Vancouver Price Drop Shopping Spree!!
Yep, Vancouver house prices are dropping. The REBGV benchmark price is down about 4 percent since May 2008. I guess that means we only need another few percent to meet ‘equilibrium’ according to this recent Sauder study on overpriced Canadian real estate.
Interestingly enough that Sauder study compares asking rents from Craigslist, so another option to reach ‘equilibrium’ would be just to post a bunch of much higher asking rents on Craigslist. That way we wouldn’t have to deal with the indignity of dropping house prices.
In the meanwhile, potential first time home buyers watch prices drop and hope for affordability.
Got a better idea of what you could buy with that money? Leave a comment below!
September 11th, 2008 at 9:46 pm
Thanks Michael Randallbard. Great article. Took some time to digest.
September 11th, 2008 at 8:58 pm
Thanks Stagnate. So would you hold gold stocks or rather buys a Downtown Vancouver condo?
September 11th, 2008 at 5:40 pm
Tsur what…..
That still does not answer my question.
September 11th, 2008 at 9:59 am
The Pope,
It sounds like your site is crashed again but not yet the market,comment sections are not opening.
with best regard from enternal "tu2" magic triple quad hard drive.
September 10th, 2008 at 10:20 pm
Also, your second link is not an Economist article.
I know it's not. It's just a citation. The article is pay-per-view at the Economist website. But I downloaded a copy while it was free.
I really don't know much about natural gas or other commodities. Really all I claim to know is that the net rental yield for RE has to be above the cost of borrowing money in the long run. That's all you need to know about this bubble.
September 10th, 2008 at 10:01 pm
Anonymous,
Why are you anonymous?
How can we associate what you are saying to anything else you have said or will say? How should I take your comment?
Regards,
arit
September 10th, 2008 at 9:38 pm
neither really warned
That's exactly what I mean. Yes, in retrospect you can pull out an article or two that DOES warn, but the overall tone was very complacent. The occasional article that DID ring alarm bells seemed to really stand out for me for me, but I almost put that down to my personal bias. Almost, but not quite, for which I'm relieved, gratified and in a much better financial position than if I wasn't such a pessimist. "Economic Miracle" and all that just didn't sit right with me!
Also, your second link is not an Economist article.
BTW, I do respect and value your opinion, Patriotz. Don't take this as criticism. I am generally in broad agreement with you. Now that I've buttered you up a bit…. Do you think natural gas is worth going strongly bullish on? It sure seems oversold to me, I still have quite a bit of uncommitted cash doing almost nothing for me and want to place it. Sure is interesting times out there, huh? Kinda dangerous.
September 10th, 2008 at 9:28 pm
Arit:
You're starting to talk like Rob Chipman!
September 10th, 2008 at 9:22 pm
Aleks says: "The headline is correct, though, the study was flawed. No way does Regina have a bigger drop, in percentage or actual dollars, than Vancouver. Whether the realtors are right that their market isn’t as inflated as reported, I have no idea. It’s possible that a flawed methodology like the one used could end up with results that are too high in some cases and too low in others."
The UBC reports discounts each city differently. It takes expenses such as maintenance fees, etc. as a % of the purchase price. Given the historically high nature of these expenses as a % of historical prices – the Vancouver %'s are skewed to the low side and historically cheaper cities are skewed to the high side. So in Vancouver he starts with a low cost of capital % to use as a discount rate. Error #1. He then discounts the % that prices must drop (by reducing the cost of capital by his prediction of how much prices will increase in the future) by to come to equilibrium by assuming in his formula that prices will go up in the future at the same rate they did in the past…which is completely illogical as he includes the period 2001 to 2008 which had increases that were clearly unsustainable in the long run and historically as the price drops are proving – so why would prices grow as they rates in the future (grow a number a 5% on a compounding basis and watch it go to the moon quickly…kind of like prices from 2001 to 2008). Error #2.
You would think a professor at UBC would find the flaws in his analysis…but he's only an associate professor and the paper looks like it was actually written by one of his grad students and he oversaw it.
Pricing on the margin will drive prices down. What I mean by this is that those that are being crunched by being overstretched (cutting cheques each month to cover negative cash flow at one of more properties where rents don't even come close to covering the mortgage, bought a number of presales, etc.) or those that are just speculators – when they all run for the door they will drive down prices. Whether others in their buildings or area can hold out for a long period of time or not without reducing prices…pricing always occurs on the margin…ie – your property is worth what your neighbor sold for…not what it used to be worth or what you think its worth.
September 10th, 2008 at 9:20 pm
"BTW Friends of a cousin recently bought a house in Burnaby at $150K less than asking because the (desperate) seller had upgraded and was stuck with 2 mortgages longer than they had expected. Classic."
