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.

Tuesday, October 02, 2018

REBGV Sales Update Through September 2018

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







And by popular request, here is the months of inventory and Greater Vancouver composite HPI on a time series graph. The stark increase in MOI and accompanying change in price can be seen.

Sales are very weak. Months of inventory has increased to the point where at least a mild price correction is likely. The MLS-HPI is dropping.

The market is very slow. This is on the lower side of my prediction from the beginning of the year; a more significant slowdown after a near-unprecedented run-up in prices in 2015 through mid-2017 was always going to be a possibility. I am now formally on housing correction watch. More housing supply is coming onto the market, remember, and that will help with increasing for-sale inventory in 2019. Corrections do not last forever, but that does not mean there are not some lean times coming. Some people are calling for a substantial correction and some people were anticipating price corrections back in 2014 before prices proceeded to increase another 50%, so for all we know we are very removed indeed from a bottom. I have no evidence to suggest calls for a more substantial correction are fundamentally incorrect, but that does not mean such a call is certain. Nonetheless, I think the next order of business should be to figure out where the bottom is going to be.

Wednesday, September 05, 2018

REBGV Sales Update Through August 2018

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









Sales remain markedly weaker than last year, led by a significant drop in detached sales. Months of inventory has increased to levels that indicate flat prices but is not in territory that would indicate a significant correction as we saw in 2008 and 2012. The MLS-HPI has peaked, however, and I expect no significant appreciation for the remainder of the year.

The market remains slow. Curbs on multiple fronts -- capital restrictions in China, updated OSFI B20 guidelines -- are now in effect, and housing completions are beginning to wend their way into the market. Remember, that more supply is coming online in the next few years, and we can expect further supply past that via government-sponsored housing initiatives.