Wednesday, July 04, 2007

Fraser Valley REB Statistics

(Surrey, BC) – Halfway through 2007, the Fraser Valley housing market remains strong with 2,053 sales processed on the Multiple Listing Service® (MLS®) in June, a decrease of only three per cent compared to last year’s 2,126 sales, the second highest June on record.

“Summer is traditionally a slower time for real estate sales, but what REALTORS® are seeing currently is on par with some of the strongest real estate cycles in Fraser Valley’s history,” says Jim McCaughan, President of the Fraser Valley Real Estate Board.
The number of new listings at 3,082 is five per cent higher in June compared to the 2,938 new listings added to the MLS® in June of last year. The total number of active listings in June remained buoyant with 8,182, a 39 per cent increase over the 5,893 active listings the same month last year.

“We did see a two per cent dip in the number of active listings from May to June of this year, which makes sense when you look at the strong sales,” says McCaughan. “Buyers want the increase in choice. At the same time, sellers are moving to catch prices while they remain strong.”

Prices increased across all residential property types during the month of June compared to the same month last year. Single family detached homes in the Fraser Valley averaged $529,678, an increase of 11.5 per cent compared to last year’s average price of $475,075.
Townhouses averaged $321,614 in June, a 10.9 per cent increase compared to the average price last year of $290,016 and the average price of apartments last month was $219,935 compared to $189,226 in June of 2006, an increase of 16.2 per cent.

49 comments:

beta said...

Everything's booming in the sticks, that's where the dumb money can still buy in (comparatively) cheap, and they're all certain it can't lose.

I just learned that my 19-yr old niece and her 22-yr old boyfriend just bought a condo in their little BC town. They make low wages and have no job security, but they're not worried as they intend to sell it for a big profit in 2 years.

Yeah, that'll work out.

solipsist said...

"Yeah, that'll work out."

That elicited a big snort from me.

freako said...

GV is out to. Looks like more of the same.

Patiently Waiting said...

I just had a vision of WW1. Another wave of naive youth (who listened to their elders and those in charge), climbing out of the trenches and running into the toxic mists and machine gun fire. If only someone could stop the insanity.

Warren said...

I just learned that my 19-yr old niece and her 22-yr old boyfriend just bought a condo in their little BC town. They make low wages and have no job security, but they're not worried as they intend to sell it for a big profit in 2 years.

I don't know the numbers involved, but I have a strong suspicion the banks wouldn't lend them money (assuming 5% down) 20 years ago. As we all know that's part of the problem.

the pope said...

Just posted the REBGV numbers on VancouverCondo.

Markets can stay irrational for an amazingly long time. How many tech stocks kept going up long after they were insanely overvalued? The trick is seeing the peak in advance, good luck with that one.

The whole argument about spotting the peak or trough precisely is silly anyways - all you have to do is compare owning cost to rent cost and figure out what your ownership premium is.. apparently quite high for a lot of people right now, will that be the case in a dropping market?

Patiently Waiting said...

Warren,

I graduated from high school 20 year years ago, and could barely get a student loan for College after jumping through endless hoops.

I didn't even think of a credit card or a car loan (bought my POS deathtrap for $500 cash).

At 19 you don't have a credit history. Its simply not possible. Yes, we do have lots of subprime despite what some liars tell us.

patriotz said...

Another wave of naive youth (who listened to their elders and those in charge), climbing out of the trenches and running into the toxic mists

Yes, it looks like a whole generation of housing demand, not to mention consumer demand, is going up in smoke. We're in for long hangover.

It was the big influx of HK money in the late 1980's that revived the housing market and the general economy. Not gonna happen this time.

freako said...
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freako said...

"Yes, we do have lots of subprime despite what some liars tell us. "

Yes, it simply has to be the case. We have much much worse affordability than even the most speculative U.S. markets (where exotic loans were common).

I seriously wonder whether the banks will get nervous about lendin in the Vancouver area. Since CMHC is playing with other people's money, I don't expect them to care, but anybody know if Genworth is still trying to grab market share?

