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.
September 18th, 2008 at 5:02 pm
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 BBQ allowed, not even gas, you can use the common area one. Speaking of common area, heh heh, this is the best, they have a common party room that consists of a couch, chair, table and chairs, sink, and the excercise equipment (5 machines) WTF????? "Hello, I'd like to book the party room for a wine and cheese but do you think you could get the sweat stink out or ask the people exercising to not perspire".
Good luck Grosvnor!
September 18th, 2008 at 3:35 pm
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.
September 18th, 2008 at 3:00 pm
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.
September 18th, 2008 at 2:03 pm
"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.
September 18th, 2008 at 1:08 pm
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.
September 18th, 2008 at 12:18 pm
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 shockingly high.
You are right that "pride of ownership" is a real factor. There is plenty of real estate that will never change hands outside of certain families because it is irreplaceable. That's not going to make much difference to general price levels when there's 10,000 too many condos in Vancouver's West side. It only takes some of the stock of real estate to change hands for prices to plummet. Capitulation happens to the few but affects the general mind set of many.
Oh and one last thought… when markets go through upheaval, they frequently overshoot the point of FMV. In the same way that markets get over-heated they also get way to pessimistic. My guess is that by the fall of 2009 people may be predicting that it will take 10 years for the Vancouver market to recover.
September 18th, 2008 at 11:25 am
i mean
- stability (owners)
September 18th, 2008 at 11:24 am
+/- 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.
September 18th, 2008 at 11:21 am
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.
September 18th, 2008 at 10:22 am
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, and more importantly, Vancouver is not sheltered from the world economy. In fact, Vancouver is highly connected to the rest of the world's economies by the simple fact that surprisingly large amounts of our real estate is held by non-Canadians.
I have been a bear as regards the Vancouver real estate market for a number of years as I have watched every guy and his dog get into the development game. I have been even more of a bear when I look at the disconnect between rents and selling prices of identical units (how about investing in real estate with a cap-rate of 2) but I have wondered aloud just what would be the catalyst that would finally crash the party. Well, the devastation of the global stock markets combined with – and caused by – the global credit crunch could be just that catalyst.
Just imagine what it will be like for real estate sellers here in Vancouver if any sizable portion of the off-shore holders decided that now would be a good time to sell that Vancouver condo/house to repatriate the money back home to cover a trading loss or take advantage of the depressed price of an investment closer to home.
No-one knows for sure just how many units that have sold in the past five years have been sold to off-shore investors but we all know that it is a large enough number to be able to swamp the local market if Vancouver real estate should fall out of favor.
I get downright giddy at the thought of those same off-shore investors being "forced to sell" should they be experiencing margin calls or having bank loans called.
We could see an outright glut of real estate in our market and an outright collapse of prices.
Yeehaw.
September 18th, 2008 at 8:28 am
for real estate followed by many more years of steady depreciation and good times for all.
yesss! affordability…..
a bears' wet dream!
September 18th, 2008 at 8:14 am
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.
September 18th, 2008 at 7:36 am
Where have all the bulls gone?
Welcome to the running of the bulls
YVR RE style…
exit stage left!
September 18th, 2008 at 12:32 am
How’s the basement suite?
Really easy on the net worth and disposable income, thanks.
September 18th, 2008 at 12:08 am
To Drachen,
Maybe they have a life? How's the basement suite?
September 17th, 2008 at 11:14 pm
Where have all the bulls gone? Too busy trying to sell?
September 17th, 2008 at 11:13 pm
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?
September 17th, 2008 at 9:08 pm
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 Infinity really (with which they are comparable). Those apartments would rent for $1500/month or more so price/rent, although high, is not as crazy as Vancouver. Rentals:
http://www.evans.ru/search/?type=short&kind=a…
September 17th, 2008 at 7:43 pm
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?
September 17th, 2008 at 6:15 pm
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, Tokyo or Hong Kong. This is not Europe. We are Canadians-with our own histories, roots and expectations about how we live. This is what makes Vancouver such a beautiful and special place.
Sincerely,
Colleen
sir I beg your pardon but country’s self strength measure through on its self dependentness, issue is to decide if canada is self dependent to supply our needs,
I don’t think so
chinesenoodles,italian pasta,indian curry canada is multicultural socaity.most of stuff being import from all over the world so our canadian value can not control price’s and architectural structure.
if we can produce cunstruction matterial,and grocery we can reserve our value.
this is not to hurt any sentiments but this post I found suitable answer from best what i can think.
but related thing you can count like we have most jobs in communication not in any original production.so we are dependent on other.
in comunication people can only sell lottery.
September 17th, 2008 at 6:10 pm
#
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.
