Builders stop building in a bubble?

Markoz left this comment in yesterdays thread, but it got held up in moderation because it had more than two links:

My wife works at a bank and her boss sent a link to this BIV article entitled, “Nobel economist housing bubble formula shows Vancouver resistant.

Here is a copy of my response (unfortunately the charts I clipped won’t paste into the comment section):
His theory (as presented by the article’s writer at least) is that builders are smart enough to stop building before/when a bubble pops. I’m not sure if he means that a slow down in building is a precursor to a bubble popping or if he means that when sales drop so do housing starts. In Vancouver, housing starts only dropped off significantly well after sales did in 2008.

Vancouver sales began to tank in March or April of 2008.

Residential property sales in Greater Vancouver totalled 2,997 in March 2008, a decline of 16.3 per cent from the 3,582 residential sales recorded in March 2007, and a decline of 25.7 per cent compared to the 4,033 sales in March 2006.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in Greater Vancouver totalled 3,218 in April 2008, a decline of five per cent from the 3,387 sales recorded in April 2007, and a 3.8 per cent drop from the 3,345 sales in April 2006.

VANCOUVER – The Greater Vancouver housing market continued its re-balance between sales and listings last month. The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in Greater Vancouver declined 30.7 per cent in May 2008 to 3,002 from the 4,331 sales recorded in May 2007.
All of the above is from the REGBV website: http://www.rebgv.org/monthly-reports?month=May&year=2008
It just kept getting worse:http://www.huffingtonpost.ca/2012/07/04/vancouver-home-sales-10-year-low_n_1649539.html

“This summer, sales went off a cliff,” added Somerville, who is director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C.:http://www.canada.com/vancouversun/news/business/story.html?id=e6e0c211-fddd-413b-9a94-3564e20567d8

The financial crisis did not start until Lehman Bros failed on September 15, 2008.

Here are the housing starts specs:

Apparently our builders aren’t as smart as the Nobel Laureate. Starts for all types of homes stayed above the average for 2004-2008 till the end of 2008. They plummeted after the fact. Perhaps the writer is putting his own spin on what Smith said. I wasn’t there so I don’t know.

The other thing to note is that the writer never actually asked Smith if he thought Vancouver was in a bubble. He did a follow up interview with him but seems to have avoided asking the question directly. He says, “Using Smith’s formula for housing bubble-burst scenarios, B.C. and Vancouver do not appear threatened, despite record-high prices in the latter. B.C. housing starts this year are up 3.1% from 2013 and forecast to rise a further 1.4% in 2015, according to Canada Mortgage and Housing Corp.” Why not just ask him what he thought instead of making a supposition?

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Tiger
Guest
Tiger
say whaaaa?
Guest
say whaaaa?

“Why not just ask him what he thought instead of making a supposition?”

Wise man once said: “Don’t ask questions you don’t want to hear the answers to.”

bullwhip29
Guest
bullwhip29

actions of builders are a coincidental indicator at best, while whatever the academics preach likely a big contrarian one (as they are either clueless or paid mouthpieces for monied elite). i really love how smith covers his a$$ by stating, “prediction is impossible”.

this little gem from 2005 says all you need to know…
http://www.youtube.com/watch?v=INmqvibv4UU

if one really wanted to take a temperature of the mkt, all they would need to do is host an open house or drop in on a few others in selected neighborhoods

Boombust
Guest
Boombust

In the recent Vancouver Sun “Understanding Housing Bubbles” video clip that featured that prof, he said (re: Vancouver) “…it’s gonna be painful”.

The comment was at 3:44 minutes in.

Yunak
Guest
Yunak

@Boombust

“it’s gonna be painful”

What could be painful for Westerners isn’t necessarily painful for Chinese. It is matter of perception towards priorities and fulfillment. No pain could prevail over satisfaction of showing off wealth and success.

Boombust
Guest
Boombust

He also stated the widely held theories that bubbles are detached from local/median incomes and buy vs. rent disparities…in other words, the usual stuff.

LS in Arbutus
Guest
LS in Arbutus
If you actually read the article it ends “Smith cautioned that a huge inflow of mortgage credit started the last housing bubble and he sees parallels today in low-cost mortgage money. The award-winning economist concedes experts were “blindsided” by the last recession and don’t know when the next one will appear. “Prediction is impossible,” Smith said. Yet the article’s title is “Nobel economist housing bubble formula shows Vancouver resistant.” He seems to be saying that because housing starts are up this year and projected to be next year, Vancouver is resistant to a recession/ housing bubble. You know, it totally makes sense to me that the average cost of a house on the west side is $2 million and it will continue to rise and double every 5 years. NOT! As prices continue to rise and sales continue to happen… Read more »
Mick Murphy
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Mick Murphy

anti-immigration movement seems to be growing.

Protestors blame immigration numbers for traffic woes

http://www.richmond-news.com/news/protestors-blame-immigration-numbers-for-traffic-woes-1.1593352

Son of Ponzi
Guest
Son of Ponzi

# 7
This is the unfortunate but predictable consequence of uncontrolled growth.

Son of Ponzi
Guest
Son of Ponzi

I remember there used to be amble parking at Lansdown Mall.
And don’t even think of parking a Yaohan Centre. Crazy.
And with all the new highrises, total gridlock is a certainty.

would-be buyer
Guest
would-be buyer

Interesting 2009 paper from Vernon Smith re the US housing bubble and collapse.

