How much more will Vancouver prices drop?

Scotiabank is now warning about the housing market falling across Canada.

They are predicting a nationwide drop of 10% over the next two to three years.

That’s the national drop they predict, saying bigger drops are coming to Vancouver and Toronto.

But how much more overvalued are we on a national scale and what sort of drops will we see here and in Toronto to drive national prices down 10%?  They don’t say, but they do remark on how long it took earlier market declines to recover:

The report notes that previous housing market downturns — in the 1970s and 1990s — took eight or nine years to bounce back to price levels seen before the decline.

“Historically, long cycles of rising home prices have been followed by extended periods of persistent softness, allowing affordability to be gradually restored and generating renewed pent-up demand,” the report stated.

The bank also warned that “balance sheets heavily skewed to real estate leave Canadians vulnerable to an adverse shock, including a sharp rise in unemployment and/or a sharp drop in home prices.”

The report predicts a “spillover effect” into construction employment, which — thanks to the massive run-up in house prices — has seen employment grow twice as fast as the economy as a whole.

However, “the full impact of the slowdown may not become fully visible until mid-decade,” the report stated.

Read the full article here.

 

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Village Whisperer
Member
Village Whisperer
Richmond Real Estate agent James Wong, who is out with his November 2012 market report and he makes no bones about his take October’s uptick in sales: The sale pace though improved, was not expected to have the momentum to turn the market around. There were some price discounting by motivated sellers, but most home buyers were reluctant to make their purchases. Wong also takes a moment to share with his readers what they should expect of the housing market for 2013: With the housing market sentiment dampened, absence of of home buyers and Canadian banks having to follow the new lending rules, 2013 will be a difficult year for home sellers, builders and housing developers. The decline in home prices will likely take many years to play out. In a market with abundant supply of homes, sellers will lose… Read more »
patriotz
Member

Past upswings from previous busts (I’m not going to call them “recoveries” because it’s the bust that is really the recovery) were driven by a secular decline in interest rates over the past 30 years, the movement of boomers into peak lending years, and an increase in the employment rate (women joining the work force, relatively few retirees).

All are going to reverse for the foreseeable future.

patriotz
Member

@patriotz:
“peak lending years”

I really meant “peak earning years”, but yes household debt can’t get any bigger either.

🙂

Bob123
Guest
Bob123
The continuing decline and the inevitable bottoming will be a very long process. Not sure if there is a historical precedent that provides us with some guidance regarding the magnitude and duration of The RE bubble collapse? That is, did any European countries or U.S. states ever approach Vancouver’s exuberance? Obviously, prices in places such as Ireland and Arizona were delusional, but when you take into account the miserable price to rent ratio, the exorbitant price to income ratio, and the pervasiveness of ownership were they as (more) mis- priced as the lower mainland? It must be a difficult career balancing for bank economists right now, be bearish enough not to look foolish, but not bearish enough rock the boat by predicting a large collapse. I have a gut feeling that things could get ugly, not just for housing, but… Read more »
Anonymous
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Anonymous

Not even one week after the US election and war is ramping up in the Middle East. This was predicted months ago in the blogosphere. Israel agreed to relative peace during the US election so Obama wouldn’t lose the anti- war vote. Now with the election over, it’s full steam ahead for war in the Middle East. Sometimes I am shocked by how accurate predictions in the blogosphere are. I totally read on blogs months ago that war would break out in the Middle East after the US election. Blogs are awesome– the only source of real news and impartial analysis/ educated prediction.

http://www.cbc.ca/news/world/story/2012/11/12/syria-civil-war-assad-turkey.html

Makaya
Member
Makaya
Just a quick message to announce that I’m finalizing my second article on the Canadian Real Estate for LEAP/2020. As some of you might recall, in April I wrote a first article calling for the imminent collapse of the market. This article had quite an impact since I was interviewed by CBC radio (and declined an interview for CBC TV), and it had been referenced by quite a few publications around the world. I’ve been contacted again by LEAP/2020 a couple of month ago to provide an update on the market and anticipate the consequences on the overall Canadian economy, for which I’m saying “If the experience of the real estate collapses in other developed economies is any indication, the burst of the bubble will come at a huge social and economic cost for Canada.”. The final version of the… Read more »
VHB
Member
VHB

Three potential segments underlie the ~30% decline in sales we’ve seen in 2012.

a) speculative purchases decline.
b) fundamental purchases delayed.
c) fundamental purchases rendered infeasible because of credit tightening.

