August 2012 Vancouver Market Outlook

B5Baxter posted this in the comment section yesterday, but the number of links tripped the spam filter and it was held up in moderation for a while.

We appreciate all market analysis and thought this one deserved it’s own post.

Here’s his summary of where we are in the Vancouver real estate market and roundup of forecasts:

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I have started to put together a monthly housing analysis update that I share with interested people. Here is the most recent one:
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Vancouver Real Estate Market Analysis – August 2012

July saw the lowest Metro Vancouver real estate sales in over a decade. Sales were lower than 2008 when prices saw a significant drop. And inventory has stayed near or above 2008 levels since the beginning of the year. That means that over the next few months we should see a drop in prices at least as great as we saw in 2008.

In 2009 prices recovered after interest rates were lowered and other government policies were introduced to stimulate the market. This time around there is less room to move interest rates and the federal government is signaling that they are interested in cooling the market rather than stimulating it.

The low sales and high inventory would indicate that we may be at the beginning of the long anticipated collapse of the Vancouver housing bubble.

Based on an analysis of price/rent, price/income and price/ gdp growth I am estimating that the current market is overvalued by 40-60% and we should expect to see declines of that magnitude sometime in this decade.

Average prices for detached homes in Vancouver have declined by 15% (www.yattermatters.com) from a peak in February. This is the first time we have seen five months of straight declines since 1996. Some individual asking prices have declined 20-40% (see: vancouverpricedrop.wordpress.com )

The Teranet index for Vancouver (usually considered a more reliable indicator than average prices of the overall market) has not shown the same decline. It has remained relatively flat but tends to lag other indicators. The REBGV index showed a 1.4% drop since May. This would be consistent with price behavior and inventory levels in 2008 when prices started declining in the second half of the year.

This graph ( http://vancouverpeak.com/groups/data-hounds/forum/topic/crash-curve-graphs/#post-2531 ) shows three of those metrics imposed on a graph of San Diego housing prices. I believe the Vancouver market is similar to the San Diego bubble market and the declines may follow a similar pattern.

If Vancouver prices did follow a similar trend to US prices we would see the 40-60% drop occur in 3-7 years.

Other estimates:

http://worldhousingbubble.blogspot.ca has estimated a decline of 41% and a time to bottom of 97 months (8 years).

The Economist magazine recently ( http://www.economist.com/node/21557731 ) stated that Canadian real estate is overvalued by 75% (this is an average for Canada, some markets like Vancouver may be higher).

http://alphahunt.ca has estimated a decline of “about 50%” from a March 2011 peak with a time-line of “5+” years

http://vreaa.wordpress.com/ has projected a decline of 50-66%

Pacific Partners estimates a 40% decline (http://pacificapartners.ca/blog/2012/07/18/canadian-real-estate-bubble-chart-book/#Table2 )

Investment Comparison:

During the last six months Vancouver Real Estate showed annualized return of 1.6% (using the optimistic HPI). During the first two quarters of this year the non-cash portion of my own strategic allocation portfolio returned 5.2%.

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ScubaSteve
Member
ScubaSteve
This crash has been a long, long time coming. The patience displayed by bears will be compensated with a crash unseen anywhere else in the world. Five years from now, Vancouver will be a city approaching bankruptcy and house prices will be lucky to have only crashed 50%. Once this thing heats up, there will be nothing to cool it down. No intervention from the government or the city. Just like a tumbling stock, we will see the layers slowly peel away. As prices crash, people who purchased years ago (2005/2006) and are watching their equity vanish will panic and list their places, hoping to salvage any equity they can in their properties. The burst will be fast and furious and stats will always be lagging behind by a month or so. There will be no “bounce” in the market… Read more »
Village Whisperer
Member
Village Whisperer

70-85%… still stand by it.

G
Guest
G

Ozzie said July 2012 is already 20% down from May 2011
http://www2.jurock.com/hotproperty/tips.asp

“The real estate market is down 12% on the average price – July over July … but a whopping 20% in price over May 2011!!!

July 2012 – $669,000
July 2011 – $762,000 – 12%
July 12 – $669,000
May 2011 – $834,000 – 20% !!

Volume is down too. Listings are higher.

Ozzie says: the market is down in sales by 25% … So what … You have to get your property into the 75% that sell.”

