This first image does a good job illustrating how a real tsunami works. Watch out on shore when that tsunami hits. It is a dangerous place to be.
This second image does a good job illustrating how a condo tsunami might work. Thanks VHB. It shows the massive amount of condos under construction in the Vancouver area. One could call it a tsunami of condos. Watch out when it lands on shore when these condos start completing. It could be very dangerous.
Note: this chart does not include the additional 5,000 units that have been started since September 2007.
'Nuff said. Have a great weekend.
mohican out.
52 comments:
Over the same period of time did the average household size change? Does this chart just show a greater proportion of households now residing in condos and builders meeting the demand? It doesn’t look like semidetached, rowhouse or detached are too out of whack.
Before you jump on me I’m a bear and have been for the past two years. In that time I have spent 40K on rent and missed out on at least 100K of appreciation (2 bedroom condo downtown). If I had bought a place for 500K with 50K down my mortgage would have been paid down by just under 10K by now. If the place is now worth 600K a 20% drop brings it back to 480K. 20K under what I would have paid two years ago, a loss of 4%.
I hope the bears get it right soon!
Note that these data only go to September 2007, so we miss the extra 5K under construction that have been added to the pile over the past 6 months. I can only get the accurate breakdowns until Sept07. But I think it's safe to assume that most of these new 5K are condos, too . . .
HH size hasn't changed in the last 15 years. Jesse1 posted this over at RET. link
VHB and Mohican...
Your graphs are getting a tad scary. What, are you guys like the Brothers Grimm? Gotta admire your collaborative work:-)
What’s the current absorption rate for these condos? The linked page shows the number of “persons in private households” in the GVRD has grown by 578,565. That’s an average of 14,835 new households each year for the past 15 years. 578,565/15 = 38,571/2.6
The analogy between the RE market and a tsunami is a hyperbole. Month after month you're predicting a downturn and each time you're exaggerating the scale, but instead of bringing pure facts you have to resort to ridiculous comparisons to natural calamities.
How is climate change related to the increase in condos supply, this image does a good job illustrating how a condo tsunami works.
Look, as someone who's been waiting on the fence for the past 2 years I'd really, really like to see a drop in condos prices. There is only a single relevant metric: the price. Not number of units, sales, employment, temperatures, etc. Show me a decline in the price. Each week my agent sends me new listings downtown Van, and more important, sales and I see no price decline. A unit I could buy a year ago for $308K sold recently for $340K. Any psychological analysis makes for a nice reading, but show me the numbers that prove a trend.
Luc,
You're right. All this bear talk is nothing but hyperbole. Vitriolic rumbling from the underworld of shuffling homeless losers.
Buy something now; at once, if not sooner. We have seen no price decreases, we likely *never* will. Ever. Buy something as quick as you can, don't listen to nay-sayers.
Rush in and buy at the peak.
"Does this chart just show a greater proportion of households now residing in condos and builders meeting the demand?"
That's part of it. I think it's fair to say we should derate the "new people per start" by some factor if we're comparing today's "oversupply" to the longer term average. The new supply overhang is a secondary issue compared to the price-rent ratio; all a larger supply glut will do is speed up the correction.
Yet another great graph. All house types are being built in close to record numbers but the scale is misleading thanks to the ginormous glut of condos. I say put it on semilog.
"There is only a single relevant metric: the price."
Yes but that's not all that interesting. Discussion around this stuff is more passing the time while I sit in my beached ark. I still need a bull and a cow if you know anyone who's interested.
Hi luc: Price changes take years. In the US prices are way down but it has taken 2 years from the peak to get to where they are today. There are some anomalies like Seattle where prices only peaked in late 2007. The stats and graphs help discern the extent of the bubble, not necessarily when it will pop. Back in April 2005 Robert Shiller called Vancouver the most bubbly city in the world. http://www.theglobeandmail.com/servlet/ArticleNews/TPStory/LAC/20050426/RTIP26-1/TPBusiness/?query=shiller
Prices have gone up a lot since then. He correctly called the US housing bubble and the Dotcom bust though. Maybe he was wrong. Perhaps, however, his opinion is yet another indicator of how enormous the tsunami has become.
