold this week... for $2,500,000.

That's 27% below assessed value and $400,000 lower than what they paid for it in 2009!

Seems they didn't get the memo to be offended by lowball offers and then pull their listing so they could wait to get slaughtered in the Spring.

If this house sold for $912,000 below assessed value now, will 2013 bring us the first homes that sell for over $1 million below assessed value?

Clearly this seller thinks so... and he didn't want to be one of them.

(hat tip Troll @ VCI)

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Fri Post #2: America's $16 Trillion Debt visualized in $100 dollar bills

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Friday Post #1: Macleans warns about the Boomer Trigger

Back in March we talked about the Boomer Trigger.

Last month the Bank of Montreal (BMO) issued a warning about the danger to real estate and retirement plans the phenomenon represented.

And now Macleans bring the Boomer Trigger to the forefront of public consciousness with an article this week by Stephen Gordon titled: Attention boomers: Why demographics threatens your retirement.

One of the more worrying aspects of population aging is its effect on the prices of assets that many people are counting on to support them in retirement. For example, many Canadians may be planning to sell their house when they retire, buy a less-expensive condo and deposit the difference. The problem is that if a large wave of people retire and execute this strategy at the same time, the flood of new supply on the housing market will depress prices, thus reducing the value of the housing assets that were supposed to finance their retirements.

The run-up in housing prices over the past decade has attracted a lot of attention in this regard and led to worries that Canadian households’ balance sheets might be over-weighted on housing.

In a twist, however, Gordon makes a case that housing isn't as overbought as one might think (and I'm assuming he means outside of Toronto/Vancouver here).

Much of the surge in the 2000s can be seen as a recovery from what was a very dismal market in the 1990s. Housing’s share of household assets did increase sharply during the 2000s, but this ratio still hasn’t recovered pre-1990 levels and remains below what it was in the 1970s.

Gordon then analyzes stocks and see's a danger in that asset from the Boomer Trigger as well:

The same holds for another type of asset: shares. Shares were 10 per cent of household assets for 20 years and doubled to 20 per cent during the mid-1990s, an increase that appears to be driven by higher stock prices, not by an increase in the number of shares held by households.

In the 40 years before the mid-1990s, (real) stock prices fluctuated in what in retrospect looks like a fairly narrow band and without any discernible trend. But something happened twenty years ago that more than doubled share values in real terms. What?

There are many models and theories about the determinants of asset prices, but I can’t think of any whose fundamentals would explain increases of these magnitudes. There was the tech bubble during which fundamentals were abandoned, but the broader indices stayed high and continued to climb after the bubble popped.

The story that makes the most sense to me is demographics. In the mid-1990s, the baby boom cohort started entering its late thirties and forties—prime earning years—around this time, and they began to save for their retirements. This meant buying up assets, either directly (by means of individual plans such as RRSPs) or indirectly (by managers of pension plans). Demand outpaced supply, so prices increased.

But what will happen when the boomers start to retire? Will the process reverse itself, with a wave of selling forcing down prices and wiping out a generation’s retirement savings?

Seems to me that wealthy Asians have a lot of asset buying ahead of them to fulfill the Vancouver dream of supporting our overvalued asset prices.

Riiighhht!

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It's December 7th and we take a moment to remember a defining moment of the last century equal in impact to the one we all remember on September 11th, 2001.

Today is the 71st anniversary of the attack on Pearl Harbor.

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Thurs Post #2: Holy Asset Depreciation, Batman

How low will it go?

Last Friday we told you about #204-3411 Springfield Drive in Richmond. Today we have a significant update.

When we brought it to your attention, it was one of our newest entries in the 30% below assessment assessment club. Here is the screenshot we showed you last week - provided by the blog Vancouver Price Drop

(click on image to enlarge)

The condo is a foreclosure sale.

Listed as a spacious 3 bedroom, 2 bath, end unit condo overlooking the courtyard, it has languished on the market since May.

It has a huge private enclosed balcony off the living room, generous-sized bedrooms, a walk-in closet and 2 piece ensuite bathroom in the master bedroom.

Complex amenities include: sauna, outdoor pool and 2 guest suites. It's locate within walking distance  of the Steveston Public Market, Richmond dyke's, a park, public transit, Manoah Steves Elementary  School and Huge Boyd Secondary School. 

Assessment value: $265,900.

