Monday, February 04, 2008

January 2008 FVREB Statistics

The Fraser Valley Real Estate Board has released the statistics package for January 2008 today. Here are the highlights:

Prices are stagnant since August 2007.
Inventory is ballooning and sales are falling.
The crash is coming - like a slow moving train wreck.

"There were 956 MLS® sales processed in January, a decrease of 4 per cent compared to the 1,001 sales processed the same month in 2007. However, there was an 18 per cent increase in new listings in January 2008 compared to the number received in January last year – 2,850 new listings compared to 2,425. January’s total active inventory at 7,554 listings finished 24 per cent higher than the 6,099 active listings during January 2007."
We also had the highest months of inventory number in recent history at 7.9 months at the current sales pace to sell through the entire inventory. Inventory typically increases dramatically from January through to the fall. Sales typically rise as well. With affordability constraints what they are I believe sales will trend lower than past years during 2008.
Click on the chart to enlarge.
Median prices are at the same level as last summer.
The house price index is at the same level as August. Year over year price changes continue to trend downwards. Even if prices don't change at all in the next 3 months we will hit an annual price change of 0%. I believe the rush to the exits will begin in earnest after that point as people realize the game is up.


Radley over at the Calgary Real Estate Blog inspired me to change the way I display price changes vs. months of inventory. The scatterplot indicates the high negative correlation between months of supply and quarterly price changes and we should look for this correlation to remain strong as 2008 unfolds. We have low sales, the highest annual starting point for inventory in the Fraser Valley ever and thousands of new units set to complete during the year. Bearish indeed.
These numbers are the most bearish since I've been following the local real estate market (since late 2005) and even more bearish than I expected. Sales were lower and new listings higher. I don't want to get too ahead of myself here, because people's behaviour is generally mystifying, but if January is any indication, 2008 will be the year of the turnaround in prices. How far down could we go? Perhaps San Diego can give us a clue.

28 comments:

Strataman said...

a beautifull sight indeed! Finally its coming this way only a couple of hours away now! :-) Fraser Valley is closer to Seattle! :-)

Newcomer said...

Applause, applause! Both for the news and its excellent delivery.

Thanks.

oh please said...

Prices for detached homes in Mission are actually *down* YOY according to the stats. Zow.

Paul said...

Powerful presentation.

blogger said...
This comment has been removed by a blog administrator.
Clarke said...

Great presentation Mohican!

One wonders how this will be spun as the deflation begins.

freako said...
This comment has been removed by the author.
freako said...

Great analysis, Mohican.

Inventory is a useful metric, but I am now of the opinion that sales is the best indicator of a changing market.

The true nature of supply is hard to determine from inventory alone. Sales on the other hand consists entirely of people voting with their wallets.

Combined, obviously an even more powerful indicator.

A great stat would be a 30 day rolling yoy sales ratio. Impossible to do unless one had daily sales series at least a year back.

Great work on the stats BTW Paul.

8:38 PM, February 04, 2008

Paul said...

Looks like another month of rising prices in Greater Van...Although very small.

Brief analysis here:
http://paul-northvancouverhomes.blogspot.com/

freako said...

Looks like another month of rising prices in Greater Van...Although very small.

Is this based on the REBGV January stats, or your own calculation? If the former, what is the detached benchmark now?

mohican said...

There is a big disparity showing up now between the inventory, sales, and price action in the Fraser Valley versus the Greater Vancouver real estate board areas. What do you make of that difference?

It has been suggested that real estate crashes happen from the outside and move into the core. Witness the Los Angeles area for an example.

johnnyrent said...

I think the first group to say "uncle" on ever rising prices are first time SFH buyers at the lower end of the scale. They would tend to go further and further out of the city proper and into distant suburbs in search of an affordable house. It follows then that when the prices of distant suburb houses finally reach a price point beyond the comfort level of the low end of the FTB market, these areas will be the first to peak and then begin to correct.

From what I've followed in the US, in most cases it is the distant suburbs that have corrected first. Sonoma, for example, corrected much sooner than areas closer to the San Francisco core. The Inland Empire (Riverside etc.) corrected much sooner than areas closer in to LA proper. The tony areas of US metro cores, such as Vancouver West, are the last holdouts however if history is any guide, they won’t emerge any less scathed in the final analysis.

The second group to say uncle will be condo investors. I don't think prices will have to go down before they begin to bail. With prices totally out of whack with rents, many current or recent condo investors will only get a return based on appreciation. If that appreciation slows to low single digits, this will be interpreted by some as a precursor to no to negative appreciation. It should be enough to spook a great number of them.

My two bits worth.

oh please said...

Both the FBREB and VREB package (at least the one from Agent Will) have charts going back to the late '70s. Assuming those are reliable squiggles, then back in '81 the valley did in fact lead the way down. Actually both markets started correcting around March, but Vancouver had a more pronounced double peak. While valley prices more or less declined from March on, Vancouver really didn't begin its long slide until the summer of '81.

In 1990 the correction looks to be more closely aligned, but prices dipped maybe a month earlier in the valley.

Aleks said...

Median price can still be rising while sales fall and inventory builds if sales slow down more on the bottom end than the top end. That's one of the (many) reasons the Case-Shiller index is a better indicator than the median.

freako said...

Median price can still be rising while sales fall and inventory builds if sales slow down more on the bottom end than the top end. That's one of the (many) reasons the Case-Shiller index is a better indicator than the median.