2 mortgages? Wow.. some are really expecting that others are going to make them rich.
Being a cheapskate and frugalist to madness, I spotted this bubble 7 years ago. Not from having a degree in economics, but common sense. I questioned as to why people were expecting so much, I questioned why people were willing to pay. I asked around and asked who is making more money, no body did or knew anybody who got raises, only more expenses. I knew it did not add up. The papers were saying one thing, and for each month that went by, the news paper world segregated even further from my world, a real world. Stone soup. And it went on for 7, seven! years!!!! Unbelievable. And here we are.
I dont like bubbles, I dont like fevers. In fever people become delerious, hallucinate and live in a surreal world.
Not healthy. It was a gold rush, and some paid a big price.
Either way, I figured this would have to burst in the seams sooner all later. What goes up must come down. I guess mother nature rules.
September 10th, 2008 at 9:19 pm
http://www.merriam-webster.com/dictionary/flint
with all due respect, mr. arit, flint is rock so you are splitting hairs with yourself.
That is why Freddie Flintstone is named Freddie Flintstone, get it? He worked in the quarry!
http://en.wikipedia.org/wiki/The_Flintstones
Well, you learn something new everyday!!! But don't forget about the God part! It is important to Tsuriel's name. Of course no God-fearing individual would just name their kid "rock", or "flint" to you. It has to have a greater meaning.
Oh, by the way, what does Arit mean?
September 10th, 2008 at 9:05 pm
Tsuriel,
We were discussing Tsur, not Tsuriel. Tsur means flint, as in flintstone. Tsuriel means "My flint is God", literally.
The website you mention is slightly wrong, as it says
my rock (צוּר, Tzur)".
Where it should be flint.
Regards,
arit
September 10th, 2008 at 8:55 pm
Oh BTW, I don't believe that there is a "credit crunch" in the US. If credit were really hard to get, interest rates would be higher. not at near-historic lows. I think that's pretty self-evident.
What has happened is that lending standards have returned to some degree of sanity, which looks like a "crunch" compared to no standards at all.
September 10th, 2008 at 8:51 pm
I must say, I’ve read both the NYT and Economist for a long time, and neither really warned of the credit crunch or the property bubble.
Wrong on both counts:
Krugman, That Hissing Sound, NYT, August 8, 2005
"Meanwhile, the U.S. economy has become deeply dependent on the housing bubble. The economic recovery since 2001 has been disappointing in many ways, but it wouldn't have happened at all without soaring spending on residential construction, plus a surge in consumer spending largely based on mortgage refinancing. Did I mention that the personal savings rate has fallen to zero?
Now we're starting to hear a hissing sound, as the air begins to leak out of the bubble. And everyone – not just those who own Zoned Zone real estate – should be worried."
Economist: In come the waves, Jun 16th 2005
"The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops
NEVER before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. Rising property prices helped to prop up the world economy after the stockmarket bubble burst in 2000. What if the housing boom now turns to bust?"
September 10th, 2008 at 8:47 pm
http://www.hebrewonline.com/hebrew_names/name.asp…
Tsuriel mean God is my rock. What the h*** are you talking about? Freddie Flintstone!
September 10th, 2008 at 8:24 pm
arit is right. Tsur is short for Tsuriel and it is his middle name. His works stand for what they are, regardless of his name.
September 10th, 2008 at 8:02 pm
Carioca Canuck Says:
September 10th, 2008 at 3:20 pm
Who on earth would name their child “Tsur” ? Genghis Khan maybe…….?
Actually it's a Hebrew name, means "Flintstone".
Everyday you learn something new.
Regards
arit
September 10th, 2008 at 8:00 pm
>>RVW_0824 Says:"Vancouver’s real estate market is over valued by 30% to 50% depending on location and type (single family, multi-family, downtown condo, etc.).
Here is the link to his study. http://cuer.sauder.ubc.ca/download/rese … ercost.pdf"
———————–
Didn't have a patience to read the whole article. But he does suggest 7-11% price drop for Vancouver market to be in equilibrium with rent.
I understand there are several overlapping trends.
1) Pre-construction and other speculators – those that don't plan to invest for longer than 2 years. They will panic and trigger the sale-out, but not all of them will – and not in all the districts they represent a majority. People have accumulated a lot of cash lately in realtor's and development business or upon sale of their Asian or East-European condo (where prices shot up waaay more then in Vancouver in the last 5 years), and they have to park their cash. With relatively low mortgages they can ride out few years of storm on rental income – for many of them rent isn't their only source of income.
2) People that bought 1-2bdr or townhouse for themselves in the last 2-3 years with 10-20% downpayment outside downtown core. They are paying 3.5-4.5% interest fixed for another 2-3 years, with monthly payments below $1,500 (this includes maintenance, and property taxes after the City Grant are laughable). Why would they sell – and go where – to rent out same 1bdr or 2bdr for $900? Short of a job loss, there is nothing to make them sell in a hurry.
