Monday, June 23, 2008

May 2008 CMHC Data for the Vancouver CMA

I've had a chance to review the CMHC data for the month of May 2008 and here are the numbers.

New Housing Units Started during May - 1,757 - developers are still starting lots of projects because of the big profit margins involved. Recently I heard that the net profit margin for a suburban condo project is in the 25% - 30% range. Think about that for a minute, after the developer pays for the land, labour, and materials they still make $75k to $150k per unit. Developers have a lot of room to negotiate as prices fall.

New Housing Units Completed during May - 1,696 - developers are still having trouble completing as many units as they are starting for various reasons, including labour shortages. I expect that this will change significantly by the end of the year as lots of infrastructure projects are completed, freeing up labour to complete housing units.

New Housing Units Under Construction during May - 26,316 - near record levels of construction activity. We hit the peak in March and I don't think we'll revisit that peak for 10+ years now.

Completed and Unabsorbed new units during May - 1,422 - this is up nearly 30% from May 2007 but far from the high levels witnessed during the 90s real estate bust. Look for this number to increase dramatically as more housing is completed.

Update: Prices are correlated to supply as shown in this graph. Starts drop off at the same time as prices fall. Completions begin to outstrip starts as the correction happens.


Montery said...

You know what would be interesting? To overlay this graph with the nominal/real price history during the same period.

I'd like to see what (if any) correlation exists between build rate , completions and price.


mohican said...

montery - done!

I did that chart a while ago but haven't posted it for a while.

Prices and housing supply are most certainly correlated and we have a record amount of supply coming up to be completed in the next 18 months. Just look at the number of units under construction.

Anonymous said...

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berto xxx

Jade East said...

The overlay makes me think of the paper that Shiller wrote about market peaks.

"Analysis of past booms seems to indicate that investors in both the stock market
and the housing market seem often not to understand the supply response to price
increases. These are normal intelligent people, why would they repeatedly make the same
mistake again and again? There seems to be what I will call a uniqueness bias, a tendency
for investors to overestimate how unique an investment they favor is, failing to take
account of the inevitable supply response to high prices."

Ryan said...

I suspect that the "completed and unabsorbed" number is worthless, because a lot of the "absorbing" of new condos is speculators buying units to sell later. As soon as prices are noticeably declining, those units will come back on the market.

And even if they're not listed for sale now, they're still empty units that the owner intends to sell at some point. It reminds me of all the "off book" assets in the ABCP and CDO debacle that Mish writes about. They don't show up in the stats now, but at some point the chickens will come home to roost. Just like ABCP, the owners will be forced to put those units on the books when the market value is lower than the "book value" (mortgage amount) and falling.

joycer said...

Good point Ryan, I believe the same thing. For the last 5 years, flipping condo assignments has been like printing money. As I recall, there were almost 20,000 empty condos in Vancouver according to BC Hydro. I believe the Bosa brothers project in White Rock was put on hold because after the first few towers were built, there were so many people who tried to flip their condo, they couldn't sell enough of the other towers to justify starting construction. I would bet that inventory surpassed 19,000 listings today. According to Paul, yesterday there were 18,970 listings.