Really Long Term CMHC Data

In the effort to provide excellent analysis here I purchased data on Vancouver CMHC Housing Starts, Completions, and Under Construction. I wanted to see what relationships exist in our local housing market between these different data sets.

As one would expect, starts lead, under construction follows and finally completions follow approximately 6 months later. Some interesting observations here are that the number of units under construction has never exceeded either the number of starts or completions but we find ourselves in a situation now where the number of units under construction is far exceeding the number of starts and completions. This could be due to a variety of factors such as a skills shortage or the nature of the projects under construction. The result of so many units under construction is that it is taking longer than in the past to see supply in reaction to demand thus giving the illusion of a hotter real estate market than perhaps is warranted by fundamental supply and demand.



An interesting note on this graph is the uptick in housing starts I notice in 2001. The question I have is how did developers make money with your average single family home selling for under $400,000. What was motivating them to build more starting in 2001 and sell homes for under $400,000? What has changed over the past 6 years? Have materials (lumber, steel, concrete, fixtures) costs risen that much? Has labour become doubly expensive in the past 6 years?



The number of persons per household in the GVRD has remained fairly stable at 2.6 persons over the past 20 years. When starts / completions exceed the number demanded by population growth one would expect it to be in reaction to previous undersupply or an expectation of further population growth. During our most recent construction boom we have seen no such growth in population and population is not expected to grow at a faster rate than currently evidenced. The question here being - who is living in all of the new homes being built?

The answer to this question could be complicated and no statistics exist (to my knowledge) that quantifies who is buying new or existing homes. I have heard myths about rich foreign buyers and the illegal drug trade but neither of those explanations should account for such a dramatic change in prices which are set by the typical home buyer who buys their home by qualifying for a mortgage which they intend to pay off over a number of years.

Dedicated to all the Renters Out There - Mortgage Payment / Rent Ratio

You are smart. You won't be swindled into paying a premium in order to rent money from the bank and pay more in interest charges than you rent would be. Congratulations!

Clearly there are good times to buy and bad times to buy - guess which time we are in! Generally speaking, as a financial planner I would never recommend an individual buy a home unless mortgage payments are less than equivalent rent.




Methodology:

Mortgage Payment is calculated by using the Benchmark Greater Vancouver House Price, putting 25% downpayment towards the principle and having a 25 year mortgage with blended principle and interest payments. As an aside, the payment is $300 less when using a 20% down with a 40 year mortgage. I don't really know of too many buyers who have $150,000 required as a downpayment though.

Rent data is from CANSIM and purchased with your generous contributions. I would appreciate the feedback on the rent data I used. Here is my issue: CANSIM has rent data for 1, 2, and 3 bdrm apartments but not for single family homes. For comparison purposes I used a multiple of 2.3 times the 2 bdrm apartment rent data to approximate the benchmark SFH rental rates. Do you feel this is too high, too low, or whatever? Should I just use the 3 bdrm and ignore any potential differences?

FVREB August Data

Here is the data release from the Fraser Valley Real Estate Board. The numbers were strong from a sales and pricing perspective. Inventory has not exploded as in many other markets and sales are still brisk, resulting in price increases. August was the month when most of the lower rate mortgage pre-approvals expired and that clearly had an impact on sales so it will be interesting to see what September brings for listings and sales data. Typically, inventory has risen through the fall and sales typically slow down too.



There were 1763 Sales and 8286 Active Listings representing 4.7 Months of Inventory. I expect inventory to explode upwards in the next few months and the months of inventory to be above 6.0 by October. There is a very strong correlation between the Months of Inventory and Quarterly Price Changes.



Median Price of a detached house was $485,000.00
Median Price of an apartment was $212,000.00
Median Price of a townhouse was $310,000.00



House Price Index of 220.3
9.3% Year over year increase in prices
2.2% quarterly increase in prices
1.3% month over month increase in prices



This chart represents the past data and my future expectations if inventory shoots up and sales drop off substaintially. If inventory is stable and sales are strong then my expectations are out the window!

The Best Real Estate Anywhere?

Here is a chart worthy of refrigerator rights. Get a magnet and stick it.



What do we see here? The quality and sales mix adjusted house price benchmark (adjusted for inflation too) is represented by the yellow line. It is really high right now (highest ever) and it has risen for 6 straight years.

The blue line represents the average individual Greater Vancouver Income adjusted for inflation. It has risen and fallen within a basic range for nearly 30 years and it is at its highest level since 1980.

The red line (IMPORTANT) represents the number of years of the average worker's income it would take to purchase the benchmark single family home in Greater Vancouver. This number is at the highest level (by a long shot) that it has ever been.

Let us take a lesson from history. In the past 30 years, every time the ratio of the benchmark house and the average income has exceeded 8.0 the ratio has fallen. House prices must fall or incomes must rise in order to bring the ratio within a historical normal range of 6.5 to 7.5.

September Kickoff

Good morning,

If you are returning from summer vacation today, looking over some of the posts you've missed in the past few weeks and wondering which ones are worth a read you should check out:

Mortgage Fudge
CMHC Housing Data
Long Term House Price Data
Fraser Valley Housing Data Release
And this video of Robert Shiller

We are awaiting the local August Housing Data Release in the next couple days and I will provide analysis once I have the data in hand. I have a hunch we will see higher prices in August but fairly subdued increases compared to the past. Inventory has taken a noticeable slide and it will be interesting to see how this develops in the fall.

Whatcha want?
On another note I wanted to use the beginning of the fall routine to ask you, my readers, what sorts of things you would like to see here in the next few months. Use the comments to tell me what you think. I enjoy doing the charts and data analysis. I also like staying up to date on market developments and looking at things from a historical perspective. What would you like to see?

I have received some generous donations from some of you and I thank you. I intend to use the funds to purchase StatsCan data for further analysis this fall. On my list of things I would like to accomplish is:

1) Long Term Price Earnings Ratio for Greater Vancouver Real Estate which will require long term rent data. This has been extremely difficult to get my hands on but I will persist. Any leads are appreciated.
2) Some more historical / philosophical analysis of markets and market psychology. In particular I am interested in doing some more observation and discussion of past financial manias and the popular psychology surrounding them. There is some fairly interesting literature on the matter that I have read and plan to read.