Quick Update
There were 202 new listings entered on Saturday. No sales processed. That’s an overtime shift at the Board due to volume. I think the staff there do a great job, and coming in on a Saturday to enter data is something they should be commended for (Yeah, yeah, I know, they get paid, but frankly, I wouldn’t do it, so I’m grateful that someone at the Board does).
My searches are limited to 10,000 transactions. For the first time that I can remember I exceeded that number in 7 days worth of searching. Let me clarify: in this case a “transaction” is a listing, a price change or a sale. In the past I’ve exceeded the 10,000 mark when I’ve searched for 14 day averages (some of you will remember 13, 12, 11, or 10 day rolling sell/lists a few years ago – the 10,000 limit was the reason for this). So, we’re seeing a lot of transactions (“rush to the exits” crowd, that’s your cue).
There were 2,162 new listings in my target area last week, and 792 sales, for a sell/list of 36.63%. There were 903 price changes.
Inventory hit 15,734, of which 2,404, or 15.27% were over 90s.
WoW keeps asking if I’m ready to say that the market has changed. I’m not ready to say what he wants to hear (after all, the market is always changing – that’s what it does) but this much is clear: I think we’re getting ready to have the rubber hit the road. No, I do not forsee a crash. We’re missing (at the moment) the external negative event that I think would be required (severe economic downturn, severe increase in interest rates, etc), but what has been an easy market for sellers is coming to an end.
I’ll try to post more detailed data tomorrow. We’re blessed to live in interesting times, and I suspect those times are going to test some of us in the coming months.
138 comments
I AGREE .
Rob: thanks for the numbers.
You might find this circular, but the ‘negative event’ is prices going down. A big proportion of our local economy is based on selling real estate to each other. Construction accounts for a large share of our growth in the past 5 years.
The virtuous circle becomes the vicious circle.
Don’t say you weren’t warned.
I think Wow means, is the market changing from price increases to price decreases?
As far as an economic downtown goes, I think we are already there in regards to forestry and future construction.
Market sentiment has changed as listings now far outpace sales.
I forsee a crash in the very near future as sheeple and specuvestors rapidly head for the exit.
VHB has a point. After all, what was the external event that precipitated the 1929 crash?
The MOI is still not that high. You can get a rough handle on it as
15734/(792 * 4.25weeks/month) = 4.7
But the falling sell list ratio in the middle of spring is ominous.
Once people can no longer factor in the capital gain to offset their cashflow there will be a re-pricing. Shelter income alone doesn’t justify current prices.
From Don Campbell , president of the Real Estate Investment Network in Canada on Calgary’s market -
He said the province’s “economic fundamentals haven’t changed” but the “emotional fundamentals have changed.”
On the bright side in Vancouver we get a lot of rain. Rain drops will hide the tears?
1929 probably isn’t a valid analogy. When economic activity rapidly declined in the US due to equity destruction (i.e. plunging stocks bought on margin), there was no easy adjustment process (i.e. trade) in place with Europe or elsewhere to replace either the diminshed capital or to increase the money supply. In the present, both trade and fiscal policy have kept the US afloat ( employment is still high) in spite of the real estate crunch and Bank Specuvesting. Canada doesn’t seem close to any macroeconomic contraction…any decline will have to be almost purely psychological.
We’re missing (at the moment) the external negative event or “ene” that I think would be required (severe economic downturn, severe increase in interest rates, etc),
we won’t need a “ene”, this is more of a straw vs. camel situation where the camel is standing and then not w/o warning…. the camel is down… start the presses…..
According to cibc world markets, Canadians are sitting on 45 Billion of cash and cash equivalents. The highest ever. And savings rates are high. Psychology works both ways. If you’ve been in a room all day and the temperature is set at 30, a change to 27 degrees is refreshing. I wonder how much of a dip in the thermometer is required to bring buyers back in. Is 10% enough. If its 20%, Vancouver RE will seem like a bargain I’d bet.
Not that even 20% would make it seem like a bargain to me
The ene, whatever it is, will be obvious about 6-8 months after prices fall fast. I can see it now: “Tsur Sommerville told the Sun, ‘It is obvious, in retrospect, that Chad Kroeger being convicted on drunk driving charges was the turning point that caused the current bear market.’”
No bottom in sight
this will verbally encapsulate the RE market here for quite awhile, maybe even as long as the run up was…
big party, big hangover
employment is still high
“Official” employment is still high. US employment numbers are just as massaged as inflation numbers. (Inflation as normally thought of; i.e. price increases. Inflation as an economist thinks of it; that is, monetary supply, is a very different beast) If someone gives up looking for work, takes a part time, min. wage job to replace their full time career job, takes an extended layoff, etc they still count as employed. In addition the BLS has this thing called “birth/death assumptions”, refers to business starts and closures, which is intended to even out “noise” in the monthly figures, but GREATLY overstates job gains in the early stages of a downturn. For example, it thinks construction jobs have risen steadily this year!
For more info see http://tinyurl.com/44n9vp
The BLS should be embarrassed to report this data. Its model suggests that there was a net jobs of 28,000 coming from construction businesses, 44,000 jobs coming from leisure and hospitality, and a whopping 142,000 jobs in total coming from net new business creation.
Virtually no one can possibly believe this data. The data is so bad, I doubt those at the BLS even believe it. But that is what their model says so that is what they report. Just as there is mark to model in the investment world, there is mark to model in the BLS world.
