Vancouver Condo Info

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.

Surreyjoe posted a link to this article in the Vancouver Sun about incentives designed to lure condo buyers.  The article covers a number of projects in the lower mainland that are using a variety of incentives to try to get units sold:

Bosa said the summer was also a slow period for sales, and “we figured we would do a bit of an advertising blitz” to spark more interest, which has worked to drive more traffic to its sales centre.

Developer Ledingham McAllister is offering different incentives on a couple of its projects — a $10,000 decorating allowance on units in its Silhouette project and five-per-cent cash back on September sales in its Perspectives building near Lougheed Town Centre.

Ledingham McAllister president Ward McAllister said incentives are offered during slow sales to encourage buyers “to get off the fence” so the company can meet its sales targets, but he hasn’t seen more than minimal discounting.

“I don’t think there’s much discounting going on in the market at all,” McAllister said. “People are thinking that prices are going to come down, and we don’t believe they are.”

It may or may not be true that theres ‘not much discounting going on’, but there certainly are a lot less sales happening.  Perhaps I’m missing something here, but aren’t incentives just an attempt at hiding price drops?  If you throw in a “$10,000 decorating allowance” or a “free honda fit” isn’t that just a price drop of that amount?

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.

At the end of July we posted an excel spreadsheet that YLTNBoomerang is using to track the market for Downtown waterfront Vancouver townhouses.  YLTN just sent in the updated data so I’m posting it here for anyone interested in this part of the market.  There are a few empty spots in this update as summer is vacation time.

The information in this spreadsheet includes square footages, new listings and price changes from January 10 until September 15th 2008 (today).  The entire database is color-coded, with red indicating price increases and green indicating drops.  There have been a few increases since the original posting, and a flurry of price drops over the weekend.

Click here to download the XLS document.

I’m posting this data with the same challenge as the original post: If you can graph this data in an interesting and informative way I’ll post it here, just email it to me.

update: bcubbins has added selling price data from land titles to this spreadsheet and posted it here.  Most of it seems to be going for 5 to 10% less than listing price, the shocker is a unit at 1280 Richards that went for 32.8% less than listing price.  Is that correct bcubbins?

Wow. What a weekend in the financial markets!  Lehman Brothers has filed for chapter 11 bankruptcy, an emergency trading session was opened on Sunday, Bank of America is said to have struck a deal to buy Merrill Lynch, and AIG is looking at ‘options’ for business capital.

Phew.  That all came out of left field eh? I mean no one could have predicted that excesses in credit markets would lead to problems like this right?  That would be a feat worthy of a soothsayer, like predicting that overvalued housing markets would fall.

Fortunately for us local experts like Helmut Pastrick of the CUCBC predict that our housing market will be going up by 10 percent.. er, no.. sorry thats changed to dropping by 10%, maybe more.

Anybody have some Gravol?

The two largest mortgage finance companies in the US, Fannie Mae and Freddie Mac have been taken over by the US government in an effort to become the most expensive financial bailout in US history.  ..no sorry, that’s not the underlying goal..  They’ve been taken over because they were ‘too big to fail’ - their collapse would have caused turmoil in financial markets in the US and around the world.

No final word on how much this bail-out will cost American tax payers, but the rough estimate of $25 billion has been called ‘too optomistic’.

The plan also commits the government to provide as much as $100 billion to each company to backstop any shortfalls in capital. It enables the Treasury to ultimately buy the companies outright at little cost. It bans them from lobbying the government, putting an end to their ability to use their political machine on Capitol Hill.

It also eliminates dividend payments to current shareholders while protecting the principal and interest payments on the debt, now held by foreign central banks, financial institutions, pensions funds and others.

The Treasury will force both companies to shrink their portfolios over the long term; they now hold or guarantee about half of the country’s mortgages. In addition, the government plans to buy significant amounts of their mortgage-backed securities on the open market, beginning with the purchase of $5 billion worth this month. This step, never before undertaken by the government, could begin to restore some confidence in the credit markets and lead to lower interest rates for home mortgages.

In Canada the CMHC has taken steps to try to minimize speculation and the risk of bubble markets by eliminating the insurance of zero down and fourty year mortgages introduced a couple of years ago. Have these barndoors been closed too late?  Will a collapsing housing market in Canada bring a taxpayer bailout of the CMHC?

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.

This info courtesy of Larry Yatkowsky of Yattermatters.com - Out of the 1015 listings for detached single family homes for sale in East Vancouver for the week of August 18th - 25th only one sold.  340 (one third) of those listings had their asking price reduced.  Things just aren’t moving like they used to.

Larry has all the info and a graph of the weekly data on his website along with these thoughts on the current market:

Vancouver East is in parallel with other areas of the general Vancouver market. With one third of the listings reducing their prices and only one sale resulting indicates that a continued price reduction strategy will be required in order to attract more buyers. Affordability continues as an issue.

The lack of sales should be a strong wake up call to sellers. Continue sharpening your pencil to reduce your asking price.

UPDATE: Larry’s numbers are being disputed by a number of people, but there’s not a consistent number of sales reported.  Is this due to different methods of filtering results for SFH sales in the MLS?

flip this claims there were four sales in this time period. Paul B says in the last ten days there have been 34 sales, while tjwappraiser says MLXexchange shows 3 sales since August 21st.

Just a couple of BC housing market forecasts courtesy of Helmut Pastrick, the Chief Economist of the Credit Union Central of British Columbia. This first one from a CBC news story, March 17th 2008:

 A report by the Credit Union Central of British Columbia predicts housing prices will continue to rise by as much as 10 per cent this year and as much as seven per cent in 2009.

Lower mortgage rates, a tight labour market, high income growth and rising in-migration all point to continued high sales volumes and price rises, according the CUCBC’s chief economist Helmut Pastrick.

..and From today’s Globe and Mail, August 20th 2008:

The housing market will grow even weaker next year, Mr. Pastrick predicts.

The downturn in new construction will last through to the Olympics, and housing prices, down marginally from their peaks early this year, are likely to drop by 10 per cent before the market rebounds, he said. All told, British Columbia looks set to turn in weaker growth than the national average in 2009 after years of outperforming most of the rest of Canada.

A few weeks ago we posted a similar comparison of changing market outlook quotes from Cameron Muir, Chief Economist for the BC Real Estate Association.