Monday, May 06, 2019

REBGV Sales Update Through April 2019

REBGV released their stats package through April 2019. Here are the numbers:





The spring selling season has been sluggish. Sales in April were the lowest since the mid-1990s. Inventory growth has been alright -- not fantastic, mind. The market is definitely slow. Small discounts off list are the norm in this market, for properties that sell.

Below are price graphs, the first two are alternate depictions of 6 month change in prices versus months of inventory, the last is the annualized change in MLS residential composite HPI for REBGV, showing close to -10% drops.




While prices have come off some since 2018, price growth through the 2010s has been quite robust, around 7% gains annualized. Another year of falling prices followed by a period of stagnation would see prices in real terms return to mid-2000s levels within about 5 years, after accounting for some priced-in density premiums and lower cost of capital. I don't know where interest rates are heading in the medium term, but at some point there will be a bottom for prices. A true correction will see inventory elevated for several years before it begins to bleed off. (NB: units under construction remain very high and completions will continue to be high for some time.) Once bleed-off starts accelerating, there is a good chance there won't be much more downside. Something to watch for in the coming years.

Wednesday, March 13, 2019

Teranet HPI through February 2019


HPI
March 13, 2019
Largest retreat for a February outside of recession
In February the Teranet–National Bank National Composite House Price IndexTM was down 0.4% from the previous month.[1] Except for the recession year of 2009, it was the largest February decline in 19 years of index history. Indexes lost ground in nine of the 11 metropolitan markets of the composite index: Victoria (−2.0%), Hamilton (−1.4%), Quebec City (−1.2%), Calgary (−0.8%), Vancouver (−0.7%), Ottawa-Gatineau (−0.7%), Winnipeg (−0.4%), Toronto (−0.2%) and Edmonton (−0.1%). The only indexes up from the month before were those for Montreal (0.4%) and Halifax (0.3%).
All five constituent markets in Western Canada have now joined the downtrend. For Calgary it was the eighth consecutive month without a rise, a cumulative decline of 3.2%, for Vancouver the seventh (a cumulative −3.9%), for Edmonton the sixth (−3.5%) and for Victoria the fifth (−2.5%). The index for Winnipeg has risen only once in the last five months (cumulative −1.9%). In central Canada, Hamilton has gone five months without a rise (cumulative −2.3%) and Ottawa-Gatineau has risen in only one of the last five months (cumulative −0.8%). The index for Montreal, in striking contrast, has declined only once in the last 11 months (cumulative gain 5.3%) and is the only constituent index that was up from six months earlier. For the composite index it was a fifth consecutive month without a rise, for a cumulative decline of 1.4%.
 
Teranet-National Bank National Composite House Price Index™

In changes from 12 months earlier, only three indexes showed the weakness that has more recently become apparent in several regions: Calgary (−2.7%), Edmonton (−1.6%) and Vancouver (−1.1%). The change from a year earlier remained positive for Halifax (1.2%), Winnipeg (1.3%), Victoria (2.8%), Hamilton (3.0%), Quebec City (3.5%), Toronto (3.6%), Montreal (5.2%) and Ottawa-Gatineau (6.0%). The composite index was up 1.9% from a year earlier.
Besides the Toronto and Hamilton indexes included in the composite index, indexes exist for the seven other urban areas of the Golden Horseshoe. In February, they were down from the previous month for Kitchener (−1.3%), St. Catharines (−1.0%), Oshawa (−0.5%) and Guelph (−0.3%). The index for Barrie was flat. Indexes were up for Peterborough (0.5%) and Brantford (1.5%). As with Toronto, Hamilton and Ottawa-Gatineau, none of these indexes was higher than it had been six months earlier.
Indexes not included in the composite index also exist for seven markets outside the Golden Horseshoe, five in Ontario and two in B.C. In February four of them were down from the month before: Sudbury (−3.4%), Kingston (−2.6%), Abbotsford Mission (−0.9%) and Windsor (−0.4%%). Kelowna was up 0.3%, Thunder Bay 0.3% and London 0.9%. Only two of these seven, Windsor and London, were up from six months earlier. In other words, of 25 metropolitan markets surveyed, only three – Montreal, Windsor and London – were up from six months earlier, the weakest diffusion of six-month gains for any February since the recession.
For the full report including historical data, please visit our website.

