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October Stats Release from the REBGV

The stats release is re-printed below, followed by my comments.

November 4, 2013
Balanced conditions continue in the Greater Vancouver housing market

Home buyer and seller activity continues to mirror historical averages in the Greater Vancouver housing market. These trends have helped keep the region in a balanced state for the last nine months.

The Real Estate Board of Greater Vancouver reports that residential property sales in Greater Vancouver reached 2,661 on the Multiple Listing Service® (MLS®) in October 2013. This is a 37.8 per cent increase compared to the 1,931 sales recorded in October 2012, and a 7.2 per cent increase from the 2,483 sales recorded in September 2013.

New listings for attached, detached and apartment properties in Greater Vancouver totaled 4,315 in October 2013. This represents a 0.2 per cent decline from the 4,323 new listings reported in October 2012, and a decrease of 14.2 per cent compared to the 5,030 new listings reported in September of this year.

Last month’s sales were 2.8 per cent above the 10-year sales average for the month, while new listings for the month were 1.9 per cent below the 10-year average.

“We continue to see fairly typical activity when it comes to monthly home sale and listing totals,” Sandra Wyant, REBGV president said. “Today’s activity is helping to keep us in balanced market territory, which means that prices tend to experience minimal fluctuation.”

The total number of properties currently listed for sale on the MLS® in Greater Vancouver is 15,257, a decline of 12.2 per cent compared to this time last year, and a decline of 5.3 per cent compared to September 2013.

The sales-to-active-listings ratio is currently at 17.4 per cent in Greater Vancouver.

The MLS® Home Price Index composite benchmark price for all residential properties in Greater Vancouver is $600,700. This represents a 0.5 per cent decline compared to this time last year.

Sales of detached properties reached 1,067 in October 2013, an increase of 35.1 per cent from the 790 detached sales recorded in October 2012 and a 9.5 per cent increase from the 974 units sold in October 2011. The benchmark price for detached properties decreased 0.5 per cent from October 2012 to $922,600.

Sales of apartment properties reached 1,098 in October 2013, an increase of 36.7 per cent compared to the 803 apartment sales recorded in October 2012, and an increase of 14.6 per cent compared to the 958 sales in October 2011. The benchmark price of an apartment property decreased 0.9 per cent from October 2012 to $365,600.

Attached property sales totaled 496, an increase of 46.7 per cent compared to the 338 attached property sales recorded in 2012 and a 29.8 per cent increase compared to the 382 attached property sales recorded in October 2011. The benchmark price of an attached property is $458,000, which is virtually unchanged from October 2012.

Balance

I’ve said it before and I’ll say it again: balance is a relative term. When demand and supply are in balance we don’t see much int he way of price gains or drops, all other things being equal. The biggest thing that we assume remains equal is the interest rate. If supply and demand remained in balance but interest rates rose it’s likely that prices would drop (and vice versa).

Interest rates are going nowhere short term, so we do have a balanced market. It is, however, still detached from fundamental valuations (and detached in the wrong direction). We are still in a very high price environment with historically low interest rates.

Inventory
Inventory is down, but only slightly, and sales are up. It’s important to understand that inventory builds quickly and dissipates slowly. This has always been the case in the REGBV/FVREB areas. We need several months in a row of increased sales and decreased listings in order to make substantial changes in the active listings to sales ratio. A quick look at the monthly inventory over the years will show that, as of the end of September, we were tied for the third highest inventory ever. Unlike most other years, inventory had not yet begun a clear year end decline. We will get October inventory totals soon (this stats release pegs total listings at 15,257, but I track a different sum than the stats release does, so for consistency I’ll report that figure later; that said, this month is likely much lower than the same month last year, which saw the second highest inventory levels, ever).

There’s no telling where we will go from here, but what history does tell us is that the higher the inventory level at the end of the year the higher it begins the following year. Those who remember 2008 will recognize that we are not in the throes of the same negative market outlook. 2008 ended with the highest year end inventory ever, but 2009 is the only year since I began tracking these stats that sees consistent inventory reduction through the year. A more likely scenario is that we will begin building inventory again in January, thus extending the current stagnation trend.

Sales
There’s no question that the increase in sales is real, and that it has had an effect. Demand for properties is stronger than last year (we’ve sold properties in multiple offer situations this year more than once, and sold some very inferior listings as well), but sharp pricing appears to be critical. This is not surprising. We have historically low interest rates and what is arguably the best real estate in the country. Balancing that are extremely high prices and buyers in possession of better market information than ever before.

My Take

Prices will continue to stagnate, moving up and down within a 10%-15% range for the foreseeable future. We will remain at the mercy of the global economy. A tiny fraction of Chinese wealth can have a huge impact on this market, and is probably more sustainable than the effect of inter-generational wealth transfer. Canadian interest rates will not rise if the trade off is a stronger dollar, and so as long as the US Fed is injecting $85 billion per month we will see the real value of money erode. We could very well see nominal stagnation, or perhaps small increases, while booking long term real losses that will be realized in the future.

However, those who remember 1981-82 will quickly realize that a stagnating market is better than a precipitous crash. Anyone who purchased real estate based on sound fundamentals, or anyone for whom fundamentals have come back into line, will be fine going forward.


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