Wednesday, June 03, 2009

Greater Vancouver Real Estate - May 2009

Stats package from the Real Estate Board of Greater Vancouver is out. Check it out here.

Sales are pretty hot in the Greater Vancouver area. Interest rates have come down enough that it has reduced the prospective monthly payment of a homebuyer by 30%. Combine that improvement in affordability with the price correction witnessed over the past 12 months and I can certainly understand why sales have been brisk.


Active listings have not moved up as much as last year. Sales have taken some inventory out of the market but that doesn't explain the big difference between this year and last year. I suspect that many potential homesellers are waiting until after the 2010 winter olympics with the hope that the games will goose the market upward.


With higher sales and lower listings, months of inventory has fallen dramatically.

House prices have moved up handily in the past three months as buyer competition has been the norm with a low MOI.

The correlation between MOI and price changes is very high and as expected, last month was no exception with a low MOI relating to an increase in prices.
It should be very interesting to see how the rest of the year plays out. With a continued low MOI, I expect prices to inch upwards. If mortgage rates continue to inch upwards from the recent lows, it will probably take a lot of the sales out of the market and push listings upward. The past 12 months have witnessed a massive 40% improvement in home purchasing affordability but prices are still incredibly out of line with local rents and incomes and I fully expect that over the next 2-3 years we will see further price erosion.

40 comments:

JimTan said...

"Prices are still down over 10% from 1 year ago"

That's history.

Let's see you try a negative spin on this one.

jesse said...

No negative spin. I'd say that if you're looking to sell, there are apparently a lot of buyers willing to pay a TON of money for your property. That sounds like a positive thing to me ;)

What's it going to be, sellers? Second chances like this don't come all that often. Or do you really think, deep down inside, that prices are going up from here?

david said...

Jim, what do you mean thats history? All of these numbers are meaningless if you don't take into account the past.

Look I sold 8 million of what i sell this year! Is that good? Who knows unless you have comparisons of previous sales.

Sales are rising, like they always do in the spring. Time will tell if this is permanent or just a blip, there is no spinning hard numbers, even though some people may try.

Personally I think this is a blip and we will see a slide in both sales and prices from july until next year.

johnnyrent said...

If you look at all of the most previously over-priced markets in the US that ultimately corrected to between 30 and 50% down over the years, you will see Spring bounces every year on the way down. Theres some pertinent history for you Jim. Check it out.

Other than those of you who believe that its different here, its really a Dead Cat Bounce.

JimTan said...

"If you look at all of the most previously over-priced markets in the US that ultimately corrected to between 30 and 50% down over the years, you will see Spring bounces every year on the way down."

The topic is covered here. Read my post starting at 11.15pm.

http://www.realestatetalks.com/viewtopic.php?f=8&t=37561

JimTan said...

"Or do you really think, deep down inside, that prices are going up from here?"

Jesse,

I don't think 'deep down'. I go with the facts.

In the Beach Ave and Marinaside area, all the better buildings have been cleaned out. That just leaves the secondary and problematic properties.

The lesser stuff can go down another 20%. But, we are now seeing the anchors at the top (premium clientèle) and bottom (affordability).

Over the next twelve months, I expect the market to sort itself out. I would like to see the better Marpole apartments at $300 psf and the minor West End apartments at $350 psf.

That's affordable for two-graduate incomes in Marpole and two-professional incomes in the West End.

When will Vancouver RE resume its climb? That's unknown. Watch the market. The market will be ready to run when the investors stop selling.

david said...

Harsh Jim,

Looking at affordable for a couple? What about people who arent married? Are they doomed to a life in surrey or a bachelor in vancouver?

JimTan said...

Try this very nice unit. Affordability has arrived.

V767462

JimTan said...
This comment has been removed by the author.
jesse said...

"I don't think 'deep down'. I go with the facts.
"

Well the facts say lots of people are buying and affordability is close to 30% better than this time last year. In that context it's not surprising prices have stabilized.

All I can say to potential buyers out there is that rental yields are still low and I see little chance of yields improving by way of rent increases in the foreseeable future.

mohican said...

I really don't see how most people can afford to buy anything right now even with low rates. The suburbs are cheaper but still expensive. Two professional incomes are necessary to maintain the payments, strata, and taxes on an average condo in GV, a townhouse in FV.