And finally: Canada doesn’t seem close to any macroeconomic contraction Read anything about Ontario recently? Don’t you mean “Vancouver condo construction and Alberta oilsands…….”
ceejay,
I wasn’t clear. I didn’t mean to suggest that anyone was going to go through a macroeconomic collapse like 1929, I just mean that prices can fall under their own weight. In broad economic terms, it seems the world is going to be just fine (CBs and the financial sector have shown themselves up to the task of handing the credit crisis). But Vancouver real estate is over priced, so once it starts falling, it will continue to do so until prices are once again supported by rental revenue or perceived likelihood of appreciation . Rob said that there needed to be an outside event to start the downward spiral. I only mentioned 1929 because, in that case, a downward spiral started without any big outside event.
THERE IS NO BUBBLE IN VANCOUVER
I have heard my neighbour was talking about the word”B” is missing from vancouver real estate.
15,734 are re-sale homes, some body is already taking care of them.we don’t really need to sell them or sell them on what ever prices it’s not going to catch the falling monkeys ##s.
THERE IS NO BUBBLE IN VANCOUVER
that’s a big 10-4 good buddy!
the bubble has popped and no longer exists
i agree with you….
New home prices show signs market is cooling
HEATHER SCOFFIELD
Globe and Mail Update
May 12, 2008 at 8:56 AM EDT
http://www.reportonbusiness.com/servlet/story/RTGAM.20080512.whousingprices0512/BNStory/Business/home
Stephen King: As safe as houses? How harsh realities are dispelling the home market myths
People are led to believe that homes are automatic generators of additional wealth. This argument is mostly spurious….
http://www.independent.co.uk/news/business/comment/stephen-king/stephen-king-as-safe-as-houses-how-harsh-realities-are-dispelling-the-home-market-myths-826288.html
EventHorizon: remember Stephen King is managing director of economics at HSBC. After reading that article it’s not surprising HSBC had so many writedowns. He makes good factual points at the end but overall his critical thinking is weird.
Rob, the market has changed – as vhb, that is the external event. Yeesh. Your smarter than that, so I say your spinning.
when I have a rough morning, I read SATV’s comments just for a laugh.
Jesse… Point taken… What appealed to me about the piece was the delicious irony of the senior economist/chairman of a bank that wrote down 17.2BN in 2007 admitting that investing in housing isn’t always the prudent thing to do….
Rob
There are a number of reasons why a significant ene will not be requisite to a significant correction in Vancouver. First, there is the absence of economic drivers to support the degree to which prices have increased, second is the precedent-setting duration of a run-up in prices, third are the many fold examples of North American markets correcting in the absence of an ene, fourth is the incidence of speculation and fifth is over-building. Finally and overridingly, there is the psychological effect.
When price increases significantly and consistently outstrip growth in income and achievable rents, and are not driven by noteworthy increases in population, psychology emerges as the primary driver. Psychology also drives speculation and over-building, both of which figure significantly in our market. Arguably strong economic performance and infrastructure spending can only support a degree of price increases but they cannot permanently detach real estate prices from economic fundamentals, particularly to the extent which is the case in this market. Again, however, economic performance and infrastructure spending feed buying psychology.
We haven’t really even begun to feel the flip side of the psychology which has driven this market. The news is still cheery, YOY increases can still being touted (although across the pond new home prices are up only 1.2%), condo marketers can still point to an impressive percentage of units presold and sales overall really aren’t down that much. That said, inventory is spiking and sales to listings ratios are very low at a time of year when normally the opposite is true. These are profound changes and could be fairly interpreted as portents of what is to come.
All that this market is going to require is a mainstream change in psychology, which I expect before the end of this year, and the house of cards we have been building will fall.
Doubter/chip and others began an interesting thread over the weekend viz. potential impact of criminal proceeds/money laundering on YVR RE… For those interested in exploring that topic further the following is a good primer….
rob:
your quintessential “hail mary” moment…
you gotta ask yerself “what would jesus blog?”
Unfortunately, pasting a direct link isn’t working at the moment… but the piece/podcast can be found by visiting the BBC World Service’s Homepage and searching for ‘How Crime Took Over The World’ and then selecting the first segment – which deals specifically with BC…
Johnnyrent:
I’ve said (for years now, actually) that a correction is coming, and that I define correction as at least 20%. I don’t conflate correction with crash.
In this post I said ” I do not forsee a crash. We’re missing (at the moment) the external negative event that I think would be required…”
For me, a “crash” is n0t the same as what you call a “significant correction” (perhaps crash and significant correction are the same to you, which is fine, btw). If we have average house price drop from the low $900s to the low $700s, that would be 20%. That would erase two years worth of gains. If all of that happened in one year that would mean we’d moved from say, $375,000 in 2000 to $725,000 in 2009 – somewhere between 7.5% and 8% per year.
So, what am I really saying? That suddenly real estate will return 7.5% per year, long term? Obviously not, as I’ve said I assume 5% long term in most cases involving Vancouver. But I am saying that a correction of 20% would be large, would take us back two years (three by the time you counted from the future date), and yet would still give 7.5% per year to anyone holding since 2000. Long term holders could certainly weather that kind of correction, and it would be hard to call that a crash.
Would a 20% correction be enough to cure the ills caused by high prices? I think so. I think some buyers would come back into the market, and I think some sellers would stay out, achieving a bit more balance. I’m guessing on that, of course, but that’s where I’m going when I say we need something other than high prices to generate a crash.
“The news is still cheery, YOY increases can still being touted (although across the pond new home prices are up only 1.2%), condo marketers can still point to an impressive percentage of units presold and sales overall really aren’t down that much. ”
Watch it, pal! You’re going to be labelled a denier and asked to admit the truth!
