Kudos to Larry Yatter for being first out with the numbers.
We are down almost 1% -error it is in fact down -4.6% from April in the detached Average. (hat tip VREA)
If we continue down, then the 'divergent high' theory I posted before will be in play. That is prices rise, but in a smaller area and with lower sales - much as you would see in the final topping process of a stock.
As for the Bank of Canada, they did the deed. + 0.25%. But don't expect a lot more this year, see my comments to the previous post.
Inventory is important.
MOI is important.
Listings growth is important
But price trumps everything....
I'm actually pretty surprised that apartments made new all time highs while attached barely fell... I suppose it's reversion to the mean because detached was really starting to runaway and even as a bull I thought it was getting a bit frothy and needed a little bit of a break.
ReplyDelete.. and yes kudos to Larry, he's always very quick with these charts.
ReplyDeleteChad- thanks for giving the bullish spin to the numbers to counter my bearish spin. We want the blog to be fair and balanced after all :)
ReplyDeleteHowever attached are down nearly 2%!
It may not be apparent in the chart. From Larry's post:
"Attached properties took a slide from April’s average of $551,385 down to $543,290"
You're right, can't really see it on the chart but I still contend that 2% down isn't a whole lot of anything considering the gloom and doom predicted for the May #'s... we will go forward one month at a time starting with June and see how things play out.. could things be soft for a while? Maybe.. but I'm just not seeing signs of an epic collapse like most here.
ReplyDeleteMy mind is on a slow steady decline rather than an epic collapse.
ReplyDeleteHuman behaviour is such that the drop and pop will ahve reinforced the idea that RE is infallable, so there shoudl be buyers on the way down..'won't let it get away this time". Throw in sellers who are looking over their shoulders at the highs just gone by and RE gets sticky.
Unless of course, I am wrong..:)
If there's a grind lower or a flat to down market (possible for sure) then I am in the camp that we won't drop too far below 2008 highs (may dip a few % below the old highs that were recently broken through) if we get there, which isn't a big drop at all, just a few % from here. Like I've expressed before I don't see a swift, quick fall in the Vancouver markets at all so if you are a bear I think the best you can hope for is a 5-10% decline. I now this is basically a four letter word on these boards but I think the most likely scenario for the next few years is a pretty balanced and boring market.
ReplyDeleteChad, 2% per month equates to about 26% per year. I definitely wouldn't call that slow...for comparison it took the US Case Shiller Index three years to decline 34%.
ReplyDeleteHowever, I agree that it was somewhat surprising that apartments continued to rise. I would have expected them to lead the decline.
I guess we'll have to wait until next month to get a better read on how things are shaping up but IMVHO this represents the top and it is going to be a year of rapidly declining prices.
Actually, detached is down almost 5% month over month (april to may).
ReplyDeleteAttached likely held up with the last of the FTBs using up the last of the free money.
I suspect this represents the turn.
Anonymous, I'm not sure if what I said came off as saying I think we will decline 2% per month, I don't think that at all, I think we may see some months -2%, some months up 1%, some up 3%, some down 3%... in my opinion we'll be churning. Also, the attached really was running away from detached and apartments, IMHO that had to revert back. We're up 20% from the 2009 lows, don't get too excited about an average of 3% drop combined :)
ReplyDeleteYikes- VREA be right!
ReplyDeleteIt is a 5% decline.
Mine eyes could not believe what they saw.
In fact a 4.6% decline. I will correct the post
... and apartments making new all time highs.. don't get your panties in a twist bears
ReplyDeleteAgree that overnight rates will likely stay low. Based the Bank's statement, Carney et al are annoyed their Keynesian policies aren't really working that well.
ReplyDeleteThat is a huge drop but these are still just averages. It will be interesting to see what the benchmark says in a few days and more interesting to see what teranet says in a couple months.
ReplyDeleteChad,
Just out of curiosity, what kind of drop would make you start thinking about selling? I think you said you bought in spring 2009 so it could fall another 15% and you would still be ahead. Just wondering if you have an exit stratagy should you be wrong. Or do you plan on paying off the mortgage no matter what (unless other circumstances make that impossible)?
Davers,
ReplyDeleteFirst and foremost my home is just that, a home. I don't know what my circumstances will be in the future if or when the market corrects. Even though my home is primarily a home I did my research and waited for the right time in my opinion to pounce because while it's my home, it's also a large investment. If we happened to fall considerably (30%+) then I would do one of two things. Either I'd buy another property because valuations would presumably be terrific or I would sell this place into a tough market and buy another home for considerably more money which would net me a 15% discount on my new home. Fortunately for me I have quite a bit of liquid net worth so if a 30%+ drop were to happen then I would upgrade my home or buy another property.
