All posts by b5baxter

August 2012 Vancouver Market Outlook

B5Baxter posted this in the comment section yesterday, but the number of links tripped the spam filter and it was held up in moderation for a while.

We appreciate all market analysis and thought this one deserved it’s own post.

Here’s his summary of where we are in the Vancouver real estate market and roundup of forecasts:

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I have started to put together a monthly housing analysis update that I share with interested people. Here is the most recent one:
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Vancouver Real Estate Market Analysis – August 2012

July saw the lowest Metro Vancouver real estate sales in over a decade. Sales were lower than 2008 when prices saw a significant drop. And inventory has stayed near or above 2008 levels since the beginning of the year. That means that over the next few months we should see a drop in prices at least as great as we saw in 2008.

In 2009 prices recovered after interest rates were lowered and other government policies were introduced to stimulate the market. This time around there is less room to move interest rates and the federal government is signaling that they are interested in cooling the market rather than stimulating it.

The low sales and high inventory would indicate that we may be at the beginning of the long anticipated collapse of the Vancouver housing bubble.

Based on an analysis of price/rent, price/income and price/ gdp growth I am estimating that the current market is overvalued by 40-60% and we should expect to see declines of that magnitude sometime in this decade.

Average prices for detached homes in Vancouver have declined by 15% (www.yattermatters.com) from a peak in February. This is the first time we have seen five months of straight declines since 1996. Some individual asking prices have declined 20-40% (see: vancouverpricedrop.wordpress.com )

The Teranet index for Vancouver (usually considered a more reliable indicator than average prices of the overall market) has not shown the same decline. It has remained relatively flat but tends to lag other indicators. The REBGV index showed a 1.4% drop since May. This would be consistent with price behavior and inventory levels in 2008 when prices started declining in the second half of the year.

This graph ( http://vancouverpeak.com/groups/data-hounds/forum/topic/crash-curve-graphs/#post-2531 ) shows three of those metrics imposed on a graph of San Diego housing prices. I believe the Vancouver market is similar to the San Diego bubble market and the declines may follow a similar pattern.

If Vancouver prices did follow a similar trend to US prices we would see the 40-60% drop occur in 3-7 years.

Other estimates:

http://worldhousingbubble.blogspot.ca has estimated a decline of 41% and a time to bottom of 97 months (8 years).

The Economist magazine recently ( http://www.economist.com/node/21557731 ) stated that Canadian real estate is overvalued by 75% (this is an average for Canada, some markets like Vancouver may be higher).

http://alphahunt.ca has estimated a decline of “about 50%” from a March 2011 peak with a time-line of “5+” years

http://vreaa.wordpress.com/ has projected a decline of 50-66%

Pacific Partners estimates a 40% decline (http://pacificapartners.ca/blog/2012/07/18/canadian-real-estate-bubble-chart-book/#Table2 )

Investment Comparison:

During the last six months Vancouver Real Estate showed annualized return of 1.6% (using the optimistic HPI). During the first two quarters of this year the non-cash portion of my own strategic allocation portfolio returned 5.2%.