September 10th, 2008 at 7:53 pm
Satv { 05.23.08 at 9:27 pm }
Do we have that mess of subprime here?do we have threat of terrorism here?do we have mass destruction from hurricanes?do we have BUSH here?
September 10th, 2008 at 7:49 pm
#
19
Dosh Says:
February 1st, 2008 at 2:27 pm
Well somebodies buying hughz – why does it matter where they come from? Maybe 25% of buyers are Albertans, maybe 50% is European. Who knows how accurate any of those numbers are? The demand is there, thats whats important.
September 10th, 2008 at 7:29 pm
http://tinyurl.com/5f5gqu
"China has joined the United States, Britain, Spain and others on the list of nations suffering a real estate decline" NYT article.
I must say, I've read both the NYT and Economist for a long time, and neither really warned of the credit crunch or the property bubble. They would mention the fears, and then get all reassuring and calm. I would get all flustered with my (un)common sense, gut feeling reaction to the ever-increasing debt loads, both consumer and corporate, and they would say not to worry, it's different this time. Somehow that never sat too well with me. They have both lost a LOT of credibility in my mind.
Last fall I lost a bit thinking the Canadian markets would be hit harder, but it's all come back and more, I've ridden oil down from $142 to now in HOD, with more coming in TSX and financials bear funds as well. I have become a deflationista I guess!
The GVRD RE market is just a sideshow really, the troubles with the economy are a LOT deeper than us. The fall in RE will be spectacular all right, we very much had a local bubble, but on top of a more widespread world-wide credit bubble. Now both are deflating at once. Everything you consume is going up all right, but that's not inflation, just price increases. Real inflation is more to do with things you OWN, and all that is DEflating as we speak.
September 10th, 2008 at 7:29 pm
Where is the 2000 gold Mike?
September 10th, 2008 at 7:20 pm
can someone explain the recent strength in the US dollar.
Maverick McCain" and the Resurrection of the US$
http://www.financialsense.com/Market/daily/tuesda…
September 10th, 2008 at 6:39 pm
Oh, the Regina response is nothing. You guys should have seen the tempest in the Saskatoon media over the Merrill Lynch report, back in August.
It was declared to be OVERWHELMINGLY wrong. Utterly utterly wrong wrong wrong wronger than wrong. By everyone: print, radio, TV.
And those 1700+ properties on the market? That's just people testing the waters, they don't really mean to sell.
And the fact that there were only 224 sales in August, a 44% drop from last August and the worst sales for August in a decade? It's just been a little rainy.
And the fact that housing starts are falling? see above.
And the fact that housing prices are falling? Seasonality!
After all, prices haven't fallen in Calgary or Edmonton! They're stablizing! We have such a great economy! Everyone's moving to Saskatchewan!
Whistlin' in the dark, walkin' past the graveyard…
September 10th, 2008 at 6:26 pm
The comedy is in the dissing, not whether the report is correct. I'm amused by the public trashing.
September 10th, 2008 at 5:12 pm
“Oh man, this is comedy gold. Regina realtors are totally fired up about the UBC housing report. The top guy at the Association of Regina Realtor goes so far as to question Tsur’s intelligence. For real. Seriously, this is too funny. Am I crazy to get such pleasure from this?”
How do you know Regina isn't world class like Vancouver and has de coupled from the rest of the world???
"it is big dumb who buys not now in Regina before next leg up rich asian and city is Regina"
September 10th, 2008 at 4:43 pm
"Oh man, this is comedy gold. Regina realtors are totally fired up about the UBC housing report. The top guy at the Association of Regina Realtor goes so far as to question Tsur’s intelligence. For real. Seriously, this is too funny. Am I crazy to get such pleasure from this?"
The headline is correct, though, the study was flawed. No way does Regina have a bigger drop, in percentage or actual dollars, than Vancouver. Whether the realtors are right that their market isn't as inflated as reported, I have no idea. It's possible that a flawed methodology like the one used could end up with results that are too high in some cases and too low in others.
September 10th, 2008 at 4:39 pm
jesse – that kind of sarcasm is not attractive – we can't all be as smart as you
September 10th, 2008 at 3:20 pm
Who on earth would name their child "Tsur" ? Genghis Khan maybe…….?
Pope….
Spit my coffe out when I saw your graphic…it's brilliant !! Stopped laughing enough to type…..gonna wait a while longer….and then buy me a dozen of them thar pricey monkey's and start up a real estate office.
Licensing should be no problem.
