Sunday, June 20, 2010

Central1: The sheen is clearly off the housing market

You heard them. Read their report here (PDF). A few excerpts:
The sheen is clearly off the housing market, with this week’s release of the MLS® data. As expected, residential home sales in British Columbia continued to trend lower in May. Sales fell for the seventh consecutive month, dipping 6.5% from April on a seasonally adjusted basis. Since reaching a market peak in October, annualized sales have fallen 30% to 75,500. The markets that led last year’s rise in activity, namely the Lower Mainland and Victoria, are now leading the downtrend.

On the supply side, B.C. recorded an unseasonal decline in the flow of new listings in May -- the first April to May decline since 2002. We expect to see a pattern similar to early 2008 emerge, where potential sellers hold back on listing their homes in response to higher inventory levels and price declines. However, month-end inventory levels will likely rise over the next few months as the new listings remain elevated and sales continue to trend lower.
Note Credit 1 refers to seasonally adjusted (SA) sales. This blog typically refers to non-seasonally-adjusted (NSA) sales as do the real estate boards; both methods have their trade-offs: SA is good for comparing months long trends but NSA is more closely tied to the front-line effects of supply and demand. The seasonal adjusted data seem to indicate a persistent malaise of sales reminiscent of 2008 (though not as extreme). This was relatively obvious, given listings growth since the start of the year. Interestingly they claim an "unseasonal decline" in new listings for BC in May. Certainly in Vancouver and Victoria this did not seem to be true, however it looks like inventory is now not growing as fast, not because of a lack of new listings but because of a lack of sales and a large number of expiries. Remember that a recorded expiry, sale, or (usually) listing does not change the available housing stock.

We now segue into Central1 on rentals:
Results from Canada Mortgage and Housing Corporation’s semi-annual survey of the purpose-built rental market suggest that rental demand softened over the past year as higher unemployment, particularly among young workers, and a weaker economy slowed the rate of household formation. In addition, existing renters may have found alternative housing in the competing investor owned condominium rental stock or were induced into the ownership market by lower mortgage rates.

Among British Columbia’s larger urban areas (populations of 10,000+), 21 of 27 markets reported higher townhome and apartment vacancy rates in April 2010 from a year earlier. The aggregate figure for all urban areas rose from 2.5% in April 2009 to 3.2% this year. Among B.C.’s largest markets, the largest relative increase occurred in the Victoria and Abbotsford Census Metropolitan Areas, while the Chilliwack Census Area was the only major market to report a drop in the vacancy rate. Additional slack in the rental market also impacted the rate of growth in market rents, which rose at a much slower pace in 2010. Average rents of properties in B.C. common to both the 2009 and 2010 survey samples rose by 2.2% this April, compared to 3.4% a year earlier.
A relatively bearish report on both the capital and income portions of the BC housing market.

10 comments:

JimTan said...

I've covered this already at RE Talk

"Good news for Vancouver landlords (updated)

According to the CMHC rental survey April 2010, Vancouver CMA's rental vacancy increased by only 0.3% from April 2009 (1.9% to 2.1%). And, rent for two-bedroom (existing structures) increased by 2.9%. (2.7% April 2009) on Page 4. That means rents are still catching up to higher house prices.

By comparison, Calgary increased by 1% (4.3% to 5.3%). Kelowna (2.8% to 3.7%) and Abbotsford (4.8% to 6.6%). Victoria 1.2% to 2.5% (?). Toronto 2.4% to 2.7%.

The good news for Vancouver is that the vacancy rate was 2.1% in Fall 2009. So, there has been no significant deterioration in the last year, and none in the last half year. Despite the poor economy and delivery of new housing. Bad?"

patriotz said...

Please, the CMHC survey concerns itself only with purpose-built rentals:

"The spring survey covers apartment and row structures containing at least three rental units, and unlike the fall survey does not report information on:

1. Smaller geographic zones within centres
2. Secondary rental market (rented condominium apartments, single detached, semi-detached, duplexes or accessory apartments"

National Rental Vacancy Rate Edges Higher

A 2.1% vacancy rate for purpose built rentals is high by recent norms and suggests rising vacancies in condos. And their rents have nothing to do with price support for other properties.

david said...

Jim,

I read the first line of what you posted and am already highly suspect.

"According to the CMHC rental survey April 2010, Vancouver CMA's rental vacancy increased by only 0.3% from April 2009 (1.9% to 2.1%)."

1.9 to 2.1 is an increase of 0.2. Kinda makes me wonder about the rest of the numbers.

vibe said...

David,

Probably just due to rounding.

jesse said...

Purpose built rentals in Vancouver consist of mostly older stock and the methods the managers use to keep vacancies low is not what many other landlords do: they offer reasonable rents, choose their tenants carefully, but raise rents on a consistent but ongoing basis to keep up with costs.

CMHC rental data are a weak gauge of the overall rental market, however a small sustained change in CMHC reported vacancies in Vancouver is significant. It means there are few available tenants who meet the entry criteria. Reduced tenant quality in a market with growing population is a sign of weakness.

JimTan said...

"1.9 to 2.1 is an increase of 0.2. Kinda makes me wonder about the rest of the numbers."

David,

Sorry. Typo error. April 2009 1.9% Fall 2009 2.1%. April 2010 2.2%.

JimTan said...

"CMHC rental data are a weak gauge of the overall rental market, however a small sustained change in CMHC reported vacancies in Vancouver is significant."

Jesse,

Actually, the point I am making is that there is minimal deterioration from Q1 2009. Good news for landlords.

david said...

Jim,

No worries.

Jesse,

As far as I'm concerned I would say as long as you compare apples to apples it makes sense. While CMHC numbers may not reflect a true vacancy rate, any change in those numbers is probably proportional to a change in vacancy in units not counted by the CMHC.

While some are professionally managed and some are investor owned, the idea is the same. Rent it for as many months as possible for as much money as possible with the least amount of risk. That being said I know people in purpose built rentals who barely make rent some months and also know people in amature landlord units (like myself) who could pay an entire years rent right now if they wanted to.

I really dont think the quality of renter in purpose built rental buildings is much better than those in strata buildings. If anything newer buildings would attract more affluent individuals who are probably more financially secure.

That being said I would agree that non CMHC counted buildings do have a higher vacancy as amature landlords try to get more money to cover costs, but I think an increase in purpose built rental vacancy would have a proportional increase in vacancy in units not included in the study.

Liam said...

The real estate market in Vancouver is extremely strong because of Asian Hot Money. Nothing to see here folks, move along:

http://www.youtube.com/watch?v=MwiihpZ_9gI

jesse said...

"While CMHC numbers may not reflect a true vacancy rate, any change in those numbers is probably proportional to a change in vacancy in units not counted by the CMHC."

Professional property management companies were citing vacancy rates between 5% and 6% last year. If we're talking relative change (not exactly sure what you mean by relative change), that's significant in % terms (i.e. 1.9% to 2.1% is about 10% change on a small segment of rental stock; 5% to 5.8% on the remaining stock is huge at the margins).

I still think CMHC posted vacancy rates do not reflect much on the true vacancy rate of remaining stock because of the CMHC-tracked buildings' property managements' strategy: not necessarily charging as much rent as possible but ensuring stability and low vacancy.