Friday, August 27, 2010

What's with the numbers...

What are we to make of the current market?

Lets look at the facts:

1) Sales are down. Most Agents I speak to are NOT happy. less sales = smaller commission cheques.

2) Listings are down too. There was no expected big boost in the listings in August.

3) MOI is up, but prices are still holding up.

(Note the above is for Vancouver mostly. I still expect places like the OK where listings are very high and MOI is stratospheric to show weakening.)

So what do we make of this..what explanations are there.. and remember these are all knows for sure:

1) Sales demand was truly drawn forward by HST and CMHC changes, and is this is the lull afterwards. Meanwhile there just aren't that many owners that need to sell.

2) Mortgage rates are heading down and so the buyers left in the market can afford higher prices and are caving in and paying up the sellers' asking prices, who are discounting very little.

3) We are at the start of the market shift and this is always a choppy time. My views lean to this let me give you my opinion on how we got here..

People are Pavlovian, they learn from previous experiences. The most recent drop in RE that we had led to an almost instant and violent bounce back thanks to the Government's efforts. So that sends the message that any drop in demand is temporary and will quickly return.

This keeps sellers fairly firm in the prices and keeps those-who-dont-really-need-to-sell out of the market. Hence we get firm prices and lower listings. But then why are folks still buying?

I spoke to a realtor who specializes in the North Shore. Sales are down, but there are still people buying. Mostly local move-ups and buyers coming from out east..Toronto mostly. They have been transferred or moved for other reasons..have themslves sold into a bubbly market and so have brought a good chunk of equity and want to buy before the kids start school.

If that is the case, we should see sales weakening even more once school starts, and then those that didn't sell and need to, may start leading the market down.

Frustrating for the bears, for sure. the correction to sane levels seem to have been delayed yet again. However we can console ourselves in the thought that this is a national event. All major Canadian cities are bubbly and have become the talk of the Wall Street Journal and numerous US economic blogs.

I guess we will have to wait another month to see if my theory is correct or not.


  1. I remember when I first started coming to this blog. Van RE was about 5-8% below making new highs and Fish said that it was a perfect technical double top and if that high was broken then it would admit to just being on the wrong side of the market. We smashed through highs and now then it was the excess inventory, inventory came off, then rates started going up, now it's clear as I've said for a while that we'll be at low rates for a while so forget that bear argument, and now it's sales, when the sales pick up what will it be? It's dangerous having such a bias and always finding excuses as to why your bias is justified.

  2. Well Chad we all have a bias, based on how we interpret the data.

    To be fair, i started this blog in fall 2007 (though I had a hiatus for health reasons) and stated my reasons why I thought RE was WAY over-valued. It kept climb into 2008 and then crashed hard late 2008 and 2009.

    hard enough for prices to drop 15-20% in a matter of months. That is a CRASH. Maybe you forgot those days. The Canadian banks lost 60+% of their value in a few months.

    The crash was hard enough that some Vancouver developers unfortunately committed suicide.

    My bias was RIGHT in spades.

    Then the Government doubled the CMHC lending capacity and dropped rates to near zero.

    I had expected a 40% correction.

    I posted that the 15-20% drop + the drop in the cost of carrying mortgages was equal to a 40% drop, and this could have been it, and some people may want to buy in here. It was. My Bias was right.

    Prices went up from there, though much faster and higher than I thought they would. I suspected a possible double top, prices over-shot in Vancouver and we are now waiting to see where they head.

    If sales pick up again then my theory was wrong. It's just a theory, and as i said it is all supposition.

    I called it right twice so far and once wrong. Lets see if I go 3 and 1, or 2 and 2.

  3. BTW- Chad. You may want to re-read this post to see how things stand right now:

    Some areas are still lower even after this mother-of-all-rises than they were 3 years ago.

    and I did state many times that I would PREFER a slow steady decline.

    If we got a quick decline, I cannot imagine what absolute lunacy our Governments would embark on to try and 'fix' the problem.

    In many areas sales have ground to an almost halt.

    Read how many sales there were in Whistler last week and how many listings there are and YOU work out the MOI

    If these numbers to lead to a price drop, then economics 101 don't make sense and I should indeed shut the blog down.

  4. Sorry typing too fast...

    If these numbers 'don't' lead to a price drop.

  5. Let's call a spade a spade... you were referring to Vancouver avg. prices and they have blown past old highs.

  6. Yes indeed. I did not expect them to go on to new highs. I didn't realize how dramatic the effect of low rates and CMHC pumping would be Nationally on home prices.

