Wednesday, March 05, 2008

February 2008 FVREB Data

The Fraser Valley Real Estate Board released the February statistics package today and here are the results of the sales and listing activity during the last month.

Sales were down 7% from last year. Listings were up 30% from last year. We are on a similar trend as US markets that have entered the decline stage already with listings increasing and sales decreasing it is only a matter of time. Months of inventory typically falls until April / May but in a cooling market at the limits of affordability we could be surprised at inventory levels that refuse to fall which would put a lot of pressure on prices.

Amazingly, prices were higher in all categories. I don't know where people get the money but they must be getting it somehow.


Year over year price changes seem to be levelling off in the 7-8% range. We saw a big increase in the Benchmark House Price Index during February with a 1.9% appreciation.

Months of inventory was 6.0 during February which indicates a fairly balanced market with not too much upward or downward price pressure. Any amount of supply greater than 7 is highly bearish and a sustained level above 6 is quite bearish.


These numbers blow me away. I did not expect sales to be as strong as they were proving once again that human behaviour is difficult to predict and that mortgage money must be still quite easy to come by. Oh well, the higher we go the farther we fall.

For comparison purposes here is a chart from Calculated Risk outlining the Months of Inventory for the US housing market. The Fraser Valley area looks comparable to February 2007 on this chart right now. If we see sales continue to slow and inventory shoot up during the spring months then we will see big price decreases by the end of the year just like the US did last year.

21 comments:

Duran said...

Great stats Mohican. With the latest interest rate cut, we may just see sales maintained for a bit longer as the last desperate ones jump in.

As a side note, I just came back from Australia and have noticed some interesting things there about their RE market. Ever do a comparison of our market versus theirs?

oh please said...

Not to be too gloomy, but it seems to me that interest rates coming down in the short term could set up another round of price increases, maybe 10% or so.

Radley77 said...

Regarding the latest interest rate cut... lately these cuts have not been translating into cuts in mortgage rates.

The risk spread between 5 year mortgage rates and bond rates is now at a very large 4.23% (not seen since the early 1980's real estate crash).

Risk Spreads Between Bonds And Mortgages

wombatos said...

what Radley said...
http://tinyurl.com/2g946z

LordHuggington said...

Looks like the recent rate cuts aren't doing much good for those seeking a mortgage (or businesses for that matter):

http://tinyurl.com/2z2rkz

Despite the rash of interest rate reductions by Mr. Carney at the Bank of Canada and Mr. Bernanke at the U.S. Federal Reserve, borrowers, from first-time mortgage seekers to steady corporate customers, are finding their banks aren't passing along the full extent of the rate cuts. For some businesses facing high debt loads, rates are even rising.

The problem is that banks are paying more to borrow from investors because of concern about the financial sector. The banks are trying to hold lending rates as high as possible to preserve profit margins. For the central banks, it means that the full measure of stimulus isn't making it into the economy at large.

Mathematical said...

Good job Mohican. I hoping what you say is true but I think it might take a little long for prices to drop due to the fact sellers will be in a bit of denial. Most of them paid a pretty penny for their property and are hoping for a good return so they won't go down without a fight. Once again, I hope you're right thou.

Gabriel said...

I think I'll help the oversupply a long by applying to be a general labourer in the summer!

kicker said...

Thanks Mohican I appreciate the stats

Deliverator said...

That post by kagrel is to an site that tries to immediately run an antivirus check on your computer. What a jerk.

macho slob said...

Good stuff moh!

Don't know if it's the looming recession, the disaster in other areas, rising inventory, or just the crowd I hang with, but it sure feels like this will be the year.

patriotz said...

Most of them paid a pretty penny for their property and are hoping for a good return so they won't go down without a fight.

Like the people who bought Nortel in 2000 or US RE in 2005?

RE prices are determined by the buyers, not the sellers. Somebody always has to sell - including the builders of course - but nobody has to buy.

Clarke said...

Great Charts Mohican,
I think the duration of this bubble is astounding all of us. The affordability wall was hit a long time ago, and who would have thought there was that much stupid money around.

Fencesitter said...

