Wednesday’s Numbers

O.K., I give up.  VHB was always right.  This market is crashing, and the rush to the exits has begun.    

There were 289 new listings today and 296  sales, for a sell/list of 102.42%.  Of the sales 36,  or 12.16%, went over list.  10 of those were on the Westside. 6 were in East Van, 3 were in Richmond, 4 in Pitt Meadows, 2 in New West,   5 in North Van, 2 in Coquitlam, and 4 in Burnaby. 

Average list price of the sales was $565,049, while the average sales price was $552,884, a difference of $12,166, meaning the average sale went for 1.74% under list price.  26 properties went for list price. One property went for 20%($79,000) under list while the highest over list was 15% ($102,000) over .   Average days on market to sale was 32.   

There were 20 million dollar plus properties sold with 4 over $2 million. 

There were 92 price changes, of which 9, or 9.78%, were increases. The average original list price of price changes was $824,938; the average new price was $784,524, a difference of $40,413, meaning the average price change was -3.16%.  One property dropped its price by 1.7 million, which kind of skews the numbers.  Average days on market to price change was 49 days.

Inventory in my target area dropped to 12,139, while over 90s rose to 2,035, or 16.76%.

0.68% of all active listings in my target area had their prices reduced today.  The 14 day rolling sell/list was 69.74%.

 </sarcasm>

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100 Comments

Filed under Daily Numbers

100 responses to “Wednesday’s Numbers

  1. millionpitfall

    If you look at last May’s sales percentages they were a lot higher and a lot more stable (sales wise) than this May. One would expect sales to be a constant 89% to 110% at this time of the year. 27% to 111% is quite the flux, for a month that normally represents brisk sales.

    If we are in a good market, I would expect those inventory levels to start coming down. Stagnation around the 12,000 level (give or take) certainly gets my attention.

  2. Millionpitfall

    Percentage of properties that sold over list has dropped with an increased sales number. Interesting also.

  3. jim

    Rob:”This market is crashing, and the rush to the exits has begun.” I’m not sure I follow? Today’s numbers are indicative of a hot and satbel market are they not? Explain.

  4. observer

    Mortgage rates are going up soon – hence the buyers’ rush…

  5. Pondering

    So as to make Rob happy here is a bull argument:

    At the present moment we are paying less for food and many goods than we ever have before in history. This is due to technology driven efficiencies and the worlds workshop (China) providing massive amounts of labour. This has been combined with a shift in peoples thinking driven by advertising. Over the past few years it has been noticed by marketers that highly up-market goods were being purchased by those who couldn’t normally afford them. They were scrimping and saving to purchase them as a “treat”. People’s self worth has become tied even further to how they appear.

    As a result of this people can and are willing to pay a good deal more for their house. Far more than would have been historically possible. In addition, people are willing to consider things that previous generations would not have. This includes multi-families purchasing property, all houses having suites, etc etc.

    The last point that is supporting this increased value is the financial markets. There is a silly amount of money chasing around after returns at the moment. This has driven interest rates down. There also have been a rise in the ways of slicing and dicing risk and the types of securities available (MBS’s). All of this has contributed to the availability of money to fund this.

    All of this has lead to a sudden shift in the perceived value of owning a house by the general public. As a result we have seen a sudden, near global, rush upwards in housing prices. Obviously, this upward trend can’t continue upwards at the same pace but it can sit at this level.

  6. Noname

    “Obviously, this upward trend can’t continue upwards at the same pace but it can sit at this level.”

    I understand that the perceived value of owning a home might have changed, but I still don’t understand how rents will reflect this change.

    Rents are primarily dependent on income. Income hasn’t changed significantly, therefore, there is not much room for rents to go. Furthermore, an increase in rent leads to inflation which leads to higher interest rates.

    On the top of that, the disconnect between rental costs and home prices cannot be sustained for long given that it leads to negative cash-flow property to which people can only hang onto for so long.

    So, can any of the bulls explain how the fundamentals between rental costs and ownership costs will be restored without a drop in real estate prices? Also, do you think it’s possible that the fundamentals don’t have to be restored given the perceived value that is put on ownership?

