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.

Friday, July 06, 2018

REBGV Sales Update Through June 2018

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


Sales remain markedly weaker than last year, led by a significant drop in detached sales. Attached and apartment (i.e. condo) sales are lower as well, but not "dead". New listings are average and inventory growth has picked up. Months of inventory has increased to levels that indicate flat prices.

A quick update on construction activity. Starts remain robust and completions have picked up. Ground-oriented completions are the highest since 2006. Under construction is very high, in part due to raw activity, but also exacerbated by shortages in trades, inspections, and custom materials that increase build times. The number of units entering the market has been significant and it is likely this has led to both an easing in rent growth and additional used home inventory coming online. And we're nowhere near done. Supply is coming, baby, and it's real, and it's spectacular!

The summer doldrums are upon us, where new listings and sales are lower than the spring. The fall will see a smaller bump, and price changes are typically lower in the fall than the spring. I am not expecting significant upwards price pressure in the fall, and if sales remain weak through the summer, I would not rule out outright year-on-year price drops in the composite benchmark house price index. (Based on feedback from some real estate agents, year-on-year drops in the detached HPI are probable.)

Predictions too far out are difficult for a variety of reasons, but based on the amount of supply coming online, I am not anticipating 2019 to be a strong year. Stronger immigration intake and renewed monetary stimulus in Asia are upside risks to this assessment.

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.