Luc at al. -
Go to the blog "Calculated Risk", and read the post with respect to inventory, housing starts, and housing completions in late 2005 and early 2006.
As you can see, these statistics became highly relevant for the subsequent price changes.
This is exactly where things are headed here.
The BC economy, over the past five years has been built on three factors:
1. Exports to the United States to satisfy their building boom (this is now pretty much dead courtesy of the dollar (our "Dutch disease") and the end of their construction boom
2. A huge amount of non-residential construction (the highest amount on record EVER on a per capita basis
3. The associated residential construction as people spend everything that they make (as they always do, and as you are probably about to do)
Non-residential construction is now slowing, and so is residential watch out below – the “construction economy” in BC is coming to an end.
What is so hilarious about all this, is that we have been through this all before, and people make the exact same errors every time.
Good luck out there Try to keep things in perspective (5-10 years worth) and don’t do anything stupid.
Quite apart from the enormous spike in condo construction I note with interest the fact we're building almost as many detached homes as we were back in the early seventies. What happended to "we're running out of land"?
"What happended to 'we're running out of land'?"
We're running out of land in the sense that we're not making any more of it. Just like we're running out of oil, clean water, and time before the sun explodes. Doesn't mean it will happen in our lifetimes. Also I'm sure a lot of it is replacement of old teardown stock.
I have to agree somewhat with Luc as it appears the bears are formulating arguments much as the bulls have in the past. Selective facts are being used to make the argument. As I noted above there is definitely an opportunity cost for holding out and renting. This cost must be factored in for any analysis.
VHB do you have the total number of units built over the past 15 years? With almost 15K new households formed each and every year for the past 15 years we may be just meeting demand. Obviously this would cause the big run up in prices. Maybe we’re just entering a period of small increases of supply and therefore small decreases in price.
Holding out over the past two years has cost a lot and so I’m picking apart the facts much more closely now. I still believe the market is oversupplied and there’s a lot of speculation but no longer am I just accepting higher inventories as the sole reason.
"There is only a single relevant metric: the price."
Yes, but price is not an independent variable. It is set by the intersection of a couple of functions called "supply" and "demand". If the supply increases, the price point will decrease.
Get the picture?
LUC "but instead of bringing pure facts you have to resort to ridiculous comparisons to natural calamities." I dunno lots of people in Thailand went OUT to the newly exposed ocean floor before the wave hit, they thought it was neat! :-)
Nice plots, thanks.
----
Luc states "There is only a single relevant metric: the price"
Price is a relevant metric, but surely even if you don't believe in supply and demand affecting prices you must also consider rents, rent inflation, cost of money (interest rates), etc.
"Selective facts are being used to make the argument."
What facts are not being selected? Can you be a bit more specific?
"VHB do you have the total number of units built over the past 15 years? With almost 15K new households formed each and every year for the past 15 years we may be just meeting demand."
The link in VHB's comment above shows dwelling formation numbers. It is pretty obvious that population growth is not high historically and building of all types is way above or near historic highs. Your back of the envelope calculation is missing the obvious.
Friends, I don't doubt that there is a casual link between various stats and the RE market. I also don't doubt that among 100s of economists there will be a few who will be right about any scenario you may pick and these ones will be called "prophets" in retrospect.
All I'm saying is that an analogy between climate behavior and RE market doesn't add credibility to the writer.
OK, you're saying a "tsunami" is coming - tell me when, don't just keep saying that it's inevitable for the past 4+ years. The only indicator for a RE market decline is the price - do you see the price going down? I don't.
We're running out of land in the sense that we're not making any more of it. Just like we're running out of oil, clean water, and time before the sun explodes
Well no. Land is not consumed. It's just used. Sort of like gold. It get more expensive in nominal terms, but we don't "run out" of it.
Also land is not a commodity - nothing could be less of one. It's all location, location, location. You can't say with certainty that in a century Vancouver, or any other city, will still be gaining population. There are lot of places in Canada, or even the US, where you can put an awful lot more people.
On the topic of credibility, luc said "All I'm saying is that an analogy between climate behavior and RE market doesn't add credibility to the writer" referring to his earlier question "How is climate change related to the increase in condos supply[?]"