    Pedro

  7. jim

    From Today’s Chicago Tribune:
    “Largely because of steadfast global demand for Canada’s oil and other commodities, the nation’s economy has not softened along with the U.S. economy. Indeed, house prices are rising, especially in the commodity-rich provinces of Alberta and British Columbia.”
    I guess our home prices are linked to oil, minerals and trees.

  8. millionpitfall

    Alberta’s wages have outpaced BC since 2005, prior to that it was the other way around. So, oil talks.

    A lot of BC plates moving there wages $300.00 to $1000.00 more per month compared to here.

  9. jim

    And as long as we are making this a”bull” day to keep Rob happy- Manhattan has not had a real property crash since the 70’s And the similarities between us and Manhattan are striking.

  10. millionpitfall

    Jim,

    Plus look at our job growth by industry type from 2001 – 2006, so diverse, nothing industry related there at all.

    (charts near the bottom of the page)

    http://tinyurl.com/yohro5

  11. househunter

    Noname said”Rents are primarily dependent on income. Income hasn’t changed significantly, therefore, there is not much room for rents to go. Furthermore, an increase in rent leads to inflation which leads to higher interest rates.”

    People are paying killer prices for houses that should be hundreds of thousands of dollars cheaper. I have no comment on this because i cannot understand it. What I would like is everyone’s opinion on how high rents may go. Currently, our realestate prices are marginally lower than NY. But the rents are NOT close at all. Can you guys see rents going up just like real estate went up?

    I remember when I would not pay 160k for a 1 BR condo downtown. But now people are paying almost 400k for the same thing. I would not pay more than $1200 for rent downtown. But my fear is that people will get accustomed to paying higher rent. What if it gets closer to $2000 for a little box in Yaletown? Is this possible?

  12. e

    NY has rent control. colleague of mine rents a studio in manhattan for $1200 US

  13. e

    (forgot to add — not all units are rent controlled. you have to apply). but there are enough such that if you wanted one, you could probably get one if you wait a few months.

  14. househunter

    interesting. Perhaps that will happen here if rents become unreasonable like real estate has.

  15. Noname

    “What if it gets closer to $2000 for a little box in Yaletown? Is this possible?”

    Is it possible that it increases in downtown? Sure.

    Is it possible that it increases proportionally throughout the Lower mainland? Unlikely. Unless the inflation monster takes over.

    Noname

  16. renting

    househunter said “What I would like is everyone’s opinion on how high rents may go. Currently, our realestate prices are marginally lower than NY. But the rents are NOT close at all. Can you guys see rents going up just like real estate went up?”

    Rents are bounded by what people make. The higher the percentage of your net income rent consumes the more you think about moving somewhere else in Canada I guess. What percentage would start to cause you pain? For me I would start to get very unhappy at 50 percent.

    House prices on the other hand obviously aren’t currently bound by what people make. We’ve had a good run up and so far there have been enough people to buy the houses that are for sale for the prices people are asking. This is probably through a combination of lower interest rates, increase in home equity and the strong job market.

  17. Anonymous

    “House prices on the other hand obviously aren’t currently bound by what people make.”

    Excuse me,
    Mortgage qualification depends on income. You can only afford so much house with so much income.

  18. Pondering

    Based on my previous reasoning I wouldn’t expect rents to increase all that much. People can pay a bit more for housing due to the relative reduction in the costs of other goods and food but it is somewhat limited because people don’t perceive renting in the same way as owning. Owning has become a luxury good and therefore people will pay more for it. Renting is not. The arguement often given here by bears is that renting is a direct substitution for owning. In truth it isn’t given the change in peoples perception. Paris Hilton doesn’t rent 😉

  19. Pondering

    Banks will give you more money based on a certain level of income than they would previously. I don’t know for sure but I suspect that this is due to competition and more availability of cash to lend through the MBS market. All the petro dollars have to be parked in something.

  20. millionpitfall

    pondering,

    I don’t think bears wish to rent, they will buy when the market timing is right for them. It’s a good that people believe in buying and selling at different times otherwise it real estate market would be a total nightmare.

  21. millionpitfall

    s/b – Otherwise the real estate market would be a total nightmare.

  22. Pondering

    Bears (which for the record includes me) don’t see housing in the same way as the people presently buying (obviously). My guess is that see it more as shelter. This is why conversations between bears and people who are presently buying don’t work. They simply have different views.

