Afraid of falling prices? Just don’t sell!

There’s a funny comfort meme in the media now that house and condo prices are falling.

Its a strange interpretation of ‘supply and demand’ that says if demand is dropping dramatically we’ll just cut back on supply to match and prices will stay stable.

Soft landing here we come!

There are a number of talking heads in the media espousing this viewpoint at the moment and If you don’t think about it too hard it kind of makes sense.

Here’s just one recent example:

Don Lawby, chief executive of the Century 21 Canada, and a charter member of the club that doesn’t see home prices dropping anytime soon, can’t see any desperation from sellers.

“The economy continues to be okay, people have jobs, interest rates are low,” said Mr. Lawby. “Historically, anytime when prices dropped it was tied to high unemployment and interest rates. It’s not the case today, people are not forced to sell, they are staying with their price.”

If people don’t have to sell, then they’ll just take their homes off the market and there’s one less property on the supply side right?

..Of course if you start thinking about it a little bit it doesn’t make as much sense. As Patriotz points out:

..most discretionary sellers are planning to buy another property, so if they decide not to sell they are also deciding not to buy.

So for those of you keeping score, that’s one less seller AND one less buyer. Kind of cancels itself out doesn’t it?

The other point that has been repeated ad nauseum but always seems to get ignored in these articles: the seller that doesn’t sell has zero affect on the market.  The ONLY activity that affects the market are the sales that take place and what price the exchange happens at.  That sale then sets the comp price for all neighbouring properties.

So what really drives the market?

What buyers are willing and able to pay for their desired property from buyers who either need or want to sell.

In a falling market buyers are willing to pay less, because they aren’t completely stupid.  They know it doesn’t make sense to bid high on a purchase that is falling in value each month.

And how fast are Vancouver property prices falling right now?  Apparently even faster than the US bubble markets were falling at their peak.

So there’s that.

But possibly even more important is the buyers ability to pay.  Even if someone really wants to buy that million dollar house and thinks it’s a great deal they might not be able to.  If the credit isn’t available that sale will not happen.

Recent moderation in the mortgage market will have some effect here as we return to the historical standard 25 year amortization on CMHC insured mortgages.  As CMHC hits it’s mortgage cap it is also pumping less credit into the housing market now than it has been for the last few years.

Every time you read another expert talking about the lack of a ‘trigger’ to cause a collapse in the housing market it’s worth thinking about what the trigger in the US or Spain or Ireland was.

The US housing market started to collapse in 2006.  2 years later financial markets collapsed.  The ‘trigger’ for the US real estate collapse was simply this: House prices were too high.

 

 

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Keeping An Eye On The Pimps
Guest
Keeping An Eye On The Pimps

There has to be a trigger?

How about the fact that interest rates have been driven down artificially to the tune of about 2,000 basis points in the last twenty years, and that can’t be repeated going foreword?

That stimulus would have to be replaced by productivity gains, and translated into much higher wages.

Good luck, with an aging and unproductive work force.

And, I note on the Greater Fool blog that pimpette Sherry Cooper, has sold her house, does anybody have any details on this?

Boombust
Guest

I remember this same meme back in 1981.

A friend had just purchased a townhouse in Port Moody. At his house-warming, everyone was lauding him on his purchase. They were also commenting on how “lucky” he was that he could actually “buy” because so many others were shut out of the market because prics simply would not budge.

Well, prices “budged” alright.

The Predictator
Guest

“Its a strange interpretation of ‘supply and demand’ that says if demand is dropping dramatically we’ll just cut back on supply to match and prices will stay stable.”

Better tell all the developers to stop building because there is already lots of supply in the pipe line coming to the market in the next 3 years.

RealityCheck
Guest

What about the 50,000 people moving into Metro Vancouver each year? They sold somewhere else to buy/rent here.

Troll
Guest

“the seller that doesn’t sell has zero affect on the market. The ONLY activity that affects the market are the sales that take place and what price the exchange happens at.” — The fact that MOI is correlated with price changes should tell you that the number of sellers (whether they sell or not) absolutely affects the market.

patriotz
Member
“The fact that MOI is correlated with price changes should tell you that the number of sellers (whether they sell or not) absolutely affects the market.” MOI is a metric of how many properties don’t sell because the owner is asking above market (note: NOT a metric of how long properties that do sell take to sell). It’s correlated with price changes because in a falling market many owners will ask above market because they expect prices to keep going up. People asking above market – whether $1000 or $1,000,000 – don’t actually affect the market unless they are willing… Read more »
Anonymous
Guest

……What about the 50,000 people moving into Metro Vancouver each year? They sold somewhere else to buy/rent here……

Maybe the 75,000 leaving Vancouver every years snap them up at bargain prices.

RealityCheck
Guest

Post #7

Give your head a shake. Metro Vancouver is not losing 25,000 people a hear. Wishful thinking will not make it true.

Aleksey
Guest

@RealityCheck #4

Why do you think they had something to sell?
Even if they had, prices in their country of origins could be so low that you wouldn’t beleive.
For one I didn’t sell anything when I came to Canada. I know that 80% of my friends (all recent immigrants) hadn’t sold anything before they came here.