    I can allow myself to get one of three wrong, even if you cant :)

    BTW - did you work out the MOI for Whistler. Based on last week (ending the August 22nd -which was one of the more busy recent weeks)..we are at 84 weeks of inventory. 21 Months.

    Hope no one is in a great hurry to sell. In fact I would expect the owners in Whistler have deeper pockets than most areas, so they probably have a better chance of waiting it out

  7. I do apologize if I am coming off as a jerk, I'm just trying to get my point across that having an inherent bias is destructive to proper analysis, for bears and bulls alike. Obviously I'm somewhat bias to the bull side but I did sell my home in late 2004 and rented until I bought again in the summer of 2009, so I am flexible and I am more than fine getting bearish when it makes sense to, I was early in 2004 but overall it worked out well. I've said many times, I don't disagree that we are overvalued, I just am in the camp that the bears are way too early on this and that's been proven far. I did mention in a recent post however that while I think Vancouver prices will remain relatively flat for the coming years, I do think that Westside detached could be getting into the nosebleeds.

  8. You sold in 2004 and bought in 2009. Doesn't sound like great timing to me. Were they similar properties? How much money did you lose? (consider all taxes and selling fees in the equation)

  9. I think there are only two premises.

    Either home prices in Vancouver (and BC and Canada in fact) are in an unsustainable bubble


    This is the new norm and we have small corrections but things wont go down too much, instead they will continue to go up a lot.

    No one knows for sure. Each person will look at the data;

    Rental return
    Inter-Provincial and off-shore migration
    The economy
    Interest rates
    Land availability

    and come to their own conclusions.

    I came to mine, which was that it was an unsustainable bubble. I was right until the Feds moved the goal posts (plus some things the Prov Gov did too)

    If they make mortgages tax deductable or give every new home buyer a $30K welcome-to-your-new-home grant then I will be wrong again.

    I take it you are in the second group. No problem. Unlike some blogs were bulls are immediately attacked, this one is meant for dialogue.

  10. Anonymous,

    How much money did I lose? I made a significant profit in 2004 selling my property that I bought right before 2000. I bought a property I loved and got at a bargain compared to similar homes in the area in the summer of 2009 and on paper I'm up about 20% based on what a home 3 doors down very similar to mine sold for, so right now on paper I'm up roughly 10% after all fees and on my first sale I really don't know how much I made but I know I was pleased at the time. Fish, like I've said several times, I'm not saying prices won't deflate, I just don't think it's coming within the next 2 years.

  11. In the last month, (for example) selling time for North Van homes has nearly doubled, don't assume that you'll get the same appreciation your neighbour got (when did your neighbour sell?). That 20% appreciation of the last year is only on paper at best, and will be mostly eaten by real estate commission and taxes if you actually got the price you're expecting.

    In reality, you probably would have done just as well in the last year if you'd bought a low risk mutual fund. And that doesn't include how much you'd save versus a mortgage if you'd been renting an equivalent property the last year instead.

  12. Hah, you're assuming 20% transaction costs? Let's be realistic and keep it closer to 10%.. I'm not looking to sell right now so I don't care too much about sales volume as long as the price maintains around here, sales will at some point pick up. In terms of your stock market argument, I have far more invested stock than in my house, it's what I do for a living, definitely not in mutual funds but I trade and have the majority of my equity in a brokerage account, it's nice to diversify in some respects with my home.

  13. Luckily, there are many methods in safely removing
    unwanted hair. This article will explain the hair product diversion conspiracy and list ways that you can
    determine whether or not the beloved salon brand you saw in Walgreens last week was truly diverted merchandise or strategically placed by
    the powers that be. A well groomed woman will look to her hair and makeup first and
    a poll of 3,000 females across the UK revealed that about 44% feel attractive if they are having a good hair day, this compares to 16% who felt pleased with their
    appearance if good teeth gave them that winning smile.

    Have a look at my blog ... hair products

  14. If there's no traffic it should take you about 20 or 30 minutes but traffic is pretty common and it could therefore take you at least an hour, a taxi to the airport should cost no more than 30 Egyptian pounds but some people will try to charge you as much as 200. Egyptian cotton bedding has become the popular choice of many savvy consumers. Born in the village of Kafr Tahla outside of Cairo, El Saadawi received female genital mutilation (FGM) when she was six years old. An animal is substituted at the last minute and so God says "ha-ha, fooled you, I was only playing a little joke". In advance of purchasing, you should also review if the reproduction Hermes totes are priced way too high compared to it really is top quality and also product difference.

    Here is my web blog ... egyptian newspapers