    Rob, I would guess, falls into a third camp. He is looking at it in terms of investment. In addition, he makes money on transaction volume so whether the market price of housing is rising or falling doesn’t really matter to him.

    At present I bet it is fairly difficult to find properties that cash flow so the investment piece is likely difficult. On the other hand, through the regular buying and selling he is most likely doing fine.

    Actually, if you think about it, his approach is a good one. At times of low market value, more properties are likely to cash flow. He has clearly established relationships with investors which would be the target market then. When the market is high, he can go the other way.

  23. millionpitfall

    Lets try this once again:

    It is a good thing that people believe in buying and selling at different times otherwise the real estate market would be a total nightmare.

    Need more coffee.

  24. mk-kids

    wow. that is an ugly shot. disappointing.

  25. jim

    pondering: “he makes money on transaction volume so whether the market price of housing is rising or falling doesn’t really matter to him”. Not true.
    In a falling market(price wise) volume of transactions plummet. This is why it is ingrained in the Realtor(tm) psyche to not envision a pricing downturn. Its not misrepresentation or manipulation its just not conceivable for the average realtor. Of course Rob is not your average Realtor(tm). 🙂

  26. millionpitfall

    mk-kids,

    Ugly shot? Why would you think that?

    It’s great that everyone has different tastes/ideas, otherwise we would all be fighting over the same clothes, jobs, property, etc. that would be total chaos.

  27. millionpitfall

    Pondering,

    More bearish than bullish myself, I see property as both investment and shelter. We do not wish to make a bad investment for the sake of shelter.

    We have a goal to buy a particular type of property which is slightly out of our price range right now. So do you buy something you really don’t want or wait and hope the prices come down slightly so you can buy what you really have your heart set on?

  28. Jaymo

    Jim: I’m interested to know what Vancouver has in common with Manhattan.

  29. jim

    millionpitfall: 2 rate are hikes predicted for the BOC by September ,which will be followed by quarter point to half point hikes in mortgages. Inventory in Rob’s area will be at about 14 to 16,000. I think you’re in good shape. Anyone needing a mortgage should negotiate on the 5 year and try to lock in the pre-approved rate for potential use this August /September. If you are thinking of holding, get the 10 year rate. If prices are to fall for the next few years you will have those indicators this fall, and then can choose to wait. But,there’s merit in expecting the best and planning for the worst- wether you are bull or bear.

  30. jim

    jaymo: they have people we have people, they have bullish realtors we have bullish realtors, they are the world’s financial center, they saw property prices flatline after 911, they have a population of 6.2 million on the island alone during the daytime, 2.2 million at night, they are a cultural and economic icon,. So like Vancouver they too are “World Class”(tm).

  31. renting

    Anonymous 9:04am ““House prices on the other hand obviously aren’t currently bound by what people make.”

    Excuse me,
    Mortgage qualification depends on income. You can only afford so much house with so much income.”

    The one thing in my list of things affecting house prices that didn’t relate to income was housing appreciation. There are a lot of people that have made a lot of money. If they are moving up to a single family home from an apartment they can likely bring a lot more to the table than someone who isn’t in the housing market and are just relying on their income. I think this is the main way housing prices have become disconnnected from actual incomes.

    If you weren’t in the housing market 3-5 years ago you’re gonna have a tough time buying something today relying on just your income.

  32. Mr. Nice Guy

    “O.K., I give up. VHB was always right. This market is crashing, and the rush to the exits has begun.”
    Just when I was beginning to think Rob, was duplicitous!
    That said credit must be given to him for labeling this post under sarcasm.
    Rob you mentioned inflation as a factor in one of your earlier threads, and I think it should be mentioned it’s likely this current market pricing has about 10 years of anticipated hyperinflation priced in already. That’s ok, but what will come back to bite you in the butt is that while hyperinflation is priced in, the money tightening that will accompany it is not priced in.
    Some will get hurt, hurt badly,
    30% to 70% price reductions from 2005 pricing is what I see.

  33. millionpitfall

    Jim,

    Don Drummond, David Dodges potential replacement is calling for two rate hikes of 25 basis points each. He wanted the rate hike to take place in May, but Dodge had a wait and see approach. Personally, I think Dodge is waiting to see what the feds will do. If the fed lowers, our rates may hold. If the fed stays our rates will go up. If the fed raises, our rates will go up even higher to compensate.

