February’s inventory levels are in, and there’s something remarkable about them: at 17,231 they are at the highest February levels ever. They’re higher than last year’s February numbers, and they’re higher than 2010 and 2008.
There’s another name for highest levels ever. It’s called “record inventory levels”. You can also call that record supply levels.
You can see a comparative monthly inventory graph here.
I was afraid we might see this, but I’m also a little surprised. After last year’s sales levels I suspected that some prospective sellers would get bored with waiting. Apparently they haven’t.
Last year we often heard that sellers had to come to terms with the new market. As the year unfolded it became clear that sellers missed that memo. They refused to panic. More to the point, nothing appeared on the horizon to make them panic. The economy chugged along. Interest rates stayed low. Everyone seemed to be comfortable with the new global normal.
Demand for real estate stayed steady, but it was by no means impressive. Sell/lists were consistently in the 30 and 40% range, and at times lower. Those numbers suggest a buyer’s market, and in one sense it was (buyers had lots of choice), but prices did not fall markedly. Vancouver is still one of the most expensive cities in the world.
What’s going on? The information age means that buyers are informed. They won’t pay more than today’s market says they should. However, I’ve seen them gobble up value recently, with multiple offer situations. There is a difference from past years. The multiple offers I’ve seen recently all went over list, but they also went considerably under assessed value.
Going forward we aren’t going to see interest rates go up anytime soon. In fact, we’re seeing some lenders drop mortgage rates again. BMO’s posted 5 year rate is 5.24%, but you can get it as low as 2.99%. (You can even get a 10 year at 3.69% – not bad, if you think we’ll ever fight inflation again).
Meantime, real estate tax policy in China may drive some more money this way. That’s speculation, obviously, and it’s not clear how much of our local market has been fueled by hot Chinese money, but there is no dispute that it’s played at least some kind of role.
At the same time, we probably all suspect that there is more inflation in the economy than is recognized. The combination of the three help support prices.
On the other hand, developers don’t seem to be slowing down. There is lots and lots of building still going on, and that will just lead to more inventory.
I said last year that I expect our market to stagnate within a relatively narrow band. By that I meant it would fluctuate up and down maybe 10%, without really trending up or down. The trendline on my daily price graphs actually show a slight upward tick, but for all intents and purposes we’re flat-lining.
Here’s the question: with inventory levels as high as they are, as early as it is, and with demand remaining at a constant low level, can we possibly continue? We’ve asked for years how we can keep prices so high, and bubble fanatics insist that a crash has to come. We haven’t seen the crash, and I don’t think we’re going to. But look at the graph. The inventory numbers really are impressive.