Royal LePage predicts falling prices
realpaul pointed out this Vancouver Sun article. The day after we got the news that house prices are falling in Vancouver, Royal LePage has released a market survey predicting house prices and sales will ‘decline towards the end of the year’.
However, he pointed out, “This should not be interpreted as a severe correction but rather a natural reaction to the market having peaked quite early this year.”
This outlook is at odds with the BCREA and CREA market surveys released a few weeks ago that predict flat or rising prices for 2010 and then falling prices in 2011.
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July 8th, 2010 at 3:18 am
@anonymous:
Correction: Prices in the US are still high. Apart from the real disaster areas like some Florida markets, prices in the US still exceed historical multiples of rents and incomes. Particularly places like Seattle and NYC that were slow to start the bust.
Prices in the US has been inflated for so many years that people have lost perspective on what fair pricing really is. In most markets, that’s 3x median income. That goes for here, too, although historically Vancouver has been 4x income.
July 8th, 2010 at 1:34 am
@Gordon C.: I’m not sure why your comments got voted down.
It was a good discussion and I tend to agree with you; markets are interconnected and complexity spills over especially when you are looking at projections of yeild going into the future.
July 8th, 2010 at 12:50 am
@jesse: Personally, I think an employer of last resourt (ELR) labour pool could probably help them create inflation along with a long list of other benifits.
http://www.thomaspalley.com/do.....ployer.pdf
However, republicans/austrian economics would argue it would rain fire and puppies if this went through so I don’t think this would ever pass.
Note the chartalist taxes drive money concept should be thought of broadly. Example: food is a life tax that must be serviced.
July 8th, 2010 at 12:19 am
@Dyugle, @“A-sharp” Accountant: Check out Mainstreets vaccancy rate numbers. Their terrible. It would be interesting to read more about this one and do analysis when i have time.
In regards to what to target, Rona is good, as well any furniture companies would be decimated once household formation drops off. Alternately taking some form of a long/short spread using options against SP500/TSX in terms of USD would be safer but may not pay off the same way.
July 7th, 2010 at 11:54 pm
#113 Chip. Your spot on. There is no noticable buisness climate in Vancouver. Compared to Singapore …..well there is no comparison. Vancouver has completely mismanaged its development, it’s backwards. Singers , for example, is mixed commercial and residential along the waterfront Esplanade and canals and that brings a lot of people down to the waterfront.
The seawalls are lined with businesses and restaurants where people can enjoy making commerce.The seawalls are dark and empty here, good places to get mugged, raped or step in vomit and dog shit, they’ve designed them as unusable dead zones for ‘jogging’. Hey….douchebag planners, not everyone wants to run, bushwalk or cycle on their time off. Some people want an upmarket lifestyle that does not include the grouse grind. I hardly think that giving the homosexuals a discreet place to have public sex should have been the focus of the Vancouver planners.
For a place thats so ‘international’ none of the businesses have head offices here. Singapore is packed with open lively markets, above and below ground for every type of weather. Food can be had in and out without restriction. Vancouvers planning dept has ruined a Singapore like location and permanently consigned it (Vancshithole) into the toilet bowl. Vancouvers population has become a parasite within itself, selling real estate and pot to one another, there is no commercial hub. When the real estate money gets cut off, the entire place will wither and die.
July 7th, 2010 at 11:52 pm
If a big crash happens in Canada and there are lots of foreclosures, who loses money on those mortgages? Banks, Government, Insurance companies???
…..
Your logic makes sense but your premise is faulty.
..
This was just a question. If many defaults/foreclosures happen, such as in the USA, who loses the money, mortgages are insured, will the bank lose money, insurance company who insured it or the government who bought up loans to get banks lending? I’m not suggesting the government will bail anyone out, they already have. Who stands to lose the most if people walk away from mortgages?
July 7th, 2010 at 11:40 pm
@fatjay: “But to calculate current yield you still have to account for operating costs so it would be net income divided by price … which you can’t compute from GRM alone.”
For very specific types of properties, with very well understood maintenance costs and tenant prospects, we can estimate very well expected monthly NOI. Gordon C is right that certain types of property cannot be properly valued by simply looking at GRM. But for a Yaletown condo with a very well understood set of inputs (i.e. rent coming in; ongoing taxes, maintenance, general administration, and some planned renovations some years hence going out) I think there is a very tight relationship between yield (however it’s defined) and GRM.
Appraising isn’t a 5 week course at the community college. It’s complicated and high stakes. But there must be some admission that for some of the simplest real estate assets around, namely residential condos or apartments, the calculation should be simple, at least as a first pass estimate of investment value. If a condo/apartment price doesn’t even come close to this first-pass estimate it’s unlikely any more detailed calculations will markedly improve matters.
July 7th, 2010 at 11:23 pm
@VHB:
I don’t know if the dust has settled yet, but going back to the original argument:
GRM is by definition Price divided by Gross Rent (Gross Rent Multiplier).
Any useful definition of Yield is definitely much more than just gross rent divided by price.
As you conceded, there are more particular types of yield, but in the most basic form you have the “Current Yield” that you referenced (I think in real estate that would equate to the cap rate). But to calculate current yield you still have to account for operating costs so it would be net income divided by price … which you can’t compute from GRM alone.
You can argue semantics and say that gross rent divided by price is “a yield rate, not The Yield Rate”, but it wouldn’t be useful, and I don’t think it was the original intent of question.
July 7th, 2010 at 11:14 pm
@VHB:
That’s the thing that always strikes me when I get back to Vancouver twice a year. Where is the business activity? Why are all the new buildings residential rather than office?