    We sold a property are looking and renting at the moment. The type of property we want has come down in price, but not quite to our price range yet. Our realtor tells us to buy back into the market anyway, even if it is something we really don’t want. We don’t necessarily agree that this would be a smart move given the increasing inventory levels and possible interest rate hikes.

  34. jim

    Although I am expecting a correction-I still own lots of RE that I am hanging onto. I will say this a the risk of alienating just about everybody: the pain of being priced out supercedes the pain of overpaying-to a point.
    Mr. Nice Guy:”30% to 70% price reductions from 2005 pricing is what I see.” 70%? show me your math-that’s irrational despondancy.

  35. Mr Nice Guy

    ” show me your math-that’s irrational despondancy.”

    Show me the math that would back rational thinking in today’s buyer.

  36. tqn

    “O.K., I give up. VHB was always right. This market is crashing, and the rush to the exits has begun.”
    My gosh…I thought this was the end of it!

    “It’s great that everyone has different tastes/ideas, otherwise we would all be fighting over the same clothes, jobs, property, etc. that would be total chaos.”
    This statement always makes sense. I have been waiting for one to come up in the past so many months. Whatever works out for one does not necessary mean it will work out for the other.

    “30% to 70% price reductions from 2005 pricing is what I see.”
    70% reduction from 2005 price? so a place worth $550k in 2005 would become in range $165k? What are you smoking? However, bring it on. I am ready! I hope that, you and I dont have to compete in the multiple offer siutation for the same property.

  37. Mr Nice Guy

    And Jim, I belive “priced out” is as real as “running out of land”

    Where do you stand is iether of those myths true to you?

  38. millionpitfall

    These real estate timing articles are a good read, for any one that is interested. This links to one, but if you click on timing articles on the left hand side there is several more.

    http://tinyurl.com/2adfvr

  39. robchipman

    Jim:

    Its just a comment one the one size fits all application of some bubble theorists.

    Pondering:

    I don’t want bull or bear arguments per se; I want interesting, non-repetitive comments. Thanks for yours.

    Pedro:

    I think that’s the big question. Will rents increase, in the face of other personal expenditure demands, or will prices drop? I don;t know the answer, but I know this: rent = housing, housing = shelter, shelter is a necessity of life. If you ahve to choose between the plasma screen and rent, you’ll pay rent. If you need to pick between living on your own and not paying rent or having a room-mate and paying rent, you’ll go with the room-mate. If you have to choose between not paying the rent on a bigger place or paying the rent on a smaller place, you’ll pick the smaller place. We’ve seen that interplay between affordability and the need for shelter play out part way already. The next thing we’ll see (mark my words) is garages being converted to suites and rented out.

    Anecdote of pressure: I just gave a tenant big rent increase. That’s not allowed unless he agrees to it. He’s willing to meet me halfway between what’s allowed and what I want. The owner is considering just pulling the plug and moving back in, even if the tenant agrees to the large increase. Why? The owner sold his own home at the percieved peak of the market a few years ago and now rents from me. He is feeling the pressure of increased rents and wants to pass that along. If he can’t he wants to stop throwing rent away. He’s actually hesitant to ask the tenant to pay the full pull of his increased costs, and so may simply ask his tenant to leave. So here’s the question: What does the tenant do if I say: “Hey, that double digit increase I offerd you? Its off the table now. We actually want even more, or else you can move”. Whatever way he goes he feels the pressure. He’s got moving costs and increased rent.

    Which pressure will emerge paramount, rent paid or rent demanded? Hard to say. What is clear is that rents will have to cover a lot more ground to have a meaningful effect, and rising mortgage rates only make that harder.

    Something to remember about neg cash flow is that many (if not most) people use it as a tax dodge. It tough to qualify for the mortgage without the income or the equity. The result is that most neg cash flow can be handled unless income changes. You essentially calculate that you’re going to pay the money anyway, but you choose whether you pay it to the bank in the form of interest or to Rev Canada in the form of tax.