From Don Campbell , president of the Real Estate Investment Network in Canada on Calgary’s market -
He said the province’s “economic fundamentals haven’t changed” but the “emotional fundamentals have changed.”
On the bright side in Vancouver we get a lot of rain. Rain drops will hide the tears?
haha, that can be said to explain the the rise as well. What I am wondering is what threshold will trigger buying. I suspect there is a lot of money on the sidelines right now and as the correction continues, the buying will happen in waves. Personally I think it will be post 2010 before the “bottom” hits. Although I don’t want to rent for two more years, I’m holding out for a 30% correction.
Anyone else hear the recent crime stats regarding the Lowermainland? It seems Vancouver has the highest crime rate, per capita, in North America. Congrats people! We’re #1 !!!
You have GOT to love our court system!
Makes me want to live here, that’s for sure!!!! 
tony:
Increasing prices _increases_ demand. The Economist has gone on about this for years.
It’s likely that decreasing prices will reduce demand. I don’t buy the argument that a 20% drop will suddenly bring the buyers back.
2 Weeks ago, I place an ad in craigslist, looking for creative writers. I am surprised to recieve, since then- atleast 5 applications everyday. On the other hand, it is still hard to find a handy man to fix my fence ( 2 weeks, three reposts and two calls).
Rob, do you really think the market has turned? I think your blog reflects the high unemployment of creative writers. Oh well! What do I know, I am just a stupid statistician.
A quick note for those who hope that prices will return to 2005/2004 lavel. This is already happening.
Hey, I bought a few years ago, and it was dumb luck I bought—basically inheritance money. Bears may have been smarter but not as lucky
Anyways, Paulb\’s weekly numbers are making me feel it could brown trouser time for us owners. If I liquidate, should I wait for a couple years, or as fast as possible? I have a couple westside condos and I was planning to rent them out for the olympics, but maybe the money from that will not be enough to offset a downturn?
“Would a 20% correction be enough to cure the ills caused by high prices? I think so. ”
Rob,
Could you explain your thinking. Why would more than an handful of people want to buy after a 20% drop. I can’t help feeling that the situation would be that: a) houses were totally unfordable for ordinary FTBs; b) prospective buyers have seen that prices don’t always go up, so they are being asked to over extend themselves for what will, at that point in time, appear to be a shaky investment; and c) because it is a market trending down, people will be encouraged to wait and see how much more prices fall.
Of all the scenarios out there, the 20% drop scenario makes the least sense. Continued increases and a steady drop until rent fundamentals are met both make more sense. Would you disagree? If so, on what grounds?
I don’t buy the argument that a 20% drop will suddenly bring the buyers back.
It’s not working in the US bubble cities, why would it happen any differently here? If prices fall 20% a large number of people who have bought over the last two years will be significantly underwater on their mortgages. Do you think banks will tighten lending standards at that point? If you don’t your being very disingenuous or ignorant. And if you do concede that that will likely be the case then how many people are there left out there with a significant down payment and great credit who haven’t already jumped on the property ladder? My guess is very few, even less with thousands of newly unemployed construction workers and tradesmen (not to mention RE agents and mortgage brokers, etc).
A 20% “correction” after a 40% run up in prices I can see, a 20% correction after the mother of all price run ups in Vancouver RE? Keep spinning hard Rob, your career just might depend on it.
oh my god, I finally understood why RE is so expensive in vancouver
http://vancouverbc.wordpress.com/category/vancouver-best-place/
Rob
Your points taken. I would define a crash as anything 30%+. Being as I believe VHB once calculated the average correction over the past four at 28%, I think 30% is a pretty safe bet this time around.
As I see it, given that both speculation and new construction have risen exponentially, prices could decrease exponentially, as they are in many parts of the US for the same reasons. I think the beginnings of a correction here will cause a rush to the exits and a coincidental, abrupt, curtailment in demand. While I don’t buy the 50% price decrease some others do, I’m in the 30%+ camp because once the down train gets rolling, I think it will be very hard to stop it until we’re down by at least this much.
Johnnyrent….according to your (reasonable) calculations/assumptions, my $2,000,000 westside special could go down to $1,400,000…cool…in the meantime, my cost to rent such a place would be about 1/2 of owning, so I save there too…nice!:))
Ah, things are unfolding pleasantly!:))
I devote this space.. ( MEMORIAL ) to the people who fought so hard and bravely to save us from the enemy so that we could live freely in la la land where R/E prices just go up.
May we all stand in silence for 1 minute honouring those that died so that we could bail out and sit back and watch.
May the Force be with you.
Landlord: quite a few of us bears here were at one point owners. I believe strongly enough that the market will collapse that I sold my home last year, just before the credit crunch hit. I believe quite strongly that current prices aren’t remotely justified by the fundamentals, and prices will correct.
I’m expecting to see a 30% – 50% correction, far far far greater than what 2010 rents might cover, if I could successfully rent out my home.
As for when to exit the market, right now prices are high, but they’ve stuttered during the “hot” spring market. That’s the first time this has happened during the boom. GVRD condo prices dropped 3% last month, per the GVREB’s black-box Housing Price Index. This is highly unusual for a spring market. This is big.
Game theory would suggest that in a zero-sum game, you’ve got to be ahead of the pack to come out ahead. You bought ahead of the pack, congratulations. The last of the pack is likely buying now. These are the weakest, more over-stretched buyers. When they break, it collapses, as seen in the US.
Ignore the US experience at your peril.
W0w,
What the rent on a place currently valued at 2M?
