Monday, April 02, 2012

Greater Vancouver Market Snapshot March 2012

Below are updated sales, inventory and months of inventory graphs for Greater Vancouver to March 2012.

When I collate numbers for the updated benchmark, and compare its performance compared to the Teranet HPI, I'll formulate updated price graphs. No rush; market prices aren't going anywhere fast in the next while!


March, as January and February, continued with relative weakness compared to not only 2011 -- which was borderline insane -- but also past years from 2005 (except the residual emerging from the recession of 2008-2009). An interesting trend is that 2012 has mirrored 2008 in terms of sales, with January and February continuing at trend with March starting to peter out. This may well be a coincidence; inventory growth has slowed in March compared to the previous months, a trend seen before in 2010, where one assumes owners can refinance and handle carrying their properties in case of a failed sale.

Make no mistake that this March was a relatively weak report, not surprising perhaps given benchmark prices have been increasing at multiples of the inflation rate since the trough of early 2009. One assumes that higher prices would tend to limit demand.

There are some worrying clouds on the horizon: population growth is falling, dwelling completions are set to increase in the latter half of the year, banks are beginning to implement stricter mortgage guidelines, and the home ownership rate is highest in recent memory. On the other hand mortgage rates remain low, near net zero real territory, and it is possible for rates to remain low for a prolonged period (i.e. years). I am nonetheless sceptical low real rates will be a saviour for house prices after looking at examples in other parts of the world throughout history.

As a final note this month, I am looking at 2008 with some renewed interest, at least insofar as understanding why it behaved so differently from subsequent years in terms of growing inventory, falling sales, and (eventually) falling prices. What were the root causes of 2008's distress? A look at some macro indicators like layoffs and unemployment, current account shifts, and mortgage rates -- things I would have thought would directly impact sales -- does not immediately yield anything that would cause a sudden drop in demand for housing.

The only inkling of distress came in mid-March 2008 when the so-called TED spread spiked above 2% around the time where Bear Stearns's troubles became more apparent. The spread remained inflated until June and then spiked up again in September. This initial distress could have led to banks imposing emergency loan crimps as they started to provision more capital for perceived counterparty risk. Other parts of the country faced simultaneous distress signs in the spring selling season, an indication that conditions affecting prices were national in scope.

Though I haven't done thorough analysis, my conjecture is that Vancouver's 2008 distress was primarily caused by a sudden lack of access to credit. If true 2008 gave us a truly concerning peek into what is primarily driving Vancouver's run up in prices since the early part of the century. If mortgage credit were to face a renewed bout of rationing I do not see much positive for prices going forward.

All the best in the coming quarters to my friends and colleagues who will be exposed to Vancouver real estate.

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