Wednesday, November 02, 2011

Greater Vancouver Market Snapshot October 2011

Below are updated sales, inventory and months of inventory graphs for Greater Vancouver to October 2011.
Oh yeah, and the detached benchmark price. Remember: prices lag, sales and inventory lead, so the price chart is put here for posterity, to remind us how significantly prices have changed over the past decade:
Commentary: October 2011, continuing from previous summer months, has produced more tepid sales numbers than years past. A continued trend of higher months of inventory (MOI, the number of months it would take to clear month-end inventory at current monthly sales levels), a key indicator of market liquidity and impending price strength, is typical in the second half. Lest we forget that prices are still high by most validated measures and it will take a prolonged period of MOI well above 6 to bring them down to more historic levels. We are currently at about 6.

Total inventory has likely peaked in October (it peaked mid-month, but not shown due to monthly sample rate); if the market were under significant distress we would expect increased inventory buildup through November, mostly due to lower sales. It looks unlikely to be the case this year, though new listings have been consistently about 20% higher in 2011 than 2010 with sales roughly flat. That indicates a greater percentage of listed properties will be unable to elicit a sale. If past years are a guide many owners will simply choose to rent instead of lower prices due in part to historically low carrying costs -- they don't "need" to sell (and instead take their chances in the "Mines of Landlord").

Below is the predictor of price gains, based on half-over-half price change to months of inventory correlation:
What this shows is the change in prices in a month from 6 months ago based on actual data and “predicting” the price based on months of inventory from that month based on linear regression of half-over-half price change to months of inventory (with 3 month moving average).

In summary October 2011 has mirrored October 2010 closely, with slightly more weakness due to higher inventory levels. I expect November to be a similar trend, with listings elevated and sales roughly flat compared to 2010.


Skeptic West said...

I've been waiting diligently for this post!

How many more years do you give it?

That is, how would you distribute probability of the downturn over the next 5 years?

I think it's something like:
2012: 35%
2013: 35%
2014: 20%
2015: 10%

So that's 100% in the next 4 years.

jesse said...

Skeptic West I don't know. I do see more headwinds in 2012 than 2011 due to lower population growth, but whether that's enough to elicit the start of a significant downturn I don't know.

I do think that Vancouver has a reasonable portion of its real estate tied to the performance of Asian economies, so if these economies were to enter a growth recession that would put more downwards pressure on prices. My best guess is that this growth recession is inevitable now, but will not be evident for another couple of years. Likely we'll see more tepid capital inflows in 2012 and further waning into 2013 and on.

The third factor that would exacerbate a downturn is rising interest rates, and though things are slow to recover I think 2013-2014 is about when the US will have cleared its housing inventory overhang and employment will start surging again. That will likely drive up long rates -- I don't completely buy the so-called Japan syndrome -- and Canada will track this to some degree.

I think that 2012 will be roughly flat in nominal terms, maybe a few % off, but 2013 will pick up steam on the downside. Lots of uncertainty there of course but that's my "best guess". Sorry no hard #s though!