Johnny:
I don’t know, but I’ve been told that in the US there was a little challenge with hi-ratio, low rate mortgages being re-set at higher rates, and that the spectre was foreseen by the market. It wasn’t necessary for owners to be unable to afford new payments at re-finance time – the writing was on the wall and and prices responded before the inevitable. That doesn’t explain the whole sub-prime or real estate value fall in the US, but it is an important factor. What you seem to be saying is that speculation, construction and price increase alone can create a 30% drop. I think we need more than that for that size of correction.
Will it be hard to stop the train when t starts rolling in the other direction? Who knows? We do know that absent an external negative, falling prices will reduce the number of sellers, and will tend to increase the number of buyers, which should balance things somewhat (not forgetting that I’m saying a 20% correction isn’t unreasonable, so let’s keep “balance” in pespective). However, that didn’t work so well on the way up. What’s the dif? On the way up we had low rates, positive psychology, and easy lending. On the way down we’ll still have low rates and easy lending, but psychology will have changed. But…easy lending doesn’t help a seller who can’t get enough money the way it helps a buyer. I think, therefore, we have a very real difference between the speed of an uptick and a downturn.
Still waiting for that 500 listing day. What is taking so long?
Newcomer:
“Would a 20% correction be enought to cure the ills of high prices? I think so”.
Fair call – I mis-spoke and generalized too much with that. I should say “I think that it could”, but it depends on people entering the market, and 20% down doesn’t make that super attractive (and certainly not to investors).
Tony:
I don’t think banks will tighten lending standards significantly just because prices here fall 20%. I also don’t think we’re in the same boat as the US market. The people I see coming in to the market are long term principal owners with lifestyle motivations. Make it affordable to them and they’ll come back (assuming housing demand here stays strong).
Rob,
I think you have it bang on, 20% correction over 3-5 years will be about 30-40% correction in real terms. One caveat is that if it goes below that, then we are talking about fear overtaking the market, and yes it will be a great time to buy.
If you wait for a 30-50% non-inflation adjusted drop, then you’ll be waiting until the polar caps melt or a meteorite is heading straight for Vancouver.
doc,
Maybe you would like to explain your thinking. How is it that prices would fall 20%. What kind of market forces would be involved in that scenario? Can you think of an example of a similar thing ever having happened in this history of mankind?
I think a 20% correction will have an impact that many may under estimate. Our construction and service industries are booming because of spending …. and because of that, we get:
1. retail expansion, forever more people with low skills getting jobs and contributing to economy by spending the money
With that, you need to look at the scenario where not only the 20% correction on housing make those home owners equity negative, but also the chance of loss of job. And that in turn will reduce money circulating in the market, ….
This is similar to what VHB is saying and I can totally see it too. I have known people who would have otherwise no chance of getting a job if not for today’s market condition.
As for CIBC’s report on savings, I think we need to look at the details of what those figures mean. Is it really just pure cash sitting there even when market decline those cash won’t be affected? It can be very misleading when the details are not looked at.
20% wouldn’t do much for affordability. It’ll need to be in the 40-60% range to make owning make financial sense.
I am expecting my landlord to give me a call or send me an email any day now notifying me that she is putting the place on the market. She owns 3 similar condos and 1 just went on the market last week. She had planned to hold until spring 2009 to get out just before the Olympics. I guess she is pulling the trigger early in light of the current market environment.
It is probably better to sell now with just 16,000 listings than to wait until next spring when there might be 30,000+
Will it be hard to stop the train when t starts rolling in the other direction? Who knows?
Will I live to be 100 and be fully employable for the duration? Who knows?
Regardless, I still pay my life insurance premiums and save a significant chunk of my income just in case…
Jeff, you nailed it.
Next spring 30,000 – wow, won’t that be something to behold. Downtowners are telling me about the massive number of open houses this past weekend. And its just starting!
Are you still seeing price declines? I view your insights as some of the most valuable, from the street data on what is happening here and now….thank you.
Tony:
You’re probably right. We know exactly what will happen. Once we start going down it won’t stop. A 20% drop (the place on Rupert would fall to the high $500s) wouldn’t make anywhere affordable, after all (house with a suite in the city would service what kind of mortgage?). It’ll unfold the way it always has, historically, right? Just like the ‘84-’90 run-up, which was followed by a huge crash, right?
Hi Rob – has that Rupert place sold? How is that going?
thanks.
Interesting times – thanks for the compelling forum.
Could we see a 65% downtick here?
Meruelo Maddux Tumble Puts Los Angeles on Sale at 65% Discount
By Peter J. Brennan
May 11 (Bloomberg) — A package of Los Angeles real estate on sale for 35 cents on the dollar is attracting investors to the depressed shares of Meruelo Maddux Properties Inc., the biggest private landowner in the city’s four-square-mile downtown.
The stock has plummeted 85 percent since an initial public offering 15 months ago as the global credit crisis threatens to disrupt refinancing of $200 million in mortgage debt coming due in the next 12 months, as well as completion of the city’s tallest downtown residential tower.
cul de sac,
Saw the youtube video, that was awesome.
WoW:
Click on the link on the right. I told you it was good value, right?
Well done Rob!:))
I admit I’m surprised, I’m assuming its at/near/above the reduced asking price? In any event, there are still buyers out there at these prices, I don’t know why, but there are.
Congrats.
Maybe Rob’s listing is subject to buyer selling their own property? It is not over until the fat lady sings…..
Rob, you and Aaron are great salespeople, selling that place in that price range! I tip my hat to you both, you are good at what you do.
Did you pay the buying agent an extra commission?
Just like the ‘84-’90 run-up, which was followed by a huge crash, right?
Are you comparing the “great run-up of ‘84-’90″ with the current bubble? Man you’re really reaching now huh? Yes I remember the great ‘84-’90 bubble like it was yesterday, thank God we all learned our lesson with the bursting of that one!