ScubaSteve
Member
ScubaSteve

@G:

With only 49 sales a day and 11,000 realtors fighting over it, looks like even Ozzie is getting desperate. How will be afford his mercedez benz and big old swimming pool without commission.

patriotz
Member

“Five years from now, Vancouver will be a city approaching bankruptcy”

Nope, property tax revenues don’t depend on assessments and municipal expenditures are non-cyclical (e.g. no EI or welfare spending). They will lose revenue from development permits due to a slowdown in construction, but they’ve been through that before. The city kept its AAA rating through the 80’s, and anyone who was around then can remember how bad things were.

Remember BC municipalities cannot run an operating deficit and the councils MUST levy taxes to meet expenses. If that means higher property taxes, tough.

The rest is pretty much on the mark IMHO.

ScubaSteve
Member
ScubaSteve

@ScubaSteve:

Whoops. I always get Bob Rennie and Ozzie Jurock mixed up. Sorry, how will Bob Rennie afford his swimming pool and mercedez benz without commission. Ozzie Jurock will be fine… he pumped the market up on the way up with his seminars and will pump it on the way down too. Probably sell more tickets to his conference this year as he switches to bear mode. “How to survive in this market”.

By the way, how’s Bob Rennie’s olympic condo pitch going?

registered
Member
registered

1 ScubaSteve Says: “…a crash unseen anywhere else in the world.”

Vancouver possibly but not Canada. It will be hard to outperform Ireland’s collapse. We might have to settle for Bronze.

ScubaSteve
Member
ScubaSteve
@patriotz: @patriotz: Patriotz, Doesn’t matter if property taxes don’t depend on property prices dropping. If prices collapse 70 or 80%, who is going to be able to afford those property taxes when they cost as much as a monthly mortgage? Every homeowner in Vancouver is now a “shareholder” in the post-olympics city of Vancouver. Good luck selling a home for $400k that has property taxes of $6000 a year. That is why we saw $1 houses in Detroit… because the property taxes owing were more than the actual value of the land. As for Vancouver’s AAA rating, I’ll bet you that it is gone by the end of 2014. It’s a done deal. Once that happens, Vancouver’s debt load suddenly gets a little more scary. A city must be self sustaining and if we revert to the mean real estate… Read more »
registered
Member
registered

8 ScubaSteve Says: “If prices collapse 70 or 80%, who is going to be able to afford those property taxes when they cost as much as a monthly mortgage?”

Unless they lose their jobs, in which case they probably couldn’t afford the mortgage either, why would a property collapse lessen the ability to pay the taxes they do now?
You’re also greatly simplifying the situation in Detroit, the median house price in the core hit $7000. It doesn’t take many years of back taxes to push a home value negative. In your Vancouver example it would take over 60 years to create a similar situation.

http://www.businessweek.com/the_thread/hotproperty/archives/2009/03/the_median_home.html

joe_blown_away_by_high_housing_costs
Guest
joe_blown_away_by_high_housing_costs
Vancouver Sun article says RE prices will increase next year: ““A recent tumble in home sales coupled with a drop in headline prices have some wondering (hoping?), whether Canada’s longtime poster child for a potential housing price bubble is set to burst,” the report concluded. “While a weakening state of demand in Metro Vancouver makes short-term price drops a near certainty, we expect that declines will be both modest and temporary. “Prospective sellers are expected to respond to weaker market conditions by curtailing listings activity, which will limit excessive inventory in the housing market. Short of another recession and large-scale job losses, market activity in the Lower Mainland is expected to be characterized by a relatively low sales and a flat-to-weak pricing environment.” According to Central 1, B.C. as a whole should also see prices decline this year before rising… Read more »
HipsterBear
Guest
HipsterBear

Average overlaid with Case Shiller. Great work.

patriotz
Member
@ScubaSteve: “E.g., if property taxes go up 5% every year forever, but house prices only go up 4% per year forever, then eventually, at some point in the future, property taxes will exceed the actual house price” Just for fun I’d thought I’d figure out how long. Current rate in CoV is 4.05077 mills (all levels). That is, a million dollar house pays $4050.77/year. For the annual property tax payment to equal the house price at the rates of increase you have given, it would take about 650 years. Another thing to keep in mind, it doesn’t matter to the city whether the current owner is able to pay the property taxes. Just whether someone is willing to buy the house and pay the taxes. People buy houses and pay taxes in Canadian and US cities where prices are 20%… Read more »
patriotz
Member

Canada’s trade gap widens, imports hit record

The deficit was “much worse” than expected, said Krishen Rangasamy, a senior economist at National Bank. It is the largest trade shortfall since September 2010 and the third recorded this year following an earlier string of surpluses. The recent retreat in to deficit territory is a sign Canada’s main export markets are experiencing sluggish growth and showing weak demand for Canadian goods.