Patiently Waiting said...

I wonder if we have teens buying zero-down condos just to party in. Who cares if you trash place and get foreclosed. A couple years of credit purgatory, and you can borrow to hearts content again when you're 21. Unless, of course, the lenders are forced to wise-up.

HADENOUGH said...

Baby Boomers, (Sorry off topic but I wanted to post this earlier)

Message from Garth Turner MP and Financial Advisor - Feburary 2006

I wnated to post this in the earlier blog but I did something and it did not work. Anyway this is what happened with Garth Turner and MP and financial advisor in Ontario wrote what he thought.

In any case, being a columnist-MP had nothing to do with a revolution that bubbled over within the professional real estate community in Toronto last week. In response to a column I wrote on January 22nd for fifty-something Baby Boomers who typically have all their assets in real estate, some realtors become downright revolting. One of them started a chain letter of protest, which spread through the community in hours, engendering responses like this: "Talk about biting the hand that feeds you! Here we are in the heat of what appears to be a hotter than ever real estate market and not only does Garth Turner write this article about not putting your money into real estate and putting it in stocks and bonds, but somehow this article manages to get into the paper!"

Another realtor responded, suggesting I was less than a dog for penning the offensive words. But there were some dissenting voices, like this: "That is what freedom of speech is all about. We need different points of view, whether the pubic takes note is up to them. Most people these days are living beyond their means and Baby Boomers are no exception. Thanks for not being afraid to voice your opinion."

So, what the heck did I say to inflame real estate passions? Here are the offending words, after I reminded readers that 90% of Canadians have virtually no retirement savings, although they may own a house:

"Hey, I know it's hard to make the decision to downsize your real estate and give up that trophy house. I know it's scary to jump into stocks and mutual funds whose value changes every hour. I am aware how much guts it takes to sit down a write a honking big cheque to a financial advisor. I know that proactive investing is against the Canadian grain, and that friends and family members will cling to their houses and their pathetic-yielding GICs, and tell you you're going to lose your shirt.

But be brave. There is no doubt in my mind anyone today in their fifties with a home and a bunch of equity in it can achieve financial freedom. But it will not come through inaction. Nor will it arrive by doing what you have been used to doing. Millions of others will, sadly, fail. They will not enjoy their retirements they envisioned."

My point was a simple one: The bulk of net worth of average Canadian families now sits in residential real estate. The housing market is at high tide, with prices currently higher than every before. And while some will tell you real estate values will go up forever, history says otherwise. Just imagine, if nothing changes, what will happen in 10 years when nine million Boomers figure they'd better sell the house because they have no financial assets to live on, and no pension.

So, prudent financial planning, Garth Turner-style, is this: Yes, make real estate the cornerstone of personal financial wealth. After all, it's a solid and investment and you need a place to live. But you also need cash, and - most importantly - an income stream in retirement. That might come from an apartment building or a portfolio of rental properties, but not everyone wants to be a hands-on landlord or tie that much capital up in just one asset class (or enjoy fixing toilets).

So, how about diversifying, borrowing against the newly-created equity in your home and investing that in a portfolio of quality stocks, bonds, trusts and mutual funds? That will give you a broader base of wealth, appreciating assets which can be turned into cash with a phone call, capital gains tax deferral, and a loan with deductible interest, dropping your income tax burden. Plus, you still get to keep your home.

This is radical advice? I'd say the people telling you to keep 100% of your money in bricks and mortar have some serious explaining to do.

Garth Turner is MP for Halton, and a financial author. There's more heresy at www.garth.ca.

freako said...

"So, how about diversifying, borrowing against the newly-created equity in your home and investing that in a portfolio of quality stocks, bonds, trusts and mutual funds? "

Borrow against home equity to buy bonds? That is seriously f*cked up. Kind of like borrowing money to put into a GIC.

Equities could beat cost of borrowing in the long run, but Canadian markets has serious downside due to resource exposure and risk of slowing U.S. economy.

patriotz said...
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patriotz said...