Lovely.
Anonymous said…
Hi Paul,
Do you have any inkling as to how today’s numbers are shaping up?
Thanks
May 12, 2008 3:41 PM
Paul said…
Bearish as can be expected my friend.
May 12, 2008 4:06 PM
Rob,
it’s safe to say inflation is running at higher than the “official” rate. It’s also not unlikely to conclude that once the worst of the credit crunch has been contained, the focus of central banks could return to fighting inflation via higher interest rates.
Americans (the Fed) already have good reason to go that route as foreigners are dumping T-bills at the moment. There’s your “external event”.
I have to say respectfully that, a correction of 35% in nominal terms could amount to 50% plus if prices stagnate at that lower level for a few years, after the initial drop. The same is true of a 20% nominal correction, if prices stagnate a few years at a lower plateau, you are looking at a bigger correction than you are expecting – maybe 30-40%.
In those instances, even longer term property owners will be ahead, but not so far as they are now. And with HELOC’s maybe not all of them will be as well off as you expect
And people who bought in the last 3-4 years will be way underwater. So I can foresee a positive feedback vicious cycle causing a lot more mayhem than you are expecting.
But that’s just my different point of view. I’m probably wrong….
rob:
you should seriously consider changing your blog title to:
head for the #&*@#% hills….
maybe lock it in before paulb grabs it
I don’t want to sound like an alarmist, but HOLY SMOKES, THE TRAIN IS OFF THE TRACKS!!!!!!!!
THE TRAIN IS OFF THE TRACKS!!!!!!!!
try:”The sky is falling!! The sky is falling!!”
that is guaranteed to rattle a few deep-denial bulls…..
If the board works until 10pm again tonight expect very bearish numbers. Very few sales reported today. I would have expected the numbers to slow down by now. Seems like they are only picking up steam. I guess this is what happens when the train goes off the tracks.
I asked for crack, now the crack has not only showed up but it’s getting bigger and bigger. It’s rearing it’s ugly head. It’s about to swallow SATV hole.
HAHAHHA I LOVE IT!!!
Rob, make sure you let Arron know that it may be a good time to sell his property and lock in his gain!
I wonder why you bears celebrate if the market falls.
you cannot buy property during a crash, since it is harder to get a loan!!!
unless you bears have hard cash …hmmm…bears usually don’t have it
Greg:
I agree with you on inflation, but tell me: is that new, or has it been the case for several years now? (I think the latter).
I may not agree, but I won’t vigorously contest that the worst of the credit crunch has come and gone. Like life in general, where any day above ground is a good one, every day we put last August a little further behind us, and the threat of the credit crunch seems to recede (although some will disagree with your assesment).
So, will inflation re-emerge as a problem? And if so, will interest rates rise? I’m with you on that. But I don’t see it happening in the next 6 months.
If it happens, will it be enough to cuase widespread mortgage pain here? We part company there. When faced with the credit crunch CBs chose the danger of inflation over short term pain for long term gain (you might recall Coco saying they wouldn’t do that when I said that they would). Prior to that, as you point out, inflation was under-reported. I can’t see inflation becoming such a problem that mortgage rates rise enough to cause widespread pain – in short, I think CBs have demonstrated that they’re more afraid of pain than of inflation (but I see where you’re going).
You’re right to point out that a nominal drop can be much less than a real drop in prices (and the Sauder graph linked on the left shows that quite well). Still, it cuts both ways. I buy a house in 1966 for $20,000. I sell it today for $800,000. Meantime I’ve mortgaged it twice, and built more wealth from it. Were inflation and leverage my enemies or my friends?
Now, if things get really bad, and if we have a) 35% nominal drops in value and b) double digit inflation and c) a sharp jump in interest rates, there’s no doubt that a lot pf people will hurt. I can’t disagree. But let’s face it: we’re both just making educated guesses.
Tony:
In nominal terms, based on SFH prices, we had a 6 year run up of roughly 150%, followed by a correction of roughly 20%. Since 2002 we’ve had a run up of roughly 140% over 6 years. Nominally we started climbing out within a year, and had regained everything within 3. Are you maybe confusing it with ‘81/’82? That was much more bubble like and much more memorable to my mind.
Anyway, I’m not saying that will happen again in the same way. I’m saying that its possible.
Based on your analogy of insurance and savings aren’t you agreeing with me? Those are different, but not mutually exclusive, courses of action based on two completely different potential outcomes (you save in case live, and you buy insurance in case you die). So, are you agreeing or disagreeing with me?
Anonymous/Abby/WoW:
No bonus commission paid. Most sales are subject are subject sales, but the subjects on this don’t look too bad. Why would anyone be surprised, and if so, what does that mean?
-I say its good value, all things being equal.
-You say “C’mon, nobody would want to live there, its a dump that needs $200,000 in work, plus its in a bad part of East Van”
Lo and behold, it sells, and you’re surprised/doubtful. Didn’t we do this same thing with the place on King Albert? Guess I knew what I was talking about
There’s a lesson here. If you think the market is about to implode, stay away. If you don’t think that, and I say something is good value in today’s market, take a close look at it.
I think it is imploding (now) and will stay away Rob.
Thanks for the detailed replys and congrats on the sale, never doubted that you were good at what you do…
How much (percent) do you see sfh and condos falling (in price) this month?
Money:
Speaking of crack, good times to sell, and free advice for Aaron, are you sure you want to go down that road? “Get me a house with a suite with no other agent involved where I can make a good deal” you said. I got you one where the seller needed a quick sale in order to accomplish his larger goal. Remember what happened? Where would you be now if you had bought it? Ready to chop the price and make a tidy profit, even in today’s market?