If the 30% drop in sales is mostly a) or c) then the outlook for 2013 is for continuing weakness. However, to the extent that (b) plays a role some of 2012’s ‘missing’ demand may appear in 2013.

We don’t have data to sort this out, so does anyone have personal anecdotes that slot into one of these three categories?

Bailing in BC
Guest
Bailing in BC

@Makaya:

Go Makaya, go. You are evangelical, spreading the word to the heathens!

Makaya
Member
Makaya

@Bailing in BC: Talking about Evangelical, here is the last sentence of the article:

“This is the way the bubble ends, not with a bang but a whimper.”

The wise man will recognize the reference to The Hollow Men poem from TS Eliot 🙂

604 Receding Gains
Member
604 Receding Gains
Some major wild cards for 2013: 1. May 2013 provincial election….of NDP (undermining confidence). 2. Slowing of local BC economy and increasing unemployment – especially in real estate sector of Lower Mainland. 3. Capital flight from China due to change in leadership (probably drove 2011 bubble, but will we see another wave?) 4. Momentum and perceptions of Gen Y first time buyers. If they start to believe prices will continue to fall then this is a major kick to the crotch for this market. 5. As noted by others here as well: Baby Boomers bailing out at any price because they don’t have significant debt loads and can lead the market down. Gen Xers and Yers will probably freeze because they’re locked into negative equity mortgages. 6. CMHC/OFSI regulations. If they allow “extend and pretend” mortgage renewals for people underwater… Read more »
Patiently Waiting
Member
Patiently Waiting
@604x: Two big international wild cards: Syria and the China Seas. Filipinos are abandoning nationalism and inviting back the US navy because they are so scared of China. Australia also has a new American base near Darwin. Japan is also nervous. Story just released: “We cannot fight China. America can. That’s why we need them,” was how 47-year-old Joe Garcia Jr., who sells souvenirs to U.S. sailors on the harbourfront, saw the situation. “The islands China says belong to them are much closer to us. That is why we like President Obama so much. He has recognized our problem and is trying to help us.” Read more: http://www.canada.com/Philippines+some+dream+military+glory+days+nationalist+feelings+fade/7535476/story.html#ixzz2C28M2xJf This is sounding too much like the pre-WW2 but with China, not Japan, facing against the United States. Meanwhile, unlike back then, Canada is disentangling itself from its tradition Southern ally. “Canada… Read more »
VHB
Member
VHB

@604x: I agree your number 2 is important. While sales have tanked, we really haven’t seen record-busting numbers of new listings. For example, so far in November we are actually under the average amount of new listings for November.

There simply is no flood of ‘need to sell’ people.

However, if your #2 comes through, things change. Balancing huge mortgage and credit card payments while employed is one thing–doing so when unemployed is impossible. If #2 happened, then there would be a lot more ‘need to sells’ and things would start to change more quickly.

Beuller
Guest
Beuller

@604x: 3. Capital flight from China due to change in leadership (probably drove 2011 bubble, but will we see another wave?)

I think #3 will work against the market. People flocked to get their money out before the change in leadership in fear of a crackdown on corruption and money laundering. This crackdown is most certainly happening now. Actually, I believe there will be considerable investigations into the thousands of fraud cases and money laundering with the assistance of the Harper Government to the new regime. Does anyone think that was not discussed in the last visit? Think again.

In short, if I was HAM in the last 10 years. I would be very nervous.

titanium
Guest
titanium

Patiently Waiting Says: “The drums of war beat far in the distance, from different directions, but myopic Canadians don’t hear them. Instead we live like its five years ago.”

are we suppose to sacrifice our boy for American imperial wars? No way. Canada should be as of now be neutral country.

