Canadian housing boom ‘definitely over’

Thats according to UBC Sauder School of Business professor Tsur Somerville.  Its not just the Vancouver housing market that’s taking a dive – all across Canada things are slowing down, listings are high and many markets are seeing price drops.  Calgary and Vancouver have seen some of the largest price drops, but Toronto also saw a 1 percent price drop in August for the first time in ten years.

“The boom in the housing markets is definitely over,” Tsur Somerville, a professor in the Sauder School of Business at University of British Columbia said in an interview. “Depending on where you live, you can likely expect prices to fall further.”

Somerville, in a study released this month, looking at the relationship between house price and rents estimates that housing prices in some Canadian cities such as Regina, Winnipeg, Ottawa and Montreal, would have to drop as much as 20 per cent to be in balance. The professor found only Toronto and Edmonton house prices were not overvalued in the first half of 2008.

Put another way, average Vancouver house prices would have to fall by $85,000, in Winnipeg it would be $74,000 and Ottawa $81,000.

Just because homes are overpriced doesn’t mean the market will plunge to equilibrium, Tsur said.

Toronto housing prices are not out of line because they have not had the explosive growth of other cities, Sommerville said. “Some cities look way out of line when you run the numbers, but Toronto is bang on.”

Sommerville cautioned that the study was based on existing detached home prices and rents and did not include condo stocks.

I wonder what that study would show if you included data from the price/rent ratio of condo stocks.. We do have quite a few condos in this fair city of ours, with thousands more currently under construction.

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YLTNBoomerang
YLTNBoomerang
12 years ago

Checked out "The Rise". Seemed good at first, then counted all the stairs that are "not included in sqft calculations" – BS, they are and with three sets in the tiny units you can dream on. Next, the decent sized units have no storage space or one tiny closet in the bedroom and none by the door – they are decent sized because they left no room for storage. Speaking of storage, if you want a locker, that's extra. Oh, and the place is zoned live/work so if you want to rent, you have to pay GST on the workspace regardless of whether you are using it as live work – extra 50-75/month, cha-ching. Then parking, oh yea, $100+gst/month for parking; cha-ching. Oh I thought, at least they have nice big balconies for bbq's, something you don't see anymore…oh, NO… Read more »

dug
dug
12 years ago

Just as housing markets take longer to tank than stock markets they can take a lot longer to rise again as well. I think I read that anyone who bought at the peak of 81 didn't see their vancouver house hit that price again until 1996, that's 15 years! And thats just break even, never mind the fact that transaction costs are much higher on real estate, and generally you want an investment to return a profit, not just break even.

Drachen
Drachen
12 years ago

Increased liquidity will always result in the possibility of greater turns, just as lower liquidity will always cause slower turns.

In just one week many major stock markets have lost up to 10%, I defy you to find a real estate market that drops that quickly.

The average selling time for a house is measured in months, for stocks it can be minutes, it's like comparing a blue whale to a dolphin for it's turning ability. Sometimes the dolphin will turn more slowly than the whale but even a moderately quick turn by the dolphin cannot be matched by the whale.

dingus
dingus
12 years ago

"It doesn’t strike me that an asset has to be liquid for it’s implied value to tank in very little time."

Best sentence I read today. Other than the misplaced apostrophe, I mean.

arbitrage
arbitrage
12 years ago

MickeyFinn, sounds like we're agreeing on the same bits except for the foreign ownership thing – though i have no numbers/anecdotal evidence to contribute except for pointing at the landcor study posted recently.

I guess it doesnt matter – there will be a forced sale by the over leveraged – foreign or otherwise.

I just don't want MSM watchers bleating that it was wall street that killed vancouver's re market. And politicians calling for a foreign speculator tax.

MickeyFinn
MickeyFinn
12 years ago

Yeah, I would agree that stocks are more liquid than real estate… then again, we have seen 150 year-old Wall Street investment banks go from having a $50 billion market cap to bankrupt within the space of a year. You'll probably agree that investment banks (and global insurance giants) aren't exactly a liquid asset. It doesn't strike me that an asset has to be liquid for it's implied value to tank in very little time. As far as the amount of foreign ownership of Vancouver real estate. I'll have to diagree with you there. I was involved in the purchase of an extremely large tract of land in downtown Vancouver which had some developments in-progress that we as the purchaser had to complete (I.e. projects that had already been pre-marketed and sold). The number of units sold to non-Canadian was… Read more »

arbitrage
arbitrage
12 years ago

i mean

– stability (owners)

arbitrage
arbitrage
12 years ago

+/- some intangibles that are hard to put a value too:

– pride of ownership, etc… (owners)

– stability (renters)

– mobility (renters)

Plus a bunch of other qualifiers to make my statement more grey and reasoned.

arbitrage
arbitrage
12 years ago

Regarding speed of bubble deflation – not sure if we can draw this parallel, since stocks are more liquid than real estate.

