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Housing crash implications for banks

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If you haven’t seen it yet, you should really check out this post by Ben Rabidoux over at The Economic Analyst.

This report was put together mid-June and things haven’t gotten any better since then.

It’s a lot of stuff you already know, but some data you may not have seen and it’s jam packed with beautiful charts.

Check out the how the BC economy has grown in construction, but flatlined outside:

And there’s this little data point as well:

Before diving into the data, consider this fun anecdote: There are currently over 5,000 homes in Vancouver metro area for sale for over $1 million according to MLS.ca.  In comparison, the NAR reports that in April, just over 7,000 homes sold in the entire US were sold for over $1 million.  And this despite the fact that the US population is 135X greater than the metro Vancouver market, the average personal disposable income in the US is 20% higher than the Vancouver average ($37,100 vs. $30,800) while US per capita GDP is higher than the average for all of BC.

Do yourself a favour and read the full post over at The Economic Analyst if you haven’t already.

 

 

 

 

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AfroFrancophone
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Tales from the trenches:
Spent the long week-end in Harrison Hot Springs (beautiful place btw. the water was a bit cold tho…). For such a small city, the number of “for sale’ signs was mindboggling. Looks like those HELOC-financed summer homes are becoming a burden for some ‘well-off’ vancouverites…

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5 years 15 days ago
Jeff
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So is this post confirming that we all should have bought in 2004 or 2006 or 2008 when blogs like this were saying run for the hills?

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5 years 15 days ago
HipsterBear
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@Jeff: This post is saying to GTFO before it dawns on you that “standard deviation” doesn’t mean something is ironic.

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5 years 15 days ago
Anonymous
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@Jeff: “So is this post confirming that we all should have bought in 2004 or 2006 or 2008 when blogs like this were saying run for the hills”

To quote Mark Faber: During a bubble EVERYONE is right at some point.

Jeff, you may have been right in the past. Now the bears are right. Lets see how it works out for both the bulls and the bears in the end and decide who was more right.

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5 years 15 days ago
UnagiDon
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“There are currently over 5,000 homes in Vancouver metro area for sale for over $1 million according to MLS.ca. In comparison, the NAR reports that in April, just over 7,000 homes sold in the entire US were sold for over $1 million.” This is a bit sensasionalistic. Not all areas of the US or Canada are going to have $1m homes. Most of the population lives in areas with few expensive homes. So it doesn’t make sense to compare the number in Vancouver to the number in the entire US. Via MLS, I see around 14000 homes for sale in all of Canada over $1m. It makes sense that about 1/3 of them are in Greater Vancouver, being the 3rd largest but most expensive city. Via Zillow, I can check the number of $1m homes per state. I see 36000… Read more »
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5 years 15 days ago
Bailing in BC
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Just re-posting this since the last topic was so short lived. Here’s a little up date for you all on a situation in Squamish I commented on last year. Here is my original comment October 14th, 2011 at 12:58 am A local family owns two houses next to each other. They bought a third house directly next door and listed the first two houses. They demolished the newly purchased house and built a large house to accommodate the members of the family living in the first two houses. Then they wait…and wait. Almost two years latter the two houses are still on the market. They drop the price on one by $100k. Nothing. Then a couple of days ago, they drop the price another $100k and drop the price on the second house $300k. $400,000 down in just one day.… Read more »
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5 years 15 days ago
frank
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@UnagiDon:

I think it is presented a bit misleadingly but just to go by your own numbers. Vancouver has 5000 homes for sale over a Million with a population of 2.5 Million.

California has a population of 37 Million.

ie 14.8 X as many people.

So they should have 75,000 homes over a million.

But according to you they have less than one third that many. Even with San Fran and San Diego and Orange county and Bev Hills

So we must be a lot richer than them or…

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5 years 15 days ago
registered
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@5 UnagiDon Says: “This is a bit sensasionalistic.”

It’s about reasonable expectations of demand. That a market 130 times larger only moved 1.4 times more million dollar homes than Vancouver currently has listed says a great deal when almost all Vancouver detached homes are over a million. Flip the reasoning around, if your implied ~5% American sell/list ratio applies to Vancouver, it’s Armageddon given a detached inventory almost exclusively over a million.

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5 years 15 days ago
UnagiDon
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@fixie guy: US has ~150k houses over $1m for sale, and 7k sold last month, for an MOI of 20. Just like Richmond! Coming soon to VanWest?

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5 years 15 days ago
Mutt
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@Jeff: Oh Jeff, your wailing is like music to my ears. I do hope you stick around for the long haul.

Go buy more condos and let us know how that works out for you.

Remember: If you run into money trouble the library offers free internet access, so no excuse for not keeping us up to date on your investment adventures!

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5 years 15 days ago
boogeybear
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About now, Ben is wishing he had not added
“fun with anecdotes”.

Only an idiot would not understand that this was in jest. However, enough of them are now using this to discredit the entire analysis.

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5 years 15 days ago
Anonymous
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@boogeybear: Methinks you misunderstand the meaning of the word ‘jest’.

Also possible misunderstanding of the words ‘idiot’ and ‘discredit’.

Keep trying though, practice makes perfect!

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5 years 15 days ago
Best place on meth
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This point from Ben’s article stands out like a pink elephant in the room:

BC has net provincial debt of only 16% of GDP but has an economy very reliant on real estate related industries. Annual MLS resale dollar volume alone is equal to 20% of GDP.

20% of GDP?

