The Flat Market Fantasy

It seems that everywhere around the world that house prices lept up quickly there was always someone predicting a ‘plateau’.  The idea that even if the market is overpriced the correction won’t come in the form of a crash, but instead property prices will stay flat and wait for income and rents to catch up.  This prediction is of course being applied to the Canadian real estate market as well:

Matthieu Arseneau, a senior economist with the National Bank, likes mortgage payments as the best yardstick. That’s because the evidence tells him that the rise of interest rates from today’s bargain-basement levels will be moderate. Based on this, he thinks it’s silly to foresee a housing crash, since monthly payments won’t get into distress territory even by the time rates peak in about three years.

That’s why Arseneau dismisses apocalyptic talk about a housing crash in Canada. As a cautious analyst, he doesn’t rule out any scenario absolutely, but Arseneau said Monday that this one is awfully unlikely: “I think there will be no collapse unless there’s a worldwide recession and credit crisis.”

Of course these comments regard the Canadian real estate market, not the Vancouver market specifically.  Can anyone name any real estate markets that have reached Vancouver levels and then gone flat?

Full article at the Ottawa Citizen.

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Leonila Scheinost
Guest

There is certainly only 1 boss. The customer. And that he can fire everybody inside company through the chairman on down, simply by spending his money some other place.
In the event the career you have chosen has some unexpected inconvenience, console yourself by reflecting that no career is without one.

Anonymous
Guest
Anonymous

@patriotz:
“At any rate, in economics as opposed to mathematics, something being possible in the short run and being possible in the long run are different things.”

My point is that a flat market is possible– even for a short time –regardless of an absence of examples. Just because an events probability is small in your model doesn’t mean it can’t happen. If the event probability is small the consequence of it happening is going to be difficult to determine because there will be little historical data. It’s a rare event.

The Vancouver market simply hasn’t behaved how anyone here (including myself) has thought it would, and I wouldn’t, at this point, completely eliminate any possibility, regardless of what the present situation looks like.

Anonymous
Guest
Anonymous

@ZRH2YVR: Interesting changes. Hopefully CRA and CMHC are in cahoots when HAM now has to verify an international income for the mortgage, but then claims none of it for income taxes

default
Guest
default

@ZRH2YVR: i thought you were moving to iran to take a double raise in salary? no?

Bilbo Bloggins
Guest
Bilbo Bloggins

@N:
Exactly, you need a rising market in order for the party to continue.
Flat prices won’t do it. In fact you probably need 5 to 6% nominal per year to keep this bubble inflated.

Bilbo Bloggins
Guest
Bilbo Bloggins

Matthieu sounds like Custer… underestimating the enemy

yvr2zrh
Member

Jesse –

I agree- This party is coming actually. Current model basically says it will happen in March. Could be as early as 2 weeks from now but likely 3 or 4 weeks. Wow – is it that time of year already?

The real test will be if the market dies so fast that we then manage to go up past the 2008 levels. My current models do not show this as listing volume will likely slow with a poor market without a credit crisis. The test of whether this is a slow or fast crash is our inventory on September 30 – – – the end of the buying season – – and the season at which those who had to sell and could not – set the new price level for the market.

jesse
Member

@ZRH2YVR: I’m not in the industry but I do know that large mortgages are approved without verified income as long as the LTV is low enough. OSFI completed its review of the financial system late last year and “continues to monitor”, code word for “the banks got caught making suspect loans not in the best interests of Her Majesty’s Government and we’re going to stop it”.

jesse
Member

@VMD: We’ll soon need a “crossover” party, where inventory surpasses the 2009 level, making it the highest periodic for-sale inventory in close to a decade. That looks be on track for March or April, but who knows, it might not happen (like 2010’s inventory run-up fizzling mid-year); the market has a lot of randomness!

yvr2zrh
Member
OK – just had a few minutes to get some of the insight. I don’t know all the mortgage processes that currently exist but this change sounds interesting. Whoever really understands how this works can correct me. Somehow, previously, as long as you put down enough on a purchase, the mortgage would be approved without the need to show any income to support the mortgage. This encouraged borrowing in many ways. You could show up in town (let’s say from China) with $X and as long as that was X% of the mortgage, the rest could be advanced without the need to show income. As a homeowner who had large unrealized gains, you could go get a HELOC and it would be approved as long as the appraisal came in to support it – regardless of your ability to service… Read more »
jesse
Member

@ZRH2YVR: Yes, changes to how loans are accounted, with countercylical capital and a bunch of other changes, are coming. It might be nothing but if I’m right and it’s not, it will be game over within a couple of years.

McLovin
Guest
McLovin

Thanks VanMD!

Are those numbers after the expirations drop off?

If so I would expect it to be hard to stay above 15,000 for month end.