WoW:
I thought they’d fall last month, and they really didn’t. What I’m seeing now is more perplexing than anything we’ve seen so far. Remember, I used to have 11k-12k inventory in my area. Now we’re pushing 16k. That’s 30%+ up. Just last week we were using 25% up. Yet prices haven’t really responded, and sales aren’t too bad (I think we had 5 last week). A few years ago I asked an appraiser freind of mine where this market was going. His answer? “How the f*&% would I know?” The wisdom of his words becomes more evident with every passing day.
We’ve had the better part of six years of unabated YOY price increases. We’re now into not quite 3 1/2 months of spiking inventory and lower than normal sales to listing ratios. I don’t think we should be expecting significant price decreases just yet. They’ll be very sticky on the way down, patience is a virtue.
Prices are sticky on the way down just like you say Rob. I think they are a little stuck… But they will fall don’t worry.
In 1966, approx. 16% of the average income went to pay your mortgage. Now that a home costs 800k we must have a better standard of living eh?
BS:
In 1966 a lot of things were different. We had one car and a black and white TV. There were no terms on mortgages, and most of the time they came from insurance companies. We also had three martini lunches. Do you think there’s a valid comparison, and do you think we’re going back to 16% of the average income being spent on houses? (And I can’t help but wonder why people had to lie on mortgage apps then, if housing was so cheap. Go figure. The good old days must have been really good).
Still, if prices were so good, imagine getting what, 4 houses on one salary – same as what you pay today for one! You’d be filthy rich.
http://research.cibcwm.com/economic_public/download/cwcda-080507.pdf
Looks like we’re ready to weather the blow. Of course, most of the $45 Billion in excess liquidity is probably WoW’s.
Speaking of weather…30+C by Friday. woot.
alum “you cannot buy property during a crash, since it is harder to get a loan!!!” not from my past experience was always easier, banks hate foreclosures just want their money; pick a place with 25 % down originally; now under water, (we’ll see dozens of these next year) bank will take you to dinner and give you prime plus .5 fixed term. Anything to get rid of the idiot original buyer causing them problems like asking for a 1 week delay in mortgage payment cause they have no job!
Rob – prices fell last month, you were right about your call on April – just the mythical benchmarks were up.
5 sales last week – no doubt the strong will survive/thrive – you will do well. That said, this market has turned, whether you want to admit it or not….remember, the Titanic took a long time to sink, but when it hit that iceberg it was only a matter of time….we are taking on heavy water now. Get the lifeboats ready.
Actually, the Titanic went down very fast for a boat of that size. I’m not saying that has any relation to RE, I’m just saying.
WoW:
Which prices fell last month? The ones that count? What about the prices that rose?
Strataman:
I’ve sold a few foreclosures in my time. Maybe it will be different next year, but in my experience you need cash to buy. The bank doing the foreclosure is (again, just my experience) unlikely to offer anyone prime+.5 to get rid of the thing. After all, the bank is not usually the vendor in Canada – its the judge, and he worries about something called equity of redemption.
That said, if you think there will be more foreclosures next year, get your financing in order now, and contact me then, and we’ll get some. I love that stuff (hanging around Smythe Street, tryingt o figure out who else is going after the property, and what they’ll be paying…lots of fun!)
Rob – the 4.2percent decline in sfh, as calculating by thaking the march price less the april price all divided by the march price. That price decline. Perhaps you missed it.
WoW:
The point I’m making is that benchmark goes up, goes down, flatlines, and isn’t mythical. Prices are broken down by category and area. They are reported as averages and medians. And last month they were up and down, depending on where you looked. You’re picking one number and calling it accurate because you like it…or else you’re missing the rest of them.
Bummer, PaulB’s numbers will be out late due to the surge in listings….
Rob, I just used the avg price for march and april, as provided by the rebgv. Pretty straight forward – do you doubt the data?
Ceejay, I’m proud to say that none of it is mine, I’m fully invested.
Rob, regarding inflation being a new thing or being around for several years, it seems pretty clear that it’s spiking now. The US is at 4% right now, which is the highest level since 1990.
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
I’d agree with you that the numbers are faked, but when the faked numbers stop looking good, then you know that you have an inflation problem.
LesserApe (like your name), do you feel, as I do, that this higher inflation leads to higher interest rates (including on mortgages taken out to purchase homes (and maybe even on the variable (floating) rate ones that soooooo many folks have right now)? Bet 1-2% points higher could knock the snot outta some folks, what do you think?
bang on
Michael said…
If a housing market falls down in the city and no reporter is around to hear it – does it make a sound?
May 12, 2008 9:00 PM
Rob,
imho, central banks will be a lot more concerned about inflation as higher oil prices start working their way through the economy. That will have an impact, it always does.
Not to mention ten trillion of US debt and the US dollar cratering while European and asian central banks shy away from US Treasuries.
Those two factors both point toward higher rates in the US soon. I would say 6 months is not too early a call for a reversal and US rates.
But I’m probably wrong.
As to higher rates, a variable 4% rate that increases to 5% equals a 25% increase in the payment. Hope not too many homeloaners get caught in that trap.
Greg….imagine if you are not wrong, and the 1 year posted rate is 8% 18 months from now – what would that do to RE prices here?
Greg – of course they will!:))
And if the Fed jacks up rates ahead of the BoC then the Loony will slip and inflation will rush into Canada, forcing the BoC to follow the Fed.
Greg, Wow: I agree that the inflation-induced higher rates scenario is possible.
