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
3 years 7 months ago

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
Boombust
3 years 7 months ago

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
The Predictator
3 years 7 months ago

“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
RealityCheck
3 years 7 months ago

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

Troll
Guest
Troll
3 years 7 months ago

“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
3 years 7 months ago
“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
Anonymous
3 years 7 months ago

……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
RealityCheck
3 years 7 months ago

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
Aleksey
3 years 7 months ago

@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
Aleksey
3 years 7 months ago

@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
specialfx3000
3 years 7 months ago

@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
UBC in Crisis Mode
3 years 7 months ago

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
pricedoutfornow
3 years 7 months ago
“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
3 years 7 months ago

@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
Many Franks
3 years 7 months ago

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
Vote Down The Facts
3 years 7 months ago

“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
Ben Rabidoux
3 years 7 months ago

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
vanpire
3 years 7 months ago

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
gokou3
3 years 7 months ago

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
RFM
3 years 7 months ago
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
3 years 7 months ago
@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
Bull! Bull! Bull!
3 years 7 months ago

@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
No Noise
3 years 7 months ago
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
Vote Down The Facts
3 years 7 months ago

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

No Noise
Guest
No Noise
3 years 7 months ago

@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..

No Noise
Guest
No Noise
3 years 7 months ago

The site is actually less useful as a blog than it is for current info on the local gang crime scene – just the reported articles.

yvr2zrh
Member
3 years 7 months ago
As we go into the 2013 Real Estate year, a new stat would be interesting to track. We hear of the latest buzz line in that the way the market will stay up is through people just not selling and removing listings. One thing we can see from a listing is who the occupier is – either tenant / owner / vacant. I would go to say that “Vacant” and for sale is a fairly motivated seller. Maybe not desparate but someone who has made the decision to sell. I have a list of stats which I will post tomorrow… Read more »
pricedoutfornow
Guest
pricedoutfornow
3 years 7 months ago
@yvr2zrh That would be a good stat, we are currently checking out the rental market in contemplation of a move come spring, and are astounded (or maybe not) that so many of these places that are listed for rent on craigslist are places that didn’t sell over the summer-we are fairly blunt about it when we view the place, we ask the landlord innocently “Oh, are you planning on selling anytime soon?” and they often fess up that the place was for sale in the summer but they didn’t get the price they want so now they decided to rent… Read more »
No Noise
Guest
No Noise
3 years 7 months ago

BCREA released sales stats for 2012 – ave. BC home down 8.3%.
I guess we can assume values have dropped at least this much but perhaps more..

http://www.bcrea.bc.ca/news-and-publications/news-room/news-releases/2012-12-statistical-release

“At least half of the 8 per cent decline in the BC average home price was the result of fewer luxury homes selling in Vancouver and fewer overall Vancouver home sales relative to the rest of the province in 2012.”

HAM Solo
Guest
HAM Solo
3 years 7 months ago
Something I have noticed recently, which hasn’t got that much press, is the steady rise in the size of the Bank of Canada’s balance sheet. I’m afraid I can’t upload the chart, but basically the BoC balance sheet was $50B before the GFC, immediately expanded to $80B and then was shrunk down to $55B by late 2010. (These asset purchases in addition to the CMHC’s purchase of ~$100B in mortgages from the Cdn banks are credited with rekindling Canada’s housing boom/bubble in 2009). Recently, that is since mid-year 2011, the asset purchases have re-started (they say they are buying Canadian… Read more »
Vote Down The Facts
Guest
Vote Down The Facts
3 years 7 months ago

I like the way that the yellow Development Application sign pinned to the side of the social services building at Seymour and Helmcken says “Public hearing not yet schedualed”. Yes, “schedualed” – not “scheduled”. Correct spelling on a huge sign like that is obviously too much effort these days.

jesse
Member
3 years 7 months ago

“what percentage of the properties for sale do you think are vacant? What would be a high percentage?”

50%

Bag it and tag it
Guest
Bag it and tag it
3 years 7 months ago

HAM Solo, Patriotz, etc…
Was there ever consensus on what is the best financial company to short?
Was it Home Capital Group?

HAM Solo
Guest
HAM Solo
3 years 7 months ago
@ bag/tag I think Genworth MIC has the highest probability of going to zero, just because of the leverage inherent in its model (100:1 insurance in force to equity ratio, with maybe 70% of the insured loans being loans that CMHC wouldn’t insure). Home Capital Group, Canadian Western Bank offer exposure to uninsured Canadian sub-prime, to varying degrees. Could also go to zero under a scenario where the gov’t is slow to bail-out. I would hold gold instead of cash as collateral on the theory that some kind of bail out will ensue from the crack-up…and that the effect will… Read more »
vanpire
Guest
vanpire
3 years 7 months ago

I have a legitimate question re: last mini-correction of 2008.
Does anyone remember (or have data on) what were the average price drops for Fraser Valley attached, if any?
I didn’t pay attention to Surrey/Langley at the time, sorry…
Your help is much appreciated.

Anonymous
Guest
Anonymous
3 years 7 months ago

…Give your head a shake. Metro Vancouver is not losing 25,000 people a hear….

Give your own bucket a tilt. There’s no way 50k are coming here every year either. I believe current net migration to BC is negative.

