Thursday, April 02, 2009

Vancouver Real Estate - March 2009 Charts

Active Listings were basically flat from February. Mostly because sales were quite a bit higher.

Sales rose dramatically from February but are still seasonally low compared to the boom years.

Consequently, the Sales to Listings Ratio improved during March but is still dramatically lower than the boom years.

The number of Months of Inventory is obviously low and is undergoing the expected seasonal variation.

The correlation between the months of inventory and the price changes is tremendously strong.

I expect April and May to be fairly similar to March - flat prices and a relatively stable inventory and sales picture. I fully expect sales to fall in the normal seasonal patter after that which will cause inventory to balloon further. This will raise the number of months of inventory and consequently prices will go down further.

We are 15.8% or $121,979 from the peak detached benchmark values and I don't see that changing too much over the next couple months. Things should get interesting during the late spring and during the summer months.


Fish10 said...

Many thanks Mohican. Your efforts are greatly appreciated by us all.

jesse said...

Thanks for the graphs, mohican. It will be interesting to see the sales pattern in the spring.

March should be about 80% of peak sales in May based upon the past 4 years. In fact, March is typically one of the strongest months for sales! April appears to be about the same as March in sales volume so that won't be a bad guess for this year.

This is NOT a strong start to the year. It bodes to be worse than 2008 and I hope Realtors are duly prepared.

RentingSucks said...

I'm a little concerned I have to say that things might stabilize and we'll be in for a long slow painful slide.

I am amazed though that the market has rebounded as much as it has. Mover uppers have taken a 15 percent haircut. The stock market crash has got to have seriously harmed peoples downpayment ability both through RRSP's and parents helping their children. The only thing that's seriously changed the numbers is the interest rate drop. Frankly I didn't think that would be enough.

Strataman said...

I think we'll see a signifigant swing up in listings in April. Too many presales coming due which will force the hand of sellers. They won't want to miss this window as July will be too late. So ...I'll take a gamble and say at least a 2000 listing increase starting Easter weekend. That would mean around 17,500 listings.(Pauls site stats) I also think the sell list ratio will be around 50 %, high by bear standards low by Bull standards.

Norman said...

I'm not surprised by the amount of sales in March base on anecdotal evidence I had heard (co-workers/friends were buying).

My concern is that the months of inventory is back around 6 which implies a balanced market. I know this site is full of housing bears (me included) but I'm surprised there is little comment about this stat.

I also attended the GVHB presentation along with 900 other folks (record # in 15 years) a couple of weeks ago which makes me think the next month or two could see a lot of sales.

One thing we need to remember is that you can get a 5 year fixed for 4% which is insane. This alone should have a powerful impact on buyers.

JimTan said...

"My concern is that the months of inventory is back around 6 which implies a balanced market."

Exactly! What we are seeing is the consequence of mindless extrapolation. The trend will change at some point, and market intelligence (like yours) is more important than statistical manipulation.

mohican said...

Just because Months of Inventory is around the 6 level does not mean we are immenently entering another long period of home price appreciation. It has been typical in other bubble markets for inventory and sales to 'stabilize' for a couple months and then take another steep leg down during the remainder of the year. Even if inventory does not grow, which it will, the normal seasonal variation in sales will cause some moderate negative price pressure in the market. If we assume sales follow a fairly normal seasonal variation and inventory climbs as per usual, then we can fully expect a very high level of MOI and the consequent price drops.

Dave said...

Good analysis.

I disagree with your expectation of 'ballooning' inventory. Why do you have that expectation?

The slope of the listing curve this year is pretty flat compared to last year and by month end, we will be roughly at the same inventory levels as 2008. If that trend continues, then inventory will be lower than 2008 for the remainder of year.

If you look at inventory in past years, the curve doesn't spike or dramatically change in slope. Why do you expect that to happen this time?

Ross said...

Because inventory rose in the month of April for every single year on the graph.

van_coffee said...

Hey Mohican -
Can you post the price graph vs. inventory (looks like you missed it this time around).

