Tag Archives: supply

Goodbye 2013! Hello 2014!

Well here we are wrapping up 2013.

The Vancouver market continues to fluctuate in its flat range.

Owners are still paying more than renters, but can paint their walls whatever colour they want.

Renters are still more flexible when it comes to relocation and some of them have more diversified investments, but some of them just want to paint their walls whatever colour they want.

The Vancouver housing bubble is boring.

Not like some of the more exciting housing bubbles around the world.  Remember the Celtic Tiger?  Ireland had a giant boom, but now they’re tearing down brand new homes.

So what will 2014 hold in store for the Vancouver Real Estate Market?  A slump, a dump, a bump or a jump?

What do you think, are we in for an exciting year or another yawner?

FFFA! Canada, Construction, Condos, Confidence

Wake up!

Grab some coffee and some left-over halloween candy, it’s Free-for-all time!

This is our regular end of the week news round up and open topic discussion thread for the weekend.

Here are a few recent links to kick off the chat:

Ready to count BOC out of rate hike?
Consumer confidence falling
‘red mitten’ benefit from winter games
Flaherty to give market a talking to
Housing Analysis construction activity
Buying Genworth?
Preparing for a stock market correction
Can we have some accurate data?
The foreclosure cup
Where’s the next property bubble?
Best places to retire

So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!

Goldman Sachs latest to warn about Canadian house prices

Ah, Canada.

Are we careening towards a sharp correction in house prices across the country, or are we just comfortably ensconced in the new value of property?

A Goldman Sachs report is the latest voice of warning about overbuilding and overpriced houses in this country.

Adding its voice to a growing chorus of concern, a report from Hui Shan, an economist at Goldman, late last week warned: “what goes up can keep going up, but then tends to come down.”

Ranking high-growth property markets in the last four years, Canada comes fourth behind Israel, Norway and Switzerland, according to her research. But unlike some other markets, construction activity has been trending up for years and has not shown signs of slowing down in Canada, she explained.

“If the elevated level of homebuilding persists in coming years, the risk of overbuilding will increase substantially. And if the ongoing housing boom is followed by a housing bust, the price decline can be quite significant given the excess supply of housing at that point,” she said.

On the bright side for some, they are predicting that prices could still see some upside before correcting.  Read the full article over at CNBC.

Afraid of falling prices? Just don’t sell!

There’s a funny comfort meme in the media now that house and condo prices are falling.

Its a strange interpretation of ‘supply and demand’ that says if demand is dropping dramatically we’ll just cut back on supply to match and prices will stay stable.

Soft landing here we come!

There are a number of talking heads in the media espousing this viewpoint at the moment and If you don’t think about it too hard it kind of makes sense.

Here’s just one recent example:

Don Lawby, chief executive of the Century 21 Canada, and a charter member of the club that doesn’t see home prices dropping anytime soon, can’t see any desperation from sellers.

“The economy continues to be okay, people have jobs, interest rates are low,” said Mr. Lawby. “Historically, anytime when prices dropped it was tied to high unemployment and interest rates. It’s not the case today, people are not forced to sell, they are staying with their price.”

If people don’t have to sell, then they’ll just take their homes off the market and there’s one less property on the supply side right?

..Of course if you start thinking about it a little bit it doesn’t make as much sense. As Patriotz points out:

..most discretionary sellers are planning to buy another property, so if they decide not to sell they are also deciding not to buy.

So for those of you keeping score, that’s one less seller AND one less buyer. Kind of cancels itself out doesn’t it?

The other point that has been repeated ad nauseum but always seems to get ignored in these articles: the seller that doesn’t sell has zero affect on the market.  The ONLY activity that affects the market are the sales that take place and what price the exchange happens at.  That sale then sets the comp price for all neighbouring properties.

So what really drives the market?

What buyers are willing and able to pay for their desired property from buyers who either need or want to sell.

In a falling market buyers are willing to pay less, because they aren’t completely stupid.  They know it doesn’t make sense to bid high on a purchase that is falling in value each month.

And how fast are Vancouver property prices falling right now?  Apparently even faster than the US bubble markets were falling at their peak.

So there’s that.

But possibly even more important is the buyers ability to pay.  Even if someone really wants to buy that million dollar house and thinks it’s a great deal they might not be able to.  If the credit isn’t available that sale will not happen.

Recent moderation in the mortgage market will have some effect here as we return to the historical standard 25 year amortization on CMHC insured mortgages.  As CMHC hits it’s mortgage cap it is also pumping less credit into the housing market now than it has been for the last few years.

Every time you read another expert talking about the lack of a ‘trigger’ to cause a collapse in the housing market it’s worth thinking about what the trigger in the US or Spain or Ireland was.

The US housing market started to collapse in 2006.  2 years later financial markets collapsed.  The ‘trigger’ for the US real estate collapse was simply this: House prices were too high.



Should incentives go to the supply or demand side?

The Canadian Mortgage and Housing Corporation (CMHC) is Canadas national housing agency.

The front page of their website says this:

Backed by more than 65 years of experience, we work with community organizations, the private sector, non-profit agencies and all levels of government to help create innovative solutions to today’s housing challenges, anticipate tomorrow’s needs, and improve the quality of life for all Canadians.

This is a bit vague, but let’s assume ‘today’s housing challenges’ includes the availability of affordable housing for all Canadians.

With this goal in mind there are two ways you could use government money to create incentives for housing: The supply side or the demand side.

CMHC works on both sides, but over the years they’ve shifted the bulk of their support to the demand side.  This means that instead of directly funding the construction of housing or providing incentives to builders, they provide support to the buyer mainly in the form of mortgage insurance for risky loans.  Of course this support is actually provided to banks to make their loans risk free, but the end result is that more people are able to pay a higher price for housing due to more availability of credit.

In concert with record low interest rates and a speculative mania this has driven housing prices to record highs in Vancouver and inflated prices across the country leading to talk of a national Canadian housing bubble similar to that seen in the US.

If we really want to use government to assist in the creation of affordable housing shouldn’t we be providing incentives to the supply side instead?  It shouldn’t be a stretch to understand that building more housing and providing less credit to home buyers would drive prices down making homes MORE affordable.

But nobody really wants to drive prices down do they?  So instead we get vague statements about housing challenges and smoke and mirrors attempts to improve ‘affordability’ by providing ever cheaper credit.

That hasn’t worked in any housing bubble yet, but hey! Maybe it’s different here!