Saturday, April 12, 2008
It's Starting
The few lonely voices that have been predicting this exact scenario are being vindicated in their own eyes but villified as doomsayers by others. Many real estate industry pundits are touting this new market as a 'balanced' one but this one doomsayer says 'balanced' is just another word for on the way to the real estate apocalypse.
Mohican thinks that it is becoming pretty conclusive that 2008 is the year the real estate market will enter a prolonged buyers market and prices will moderate from this point on for several years. I fully expect that urban condos, where the price to earnings ratio has hit astronomical levels above 30, prices will correct to bring P/E levels to the 10 to 15 range. This means that prices in urban condos will correct by 30%+.
Suburban markets where the price to earnings ratio has not reached such lofty heights will likely see less of a correction but a hefty price reduction nonetheless. Price decreases ranging from 15-25% will be common in markets from Pitt Meadows to Langley to Chilliwack. Wherever rents cannot sustain the purchase price, we will see prices correct to the level that rents can sustain them.
Mohican's advice at this point in time is do the math. Figure out what a property is worth and don't pay any more than that. If you must shop for real estate, make lowball offers that make sense using this formula.
{Fair Price} = [1/{Five Year Fixed Mortgage Rate}] * [{Annual Rent} - {Property Taxes + Maintenance}]
For example:
A townhouse rents for $1500 per month has maintenance of $150 per month and property taxes of $150 per month. The five year fixed mortgage rate is approximately 5.9% right now.
{Fair Price} = [1/0.059] * [{1500 * 12} - {150 * 12 + 150 * 12}]
{Fair Price} = [17] * [18000 - 3600]
{Fair Price} = $244,800
Have fun and don't get robbed.
Sunday, April 06, 2008
REBGV Chart Extravaganza
Saturday, April 05, 2008
Van Housing Blogger Guest Post
UPDATE: Here is an updated chart thanks to PaulB's data. Thanks Paul.
Thursday, April 03, 2008
FVREB Long Term Sales to Listings Ratio
The chart shows the Sales to Active Listings Ratio (green) and the Average Price of a home in the Fraser Valley Real Estate Board area from 1979 to 2006.
We can clearly see that obvious supply and demand relationships are in place in regards to the price movement of real estate. When the sales / listings ratio drops below the 0.2 area, the price pressure is zero to negative. A sales / listings ratio of 0.17 is equivalent to 6 months of inventory.
There have been a few points in past real estate cycles where the sales / listings ratio dropped below 0.1 and this was obviously highly negative for prices. A sales / listings ratio of 0.1 is equivalent to 10 months of inventory.
As per the previous post, we are at 7.1 months of inventory right now, which is the equivalent of a sales / listings ratio of 0.14. If we look on the chart for similar occasions we find that the mid-1980s and late 1990s were sustained periods of high supply and low demand at those type of levels.
The extreme peak for inventory during the 1981 correction was 0.06 or approximately 16 months of inventory. This supply / demand situation resulted in a >30% negative price adjustment over less than 12 months. The other previous corrections saw sales / listings ratios of 0.075 or 13 months of inventory. Some of these corrections saw sharp drops in prices upwards of 20%.
Wednesday, April 02, 2008
FVREB March 2008
In March, selection reached a 10-year high on the Fraser Valley Real Estate Board’s Multiple Listing Service (MLS®), with the number of active listings reaching 9,361, an increase of 27 per cent compared to the 7,351 listings available during the same month last year. The previous March that offered as much or greater inventory was in 1998, when Fraser Valley had 10,148 active listings. The total number of sales processed through Fraser Valley’s MLS® in March was 1,315, a decrease of 25 per cent compared to March 2007 when 1,743 sales were processed. The number of new listings in March also decreased slightly with the Board receiving 3,277 compared to 3,369 new listings received during the same month last year, a decrease of 3 per cent.
In March, average Fraser Valley home prices continued to increase in the strong single digits for detached and townhomes and remained in the double digits for condominiums.
Kelvin Neufeld, president of the Fraser Valley Real Estate Board explains, “With a significant increase in product and properties taking longer to sell, we have a more competitive market for sellers in the Fraser Valley right now, yet enough demand to keep prices trending upwards. “Our advice is that to sell your home this spring, work with your REALTOR® to ensure it’s priced correctly because buyers are taking a careful look at the broader range of homes available on the MLS®.”
In March, it took almost four days longer on average to sell a Fraser Valley detached home, 50.7 days compared to the 46.9 days during March of last year. Apartments took almost eight days longer to sell with the average days to sell in March at 47.3 compared to 39.4 during the same month last year and townhomes saw the smallest increase in average days to sell, increasing 1.8 days, going from 33.6 in March 2007 to 35.4 days last month.
The price of a single-family detached home in March averaged $550,259, an 8.1 per cent increase in one year. The average price in March 2007 was $509,197. The average price of a Fraser Valley townhouse in March was $346,949, an increase of 8.6 per cent compared to last year’s average price of $319,592. Average apartment prices in the Fraser Valley increased by 13.6 per cent compared to last year. In March 2007, they averaged $203,874 compared to $231,669 last month.