But here is a scenario I have been considering: Say that the US and Eastern Canada go into a nice recession for 2008-09. In 2010-11, they will likely be coming out of it. When you come out of a recession, the yield curve typically gets steeper.
By 2011, the Vancouver housing market will likely have had 3 horrible years (Summer 2008 through summer 2011) . Typically in other boom/busts, things tend to flatten out after 2 or 3 years.
HOWEVER, this time it might be different! Just as we think the bust is over, BLAMMO higher mortgage rates put another ass-kicking on the housing market.
With 5% mortgage rates, I dont think a 40% drop in condo prices is out of reach. If mortgage rates return to historical norms of 7-8%, then . . . well, I’ll let you do the math.
VHB – could you imagine a decent sized lot in westside (west of Granville) going for $500,000, and a great quality house costing $125 a sq foot on the westside to build – can I dream in this much technicoulor…nah, but even double that and I could handle it…its gonna get vicious.
Argh, ya Rob you did have something there. Does that offer you any closer now?
I tell you that would be one house that I woudn’t feel very good off loading though. It would be rude to ask more than lot value.
Find a buyer when the market turns, do you know how many people are holding multiple properties?
I couldn’t of honestly sold that home to somebody since I wasn’t willing to live in it myself. You wouldn’t either.
Mickey mouse’s work was prevalent in that home. Plumbing was a time bomb.
“I don’t buy the argument that a 20% drop will suddenly bring the buyers back”.
I am not agree that price will drop 20% there is no downturn to vancouver real estate ——-just one way exit>UP
The next r.e. train is leaving the station tomorrow go catch it.
almost 900…
DT(670)+FN(224)=894 Listings
Whoa! Paul B’s #s
Satv, will you eat cow pie if your wrong about Vancouver Re always going up?
Holy Crap! 17,000 tomorrow? Didn’t we just pass 16? Look out!
Hi Jeff – thanks for the update on that sub-sector – 1,000 not that far off! Perhaps we should raise our expectation to 2,000? (Rob will indicate that 2,000 is just a number and does not mean the prices won’t keep going up).
BS – ya, WoW, crazy cool numbers – kinda the inverse of a hot market eh? Rob might argue that the increase in listings is not an issue as long as prices are rising like they are, and the mythical benchmark is representative of the market.
He might argue that, but he’s a wise fox, that one, he knows what he’s doing and he’s good at doing it. I truly tip my hat to him, I’m sure he’s off the charts successful, and there aint nuttin wrong with dat.
We are increasing over 1,000 per week at this rate. Cool, eh!
Gotta love it.
would expect lots of sales tomorrow (even Rob’s 5 sales (pretty darn good sales level! – sincerely) are probably pending for data entry), to offset this massive run-up. That said, 20,000 listings seems to loom on the horizon.
Are we in record listings territory, and if so, will the press make a big deal out of it?
40,000 fuel trucks are being pumped in the gas stations.
Gazzilions gigabites energy is being generate by bc hydro.
2.5 million crates of eggs are being available in store to buy from vriety of selection,
So 16426 homes are available to buy the difference is energy,fuel,and milk gallons are fresh but 16426 listings are resale homes,good to chose the best.come on bears pick yp the best suitable units good luck to all of you.CHEER UP
Satv
1 too many let through immigration
SATV, EAT YER COW PIE!
Satv – one condo sale in N. Van
I think SATV could be Freakos alter personality.
that’s why there is no bubble
Any theories about why REBGV listings are skyrocketing while Fraser Valley is falling? I don’t get it.
Cow produce milk for all specially for babies-cow is to praise , I don’t mind if you eat but i won’t.
othercase if r.e. ever crash I will give you 738 sq.ft. brand new condo in downtown for free now cheer up sorry chill out!
Brittanny Spears,
That one is for you to set the stage for dance put the dance floor on fire miss fire on ice,cheer up
Fraser Valley listings will be added on Victoria Day when no one is watching. Spin spin spin……………………..
I like cows….
AFFORDABILITY!!!!!!!!!!!!!!
IS ANYONE LISTENING????????????????
FV is more affordable.
sctv – 738 sq ft? That is hardly enough room for my cow!
“Spin spin spin”……………………..
The buyers going to have panelty of time scaning and attending open houses.
Jeff – FV rent is MORE affordable. 3000 sq ft executive split $1500/mo.. To buy 450k. Don’t worry” Build it and they will…………….list it”
I can arrange one chicken shack for your cow and for you 738 sq.ft. dance where ever you want on 34th floor there are special arrangements to telecast it live for bears on the blogs get ready but crash is not in the making so dream is yours.
Brittanny Spears:
For $450k I’d have a hard time finding you 700 sqft downtown.
I think we all agree that the FV is more affordable.
Does it make sense to buy there… we also all agree on the answer to that.
AFFORDABILITY!!!!!!!!!!!!!!
IS ANYONE LISTENING????????????????
FV is more affordable.
Because the rest of money you spend commuting to vancouver affordable+Car+fuel or take a pass and spend some extra hours bothway give away your breakfast and dinner.
paul’s number is out
The house was built in ‘81. If you want a new 3000 sq ft on Eagle mtn., that wil be 799k-899k please. Plenty to choose from, especially those currently under construction.
Brittanny Spears:
come on now?
At $450k I thought FV was really expensive… now you’re telling me double.
What ever happened to real estate?
When did prices blow 100% past reality?
We certainly are due for a 50%+ drop.
Check Rob’s next thread
WoW:
I don’t doubt the data. I know that SFH average for the whole REBGV dropped. I also know that in 15 areas the median price rose while it fell in 19. And that the benchmark flatlined. Its amusing that you cling to one as accurate but ignore the others.