Yes, but both REBGV and FVREB publishes benchmarked prices.

Mathematical said...

Finally, it might be a little too early but I believe the tables are turning.

I have been pondering this: if in the next 6 months inventory keeps rinsing and sales declining prices obviously prices will decline. Prices should drop dramatically 9 months - 1 year from now. I assume 6 months before the Olympics prices will increase because of the hype and decline shortly after. My question is when will condos be at the lowest price 9 months\1 year from now or 9 months\1 year after the Olympics? For someone who is planning to buy a two bedroom condo I believe this is a very good question to ask.

M- said...

Mathematical: I'm not expecting to purchase my next place until 2011-2012.

jesse said...

Agree with m-. It's unlikely prices can correct in 1-2 years given the large amount of pent-up supply.

freako said...

It's unlikely prices can correct in 1-2 years given the large amount of pent-up supply.

Let's use San Diego as a reference. Prices peaked in 2005. The decline was slow in 2006 and the first half of 2007, but really has picked up pace. They are off 20% now, but that has only rolled back prices about a year and a half, to 2003. They probably have another 15-20% to go, and depending on the pace, it could take one to three more years. It really is accerelating now. The drop the last three months has been over 30 percent on an annualized bases. What will it peak at? And will Vancouver skip the slow decline and go straight to 3-4 percent decline per month? Stay tuned.

mohican said...

Regarding price declines, I would venture a guess that Fraser Valley will decline an average of 1-2% per month for the next 12-18 months and 2-4% per month for about 6-12 months and then it should slow down but not bottom out, in inflation adjusted terms for another 2-3 years after that. All in all I expect, if we mark August 07 as the top, we will see at least 4-5 years of solid price declines. This takes us to fall of 2012.

This is just fluff though because its only a guess. An educated guess but a guess nonetheless.

freako said...

This is just fluff though because its only a guess. An educated guess but a guess nonetheless.

I concur. But as I alluded to earlier, it is possible that we simply skip the early denial phase and go rapidly into sharp price drops. Don't forget about 1981. Between q3 1981 and q3 1982, nominal prices fell 25%. In that case, nominal price drops were somewhat muted by the large rate of inflation. The real drop in that 12 month period was around 35%. Because of the low inflation at present, real and nominal price drops will be very similar.

Strataman said...

freako "it is possible that we simply skip the early denial phase and go rapidly into sharp price drops." considering the limited contact of this city and the outside world I tend to agree. I see a sharp U turn almost overnight when it happens. (Which will be this year before September).

patriotz said...

I assume 6 months before the Olympics prices will increase because of the hype and decline shortly after.

If this is the conventional wisdom, isn't everyone going to try to sell 6 months before the Olympics?

I see a perfect storm in 2009. Vancouver prices will start declining some time in 2008. US recession will be the longest lasting since WWII. News of the US RE bloodbath will still be on every nightly newscast. Speculators will panic and walk over each other trying to beat the rush to the exits.

Warren said...

I'm in the same boat as math. Ideally I'd like to buy right around the Olympics, 2 years from now. 4 years will be a painful wait.

I'm hoping that downtown condos (where I'd like to buy) will fall off a cliff after significant declines in the valley give everyone a wakeup call. Time will tell of course.

Interesting stats on San Diego, how does that compare with the Miami area?

jesse said...

"And will Vancouver skip the slow decline and go straight to 3-4 percent decline per month?"

In general higher income neighborhoods will lag general price declines so, if things happen as in the US, some areas may go directly to 3%MOM drops and others will take a bit longer. It's perhaps worth discussing exactly why this happens.

This time, however, we could be in for a faster turn. Better communication (i.e. cell phones and online MLS) leads to faster feedback loops. I believe it had a part to play in the bidding wars on the way up and will help to contribute to panic selling on the way down. Don't scald the pigs in a place where the other pigs can hear ;).

mohican said...

I could definitely see price drops coming faster than many, even us, expect. I don't expect it at this point because of the widespread non-sensical - the olympics are coming - mentality is so firmly entrenched I don't think most people will be too eager to drop prices with the thought that the olympics will save their house value.

I also don't see things getting too desparate until unemployment hits with a vengeance and, with all the big infrastructure projects going on right now on top of the frenetic pace of home building, I don't see that happening until 2009.

There is a couple of wildcards though that could really accelerate things:
1) Speculators - if the herd changes its mentality en masse then things will get ugly really fast.
2) The US Economy - if this recession hits hard and fast we could see impacts here very quickly and unemployment could really begin to materialize sooner rather than later.
3) New housing completions - if a lot of big projects complete early in the year then it could exacerbate the already big amount of existing supply putting big time pressure on sellers to lower prices.

jesse said...

"I don't think most people will be too eager to drop prices with the thought that the olympics will save their house value."

I don't think people would be eager to drop prices regardless. It's the sellers that are forced to lower prices that matter. Here's to hoping that buyers can still get the necessary credit.

Aleks said...

"If this is the conventional wisdom, isn't everyone going to try to sell 6 months before the Olympics?"

I agree, I think the idea that there would be a bump in demand when the Olympics happened caused a bump in demand way back when the Olympics were announced. The Olympics have already been priced in and then some.

If people are expecting a price decline after the Olympics, then you'll get the same thing in reverse. All the people trying to beat the supply glut will simply move the supply glut up, to before the Olympics.