What about having a family?
What about staying close to work for a decent lifestyle that doesn't involve 2 hours a day commuting?
What about a 25 year or shorter amortization?
What about saving for other things like retirement?

patriotz said...

In the Beach Ave and Marinaside area, all the better buildings have been cleaned out.
...

Do you mean they've been demolished or something? If a property exists, it can come on the market. Especially those owner by investors (50% of new condos I think). RE is not a consumable you know.

That's history.
...

No fooling. If you've got a link to the future numbers, let's have it.

JimTan said...

“Two professional incomes are necessary to maintain the payments, strata, and taxes on an average condo in GV, a townhouse in FV.”

Huh?

Correct me if I'm wrong. Bus drivers make $60k each before overtime. A graduate (late 20s) must be making $70k each. A senior professional (doctor, dentist, lawyer) should be making $100k+ a year.

Today, you can get a nice 550 sf apartment in the West End for $220k for the graduate. Or, $300k for a new one-bed apartment downtown for the professional.

What's the problem?

Of course, you have to take a smaller apartment in a popular location. You can get a nice house in Hope for the same money. Naturally, you have to scrimp and save if you choose to live in a popular location. So?

mohican said...

"What's the problem?"

I love the attitude JT!!!

The problem is that doctors don't go to 8 years of school, work long hours, pay off student debt, to live is a crappy shoebox in downtown vancouver.

Why wouldn't they go live in Ottawa or nearly anywhere else in the country - MLS®: 728554.

There is a reason I don't live in Vancouver. I make a very healthy income, my wife doesn't work, we have manageable expenses and I live 10 minutes from the office and I get to spend lots of time with my kids and friends. None of that would be possible, except for the income, if I lived/worked in Vancouver.

I came to my senses regarding the local real estate market when I saw a relative's property assessment for a home backing onto Fraser Highway in a marginal area of Surrey. I thought to myself, 'what income is required to purchase a home like this?' and the answer was $150,000 / year. I then asked myself if I would EVER be willing to live there if I was making $150k / year and the answer was an emphatic NO.

It is completely ridiculous to expect people earning the income of a senior professional to live in a marginal area, older home, backing onto a busy street. What gives? What makes Surrey so special or any other place with inflated prices? Nothing - except a speculative bubble.

We will have our price correction here too in due time just like everywhere else. Prices will again be relative to rents and local incomes.

first_time_buyer said...

and whats this big fuss about owning? you can live in the same house for half the price and headache, then why not?

mohican said...

FTB - no big deal - renting is a perfectly legitimate option. For most though, they are fed the fairy tale story of home ownership from a very young age and it is difficult for most people to see that home ownership may not be the path to riches and happiness they have been told.

first_time_buyer said...

"they are fed the fairy tale story of home ownership from a very young age and it is difficult for most people to see that home ownership may not be the path to riches and happiness they have been told."

Exactly. And the sheeple just wants to follow the herd, no matter how suicidal it is, guided by crooks/shills who are there to exploit their gullibility.

Even I want to own a house and am willing to pay some premium for it. Ours is a pretty high income family (both of us are professionals)and have a pretty good downpayment stacked up. but all we can afford (without compromising on the quality of life) is a shack on Fraser Hwy? This despite the fact that we are very sensible financially. gimme a break.

The current upswing took me by surprise, but I was equally surprised at the pace the whole ponzi scheme unfolded last summer. So get ready for a few more surprises on its way to sanity. Till then, let some guys bark as louder as they can.

patriotz said...

you can live in the same house for half the price and headache, then why not?...


Because you're not supporting the Ponzi scheme. Even the delusional present owners realize that without buyers, they cannot collect their prize. IMHO that is why owners are so scornful of renters - they are really afraid of them.

JimTan said...

???

HaHaHa!

The buyers are the successful people. The professional renters are the losers who hope to live in the West End on Surrey income.

jesse said...

"The professional renters are the losers who hope to live in the West End on Surrey income."

Pure gold, JimTan. Professional renters are the losers who are being subsidised by landlords to live in the West End on a Surrey income.

Patiently Waiting said...

I really want to slap this woman I know.