Tsunamis are created when the buildup of stress in tectonic plates exceeds the breaking point, causing a major thrust along a fault (earthquake). The resulting tsunami is immensely destructive for anyone unfortunate enough to be in its path. This has nothing to do with climate or climate change (though it does go against the Homer Simpsonesque “Is there anything climate change can’t do?” zeitgeist, but that’s another topic).
What is the credibility of your argument when you don’t even understand the analogy?
luc - fair comments - i can hear your frustration coming through in your posts.
I'm not sure why the timing matters so much to you although I do concede that it would be nice to know exactly when a market will crash! I don't think I'd be poking around on local blogs if that were the case though since I'd be independently wealthy and in no need of this sort of entertainment on a beach somewhere.
The primary concern to me is this formula - see below - which my wife and I use to determime whether or not to buy a home. After selling out home last August in search of a bigger abode we could not find anything coming remotely close to meeting this requirement so we are choosing to rent for the time being because it is remarkably cheaper for us.
{Fair Price} = [1/{Five Year Fixed Mortgage Rate}] * [{Annual Rent} - {Property Taxes + Maintenance}]
In the meantime it is interesting to watch the real estate market go through its convulsions and trap ever more homeowners into overpriced housing.
By expecting price declines to precede inventory growth and defy the laws of supply & demand, I suspect that climate behaviour may not be the only concept beyond luc's ability to grasp.
Great work M and VHB and all.
My guess is that some are underwater right NOW. Why?
Because some have panicked to buy and things hace now cooled off. Inventory is relentlessly climbing.
I repeat WARNING: SOME ARE UNDERWATER RIGHT NOW.
Didn't we once say that when the media jump up and declare the peak, its toast?
http://www.canada.com/theprovince/index.html#
Barf.
I'm with ugh. I smell a concern troll.
Comparing March 2008 to March 2007, the biggest jump in apartment starts comes in Surrey:1009 to 3255, for an increase of 2246. Next is Vancouver at 6361, up 1766 from 4595 in 2007.
So the big jumps in 'under completion' are because of a huge wave of condo starts in Surrey and Vancouver.
here is an updated graph showing just the apartments under construction.
My original graph used statscan data that only went until September 2007. Mohican reminded me that the CMHC 'housing now' publications produce the numbers as well, so I extended the series using 'housing now'. The 'housing now' data are aggregated up in slightly different ways than the Statcan data, so they are not 100% the same, but you can see that the difference is only very small when you look at the overlapping time period.
So, we now have about twice as many condos under construction as the last highest peak in the 1990s. Remember, of course, that those previous bubbles burst--and they actually had decent population growth to support them. This time around, we have lower pop growth and twice as many under construction. Sounds good.
VHB, that chart's insane...
Thanks for the updated chart VHB. I think your scale is wrong though. There is currently over 27,000 units under construction.
Mohican: That's apartments only that I've graphed.
Sorry - my bad. That is effin' nuts.
Helldorado: How expats dream life in the Spanish sunshine has turned into a property nightmare
Sydney properties halve in price
Aussie Homeloans boss John Symond, admits to advising first homebuyers to look for mortgagee sales in order to buy an affordable property.
"You've got to be smart in today's market," Mr Symond said.
"Prices are so high that many people will never own their own home, so you've got to be creative.
"There's a great opportunity to buy properties at distressed rates. If you can't afford to live in them right now you can rent them out. Then, over time, you should get some capital growth and a foot in the door."
And you thought Vancouver had the most world-class RE asshats? Our usual suspects would be hard pressed to top that gem.
Patriotz must have forgotten to give credit for where he got his excellent links from.
http://globaleconomicanalysis.blogspot.com/2008/05/housing-hell-in-spain-and-oz.html
don't just keep saying that it's inevitable for the past 4+ years.
Congrats on 4+ years of running this blog Mohican, didn't know you'd been around so long dooming and glooming. :)
OK, you're saying a "tsunami" is coming - tell me when
If Mohican and VHB could forecast exactly when prices will tumble they wouldn't be here blogging for geniuses like you. Are you trying to say that you predicted the price run up? If you did what are doing trolling around here?
All I'm saying is that an analogy between climate behavior and RE market doesn't add credibility to the writer.
Then find a different blog to read, or start your own.