*Note on methodology: The current-month data used to calculate the index are those of closed sales registered in the provincial land registry. To illustrate the home price trend, the published indexes of the 11 metropolitan markets entering into the Teranet–National Bank Composite House Price Index™ are moving averages of the last three months of raw indexes. This procedure evens out month-to-month fluctuations. More granular monthly data are available upon request, possibly subject to subscription fees. For further information about the methodology, please visit www.housepriceindex.ca

Copyright 2019 Teranet Inc. and National Bank of Canada


Tuesday, January 08, 2019

REBGV Sales Update Through December 2018

REBGV released their stats package through December 2018. Here are the numbers:






Sales have mimicked 2012 in the last "downturn", the difference being that inventory is still rather low, leading to a lower months of inventory than that year. Inventory is normal-ish again, after being torched in 2015 and 2016. Here are two price graphs, the first is the scatterplot of 6 month index changes versus months of inventory (6 month changes are -7.0%), and year-on-year price changes, which are negative, as they were in 2012.



2018 was an interesting year - sales were weak for a few reasons, the two most pertinent in my view are what appears to be tighter controls on mortgage approvals, and at the higher end of the market demand is very weak. Inventory ended the year in the historical range, and could increase further in 2019.

For what my predictions are worth (looking back I was mostly correct about 2018 but a bit optimistic), I expect further inventory growth in 2019. Completions will likely accelerate in 2019 and will eventually find their way, either directly or by spawning sales of existing properties as people move, into the MLS market. This should be helpful to contain upwards trends in prices. 

Prices are strong at the beginning of the year -- most years see prices, as measured by the MLS-HPI, rise in the first half, even in terrible years; conversely if prices are to be weak in the year, most of the price drops occur in the second half. We certainly saw prices drop in the second half of 2018 and this has provided a slightly lower starting point for the 2019 prime spring selling season. If prices are to be weak in 2019 on a year-on-year basis, expect meager price gains (probably not negative, but you never know) in the first half.

More broadly, we are a decade away from the last recession, and I wouldn't be surprised if we are due for another one in the next five years. If this is to occur, it is looking like there is a possibility that Vancouver could be caught on the wrong side of an oversupply during the advent of a recession and that could lead to more significant distresses in terms of sales and inventory, and the effects of this could linger longer than most are expecting. Nonetheless, Vancouver is a growing metropolitan area and land will always be scarce. I foresee no particular reason to think that a prolonged housing recession will last more than a handful of years, though those years could be painful.

Enjoy your 2019!






Monday, November 05, 2018

REBGV Sales Update Through October 2018

REBGV released their stats package through October 2018. Here are the numbers:


Sales are a bit better, as they were in 2012 in the last "downturn", the difference being that inventory is still rather low, leading to a lower months of inventory than that year. We can see the relationship between price changes and MOI is still generally being followed, though it is apparent that price drops are bit more aggressive than before at previous MOI levels (the red dots on the graph, the latest point is at about (7,-0.04)):


Sales are still weak, despite the upturn in October. Some are calling out the sales trend similarities to 2012 as indication the worst is over and the next couple of years will see things re-stabilize (i.e. a soft landing like we had in 2013 and 2014). I acknowledge that 2019 may plausibly prove itself to be a stabilizing year (which would mean better sales than this year). Nonetheless I don't think anyone should lose history that prices were on an absolute tear from mid-2015 through mid-2017, and unless that was simply rationally correcting what was significant undervaluation, we should be prepared for more than a couple of years of at least flat prices. In other words, it's hard for me to point to the similarities to 2012 as strong evidence that the worst is over, especially with some likely financing and additional inventory headwinds that will be coming our way. A "soft landing" is a distinct possibility but so is a few years of more meager pickings.

Tuesday, October 09, 2018

Metro Vancouver Housing Construction Activity Update September 2018

The stalwart Metro Vancouver housing starts and completions graph (conceived by Van Housing Blogger over a decade ago) has been updated for including preliminary housing starts data from September 2018:



The total number of starts has continued to be very strong through 2018. Completions have increased to record highs the past year, and it is reasonable to assume that many of these have started showing up, directly or indirectly, on the MLS-brokered market and have contributed to a moderate increase in new listings for used homes. In my previous post I noted that the market has cooled and we may not be free of this weakness for some time (though who knows for sure?). Developers might be "building into" a protracted downturn.

These graphs highlight how unprecedented current construction activity is. This activity has led to acute shortages for trades and backlogs in approving permits and inspections. This should come as no surprise to anyone — this is how market cycles are supposed to work. 

What is of interest to policymakers and governments here is how long it takes to render new supply onto the market. Not shown here is the time required to acquire land, plan the site, rezone, and get approval; the actual "project start" is far in advance of the starts shown in the graphs above. Ramping up supply takes years, but a sudden change in demand can occur in a single season. In addition, historically when units don't sell, there is significant impedance to commence new starts or even the preamble work, which makes it very difficult to keep a steady supply of abundant housing in the pipeline to prevent shortages, at least not without significant supplementary government intervention. I am concerned some facile interpretations of housing economics may not be well versed in the grim realities of recessions and how difficult it is to maintain over-supply and thus bypass the shortage portion of the cycle. Food for thought.