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:

_________________

I have started to put together a monthly housing analysis update that I share with interested people. Here is the most recent one:
—————-
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%.

Sort by:   newest | oldest | most voted
Colin
Guest
Colin

@Anonymous: It ended after 2000, same with the Chinese, there’s not an endless supply.

hehe
Guest
hehe

Sales up this month? Lookin more like 2400 instead of 1400… hehe

ScubaSteve
Member
ScubaSteve

@paulb:

Thanks Paul!

Anonymous
Guest
Anonymous

@Colin: Yes, they said the same about the Hong Kong wealthy, … and they were right. Thousands of them now live in Vancouver.

Proud and extremely rich Chinese home owners
Guest
Proud and extremely rich Chinese home owners

@Anonymous:

China China China we are long for your present to protect us from those idiot bears.

Colin
Guest
Colin

@Anonymous: They say the best time to buy is when no one else is buying but a boom appears unlikely? I think the Chinese thing is finished, they used to say the same thing about the Hong Kong wealthy years ago.

Colin
Guest
Colin

@UnagiDon: Makes sense, renting and owning cost about the same right now but i feel better about renting.

Anonymous
Guest
Anonymous

@Colin: Exactly, … a tight rental market plus lots of HAM itching to get out of China, and the market will skyrocket! Better buy right now to cash in on the new boom.

UnagiDon
Guest
UnagiDon

@Colin: “Interest rates are pretty low again, a lot of people might buy rather than sit on the sidelines. I’m worried about that.”

“again”? Don’t you mean “still”?

Well, you have no need to worry. It is *decreases* in interest rates that jolt buyers into action, not sustained interest rates at the same low level.

paulb
Member

New Listings 195
Price Changes 119
Sold Listings 120
TI:18816

http://www.paulboenisch.com

Colin
Guest
Colin

@Anonymous: Interest rates are pretty low again, a lot of people might buy rather than sit on the sidelines. I’m worried about that.

Anonymous
Guest
Anonymous

@Colin:

What are you talking about?

Colin
Guest
Colin

You guys noticing how tight the rental market is getting? I think a lot of pent up demand is brewing. 2013 could be the new 2009. Just saying….

Anonymous
Guest
Anonymous

@Anonymous: This can only mean one thing: a lot of HAM still to come! Brace yourselves for an ongoing RE boom!

Theo
Guest
Theo

@oneangryslav2: It’s worse than that, too cheap to even use craigslist! Man, times are tough in real estate!

oneangryslav2
Guest
oneangryslav2

@New Toronto Condos: Too cheap to use Google ads?

New Toronto Condos
Guest

love this blog. great to be able to compare the Toronto and Vancouver condo scene.

patriotz
Member

@Thinker:
“If everyone thinks prices will drop about 40% isn’t there a good chance prices will rise 80% = opposite.”

If everyone thinks prices will drop, prices will drop, because nobody will buy.

jesse
Member
@Anonymous: From the Economist article: “But the mainland seems to be having trouble keeping them. According to the report, published on July 31st, more than 16% of China’s rich have already emigrated, or handed in immigration papers for another country, while 44% intend to do so soon” I don’t know a lot about macro but, if it’s true that money is now fleeing China more than it’s coming in, it seems to raise the question why property sales in the “HAM” areas are now so lacking. Further, check out the graph in that article. Strange how BoP peaked in late 2010 and early 2011, right when “HAM” area prices went from ludicrous to plaid. Yet the article, from what I read, fronts a point of view that capital outflows are a sign the mice are leaving the ship. If they… Read more »
Navin R. Johnson
Guest
Navin R. Johnson

@Thinker:

Alright, dare you to layout a compelling argument for that. Good luck:-)

Anonymous
Guest
Anonymous

@Thinker: “If everyone thinks prices will drop about 40% isn’t there a good chance prices will rise 80% = opposite.”

Yes, absolutely! You should buy as soon as a possible and keep us posted on how much you make.

patriotz
Member

@JR:
“Trade or visitors bring back purchases? Big difference.”

No difference at all. Importing or exporting goods or services is trade no matter who does it.

UnagiDon
Guest
UnagiDon

@Thinker: “80% up in next 2 years wouldn’t be a 0% chance, agree?”

If you’re a frequentist, then your question is ill-posed since the outcome of the next 2 years is not a repeatable trial.

If you’re a Bayesian, then the answer is subjective and depends on your personal beliefs/model of the market’s parameters.

Theo
Guest
Theo

@Thinker: Other things that have a greater than 0% chance of occurring in the next 2 years:

-Alberta becomes a US state
-Sea levels rise 25′, Richmond underwater
-New 10 jail sentence for blog trolling

Anonymous
Guest
Anonymous

@GVREB: “We believe that Real Estate Professionals should remain within their expertise ….. ”

What if everybody already has a coffee?