And of course the even greater whopper is that Turner argues at length that you should reduce your RE exposure, and than at the end recommends that you should not reduce your exposure at all, but just borrow money to buy other assets.

Hey Garth, how about selling that big house, buying something a lot smaller, and investing any money left over? That's real diversification.

freako said...

"And of course the even greater whopper is that Turner argues at length that you should reduce your RE exposure, and than at the end recommends that you should not reduce your exposure at all, but just borrow money to buy other assets."

Yeah, I don't think he grasps what he is saying, which is:

Decrease RELATIVE RE exposure by increasing TOTAL exposure.

Since RE and equities are likely more correlated than not, shifty advice. IMHO, that is analogous to stabbing yourself in the thigh in order to get your mind off that pounding headache.

el bbub said...

Dreadful... care for a joke?

OWNER to a house hunter:
"Yes, the kitchen is a bit small, but with a mortgage like this you won't do much cooking anyway."

beta said...

I wonder if we have teens buying zero-down condos just to party in.

Possible, but I think most see it as a guaranteed means of making huge money quickly (why not, it's worked for others so far). My niece and her boyfriend are planning to fix their condo up with minor renos (new paint, hardwood flooring, etc) and imagine that they'll sell for 50% more in 2 years.

When talking about her purchase, my 19-yr old niece who graduated a year ago said: "Finally, I've gotten into home ownership."

Patiently Waiting said...

beta,

Do you know where they got their mortgage?

Did they have any down payment?

How easy it was to get the mortgage?

patriotz said...

I grew up in a BC small town, and not only did it have no condos, the very idea of buying an apartment would have been considered absurd. As would a twentyish couple buying any RE.

Is there going to be anyone left in this province to buy RE in five years time? (except me, of course).

jesse said...

The YOY change graph is interesting. Seattle's is very similar.

el bbub said...

Oh.. about Seatle... did you hear the big news? Microsoft to open doors in Vancouver

rentah said...

warren: I don't know the numbers involved, but I have a strong suspicion the banks wouldn't lend them money (assuming 5% down) 20 years ago. As we all know that's part of the problem.
freako: I seriously wonder whether the banks will get nervous about lendin in the Vancouver area.
patiently: How easy it was to get the mortgage?

---

Mortgage qualification must be where the 'rubber hits the road' for this whole cycle.
Banks have got to, at some point, start tightening their standards. They are likely doing that already. They must be watching the sub-prime meltdown and its spread (anybody hear about the Italian meltdown yesterday?).
Suddenly FTBs are going to be completely priced out, even those who had some down payment and were prepared to put their necks in nooses.
We're either going to run out of buyers (demand from future all depleted) or the banks will stop those who remain.
It doesn't seem that people will stop themselves.
We may have a month or two left of pre-approved mortgages, but after that we'd expect it to be tighter.

Anybody on the big bank mortgage desks want to share some anecdotes with us?

rentah said...

I recently met with 10 friends. We are all professionals. I am the only one short RE in Vancouver.
The talk was:
- Absolutely no way RE here can go anywhere but up
- Perhaps there are still investment opportunities in rural areas
- Everybody from all over the world wants to buy and live here

And, last week, I was told by another that there is absolutely no way that RE in Vancouver will correct "before the Olympics".

Swirlyman said...

For anyone interested, you can short the US real estate market with 2 times leverage by just buying SRS (UltraShort Real Estate ProShares). It trades on AMEX and has already gained 25% since it started trading in February.

jesse said...

"Microsoft to open doors in Vancouver"

The US ran out of H1B visas already this year. Sounds like a few hundred more renters for Vancouver. Should help to offset some of the mortgage rate increases over the summer ;)

jesse said...

"I was told by another that there is absolutely no way that RE in Vancouver will correct 'before the Olympics'."

It's conversations like these (and I have had many) that make me think the bears are wrong. There is enough positive sentiment around to keep this baby going for another 10 years. I honestly cannot conceive a true RE bear market because it has been so long since the last one - many (and maybe this is the problem) weren't alive or cognisant during the last one so it's as foreign as conscription, famine, or plague.

el bbub said...

