Thursday, June 3, 2010

While we wait for the REBGV stats

Here is some info from the REB of Victoria for May:

A total of 695 homes and other properties sold in May through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®), down from the 756 sales in April. There were 879 sales in May of last year

As of the end of May, there were 4,521 properties available for sale - up from 4,229 at the end of April. The available inventory is now 19 per cent higher than the 3,789 properties for sale at the end of May a year ago.

I think that makes it 6.5 months of inventory (VREA check my math please)

Victoria Price Graphs


  1. I just spent quite some time looking at where I think the absolute bottom would be in detached if we do indeed have a correction coming. I think if the correction is nasty we can go as low as $870,000 for detached. That would represent about a 15% pullback from highs.. Obviously you bears would be elated if this occurs but bulls that bought as early as summer of 2009 will either be at even or still up money. If we actually do get that low then I don't know what happens after that, either we go sideways for a long time or start grinding higher again, but mark my words, the worst possible corrections from highs in this market is approximately 15% and that is barely below the highs of 2008.

  2. Oh Chad...u so crazee!

  3. Well Chad at least you have moved from 'flattish market' to a possible 15% drop.

    Glad to see you are open minded.

    I suspect a 15% drop will put a lot of pressure on a lot of people and put a LOT of CMHC mortgages under water.

    I would be happy for a 15% drop. It means at the margin a smart and patient buyer can pick up for 20-25% less.

    Any more than 15% straight off the bat and I would be very frightened as to what our Governments and B of C would do in a panic..rates to zero, tax-breaks for mortgages, subsidize purchase prices, pay for free flights for international speculators including free booze and chips for local casinos...

    So lets stick to 15% for now:)

  4. Please don't take my post out of context. I'm not saying a 15% drop is coming, I'm saying that if shit hits the fan, then that is the lowest the market will go.

  5. Chad dont be so defensive. I wrote 'possible'. You are setting the lower limit of the correction (if any) at 15%. Fair enough.

    Any reason why 15% and not 20 or 10.

    there doesn't have to be..some bears are calling for 50-75% drops and somehow still think that they will have jobs and the streets will be safe.

    But if you have a reason for the 15% number, please share them.

  6. Hey Chaddy

    So gold price is going to drop 15%?

  7. Looks like Victoria's market works in very similar fashion to Vancouver's. Obviously Victoria's rich retirees are abandoning the market at the EXACT same time as Vancouver's rich immigrants! What a coincidence! LOL

  8. Even the Okanagan RE board has their very extensive May report out - no sign of REBGV yet though...

  9. I second the call for the reasoning on chads 15% number. While I am not saying you're wrong, it would be nice to see what makes you so sure of this number.

  10. Perhaps the REBGV has their best wordsmiths on the case to make a price drop and higher MOI into a good thing. It will probably be better than "buyers enjoy more choice".

  11. Chad, glad to see you committing to a number (no really I am). I'd be interested in hearing your reasoning too.
    I think we are heading for a 10-15% drop this year followed by another 10-20% drop next year & early 2012. Then a stabilization of prices in late 2012 at around 30-45% of the current level. My reasoning is that there are a few people who are horribly over-extended and absolutely have to sell. They will have to drop prices quickly to make the sale or face financial ruin which means rapid price declines. Once the desperate few have started the downward trend I think it will continue but less rapidly until prices are back in line with economic fundamentals. I also think there is now a general perception in Vancouver that the prices are way too high which means less demand plus there is a lot of supply coming available.
    In the area I follow I’ve already seen listings that would have been snapped up last year having significant price reductions (10%) and still not selling.
    Fish, I don't know why a 50% drop would be so terrible here. It would undoubtedly cause problems (just as it has in the US) but it doesn't mean the end of the world. I know CMHC (aka the tax payer) is on the hook for defaulted mortgages but a) I don't think there will be so many defaults; b) I don't think the CMHC will pay out if the mortgage was obtained fraudulently and the issuer didn't do proper due diligence; and c) a 50% drop in Vancouver is not a national (maybe not even a provincial) crisis.
    Personally I think a 50% drop would be an excellent thing for Vancouver in the longer term. There will be pain for the over-extended but once people start paying a reasonable amount of their income for housing they will have more disposable income to spend on other goods and services which will improve the health of the local economy no-end. Plus we won't have to spend so much time talking about housing!

  12. Bally a 50% drop would be sweet vindication for us bears, but would mean major hardship for lots of people- not just the owners.

    Consumption would almost cease. If your net worth was sliced in half (and most people hold most of their net in their homes) would you still eat out, make renovations and up-grades, fly to Cancun for a week in winter?

