Vancouver Condo Info

According to an article in today’s Sun the BC Real Estate Association is projecting a sales drop of 28% across the province this year, with a slight rebound in 2009 as consumers ‘recover confidence’.

Muir said home prices have been declining since their peak in the first quarter of 2008, but on balanced over the year, he expects the $453,000 average price to remain three per cent above the overall average home price of 2007.

Muir expects the average home price to decline nine per cent to $413,000 in 2009, but downward pressure on prices to ease by the second quarter of next year as homes become more affordable and inventories decline.

The BCREA’s prediction is the latest housing forecast to be released and is more optimistic about recovery than the forecast released last week by Central 1 Credit Union, which forecast prices to fall more steeply and sales recovering in 2010.

Meanwhile at an industry meeting in Ontario realtors got a pep talk about the current downturn as an oppourtunity to “raise the bar”.

Serious agents who stick out the downturn will have the opportunity to shine, they added, although their optimism appeared lost on some participants.

“They’re basically saying that next year is a writeoff,” one audience member said to colleagues at her table.

The downturn may have a silver lining, causing the industry to “raise the bar” on customer service, said panelist Michael Polzler, regional director at Re/Max.

“There are far too many agents out there who don’t specialize, who do just two or three deals a year. Would you use a part-time lawyer or a part-time dentist? We need to raise the bar,” Mr. Polzler said.

On a side note: I’ve started up an experimental Vancouver Condo Wiki If any of you feel the need to obsesively catalog predictions, track sub markets or share tips and links.  If this works out I’ll eventually add a link from the main page of this site. For now you can find it at http://vancouvercondo.info/wiki

The Globe and Mail is reporting today that Merrill Lynch & Co are growing more ‘alarmed’ that the Canadian housing market is tracking the US housing crash with a 2 year lag:

Falling prices, overbuilding and too much unsold inventory in Canada are creating a trend similar to that in the United States a couple of years ago, Merrill economists David Wolf and Carolyn Kwan said in a research note Tuesday.

“Though the consensus does seem to be gravitating towards our view of a sustained downturn in the Canadian housing market, we still do not sense any particular alarm in either the policy-making or forecasting community. We ourselves are getting more alarmed by the day,” Mr. Wolf and Ms. Kwan said in their report.

They aren’t the only economists to raise the warning about a two year lag, though many still emphasis the differences between the US and Canadian housing markets:

The same two-year lag idea was raised this summer by Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., who called the apparent trend “unnerving” in a report in July.

At the time, Mr. Porter said there were many reasons why the two markets were different, but said even a pale version of what had happened in the United States would be bad news for Canada.

House prices posted a record 16.6 per cent year-over-year decline in the United States in August, according to the benchmark S&P/Case-Shiller Home Price Index report, also released Tuesday. The index has now shown year-over-year declines for 20 months.

Taking into account the two-year lag, Merrill’s data suggests the ramp-up in construction of housing units in Canada may be even larger than it was in the United States.

The number of units under construction currently is just off the peak hit in May, which was the highest recorded in 36 years of available data and 97 per cent above the long-term average, the report said.

By contrast at its peak in 2006, U.S. housing construction was 54 per cent above the long-term average, it added.

Of course, just like in the US its a bit vague to speak of a national housing market - the averages are pulled up in a boom and down in a bust by a few select cities, in our case Vancouver and Toronto are showing some alarming supply issues:

As of August, there were more condos under construction in both Toronto and Vancouver separately than there were in all Canadian cities combined a decade ago, Mr. Wolf and Ms. Kwan said.

“And as in the U.S. two years ago, we are now seeing completed units pile up unsold in Canada, a clear sign of overbuilding and an ominous sign given the voluminous supply still in the pipeline,” they said.

Inventories of unsold new single-family homes in Canada rose by 56 per cent year over year as of last month, close to the maximum increase in July 1990, which marked the last housing market downturn, the report said.

At the peak in April 2006, inventories of unsold new single-family homes in the United States were up 26.5 per cent over a year earlier, the report said.

The two-year lag could be the result of Canada having more room to run up because its recovery started later than that of the United States. Strong commodity prices and looser lending standards initiated in 2006 may also have contributed to the lag, the report said.

Hat-tip to Dingus for this link.

Just so you know, Canada’s banks are in fine shape. Not the sort of ‘fine shape’ that US banks were in last year, but real, honest to goodness fine shape.  But just in case, Ottawa is considering options to aid Canadian banks if the current global economic crisis persists.