The asking price last week: $185,000... 30% below assessed value.

Well, that asking price has been slashed again - big time. Chop another $45,100 off that price and the current asking price is now $139,900:

That's right, from $185,000 down to $139,900.

It's now $126,000 below assessed value or 47% under that last assessed value.

Will this be the first property in Richmond that sells for 50% below 2012's assessed value?

This complex was originally built in 1972. With weekly drops like the last one, we'll be down to the original selling price before long.

Even if you don't go back that far, the past decade has already been a wild ride for the 'value' of this unit.

(hat tip bopeep @ Vancouver Price Drop)

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Thurs Post #1: The assault on Ottawa begins: CAAMP launches winter lobbying

You can imagine how hard it is for real estate agents right now as they deal with clients who have their home on the market.

Sellers have expectations skewed by a housing boom driven by almost 35 years of of unprecedented debt expansion, a boom which has gone parabolic in the last decade.

Declining prices?  Bite your tongue.

You can just imagine the conversations as agents patiently explain to perplexed sellers that November sales figures are 30.3% below the 10 year average. You just know those sellers aren't receptive to suggestions they should 'adjust their expectations' or 'price their home for the current market.'

So what to do?

Pull the listing, of course.

Massive inventory will be blamed (triggered by those repressive mortgage changes) and the industry associations are almost promoting the factors now.

It's leading to headings like yesterday's in the Province newspaper:Vancouver homeowners pulling properties off the market rather than settle for lower prices.

The free-falling Vancouver housing market shows no signs of reversing its slide with the latest figures showing November sales 30.3% below the 10-year average for the month.

The Real Estate Board of Greater Vancouver now says consumers have begun pulling their homes off the market rather than settle for a lower prices in what is still the country’s most expensive market to buy a home... Home sellers appear more inclined to remove their properties from the market today rather than lower prices to sell their properties.

Toss in supporting articles by industry 'experts' about how prices simply 'won't be coming down' and you can see the framework for yet another cunning media campaign to mould the mindset of homebuyers and particularly sellers.

"Everyone else is pulling their listing and not accepting less... why wouldn't you if you believe it's 'worth this much?"

But the clock is ticking on that strategy.  Come Spring those removed listings will come flooding back with a vengence with sellers anxiously expecting the market to have recovered.

But as we outlined yesterday, there is no government rescue plan being implemented which will facilitate a Spring recovery.

Yet.

Which is why CAAMP (the Canadian Association of Accredited Mortgage Professionals) is wheeling into action :

CAAMP leadership will be talking to bureaucrats and politicians in Ottawa early next week in yet another effort to raise the red flag on tighter mortgage and lending regimes.

“Our Chair, I and our chief economist will have a series of meetings in Ottawa on Wednesday with both public servants and politicians to discuss the findings of our most recent research,” Jim Murphy, president and CEO of CAAMP said. “We will obviously discuss the government’s recent changes along with the need to maintain a healthy housing and mortgage industry in Canada.” 

And what is that 'recent research'?

Last month, CAAMP released its Annual State of the Residential Mortgage Market in Canada report.

They produced surveys which indicated that most Canadians are dealing with the largest level of debt in history very well, thank you.

They have been handling their debts and paying down their mortgages “comfortably.”

More significantly the report raised concerns that the mortgage rule revamp implemented by the government has shut out many first time homebuyers from the market and caused a drop in housing market activity.

[Which is exactly what they were supposed to do]

(There) is a sentiment shared by many brokers who argue that the mortgage rule changes were ill-timed since the hot housing market was already moving towards a price correction.

Mortgage professionals also warned of a possible snowball effect wherein a reduction in activity at the entry level will create difficulty for those who wish to sell their homes and move up in the market, creating a slowdown in upper segments of the housing market as well.

“Our concern today is the number of growing first-time buyers who are now unable to get a mortgage. We worry that this is having a dampening effect on what was already a cooling market, we hope policymakers will give some thought to addressing the needs of this key sector.”

CAAMP is desperate to lobby government to make changes before the Spring market rolls around.  And the organization no doubt feels their chances may have improved with the looming departure of Bank of Canada Governor Mark Carney.

I suspect next week's efforts will be the first of a Winter long offensive.

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What lies ahead? One local real estate agent calls the bottom.