    Househunter:

    I was in a 1 bedroom Yaletown apartment yesterday that rents for $1400. I have a 2 bedroom and den coming up for $2000. Like you, I have old, out of date numbers that I consider reasonable (a good, fair mortgage payment is $750 per month – how out of touch is that!?). Prices are climbing, however, no question. Where is the ceiling going to be?

  40. Domus

    It seems sell/list ratios are very volatile. Wonder what that means. We swing from a 60% to a 100% in a matter of few days.

    Hot market to me means a string of at least one week of over 90%. And this should be accompanies by avergae over list prices: that would mean demand outstripping supply again.

    I personally think this market is really strange and cannot make out a direction right now. In any case, Spring is almost over. June July and August better be hot months for appreciation, otherwise most flippers will find themselves with hot potatoes in their hands: only the “usual” 10% appreciation can put them in the black when costs of carrying and fees are included.

    I cannot exclude some insane rebound in the summer: after all this is Vancouver and I have already seen a fair share of insanity by many people jumping on the nad waggon. However I reiterate that, on balance, I expect a pretty grim period ahead, especially for those who are overexposed to RE. Even simple flattening of prices might hurth a lot of people in this city. Small drops might be devastating on some leveraged youngsters.

  41. millionpitfall

    One can’t help wonder if these hotter temperatures are going to cause flooding with record snow packs in the mountains. What would a major flood do to the real estate market?

  42. jim

    Mr Nice Guy: I have no rational argument for the dramatic run up in prices of the last few years. However it happened. Your theory of 70% declines while tantalizing has NOT happened. EVER

  43. Domus

    I think in real terms it is possible we see a drop of up to 50% in the next 5 years.

    That means, if you are looking for something now going for 500K, just waiting a bit longer might buy you a much nicer lot.

    My observation is simply based on past real-terms swings as documented by Sauder. As usual, I qualify this as my opinion only. The point is: it would not be a first in Vancouver RE (and unfortunately not even a last)…..

  44. Noname

    Rob,

    I see you example regarding the shelter vs. plasma TV but the problem with that argument is that the moment you choose shelter over plasma TV, the plasma TV salesman is out of his job. What is the plasma TV salesman going to do once he has no job?

    This is the real question, you can hypotize about rent increases because people are willing to pay for it, but the US economy (that we co-incedently rely on) relies 70% on consumer spending. Once people stop buying plasma TVs we all know how that affects the largest economy in the world.

    This is what I don’t understand with the bull argument, you cannot just take money of people’s pockets without affecting the economy and once the economy is affected, housing prices are as well.

    Somebody care to explain?

    Regarding your anecdotal rent increase example, in this market anything is still possible. Once supply builds up, things will change. Just ask our friends in Florida.

    Noname

  45. ryan

    Short term, prices will continue to go up over the next few weeks.

    Today the 5 year rate for borrowing is 5.79. That hurts a little. I own rentals in BC. When I renew I’m going from 5.0 / 5.1 to 5.8 on these properties. Thats $584.59 per $100,000 to $631.53.

    On the average person’s $500,000 mortgage that’s an increase in monthly expenditure of $235 per month. Even if you are already house poor, that is not an unaffordable amount. It means you skip eating out a couple times or don’t buy nice clothing. It’s acheivable. Once interest rates head to 7% we’ll really start seeing problems because an additional $800 per month isn’t as easy to come by. I’m no psychic but I can’t see rates getting to 7% by this Christmas. Maybe 6.35%. The justification for interest rate hikes can come after the fact. The justification is irrelevant. Money supply will tighten in North America once the next round of LBOs complete. Once the consumer and business is leveraged to the max watch out. The consumer in america is already, Canada is heading there and the business still have loans to take. It’s coming in the next year so stay in enough cash to make your mortgage payments for the next 5 years.

  46. mk-kids

    sorry millionpitfall, not you!!! my ugly comment referred to rob’s swipe at vhb in his opening comment.

    i love that everyone is unique too 🙂

  47. jim

    ryan: “On the average person’s $500,000 mortgage that’s an increase in monthly expenditure of $235 per month. Even if you are already house poor, that is not an unaffordable amount”.
    Not really. Because that’s an after tax expenditure, and the hypothetical qualification for a 500,000.00 mortgage is $120k per year. Parents will miss that $235 per month. Plus if it’s a precursor of rises to come; $235 can become $500.00 with only another rate increase or 2. Then there will be alot of people that will be reluctant to trade up, become first time buyers, or buy that revenue property. I am a high earner and it would give me the jitters. A 2% increase in mortgage rates over, say, a year will kill this RE market faster than fast. I believe even Rob would agree.