    I doubt it.

    Then their is the construction workers, realtors, notaries et etc.

    Then we would see almost all programs slashed as the provincial government would have to make good on it's promise to shore up the Credit Unions and The Federal Government would be paying out the CMHC bond-holders.

    There could be even more events- Quebec, where there hasn't been much of a bubble might get a tad pissed off if they see the bubble towns of Toronto and Vancouver being bailed out etc etc.

    It would NOT be a good thing.

    Is it possible? Yup.

  13. I looked over every bear market that I could find over the past 40 years and tried correlating each years to ours in most metrics that make sense. We're not even in a bear market yet but I did my best to fit past market movements to our market to date and it suggests a few things. Either we will grind higher for possibly another year, or we could go sideways for quite some time (the time frame for stagnation in prices is impossible to know, but during that time valuations would inevitably come down simply due to time decay), thirdly, we could fall from here but that would certainly be capped at a level close to the highs seen in 2008, possibly a few % lower than those highs but nothing dramatic.

    Could this thesis be wrong? It could but it would be defying every single historical precedent set by similar markets. Vancouver markets look absolutely nothing like any American market in 2006/2007 imho.

  14. That's a very reasonable response and I would accept it if the chart didn't look soo parabolic for Vancouver RE and if we didn't have the worst financial crisis in 80 years with major banks and countries teetering on default.

    However at least you made your case.

  15. Chad, I see where you are coming from. I believe the IMF modelled RE bear markets and the median decline was about 6%. They also modelled RE busts and the median decline was about 30%. So I guess the divergence in our figures is really about whether we see a 'bear market' as a possibility or a 'RE bust' as a possibility.

    Why do you think Vancouver looks absolutely nothing like any American market in 2006/2007?

    Fish, I can't really agree with your assessment of how a 50% drop would affect us. I do agree some people would cease consumption entirely...those who have ploughed their entire net worth into RE. But I think those people should stop consuming because their consumption is based in paper wealth and debt not on real wealth.

    I also agree that some people will temporarily reassess their spending priorities. But, again I don't see that as a bad thing.

    Eventually, I think a RE crash will lead to more wealth in the city. If I buy a house a only spend $2500 a month instead of $5000 a month then I am going to have a lot more disposable income to allocate around town. Right now too much of the city's wealth is going directly to service debt which only makes the banks rich(er).

    I won't bang on about it (because I know you know already) but the misallocation of capital to a non-productive asset like RE is not a good thing. The reallocation is going to be painful but in the long run is essential otherwise we might just drown under the RE hubris that masquerades as business sense in Vancouver.


  16. Anonymous, that isn't what I'm looking at, I hate looking at % declines because Vancouver is historically much more volatile than other cities, therefore I look more at price action. When I said the depths of the drop would be 15% from highs that was regarding detached, it's quite a bit less for attached and far less for apartments. I'd be extremely shocked from here to see over a 10% decline when apartments/attached/detached are combined.

  17. "However at least you made your case."

    No he didn't. "I looked at charts and this is what I think" isn't making a case. What metrics were you comparing? How do they compare? How do you come to your conclusion? You just pulled 15% out of the air. Why don't you start by telling us one other market that followed our path so far and then went on to do what you are predicting?

  18. hey chady

    so gold can grind high, remain stable or reduce in value? thats a great analysis. I love it. See I appreciate your knowledge and kinda getting a hang of it.

  19. 15% was not taken out of thin air, think what you want, I have my analysis, if you disagree then you disagree, I don't have anything to prove. The burden of proof is on the bears until we take out 2008 lows, which will not happen.

  20. In terms of examples of markets similar to ours at this point, there are several, to keep things simple, the Vancouver market in 1993/1994

  21. And what did your analysis consist of? You made the claim, 15% drop max, the burden of proof is on you to give one actual shred of logical evidence to support it. So far you haven't.

    I probably shouldn't mention real house price increases since 1994, but I will suggest you look at price to rent and price to income ratios comparing now to then. By what metric was the market then similar to now?

  22. The burden of proof is on the market. No one has to prove what is going to happen. We can throw all the analysis we want at housing, it doesnt mean it will happen.

    I expect a drop, size and duration are completly unknown to me though.

    The market seems like it has been pretty illogical to me over the past 5 years. (though I have only been following for less than 2 years). Hence it could be equally as illogical over the next 5 years.

    There is just way too much emotion in RE for it to make perfect sense.

  23. ok, i get it vancouver prices will be equivalent to gold prices in 1993/94. Right chady?