So if sales dollar volume falls by 50% then BC’s GDP falls by 10%?

That would result in a Depression.

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5 years 15 days ago
specuskeptic
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Bank FUD with my coffee this morning. Scotiabank in full CYA mode. http://www.cbc.ca/news/business/story/2012/08/08/scotiabank-housing-report.html

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5 years 15 days ago
gordholio
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“Very reliant on real estate industries.” Understatement of the year. Just got my regular update from downtown YVR realtor Shaun Kimmins. I forget how I got on his hit list, but today’s entry makes for interesting reading. It goes thusly: ***** It’s always interesting for me to read the Real Estate Board of Greater Vancouver’s stats and see media reporting on the “Vancouver Market.” The reality of the current market is that different sub-areas and property-types are experiencing very different activity levels and resulting pricing trends and these trends do not always relate closely to the Board’s averages. Here are a few examples: Condo Listing/Sales activity in the following areas: Coal Harbour: Active listings: 212 (this is actually down from the same period last year when we hit 275 listings some months). Sold last 30 days: 8 Months of active… Read more »
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5 years 15 days ago
Makaya
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The joke of the day: Canadian house prices to slip, then likely stagnate for years Economists are arriving at something of a consensus where Canada’s housing market is concerned, projecting a drop in prices of 10 per cent to 15 per cent over the next few years, and notably in Toronto and Vancouver. [-10 to -15% over the next few years??? didn’t they get the latest stats about Vancouver?] And while they’re not expecting a U.S.-style meltdown, they are warning about the risks to the real estate market. And going forward, the market will largely stagnate. “Even beyond mid-decade, Canada’s housing sector faces the likelihood of a prolonged period of relatively modest sales and price gains,” economists Aron Gampel, Adrienne Warren and Mary Webb of Bank of Nova Scotia said today. “Historically, long cycles of rising home prices have been… Read more »
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oneangryslav2
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@Best place on meth:

So if sales dollar volume falls by 50% then BC’s GDP falls by 10%?

No. I don’t have time to explain right now, but you’re wrong.

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5 years 15 days ago
Anonymous
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@Makaya: Must be an inside joke. I bet you guys shared similar “jokes” in the early stages of the Big Meltdown of 2008!

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5 years 15 days ago
HAM Solo
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@ Meth

It’s not that dramatic actually. Ben is just comparing sales volume to GDP as a yardstick. Resale house values are not part of GDP. The things that would go into GDP are construction costs for the current year, real estate commissions etc.

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5 years 15 days ago
jesse
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@Best place on meth: “So if sales dollar volume falls by 50% then BC’s GDP falls by 10%?”

No, housing transactions are not included in GDP. As to why they are not, it’s sort of a clue that housing transactions result in no increased output, save: Realtor fees, mortgage issuer and broker fees, home inspector fees, mover fees, furniture store purchases, and lawyer fees, not to mention the inevitable renovations that ensue when new owners move in to the “handyman specials”.

But other than that, the sales transaction volumes aren’t counted.

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oneangryslav2
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@gordholio: Quoting the realtor: Given these stats and the recent sale of a north-west corner suite at Fairmont Pacific Rim at a price more than $1,000,000 below two more or less identical suites that sold in the same building a year and a half ago, it’s difficult to convince Coal Harbour buyers that prices are up. Reading between the lines this very much sounds like the lament of a realtor who can’t convince his clients to lower their prices to match the actual, rather than the REBGV-interpreted, reality. I get a palpable sense of of the realtor’s frustration: Realtor: “You should lower your price, or it won’t sell. Sales and prices are down dramatically since last year.” Would-be seller: “But I heard that while sales are down, prices [HPI] are actually slightly up, so I’m not moving off my price.”… Read more »
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Anonymous
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“Economists forecast five to 15 per cent drop in home prices.” http://www.news1130.com/business/article/390134–economists-forecast-five-to-15-per-cent-drop-in-home-prices Central 1: Of course, currently predicting a 5% drop this year and rising the following two years. Good luck with that, Shill Yu. But where’s Shill Pastrick these days? TD: Still estimating 15% — Rear view mirrors are so clean this season! Bank of Nova Scotia: “‘the risk of a sharper price correction’ in the Vancouver and Toronto condo markets.” Sharp like a bubble-pricking pin? Hmm. No, Scotiabanks’s report doesn’t read quite that way yet. Though if you consider, briefly, their conservative 10-15% nation-wide price correction estimate for this year, I wonder how this would bode for Vancouver? Case-shiller drop from peak was ‘only’ ~35% US-wide, and it looks to me many/most places could now be considered fairly valued. Still nice to see these all trotted out in… Read more »
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Best place on meth
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@jesse: @HAM Solo:

Thanks for clearing that up, I wasn’t sure what was counted.

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5 years 15 days ago
Patiently Waiting
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I predict at some point buyers of old condos are going to be required to have thousands of dollars in savings on top of their downpayment. Not sure if it will be the CMHC or lenders, or both, but I don’t see how such a requirement can be avoided.

If anyone remembers pre-bubble, they will recall how surprise assessments quickly put condo owners in bankruptcy and foreclosure. This will happen again.

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TNT
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According to some of the RE MAX sponsors at the West Van Harmony Arts Festival and Sothebys in N Vans Evenings in Edgemont… China is a coming, US is a coming, Europe is a coming, Japan is a coming, Iran is a coming….so you better buy now and fast. Hurry up don’t be stupid.

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5 years 15 days ago
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