  48. chip

    Jim said:

    “Your theory of 70% declines while tantalizing has NOT happened. EVER”

    Here’s Wikipedia on the Japanese crash in the 90s.:

    “By 2004, prime “A” property in Tokyo’s financial districts were less than 1/100th of their peak, and Tokyo’s residential homes were 1/10th of their peak, but still managed to be listed as the most expensive real estate in the world.

  49. tqn

    shelter is necessity, and plasma tv is impulsive. you can survive without the plasma tv, but can you survive without shelter?

  50. Noname

    tqn – “shelter is necessity, and plasma tv is impulsive. you can survive without the plasma tv, but can you survive without shelter?”

    It’s nice that you re-iterated what Rob said but can you explain how that will not have a substantial negative effect on the economy?

    Noname

  51. Noname

    I find it interesting that bulls have an easy time cherishing a virtuous economical cycle but they are unable to accept that the same exact way the virtous cycle has developed, the same way it can crumble by turning into a vicious cycle.

    It is just interesting that the bulls are just unwilling to accept this transparency…

    Noname

  52. tqn

    The plasma tv saleman would have to move to another industry that could best use him, i.e. getting paid by installing granite countertop. The buyer gets shelter with granite countertop but no plasma tv. It is just a matter of re-allocation the resources.
    Does this have any negative affect on the economy? Shorterm, yes, when the guy is in the middle of training between job. Long term, no, cuz he will be paid.

  53. Noname

    Tqn,

    Houses will be not built forever at this pace. In fact, housing starts are already slowing.

    The plasma TV salesman won’t get a job in RE construction, furthermore, you will also have a large number of RE related people looking for jobs.

    And once all those guys stop spending even more, there will be even more people out of their job leading to even more layoffs. Now, that’s a vicious cycle, the exact opposite of the virtous cycle that we have been experiencing recently…

    Noname

  54. Anonymous

    Everyone laid off is going to find jobs related to the construction industry.

    The very people that get laid off make mortgage payments and pay rent too. Like they have the extra cash to take time off for retraining, duh.

  55. Anonymous

    The very people that get laid off make mortgage payments and pay rent too. Like they have the extra cash on hand to take time off for retraining or could afford to make ends meet on EI cheques.

  56. Mr.Coldballz

    Rob, yeah yeah, it’s not my real name, but don’t delete it please.
    You did have a fan with the name of “hotballz” so I don’t see why Coldballz should not be allowed.

    I agree with Mr. Nice Guy, on the basis that if the market is a bubble it will end as bubbles do.

    If ,on the other hand, it is not a bubble, a correction of any size is not due.

    Basically, it is a bubble or it is not.

    Can’t be just a little pregnant.

  57. jim

    chip:
    My point was to distinguish between a fact and a predicition. The prediction needs to be based on something . The fact is based on,well, facts.
    And Tokyo? Come on, you’re giving bears a bad name with that one. This is Vancouver. Read a littel bit on the history of the japanese econonomy before you post.

  58. jim

    Put another way Chip, I cannot see a $1 million SFH on the West Side selling for $300k again in my lifetime. Maybe, $800k, maybe. Why? Because people that bought those houses recently are making their payments and have stable employment and by and large are not speculators.

  59. Mr. Coldballz

    Rob, you reported listings as 12,139, I am not accusing you of purposely misleading your readers, but I do think the actual inventory of unsold units is much higher than what official listings would suggest.
    Personally, I like that. No canary in this mine shaft.

  60. Domus

    Jim,

    regarding SFHs you may be right in nominal terms. We might never see them at 300k again. In real terms I am not so sure.

    The 500k of today are the 900k of 10 years from now. And given the demographics we have, I would not be surprised at all if prices were still there in 10 years from now.

    In other words, making real money (inflation free) out of RE in Vancouver may be a memory of the past for new investors. If you made it because you were in a few years back, good for you. But do not delude yourself that if you bought last year you are in a for a windfall. I just don’t think it’s possible any longer.