As the news about November's real estate sales circulates in the media, the main emphasis shifts from declining sales to actual prices.

The mantra being pushed is that prices aren't (and won't) be coming down.  We saw that message on November 30th:

"If you've been staying out of the housing market, waiting for a big drop, you might be in for a long wait."

And it's been a theme Tsur Somerville has pushed since early October.

Yesterday it was Eugene Klein, president of the Real Estate Board of Greater Vancouver (REBGV):

November home sales in the Vancouver area fell 28.6 per cent compared with a year ago as what was once the country's hottest real estate market continued to cool.

Despite the sharp drop in sales, the board said the MLS home price index composite benchmark for homes Greater Vancouver was $596,900, down just 1.7 per cent compared with a year ago. The index peaked in May at $625,100.

"Home sellers appear more inclined to remove their properties from the market today rather than lower prices to sell their properties," said Eugen Klein, president of the Real Estate Board of Greater Vancouver.

At this stage of the process, it's no surprise that listings are being pulled to wait out conditions.  And it isn't really surprising that the real estate industry is focusing on the convoluted HPI to dampen the impact of any price drop.

For while the HPI is only down 1.7%, the average detached home price is now down 14% from the February 2012 peak.  Who wants that figure prominently publicized?

Conditions are mimicking what we saw in 2008 when the Financial Crisis started.  As Garth Turner noted, the parallels are eerily similar. 2008 saw a huge drop in sales and the average price started to plummet:

Of course the collapse was resuscitated. "In 2008 a variable-rate mortgage was 6% and a five-year loan was 5.75%. The world fell into a financial... and the Bank of Canada rushed in emergency interest rates. By May of 2009 a VRM had collapsed to just 2.25% – the lowest point in history. With rates almost 4% lower than they’d been months earlier, and mortgage payments slashed by more than half, the collapse in real estate prices and sales was quickly reversed"

The efforts were complimented by the federal government's bailout of the banks through the Insured Mortgage Purchase Program (IMPP).

Not only was the collapse halted, but the bubble blew even higher as Canadians plunged themselves into historic levels of debt:

But as the crack cocaine of cheap easy money has run it's course and the government has started to pull back on those emergency measures, the slide is happening again (despite the HPI only dropping 1.7%):

So as the average price mimics 2008, what divine intervention will occur to see that prices only 'flatline'?

What is going to cause prices to resume their upward trajectory?

The changes to the mortgage rules have frozen out the entry level buyer, the ones who used to be balt o to get into the market with nothing down.

Without their business the market freezes, as Thomas Neal of Royal LePage Estate Realty noted in the Globe and Mail:

While people are still coveting single-family houses, those move-up buyers who already own a condo are more hesitant to purchase a house because they don’t know how long it will take to sell the condo. That’s a change from the dynamic of the last eight years or so when condo owners would often list the unit first, reap more than they expected in a bidding contest, and then in turn funnel that money into winning the competition for a house.

“Now they’re not buying first; they’re selling first,” says Mr. Neal. With that shift, he explains, the number of buyers out there is cut roughly in half.

Enter the current industry campaign: "buy now because prices won't be going down."

I have a feeling this theme is going to ramp up over the winter months before the Spring re-listing begins in earnest:

It’s a market that’s winding down in the dwindling days of November. Few new listings will arrive on the market in December. Those sellers who do list now have likely already purchased another property.

“If you don’t have to sell I think you’re going to wait until the spring,” says Mr. Neal.

As for those sellers whose condos and houses are already lingering on the market, Mr. Neal predicts many of those people will be taking down the “for sale” sign by Christmas.

“People who don’t sell in December will be back out on the market in February,” he says.

And when they come back in Spring, they want to hear that there will be people to buy their homes.

Perhaps that's why some bearish agents are starting to change their tune about market conditions.  Let's face it, who wants to list with an agent who tells you it's only going to get worse.

Perhaps this explains the about-face in attitude from real estate agent Andrew Hasman.

In 2011, when prices were going crazy on the west side, he was calling the market 'unhealthy' and warning about the consequences:

"The local person is completely out of this market," he said. While skyrocketing prices have made business good, Hasman said that the current market, with housing prices rising 10-15 per cent each year, is unhealthy.

"Anytime you have extremes in markets, it's never healthy," he said. "You end up with a bubble. If the local economic base can't support these levels, then at some point you're going to have a lot of people burned big time. It's not sustainable."