Aleksey
Guest

@RealityCheck #8

I don’t know how many people Metro Vancouver is losing, but according to rent vacancies in my neighborhood the dynamic is negative. It feels like more people are leaving than coming these days. It was opposite before Olympics.

specialfx3000
Member

@Reality Check,

You still think people from outside of Canada are still coming in via yellow helicopters and suitcases full of money to save Greater Vancouver?

Those from within Canada can’t even manage credit card debts nevermind the million dollar mortgages.

http://www.news1130.com/2013/01/14/many-cdns-will-need-a-year-to-pay-off-credit-card-debt/

UBC in Crisis Mode
Guest

New Year, new listings: Point Grey

Four beautiful houses came on to the market in the last 7 days. Do they HAVE TO sell?

4583 W 16TH AV, $2,288,888
4680 W 2ND AV, $4,280,000
4098 W 11TH AV. $4,480,000
4545 W 9TH AV , $2,598,000

pricedoutfornow
Guest
“I don’t know how many people Metro Vancouver is losing, but according to rent vacancies in my neighborhood the dynamic is negative.” Yes, there sure are a lot of places for rent in my neighbourhood too! We went to a couple viewings of rentals this weekend, it is amazing how the rental market has changed. We want to stay in the same neighbourhood, and a few years ago when we looked there were so many people lined up to rent our place, we never actually thought we’d be fortunate enough to live here. Now, it seems like we’re the only… Read more »
Not Ready To Be Slave
Guest
Not Ready To Be Slave

@RealityCheck #4

there are 2 big groups

1. chippest possible rent consumers
2. people that are ok to live with the parents or other people

because prices are high these two groups are intersect sometimes, so the nubbers have very little effect on the rental market

Many Franks
Guest

From Whistler real estate: a bargain?:

Whistler real estate prices are better than prices in the Lower Mainland, which, despite doom-and-gloom forecasts, have held steady compared with the rest of the country.

That basically summarizes the article: innuendo about the Vancouver market set against half-hearted reassurances, then Whistler served up as a glowing alternative just “a relaxing 1:20 drive away”.

Vote Down The Facts
Guest

“yesterday we looked at a really nice SFH that is renting for $1800- a FULL HOUSE in Vancouver for $1800-newly renoed, big yard etc. ”

Is it on craigslist or wherever? Can we see it?

Ben Rabidoux
Guest

Not sure why “Reality Check” got voted down for stating the obvious. Vancouver’s net population growth is not -25k annually. There is still growth….it’s slowed significantly from the recent peak, but there is still growth.

Maybe the down votes were because RC was a wiener about how s/he stated it, but we should probably be careful about voting down statements that are clearly true, regardless of how much of an ass-hat the commenter may be.

vanpire
Guest

There are dozens of townhouse developments in Surrey with unsold inventory and MUCH more to build in upcoming releases.
I know because I follow some of them closely.
I don’t think they can simply decide not to sell.
I bet they wish they could though…

gokou3
Guest

Re #17: Ben, I agree. I think we should compare net new population vs. net new unit completions (new builds vs. demolition). I would guess that the latter is greater than the former.

RFM
Guest
We were out in Port Coquitlam yesterday. Enormous condo towers proclaiming ‘introductory pricing.’ Huge swaths of forest stripped for cookie-cutter condos marching up the hillsides. You know what it reminded me of? Parts of Riverside County California in 2005. They even are using the same names for some of the developments………..‘Mosaic” Huh? The day can’t be far off when people who bought there realize the jobs are an hours’ drive away, that their 5% down didn’t guarantee any return, ever, and that they shouldn’t have bought that Jetski! Atmosphere feels the same too. And I was there in Riverside County… Read more »
jesse
Member
@Troll: “The fact that MOI is correlated with price changes should tell you that the number of sellers (whether they sell or not) absolutely affects the market” More likely that there is always a normal mix of those who need to sell within those who are trying to sell, and they are competing over fewer buyers, hence the more aggressive discounting. Note that as MOI gets higher its “power” diminishes — price changes are slightly less sensitive with higher MOI. Or put another way a 1% change in MOI at an MOI of 5 has a larger impact on price… Read more »
Bull! Bull! Bull!
Guest

@RFM

“The day can’t be far off when people who bought there realize the jobs are an hours’ drive away, that their 5% down didn’t guarantee any return, ever, and that they shouldn’t have bought that Jetski!
Atmosphere feels the same too.”

People on this blog have been saying that for 7 years.

No Noise
Guest
Local gangsters are killing each other again – 8 suspicious homicides in the past 24 hours: http://blogs.vancouversun.com/2013/01/13/scan-bc-reports-shooting-in-surrey-sunday-night/ (btw that link – the Real Scoop – is probably the best local gang related crime blog) Yup, Best Place On Earth (Meth) for sure. And the publicized violence can’t be good for home values. I would think it will just get worse as the economy stumbles, job losses result, and there’s less disposeable $$$ for the gangs to share. And of course that also means less $$$ laundered through local home building. Furthermore, when marijuana is eventually legalized that will be the… Read more »
Vote Down The Facts
Guest

No Noise – wow, some of the comments under that article make YouTube look highbrow!

No Noise
Guest

@24

Yes I know – there’s a ton of garbage to sift through (which is telling in itself) so you can really get a feel for a certain sector of the local population – the dialogue between Kim Bolan and the bloggers is the most accessible – I’m sure police are reading this blog very closely..

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