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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[…] be lucky to get $400 and minus the transaction costs, will be down tens of thousands.” – kansai92 at VCI 9 Aug 2012 12:08pm Share: This entry was posted in 08. Overextended Buyers, 11. Regrets about Investing in RE, 14. […]

No Noise
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No Noise

@TNT #90

“Charlie don’t surf!” Sorry everyone, I just couldn’t resist. As a HAM believer let’s hope that charlie is smart with their money and goes surfin USA where prices are now sensible but a lot depends on what USA and CDN governments want to do as far as investor immigration – from what I’ve read on VCI, rules are tightening in Canada, not sure about the USA but I’m sure they need buyers – want to boost real estate the same way Carney wants to deflate Canada’s. Then again, if a million mainlanders are now worth 1.6 million there may be no stopping them. Funny they used that figure – isnt that the new Canadian requirement 1.6 mil?

Specuskeptic
Member

Germane to site but not necessarily topic. http://huff.to/Qi7jLh WHat 150K gets you in a variety of places. Good context.

Turkey
Guest
Turkey

@xyz: Yup to everything you said. This development is one of my canaries-in-the-coal-mine. To mix metaphors, it’s the Rob Ford of canaries: morbidly obese, delusional, and in search of a heart attack.

Woe be to anyone who bought one of these units. Luckily, seems like nobody has.

Groundhog
Guest
Groundhog

Yes, credit to good-format! Too much wine tonight I guess.

xyz
Guest
xyz

@xyz: @Groundhog: Actually credit goes to good-format 😀

Groundhog
Guest
Groundhog
@XYZ I see what you’re saying, but data is not shown for weekend days (assumed 0) and so I don’t think should be shown for a holiday that will also have 0 sales reported, even if work is being done. Average sales per day doing it the current way I suppose would look OK at the end of the month, but it will drastically reduce the average sales per day that you are reporting compared to just using weekdays, so that when sales are reported they will nearly ALWAYS be above or near average. I think reporting an average of 81 sales per day, which is what it would be only using days that sales are reported, is a much better representation and provides us a better # to compare to when sales come in each day. In the end… Read more »
xyz
Guest
xyz

@Turkey:
I rounded up to 5,000,000 for JUST the 15 unit complex after all the commissions and fees and plugged it into the handy dandy mortgage calculator. 25 years at 5% Monthly payment is $29,080.25

Based on 9 bachelors, and 6 1 bedrooms you’d be lucky to see $15,000 a month net expenses and taxes… VERY LUCKY…

Better yet, based on the sq footage in the ad it limits each apartment to a MAX of 520 sq feet. Though that is not taking into account hallways etc etc. So its really probably only about 400 sq foot per unit. This shortage of square footage makes the statement “Property Type: Multi-Family” laughable at best.

Go ahead and try to put a Family in one of those things!

good-format
Guest
good-format

I use da@Groundhog:

I use 7 Calendar’s data. It is more accurate than 5 working days. Realtors works every day. A holiday does not make the sales for a week less.

7-day avg used sales data from Aug 3 to Aug 9 divided by 7.

xyz
Guest
xyz

@Groundhog:
Actually I don’t see any skewing as numbers that would have normally posted August 6 would have to go somewhere… Looks like they are landing now, tomorrow might be another strong day (but i doubt it)

On another topic, I’ve noticed that the Realtor that sold the house we were renting a suite in early May, has only sold one house since but has about 12 new listings.

I’ve calculated his commission to be something like $30K for that sale… Mind you he has an entourage of about 5 assistants… Once he pays their salaries, and the Realtor companies cut wonder how much is left over

Anonymous
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Anonymous

@Colin:

What the heck are you talking about?