I hate these kinds of conversations. These people build everything on ridiculous amount of fallacies:

"I'm smart, therefore, you're stupid."

"RE always goes up, therefore, it can never go down."

"We don't know any better, therefore, Earth is flat."

beta said...

Do you know where they got their mortgage?
Did they have any down payment?
How easy it was to get the mortgage?


If I recall correctly it was CIBC.

No downpayment, 100% financed.

I don't think they had any problems getting approved. The condo was less than $100k, so technically they can make the mortgage payments.

But apparently, these crap condos don't even rent out cash-flow positive -- they're cheap, but rent's still much cheaper.

In their defense, these kids are both hard workers. Unfortunately, they've taken what they hear from everyone around them at face value and bought into RE as an easy means to riches.

They'd be wiser to instead invest in their post-secondary education; however, buying this condo probably negates my niece's previously stated intention to move to a city and attend college. Shame.

beta said...

"I was told by another that there is absolutely no way that RE in Vancouver will correct 'before the Olympics'."

It's conversations like these (and I have had many) that make me think the bears are wrong.


People say the same in every boom and bust, but it still goes bust. Psychology can turn on a dime, and unexpected economic events can cause a reversal well before predicted timelines.

As Galbraith points out, even participants in bubbles who are aware of it being a bubble still get caught when it crashes before they think it will.

A US-led recession could pop our bubble quickly, as in '82.

Alternatively, just as the much touted 'Olympic benefits' were priced in well before 2010, the expected drop after 2010 will be similarly priced in beforehand.

Even if a recession is averted (doubtful), semi-smart investors will decide it prudent to take their profits and run in 2009, before the bottom falls out post Olympics. The rush for the exits, combined with the vast financial vacuum caused by just-completed megaprojects, should be sufficient to snuff out the speculative fire that fuels our BC economy, with resultant effect on RE prices.

mohican said...

I hear all the same comments and I don't put much stock into what people say about the real estate market.

Without fundamentals (rising incomes, rents, increasing demand, lower supply), psychology will only pull a market so far. The farther that psychology takes the market on its own, the farther it is for the market to return to fundamentals.

The biggest manias crash the biggest.

Duran said...
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Duran said...

"It's conversations like these (and I have had many) that make me think the bears are wrong. There is enough positive sentiment around to keep this baby going for another 10 years. I honestly cannot conceive a true RE bear market because it has been so long since the last one - many (and maybe this is the problem) weren't alive or cognisant during the last one so it's as foreign as conscription, famine, or plague."

There is some truth in your statement as it seems that EVERYONE that doesn't read these blogs believes fully what the media/Muir/Rennie is telling us. However, 10 more years of this? That means 1.2 - 1.8 million as the median price for 5-10% YOY price increases in ten years!

I seriously shake my head when I hear about people younger than me (I'm 25) taking out student loans to buy pre-sale condos.

jesse said...

"That means 1.2 - 1.8 million as the median price for 5-10% YOY price increases in ten years!"

Don't infer 5-10% YOY from here. With 10 years of -2% YOY, the end result is 3% nominal YOY appreciation (starting from 2000) which would have prices tracking inflation. Sentiment could stay positive with "negligible" YOY declines even though the market is really depreciating a ton decade-over-decade.

The point is that for some reason the RE market errs on the side of optimism so even flat to slightly negative returns are spun positive.

I think it will take a severe bitter pill like more mortgage rate hikes or unemployment rising to wipe the smiles off your friends' faces. But such an event is not the only outcome that could return the market to fundamentals.

beta said...

I honestly cannot conceive a true RE bear market because it has been so long since the last one

People's expectations are based on past experience, so they're more likely to predict an event if they've experienced a similar event before.

For example, someone who has experienced a car accident is more likely to expect one happening again than someone who has never been in an accident, especially if the previous accident was severe.

However, such events occur regardless of our expectations.

Further, in the case of an RE correction, I see it not as an accident waiting to happen but as the logical outcome of current market forces. It would be a miracle if it didn't happen.

freako said...

