Monday, July 06, 2009

REBGV Sales are the Story

The local real estate market has been goosed this spring by the super low interest rates available to your average home buyer.

Sales in the REBGV jurisdiction were very high at 4259 for the month of June.

Active Listings fell to 13,252 units.


Consequently the Months of Inventory fell to a mere 3.11 for the month of June. A dramatic fall from January's levels.

As sales have risen and inventory has fallen, prices have gone up.



The correlation between Months of Inventory and Price Changes is still very strong.

It will be very interesting to see how future price changes play out. We will see if this spring market is a temporary phenomenon like so many other spring markets around North America.
Unemployment levels, interest rates, and many other factors play a big part in the local market and it will be interesting to see which way things turn.

11 comments:

Fish10 said...

Another excellent post Mohican

The drop in mortgage rates caught us bears by surprise. We are so fixated on the Median and Benchmark price that many of us forgot that such a huge cut in interest rates in like (a temporary) 30% drop in house prices. Add that to the 10%+/- we were already down from last year and it was like house prices had dropped 40% in a few months!

Note I said 'Like'. It isn't the SAME as a 40% drop in price, but it just feels like it due to lower payments.

In the US house prices are down to 2002 levels and the mortgage rates are low and yet sales are down and investors are reluctant to pick up bargains.

Why? because fear is trumping greed.

We will find out in the next few months which one is paramount here.

JimTan said...

Time is running out for the bears!

jesse said...

Time doesn't "run out"; down payments merely get bigger.

As has been mentioned, affordability has drastically improved. We forget that ones purchasing in speculative bubbles even as the bubbles are deflating are still speculators, driven by the same greed and incentives. To realize a decent return, they still have to sell their asset to someone who must accept even worse cash flows. Where there is panic there is greed.

Speculative bubble is speculative.

david said...

Jim,

What happens when time runs out? We are priced out forever? I am shaking in my boots. Logic dictates if I make above the average income in Vancouver, I should eventually be able to afford at least an average home in an average location. Just not now as we are in a bubble. And as jesse said, the longer I wait the bigger my down payment will be.

Jesse,

I don't think many people buying now are speculators. As far as I am concerned a speculator is someone who buys a home in order to sell later at a higher value. Most real estate "experts" (agents) are predicting flat to moderate price increases. And that is was agents are predicting! They usually have the rosiest outlooks on the housing market. Even the most lazy speculator would check to see what they say and realize that the double digit price increases are over.

I think that most people buying now are simply the people who havent been buying in the past year. Sales from July 08 to March 09 were pretty low. This is partially due to the speculators getting out of the market and partially because every second news story was economy armageddon. Everyone thinking of buying a home probably decided to put any long term financial decisions on hold and see how this played out. Now that the news is showing signs of recovery (probably green shoots, time will tell) everyone thinks all will be great and are back on the home buying train. And they are cheered on by low interest rates. Once the would be buyers of last year are all moved around and interest rates do a bit of an up-tick, I am confident the price declines will continue.

jesse said...

"I don't think many people buying now are speculators."

From a financial perspective, they most certainly are.

JimTan said...

"From a financial perspective, they most certainly are."

Jesse,

That's just your opinion. What's your track record been like?

jesse said...

Ahh jimtan, the definition of speculation is when cash flows do not in themselves provide enough of a return compared to other similar investments, meaning capital gains are required to make the shortfall.

My track record is irrelevant when I'm using a widely accepted definition of speculation. But perhaps you have a different definition. Using my definition, though, my statements are consistent.

I invested in a popcorn popper. A little guilty splurge just for me but it turns out it will pay back manifold over the next 3-5 years. It has returned 4X so far, compared to the microwave stuff. In short, my personal popcorn consumption business is doing pretty well thanks very much.

barbor62 said...

Interestingly, this spring's bulls weren't able to push the benchmark past last years highs, even with the 30% drop in financing costs (fish, 2009).

I would think that this could be legitimately interpreted as a sign of market weakness- in the big picture.

If the market is as strong as some suggest, it would seem that the unprecedented reduction in financing costs should have been an antecedent that led to prices which would have easily blown by the previous highs.

mohican said...

jesse - LOL - popcorn investment

Now if only you thought like a Goldman Sachs executive and set up a OTC swap market to take advantage of the arbitrage opportunities between microwave popcorn and pop-it-yourself popcorn. You'd be stinkin' rich!

A recipe for disaster: Find nickel and dime profit opportunities add copious amounts of leverage, mix in random incomprehensible social complexities and slow cook for 5- 10 years and you get the modern day financial markets.

Jimtan still fails to understand that it is not about being right or wrong so much as it is about risk mitigation and the personal assignation of risk probabilities to certain outcomes. Your average 'bear' for instance, likely feels fairly attached to his/her down-payment monies and does not assign a high value to personal property ownership. He/she may also feel that the risk of property prices falling is much higher than the risk of property prices rising. As such he/she is willing to wait and rent in the meantime, all the while understanding that he/she is taking on the risk of property prices rising and although the assessment of the risks may turn out to be inaccurate, he/she is content to rent and save more money for the future in the meantime.

I personally assign a much higher probability on further property price drops than continued price appreciation - over the next 3-5 years in the Vancouver area.

david said...

jesse,

They are definently taking risks, but I don't think most people realize it. They just go to the bank, the bank gives them a number, and they buy a house as close to that number as they can find.

From a financial perspective this is a bad idea. They don't consider the interest rates rising or the value falling, they just want to own a home because they are taught owning is the best idea from a young age. Also this is the first price drop people in their late 20s have seen since they started paying attention.

Do they think prices will continue to rise? Probably, but I dont think they are relying on this assumption to earn money, they just want to own a place.

Using your definition of speculation I would agree with you.

mike said...

Going forward, unemployment will have a greater impact than increasing interest rates.

With Olympic projects finishing up, and no other sector to pick up the slack, I foresee no new source of employment... other than the same old -- more government spending.