Chad,
ReplyDeleteBuying into a down market is an interesting choice when you already have a house. Granted you can drive a hard bargin if things do start to tank.
I would presume you would rent out the second home should you go that route? You must be quite loaded in order to put 20% down (new rules remember) on another home.
So if there is a 30% drop do you expect that you would be able to break even on renting out the place? (Rent coveres expenses and mortgage). If we do see a drop of that size and rents dont change much then I think it would be pretty close. Of course, it all depends on interest rates.
Anyway good luck with this plan should the market signifigantly correct.
Davers, I'm assuming I would continue to earn what I earn now through a prolonged downturn and if that's the case I would want to be upgrading my home anyway, being able to do so at a lower price nets me $. For example, my house is currently worth $1,000,000 for arguments sake, the market drops 30% and I sell for $700,0000, throughout those years of decline (assuming it's a prolonged downturn, not just a single year) I amass enough to buy a $1,000,000 home again, however that home at its peak was almost $1,500,000. Therefore disregarding all transaction costs I would save $200,000 on the new and much better home which would overall provide me a discount of 10% on the new home. Do I get the full 30% decline? No.. so if you feel like you can pick the very bottom of a market and know exactly when it will happen then be my guest but I feel fairly comfortable with this strategy. Heads I win, tails you lose-ish?
ReplyDeleteIt all makes sense as long as you consider todays prices fair, which you seem to.
ReplyDeleteMy fear is that we are very over valued and current prices (relative to income and rent) will not be seen again until current prices fall and then years later another bubble forms.
And I am not saying I can pick the bottom. As long as I buy at a price where my mortgage interest, strata (if its a condo) and taxes are less than what I could rent the place for. You know, fundamentals and all that.
If I can buy at a time where I think it is a better deal to own, (without banking on price gains) then I will be happy, regardless of what happens to the price of the place from there.
When did I even mention future price gains? Future gains have nothing to do with my contingency plan if prices fall. We're just not at all set up for a crash yet, the most likely scenario is years of flattish prices.
ReplyDeleteI think if housing drops 30% then the province is toast. IE major defaults, credit unions running to the provincial government, consumer spending gone, deficits out the ying yang.
ReplyDeleteLets hope that doesn't happen!
Yes I am a bear, but I don't want armageddon!
A slow decline for a few years would suit me fine.
30% is impossible anyway...though Beijing just had a 30% drop over the course of a couple of months...hmm..
Bejing was also up over 50% YoY.. we're up 20%.. let's start comparing apples to apples please.
ReplyDeleteI never meant to say you were banking on future price gains, I was just stating my conditions to buy.
ReplyDeleteGood deal vs renting. So if prices rise, its a bonus. If prices fall my monthly expenses are about the same as rent anyway, so its not a big deal.
The comment about future gains had nothing to do with you, but many bulls count on price gains of X% per year to justify their purchase. In my ideal scenario of buying any price changes will be irrelevant to me unless circumstances force me to sell.
Wow. A monthly decline of 4.6% equates to over 40% yearly! Talk about prices falling off a cliff. If this continues for the next six months maybe even the Vancouver Sun will start reporting it :-)
ReplyDeleteHowever, I'm not celebrating just yet...this market has defied gravity too many times for that. But given the way the government has been talking down house prices I don't see them doing anything to prop up the market in the near future - quite the opposite in fact. And, to me, that means more reasonable house prices in the not too distant future.
Davers,
ReplyDeleteI hear ya... there are many reasons to buy other than price appreciation and I'm not talking about that warm & fuzzy BS of owning your own home. If you have your own business or have the ability to trade equities actively and successfully then there are several ways to use the money in your home to trade with/use for business purposes and write the interest off your income taxes, it's a nice bonus. Again, sorry to rain on the bears parade but stop manipulating the #'s, the monthly decline in May was 0.7% -- you can't just pick and choose which segment of the market you want to use in your calculation. Detached got hit with a -4.6% decline, attached dropped slightly by -1.4%.. apartment were UP 3.9% which equals an overall -0.7% monthly drop.. hardly anything.. Anonymous, judging by your ridiculous way of reading markets apartments will be up +46.8% yearly! Give it a rest and let's start being more realistic and more objective.
fish:
ReplyDelete30% drop is very easily on the cards, possibly even within 2 years.
The trough will very likely be >50% off.
That's what all the charts and all the other markets that have gone through bubbles very similar to ours tell us at this point.
The argument that: "that'd be Armageddon, ergo, that can't happen here" is not an argument, it's just wishful thinking.
Like you I'm concerned about the effects it'll have. This is why many bears have been jumping up and down shouting about this bubble for years now. Fallen on deaf ears, largely.