Below are updated sales, inventory and months of inventory graphs for Greater Vancouver to April 2012.
Commentary:
April, as January through March, 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). April sales are the lowest since the early part of the turn of the century.
This April was a 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. This level of sales, if they continue to be weak, is going to translate into higher months of inventory for the rest of the year (MOI is typically higher in the latter half of the year; an MOI of around 6 normally translates to flat prices) and, likely, concomitant price drops. Prices will likely be year-on-year negative by the end of the summer.
As I mentioned last month, 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. Indeed Canada is an interesting example of a country whose government is looking to inflict credit controls before free markets do it on their own.
The continued malaise of sales and rising inventory is conducive with slower population growth and high prices. There is no indication that credit has been crimped in any significant way compared to last year, yet. There are strong indications that tighter lending standards are on their way in the quarters ahead; I am speculating the roll-out of these new standards has been delayed compared to what has been advised by government institutions concerned with economic growth in the medium term. I expect credit curtailments to filter their way into the Vancouver area in the fall at the earliest, and almost certainly before the spring of 2013.
Welcome to the new normal.
This April was a 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. This level of sales, if they continue to be weak, is going to translate into higher months of inventory for the rest of the year (MOI is typically higher in the latter half of the year; an MOI of around 6 normally translates to flat prices) and, likely, concomitant price drops. Prices will likely be year-on-year negative by the end of the summer.
As I mentioned last month, 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. Indeed Canada is an interesting example of a country whose government is looking to inflict credit controls before free markets do it on their own.
The continued malaise of sales and rising inventory is conducive with slower population growth and high prices. There is no indication that credit has been crimped in any significant way compared to last year, yet. There are strong indications that tighter lending standards are on their way in the quarters ahead; I am speculating the roll-out of these new standards has been delayed compared to what has been advised by government institutions concerned with economic growth in the medium term. I expect credit curtailments to filter their way into the Vancouver area in the fall at the earliest, and almost certainly before the spring of 2013.
Welcome to the new normal.
2 comments:
It is really weird. The sales and average price that cannot be distorted by REBGV all show negative signs for the market. Only the benchmark price that no body knows how it is calculated by REBGV shows a highest price ever.
Frankly, REBGV is not willing to see a price decrease.
Wow as I can see, everything is how Garth Turner predicted it. The activity is lower than the government officials predicted. For me - no surprise.
Even there was some increase in the February, the household debt and the insane housing prices are doing their job. I´m expecting even bigger decline in the summer.
And our government has to start thinking about How Dangerous is High Household Debt for the Economy.
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