What sets house prices?

Jesse put together a nice clear presentation on our housing market.

Check it out.

His argument is that the factors that set house prices are different for the long term than they are for the short term.

If short term factors drive up supply and pull demand forward, what happens in the future to balance this out?

With housing affordability in Vancouver hitting an all time low and sales scrapping along under 100 a day It sure looks like Months of Inventory is starting to flash a big warning sign for current buyers.

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Bag it and tag it
Guest
Bag it and tag it
@Vote Down The Facts/Annonymouse: “So why is it being quoted here if it shows a price drop? What’s good for the goose should be good for the gander, right?” There are hundreds of posters on this site, each with their own opinions on the significance of the avg price…we are not all the same. Those that have been following this site for years understand that AVG is but one metric among many that needs to be analyzed to get a full picture. The past 6 months avg price had been dropping, but the bearishness of this metric was backed up by other bearish metrics. In August, the avg price was the only non-bearish metric…everything else was extrememly bearish, which lead some to dig deaper and the explanation was simple. We are seeking the truth. The board is only interested in… Read more »
gordholio
Member

Grabbed my camera last week and grabbed some shots in and around my little neighbourhood. VREAA posted them today.

Figured you guys and gals might like to see a disaster in the making – a place where For Sale signs are crowded out only by a sea of construction debris.

So proud to live here.

http://vreaa.wordpress.com/2012/09/04/gord-goble-postcards-from-the-rubble-of-our-future/#comments

yvr2zrh
Member
Ticket booked . . . . . . 6 more days to go. I am one of those where the boomers’ child will leave because of real estate costs. Unlike others, I will leave because I can, the other side is one of the best places in the world and the work opportunity is better. The “Vancouver Life” is not available any more to any but the extremely wealthy (or children of the wealthy who can / will share their wealth with Children so they can have it as good as them). My computation of whether it was “worth it” to move here, pay more for real estate, have a less rewarding career and make less money was done in 2005. At that price point, it looked ok for me based on the investments in place and expected income. The… Read more »
Mort
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Mort

@an observer: if you remove the top 1% of SFH sales then the average for the month was a not so hot $1.065 million…

That’s ridiculous, you cant just arbitrarily remove the top 1% of a stat. Real experts know you have to remove the top 20%! 😀

oneangryslav2
Guest
oneangryslav2

@Anonymous:

S/L ratio around 25% so far for today

I’d be cautious about interpreting this as a harbinger of things given the relatively large number of new listings that we’ll see over the next couple of days.

Vote Down The Facts
Guest
Vote Down The Facts

@Bag it and tag it:

“Agreed…they’ve been telling us the avg should be ignored because it can be skewed by sales mix”

So why is it being quoted here if it shows a price drop? What’s good for the goose should be good for the gander, right?

Bag it and tag it
Guest
Bag it and tag it

@an observer: “it will be funny to see the real estate boards and MSM quoting the massive increase in average price this month, a metric they have abandoned so far this year”

Agreed…they’ve been telling us the avg should be ignored because it can be skewed by sales mix, and that we should be looking at the benchmark…so will be interesting. I have a feeling they’ll downplay the avg increase, since there has been a bit of a push lately to set seller’s expectations lower. It would be a mistake to spread the word prices are rising as it may lead to an unwillingness of sellers to lower prices causing sales to decrease further.

Anonymous
Guest
Anonymous

S/L ratio around 25% so far for today

Deliverator
Member
Deliverator

Answer: Buyers

patriotz
Member

@local observer:
Thanks for the info, I do remember the presidential campaign from that year (Nixon vs. Humphrey) but there were a lot more interesting things back then than the Republican primary campaign. 🙂

Nixon took George R. into his cabinet so I guess there weren’t too many hard feelings.

As for actual major party nominees who were born outside the US, there has been only one, John McCain.

an observer
Guest

To show how flawed average price is (both on the way up and the way down), if you remove the top 1% of SFH sales then the average for the month was a not so hot $1.065 million…

HPI will likely be down in August – it will be funny to see the real estate boards and MSM quoting the massive increase in average price this month, a metric they have abandoned so far this year!

Anonymous
Guest
Anonymous

@wallnut grove: ….What some don’t understand about Mainland Chinese, is that they are acting rationally. If the Vancouver market corrected 50%, they would be perfectly happy…

So, I guess they’d be ecstatic if they invested in RE in a place where there was no correction (or God forbid, prices went up), or is that contrary to come Confucius based investment plan?