"It's conversations like these (and I have had many) that make me think the bears are wrong. There is enough positive sentiment around to keep this baby going for another 10 years."

Not impossible, but I think you place too much faith in psychology. As mentioned, it can turn on dime, and for no obvious reason.

In favour of continuing circus atmosphere

1. Rising prices (feedback loop)
2. Lack of fundamental value no impediment at all (buyer ignorance)
3. Exotic carrots such as Olympics, and anti-Americanism confer a sense of immunity to global economic problems, and createa sense of invincibility.

Ok, so it is established that people believe that prices will continue to rise for the time being. Will that belief in itself make it happen?

Let's back up about three years. I thought that markets pretty well had peaked then, and fundamental constraints were about to be hit. Nothing could be further from the truth. So how could I go so wrong? Well, it turns out that a perfect storm of sorts hit:

1. I expected perception of value to be a concern. Clearly there is no such thing. At the moment.

2. I expected traditional borrowing limits to curtail upside. We have smashed through those, and then some.

3. I suspected that we were borrowing demand from the future, and would be up sh*t creek without a paddle. I think we are doing just, that, but just borrowing more. I should have realized that the supply-demand imbalance was such that even at record sales pace, it would take many years to clear the backlog. Now at 6 years and counting. Will fundamental demand be exhausted soon?

4. I expected new construction to flood the market with supply. It has done that, but still not enough. As always, peak completions will be AFTER the market has turned.

5. I expected investors to react to the poor value, and sell to bring the market into balance. The opposite has occured. Cashflow investors are no longer buying, but they are not selling. Amateur speculators are still buying buying buying.

Of course, all of these are just borrowed time and will lead to a bigger pratfall.

On that topic, Jesse, I think your "bears are wrong" comment needs to be clarified. I am convinced that real prices will go back to 2003, and depending on how the chips fall, maybe nominal too. If prices keep rising until 2011 and then revert to 2003 real, will I have been wrong?

We need to separate the size of the ultimate fall from its time. What good is one without the other? Dunno, but personally, I am unwilling to invest when I am on borrowed time. If anybody is confident enough to jump in levered to squeeze out two more years of appreciation, you deserve your spoils. But don't whine if your ass handed to you.

freako said...

Alternatively, just as the much touted 'Olympic benefits' were priced in well before 2010, the expected drop after 2010 will be similarly priced in beforehand.

Well the glaring problem to me is that these gains go on year after year. As most people fammiliar with the concept of market efficiency knows, good news is priced in as soon as it is known. For the asset to keep outpeforming, good surprises would have to keep coming. The trouble with RE is that is appreciated at an unbelievable clip, all WITHOUT good news. you could argue that the 2001 drop in rates was the good news, but why would prices then continue to rise for the next six years. If the RE market was a stock, the Securites and Exchange Commission would have investigated its meteoric rise for fraudulent manipulation. This whole thing reeks of market inefficiency, and we know what will happen in the end. Market efficiency will come roaring back and bitchslap prices back where they belong.

Never have so many risked so much of their money on something they understand so little about.

jesse said...

"On that topic, Jesse, I think your 'bears are wrong' comment needs to be clarified. I am convinced that real prices will go back to 2003"

It is conceivable that the market could correct without massive nominal declines. Further it is conceivable someone can be "bullish" through the entirety of what is actually a bear market IF declines are small and slow enough not to cause massive carnage. Convincing such a fellow the market was actually a bear one, well, it depends on how logical he is I suppose. His "RE always goes up" mantra changes to "RE always goes up in the long term". You know how it will go if declines are slow.

If you think you are a bear and need blood on the streets or bulls jumping from skyscrapers to be right you may be disappointed.

That said, there is a reasonable chance something really really bad could happen. Like another 1% rate hike or 1% unemployment rise. Then it's -10% YOY or worse and a thankful change of conversation at parties.

beta said...

It is conceivable that the market could correct without massive nominal declines.