  61. jim

    Domus:
    You might be right. I just think its prudent to avoid wild speculation about downside movements, else we are no better than those speculating on the upside currenty.

  62. Domus

    Jim,

    wild speculation is wrong, I agree.

    Based on the patterns of the past decades, one can make informed guesses on the future. No certainty there. The best informed guess I can make based on patterns past is that we are in for a big (if slow) downward adjustment in real terms.

    Any real increase would be unsustainable for the locals, even those who have already a step in RE and want to move up.

  63. Skeptic

    Millionpitfall: “If you look at last May’s sales percentages they were a lot higher and a lot more stable (sales wise) than this May. One would expect sales to be a constant 89% to 110% at this time of the year. 27% to 111% is quite the flux, for a month that normally represents brisk sales.”

    Don’t worry about the spread, total up the sales and listings and look at that number for the month.

    That Deloitte presentation is very interesting, what do others think of it. It doesn’t see huge interest rate rises. The other interesting thing it highlights is reducing government debt both provincially and federally. Surely this is positive news and perhaps it will reduce inflationary pressures ? The study is predicting lower to steady inflation, I don’t see the interest rate pressures. Low unemployment numbers also support upward wage pressures.

    Noname: “Rents are primarily dependent on income. Income hasn’t changed significantly, therefore, there is not much room for rents to go. Furthermore, an increase in rent leads to inflation which leads to higher interest rates.

    On the top of that, the disconnect between rental costs and home prices cannot be sustained for long given that it leads to negative cash-flow property to which people can only hang onto for so long.”

    On the rent vs income thing, people will move to smaller/cheaper/further from town to fit their affordability. There’s plenty of room to go yet and incomes are going up, maybe not as quickly as some would like though. 😉

    On the negative cashflow, I don’t buy the ‘people can only hold on so long’ theory. As long as their source of income doesn’t go away, they can continue to hold the property, if its value drops they may review their investment though.

    The other thing is you are confusing micro and macro economics. Increasing rents in Vancouver (micro) are unlikely to influence the BOC decisions (macro).

    Jim, don’t be so sure interest rates are going up, at least not too far. A couple of .25% increases maybe but not much more. I don’t see the US raising their rates either, they’re acutely aware of their housing problem and general slowdown anyway. No need for them to hit the brakes on the economy, its working itself out. In our case, BOC will be worried about what’s happening across the border. In addition, inflation is fairly low (see millionpitfall’s link). Anything inflationary in BC is more than cancelled out by the pain Ontario’s manufacturer’s are feeling with the auto industry and strong Canadian dollar now.

    Mr Nice Guy: 30-70% decreases, I think this is wishful thinking. My opinion, 20% rent increases are more likely.

    Running out of land ? Compare us to Winnipeg, look at the map, in Vancouver, you can’t go North (mountains), South (US Border), West (water), you can only expand East or densify. There are some restrictions here. If you go East, it equals longer commute. Winnipeg, its all the same in all directions.

    Rob: renting out your garage ? I’ve joked about this with friends.

    Domus: Sure, anyone who’s bitten off more than they can chew will feel pain if interest rates rise, appreciation slows/stops or they lose their job. People who have bought what they can afford will most likely make out ok.

    50% price drops over 5 years ? – dreaming… I’d say 50% more appreciation is more likely.

  64. Anonymous

    Skeptic said,
    “Don’t worry about the spread, total up the sales and listings and look at that number for the month”

    I don’t look at numbers for the month. I look at long term trends, right now that inventory level is not your long term friend.

    Deliotte & Touche report is from March 2007, one should wait to see what the next quarterly report brings. We had job losses and our unemployment rate went up last month, so I would wait three to four months before I would say our economy is ticking along great.

  65. Millionpitfall

    Anonymous, is me.

  66. millionpitfall

    Skeptic said,
    50% price drops over 5 years ? – dreaming… I’d say 50% more appreciation is more likely.

    And…enlighten us all on why property would appreciate higher without the low interest rates of the past.

  67. Domus

    “50% price drops over 5 years ? – dreaming… I’d say 50% more appreciation is more likely.”

    Funny you say that. You probably even mean it…….and who would buy that, if I may ask? Some wave of oriental businessmen? Or some group of happy retirees? I don’t really see income going up by 50% in Vancouver and many people are very stretched as it is. I must be living on a different planet…..