I would hate to see you get accused of the same type of "selective presentation" that we continuously see out of the Vancouver Sun AKA GVREB.

Also, I think detached is down again.

mohican said...

van_coffee - thanks for pointing out the missing chart - it is up now.

Here is what I expect for sales, listings and MOI for the rest of the year - ballpark.

April 2500
May 2500
June 2100
July 2100
August 1600
Sept 1600
Oct 1400
Nov 900
Dec 900

Active Listings
April 16,000
May 17,000
June 18,000
July 19,000
August 20,000
Sept 21,000
Oct 19,000
Nov 18,000
Dec 15,000

Months of Inventory
April 6.40
May 6.80
June 8.57
July 9.05
August 12.50
Sept 13.13
Oct 13.57
Nov 20.00
Dec 16.67

If these assumptions prove true it leads me to conclude that we will see significant negative price pressure after the early summer period.

dkcollins said...

I think we need to remember that part of the reason sales are higher is due to the fact that many developers have slashed prices by 10-30%. I don't believe this was happening in 2008 or earlier. My feeling is that we will still see a decline in sales/prices in the long run. Reducing homes by 30% doesn't bode well for others in the area who are trying to sell their condos at higher prices.

jesse said...

"... part of the reason sales are higher is due to the fact that many developers have slashed prices by 10-30%."

Sales are 20% lower than last year, even in the face of developers slashing prices. The month-over-month uptick in sales is seasonality. It seems like strength because it has been 9 long months since sales were anywhere close to current levels.

dkcollins said...

Jesse - You are absolutely correct. I am thinking that the stats wouldn't be so 'rosy' if we weren't seeing this kind of price slashing.

It's interesting to see how the media points to an increase in sales but don't really touch on WHY it's happening and what the true motivators are in the activity.

patriotz said...

Developers know the jig is up and have reduced prices just enough to take the market share that they need from the speculators and home sellers. This is the same thing that happened in the US about a year into the bust.

There are also a few private sellers who are getting the message and pricing sharply to sell. They will be greatly rewarded for their good sense.

The developers are going to keep ahead of the other private sellers all the way down and things will get truly ugly when the latter lose hope. Give it another year.

Maggie Chipman said...

Some of my family members think the market is on the launch pad for the next trip to the moon.

They don't realize this downturn will be a 20 year long re alignment of values.

In spite of the industry hype, we have huge tracts of land that can be developed, and our sky is just as high as any other place on earth.

We now have a huge output gap; we can build at least twice the homes than demand.
Japan is the perfect example,yes, we have had immigration which makes it a bit less dramatic than Japan’s demographic bust, but the long term trend is bust, the next generation of home buyers is simply not as huge as the last.

Yes, even with interest this low.

JimTan said...

It was apparent a month ago that some segments would do well. The open houses were well attended and resulted in quick SOLD SOLD SOLD. The price drop must be minimal on the houses that sold with bidding wars.

We have some idea of the anchor for the top end. The general market is however affected by affordability.

What we need going forward is to understand the CAUSAL relationship between changes in affordability and changes in sales volume. Has anyone charted the affordability index lately?

CreditKing said...

"What we need going forward is to understand the CAUSAL relationship between changes in affordability and changes in sales volume. Has anyone charted the affordability index lately?"

There are many other CAUSAL factors aside from Affordability.

What you aren't factoring in.. is Canada has just started on it's 1st leg on the downward trend versus USA's down cycle started in 2005 and hasn't hit bottom yet.

Bubbles don't bust in one fell swoop as there is a gestation period. You just can't look at 1 uptic Qtr and conclude "The bust is over".

This latest uptick is a suckers rally due to low interest rates.

Other variables to monitor include:

1. Continue rise in unemployment
2. Presales Buyers walking away
3. Those who pulled listings in last year and coming back in after suckers rally
4. Reset of 0/40 terms in 1-2 years
5. Rise Inflation and interest hikes in 3-4 years.
6. Alt Mortgage Institutions foreclosing on clients - 5-10% of mortgages in Canada

JimTan said...