September 10th, 2008 at 1:46 pm
"Friends of a cousin recently bought a house in Burnaby at $150K less than asking"
Yeah my dogwalker's old roommate's friend's brother just bought a place too. Apparently he got a good deal below asking but I didn't ask by how much.
September 10th, 2008 at 12:39 pm
If some realtors are re-listing at higher asking prices, it's probably a desperate play to influence market psychology. "Better buy now as the market is stabilized and prices as starting to go up again." Fiddling with the prices is about the only thing a realtor could do. And it's probably easier to convince a sellar to increase the asking price rather than lower it. Greed is a powerful force concsiously and sub consciously.
It might catch a few stragglers, but the pool of greater fools is drying up, as is credit and money supply for the few remaining. Still I am amazed (and dismayed) when I hear of people buying now. sigh.
BTW Friends of a cousin recently bought a house in Burnaby at $150K less than asking because the (desperate) seller had upgraded and was stuck with 2 mortgages longer than they had expected. Classic.
September 10th, 2008 at 11:36 am
The Vancouver real estate market is heading into… Brickor Mortis!
http://www.wordspy.com/words/brickormortis.asp
September 10th, 2008 at 11:28 am
I think I might know what's happening with the asking prices going up.
Realtor said that places are now selling for about 5% less than asking. So if X is a fair price for a place, you have to list it for X+5% to play in the current game.
September 10th, 2008 at 11:06 am
Hardly. As you can see I know how to use html tags. The rest is logic and data.
September 10th, 2008 at 10:46 am
In other news, it looks like Washington Mutual, the "biggest U.S. savings and loan", is about to implode:
Washington Mutual Shares Plunge, Debt Risk Climbs to Record
September 10th, 2008 at 10:21 am
Vansanity:
“I’m just curious, what do you all do?”
I'm an IT project manager, currently specializing in call center infrastructure.
September 10th, 2008 at 9:26 am
"I'm perfectly willing to hear (complaints) that we don't have the weighting right,'' Somerville said.
..'and perfectly willing to ignore those complaints' he continued, pausing from his Craigslist research only long enough to take a large drag off his 'shangri-la' bong.
September 10th, 2008 at 8:16 am
"Regina realtors are totally fired up about the UBC housing report."
The lady doth protest too much, methinks. Somerville is likely closer to the mark with Regina than he is with Vancouver. It sounds like Realtors have confidence the buyers of Regina will prove Somerville wrong in time. They're probably right, though not in the way they would like.
September 10th, 2008 at 7:18 am
added the UBC study researchers have no understanding of the local marketplace. "Without any local knowledge, they're proclaiming our market to be overpriced."
….. said the UBC study provides a "misleading'' picture of the local real estate market.
……..
"You'd think these (UBC) guys would be a little smarter than that,'' he added.
finger pointing 101
September 10th, 2008 at 6:59 am
Can someone explain the recent strenghth in the US dollar:
yes, with the government buyout of Freddie and Fannie, there is some renewed consumer confidence. This is all that is required to push the dollar back up a few points. The US gov't will probably have to print more money as well to counteract the buyout.
September 10th, 2008 at 2:33 am
can someone explain the recent strength in the US dollar.
Cheaper oil
September 10th, 2008 at 12:24 am
Oh man, this is comedy gold. Regina realtors are totally fired up about the UBC housing report. The top guy at the Association of Regina Realtor goes so far as to question Tsur's intelligence. For real. Seriously, this is too funny. Am I crazy to get such pleasure from this?
September 9th, 2008 at 11:09 pm
Anybody buying a home right now must be out of their mind. The real estate is in a free fall.
September 9th, 2008 at 9:28 pm
the u.s. dollar currently is in a counter rally, has been in a down trend for numerous years now. basically, appears deflation is the current flavour of the month. the counter rally's don't last, the reasons for the dollar's downtrend keep worsening. inflationary and deflationary fears will oscillate for the forseeable future, brought on by the fact that u.s. debt levels are actually too big to be serviced by current revenues.
September 9th, 2008 at 9:07 pm
sptsx mkt cap c$1,500 Billion = down 19.8% from its high 3 months ago
tsx venture mkt cap c$52 Billion = down 50% from its high 3 months ago
C$ 326,000,000,000 ….. poof
oil is going to 250 … grain/corn fertilizers never going down rich asians need them … oh and they love gold and our real estate
when is the "its different this time" going to show up … oh yeah Dave real estate will only go down maybe 5%
September 9th, 2008 at 8:04 pm
hey nutslaps! yeah drachen, this morning "Oscar" pop out of garbage can to say buy before next leg up! "barney" shoot off rocket! ha ha yeah nutbags remember browntown say best time to buy is when everyone scared to buy! asses frozen at northern rock! ha ha ah
September 9th, 2008 at 7:55 pm
Not specifically real estate related but can someone explain the recent strength in the US dollar.