“Rob will indicate that 2,000 is just a number and does not mean the prices won’t keep going up”…”Rob might argue that the increase in listings is not an issue as long as prices are rising like they are, and the mythical benchmark is representative of the market”. I love that you just make stuff up and still call me the spinner!
You’re like the Energizer Bunny. FWIW, I wrote in this thread that 30%+ more inventory without price drops confounds me, but don;t let that get in the way of a good storyline.
Greg/Lesser Ape:
All I’m saying about inflation is that we’re guessing right now. I think the worst outcome is stagflation. If we actually had growth and higher interest rates it would probably be best for everyone. Maybe its the pessimist in me, but I don’t share Greg’s faith in the inflation fighters. That’s not the same as me saying inflation isn’t a danger.
$100,000 @ 4% = $526/month; @5% it equals $581. That’s a dif of $55, or an increase of 10.45%, not 25%.
$100,000 @ 0% =$333; re-set at 5% it equals $581. That’s a dif of $248, or 75%. That’s more like what happened in the US.
Rob –
except for one powerful inflationary argument. In fact, inflation is the best way to handle and get rid of the American national debt. I figure this is a pretty powerful incentive to keep the focus on inflation going forward.
Rob, based on those calculations, a 12% rate would be just as damaging here. Do you think inflation is running beyond 12% right now? Because if you do, a 12% rate is not out of the question.
Here’s a hypothetical mortgage situation.
$100,000 @ 12% = $1031/month.
or
100,000 X 7@12%= $7223/month.
How much do houses cost?
What can the buyer afford?
What if it is only $2,000/month?
Then a mortgage over $200,000 is impossible.
you cannot buy property during a crash, since it is harder to get a loan!!!
unless you bears have hard cash …hmmm…bears usually don’t have it
So only people with cash will be able to buy? Sounds like prices will be falling back to 1930’s levels then!
Does anyone have a theory/opinion where the next bubble will be?
1) Tech
2) RE
3) ?
Greg:
I’m not sure I’m following you on the inflation argument. Let me set out my position: I think its a danger, largely because its unseen and uncalculated by many players, and therefore distorts returns/prices/etc. However, I think that CBs think they can handle inflation (which is worrying in itself). I think that there are advantages to inflation (depending on where you sit) – as you point out, its a great way to deal with a large debt, whether you’re an over-extended householder or an over-extended nation.
Bottom line: I think we’ll see inflation controlled more through mis-measurement than through increased interest rates. My justification for that position isn’t that its a wiser one, but simply that its one that we’ve seen adopted already. Like the man said, if you want to know what men will do, look at what they’ve done.
12% mortgage rates? I’m sure we’ll see them again sometime, but not soon. You can get a 5 year now for 5.19% and a variable for 4.15%. Getting to 12% isn’t going to happen just because we lose some ground on local prices. If it comes, and if its going to hurt, it has to come relatively quickly. Your math on the issue is correct, but remember: if you bought a house in the mid 60s for $20,000, you could be looking at a mortgage payment of under $200. 15 years later the house was worth 5 times as much, and interest rates were in the high double digits. It hurt late entrants, but others weathered the storm just fine. ‘81 dollars were expensive in ‘81 terms (high i%) but cheap compared to ‘66 dollars (precedent breaking inflation, mind you). Let’s face it: its an ill wind that blows nobody any good. If we get high inflation, but its rendered short term by strong interest policies, there will be pain. No question.
Rob –
I’m not predicting 12% interest rates, just extrapolating from your teaser/reset example a scenario which would have the same devastating effect on Canadian housing as what has unfolded in the US with ARMs and teaser re-sets.
Not to say that higher rates couldn’t come along and smack the market to a lesser or greater degree. Are 8% rates highly unlikely? Not by historical measure.
As to inflation, my point is merely that inflation is out of the bag. Official stats not withstanding, policies will still be needed to contain the actual repercussions of high inflation.
Personally, when I go to buy bread, I see prices up 30-50%. When I buy gas, same thing and going higher. When I pay for work on my car, same thing. Everything is jumping, with wages nowhere close to keeping up – this is going to have many repercussions.
To argue central banks won’t use whatever is in their arsenal to combat the problem ignores the whole history of the problem through the 70s and 80s.
We have been in a lower inflationary period for some time, so we have forgotten what it is like when things are different, but they are changing now and changing quickly.
I guess that could be the external event, if you want it to be….
One more thing –
one of the most powerful anti-inflationary results of a high interest rate policy would be significantly lower house prices.
I know housing isn’t in the official CPI, but in reality, that is the result of lower house prices – they are powerfully anti-inflationary.
Rob,
I think that just as the recent run-up in prices have defied long-standing real-estate fundamentals, I believe the coming correction will also differ from past corrections. With the staggering number of home owners on 0% down 40 year mortgages, even the smallest correction will be equivalent to a 25% (or more) correction on a conventional 25% down 25 year mortgage. It takes so much less for this new type of home owner to go into negative equity.
Greg:
“To argue central banks won’t use whatever is in their arsenal to combat the problem ignores the whole history of the problem through the 70s and 80s.”
I can’t disagree, and when you put it that way I want to say “I’m not arguing that they’ll ignore the lessons of the 70s” – but I fear that they might.
Johnny33:
I understand what you’re saying, but tell me: how much negative equity does someone need in order to declare bankruptcy? How widespread will it be? I understand that your answer will be “Very widespread, which is how I think the next correction will be different”- fair enough. I’m not sure I agree, however. Keymail isn’t as easy as some would like you to believe.