Groundhog
Guest
Groundhog

@good-format

Looks like your August 6th 0’s from the holiday are skewing the data, you should remove this date next time you post, but thanks for posting!

good-format
Guest
good-format
Copied from PaulB’s number http://www.laurenandpaul.ca Date Listing Sales S/L Price(+-) Inv Inv(+-) Aug-01 258 61 23.6 99 18,708 Aug-02 182 49 26.9 114 18,740 32 Aug-03 202 93 46.0 92 18,799 59 Aug-06 0 0 0 0 - Aug-07 232 113 48.7 128 18,784 -15 Aug-08 210 49 23.3 105 18,851 67 Aug-09 195 120 61.5 119 18,816 -35 Total-Cur 1,279 485 37.9 657 108 7-day avg 120 54 44.7 63 11 Total-EST 3,916 1,664 42.5 2,052 19,055 347
Best place on meth
Member
Best place on meth

@Anonymous: #50

From the Economist article:

“Chinese individuals may take up to $50,000 out of the country each year without special permission. Victor Shih of Northwestern University reckons that the richest 1% of Chinese households own $2 trillion-5 trillion of property and liquid assets. If they took fright, they could overwhelm even China’s vast foreign-exchange reserves.”

So, is the author a racist or is this merely a Fleudian slip?

crash king
Guest
crash king

I wouldn’t call it a big sales day. But for a Thursday it’s something to wake up and take notice of.

Conrad
Guest
Conrad

Another big sales day. I told ya’ll dont be expecting a crash now for all the reasons I have spelled out over and over…when will you listen

KopyrightKlepto
Member
KopyrightKlepto

@Colin:

“You guys noticing how tight the rental market is getting?”

I’m moving to a new rental house in two weeks. Our Price to Annual Rent is improving from 33 to 41.

Conventional wisdom says it is better to rent when ( Price / Rent ) > 20.

The rental market did not feel tight to me. We found an excellent deal on a beautiful home and negotiated rent down by 7% from asking. My wife is still very happy to be renting and her family is surprised by how nice a place we can afford as renters.

We’ll be comfortable here until it is cheaper to buy than to rent.

hehe
Guest
hehe

“The average could plunge below $1m this month.”

hehe. do you hear yourself? where is this NYC?

TNT
Guest
TNT

A huge sector of the Chinese is surf’n USA. Lots of sun cheap RE and yummy sush.

TNT
Guest
TNT

What will bring this market down is the people that have to sell and have to take big price cuts, in a very difficult sellers market this will establish a downward trend affecting all other listing’s.

Turkey
Guest
Turkey

Strathcona Edge is back on the map, with three red dots where last week there were none. All three, same realtor.

Are three condos not enough for you? You can also buy the whole building, and the (vacant, never occupied) retail space on the ground floor.

Apparently the building was intended as rental housing for seniors when it was completed in 2007. The city permitted the developers to repurpose it as a condo development. (I don’t wish to editorialize, but didn’t the city have a condo glut and a rental shortage back in 2007, too?) It’s been languishing on and off the market since then, with no signs of life apart from some droopy balloons and tired security guards.

The development is backed by a catchy name (“0810075 BC Limited”). We’ll have to wait and see what becomes of it.

jesse
Member

@Colin: “You guys noticing how tight the rental market is getting?”

Nope. Lots of applicants but rents are very stiff to any upwards movement.

“I think a lot of pent up demand is brewing. 2013 could be the new 2009. “

I don’t think there will be a shortage of dwellings any time soon, based on the data I track.

ScubaSteve
Member
ScubaSteve

@hehe:
“Sales up this month? Lookin more like 2400 instead of 1400… hehe”

Never seen anyone suggest sales averaging 80 per day in August is somehow a good thing. Shows how sad things have gotten – the bulls are so desperate they will settle for a 120 sale day now. News flash: We’ve had 485 sales in 6 days. With 16 days left to go, it puts us on pace for 1778 sales. The August average this decade is over 2700. The pace is likely to drop. More importantly though, prices are down big time in the first 6 days of the month. The average could plunge below $1m this month. If sales do pick up, all it means is sellers are more desperate and prices are coming down. Take your pick.

Anonymous
Guest
Anonymous

@Colin: Not an endless supply, but according to the article posted at comment #50 we have barely scratched the surface.

hehe
Guest
hehe

With 3% mortgage rates owning is dirt cheap right now.