And news from around the globe hasn’t been real great lately.  A number of large US banks have failed, a record setting US bailout bill has been passed and the US government is now considering taking an ownership stake in banks (because what restores confidence more than government ownership?).

Meanwhile in the UK, they’ve already taken the step of partially nationalizing their banking system.  The fallout from the global credit boom is turning bust in a bad way, look at whats happening in Iceland for just one example.  The IMF has just announced the activation of an emergency funding scheme that was last used during the 1995 Asian economic crisis.

From previous discussion on this site I know that many of you are sitting on a cushion of cash, some above the $100k CDIC insured limit.  Are you worried about the health of the Canadian economy and our banking system? Do you understand the ins and outs of CDIC insurance?  Are you making any changes to your banking habits to prepare for possible problems?

The CIBC economic forecasting dartboard hasn’t been remarkably accurate lately, so I’m not sure how to take this most recent prediction from Benjamin Tal who believes ‘a gradual slide’ over the next 8 to 10 months will see house prices across Canada drop another 5 or 10 percent.

Sales activity will also drop by an average of about 20 per cent from current levels before stabilizing near the end of 2009, Mr. Tal, senior economist at CIBC World Markets Inc., said in an interview after his speech Tuesday before an income fund industry conference.

By this time next year the market will level off as conditions in the Canadian economy stabilize, he said. However Canadians shouldn’t be waiting for a “V-shaped recovery,” at that point, but instead should expect both home prices and sales to remain relatively flat, he added.

“What we are saying is that prices will continue to ease in the coming months, but there will be no U.S.-style freefall,” Mr. Tal said.

Canada should be in buyers’ market territory by late 2008 or early 2009 for the first time since 2001, he added.

Of course that’s the prediction for all of Canada - in western cities like Vancouver, Mr. Tal says that prices are likely to fall double digits by the end of 2009… So I guess thats anywhere between 10% and 99%?  Thanks CIBC!

Realbiz pointed out this story in the Globe and Mail this morning: A recent report from Merrill Lynch Canada is warning of a Canadian housing market crash and mortgage meltdown similar to the one currently eating away at the US economy:

Canadian households are more financially overextended than their counterparts in the United States or Britain, a report issued by Merrill Lynch Canada economists David Wolf and Carolyn Kwan says.

“We’re just now starting to see house prices fall in Canada, and sharp rises in unsold home inventories increasingly imply that this will not be a transitory phenomenon … From this perspective, the absence of a Canadian credit crunch to date may be cause for concern, not comfort,” their report says.

They say it’s only a matter of time before the “tipping point” is reached and the housing and credit markets crack in Canada.

Stephen Harper was asked to comment on this at a campaign stop in Vancouver, where he rejected the economists conclusion:

“Firstly, we have seen that the housing market and the construction market are much stronger in Canada than in the United States. We don’t have the same situation here with mortgages as was the case in the United States with the subprime mortgages there. And so therefore I think our market is in a much stronger position.”

Merrill Lynch Canada says the main concern is the way Canadian households have overextended themselves and carry a large quantity of debt.  The housing and construction market may currently be stronger than it is in the US, but there’s no guarantee that it will stay that way:

“What worries us is that Canadian households have been running a larger financial deficit than households in either the U.S. or the U.K.,” the Merrill report says. “… After 40 years of net saving, Canadian households moved into sustained deficit in 2002. In 2007, household net borrowing amounted to 6.3 per cent of disposable income, a wider deficit than in the U.K. and not far off the peak U.S. shortfall seen in 2005.”

The economists say the data imply that Canada’s household sector is now overextending itself as much as the United States or Britain ever did.

For the first time in a long time it looks like the economy may be the top issue in this election.  With big price increases in food and fuel, house and condo prices dropping, unemployment edging up and incomes stagnant (except for public service executives) more and more Canadian voters are looking for answers and comfort in times of increasing economic uncertainty.

Strangely enough, most Canadians were feeling pretty good about the economy until the summer, even with a severe downturn in the U.S. battering some key Canadian industries.

While big manufacturing industries like automakers and lumber mills have felt a brutal squeeze as U.S. consumers slashed purchases of homes and cars, other parts of the economy picked up the slack because Canadians kept on spending.

They could do this largely because prices remained sky-high for Canada’s resource exports — petroleum above all, but also things like metals, coal and potash, a key component in fertilizers. There was also a boom in the value of grain and other agricultural commodities.

As a result, the cash flowing in from trade kept Canada’s domestic economy much stronger than the GDP numbers suggested. True, manufacturing slashed 67,300 jobs in the 12 months ending in August, but even so, total employment grew by 224,000 jobs in this period, thanks to gains in areas like construction, professions and services.

