Tuesday, June 05, 2012

Greater Vancouver Market Snapshot May 2012




Below are updated sales, inventory and months of inventory graphs for Greater Vancouver to May 2012.

Commentary:

May continued with relative weakness compared to not only 2011 but also past years from 2005 (except the residual emerging from the recession of 2008-2009). May sales are the lowest since the early part of the turn of the century.

This May was another weak report. This level of sales, if they continue to be weak, is going to translate into higher months of inventory for the rest of the year (MOI is typically higher in the latter half of the year; an MOI of around 6 normally translates to flat prices) and, likely, concomitant price drops. Prices (as measured by the Teranet HPI) will likely be year-on-year negative by the end of the summer.

As I mentioned last month, there are some worrying clouds on the horizon: population growth is falling, dwelling completions are set to increase in the latter half of the year, banks are beginning to implement stricter mortgage guidelines (though likely not in significant force until 2013), China's economy has slowed down, and the home ownership rate is highest in recent memory. On the other hand mortgage rates remain low, near net zero real territory, and it is possible for rates to remain low for a prolonged period (i.e. years). It is possible that Asian economies are due for another round of investment spending and that could lead to a renewed bout of current account flows into property. (This does NOT mean that investment by foreigners is prevalent.)

An interesting conjecture is that relatively little has changed from 2010-2011 for most of the Vancouver region (just look at prices outside of the marquee areas) with one notable exception: population growth is down. I am bearish on Vancouver housing prices based on their lacklustre earnings. Taking this view, if you believe my base arguments outlined in previous posts, it is now a matter of predicting the timing and rate by which prices will drop. Extending this, it looks like the first catalyst towards lower prices will be lower population growth.

5 comments:

Leo S said...

Nice blog. Is there a chart of the SFH prices in Vancouver? Trying to verify or disprove Garth's 12% decline claim, I have a feeling it's made up.

By the way, could you add househuntvictoria.blogspot.ca as a housing blog for Victoria BC? Check it out we have some good stuff, and victoriastruth hasn't been active for years.

jesse said...

Here is the Teranet HPI though you can get it from the Teranet website as well.

I don't track benchmark prices of SFH produced by REBGV any more, just because I haven't bothered updating my dataset with the new revised metric. Garth (Turner?)'s claim is likely looking at the average price, which is disingenuous because it heavily depends upon sales mix.

I don't follow greaterfool.

vreaa said...

Thanks, jesse.
I'm curious as to why you would single out pop.growth as the factor that may be causing the stall.
Isn't it just as likely, or more likely, to have been due to the (albeit relatively subtle) recent credit tightening? (Banks more skittish; not quite as easy to get the jumbo mortgage now).
---
Once we get any kind of clear evidence of price drops, sentiment will be all that is necessary for ongoing drops; regardless of pop.growth (provided latter is within historic range).

jesse said...

vreaa, there is clear evidence population is growing at a slower rate than a few years ago. That inherently reduces dwelling demand.

We can compare to 12 or so years ago -- when population growth was in a nadir -- and see the same effects: lower sales volumes and higher inventory. (REBGV inventory then was well above 20K, higher than seen in 2008.)

I do not discount other factors contributing to malaise, including tighter capital in China and access to loans locally, but the simple "fewer bums in beds" thesis is, in my view, indisputable, and would naturally lead to conditions we are currently seeing.

An interesting aside, one might expect that certain factors can be predicted by competitive markets and if population growth were known to be declining -- and the data are there for all to see -- new supply would be curtailed to predict this. Well this is historically not the case at all. New supply, in aggregate, is brought online with little consideration for a slowdown in population growth. A fascinating look at efficient markets at work.

jesse said...

"Once we get any kind of clear evidence of price drops, sentiment will be all that is necessary for ongoing drops"

Absosmurfly, pop growth is the means by which prices tip but not a requirement; if population growth were to continue upwards something else would step in. But I might go so far as to argue that, given BC's dependence on construction employment for economic growth, population growth volatility is almost a surety.

As I mentioned in the post, "it is now a matter of predicting the timing and rate by which prices will drop. Extending this, it looks like the first catalyst towards lower prices will be lower population growth."