I usually put his chart on my blog (with his permission). However I cannot do it this time. My stomach wont let me. We suspected that prices were strong. Well answer this students of economy 101
Imagine you have something to sell and the inventory in the market place, from the previous month, is up over 20% and the sales are down nearly 40%, what should happen to the price:
1) Go down sharply
2) Stay flat
3) Go up!
Of course the right answer and the one which will give you the course credit is 1) but in fact what has happened is 3)!
We are now back up to our all time average price in detached (though condos fell). I am not going to try and explain it away for you, yes it could be higher end buyers are still buying while everyone else has dropped out of the market.
I will just suggest that state of affairs cannot continue. We will either have to have more buyers coming in to the market soon, or the price will take a sharp down-turn.
If I am wrong and September shows less sales, more inventory and higher prices...I will close the blog down because there is no point commenting on an irrational market.
After all our huffing and puffing above, we may actually see the HPI come down for August. For that we have to wait for the GVREB numbers.
But if you close the blog, chad will have 1 less site to make snarky comments on :)
ReplyDeleteNow I am very interested to see what the REBGV report will show. Usually it follows the average to a lesser extent. ie large drops or rises are dampened in the benchmark.
Wouldnt it be something if the benchmark actually shows a drop. I highly doubt it, but it would be funny.
(Here comes chad: "You bears and your pie in the sky ideas, when will you learn?")
You could always change it to "Canada hyperinflation and then some".
ReplyDeleteWell that's a bold statement. I just don't see the MOI being high enough to cause prices to take a "sharp downturn." MOI is, however, high enough to cause prices to fall.
ReplyDeleteNo need to shut down the site. Look at Victoria and Kelowna. The King of Pain is making the rounds.
Nah, I'm not here to prove anything, I'm just here to debate the market direction, it's been doing what I've suspected and I don't find it surprising at all. The only advice I can give the bears is to try your best to remove your bias and look at things objectively.
ReplyDeletePlease carry on with your Blog. The following rational thoughts written in 1990 may help;-
ReplyDeleteEXTRACTS FROM AN ARTICLE “A MARKET LIKE NO OTHER”,
Banker’s Institute Journal 1990
P Foley, Economic Advisor of a UK BANK
The market for housing is quite unlike any other….many sellers would prefers take their house off the market rather than lower the price….the result is that initial evidence in any downturn is a sharp reduction in the volume of house sales rather than a fall in prices. ….; major agency chains report that the volume of house sales has fallen by roughly 50 per cent in the last year. However, prices remain around 10% up on a year ago
What happens next in the housing cycle? When all those who are reluctant to reduce prices have dropped out of the market, there remain those who are more desperate to sell, perhaps because their mortgage commitments have become too onerous, or because they are forced to sell by a job move. This group will be more willing to cut their price, and the consequence is prices will fall… But it should be noted that because of the sharp drop in house sales, those that do take place become less representative as a picture of the underlying demand for, and supply of, housing and may tend to overstate the weakness of the market…. month to month changes tend to be misleading … look at changes since the same period of the previous year.
Previous cycles
… Starting from the peak of the cycle, in terms of sale volume, there is a sharp drop in volume. Prices are slow to react; house price inflation sometimes accelerates further after the initial volume fall. But within two years of sales decline, price inflation has dropped significantly. Obviously each cycle has its own special features, reflecting developments in the wider economy.
P.S. Over a long period I was involved in the sale of over 2000 building lots on the North Shore and I had many years of banking experience in the UK. I can send you a scanned copy of this succinct article if you so wish. I bought my house in North Vancouver in 1972 for $33,500 and sold in 2007 for $969,000
Hope you keep the blog going Fish! The REBGV benchmark may be boring until next summer, but until then there is the OK and Gulf Islands/sunshine coast :-)
ReplyDeleteWell let me just clarify what I said.
ReplyDeleteIF September had less sales, more inventory (higher MOI) and prices still go up- I am done with this blog, because we will have entered the Twilight Zone, and there is nothing to say...
Anyway I made enough money from this blog to retire :)
Davers- yup can't let Chad down. Actually Chad is a polite bull which I appreciate. Some sites have mindless bulls and mentally-deranged bears spewing invective at each other, which some find entertaining but is a waste of time to read.
Jesse- If we continue to have lower sales and rising MOI. We MUST have a drop in price. Not some measly 1% or so - within the range of error, but a solid 3% or more. I don't see how it could be otherwise. If demand drops for a product and inventory rises- those that must sell, must drop far enough to entice buyers. That is basic economics. If it does not follow that pattern, then we have entered an arena which I do not understand.
Bill- I would be happy to receive the report. I agree with the authors premise, and that is exactly what I have been expecting. Hence my prediction. Lets see if it pans out or not. My e-mail address is
fishforusall@gmail.com
Panda- you are right Panda. The OK and Vancouver Island numbers have to be bad (probably the FVREB too) with their astronomicallly high MOI.
High MOI must = lower prices sooner or later (or this blog closes).
Just got the West Van listings. 17 in total. Split about 50:50 between new and reductions with one sale ($5 Million)
ReplyDeleteWhen I mention that if we keep going up there then basic economics doesn't work- it may be of course that there is something in the equation that I have over-looked. Eg Money being laundered from drug operations, or grow ops being bought or mortgage shenanigans..something which would explain a buyer paying almost full asking price for a multi-million dollar homes when there is so much inventory. I have no idea if such a thing exists, but if it does, then it will confound the attempts to make simple links between sales/inventory and price.
Hey, the market's been highly irrational for years, and we've had lots to talk about!
ReplyDeleteThe market has been unaffordable for a long time, and irrational comparing buying v renting.
ReplyDeleteHowever whenever the MOI rose the price either stabilized or fell. It didn't go up.
Anyway, lets wait and see what the HPI brings us. Maybe all will be revealed and we still have Victoria, the OK and FVREB to pick over.
Hey Fish, benchmark is out and the Residential benchmark is flat (down 0.1 percent to be a bit more precise). Flat-ish prices are not out of line with the current MOI.
ReplyDeleteINVENTORY IS GOING DOWN, NOT UP
ReplyDeleteMOI AT ABOUT 7 IS A TOUCH BEARISH TO NEUTRAL
SOME LISTINGS HAVE BEEN PULLED FOR VARIOUS REASONS WHICH IS A GOOD TACTICAL MOVE BY THE INDUSTRY