Thursday, November 22, 2007

October 2007 CMHC Data

Well the October CMHC data for the Vancouver area came out today and here are the highlights:


Units under construction hit another record high at 23,950.

Starts were high at 1907. Completions were low at 1067.

Completed and unabsorbed units hit a new high at 1194. This is significant as it directly adds to the overall supply mix and I would term newly completed units as the "smart money" supply. Developers will cut prices quickly rather than sit on inventory. This is happening in Langley/Surrey right now. I see completed new units that have sat for 6 months having the price dropped gradually every month. The longer they sit unsold, the faster the price drops.
New home supply is expanding rapidly with even more units under construction now and prices have peaked in the Valley on new homes. This is very similar to US bubble markets where new homes are the leading indicator to what happens to existing homes.

Clearly at this point new supply completing now and scheduled to complete in the next 12 months is oversupply as evidenced by the ratio of new people to completions. Population growth is low but supply and the supply pipeline is hitting record highs. Add all of the speculator held inventory and we have a recipe for a major crash in our local market - it's all a question of when.

21 comments:

Van Housing Blogger said...

Great work, Mo.

mohican said...

Nice to see you around VHB.

M- said...

Beautiful, just beautiful. The more I've been looking at the direction things are going, the more certain I am that prices aren't going to fall to the long-term trendline.

...I become more and more certain that we're not even just going to dip below the long-term trendline, but that we may even *break* the long-term trend.

We're now seeing "official" oversupply-- unabsorbed units that not even speculators are willing to hold. And we've got a record-breaking amount of inventory in the pipeline. Wow, it's going to be exciting.

I've got a request-- for your second chart, is is possible to add annual population growth in people/yr to it?

David N said...

So, vancouver will be singing this tune?
http://www.youtube.com/watch?v=2t8YTvdYXws

johnnyrent said...

Good work Mohican

It seems the period between 2000 and 2003 was somewhat of an anomaly in that starts and completions were quite low in relative terms. One could argue that the building fest that continues today is in part “catch up”. That said, the latest ratio would seem to suggest that we’re beyond catch up and have been for a while. I wonder if it wouldn’t be helpful to have this chart expressed in trend lines to indicate when and to what extent starts and completions began eclipsing intrinsic demand.

Strataman said...

Mo! Great graph especially the one comparing new persons. Thankyou for your time and effort, sooner or later you'll have some satisfaction! I remember watching those guys on English bay put rocks on top of rocks and thinking noway can't do another one,,,and they did! But the tide comes in and it's all for naught!

fish10 said...

Excellent post. Great graphs. the numbers never lie!

solipsist said...

My eyes usually glaze over when confronted with statistics and graphs and such, but these actually opened them.

It is interesting to see the time-line. When I arrived in this burg in 1988, I thought that SFH were under-valued. Too bad that my peregrinations precluded me from obtaining a mortgage. Too bad that when those peregrinations subsided, and I actually qualified for financing, things had gotten out of hand. Looking at your graphs, I am much assured.

By-the-by, I would not swap those peregrinations for a paid-for place in the British Properties. I saw a nice stone farmhouse in Arthur, Ontario for $150k. I sometimes think of a move...

oh please said...

Here's another interesting stat from Canadian Mortgage Trends. "Incidentally, the last few times mortgage spreads were this wide our economy went into recession." Be sure to check out the graph.

Strataman said...

"Too bad that my peregrinations..." Sheesh I had to look that up...!!!!!

patriotz said...

I become more and more certain that we're not even just going to dip below the long-term trendline, but that we may even *break* the long-term trend.

I believe the long-term real house price trendline in Vancouver, and everywhere else in North America, even pre-2001, is unsustainable for the following reasons:

1. Stagnant real wages and real household income.
2. Declining labour participation rate (has risen greatly since the end of WWII).
3. Rising and unsustainable consumer debt = falling disposable income.
4. Selloff of housing stock owned by boomers due to lack of adequate retirement savings.
5. Exhaustion of intergenerational transfers of wealth in middle class.
6. End of secular decline in interest rates.

Patiently Waiting said...

"5. Exhaustion of intergenerational transfers of wealth in middle class."

Those CHIP reverse mortgages will kill a lot of that. I hate those commercials.

Aleks said...

"We're now seeing "official" oversupply-- unabsorbed units that not even speculators are willing to hold. And we've got a record-breaking amount of inventory in the pipeline. Wow, it's going to be exciting."

Exciting as an outside observer, maybe, but I have a feeling that Vancouver is going to be a really depressing place to live once the party ends and the hangover begins. All those people who scraped together all their savings to buy a place with a 25-40 year mortgage who could be upside down with even a 20% drop, all those construction jobs that will disappear, and all those stacks of concrete boxes that are way too small for anyone to actually live in, let alone have kids.