Her family lives in a two-bedroom co-op in the Kits area and recently had their rent raised due to major repairs to the building. The rent went from $800ish to $900ish a month.

Now she feels she must go out and buy a condo because she "isn't getting anything out of the rent".

Nothing other than a nice sized unit on prime real estate. :P

But I'm sure there is some struggling young couple out there who will be pleased at the opportunity she is providing for them.

canadidan said...

???

Haha

The renters are the successful people. They live in the West End on a Surrey income.

JimTan said...

"The renters are the successful people. They live in the West End on a Surrey income."

Until they are evicted.

Maggie Chipman said...

Don't pick on my Jimmy

david said...

With this conversation I have decided that Jim is one of the greatest satire writers of our time.

"The buyers are the successful people. The professional renters are the losers who hope to live in the West End on Surrey income."

The irony there is too good to be true.

Seriously though, I am a single professional making about 50K a year and have about a 50K for a down payment. The bank told me with those numbers I can get about a 240K mortgage with 35 year amortization. I was blown away. How are people affording to buy these 700K places? I would be 58 when i payed that off and would still be living in a crappy place that cost 240K 35 years ago. (which would probably be needing rebuild about that time since it would probably be 20 years old today). So after all that I would be the proud owner of a tiny patch of land that i would pray a developer would want to buy for a reasonable price. My other option would be to rent saving me about 600 a month for the exact same place. Then after 35 years i would have 252K from the extra, plus the option to move with hardly any hassle.

I think i will stick with renting until prices come down a bit more.

david said...

P.S.

Jim that place (V767462) is a leasehold property built in 1966. You are essentially renting it because it wont even last another 20 years, and then you will be the proud owner of a patch of land that you only hold the title to for another 43 years! Thats even worse than renting.

condohype said...

The smart money *rents* downtown. :)

JimTan said...

"How are people affording to buy these 700K places?"

David,

They are making more than a bus driver.

first_time_buyer said...

jim is a troll. Dont feed him guys. He is ridiculous.

david said...

FTB,

I dont think jim is a troll, I think he is a realtor. Though on a real estate blog that is esentially the same thing.

And Jim, I think people can afford a 700K place because they previously bought a 250K condo 10 years ago which is now worth 500K, so its only another 200K to move up to a house from a condo. I seriously doubt that a 700K house is anyones first home purchase. To afford 700K a year someone would need to be making 146K a year (with 10% down) a pray interest rates dont go up in the next 25 years. Yes, that is A LOT more than a bus driver.

JimTan said...

Like I said, this is a troll forum. The members get excited when someone new violates the groupthink. I have only been pointing out the fallacies and inadequacies on this forum.

“And Jim, I think people can afford a 700K place because they previously bought a 250K condo 10 years ago which is now worth 500K, so its only another 200K to move up to a house from a condo.”

In that case, you have nothing to worry about. Eventually, you will be able to afford a $700k house. The problem is that the guys earning $140k will then be able to pay $1.5 million for same property.

jesse said...

"I have only been pointing out the fallacies and inadequacies on this forum."

Such as...? Can you be more specific please. We like to be quantitative in these here parts.

JimTan said...

Jesse,

Your charts and tables are only the beginning of quantitative analysis. You haven't done the factor analysis. Therefore, they are not causal models. They do not have predictive ability.

mohican said...

"In that case, you have nothing to worry about. Eventually, you will be able to afford a $700k house. The problem is that the guys earning $140k will then be able to pay $1.5 million for same property."

You seem like a smart guy JT but have you really thought through this statement?

Let's go through it:
1) Adam buys condo $200k - mortgage of $150k- salary of $60k
2) Price of condo appreciates to $400k - mortgage of $100k - Adam gets married - family income of $100k
3) Adam upgrades to house for $600k - mortgage of $300k - family income of $120k
4) House appreciates to $1.2M - mortgage of $200k
5) Adam downsizes / retires / relocates and sells $1.2M house to whom?

At some point the system exhausts itself of buyers because the prices are out of reach for the first time buyer. If there is no decent $200k condo for a first time buyer then who will buy the condo so 1>2>3>4>5 can happen?

The other problem creeps in when people don't pay off their mortgage and don't get big raises. Both the paydown and raises are necessary for the above steps to happen. It is a positive feedback loop until the point of exhaustion and then it can quickly unwind.