Singapore and HK have bubbly real estate prices but new (and full) office buildings are everywhere. When I hit my local coffee shop I’m just as likely to sit next to an informal meeting of the board for a satellite company discussing million dollar deals (yesterday morning) as I am to a guy and his financial advisor, gas workers from the Natuna field, a banker’s wife just back from viewing a $20,000 a month rental or some guys from an Indian med tech company having an ad hoc powwow about new markets in China.
It’s buzzy and I love it.
When I’m having a coffee in Vancouver, it seems there’s the guy from Remax, a mortgage broker, several students probably in their fifth year of study before becoming baristas and some flashy 20 somethings pulling up in their Beemers and $5000 cash in their wallets.
July 7th, 2010 at 11:00 pm
lol. Gotta love Mish’s “Housing Collapse Cascade Pattern” as it relates to Canada/Vancouver. Which stage are we at? I say we are at point #3. Other guesses? Timeframe? Tiimmmmmbbbeerr
http://globaleconomicanalysis......rcent.html
Vancouver Home Sales Drop 30 Percent , Calgary 42 Percent – First Comes Volume, Then Comes Price; Canada Housing Peak is Finally In
This pattern is quite similar to how things cascaded in the US once the top was in.
“Housing Collapse Cascade Pattern”
•Volume drops precipitously
•Prices soften a bit
•Inventory levels rise slowly
•High-end home prices remain relatively steady for a brief while longer
•The real estate industry tries to convince everyone it’s “business as usual” and homes are affordable because rates are low
•Bubble denial kicks in with media articles everywhere touting the “fundamentals”
•Stubborn sellers hold out for last year’s prices as volume continues to shrink
•Inventory levels reach new highs
•Builders start offering huge incentives to clear inventory
•Some sellers finally realize (too late) what is happening
•Price declines hit the high-end
•Increasingly desperate sellers get creative with incentives, offering new cars, below market interest rates, trips, etc
•Gimmicks do not work
•Price declines escalate sharply at all price levels
•The Central Bank issues statements that housing is fundamentally sound
•Prices collapse, inventory skyrockets, and builders holding inventory go bankrupt
July 7th, 2010 at 10:59 pm
@Frank:
They are that bad. Median price for detached residential is only down to 455k from 460k in May, but…
http://www.omreb.com/page.php?sectionID=2
11 MOI for detached residential and 2 years for condos!
And only 17 lots sold before the July 1 HST deadline?! With an inventory of 864!
There are a few big developments which could come to a major standstill and future development will surely go on hold, especially with the HST in effect. Aside from the price cuts that are sure to come, those developers employ a lot of people in Kelowna’s tiny job market.
Things are looking ugly.
July 7th, 2010 at 10:46 pm
@Rob A., I think you meant: If you rent a place downtown, you don’t need a car because everything is so close. There are lots of cafes and restaurant just outside your apartment.
I was walking through the West End by Stanley Park today and noticed lots of for rent signs on nice buildings. Craiglist shows lots of place for under a grande, many with heat/hot water included. And no additional Strata Fees, Property Tax, Homeowners Insurance.
July 7th, 2010 at 8:57 pm
“If these guys are failing when money is free, imagine what would happen if we return to historical norms.”
I’ve been imagining it since I moved out here 7 years ago. Got a taste in ‘08, so most definitely welcoming a return to normal. I am concerned for the pain it will cause people though – most likely worse than the minor inconvenience of renting I’ve been doing for a large portion of that time.
July 7th, 2010 at 8:45 pm
@Frank:
Just take a trip to the Okanagan. Lots of For Sale signs, very few SOLDS. Too many people I know there (my hometown) have huge mortgages-one, two or three properties with up to $900k in debt (and the guy with $900k in debt makes $50k per year) Okanagan=ground zero for real estate meltown.
July 7th, 2010 at 8:45 pm
@No Longer Looking: “Many more “For Lease” signs on empty buildings throughout this city. Businesses are failing and new retail space is adding to the woes. Everyone with a set of eyes can see this.”
So true. The thing that astounds me is that this is happening in the *absence* of interest rate increases. Anyone remember what 1981 and 1991 rate increases did to small businesses? I do. Ow. If these guys are failing when money is free, imagine what would happen if we return to historical norms.
This economy of ours is built on sand. No, scratch that. On magic fairy make belief sand.
July 7th, 2010 at 8:19 pm
The numbers out of the Okanagan seem incredible.
http://fishyre.blogspot.com/20.....untry.html
Are they really that bad.
July 7th, 2010 at 7:48 pm
Another fail prediction from Van bears’ ass which contain no nutrient at all man;anyone believing them will be priced out and eat shit in their miserable retirement;don’t forget paying your rent on time.Old age and poverty doesn’t mean you guys will be exempted from your obligation to landlords who are smart enough in retirement preparation while those bears are wasting their money in beer and grass .
July 7th, 2010 at 7:43 pm
@junius: Junius, please stop using my account. Thank you.
Junius
July 7th, 2010 at 7:39 pm
Jenny,
Bite me.
Please.
Junius
July 7th, 2010 at 7:26 pm
Would somebody please help?
As you all know, we are running out of land, and Vancouver RE, being the best place on earth, is highly sought by the whole world.
I have 10 rich Asian friends who want to desperately buy a few properties (CASH), but are having great difficulty finding anything, as listings are almost non existent, and I was hoping that somebody on this site would have enough influence with RC to allow for comments on his blog so that I can leave my friends phone numbers where they can be reached.
Please time is of essence, they don’t want to miss out, as prices are set to rise again, and although, they are very rich, they too fear being forever priced out.
July 7th, 2010 at 6:50 pm
@Anonymous:
Those strata fees seem rather ridiculous to me; they work out to almost $8,000 per year! And that doesn’t even include property taxes! Yikes!
…It makes me wonder if there isn’t some “exceptional” maintenance going on around the building– leaky condo repairs funded by maintenance fees, rather than a special assessment…