Atomic Frog
Guest
Atomic Frog
3 years 7 months ago
Here is a what I found out on the weekend: I have been looking for a new rental place in Burnaby, saw a very nice SFH asking for $1800 a month, I am currently paying $1100 for a large basement suite in Van now. Talked to the owner and he admitted that the house was being sold for over a yr. I later checked the price of the house in both BC Assessment and realtylink.org. The estimate is 1.2M and he has been asking for 1.13M since Mar of 2012. Not sure if he bought and moved to another place,… Read more »
BC reader
Member
BC reader
3 years 7 months ago

OT Those of you that have moved away from BC and are renting, have you found you are still getting frequent inspections by landlords/management companies in other provinces? It seems excessive in BC, is it really so bad here overall that insurance needs them? Doesn’t seem sustainable ……

No Noise
Guest
No Noise
3 years 7 months ago

@28

I finally get what’s happening. Non owner-occupiers (speculators) who refuse to face reality and lower prices, are renting their places until prices recover (which won’t happen). So reduced sales listings = increased rental listings. I know, so obvious. This will continue as long as listings/sales continue to be way down. Great time to be a renter..

No Noise
Guest
No Noise
3 years 7 months ago

I guess even owner-occupiers who would otherwise sell/buy/move/rent have a negative effect on rental prices as long as they are standing still because there’s no transition period – all those places which would otherwise be in a transition phase are instead maximally rented (rental suites, moving in with parents, etc, etc).

patriotz
Member
3 years 7 months ago

” Non owner-occupiers (speculators) who refuse to face reality and lower prices, are renting their places until prices recover (which won’t happen). So reduced sales listings = increased rental listings. I know, so obvious.”

Obviously not, since the properties were rented out all along.

No Noise
Guest
No Noise
3 years 7 months ago

@41 Patriotz

Ok well lets say that the speculators homes are maximally rented – instead of sitting empty trying to sell or in that transition period between previous occupation to next occupation

UBC in Crisis Mode
Guest
UBC in Crisis Mode
3 years 7 months ago

An interesting new (?) site (by the owner):
http://comfree.com/

Here, now are the 5 worst housing markets in 2012
1. Halifax, Nova Scotia – Down 36.2%
2. Vancouver, British Columbia – Down 31.7%
3. Sherbrooke, Quebec – Down 28.5%
4. St. Catharines, Ontario – Down 26.2%
5. Fraser Valley, British Columbia – Down 24.5%
And the 5 best housing markets in 2012
1. Saint John, New Brunswick – Up 18.1%
2. Calgary, Alberta – Up 17.6%
3. Windsor, Ontario – Up 14.9%
4. Saskatoon, Saskatchewan – Up 11%
5. Winnipeg, Manitoba – Up 6.8%

No Noise
Guest
No Noise
3 years 7 months ago

and all the new completions which arent selling are being added to rental stock.

ArthurFonzarelli
Guest
ArthurFonzarelli
3 years 7 months ago
I think the significant number of de-lists and people “waiting it out” that began in earnest last summer won’t start to show up in inflated listing volumes until after the spring market. There were still strong listing and decent sales #s up until late spring 2012, so not a lot of de-list activity then. In light of the low (re)listings from summer 2012 to present, I think it will take one or two seasons (spring and/or fall) of people de-listing or not re-listing before they capitulate. One thing’s for sure, the longer they put off listing en masse the bigger… Read more »
RealityCheck
Guest
RealityCheck
3 years 7 months ago
@Ben Rabidoux Just curious about your analysis on detached housing. Does it include metrics such as: 1) How having the ability to carry the monthly mortgage payment is more important for most families than worrying about paying 20% too much for a detached house. You can’t fit 6 people into a rental condo.. 2) That approximately 50% of the monthly mortgage payment goes toward paying off principal within a mortgage. If comparing Rents vs Housing (Purchase) carrying costs, shouldn’t the principal part be deducted.? BTW, almost 15% principal paid off after 5yrterm/25yrAmort. 3) International inflow patterns have changed into BC… Read more »
RealityCheck
Guest
RealityCheck
3 years 7 months ago
I notice that there is a lot of emotion on this site; that’s why perceived bulls get the down votes from others who believe either (1) they have a vested interest or (2) They are ignorant of accurate info/stats/etc. The effect of this is that most regular posters here are reinforcing/conditioning their thinking patterns every single day. The more ‘like-minded’ people that join this community further strengthens this one sided thinking to such a point where perceived ‘false’ views/opinions are ridiculed…by using comments such as “ass-hat commentator”. Visit any blog and you will see this…try saying there are no aliens… Read more »
HAM Solo
Guest
HAM Solo
3 years 7 months ago
@ RC I have to say, it’s nice to read the writing of a more educated bullish poster. Kind of like the smart guy in the gang who says, “boss, we got to get our story out there…people are believing the bears, an’ that’s bad for bidness.” I agree with Reality Check that the buyers who are left must either be big believers in long-term inflation or be the type that thinks more about what the minimum monthly payment is than the full economics of ownership. That being said, it would be a strange world where housing which has already… Read more »
jesse
Member
3 years 7 months ago

$1.325MM overhauled Vancouver Special close to Nanaimo St.
http://www.theglobeandmail.com/life/home-and-garden/real-estate/spiffy-vancouver-special-takes-a-while-to-sell/article7160452/

Zinc, oak, quartz, and a wine fridge. Yeah…

Many Franks
Guest
Many Franks
3 years 7 months ago

Reality Check:
Yes, there is some groupthink here just like on any blog. Keep in mind, though, that you can only measure the active voters on a thoughtful but countercultural post. Plenty of us can read and appreciate them without voting in either direction. (I rarely vote.) I think it’s a mistake to assume that up/downvotes are entirely characteristic; there’s a selection bias there.

I disagree with the way you’re calling Ben out. He’s being informal, not unprofessional. This is an informal venue.

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