44% drop in Canadian house prices a ‘realistic worst case scenario’

Are all the credit rating agencies ganging up on Canadian house prices now?

Moody’s is the latest, with a ‘stress test’ case of a nationwide 44% drop in house prices.

The “variable” analysis assesses how much current house prices have departed from “sustainable” market fundamentals. The assumption is that, in the event of a severe economic shock, expected demand that has been baked into current house prices will not materialize. In Canada, the growth in house prices over the past 10 years has ‘’far outstripped” the growth in incomes, according to Moody’s.

“Think of it like an elastic [being stretched],” explains Mr. Connor of National Bank Financial. “The snap back is going to be a lot harder.”

This is the first article we’ve seen recently that seems to point clearly to what would cause the price drop: the simple fact that prices are too high.

Such a house price decline, were it to happen, would be driven primarily by the phenomenal upswing in Canadian home prices over the past decade, Moody’s said.

Canada joins Spain, as well as the United Kingdom and Australia, in the ratings agency’s assessment of countries where growth in housing prices over the past 10 years has driven their values away from sustainable market fundamentals and into “overheated” territory.

“As with Australia, Spain and the U.K., we expect house prices in Canada to suffer the most due to the misalignment of current house prices with historic fundamentals,” Moody’s said.

Read the full article in the Financial Post.

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rp1
rp1
7 years ago

I can’t help but see at the gigantic multi-year wedge in both the US dollar and copper.

b5baxter
7 years ago

Anonymous Says: “Because [sic] not statistically significant….” Statistical significance is a term that can apply to a sample of a larger population. Since we are using a complete data set for inventory, not a sample, the term is not applicable in that sense. It would also apply if we were making a estimate of probability but there was no such claim here. The only claim was that inventory growth was slowing and clearly the data contradicts this. Looking at the increase for just one day would not be a good indication of the trend. Which is why I suggest looking at the average of the last 30 days and comparing it to previous years. Measuring the rate of increase (the number of homes added to inventory each day) is a very valid measure to help understand real estate trends. Using… Read more »

Short'em High
Short'em High
7 years ago

#72 Says:…”we had 99 sales to 140 today. We can’t [track] that?”…

To be fair, if inventory went up faster than 41 sales in the previous two days, the answer is no.

Projected MOI puts appropriate bounds on the rate at which inventory is consumed by moving average sales. Tracking the sales rate alone is less helpful. Projected MOI, the dynamic inventory, is what buyers perceive as the supply. This is definitely a valid demand indicator to the extent that the underlying data is valid.

G
G
7 years ago

Snapstats. anyone heard of it?

http://www.youtube.com/watch?feature=player_embedded&v=4E4NOHHMfEw

anyone has access?

Vote Down The Facts
Vote Down The Facts
7 years ago

Anonymous, sounds to me like a measure of the second derivative. I.e acceleration.

HAM Solo
HAM Solo
7 years ago

Interesting to see people posting on the prospect of former beneficiaries of the RE bubble bleating for “something to be done.” Of course, something will be done eventually, but unfortunately for Van RE, that something is a Q3/Q4 something at the earliest. Rationale: 1) Carney is leaving for BoE in May. He has checked out and there is no heir apparent taking over…it is a head hunt right now. Carney’s parting shot (a stealth QE, approved in the 2011 budget but started in October) is expiring as we speak. Therefore, even at the earliest it would take three or four months for Bank of Canada action, after the appointment of the new money-debaser-in-chief. That guy/girl starts June 1. 2) Toronto ex-condo is still going up, price-wise. That happens to be the zip-code of those individuals responsible for the “policy tightening”… Read more »

Anonymous
Anonymous
7 years ago

Baxter,

What the sales rate of increase from when we had 99 sales to 140 today. Let’s use that and compare to past years. Oh what? We can’t do that?

Anonymous
Anonymous
7 years ago

Baxter:

“moving average for the rate of increase..”. Nice. Let’s start inventing and prioritizng useless statistics.

Ever wonder why the don’t use “30 day moving average of aapl rate of increase..”??

Because not statistically significant!! You either graph it time over time and/or moving averages. Not what you’re doing.

Let me know if you get it.

b5baxter
7 years ago

Says:

“Of course the thirty day moving average is higher. Why wouldn’t it be if. Inventory is higher??”

The moving average for the rate of increase is higher not inventory itself. So the number of houses being added each day to the inventory is higher this year than last (averaged over the last 30 days).

Inventory could be higher without the 30 moving average for daily increases being higher.

Let me know if you still don’t undetstand.

“And the 16K mark was hit 2 weeks later in 2012.”

Yes, that is correct. But the original phrase was “Last year, 16K listings was reached March 23rd. So about 2 weeks before this year.” which makes it sound like last year the level was reached 2 weeks before this year. Not very clear.

Anonymous
Anonymous
7 years ago

B5baxter,

Of course the thirty day moving average is higher. Why wouldn’t it be if. Inventory is higher?? I think u just trying to act smart by throwing in jargon. Fail.

And the 16K mark was hit 2 weeks later in 2012. Sounds like ur an English major like Gartho. All writing and no numerical ability.

b5baxter
7 years ago

It seems like you should be asking PaulB for the data. You have expressed skepticism about my data – so if you want to verify it then you need the data from PaulB.

I have only been tracking inventory from PaulB – I have not been tracking price changes.

Plus I sometimes only update the data once a week so there are some missing numbers. And PaulB would have the data from more than 2 years ago – I don’t.

