Wednesday, June 06, 2018

REBGV Sales Update Through May 2018

REBGV released their stats package through May 2018. Here are the numbers:
Sales are markedly weaker than last year, led by a significant drop in detached sales. Attached and apartment (i.e. condo) sales are still alright, but not as robust as last year (which was a very good year for sales, so we shouldn't lose that perspective!)

New listings are now quite robust and inventory growth has picked up. A very early June read indicates sales remain tepid.

Ben Rabidoux has suggested that we are seeing similar behaviour to 2012, another year that was fronted with regulatory changes affecting housing demand. He outlines that there are of course differences between the two years' states. From my perspective, 2018 is different in a few ways:
  • Prices have increased by most affordability measures
  • There are fewer newly completed unabsorbed units
  • For-sale inventory is significantly lower
Nonetheless, we are looking at a much cooler market in 2018 than most past years and that looks to continue for some time.

Should we be concerned about a prolonged housing recession? I'm concerned that it will be tough on a lot of people who are heavily committed to real estate investments, but despite the impending hardship that may start showing itself, I don't think a large downturn will be all that satisfying for people who have been bearish since I started blogging in 2007 -- hey you were right but that took a really long time. 

In the long run I'm not overly concerned. Canada, and Vancouver, has a lot going for it, including a young edumacated population and a well-thought-out immigration program that is seeing its quotas increase, both which will be positive for household formation over the next couple of decades. That does not necessarily mean housing is a good investment, it just means I don't think the end is nigh.

Friday, May 04, 2018

REBGV Sales Update Through April 2018

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






Sales are markedly weaker than last year, led by a significant drop in detached sales. Attached and apartment (i.e. condo) sales are still alright, but not as robust as last year (which was a very good year for sales, so we shouldn't lose that perspective!)

New listings are now quite robust and inventory growth has picked up.

I suggest that the market has cooled off compared to the past three years and I see no signs that will change anytime soon. It is unclear how much cooling will occur.

Wednesday, April 04, 2018

REBGV Sales Update Through March 2018

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







Sales are markedly weaker than last year, led by a significant drop in detached sales. Attached and apartment (i.e. condo) sales are still alright, but not as robust as last year (which was a very good year for sales, so we shouldn't lose that perspective!)

New listings are very weak, which I have surmised is in large part due the lack of listings; nonetheless, in combination with weak sales, inventory is starting to accumulate and this will in general lead to less strong prices. From all that I see, there is no crash, but the crazy pace of sales of detached a couple of years ago is starting to show now, and we are now undershooting after the overshoot. But that took a couple of years -- it gives us some indication of how long housing cycles take to complete.

I see no reason to expect a sudden change in sentiment over the spring, but who knows for sure. Detached, and now attached and apartments, have all undergone serious runups since 2015. One wonders if that runup will turn out to be sustainable. This humble student of the market is keeping an open mind either way.

Wednesday, January 03, 2018

REBGV Sales Update Through December 2017

REBGV released their stats package through December 2017. Here are the numbers:






Sales are still robust and new listings are averaging slightly higher of late. (November was very strong for new listings.) Regardless the recent addition of new listings, inventory is still very low; it takes many months to accumulate for-sale inventory and move months of inventory back into a "balanced" market position.

As a summary of 2017, sales were strong; not as strong as 2015 or 2016, but strong nonetheless. Much of the strength came from attached units with detached units pulling back somewhat after their sensational performance in 2016. I had predicted an increase in for-sale supply mid 2017 that failed to materialise — I underestimated the production delays of new units and how that delay has knock-on effects. I realised this relatively early in 2017, nonetheless it was a "miss" on my predictions for higher for-sale inventory by the end of Q3 2017.

It may sound funny, but much of my "most likely" predictions for 2018 will remain the same from 2017:

  • Prices, as measured by the Teranet HPI, will increase through the first half of the year. This is because inventory is still very low and there are few viable means to increase inventory to the point where price rises can be avoided.
  • Based on guidance from those more closely tracking construction completion timelines, I expect much higher unit completions in 2018 than 2017. We are already starting to see a bit of an uptick in completions and I expect that to continue through 2018. (I was wrong on this for 2017 but I've got a good feeling about this year!)
  • I expect new listings to be above or at the long-term average, and sales to be near or slightly below long-term average: there will be some weighing on demand due to changes in mortgage approval guidelines, but there is a huge impetus to buy due to demographic factors and ready access to alternate forms of financing (you know, not banking on the banks. Amiright, Mom and Dad...?)
If prices are to stop rising (they have been on a tear these past couple of years), there needs to be more for-sale inventory. This is not up for much debate. The only realistic way of getting more for-sale inventory is through new listings outpacing sales plus expiries. That means a combination of above-average new listings and below-average sales, or we're off to the races again. Whether or not you "believe" that "moar" housing supply will help crimp price gains, we are about to find out. That's exciting. Woo. Hoo.

And what of all the purported foreign capital coming into the market? I think it's an odious issue — but by no means the only and not necessarily the most significant one — and I've from time to time beat my regulatory drum on Twitter for anyone who cares to listen. The regulatory oversight of capital traceability is lacking and few people really fear getting caught. I am hopeful there will be further action on the capital tracecability file in the coming year. (Yes there has been some action, if you know where to look...)

Anyways, as always, Merry New Year to all.

Thursday, October 26, 2017

On the mechanics of CMHC construction data

A quick note on the mechanics of CMHC construction data. CMHC reports three main datapoints in its Table 027-0048 Canada Mortgage and Housing Corporation, housing starts, under construction and completions in selected census metropolitan areas monthly (units): starts, completions, and under construction.

Definitions are as follows (link):

Start: For purposes of the Starts and Completions Survey, a Start is defined as the beginning of construction work on a building, usually when the concrete has been poured for the whole of the footing around the structure, or an equivalent stage where a basement will not be part of the structure.

Under Construction refers to the number of units under construction at the end of the period shown, and takes into account certain adjustments which are necessary for various reasons. For example, after a start on a dwelling has commenced construction may cease, or a structure, when completed, may contain more or fewer dwelling units than were reported at start.

Completion is defined as the stage at which all the proposed construction work on a dwelling unit has been performed, although under some circumstances a dwelling may be counted as completed where up to 10 per cent of the proposed work remains to be done.

The graphs I show on construction activity were authored by Vancouver Housing Blogger (the blog is now almost 10 years defunct). Since there is seasonality in starts and completions, a seasonal adjustment has been performed by summing a year's worth of starts and completions, therefore the starts and completions data are filtered with a delay of 6 months. Sudden changes in starts and completions will be "averaged" so could take some time to show up. (Smarter ways of seasonally adjusting are available but whatever.)

One behaviour worthy of note is that under construction is the cumulative difference between starts and completions. If starts outpace completions, under construction rises. If completions outpace starts, under construction falls. Here is where we are today:


Starts have outpaced completions since the end of the last recession. More recently starts went plaid and under construction has gone off the charts (literally, in the case above). Since the construction process has a fair amount of fixed resources (engineering, labour, materials, inspections, etc.), this sudden surge in activity has resulted in completions lagging moreso than they have in the past (i.e. projects have been delayed), and units under construction has ballooned as starts, until just recently, have continued apace.

As the construction backlog clears, completions will increase as resources become freed up to be transferred to other projects. As completions increase, units under construction should begin to drop, but only if starts do not continue in beast mode.

Regardless, supply is coming very soon.