Why are sales and prices dropping?

Let’s carry on with our look back at September.

The official stats are now out from the REBGV and there’s some headscratching stuff in there.

Take this article in the Vancouver Sun for example:

Metro Vancouver home prices continue to drop as sales activity falls sharply below historical levels, according to the Real Estate Board of Greater Vancouver.

“We thought we’d see a slight increase in activity in September, but we didn’t,” said REBGV president Eugen Klein. “There doesn’t seem to be any urgency between either the buyer or the seller.”

I guess we’ve gotten so used to ‘increase’ (whether it’s prices or sales) that it’s confusing when the opposite happens.

And you’ve got to love that little bit of justification you see in every housing bubble, it goes a little something like this: “Well, prices might fall a bit in the poorer areas, but not in the hot areas!”

..but of course the hot areas are always the ones that fall:

Prices fell more sharply in expensive areas including Richmond, West Vancouver and Vancouver West, which saw a sharp run-up in prices in 2010 and 2011.

Vancouver West, for example, saw a 6.5-per-cent, year-over-year decline in the benchmark price of single detached homes to $2.09 million.

Tsur Sommerville has some theories about why the market is stumbling right now:

“This is the first time since 2007, 2008, when prices have come down by this degree,” added Somerville. “When you have nine months of continuous months of weak sales, it will show up on the price side.”

Somerville believes high prices, and reduced economic optimism, are behind the sales drop. “And cycles happen.”

The winning quote goes to Eugen Klein, who blames this market change on the federal government ramping back some of their market interference in the form of short amorts:

Klein said some of the fall-off in sales could be attributed to the federal government’s decision to eliminate 30-year amortization on government-insured mortgages.

“This makes homes less affordable for the people of the region,” said Klein.

Yes, as soon as house prices start to fall it puts buyers in a real pickle.  If they fall too far no one will be able to afford a home.

…oh, wait.  He meant ‘affordability’ as in huge long amortizations based on current low interest rates, not on overall price.

Some commenters here posted highlights from the data package.  Not much of a name posted this breakdown:

Overall – benchmark down 0.8% YOY – Down 0.6% MOM
Detached – down 0.5% YOY – Down 0.7% MOM
Apt – down 0.7% YOY – Down 0.4% MOM
Attached – Down 2.7% YOY – Down 0.8% MOM

..and VMD posted this historical comparison of Months of Inventory (MOI):

MOI  2012  2011  2008
Oct        6.6  14.1
Sep  12.1  7.2  12.5
Aug  10.7  6.5  11.4
Jul  8.6  5.9  8.8
Jun  7.8  4.6  7.5
May  6.3  4.3  5.4
Apr  5.9  4.4  4.7
Mar  5.3  3.2  4.8
Feb  5.5  3.9  4.3
Jan  8.0  5.7  5.5

VMD also posted this list of areas with the biggest sales declines:

SFH Stats Sept 2012: (ranked by worst sales decline)

Richmond:
Sales:-50% YoY, -10% MoM
Ratio: 22% vs 32%
HPI: -4.2% YoY, -1.3% MoM
Median: -9.8% YoY, -1.4% MoM

Burnaby:
Sales -49% YoY, -10% MoM
Ratio: 18% vs 35%
HPI: +4.2% YoY, -0% MoM
Median: -13% YoY, -6.3% MoM

Van East:
Sales:-48% YoY, -6% MoM
Ratio: 30% vs 51%
HPI: +3.2% YoY, -1.1% MoM
Median: -2.5% YoY, -0.6% MoM

Coquitlam:
Sales:-37% YoY, +16% MoM
Ratio: 30% vs 51%
HPI: +3.6% YoY, -0.2% MoM
Median: +0.4% YoY, -3.7% MoM

Van West:
Sales:-17% YoY, +15% MoM
Ratio: 27% vs 27%
HPI: -6.5% YoY, -1.3% MoM
Median: +1% YoY, +0% MoM

 

 

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patriotz
Member

Tighter mortgage rules start to take toll on high-end homes

Ottawa’s clampdown on mortgage borrowing is now gripping high-end homes, not just the entry-level market.

The federal government eliminated the approval of 30-year amortization periods on government-backed mortgages in June – and the decision’s impact can now be seen most vividly in the cooling off of Greater Vancouver’s market, with sales falling for everything from entry-level homes to luxury houses, Bank of Montreal senior economist Sal Guatieri said Tuesday.

What? How is that possible? Everyone knows that high-end properties are all purchased by Rich Asians® with suitcases of cash.

JR
Guest
JR
What is their definition of high end anyways? Again this is a total cop out. I said this in yesterdays thread. The fact is there are no more buyers left. If anything the rule change that had the most effect was the debt service ratio change. Prices are too high and people have no money, it’s that simple. Like I posted before, the US market didn’t collapse because of changes in credit availability, it collapsed because there were no more buyers left, which is different then just a high inventory number. Everyone who could have gotten in got in, there is nobody left. If the HAM effect is true then there is trouble. The Chinese have serious issues at home. If you read the recent Washington Post article it’s pretty staggering how much money is in the market there, how… Read more »
Anonymous
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Anonymous

and everyone knows that any property is not purchased by Arm-chair economist with suitcases full of bs.

