Friday, August 02, 2013

Greater Vancouver Market Snapshot July 2013

Below are updated sales, inventory and months of inventory graphs for Greater Vancouver to July 2013. (see REBGV news releases.). (My "next month estimate" numbers are what I thought next month would have been using simple statistics from past years)

The scatterplot of price changes and months of inventory is below. The most recent datum is the brown dot at about 8 MOI and 2%. The trend is roughly in line with past years. June 2013 reported was about -3% year-on-year, which is slightly higher than I expected but not what I would consider anomalous. This gives us some indication on how elevated MOI must become to elicit meaningful price drops.


July sales have continued a general improving trend to exceed last year and are now comparable to 2010 and 2011 levels. July sales are off the lows of the past decade. A general improvement of sales can plausibly continue through the rest of the year, but will likely be below highs of the last decade.

This July saw another weak report as compared to the last decade, though the trend of improving sales is encouraging. Cumulative sales for the year are still below recent past years and this has direct effects on incomes of those who depend on resale turnover for income. As the months progress it becomes more and more difficult to hit yearly sales targets in-line with those seen in the last decade. That stated the nascent resurgence in listings volumes is underway and if strength continues, the second half of the year will make up for the sluggish start.

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, and it looks like they're not done tightening. Further stress in current conditions can be attributed to China's slower economic growth.

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 they did, at least acutely, with a vengeance in May and June) as the advent of the removal of accommodative overnight rates starts entering the purview of the 5 year time horizon. An interesting commentary from TD (PDF) points to some evidence supporting July sales strength being correlated with the recent increase in interest rates.

Emerging Asian economies are starting to stall again after last year's stimulus from China has mostly run its course. I expect this will start wearing on foreign-derived income that could end up financing Vancouver-area property purchases. I expect further stimulus bouts in the years to come, and indeed another investment foray was recently announced.

My estimates for July were for inventory of 16823 (actual 16618) and sales of 2530 (actual 2946) based on estimating average changes from May of years 2005-2012. Using the same technique estimates inventory and sales for July of 16365 and 2470 respectively (MOI=6.6). The spring is typically the nadir for MOI in recent years, the exception being 2009 that saw MOI decrease throughout the year. Taking a "hybrid" approach would suggest August's MOI to be higher than July's, mostly due to lower sales typical as the summer progresses, albeit this year's Julys sales were higher than June's which we can see hadn't occurred since at least 2005.

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