Sure, though past boom/bust outcomes argue against it, especially with current high levels of debt in an economy driven by RE-related business and consumer spending. A soft landing is conceivable but unlikely, as speculators in the US are discovering.

patriotz said...

It is conceivable that the market could correct without massive nominal declines.

Well golly gee, that's what they were saying south of the border, too. In fact, everything people are saying now in Vancouver was being said south of the border a year or two ago.

The last time a RE runup corrected without double digit nominal declines was in the late 1970's, when there was substantial wage (and price) inflation.

A correction from the current runup, in an environment of flat nominal wages, in the face of the world's biggest RE crash south of Zero Ave, without nominal declines? NFW.

freako said...

"Further it is conceivable someone can be "bullish" through the entirety of what is actually a bear market IF declines are small and slow enough not to cause massive carnage"

Just so that we are clear, a 40% drop in real prices, even without nominal declines, is a slaughter. Even if the sheep don't know they are being gutted alive. I am more interested in actual financial impact than perceived impact. If some buys today, and suffer through a 40% fall in real prices without regrets, I have nothing to take away from him.

beta said...

If anybody is confident enough to jump in levered to squeeze out two more years of appreciation, you deserve your spoils. But don't whine if your ass handed to you.

Well put.

patriotz said...

Further it is conceivable someone can be "bullish" through the entirety of what is actually a bear market IF declines are small and slow enough not to cause massive carnage

The decline doesn't have to be slow. Anyone who buys is bullish, by definition. People bought all the way down the tech meltdown, didn't they, and that was hardly small and slow.

People were buying all the way down the 1981-83 RE disaster in Vancouver too of course. Someone always thinks the bottom is in.

The "usual suspects" are always bullish during any bear market, of course (e.g. A-J Cohen and gang during the tech meltdown, Lereah and Yun right now), but being bullish with your own money and bullish with OPM are two different things.

jesse said...

""Anyone who buys is bullish, by definition."

To stay bullish throughout the full length of a bear market is rare (if it's your money that is :) ), but if the declines are not obvious it's like a frog in slowly warming water.

"In fact, everything people are saying now in Vancouver was being said south of the border a year or two ago."

It was also being said in Britain as well. Market will correct eventually but I still say it can correct on the sly. Slightly related, June employment stats are out. As last month, Vancouver continued to shed more jobs though it could be seasonal. In any case most provincial job gains are outside GVA.

freako said...

The "usual suspects" are always bullish during any bear market, of course (e.g. A-J Cohen and gang during the tech meltdown,

As I posted on the Pope's blog, I fully expect some pundit to declare Vancouver undervalued once its dropped 5% or so peak over peak. Some clowns like Lereah did just that. Thank god that he and his awful "scratching bottom" metaphors are out of the media spotlight.

Also note the asymetry. Rising prices mean a hot market, get in now. Falling prices mean undervalued market, get in now.

freako said...

it's like a frog in slowly warming water.

Suitable metaphor, but you do know that it is myth, right?

You gotta love the internet. Great source of myths, but also the myth busters.

jesse said...

"Suitable metaphor, but you do know that it is myth, right?"

Yes. I like how this site puts it:

"The metaphor lies in the frog's ability to escape from the container: if there's no way out, then the frog's fate is a foregone conclusion."

It's easier to throw the frog in cold water and close the lid than to try to throw it in boiling water. Easier still is not to eat frog.

Warren said...

freako:
If some buys today, and suffer through a 40% fall in real prices without regrets, I have nothing to take away from him.

Interesting comment. I can fully believe that a lot of people will be in this state of mind 10 years from now, when prices have flattened, or dropped very little in nominal terms.

Trying to explain to them the opportunity cost of that real drop would be like trying to explain economic fundamentals and the relationship of rents to RE prices now.

freako said...

It's easier to throw the frog in cold water and close the lid than to try to throw it in boiling water.

To go on with the metaphor, whether the frog enjoys his little hot tub or not, the laws of physics will previal. ie. the pressure will blow the lid right off. Expect market forces to do the same. All in good time of course.