Thursday, January 03, 2013

Greater Vancouver Market Snapshot December 2012

Below are updated sales, inventory and months of inventory graphs for Greater Vancouver to December 2012. (see REBGV news releases.). (My "next month estimate" numbers are what I think next month will be. Also note these graphs update automatically so older blog posts from previous months will show the same graphs as the ones below.)

The scatterplot of price changes and months of inventory is below. As the Teranet data roll in, look for more points appearing the right-hand side.


December continued with relative weakness compared to not only 2011 but also past years from 2005 (except the residual emerging from the recession of 2008-2009). December sales are near lows in at least the past decade, though above levels seen in 2008.

To partially compensate for weekend framing effects I have plotted sales per working day on a month-by-month basis.

This December saw another weak report. Sales for the year are bad and this has direct effects on incomes of those who depend on resale turnover for income. Total sales for 2012 are about the same as 2008, albeit average sales price for 2012 is likely higher. I would not be surprised to see the Teranet HPI down between -6% and -4% year-on-year by February or March of 2013.

As a recurring reminder, there are some worrying clouds on the horizon: population growth is falling, dwelling completions are set to increase over the next year if not longer, and banks have implemented stricter mortgage guidelines via changes to government-underwritten mortgage insurance qualification criteria and via implementation of stricter mortgage lending guidelines under OSFI's new directives. (Credit Unions are one notable exception though it appears BC CUs will comply with the brunt of OSFI guidelines.) Further stress in current conditions can be attributed to China's slower economic growth, though it looks like growth is set to resume some entering 2013; for how long this growth can continue is uncertain.

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. several years). That stated, longer-term 5-year-term loan rates may have some room to move up in the coming year as the advent of the removal of accommodative overnight rates starts entering the purview of the 5 year time horizon.

Asian economies are currently meting out another round of investment spending through coordinated government stimulus measures -- and not only in Asia but also in other jurisdictions -- and that can plausibly lead to a renewed, but in my view temporary, bout of current account flows into Vancouver-area property investments. Investment trends in China are difficult to ascertain; some analysts and academics like Michael Pettis are pointing to some worrying signs in the coming years regarding hard commodity demand and investment growth there. If that analysis proves correct, that would have a direct and negative impact on Vancouver-bound remittances and external residential investment.

Predicting trends in 2013 is the topic du jour. Prices have a seasonal component to them, with price changes robust in the spring and trending towards less robust in the subsequent winter. Prices rarely drop in the spring and if they do it likely means prices in the latter half of the year will be weaker than even 2012. If 2013 is going to be a bad year -- worse than 2012 -- the key I would be looking for is consistent listings growth through March. If that occurs, given the bearish tilt on the factors I mentioned above, I would not hold up much hope of Vancouver prices remaining flat for the duration of the year.

1 comment:

Fix the system said...

Fantastic analysis as usual! Thank you for your invaluable input. :)