Is there any sources for more localized historic data? I'm looking to create a three year inventroy chart of Surrey and Langley to show the jump in supply.

Any suggestions?

canuck99 said...

Really useful stuff, Mo, comme d'habitude.

Re: 'Year over year price changes seem to be levelling off in the 7-8% range.'

Perhaps not too coincidentally the most recent Bank of Canada money supply figures from Statistics Canada (November 2007) show a YoY increase in gross M2++ of 8.3%.
(source)

Oddly, the BoC decides to increase gross money supply by 8.3% even though gross GDP increased only 2.7% for the same period.
(source)

So why keep why print up an extra 5.65% of cool Canadian cash? (Thats over $120 billion dollars, btw, or $4000 for every man, woman, and child in Canada *extra* or *new* money, which effectively reduces the buying power of any cash a person has managed to save.)

It is unlikely this monetary oversupply will shift evenly into all categories measured in the consumer price index. I suspect very small and very large expenditures (like houses) will probably pick up a disproportionately larger share of this currency devalution.

Ergo, I think a lot of that mysterious 7-8% increase in house prices may be courtesy of recent policies from our own central bank. (Gotta love them.)

There was a good article recently on the UK Daily Reckoning site on the topic entitled: "Monetary inflation: A lesson from the 70s."

Thoughts?

Newcomer said...

Fascinating, Canuck99.

Strataman said...

That post by kagrel is to an site that tries to immediately run an antivirus check on your computer. What a jerk.

Agreed delete that post Mohican its' a bad site.

mohican said...

Deleted that spam comment. I hope nobody got infected by those links.

Interesting linkage canuck99 - perhaps worth further study.

patriotz said...

Ergo, I think a lot of that mysterious 7-8% increase in house prices may be courtesy of recent policies from our own central bank.

The problem with your argument is that the money supply is Canada-wide, but house prices are moving in different directions in different cities.

Just as some US markets kept rising after some started falling. Different phases of the bubble.

canuck99 said...

Not necessarily, patriotz.

Agreed--diluting the nation's money supply with an extra (and IMO unnecessary) $120 billion dollars is, by definition, country-wide (pun intended). So yes that means that it affects the Edmonton market (down, I think, about 10% YoY right now) as much as it does Vancouver and FV.

However that does not necessarily negate my point. I'm saying the BoC policy has inflated ALL house prices nation-wide. Had they left the supply alone then Edmonton's housing loss may very well have been ~6% worse YoY and FV prices would be darn near flat. (Which, had the BoC not interfered, would probably be a much more accurate assessment of the housing price situation.)

I'm saying that this idiotic BoC currency dilution is part of explanation for the mysterious 7-8% increase, but does not account for all of it.

It just seems ironic to me that central banks, which were formed in large part to keep price inflation down, have managed to create far more inflation in the last century (i.e. the 20th) than the previous 19th, where they played little or no role at all. (see chart).

In other words that mysterious 7-8% price increase is no different than the new and improved price at your local gas station, or your increased property tax hike, or your hydro bill increase, or the new jump ICBC premiums, or your soon-to-be-much-more-expensive cereals, produce and meats.

patriotz said...

It just seems ironic to me that central banks, which were formed in large part to keep price inflation down

Actually they were formed to stop price deflation.

The Bank of Canada was founded in 1934 (speaks for itself), and the Fed was founded in 1913 after a period of deflation lasting more than two decades (of "cross of gold" fame).

jesse said...

"So yes that means that it affects the Edmonton market as much as it does Vancouver and FV."

Not entirely true. Lenders are generally smart enough to regionalise their loans. I had a friend who pre-approved in Winnipeg and tried to buy a house in Toronto. I think the lender got out of that one somehow.

The past years have seen rising prices in not just Canada but other parts of the world too. A good example to ponder is property in Spain versus France. Both with the same central bank rates but with differing experiences with price appreciation. So the rate alone cannot account for a price bubble.

Certainly I can see the argument that negative real rates will cause bubbles. But other factors, like population growth, wage growth, employment rate, lender sentiment, and perhaps economic diversity, all have roles to play as well. Vancouver has some combination of these; other markets with price bubbles have other combinations. It is never one root cause: if it were only that simple.