In July 2012 he told us that:

This feels like the first Normal Real Estate market in many years. That is if you can even define or remember what 'Normal' really feels like.  Gone are the bidding wars and gone (for now) are the days when homes were selling in mere days. For buyers there is now good selection and no pressure to make that big commitment... Sales of homes across the Greater area of Vancouver are at levels not seen since 2000!

Overall, prices still seem to be holding with some price softening in specific markets only. Vancouver’s Westside looks to be one of those markets.  Fewer buyers from China, tougher mortgage regulations and concerns over the global economy are all weighing on consumer confidence. I predict these market conditions will continue through the balance of 2012 with further price softening.

So does Hasman see more dismal times ahead for when all those disgrunted sellers re-list in the Spring?  Apparently not, according to his December 4th market report:

We continued to slow sluggish sales activity on the Westside during November. That being said there is some promising news. The number of homes on the market at the end of November has dropped substantially since peaking in mid-September. I have also noticed a lot more calls on our listed properties combining with more viewings too. Even though sales volumes continue to remain well below last year’s levels, the shrinking supply and stable sales volume over the past 6 months points to a stable market moving forward. In fact, I’m going to go out on a limb and predict a robust Winter Market with brisk activity in January and February.

Really? And what are we going to hang our hopes on for this resurgence in the market?

For home owners thinking about selling in 2013, keep in mind if you list your home in March (based on the last 4 years of sales activity) you missed the best time for selling. Home owners that listed their homes just before Chinese New Year achieved the highest selling prices. The period of Late January to end of the February was the busiest time for housing sales the last 4 years. Why should this year be any different?

Ummm... because that period in 2012 also wasn't like the years before it?  Based on 2012, that period was a disaster. Are we really going to continue to hang out hats on Hot Asian Money (HAM) again this Spring? 

It appears so. Hasman not only pins his clients hopes on HAM, he goes further than that and calls a bottom for the market:

I do not see any housing crash or even much more downside to house prices. Prices have already slipped 10-15% in some cases and I feel that is as far as it will go.

So there you have it: Buy now, because prices aren't going to go down.

Pardon me if I read the tea leaves a little differently.

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Housing market has not cooled yet: Carney

Mark Carney is not yet finished as the Governor of the Bank of Canada and in today's interest rate announcement, he said something sure to send shivers down the spine of the entire real estate industry:

In a bit of a surprise, (Carney) said Tuesday he is not as yet convinced the recent cooling in housing activity in Canada, along with a slowdown in credit accumulation, represent a fundamental shift, indicating he remains concerned about the downside risk of keeping rates low for a very long time.

A Canadian Institute of Chartered Accountants survey conducted earlier this year found almost half of respondents worrying about affording to make mortgage payments should rates rise significantly.

On Monday, Finance Minister Jim Flaherty said he was pleased housing was moderating and that Canadians were starting to pay off debt, a shift in the credit and mortgage market he attributed in part to his decision to tighten borrowing rules in July.

Carney said, however: "It is too early ... to determine whether the moderation in housing activity and credit will be sustained."

Meanwhile Scotiabank economist Derek Holt expects Carney will have all the evidence he needs by spring or summer of 2013.

Holt believes by that time  the housing correction will "start as a steep plunge in new condo sales."

When you consider yesterday's post and the way things are going, 2013 will surely trigger Triskaidekaphobia in real estate agents everywhere.

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Real Estate Agents in Vancouver predict declining market thoughout 2013

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Yesterday we noted that Vancouver real estate agent Larry Yatkowsky had updated us on the average price figures with the November 2012 data that had just been released.

In the comments section, Mr. Yatkowsky replied to one of his contributors and made a very interesting comment of his own. When asked if there might be an uptick in sales in the spring 2013 which would drive prices higher, Yatkowsky agreed with the commentor that we the average price for single family houses would probably fall below $1,000,000 and that:

"that is probably a reality as there is little actionable support out there. The sense we Realtor types get from our coffee sessions is that everybody is waiting and digesting the mortgage rule changes. The scary part is nobody will really know when the bottom hits. By the time we get there and figure it out it will have passed.

The Vancouver real estate market is a box of chocolates. A best guess low may be early 2014.”.

That would be 16 more months of continuing declines - at best.