September 17th, 2008 at 6:02 pm
even thums up2 realises the market is going to go down for the rest of our lives
September 17th, 2008 at 4:00 pm
oh, and not Prompton… Gateway Property Management
September 17th, 2008 at 3:59 pm
i'm talking about the 2200/month, 942sqft unit.
September 17th, 2008 at 3:57 pm
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?
September 17th, 2008 at 3:52 pm
The 'calculation' appears to be a rent of $2.50/ft2 (based on $2050 for 820ft2, which would imply they're looking for $3625/mo for the largest units).
September 17th, 2008 at 3:26 pm
Who pays 2050 for a 1 bedroom place??? Has their research shown that there are people in Vancouver willing to pay that much, or is this based on various calculations to achieve a particular rate of return?
September 17th, 2008 at 3:18 pm
"more rich people will be moving to Vancouver to escape the crisis "
And what will they do once they find we have a CRISIS here as well?
regards
arit
September 17th, 2008 at 1:43 pm
The financial crisis in the US and Europe just means that more rich people will be moving to Vancouver to escape the crisis and RE will go higher from here.
September 17th, 2008 at 1:32 pm
Hey Patiently Waiting,
I love the line "Bring your investors" in that ad. It's so….. ominous!
September 17th, 2008 at 1:16 pm
The Rise is a Grosvenor property.
Grosvenor is the largest commercial landlord in the world, for example Annaccis Island is his. It's a Duke.
September 17th, 2008 at 1:07 pm
5000$ per sqft in Moscow.
meant real estate only. I’ve been to New York, been to London, but never Moscow… 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.)
Let’s see… I’ll try to find a linky
September 17th, 2008 at 1:01 pm
I think 'the rise' was always intended to be rentals, but they're very expensive and they've been trying to rent them for months. If they still have 92 units available I guess its not going so well.
September 17th, 2008 at 12:54 pm
What's up with this:
http://vancouver.en.craigslist.ca/apa/844583437.h…
92 Rental units available at "The Rise"? Is this a developer that decided to go all rental?
September 17th, 2008 at 12:46 pm
I recently got in a really heated discussion at work about prices in Moscow. My point of view is that since it is THE most expensive place in the world now
Patriotz said:
Except for housing, which is bad value but still way cheaper than London or New York, Moscow is actually cheaper than Vancouver. A bus or Metro ride is 70 cents, you can see a hockey game for $8, a beer at a cafe is $2.50, etc.
I meant real estate only. I've been to New York, been to London, but never Moscow… 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.)
Let's see… I'll try to find a linky…
Nope… I guess I could be wrong. Anyway, it's up there among the top ten, if not #1, for price/sq. ft.
September 17th, 2008 at 12:35 pm
For YLTN and others interested in downtown townhouses, I've added selling prices to YLTN's data. The selling prices are from Land Titles. Green means it sold for less than the last asking price…
http://spreadsheets.google.com/pub?key=pNx9_0kAZz…
September 17th, 2008 at 8:06 am
Jesse, thanks! Thats some detailed research, interesting way to watch values fall. On the rental front, I believe this is the tightest month of year as students going back to school are generally looking around this time.
September 17th, 2008 at 8:03 am
I think it's pretty obvious why people are buying:
They see a listing they like, they gather their courage and offer 10% below asking (they believe the "experts" and assume this is how much value of their new asset might POSSIBLY go down this year – after that is UP, UP, UP forever, again) and if the seller is smart (or his agent knows how to convince him), he accepts – BAM, sale done! This was unheard of a year or two ago, when bidding wars and pre-sale lineups were a daily occurrence. 10% below asking – WOW, what a deal!
So everyone is happy and feeling smart about themselves.
Look, even Mohican bought. And he's not stupid, is he?
You and I do not believe the "experts" crap, but majority of people could easily be guided over the edge of the cliff by lies and deception, as long as it's in print.
September 16th, 2008 at 10:26 pm
Anonymous,
Very few are buying now. Myself, I'm just spectating (not speculating). The first 2006-priced listings are showing up. But I'm strictly a 2003 guy.
September 16th, 2008 at 10:19 pm
Why are people buying? Are they that stupid? The market is crashing, can't they see?
September 16th, 2008 at 10:04 pm
PW, looks like they got a great deal on tile and couldn't help themselves.
September 16th, 2008 at 9:57 pm
ted: here you go
September 16th, 2008 at 9:50 pm
kinglankrat,
Yes, I hate it, and you notice the same tiles from the kitchen floor are used as siding. Totally insane.
September 16th, 2008 at 9:50 pm
“or to help unload their properties to a buyer. Oops, Harper already promised the latter.”
Can you send me a link on this? I would like to read more.
Already posted in #8 but here it is again:
http://www.thestar.com/FederalElection/article/49…
September 16th, 2008 at 9:43 pm
Patiently waiting, that first house you linked to looks like somebody watched too many episodes of 'flip this house'.