What we’ve offered in our discussion of this crisis is the back story to Mr. Bernanke’s analysis of the Depression. Why does one crash cause minimal damage to the financial system, so that the economy can pick itself up quickly, while another crash leaves a devastated financial sector in the wreckage? The hypothesis we propose is that a financial crisis that originates in consumer debt, especially consumer debt concentrated at the low end of the wealth and income distribution, can be transmitted quickly and forcefully into the financial system. It appears that we’re witnessing the second great consumer debt crash, the end of a massive consumption binge.

http://economistonline.muogao.com/2009/04/vernon-smith-from-bubble-to-depression.html

Shut It Down Already
Guest
Shut It Down Already

#10, if you equate gridlock with a lack of mall parking spaces try living in a city which has genuine traffic problems. You probably think the Skytrain is over-crowded when your luggage doesn’t get a seat to itself.

Bull! Bull! Bull!
Guest
Bull! Bull! Bull!

@Shut It Down Already

if you’d been on 3 road during the lunch time dim-sum rush wouldn’t say something like that.

Boombust
Guest
Boombust

#5

I don’t get your point. It would be like comparing apples to oranges.

MarKoz
Member

Thanks for posting my comment!

The chart for housing starts in Vancouver is here:
http://www.rbc.com/economics/economic-reports/pdf/other-reports/vancouverhouse.pdf

Look for Chart 7 on page 3.

World is awash in money.
Guest
World is awash in money.

S&P hits new record high.

Royal Bank Market cap hits $120,000,000,000 USD. Yes, over 120 Billion.

New luxury car sales at a record high.

Ever think that the gov policies are not favouring you? Join them if you can’t beat them.

MarKoz
Member

Here is the link to the video that Boombust is talking about. A lot of it is about the US housing market but the first 30 seconds and the last 30 seconds are most applicable to here.
http://www.vancouversun.com/business/affordability/Video+Understanding+housing+bubbles/10395336/story.html

World is awash in money
Guest
World is awash in money

And don’t worry about traffic gridlock. It’s not your problem. Let it become totally worse. Just worry about yourself.

This is the type of thinking that gets bears in trouble. Do not care what happens to Vancouver.

Slagathor
Guest
Slagathor

http://www.cbc.ca/news/business/cmhc-probing-canadian-house-premium-to-u-s-prices-1.2843924

….Canada Mortgage and Housing Corp. says Canadian housing prices have been higher than U.S. prices in real terms since 2006, an indication that the market here may be overvalued….

Gee, do ya think?

Joe Mainlander
Guest
Joe Mainlander

Since developers pre-sell the vast majority of units in a project before starting construction starts, it’s not a surprise that sales are tied to housing starts. That is built into the pre-sale system.

If sales fall, then there’s less starts, as developers won’t pre-sell, won’t get financing, and won’t start construction.

Since there can be a 2-3 year rezoning process, during which the developer is lining up pre-byers, then even if sales drop any current projects would have been pre-sold and will go ahead. So, there would be time lag before the effect of lower sales would hit pre-sales and therefor housing starts.

The pre-sale system provides a cushion for the developer and passes on the risk to the pre-sale buyer.
That doesn’t mean that there is no bubble.

Son of Ponzi
Guest
Son of Ponzi

First a basement dentist, now a acupuncturist with Hep.
There goes our first class health care system.

space889
Guest
space889

I thought the whole point of all those condo towers in Richmond is so that you live near all your amenities and don’t need to drive everywhere. Seriously, if you live in a condo on #3 Road why would need to drive for shopping, restaurants, fun? Unless walking is just too damn uncool or physical exerting for you? Heck for some places like Richmond Public Market, you don’t even need to leave the building complex for a lot of stuff….

kabloona
Member
kabloona

#16, you’ve got it backwards……the World isn’t “awash in money”, it’s awash in goods.

The cost of production is falling, stuff is being produced cheaper and cheaper everywhere, energy prices are falling, and wages are under negative pressure – look at Japan falling back into recession and Europe poised on the brink.

Governments are increasing liquidity in an effort to stop deflation from biting in hard….and yet here in Canada, house prices keep rising ever upwards.

Geez, I wonder why….? (cough!) CMHC (cough!!

😀

space889
Guest
space889

@kabloona – that’s a load of bullshit. There obviously isn’t a housing oversupply in Vancouver with the sky high prices. Nor do I see Apple IPhone or IPad prices going up.

The world is only awash in garbage not actual real essential stuff like clean water, clean air, safe food. In fact, prices of food has been going up a lot, even low quality stuff. Heck, even McD with their wood pulp meat glue semi-real food prices are going up.

The only reason you aren’t getting the load of $$ is simply you don’t have the right connections to get the free central bank money.

space889
Guest
space889

@Son of Ponzi – Or even more horrifying, a 6 year BC girl potentially contracting HIV from a nurse during a vaccination shot, and the clinic didn’t inform the parents until 1 week later. Apparently there is a drug that could prevent her from contracting it if given in the first 24 hours.

What is even worse is that the clinic can’t disclose who the nurse is nor preventing her from giving shots to other children because of her right to work! But apparently the rights of the patients don’t matter.

http://news.nationalpost.com/2014/10/29/parents-horrified-after-botched-vaccination-exposes-six-year-old-b-c-girl-to-hiv/

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