Short'em High
Short'em High
7 years ago

@b5baxter Says: “…graphs from before 2 years ago were created by another contributor who does not appear to post here anymore… Please accept my heartfelt thanks for replying to my request and disclosing the appropriate caveats regarding your posted calculations. @VHB posted only two columns, listings and sales. Those were from March 1, 2010 as copied from @paulb. Obviously you also have the @paulb total inventory and price changes from the same interval. Would you consider posting those columns to complement @VHB’s posting? Also, I’d be happy to tell you what I’d like to calculate. I would like build and regularly post an indicator as listings + price changes – delistings, an index of seller pro-active actions to complement the inventory MOI dynamics that you track. In other words, the supply side rather than the demand side. I cannot do… Read more »

b5baxter
7 years ago

I apologize for the fact I can’t seem to spell “publicly”

b5baxter
7 years ago

@Short’em High “So we should take for granted you copied the @paulb data faithfully…” Because PaulB posts his data publically and I post the graphs publiclly. If they don’t match anyone is welcome to point it out. I have only been doing the graphs for the last two years but durring that time no one has pointed out any dicrepences between the numbers from PaulB and the graphical repersentation of the numbers. The graphs from before 2 years ago were created by another contributor who does not appear to post here anymore. So I don’t have the raw data from those years but someone else does have it and it has been posted on occassion. Again it seemed to match the graphs. “.. and your methodology matches exactly what you say it is?” I am not sure what you mean… Read more »

An Observer
7 years ago

@Vote Down The Facts

I used VHB’s monthly sales post for previous years sales and then looked at b5baxters inventory chart for end of month inventory for each of the years to get the MOI so it should be an apples to apples comparison

Short'em High
Short'em High
7 years ago

@Vote Down The Facts Says: “Short Em, why the attitude?”

Hey, I’m just asking questions. I see other, more timely, ways to use the data and wonder what’s the big secret? No attitute. Just asking. Feel free to say no.

I asked and he disclosed everything. I thought others would feel the same way about validating data entry and trying other methods to get a daily reading on buyers AND sellers.

Vote Down The Facts
Vote Down The Facts
7 years ago

An Observer, are those the official MOI numbers from the board? If so I’d expect a little difference due to the way in which they use the whole months sales data, whereas i think others here extrapolate from the last 5 or 7 business days.

Vote Down The Facts
Vote Down The Facts
7 years ago

Short Em, why the attitude? People are providing what they can, when they can, in their own time – for free. If its not good enough for you then you could always find your own source of data and generate your own statistical analysis.

Short'em High
Short'em High
7 years ago

Says: “I post a graph… What more do you want?”

So we should take for granted you copied the data faithfully and your methodology matches exactly what you say it is? posted his data. What’s the big secret?

Is your answer that others should interpolate pixels on graph? “Let them eat graph!” This is the exact problem with the “44%” headline from Moody’s. They say it’s so, therefore all in earshot should be grateful. Is that how it is?

Here’s ’s post, FYI:

http://vancouverpeak.com/Thread-Historical-Dailies?pid=638#pid638

Have you got something against those who want to check/confirm data entry or independently investigate complementary methodologies on the genuine data?

b5baxter
7 years ago

“However, listing growth is slowing fast. …”

Umm, actually the 30 day moving average is now higher than it was last year. And last year we saw record levels of inventory until July.

“Last year, 16K listings was reached March 23rd. So about 2 weeks before this year.”

You might want to get a new calendar….

b5baxter
7 years ago

@Short’em High Says:
“…Others, besides , have their own copies of the historical data but for whatever reason are unwilling to disclose their data even for the purpose of checking for data entry errors. Go figure…”

I post a graph showing all of PaulB’s data from the last 8 years almost every week.

What more do you want?

Spec
7 years ago

I know there’s some antipathy towards Garth on this site – I’m ambivalent and take him highly salted. Anyhew, he’s got an interesting proposition. Maclean’s solicited him for way out RE stories and he. in turn, is asking for input. Here’s a chance to get some stories into the MSM and I figure it’s on the level and a great opportunity to affect the narrative in a positive (factual) way.

Humbly yours,
Spec

http://www.greaterfool.ca/ <- submit here

Conrad
Conrad
7 years ago

Inventory is reasonable. Lots of people not listing right now. We see this pattern whenever sales slow a bit. With rock bottom rates for the foreseeable future no pressure to sell.

Same cycle every year. This spring is going to be the armageddon….oh maybe not, but next spring for sure! Almost a decade of such predictions

Anonymous
Anonymous
7 years ago

Democrass, the market is very weak with regard to sales. Listings are very high. However, listing growth is slowing fast. Last year, 16K listings was reached March 23rd. So about 2 weeks before this year. If 17K listings hits at around the same time as it did in 2012, then a trend for this summer is probably established. By this I mean that Fall 2013 will probably look similar to Fall 2012. With less building and home sales and the continued influx of 50,000 people a year to Metro Vancouver, expect rents to rise and maybe sales. A significant correction may happen in 2014 though. Not this year if the listing trend continues. The houses in the $450,000-$700,000 have not budged at all. In fact, North Delta has seen a $100,000 price increase over the last 12 months — This… Read more »

Short'em High
Short'em High
7 years ago

“Is it a lot worse, slightly worse or the same?” I’m glad more people are asking this sort of question. It can only be answered if long term historical data is posted for analysis by complementary methods which directly examine if a particular number is high or low on a seasonally adjusted basis. As well, when people vote up @paulb’s daily post, I often wonder what exactly is being voted up except for having a copy of the reading? Why is it important that @paulb’s post be at the bottom? @vangrl please share. Can you tell just by looking if numbers are really high or low? What is the source of your anticipation? Others, besides @VHB, have their own copies of the historical @paulb data but for whatever reason are unwilling to disclose their data even for the purpose of… Read more »