Wednesday, May 13, 2009

Vancouver CMA Housing Starts - April 2009

The CMHC released housing start data for April 2009 and the numbers are abysmal.

There were only 483 housing starts during the month of April. This is really bad news for those working in the construction business.

Developers are continuing to adjust to the new reality of lower sales volume and a distinct lack of speculators to snap up inventory as it is released.

We are perhaps in the 3rd or 4th inning of this correction and it doesn't look like things will get better anytime soon in the Vancouver real estate market. I'll be surprised if they do.


jesse said...

Try plotting 6 instead of 12 months of starts. Ouch.

Etienne de Cochon said...

My sense is that this decline in housing starts may indicate that that the underlying economy of Vancouver may be in a dire state. Not only has construction been a driving force for employment but the constituent businesses that depend upon the growth of the construction industry are legion. It's obvious that these business will have to adjust.

I guess the question now is, if there is a recovery in the construction industry and the local economy, by how much and how quickly can we expect them to do so? Today we are seeing news that Chrysler will have extreme challenges in restarting their business from bankruptcy. Economists are telling us that the global financial malaise, while showing signs of recovery, is still afflicted by the reticence of banks to loan money, to businesses and private citizens. Gone are the days where home equity loans fuelled the profligate excesses of the middle and lower classes.

I suppose Vancouver's saving grace is that tourism in general is elastic in its growth (and contraction). Given the state of globalism today, my hope is that whatever region in the world recovers first, they'd consider a nice skiing or sightseeing holiday.

Carennedy said...
This comment has been removed by the author.
sfuboy said...

I've been house shopping the past few months, and in the past few weeks, i've noticed that there's been a house bidding war on popular places as well as a slight bump in price. Now is this only a spring pickup or is this for real?

Supposedly the mark is going to fall.. but then.. this suddenly enthusiasm in the market right now is making my life difficult. (I'm getting married and we need a place to stay.. we prefer to own over rent)

Any views on the sudden bump up on the real-estate market anyone?

RentingSucks said...

The only thing that can explain it is low interest rates. They're practically giving money away for free these days. Right now I'm not sure how long this is going to extend the boom. The next few months will be telling as to what kind of momentum this has. Best case it's a temporary spring bounce. Worst case it will keep prices around where they are until interest rates start to crank up again.

jesse said...

"The only thing that can explain it is low interest rates.".

Low interest rates being accepted by borrowers implies there is still a bullish sentiment in Vancouver. When else would you CHOOSE to take on high levels of debt, except in times of optimism of the investment's prospects?

It's not really the low interest rates driving the market, it's a desire to believe high prices are justified to overcome the barrier to owning, which is what the majority of people prefer.

Witness other markets where prices have fallen way more compared to rents and incomes than Vancouver's yet prices are not rebounding to Vancouver's valuations; quite the opposite -- they are headed even lower. It tells me there is still speculative poop in Vancouver's goose. Low interest rates are the means to eke out a few more buyers wanting in.

As I mentioned in a previous post, it's worth asking what low interest rates are really telling us about the next few years.

mohican said...

Yes, vancouver is still in greater fool territory and the only way a purchaser can justify paying today's prices in vancouver is if he/she feels that the house can be sold to another greater fool later for the same or more than what he/she paid. This belief has not changed but will change as the next stage of the correction unfolds. It is the unwinding of this inherent belief that will indicate the end of the correction.

It is possible that this could take many years, especially if low rates are here for a long time. Eventually job loss and economic events will push the market lower despite the low rates. I am confident that fundamental price vs rent ratios will be restored at some point.

jesse said...

mohican, agreed. Others have commented here before that when deflation stops and rates increase, that will prevent prices from rising for a long time. This is because personal savings rates have to recover from the seemingly impossible figure of -6% province-wide to well into positive territory. With BC having a large part of GDP going to consumption, it is going to affect everybody, especially the government as it now has to cut public sector budgets (i.e. jobs) to compensate for what is likely a long tax revenue deflation.

The low level of listings is another indication of pent-up speculation. We know current dwellings are in oversupply, not even mentioning the under construction supply coming online in the next year. I think CalculatedRisk referred to it as "shadow inventory". This is made even worse by the recent under utilisation of housing -- yet more shadow inventory. Where did all the listings from last year go? Not into thin air.

Despite low rates and relatively low inventory growth, there is a flood coming that will overpower the demand side. To paraphrase VHB, people are still willing to pay high prices but soon they will find they didn't have to.

patriotz said...

This is because personal savings rates have to recover from the seemingly impossible figure of -6% province-wide to well into positive territory. With BC having a large part of GDP going to consumption, it is going to affect everybody,...

What is stunning is the transformation of the BC economy within a generation from a mainly resource-based exporter to a consumer economy which looks like a high-priced clone of the US.

The decline in the savings rate began in the 90's but Gordo has pulled of the magic trick of making an even further decline look like a "golden decade". Well I think he's going to run out of tricks very soon.

And we will be facing the same hard issues ahead as the US. When the hype dissipates, the outlook for this province will look grim indeed.

van_coffee said...

Gordo and the politicians have very little to do with the savings rate phenomena.

I suspect what you are going to see (and have seen to some degree already) is a demographic transformation which leads to lower aggregate savings rates.

As the boomers continue to age and retire, they will spend their aggregate saved wealth and this will likely exceed their current income in retirement. This is the main driver behind aggregate savings rates which everyone is talking about.

In the absense of significant immigration and inmigration into BC (which I don't think we are going to see because there are many better places to live in terms of economic opportunity) the BC economy is going to be an ageing, stagnant place to live.

I am personally extremely bearish on the BC real estate market going forward because a huge number of boomers own way too much real estate and over time, they will look to convert (i.e. sell) this RE into lifestyle and into healthcare services, and into lower maintenance living (smaller).

We shall see. The current "spring bounce" or whatever you want to call it, is a piece of mouse poop in a field of manure.


macho slob said...

patriotz, it would be a real shame to have your otherwise sound judgement tainted with all that sour grapes "gordo" crap.

I agree with van coffee that futile provincial politicians can do little to help or hinder recovery from such a global $hitstorm. The world is facing an unprecidented economic transition, that could delay the next housing boom by a decade or more....and we still have a lot of catching up to do on the downside.

patriotz said...

Look, by any objective measure the BC economy was sounder in 2001 than it is today. Since that time we have seen further deindustrialization, further loss of head offices, and further declines in the savings rate.

Instead of doing something about these problems, the Campbell government has masked them by promoting one of the world's biggest RE bubbles. Exactly as the Bush administration did south of the border, and we will face the same consequences.

Calling the premier to account for this - which of course the NDP and GP failed to do in the election campaign - is not "sour grapes".

The Elephant on the Campaign Platform

Davieharely said...

Developers are continuing to adjust to the new reality of lower sales volume and a distinct lack of speculators to snap up inventory as it is released..replica watch