This chart shows the number of units under construction (blue) from 1948 through 2008. It also shows the last 12 months of housing starts (red) and the last 12 months of completions (yellow).
With the current slowdown in the local real estate market you would think that developers would accelerate completions and hold back on starts but it turns out the opposite has been true of the past six months. I can understand not rushing to push new units into this market but why start so many?
The number of housing units under construction is at all time record highs and there is a virtual tsunami of housing units close to hitting the market. This will flood the supply situation even further than now and combined with the abysmally low sales levels we are looking at large and sustained real estate price decreases for quite some time.
10 comments:
Thanks for the update.
Anyway you can post the graph showing the time period on the x-axis?
I'm assuming this runs through Q3 08, correct?
Regards,
VC
I'll need to fix that chart a little later - gotta go now. The chart includes the October 2008 data from CMHC.
I can understand not rushing to push new units into this market but why start so many?
Maybe because they've bought the land and have little choice but to build and sell at whatever price they can get to keep cash flow going? That's the reason they are still building in the US.
patriotz is likely right. All land to be developed was bought on spec in previous months. Put yourself in the builders' shoes. As long as building costs are lower than the expected sales price, there's an incentive to complete, especially if the land purchase was financed.
Mohican
Tell me if my math is right. Between under construction and starts, we have roughly 50,000 units. Lower Mainland population grows at about 30,000 per year. Using the 2.4 metric of persons per household, which I think is still valid, we require 12,500 new units per year. Therefore, 50,000 represents four years of supply.
Now, of course it takes time to complete; in some cases as much as three years plus. In other cases however, "under construction" could complete tomorrow, and many forms of housing, including single family and small townhome/condo developments can be completed in less than a year.
None of this takes into account the 30,000 odd listings we have currently, not all of which are going to be sold by persons who will buy again either at all or in this region. Also not factored into the equation are the thousands of units complete but unoccupied and unlisted which are theoretically part of the potential supply - more so now, given current and projected price depreciation.
Unless I'm missing something this looks to me to be a perfect storm of supply, of an unprecendented level.
johnnyrent - units under construction is a good metric to measure the supply pipeline over the upcoming 24 months. This supply pipeline is now feeding into an already saturated supply situation.
If we look at the total supply situation we are looking at 20,000 units in the REBGV area, 12,000 in the FVREB area and an additional 1,000+ units per month of completions which will likely accelerate over the next 12 to 18 months.
The units under construction is adding to the supply situation every month via the completions number. The current level of completed and unsold new homes is accelerating rapidly, having doubled in the past 12 months and increasing every month right now. The situation is extremely dire for those in the real estate field but extremely hopeful for those planning to buy a home.
Mohican
When I look at the graph, it seems to me that the 12 months of completions is running at 18,000, which would add 1,500 per month, versus 1,000. Yes?
If I'm right and the level of 12 months of completions remains roughly constant, in two years time 36,000 more units will have been brought to market. This is 50%more than the market is capable of absorbing, per my previous post, to say nothing of current units listed or potential supply increases due to complete but unoccupied and unlisted units.
is the FVREB listing count included in the REBGV listing count?
No.
Note btw Vancouver CMA includes all of REBGV plus the south bank municipalities in GVRD which are covered by FVREB. But I think FVREB also covers Abbotsford which is outside Vancouver CMA.
Looks like it will soon be lights out for the fat cats and wannabe fat cats of West Van -- easily the most vulnerable of all the Vancouvers!
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