Gee, it looks like the miracle economy that Steve and Jim keep bragging about is actually being supported by borrowing money rather than producing things. What’s the likely outcome?

rp1
Guest
rp1

#1 @ScubaSteve: “As prices crash, people who purchased years ago (2005/2006) and are watching their equity vanish will panic and list their places, hoping to salvage any equity they can in their properties.”

If we see 2005 prices again, someone who bought in 2005 will be financially ok because they’ve been living in the house. They might feel uncomfortable as price drops eat away their “buffer”, but that’s life. If prices drop far enough it won’t make sense to sell. Of course, there’s usually somebody who needs to sell.

Anonymous
Guest
Anonymous

@patriotz: “Remember BC municipalities cannot run an operating deficit and the councils MUST levy taxes to meet expenses. If that means higher property taxes, tough.”

Yup and any significant increases of property taxes impacts the property values. Just another reason home prices will go down – higher property taxes across BC.

Anonymous
Guest
Anonymous

@ScubaSteve: “Sorry, how will Bob Rennie afford his swimming pool and mercedez benz without commission.”

Rennie is so stinking rich already he doesn’t have to worry. Plus new construction will continue and Rennie will get his cut of it. It is the real estate agents that will get hurt and have to find a new career.

JR
Guest
JR

I drove through Bellingham yesterday after a trip down to Seattle for a meeting. Half the cars there were BC plates. I went into Costco at 11am and the parking lot was completely full, 3/4 of the cars BC plates. The line at the crossing going into the US had to be an hour long.

Gas down there is about $0.75/L right now. What is the cheapest you’ve seen up here. It’s $1.25 at Costco in Abbotsford.

People aren’t going down there just because it’s cheaper or for holiday. They are going because their survival depends on it.

bcj
Guest
bcj

@ JR

I can assure you that gas does not cost 75 cents per litre in Bellingham.

Current cheapest in Bellingham $3.65 USD per gallon

http://www.washingtongasprices.com/Bellingham/index.aspx

Assume dollar at par, $3.65 / 3.785 litres per gallon = 96.4 cents per litre.

JR
Guest
JR

@bcj: Yeah I guess my math is off a bit 🙂 I though it was 3.85L/G. So I rounded a bit. Minor details. Still, what is the cheapest gas in Van proper?

jesse
Member

@JR: “They are going because their survival depends on it”

You mean “supporting their current standards of living depends on it. Survival is, with deference, hyperbole.

Vote Down The Facts
Guest
Vote Down The Facts

@JR: “People aren’t going down there just because it’s cheaper or for holiday. They are going because their survival depends on it.”

You were at Bellingham Costco. Does your survival depend on it? If not, why can’t that be the case for the others who were there too?

ffej
Guest
ffej

@JR: How much fuel are they burning up driving down and waiting in line at the border? Pennywise and pound-foolish.

These people aren’t filling up their vehicles and buying big blocks of cheese for survival, they think they’re getting a good deal but they don’t count their time or fuel burned. Unless they aren’t declaring purchases at the border to save on tax they aren’t saving much more than shopping online.

I suspect that Bellingham will get hit by a downturn in the lower mainland especially if the US dollar rises.

gordholio
Member
We bought gas Tuesday at Fred Meyer in Bellingham (as we often do on our grocery runs) @ $3.65/gal minus our $.10/gal Fred Meyer card discount = $3.55/gal. A couple weeks back it was $3.45/gal. This works out to approx $.95/litre, $.40 per litre less than current south Surrey prices. JR: Survival *may* be too strong a word, but when the Peace Arch lineup going south on a *Tuesday* morning (directly after a long weekend) extends past the oh-so-pink Pacifc Inn on Hwy 99, there’s clearly a very real need for the grocery/gas/clothing affordability of Washington State. I live a couple blocks from the border, and the lineups now are far, far longer and far more constant than they were even a year ago. Can’t say that I can think of *anything* that’s less expensive up here than down there.… Read more »
JR
Guest
JR

@Vote Down The Facts:@jesse: I think that is a better descriptor. However, most people are buying food there, not TVs. I don’t fault people for wanting to save money, but there was an article in one of the major news sites saying that the country is losing BILLIONS of dollars to cross border shopping.

Anyways I only bring this up because I’ve seen an increase of BC plates when I go through there, and the dollar has been at par for quite a while. Either the word got out that they don’t enforce food purchases for day trips or people are having to find more innovative ways to save money.

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