Friday, December 21, 2007

November Vancouver CMA CMHC Data

CMHC released the starts and completions data for the November period this morning and here is what the data says.

One month starts were at an all time record high for the Vancouver CMA in November at 2768 units. The previous all time high was April 2004 at 2479. Clearly developers are building like crazy as they must feel that they can sell these units once they complete or perhaps it's a rush to the exits.

Completions ticked up a bit to a modest 1466 units. I think we can expect the completions number to trend upwards during 2008 as many projects that were started two years ago come online. The completions and starts numbers can be extremely volatile as one project can represent several hundred units.

Completed and unabsorbed inventory continues to relentlessly rise as newly completed unts are unable to be sold and this inventory is building. Completed and unabsorbed units in the Vancouver area at the end of November were 1337. Contrast that with Toronto, with double the population at 980. I have been watching this number as a barometer of demand in our local market. It seems demand at current price levels is lacklustre.

Now it is time to look like an idiot but have a little fun making predictions! Whenever the starts outpace completions it is a bull market for real estate and when starts drop below completions it is a bear market in real estate (see the red and green arrows).

I expect three things in 2008 in the Vancouver new home market:

1) Record levels of starts as developers see the writing on the wall and it becomes a rush to the exits much like has been seen in US bubble markets.

2) Record levels of completions as Olympic projects finish and labour becomes available to go full steam completing residential units and many condo towers complete. Unabsorbed units will rise throughout the year and we will witness big discounts by developers first in the suburbs then in the city.

3) Near record levels of units under construction as we are at all time highs right now and construction will fall as the number of units being completed outpaces new starts.

I suppose that I won't look like an idiot if all of the above turns out to be accurate but I more interested in the discussion about my predictions than in being right.


jesse said...

Bingo on the inventory. I think it's above even money that:

- Tighter lending and high prices will cause 2008 inventory to rise faster and higher than 2007.
- This will flatten prices, builder incentives NOT included. Double digit real price drops start in 2009.
- Weakness will show up in suburbs and condos first.
- Lack of labour keeps units under construction high. Olympic building activities will not finish until mid-2009.

mohican said...

jesse - I am under the impression that a lot of the olympic venues complete in 2008 not including the Canada Line or Convention Centre of course. If the under construction number stays higher than forecast and completions are not higher than starts we could see another up/flat year in Vancouver real estate. This would set the stage for a massive crash in 2009/2010 though.

I really hope prices begin to come down in 2008 as the earlier we start to see moderation the easier it will be on everyone. We are already in unprecadented territory for affordability and I would hate to see that situation worsen with more and more families getting sucked in to buying overpriced real estate and being burdened with a crushing debt load for the rest of their life.

jesse said...

" I am under the impression that a lot of the olympic venues complete in 2008"

VanOC schedule puts just under 1/2 the events completing Q407. The major spend ones will not start completing until Q308 through Q409. Also I conclude the schedule has 3-6 month slip contingencies and I'm sure many of the venues are using them as we speak.

mohican said...

Interesting info there jesse about venue construction. I also checked out the project timelines for the Canada Line, Convention Centre, Golden Ears Bridge and the Border Infrastructure Program. These are the three biggest ongoing projects in the GV right now and will all begin their final phases with reduced labour requirements late 2008/early 2009.

M- said...

Mohican, your predictions are almost spot-on what I've been predicting since early this year.

Here are my crystal ball's predictions:
-High prices have strained affordability,
-Units under construction continues to break records.
-"Everybody" knows that real estate is up-up-up until 2010, but even the bulls aren't confident beyond 2010.
-Game theory predicts the smart money gets out well before Feb 2010. The smart money knows the Olympics, as it relates to RE, is just hype.
-Smart money has been exiting this year (I'm biased, as I sold this year =).
-Regular folks who watch the numbers, and speculators trying to catch another hot spring will sell this spring.
-This spring will turn out to be not a hot spring, with zero price growth.
-YOY declines in prices by the summer.
-Labour availability starts improving in late 2008 with the major infrastructure projects finishing the heavy-lifting stage, and getting into finishing work.
-Labour availability allows more condo projects to get started, and more projects to get back on schedule.
-Significant completions start hitting the market right as the market's feeling tapped out.
-Notable YOY declines in fall 2008.
-Another failed spring in 2009. Specuvestors who thought they were smart are now trying to sell, but it turns out there are no greater fools, and new construction is completing quickly.
-And of course the bottom comes at the end of 2010, or 2011, as the dumbest money realizes that the world is not moving here...

The are the predictions I made last February. The only surprises are that our prices may not yet have peaked, and the credit crunch is much more severe that I was expecting it to be.

Paul said...

The rebgv numbers are up on my new webiste.

We have daily, weekly and monthly numbers for the entire REBGV. Updated every day. It is not perfect but will improve with time.

Also inventory charts for each sub area in the REBGV. These go back 3 years each. If your interested please come by. It will be interesting to see where the inventory goes in the new year.

Come say hello on my blog. It won't be like this place but I will try to add some content.

Warren said...
This comment has been removed by the author.
Paul said...

With our pending economic slowdown and plunging consumer confidence it will be interesting to see if the Vancouver housing market can defy reason for another year.

patriotz said...

Completed and unabsorbed units in the Vancouver area at the end of November were 1337. Contrast that with Toronto, with double the population at 980.

Is that Greater Toronto or City of Toronto (former Metro Toronto)? The latter has about the same population as the GVRD, which is what I assume you mean by the Vancouver area.

And I think even a 2011 bottom is too early, because I don't think the US bottom will come before then, and BC is going to be in big trouble until the US market recovers. Note the 5 year decline in the last bear market (1995-2000), and things were going gangbusters south of the border and we had a low dollar.

Fencesitter said...


Since most banks raised their mortgage rates by another 20 basis points last week, would you be able to post an updated renewal gap chart?

Why are the banks raising rates when the BOC will likely lower further? Is it really costing them that much more to borrow? I see bond yields are still quite low...

Siobhan said...

Why are banks reducing their discount rates?

My thoughts, and I am not a banker are:

1) during this real estate cycle, lenders have been increasing their market share by heavy discounting of the interest rates, to attract more customers.

2) the spread between the variable and five year rate has narrowed, with most mortgage consumers locking into five year rates.

3) with lower real estate appreciation, the mortgage consumer has not built up enough equity, due to mortgage penalties, to switch lenders.

4)lenders are finding that, due mostly to the global economy, their risk has increased.

In consideration of the above, lenders are now able to increase profit levels, by reducing the discount rate, without loosing market share to other financial institutions.

"It's time to pay the Piper."