Makaya
Member
Makaya

Why JR message has been hidden? Please people vote him up. And please trolls (I mean realturds), use your free time to go and get a job (and a life)…

joe_blown_away_by_high_housing_costs
Guest
joe_blown_away_by_high_housing_costs
“Renting is the obvious alternative for someone who is unready for the financial blood-sucking that home ownership entails. But low vacancy rates have made it a landlord’s market in some cities, notably in Toronto. Might as well buy as pay hefty rents, some will say. Don’t listen, Gen Y. Tough it out in the rental market unless you can truly afford a home…As tough as the rental market may be, it’s still a better option for Gen Y than buying prematurely.” –Rob Carrick in the Globe and Mail http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/why-gen-y-should-tough-it-out-in-the-rental-market/article4580877/ I like that Carrick recognizes that the rental market is tough. So many RE bears seem to miss that. They seem to think renters are laughing and that it is so easy to just find a rental you can afford. Why not just rent? It IS a tough rental market, not… Read more »
Keeping An Eye On The Pimps
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Keeping An Eye On The Pimps

Good Morning Cameron Muir, I didn’t think you were as daft as the guy at Central One Credit, but obviously I was wrong.

First Point:
“Real estate always goes up” that is an illusory correlation, old uneducated people believe it, and the young get fooled by it. You should know better, basic psychology you should have taken; you do have a degree don’t you?

Second Point:
Your forecast for 2012 is off, why?
You can’t pull numbers out of your anus and cross your fingers. That is not scientific.

That is something Angela, Tsur,Bob do, and the fools at Global report it as expert knowledge.

But you should know better than that.

Boombust
Guest
Boombust

That house a 2 Deerwood Place in Port Moody has been re-listed as “NEW! for 759K. It was only 2-3 weeks ago when it was listed as “NEW!” for 600K.

Hmm…

joe_blown_away_by_high_housing_costs
Guest
joe_blown_away_by_high_housing_costs
I also want to add to my post that I am seriously afraid that vacancies rates are going down (and rents are going up), at least in the short term. It’s quite astonishing to have an article in the Globe and Mail advising people to rent. We live in an ownership obsessed culture. To some extent maybe renters have benefited from the bubble in the sense that record high ownership levels of 70% means potential renters are now homeowners. This means less demand for rental housing. But if we have some of that 70% who own convert to renters, we will see demand for rentals increase and therefore higher rents. Of course, we may also see increased supply of rental housing as speculators are forced into becoming accidental landlords. But I think it will take quite some time before speculators… Read more »
patriotz
Member

@joe_blown_away_by_high_housing_costs:
“But if we have some of that 70% who own convert to renters, we will see demand for rentals increase and therefore higher rents.”

What’s going to happen to their former homes? Are they going to sit empty?

Anyway, I do not expect a significant number of owner-occupiers to cash out in expectation of price declines. It never happens anywhere. For investors, though, it’s a different matter.

registered
Member
registered

8 joe_blown_away_by_high_housing_costs Says: “I also want to add to my post that I am seriously afraid that vacancies rates are going down (and rents are going up), at least in the short term.”

A coworker moving here recently from out of province was saying just yesterday how shockingly easy it was to find nice, cheap apartments in Toronto. Rents long term are set by wages, not prices or ‘sellers united’ to keep them high. Someone will always undercut the competition to fill a suite and lower losses.

Loon
Guest
Loon

Change of tune? How abtsurd !

Groundhog
Guest
Groundhog

@joe_blown_away_by_high_housing_costs

I was expecting rents to rise as well in the US when their housing boom busted using the same logic as you. It didn’t materialize though. I think likely because when housing collapsed so did the economy, so people could not afford high rents.

Don’t know if the same thing will happen here, but I wouldn’t be surprised. With real estate/construction being such a large part of our economy, if these sectors slacken then rental rates may stay the same.

Another thing that happened in the US is that more people shared accomodations, ie. moved back home with mom/dad, or lived with more people in the same house. This would also reduce rents.

Who knows how it will play out though, history doesn’t repeat, it only rhymes!

Anonymous
Guest
Anonymous

@joe_blown_away_by_high_housing_costs: “I like that Carrick recognizes that the rental market is tough. So many RE bears seem to miss that.”

Finding a decent place to live is never easy. If you put half the time finding a rental as you would have to buying a place you will get a decent place at a fair price. If you are the kind of person that spends 5 minutes on CL then rents the first place you look at then you get what you deserve.