Forestry is in the toilet, the US is heading for a recession, and according to one report, if you remove Alberta's oil money from the equation the rest of Canada is already in recession. After the Olympic construction, there will be very little left.

Clarke said...

Well, regardless of what measure of prices to rents I use, price decreases of around 50% seem necessarily to bring prices in line with normal ratios.

For the longest time, the convenional wisdom around here was that the bubble's bursting was not going to be linked in any particular way with the larger economic picture -i.e. the economy could still be booming while the bubble fizzles out. What is really striking is how this now seems to be coinciding with a lot of big problems in the macroeconomic environment.

I think the stage is set for large devaluations in local real estate combined with a pronounced economic slowdown.

Jordan Clark said...

Aleks & Clarke: I think the same is true that Vancouver will be reaping the seeds it sews. Not just for real estate but personal finance as well.

Here's my thoughts and predictions:

A large number of people are refinancing their houses to take money out or get a HELOC. Plus the amount of consumer debt beyond housing keeps is rapidly rising. BC has the highest levels in Canada.

The amount people save for retirement is shockingly low or non-existant. Some stats say on average we're spending more then we make every year. People won't be able to retire when they want.

So the construction and real estate industry will go bust.

We'll probably be saddled with huge "2010 legacy" debt, like every other Olympic city.

More people will be living paycheck-to-paycheck, leaving them financially vulnerable when even minor problems occur.

People with huge mortgages won't be buying new furniture, dining out or going on vacations or supporting the economy.

Speculator's will be losing their shirts instead of trying to feed upside down rental properties that can't even break even.


What I'm wondering is how much longer will this behavior go on? Will we realize it and correct it before creating decades of disaster?

Does it make sense to wait around or should a first time buyer pack up and settle their family in somewhere with a brighter future?

Strataman said...

jordan clark;"So the construction and real estate industry will go bust." And likely our provincial and municipal governments. A recession in the states will cause massive drops in tax income coming from BC's commodities, natural gas has already decreased considerably, which was the commodity most responsible for provincial tax income being so high last year, The convention center is a ridiculous cost which will be carried by BC taxpayers for a decade or more before the facility even comes close to bringing in income to pay for it. I have one differant opinion then most though, the economic fallout will hit before the Olympics 2008 and 2009, all due to US recession. Vancouver realestate is irrelevant in the international economy and will just be "collateral" damage as far as the rest of the world is concerned.

patriotz said...

jordan clark;"So the construction and real estate industry will go bust." And likely our provincial and municipal governments.

In the 80's the provincial government didn't go bust, it just got lean and mean. Don't forget who Gordo's role model is.

Vancouver city even held on to its AAA credit rating. City expenditures (mostly police, fire, and engineering) don't go up in hard times, and remember the city taxman has first dibs on any property. He gets paid one way or another.

Even in the 30's the province and Vancouver city pulled through, although some resource industry towns didn't (but that's not limited to the 30's).

Jordan Clark said...

Can a provincial/state or municipal government even go bust? I think patriotz is right they always get their money first and they can always raise property taxes.

Where does the government provide a break down on the source of it's revenue? I'd love to find out how much they're getting from the property transfer tax with all of the market activity.

freako said...

Can a provincial/state or municipal government even go bust? I think patriotz is right they always get their money first and they can always raise property taxes.

Provinces/states, I don't know. They can't print money, so eventually they would be unable to borrow. I don't think as a legal entity they can be forced into bankruptcy.

Municipalities do get into trouble from time to time, and I believe that they can file for bankruptcy protection under certain conditions.

A famous case is Orange County which declared bankruptcy in 1994 after some disastrous derives trades.

HADENOUGH said...

Jordan Clark,

I think it will keep going until there is a disaster. People are too caught up in the RE frenzy to stop. Also people are so high on the Olympics and Vancouver being the "greatest place in the World".

Canadians are nice people. Insular and naive but nice people. Our news is insular and naive and the average Canadian is a product of it.

Siobhan said...

My interpretation of the graphs is that unemployment increases first, followed by a drop in real estate prices.

Therefore, one should look at the unemployment rate as a forecaster of the real estate market?

BUT, In my line of work there has been a fundamental shift in how people are hired. Back in the 1980's most were salaried. In the 1990's they were commission and now they are hired as "sub contractors". I may be wrong here - but I don't think sub contractors are included in the unemployment rate. Consequently, a substantial increase in the unemployment rate as shown in the past, may not necessary be clearly evident before a correction in home prices.