“There are many other CAUSAL factors aside from Affordability. “

Of course, there are many causal factors. The point is that affordability is a basic factor. One that can be calculated easily, and possibly analyzed with some confidence.

How do you numerically analyze the impact of presale failures? How do you know what inflation and interest rates will be in two years time?

It seems to me that you have already prejudged the future. My mind is still open, and I'm willing to assess the impact of fundamental factors.

CreditKing said...

"Of course, there are many causal factors. The point is that affordability is a basic factor. One that can be calculated easily, and possibly analyzed with some confidence."

Affordability has been a factor for the last 5 years but prices kept on sky rocketing. It's one variable but one variable alone doesn't make a trend. Do you really need a graph to show you when family income to price ratio is 3x it's a signal of affordability?

Schnyd said...

Mohican – thanks very must for this post and all the other great information you provide.

Whenever I hear/read about ‘Affordability in Vancouver’ my blood pressure elevates. Here are some interesting data points extracted from the ‘5th Annual Demographia International Housing Affordability Survey’ (Q3-2008):

The least affordable markets are generally in Australia, Canada’s province of British Columbia, New Zealand, the United Kingdom and California. However, many of these severely unaffordable markets have experienced steep price declines in the last year. Among the major markets, Vancouver is the least affordable, with a Median Multiple of 8.3, followed by Sydney (8.3), San Francisco (8.0), San Jose (7.2), Adelaide (7.1), Melbourne (7.1) New York (7.0) and London (6.9). Full survey:

I’m a relative newcomer to Vancouver. I have lived here for 7 years and have spent time in 4 out of the 7 other markets listed in the survey referenced above. It is easy to understand why these markets are the most sought after places to live and why they are correspondingly more expensive. In the same survey Thunder Bay ON scored 2.2. I’ve been there and understand/appreciate the differences.

Is anyone reading this post willing to explain/justify how housing affordability in Vancouver (or any of the highly sought after markets listed above) will return to the historic Median Multiple norm (at or below 3X annual household income)? If not 3X, than what - 5X? 7X?

In Vancouver the median household income is $60K. A multiple of 5X is $300K. 7X is $420K. I have a very hard time imagining median house prices (not condos’s or townhouses) reaching this level but admit I am new to real estate (I want to buy my 1st home). I’ve heard about the major correction of 1981-87 that hit this region; does anyone believe we are headed into a similar situation? Perhaps others with a longer history living (and owning/paying for RE) in this region could share their experience?

jesse said...

"In Vancouver the median household income is $60K. A multiple of 5X is $300K. 7X is $420K. I have a very hard time imagining median house prices (not condos’s or townhouses) reaching this level "Schnyd, I hear you. The best way I have found to look at real estate is to look at it as an investment. The suspension of disbelief comes from realising that all properties can be rented out, even the ones that would most likely be owner-occupied. As soon as one assumes that certain properties will always carry a premium over rents because they are almost exclusively owner-occupied, the prices lose any sense of grounding to incomes and rents.

The 3X income stat comes from what a typical family is willing and able to spend on housing, either by renting or by owning. Vancouver would typically have a higher multiplier than other cities because it is more desirable but this means both rents and prices increase. Remember the majority of residents in Vancouver didn't pay current prices for their properties so their personal multiplier is not 7X or 8X or whatever the current multiplier is.

When you wake up in the morning, look at all the neighbours on your street, and can't figure out how half of them could ever afford to live in their house if they bought at current prices, that's a sign that either 1) your neighbourhood is due to be gentrified or 2) prices are due to fall.

I would encourage you to do some searching for some old posts on this blog and you'll see a few smart commenters showing up again and again debating various issues. It is from reading the comments I have gained the most insight on how to properly value property.

Jacoblrishly said...

I’ve heard about the above alteration of 1981-87 that hit this region; does anyone accept we are headed into a agnate situation.

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