Extend and Pretend
Guest
Extend and Pretend

@604x. Extend and pretend. What a great phrase!

Extend CMHC insured loans to people who will overpay with the money and pretend this practice won’t cause a huge price bubble.

Extend immigrant investor visas to “wealthy” applicants from dodgy countries like China and pretend they aren’t crooks.

Extend EI benefits beyond defined contributions and pretend the unemployed person didn’t have a phony baloney makework job in the first place.

The RE economy in Canada is all we’ve got, so it’s all extend and pretend 27 by 7 and 365 days a year. Can anybody think of some other ones?

Patiently Waiting
Member
Patiently Waiting

@titanium: I’m torn on these matters, and admit to not knowing enough to figure out where Canada should stand. Trouble is brewing, is all I know, and I don’t think being “neutral” is an option for a small nation (population-wise) with so many resources. What I find most disturbing is how the typical Canadian is going about their consumer lifestyle, digging deeper in debt, blissfully ignorant of these dangers.

patriotz
Member

@Patiently Waiting:
How about securing the home front against Chinese subversion (spying, corporate takeovers, income tax evasion, indentured labour) before we talk about sending troops to the other side of the Pacific.

C.Junta
Guest
C.Junta

OT:
Something to watch closely, Canada may follow this path in a few years:

“Mariano Rajoy, the Prime Minister, said that the Government would ask banks to halt evictions temporarily and pledged to find a solution … By law families must pay the balance of their mortgages even if they lose their homes”

http://www.thetimes.co.uk/tto/news/world/europe/article3596859.ece

Yes, recourse mortgages, same as we have here in Canada. Sounds like a first sign of the Great Spanish Bailout. Now the question is who is going to subsidize the debtors: the banks or the taxpayers? Hint: this year was not stellar for Spanish banks:

http://www.bloomberg.com/news/2012-06-25/moody-s-downgrades-28-spanish-banks-on-sovereign-risk.html

N
Guest
N

I saw Margin Call last night. It’s OK, a bit thin. But there is a great comment on the responsibility of ordinary joes in the US bubble.
http://www.youtube.com/watch?v=JvaTjJpoQlg

(Warning, includes profanity.)

Chivas
Guest
Chivas

@N
How did you watch it? I can’t find it on Netflix.

C.Junta
Guest
C.Junta

@Patiently Waiting:
“This is sounding too much like the pre-WW2 but with China, not Japan, facing against the United States”

It’s way more complicated this time, everything gone global since Pearl Harbor. And (thinking one step ahead) I wouldn’t hold my breath for those home auctions here in Vancouver (see “Restriction of property rights” section at http://en.wikipedia.org/wiki/Japanese_Canadian_internment).

We live in interesting times though. Indeed.

N
Guest
N
@VHB: I think that “fundamental purchases delayed” might be a bit of an oxymoron. If it really is fundamental, then it cannot really be delayed. If they are delaying it, then the fundamental need must be being met by another means (such as renting or sharing). Also, it might not be possible to find any non-speculative purchases in the lower mainland. That is, all RE purchases are currently more expensive than renting. It follows that all purchases are motivated by a hope for future capital gain (or avoidance of future higher prices, which is the same thing). No RE purchases in the lower mainland represent a rational choice to acquire housing in order to satisfy housing needs at the best possible value. Because this is the case, there is no genuine demand to be pent up. In addition, as there… Read more »
N
Guest
N

@Chivas:

I have US Netflix (www.unblock-us.com, and a US address/credit card).

Chivas
Guest
Chivas

@N
I guess i have “Canadian” Netflix 🙁
feel like I am in China behind the firewall now 🙂

boogeybear
Guest
boogeybear

Why just a 10% correction nationally?

Because Scotiabank believes that investors will jump in to save the market when they can rent the properties for a positive cash flow.

My opinion, won’t happen. Investors are strapped for cash too. And they would also wait for a better deal.

When dealing with market forces, you can’t estimate bottom. You know the trend, but you won’t know bottom. And it has always been true, that the bigger the upward trend the more severe the downward trend.

Now if you could somehow short CMHC, because it’s going down.

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