Thanks for the congrats tony. I didn't realize I had been around that long either! My blog archive only goes back to Jan 2007 - hmmm . . . I wonder what happened to those other years?!!?
My awareness of the potential housing bubble in Vancouver dates back to the July 2005 article put out by Carl Gomez of TD Economics and I found the Vancouver Housing Blog shortly after that. I guess that makes me a housing bubble aware person for nearly 3 years now.
Yes Alex, Mish deserves a tip of the Hatlo hat for those links. He really knows where to find the zingers :-)
The credit reserval continues. Spreading. The Fed saved the system from collapse and complete chaos, but little they can do on the reversal. Why?
Banks are now getting very worried about who they lend to and why. Canadian banks will also do that but apparently they will find Canada's credit peak first. Canada's version of extreme capitalism.
We lag the U.S. and other countries as well. Are we last? As a commodity exporting nation we could be the last R/E market to go down. A commodity boom is the last part of an economic expansion.
The great wave approaching is heard by some, but ignored by most. Why? Because that is the way it always works. :)
Gotta love those cycles.
Thanks for the courtesy, Patriotz. Reading my post later I was afraid I zinged you too much. You've got some great things to say. Keep it up.
I do like Mish. Do you think he will call bottom at some point, or stay Permabear? Broken clock and all that. I'd like to know when to turn bullish again, and find it hard to believe ANYONE!
Not Vanc. RE but of GREAT interest to any investor. A new column has started at RGEMonitor, featuring guest writers on various topics. I think it will be must-read stuff.
http://www.rgemonitor.com/financemarkets-monitor
I think you need to (free) register to get more than a teaser.
Nothing of interest there if every penny you don't have is tied up in a Vancouver condo, and you just KNOW that external factors will NEVER impact "The Best Place on Earth"! Others may wish to check it out.
I'm posting at a few other spots as well. I think this is very, very good bookmark site.
As a commodity exporting nation we could be the last R/E market to go down
The RE bust is already well under way in Canada. It started a year ago in Alberta, which of course produces Canada's most valuable commodity, oil.
Whether a country or a locality exports commodities is beside the point. Either housing is properly priced based on rents and incomes or it isn't.
Patriotz, a very good point that's not been stated so baldly on these blogs. Calgary and Alberta should indeed be expected to be the most expensive and constantly increasing prices in Canada, in the eyes of a Martian visiting Earth, given the fact that oil is the single most desirable commodity. Thus it should indeed lead the Canadian market (after all, Ontario formerly would have, but we all know their economy is on the rocks).
The only thing that BC (bless it) has led this country in is drugs, goofy behaviour, scams, and crooked politicians. Oh, and hysterical property speculation.
Neat graph.
Wild numbers.
Would those apartments be mostly or partly pre-sales?
Patriotz,
How much has the Alberta market gone down in the last year?
Here in Vancouver it still is churning.
I think Edmonton is down about 15% off peak and Calgary is down about 13%.
Note that the peak was last summer, so YOY doesn't give you the whole picture.
This is a bigger drop in the first year of decline than any US city except Miami, and note that the first year isn't over yet.
Alberta is a good example of how quickly negative YOY % change values can show up. Imagine in as little as two months from now what the headline in Alberta's MSM will be.
If you think negative YOY numbers will put the fear of God into lenders, well, you'd be right.
TICK TOCK, TICK TOCK
As a commodity exporting nation we could be the last R/E market to go down.
I think the primary determining factor in how long a local market bubble can continue inflating is the level of hubris of the market participants. Vancouverite hubris truly knows no bounds...
Supply and demand trump hubris, inevitably. Calgary and Edmonton were the first to fall in Canada because they have the most elastic supply. Also demand turned out to be a lot more elastic then people thought - Alberta now has negative net migration.
Note though that elasticity of supply and demand affects only the timing of the cycle, not the outcome. We're next.
ah tulips. It has been a long time since I have heard your 'tick tock'. Methinks the alarm is about to start ringing . .. .
Check out the article on record high MLS listings. From the article:
"Average prices in formerly red-hot Calgary and Edmonton fell from March levels and are now down slightly from last year."
Surely, at this rapid inventory growth, the first signs of a price break on the downside cannot be that far off.
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