And it gives you an idea of what the market is really like when those with an inside view of the market are worried that things might not turn around until Spring of 2014.

(hat tip VREAA)

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First Sunday of December...

Real Estate agent Larry Yatkowsky is out with his stats from November and  he notes Vancouver’s detached average home price had dropped to where it is only slightly higher than the low of last July.

The detached average home price now sits at  $1,053,902 which is now down 14% from the February 2012 peak.

Apparently the Vancouver home sale dollar volume fell 33% year over year from last November.

Meanwhile, as if this news wasn't dismal enough for the real estate industry, there is yet another prominent news organization pointing at our housing market and calling it for what it is: a massive bubble.

This time it's Time Magazine with "Oh NO, Canada! Are We Watching Another North American Financial Crisis Unfold!"

Time looks at Canada's skyrocketing household debt and wonders if Canadians are about to face a 2007-style crisis.

“Borrowing to buy property has helped make Canadians some of the most leveraged consumers in the world, at a time when their counterparts in other heavily indebted countries—such as the U.S.—are digging out. Household debt is now 163.4% of disposable income in Canada, close to the U.S. level at the height of the subprime crisis.”

Time notes that few analysts in America in 2007 predicted that the U.S. real estate market would blow up in spectacular fashion and they wonder if analysts here are being just as wilfully blind.

I'm sure the likes of Tsur Somerville, Rennie, et al are not pleased.

It seems the entire world is now aware of the fact we are in a massive bubble, and yet we still deny the reality to ourselves.

Sigh.

Notwithstanding... it's the first sunday of December and it's that time of the year. I'm off to string the outdoor lights.

Two renditions of my favourite carol to launch the holidays festivities for you.  

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The root of the analysts' belief why there won't be a system shock to create a housing collapse here

CIBC joins the list of banks warning Boomers who are counting on funding their retirement by downsizing and selling their bubble inflated house that their plans might be in jeopardy.

In the November 29th, 2012 edition of CIBC's Economic Insights, Avery Shenfeld says:

The evident slowing in Canadian home sales will take a bite out of domestic economic growth... But another dimension of the recent trend, a cooling in house prices, is less of an unambiguous negative as it’s often made out to be.

For one, a retreat today could be the preferred alternative to a harder landing from even higher prices down the road. Less understood is that cheaper home prices could bring winners as well as losers across the economy.

And who might the losers be?

A home owner that counted on downsizing to fund her retirement might have to pare spending plans.

Oh? And why is that?

While a month ago we quoted widely cited estimates of the wealth effect on spending, it’s difficult to disentangle them from the data.

Yes... it's a bitch when reality gets in the way, isn't it?  What is that data?

Most historic wealth declines coincided with other sources of economic weakness, including rising unemployment or high interest rates that depress consumption.

But wait a minute.  Is CIBC suggesting that a bigger storm is brewing beyond a simple 'flatlining' in housing.  Didn't Tsur Somerville just say yesterday that no one can see any economic shock on the horizon?

What about the shock of declining housing prices? CIBC sees a concern:

Didn’t house deflations sink the US and Ireland? Not on their own. It was the accompanying wave of defaults that devastated the financial system in both countries. Canada hasn’t lent as aggressively to its lower-income home buyers, and a correction in house prices caused by a tighter regulatory environment and earlier price overshooting, rather than by defaults, would not on its own generate that same banking system shock.

Hmm... "not on it's own." Does this support Somerville's view?

The central conflict is this belief that "Canada hasn't lent as aggressively to its lower-income home buyers." 

I know I beg to differ.

Zero down mortgages (aided by the banks 7% cash back mortgage plans) which were facilitated by CMHC's excessively easy liquidity boom (which saw the amount CMHC lent out rise from $100 Billion in 2006 to $600 Billion today), and all of this supposedly went to Canadians who weren't "lower-income home buyers?"

Alrighty then.

This belief, that Canada hasn't lent as aggressively to its lower-income home buyers, is the crux of what the analysts like Somerville are counting on.

This is why they say "a correction in house prices caused by a tighter regulatory environment and earlier price overshooting, rather than by defaults, would not on its own generate that same banking system shock."

I suspect the pool of suspect borrowers is far higher than most are counting on. And that they are leveraged in such a way that the 'flatlining' housing market is going to have a much greater impact then ever imagined.

 We shall see in the months ahead.

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