However, the looming problem for the Harper government was that the gusher of money from exports of high-priced resources tapered off as oil, grains and other products dropped in value by late in the summer. Yet many Canadians continued to feel the lingering impact of food and fuel inflation.

By July, job creation had stalled and gone into reverse, leaving unemployment a little higher than it was last winter. At the same time, July’s inflation rate, at 3.4 per cent, was the highest in five years.

Are you concerned about inflation / deflation / stagflation and is the economy a key issue for you in this election?  Do you think that any Canadian politician has the ability to improve our economy while our largest trading partner is going through major financial difficulties of its own and facing ongoing fallout from a burst housing bubble?

Thats according to UBC Sauder School of Business professor Tsur Somerville.  Its not just the Vancouver housing market that’s taking a dive - all across Canada things are slowing down, listings are high and many markets are seeing price drops.  Calgary and Vancouver have seen some of the largest price drops, but Toronto also saw a 1 percent price drop in August for the first time in ten years.

“The boom in the housing markets is definitely over,” Tsur Somerville, a professor in the Sauder School of Business at University of British Columbia said in an interview. “Depending on where you live, you can likely expect prices to fall further.”

Somerville, in a study released this month, looking at the relationship between house price and rents estimates that housing prices in some Canadian cities such as Regina, Winnipeg, Ottawa and Montreal, would have to drop as much as 20 per cent to be in balance. The professor found only Toronto and Edmonton house prices were not overvalued in the first half of 2008.

Put another way, average Vancouver house prices would have to fall by $85,000, in Winnipeg it would be $74,000 and Ottawa $81,000.

Just because homes are overpriced doesn’t mean the market will plunge to equilibrium, Tsur said.

Toronto housing prices are not out of line because they have not had the explosive growth of other cities, Sommerville said. “Some cities look way out of line when you run the numbers, but Toronto is bang on.”

Sommerville cautioned that the study was based on existing detached home prices and rents and did not include condo stocks.

I wonder what that study would show if you included data from the price/rent ratio of condo stocks.. We do have quite a few condos in this fair city of ours, with thousands more currently under construction.

The OECD has cut Canadian growth forecasts and now predict growth of less than 1 percent for the year:

Canada’s economy will expand by just 0.8 per cent in 2008, down from the 1.2 per cent forecast last spring, the Organization for Economic Cooperation and Development projected in a revised economic outlook Tuesday. That’s also less than the 1.1 per cent now projected by the Finance Department.

The U.S. economy, however, will expand by 1.8 per cent, up from the 1.2 per cent projected in the spring, and the G7 countries will grow on average by 1.4 per cent, unchanged from the spring projection.

The only G7 country that will post weaker growth than Canada is Italy, now projected to expand by 0.1 per cent.

Vansanity points out an interesting article comparing warning sign of economic downturn in the US and Canada:

Fifty-five thousand jobs disappeared last month. The shockingly large loss was the biggest monthly drop in 17 years. But the employment report shouldn’t be too surprising—warning signs abounded. Now, just like all the people who were partying it up around Noah’s ark when the rain first began to fall, some Canadians are finally beginning to wonder if a flood really is coming.

As Ignatius points out ‘The Trumpet’ is a religious publication, and if there’s one thing housing market bears and certain religious people have in common it’s predicting end-times where the righteous will get their reward and those that have succumbed to the sins of sloth and greed will get thier come-uppance.   Of course William Kamm and Nouriel Roubini have dramatically different track records at this point.

Regardless of your opinions on religion this article nicely sums up some recent economic news and may raise some red flags for anyone that believe that faith alone can maintain a market.

Todays Vancouver Province has an article on the growing risk of a US/UK style mortgage crisis in Canada. We’re building like crazy at a time when the rest of the world is slowing down, are we building our way into an over-supply situation or simply catching up?

Hall noted that housing starts in Canada are “soaring on the strength of the domestic economy and a huge dollop of very well-timed fiscal stimulus,” and that a continuing excess of housing starts over requirements means “Canada’s turn may come soon” for a housing crisis.

The report came in the wake of the Canadian government’s attempt to avoid a housing crisis by no longer insuring mortgages with more than 35-year amortization periods and less than five-per-cent down payments as of Oct. 15.

If fiscal stimulus results in overbuilding and a housing market crash, can it really be considered ‘well-timed’?

Hat tip to ‘bubblicious’ for the story link.