Turkey
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Turkey
@joe_blown_away_by_high_housing_costs: Of course, we may also see increased supply of rental housing as speculators are forced into becoming accidental landlords. But I think it will take quite some time before speculators admit to themselves they can’t sell so they better rent. SO that increased supply of rental housing will not come on stream right away. This seems backwards for a lot of owner-occupiers who bought recently. Lots of listings describe possibilities for a “mortgage helper”. Have you tried budgeting for $800k+ mortgage payments? For me, tenants would have to be baked in from the beginning. In this situation, the only delays are (1) renovations if necessary, and (2) reconciling the gaping hole in the budget with what real tenants will pay. Both of those delays should be measured in months. Vancouver’s vacancy rate used to be stuck under 1%, and… Read more »
patriotz
Member

@Anonymous:
If it’s easy to rent a place for less than the cost of buying it, it’s not a tough rental market, in objective economic terms.

piklishi
Guest
piklishi

Why are sales and prices dropping?
The reason is simple, they have to drop for some first-buyers to get into the market. We need a fcking 50% dip and it happens once in a while…it just took tooooo long this time. Prices will go up again but yeah give us a break so can afford something. It is like the train station. People are waiting for the train and if it doesn’t come they will never travel, they keep waiting. So frustrating.

Anonymous
Guest
Anonymous

@Keeping An Eye On The Pimps: “You can’t pull numbers out of your anus and cross your fingers. That is not scientific.”

yes you can. want proof? stupid bears have done it for years. dont believe me. ask anyone here

bubbly
Member
bubbly

It would be nice if the analysts, experts and journalists bothered to look at the longer term data and then used their brains to realize that the “sharp run-up in prices” is not a thing of the previous two years, but a whole decade of real estate madness. Perhaps, they would also realize that the tightening of mortgage rules is just a return closer to the longer term norm and is not the cause of the current “stumble” in market activity.
It was a fucking bubble since 2002 and what goes up must come down eventually! They learned the hard way just south of the border…

Patiently Waiting
Member
Patiently Waiting
@Groundhog: “Another thing that happened in the US is that more people shared accomodations, ie. moved back home with mom/dad, or lived with more people in the same house. This would also reduce rents.” There are two major sources of new tenants: 1) Young people starting out. As you are saying, they are now staying at home. In fact, its becoming more socially acceptable among young people and boomer parents are allowing it. The meme about renting “paying someone else’s mortgage” helps encourage this. 2) Immigrants. Every tenant should fear a big wave of immigration because it will make their life more difficult in the short-term, no matter what the longer-term affects may be. That is not going to happen in Vancouver because the new changes to the immgration system are actively discouraging immigration to this city. And on the… Read more »
N
Guest
N

@joe_blown_away_by_high_housing_costs:

I wonder if all the mortgage helpers that you see advertised are actually being used at the moment. If there is an economic downturn, it would not surprise me to see supply coming onto the rental market in the form of previously unused basement suites.

Mortgageslave
Guest
Mortgageslave

@Anonymous

All u stupid bears have been living cheap, not putting money and time into your houses, going on holidays, investing in a stock market that has more than doubled since 2008. You stupid bears have been wrong for years, missed out on huge yearly real estate returns. You’ve been wrong for so long so many times!!!!

The only issue if bears are wrong, most have alternative investments that pay off, MAYBE not as high as some historical real estate investments. The problem with the overlevered real estate investor is if you’re wrong once, you’re done. Bankrupt. Ask any American, unfortunately Mortgages are a bit different in Canada, there is no walking away. Just ask our French friends what they think of Canadian Mortgages….(Mort = death), Gage = Agreement)

vangrl
Member
vangrl
” lack of maintenance (some places you are lucky if the hot water and heat are working)” this is how shitty landlords can be: I’m renting in a strata owned apartment building, another tenant has a dripping bathtub faucet that’s driving her crazy. She called the landlord to fix it, and it turns out that in order to fix it the shut-off valve in the common area hallway has to be turned off, effecting 3 other suites. So council is requiring that a licensed plumber be used to be on the safe side. So the owner has told his tenant that he’s just going to wait until someone else on the same line has an issue so they can split the cost of the plumber. OMG…so he’s going to make her wait (possibly years) so that he can save half… Read more »
vangrl
Member
vangrl

oh and the owner of the rental suite lives in a house on the west side of Van….a very nice west side area

JD
Member
JD

@vangrl: I think being cheap/frugal is how he is able to afford a place on the westside. Doesn’t make it right.

Devore
Member
Devore
@vangrl: Just another reason to really put in the time and effort to find a rental. When you buy a house, you get a house inspection, an engineer if structural problems are suspected, you clear title and other legal steps, and everyone is insured. You want to do everything you can to minimize the risk of buying a lemon. When you rent from an amateur landlord, expect amateur treatment. A professional property manager gets on top of problems ASAP, and charges the expenses back to the owner. To save $50 a month, you might be tempted to go with an amateur landlord. To save a $100 you might be willing to overlook glaring maintenance problems, assured by promises they will be fixed. Maybe expecting long term stability from known renovictors, like Hollyburn, is not a good idea. The point is… Read more »
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