JimTan said...

“You seem like a smart guy JT but have you really thought through this statement?... At some point the system exhausts itself of buyers because the prices are out of reach for the first time buyer.”

Once again, you have a simple example. Here's a dynamic view of demographic change in a component of that system.

In expensive and popular areas, there are few first time buyers. There is a constant influx of new residents who might have large assets and/or income. That is what Rennie means when he talks about the migration of asset-rich retirees and cash-rich foreigners/Albertans etc.

Next, not all incomes grow propertionately. As we have seen, the incomes of the bottom half of BC households have fallen in real terms. This means that gentrification accelerates as the losers are forced out by the winners.

The question is whether they are willing to pay $1m for a rancher. Are the intangibles that compelling? So far, the evidence is positive.

mohican said...

While I agree that there will be specific examples of large money coming in and purchasing very unique properties, the evidence suggests that out of province buyers make up a small portion of transactions (5.2% in 2008) and most of those transactions are Albertans buying condos in the Kootenays and OK. See Landcor data.

Whether we are talking about incomes or rich outsiders, at some point it comes back to the system I have presented which is fundamentally supported by the first time buyer. Take the first time buyer out and the system will eventually collapse, bringing prices down to levels that first time buyers are able to afford. This is a big reason why there is a lot of activity this spring, the first time buyer is out buying real estate because of dramatically lower interest rates and slightly lower prices.

If prices or rates go back up, we will see activity fall back down again. We reached the point of exhaustion last spring and we may well reach it again this year for a further leg down in prices.

JimTan said...

“This is a big reason why there is a lot of activity this spring, the first time buyer is out buying real estate because of dramatically lower interest rates and slightly lower prices.”

Mohican,

We may be talking about different things. You are talking about the support in a correction. Yes, affordability is a key element at the lower end. Yes, buying from the first time buyers at the low end helps with the upgrading further up the food chain.

I am referring to a secular trend of gentrification.

David was saying that he earns $50k and doesn't know who can afford $700k apartments. I reply that the people who earn more than bus drivers can. Then, David says that he can if he already has property and is upgrading. I reply that the equivalent guy earning $140k will still be able to outbid him.

In the long run, gentrification will accelerate as long as the top half out-earn the bottom half. Of course, there's got to be someone buying property in Burnaby etc from those migrating inwards.

Don't get too obsessed with the affordability issue. IMO, supply is a bigger issue. People are more willing to pay $1m for a rancher if they think that new supply is limited.

BTW, what I am seeing is support at the high end too. There is tremendous demand at the $600 psf level for better properties. This means that those priced out will buy at lower price points. So, support is coming at both ends, not just at the low end.

david said...

Jim,

How can I not be obsessed with the affordability issue. The whole reason I am here on this blog is because i plan to own a place someday. How can i possibly do that if i cant afford it?

The supply issue isnt as bad as people think it is. Population increase has been reasonably consistant for the past 15 years. The last 6 years of price increase hasnt been because thousands of people decided to move here all of the sudden and no one was prepared for it. The massive amount of recent building will be able to house everyone reasonably as the number of starts has dropped off a cliff so obviously the builders arent anticipating huge demand in the next few years. People will eventually scoop up all of the newly completed unabsorbed units (sitting at about 2000 right now and with 20K more on the way) and all of the sudden there will be increased demand again when the economy improves and the boom cycle will be in full force once again.

And jim, please stop refering to people as winners and losers based on how much money they make. What makes a man has very little to do with the size of his condo. I think some of the most valuable members of society (like teachers and social workers) who help make the world a better place dont make very much money. And I dont do either of these jobs, I work in technology because i like it not because of the paycheque.

JimTan said...

David,

This is what I said about the economic effects of income disparity.

'This means that gentrification accelerates as the losers are forced out by the winners.'

It's the truth. It's reality and it's happening everyday. People need to live in places they can afford. I face the facts and I'm in favour of better transit to get people about.

david said...

Jim I get that people have to live where they can afford, I just dont see why you refer to the richer ones as winners. Cant you just call them 'the people with more money'? If life is a game of winners and losers i would say the person who 'won' is the person who enjoyed their life the most, not the person who died in a $3 million condo.