Re: foreign investors

based on a landcor study posted previously – foreign investors were never a big part of the vancouver housing market.

So although in tune with the direction "we" want the housing market to move in, i don't think we should use foreign investors bailing as the main reason.

We do not need external reasons when the numbers speak for themselves – when renting is cheaper than owning, owning real estate is over valued.

MickeyFinn
MickeyFinn
12 years ago

The Chinese stock market is now down over 70% from its high of the past year. Chinese authorities are taking measures to restore calm in the markets. The Russian market has been shut down by the authorities after absolutely plunging this week (down 25% in a single day). The US government has just bought 79% of AIG (the global insurnace giant) by providing an $85 billion loan all in the name of enabling an "orderly liquidation" of AIG's one trillion in assets. And that on top of the bail-out of Fannie Mae and Freddie Mac and after having issued cheques to every US citizen to kick-start the US economy. What does this all have to do with Vancouver real estate? Plenty. First, it shows just how easy it is to deflate a bubble… and to do so very fast. Second,… Read more »

oziijjiizo
oziijjiizo
12 years ago

for real estate followed by many more years of steady depreciation and good times for all.

yesss! affordability…..

a bears' wet dream!

john
john
12 years ago

You bears make me laugh. This is just a hickup on the way to a soft landing for real estate followed by many more years of steady appreciation and good times for all.

oziijjiizo
oziijjiizo
12 years ago

Where have all the bulls gone?

Welcome to the running of the bulls

YVR RE style…

exit stage left!

patriotz
patriotz
12 years ago

How’s the basement suite?

Really easy on the net worth and disposable income, thanks.

slade
slade
12 years ago

To Drachen,

Maybe they have a life? How's the basement suite?

Drachen
Drachen
12 years ago

Where have all the bulls gone? Too busy trying to sell?

Drachen
Drachen
12 years ago

Well there's a new record in town. 20,333 inventory at Paul's, surpasses July's peak of 20,280. So much for sales picking up in the fall huh?

patriotz
patriotz
12 years ago

In any case, I don’t remember where I read the stat, but Moscow has the highest price/sq. ft of any city in the world (real value, not relative to anything. This statistic is probably for new development in the central (expensive) area. All such development is high end or ultra high end, and this skews the statistics. Existing Soviet-era stock is much cheaper, although not cheap by any standard. You read all sorts of crazy "statistics" about costs in Moscow that are actually for luxury lifestyles and have nothing to do with the other 95% of the population. 5000$ per sqft in Moscow. Nope, even the Western standard stuff is way cheaper than that. Take a look: http://www.evans.ru/search/?type=short&kind=s… Take a look at #9 and #10 at the bottom. $675/sq ft. Now that's pricey, but they don't compare too badly to… Read more »

zzbear
zzbear
12 years ago

I received a flyer in the mail recently from a realtor that sold a house in our area. House was listed for 469k and sold for 440k. The strange thing was that the DOM was 3 days. Why would they sell almost 30k less than asking after being on the market for only 3 days??? Another interesting thing is that I haven't seen a house sell for less than 500k in our area for a long time (even the little tear down ones on small lots). What's missing in this picture?

What Bubble?
What Bubble?
12 years ago

satv Says: May 29th, 2007 at 10:23 pm “and the next station is” where ever you go what ever you do I will be (not here)right there waiting for you. price up has changed the lyrics of richard marx. if you leave 11.5% up you will find 29.5 % up on next station. I mean to say if anybody think of moving you will be broken. anybody think of price fall the june numbers will disturb the picture. what can you take out of shoe box if you are a developer. Colleen said This is a case of the ridiculously rich and the rest of us. Why are we not considering the quality of life in Vancouver for its citizens as well as its development? Where are our elected, well paid politicians? We do not live in London, New York,… Read more »

Deja Dosh
Deja Dosh
12 years ago

#

14

dosh Says:

June 16th, 2007 at 9:15 am

We may have the ‘least affordable’ real estate in canada, but so far I havent seen that keep prices from going up.

Anonymous
Anonymous
12 years ago

even thums up2 realises the market is going to go down for the rest of our lives

arbitrage
arbitrage
12 years ago

oh, and not Prompton… Gateway Property Management 😛

arbitrage
arbitrage
12 years ago

i'm talking about the 2200/month, 942sqft unit.

arbitrage
arbitrage
12 years ago

re: the rise rent rates – i think they're going by $/sqft – their 1 bedrooms are large compared to yaletown.

I thought Prompton was their property manager.

…yep, they still are – they're going for $2.34/sqft (based on 1 of the units) – 1 bed, 2 bath. Bit high for that side of the creek?

Though, still lower than Spectrum's wishing rents (based on vancouverguy's stats)

Also, 1 bed 2 bath – what demographic is that? Perhaps dinks? Young ppl who like to entertain?