I almost wish sales would pick up so all the Realtards trolling this blog would have something to do. Go wash your Beemers boys, it’ll make it easier to sell.

wallnut grove
Guest
wallnut grove
I’m not sure why so many Caucasian-Canadians on this blog, want to see a real estate collapse. It’s the Caucasian-Canadian community that will be hurt the most. What some don’t understand about Mainland Chinese, is that they are acting rationally. If the Vancouver market corrected 50%, they would be perfectly happy. If they leave their money at home it will be stolen one way or another by the sons and daughters of party members. So they are perfectly happy to have property, in a safe place, and don’t really care if the price goes up or down. High priced real estate, for Caucasian-Canadians, is their retirment plan. Once that’s gone, they will be destitute. A real estate collapse will be the death blow to the Caucasian-Canadian community in Vancouver. Other than a few bed-bug infested enclaves, the city will be… Read more »
local observer
Guest
local observer

re: Romney senior

Actually a big deal was made of George Romney being born in Mexico – he initially lied about where he was born, insisting he was born in the U.S. (he was attempting to gain the presidential nomination at the time) and then, when he was forced to release his birth certificate, just withdrew. He was born on a Mormon compound in Mexico because his family were on the run to avoid bigamy charges. He realized it was better to just quietly slink away from the national glare and position his son to try for the center stage rather than answer embarrassing questions.

Bull! Bull! Bull!
Guest
Bull! Bull! Bull!

It’s tracking 2008! And we all know what happened to the market after 2008. Soar like an eagle!

jesse
Member

@fixie guy: “Saying MOI causes price drops is a bit like saying high temperatures cause illnesses.”

Yes I agree with this, sales/listings is not the cause, but having distorted sales/listings is relevant for many. I wanted to highlight what MOI will likely be doing in itself, and leave the root causes for another discussion.

Again, thanks to all for the feedback. I’ve incorporated some clarifications and modifications in lieu of this.

patriotz
Member

@fixie guy:
“Saying MOI causes price drops is a bit like saying high temperatures cause illnesses.”

Exactly, high MOI means that a lot of sellers are asking above market (because someone asking market will sell in a reasonable time by definition), which indicates that the market price is not matching sellers’ expectations, which means that it is falling or at least not rising as quickly as before.

GVREB
Member
GVREB
Motivated Sellers Move Prices Downward in Extended Weak Market. FOR IMMEDIATE RELEASE ON VCI VANCOUVER, B.C. –September 4, 2012 – The extended weakness of the Greater Vancouver Property market has forced many motivated sellers to reduce prices significantly from their spring listing prices in order to sell their property. Sales volumes continued to languish at near record lows and daily sales volumes continue to decrease. Counteracting the low sales is the impact that market weakness has discouraged new sellers from listing their properties. This reduction in the pace of new listings has resulted in an overall decrease in the number of active listings compared to the number at the end of June 2012. Daily sales volumes continued to deteriorate first to 82 units per day in the first half of the month then to 71 units per day in the… Read more »
registered
Member
registered
@50 jesse Says: “Price drops lag MOI from my analysis….” From any analysis, MOI is a direct measure of supply vs demand. High MOI measures that supply is in excess of historical demand. Causality comes into the picture in finding reasons for the low demand or excess supply, not explaining why MOI precedes price drops. Prices drop because of the supply-demand function forming the basis for most schools of economics. Saying MOI causes price drops is a bit like saying high temperatures cause illnesses. Agreed that multiple factors influence that balance, for example rapid, unpredicted changes in population growth could fuel unanticipated and similarly rapid bursts of demand in an inelastic market. On the other hand it seems obvious that measured, predictable growth would be correctly anticipated by the market and result in marginal impact on prices. The acceleration of… Read more »
patriotz
Member

@604x:
” I’d suggest availability of capital determines the equilibrium price-rent ratio, not prices.”

The fatal flaw in the above is assuming that availability of capital is independent of prices. The mortgage financing model in the US was based on the assumption that prices would keep going up indefinitely, and when they didn’t, it collapsed.

Chip
Guest
Chip
@patriotz: “Yes do, that will show you how far right the GOP has moved since George Romney sought its nomination in 1968. If someone ran for president on George Romney’s platform today he would be considered to the left of Obama.” How so? The GOP was historically the anti slavery party while the Dems garnered most of their support in the Jim Crow South. As for Romeny Sr, he was devoutly religious, a businessman and CEO. Sure, he ramped up spending but, again, that makes him more like the GOP today, not less. And is Romney Jr a birther? Funny how that association is so freely thrown around but associations likethe following are not: Obama attended Jeremiah Wright’s church for 20 years and gave him $50 grand in the year before becoming president. Wright is famous for, among other things,… Read more »
patriotz
Member

@chip:
“Just google (Mitt Romney’s) father who as governor of Michigan in the 60s set up the state’s first civil rights commission and actually marched with the NAACP against discrimination.”

Yes do, that will show you how far right the GOP has moved since George Romney sought its nomination in 1968. If someone ran for president on George Romney’s platform today he would be considered to the left of Obama.

Interesting also that George Romney was born outside the US yet nobody made an issue of it, while Mitt hangs out with birther Donald Trump and jokes about birth certificates.

Van
Guest
Van

Anonymous – I agree. Prices are super hot, I figure people will want to make money and will list at ever higher prices to take advantage of the hot markets.

Anonymous
Guest
Anonymous

Hopefully the August “price increase” causes people thinking about selling to list. And it could very well act as a bull trap.

Van
Guest
Van

Why do actual sale prices keep rising while MOI are rising?