Yalie
Guest
Yalie
@ReadyToPop: I can see the amortization change (just for optics sake and it will not make a very significant change versus a 30-year amortization), but I see no other changes,” says Pocock. “I know there are rumours of increasing the minimum down payment from 5 percent to 10 percent but many industry associations are fighting to prevent this. No kidding those “industry associations” are against 10% down payments. That’s because there is a HUGE difference between moving from 30 to 25 years and moving from 5% to 10% down. With a 5% down, lots of first time buyers will still be able to afford a house, even at 25 year terms, because they can still get a 5% cash-back loan from the banks. If the down payment increases to 10%, it’s unlikely the banks will offer 10% cash-back mortgages (since… Read more »
Batman
Guest
Batman

Anyone see the Joker?

TPFKAA
Guest
TPFKAA

@ZRH2YVR:
Wow. That would be huge… and long overdue. Would hurt consumption but is a necessary medicine before the debt bubble gets ridiculous. Will greatly diminish the ability of amateur specuvestors to get a downpayment and end many “bank of mom and dad” downpayments. Moreover, I know several families who live off an ever-expanding expanding HELOC to make ends meet. They will have to go into Kraft Dinner survival mode or sell to downsize.

If this goes ahead the market will tank a LOT faster.

RippedtoShit
Guest
RippedtoShit

Wow, this is getting fun.

Some great comments.

Rule changes .. pls keep us updated on anything else you hear….

VMD
Member

@McLovin:

Feb month-end inventory history:

2011: 11925
2010: 11346
2009: ~14500
2008: ~11500
2007: ~10500
2006: ~8000
2005: ~10500 

* 2009 and earlier inventory data were estimated from Agent Will’s (or paulB’s) previous inventory charts.
* paulB’s daily inventory level tends to be slightly higher than REBGV’s month-end stats.
* We should expect Feb 2012’s total inventory to be 23-24% higher than last Feb’s.

yvr2zrh
Member

I am not referring to 30—>25 being the new restriction – that had been speculated for months. This was serious – It the complete removal of a segment of borrowing from the market which is insurable and a complete change (possibly under OSFI) of what will be allowed to be lent and how the bank will be required to assess the borrower. Without going into details – the days of the HELOC as we know it could be numbered.

ReadyToPop
Guest
ReadyToPop

The speculation is Flaherty will, at the minimum, reduce the amortization period to 25 years from 30 years and possibly raise the minimum down-payment from 5%, potentially to 10%.

Tighter mortgage regulations expected

Anonymouse
Guest
Anonymouse

@TPFKAA:

“I saw on Garth Turner’s site a few days ago that he had heard that Flaherty was going to axe the 30 yr ammortization and go back to 25, but that it was not official yet.”

I think Garth is speculating. That doesn’t mean he’s wrong, just that it’s his guess.

good-format
Guest
good-format
Copied from paulb’s data. http://www.laurenandpaul.ca Date Listing Price(+-) Sold Inv Inv(+-) Feb 1 305 74 38 13368 Feb 2 251 64 155 13447 79 Feb 3 249 56 122 13548 101 Feb 6 325 82 113 13691 143 Feb 7 281 70 140 13793 102 Feb 8 516 138 214 14013 220 Feb 10 234 63 94 14108 95 Feb 13 314 106 133 14187 79 Feb 14 281 85 147 14273 86 Feb 15 254 60 112 14365 92 Feb 16 252 94 110 14411 46 Feb 17 225 84 148 14436 25 Feb 20 317 133 141 14526 90 Feb 22 239 96 135 14664 138 Feb 23 222 67 108 14709 45 Feb 24 220 88 112 14775 66 Feb27 294 129 107 14931 156 Total 4779 1489 2129 1563
stagnate
Guest
stagnate

anonymous says: A flat market could happen in Vancouver, just because it hasn’t been seen anywhere doesn’t mean that it can’t happen.

the condo market here has basically been flat for five years. four years ago i came on this site and predicted that in 2012 prices would be basically the same as they were at that present time. the usual clowns said that was an impossibility, and are still saying the same thing now. moral of the story- the market can potentially be flat, down or up, demand/supply and the macroeconomic parameters will dictate.

TPFKAA
Guest
TPFKAA

@ZRH2YVR: I saw on Garth Turner’s site a few days ago that he had heard that Flaherty was going to axe the 30 yr ammortization and go back to 25, but that it was not official yet.

JR
Guest
JR

“We have a construction boom; they have a bust,” said Abigail Fulton, vice-president of the British Columbia Construction Association…

And with those words we seek to hire construction workers from Ireland. Considering Paul’s numbers from tonight which is indicative of the overall trend, is it just me, or is the construction industry totally out of touch with reality?

If you’re coming here from Ireland to scoop up a job in consutruction, you might just be leaping from the frying pan into the pot, boyo.

Animal Spirit
Member
Animal Spirit

ZRH2YVR – sounds like internal information from a single – if true, signficant and not public knowledge (I couldn’t find anything on-line), then interesting questions are raised. Could be pure speculation of course.

Can anyone else find anything?