  68. Ed Bear

    “and who would buy that, if I may ask? ”

    You’re suggesting the average Vancouver couple making $65K would have a problem with $5500/month mortgage payments? That’s just pessimism talking.

  69. millionpitfall

    Domus,

    Skeptic doesn’t want psychology of the market to change. Up, up and away.

    If you read my other link on this thread about real estate timing and psychology of the masses, you will understand.

  70. Domus

    Psychology is a nice thing, I guess.

    But on the 15th and 30th of each month you’ve got to send some money to the bank…..how does that work out? You ship a psychology textbook or something?

  71. chinko

    By the way, since when these bear folks been calling for the price to drop? What a bunch of losers. Unable to afford it and jealous at those reaping those gains. Dont they have anything
    better to do? I am getting fed up with their daily comments. Why dont they become a psychic?

  72. ryan

    I find it funny that people still use rational left brained reasonsoning to predict interest rate hikes.

    The people who are powerful enough to set interest rates don’t give a rat’s *** about the effect on the economy. Inflation an Deflation have been controlled for hundreds of years by these people and they’re not going to stop now. Money supply will tighten in the next 5 years. I would bet $1,000,000 (2012 dollars) on that. Hyperinflation hurts the people who make loans. Deflation causes the value of the loans to increase.

    If you controlled money supply and everyone (and their grandma) owed you money what would you do?

  73. Domus

    chinko….you are a valuable asset to me.

    You are the living proof of what I wrote yesterday.
    Why were there not many bears on VHB’s blog? Well, because many of them are just like you.

    Not an argument, not a question, not an interesting post: just some slur about bears and the usual derogatory comment, like your “Unable to afford it and jealous at those reaping those gains. Dont they have anything better to do?”

    Keep it up, man. You are proving me right! Cheers!

  74. Skeptic

    Domus/Millionpitfall – 50% increase over the next 5 years is less than 10% a year with compounding. Its probably a flattening of the curve if anything. Not impossible. Who’s buying ? I don’t know, but I know there are 10-20 people a day dropping more than $1M on properties, refer Rob’s figures. Where do you get that kind of money ? I don’t know. Just because its out of my league doesn’t mean I’m going to accuse these people of grow ops or whatever, good luck to them, the point is the money is out there.

    You are predicting prices to go down, they are going up at the moment, how about the flat bit in the middle, will that just be one day ?

    Millionpitfall, how far have interest rates risen from their lows ? 1-1.5% ? They are still very low comparing to long term averages.

  75. Deedub

    By 2004, prime “A” property in Tokyo’s financial districts were less than 1/100th of their peak, and Tokyo’s residential homes were 1/10th of their peak…

    Interesting. Tokyo is still more expensive than Vancouver. What you’ve done here is provide support for the bull case by giving a wonderful example of just how extreme prices can get in a real local RE bubble.

  76. Domus

    “You are predicting prices to go down, they are going up at the moment”

    Where did you get this? Rob’s numbers suggest that asking prices are not being achieved. Not exactly going up….

    “I know there are 10-20 people a day dropping more than $1M on properties”

    Yes, out of a population of more than 2 million people. A market does not sustain itself on these numbers. They should be in the hundreds per day to have some relevance.

    “50% increase over the next 5 years is less than 10% a year with compounding. Its probably a flattening of the curve if anything.”

    What’s your idea of flattening? Something that dominates risk-free bond returns by a factor of 2?
    Something that is exactly 3 times as large as the average yearly house price gains for the past 100 years?
    Maybe the last few years of double digit growth have led you to believe that 10% is a low growth rate for housing in Vancouver. But it is not, and will not be sustained for much longer.

    In fact, Rob’s own numbers show that prices are not growing at all (not even 1%) at the moment…..

  77. vanreal

    very interesting Rob, that no matter what the listings to sales percentage is for the day, the bears find a way to spin it in their direction.

    Also there is a way for rents to increase without income substantially increasing. It is called sharing a place with a roomie. The more the merrier.

  78. vanreal

    Domus, When will you get that an asking price is not the same as a selling price. If asking prices are going down so what. It is selling prices that count when looking to see if prices are dropping.

  79. Domus

    “Tokyo is still more expensive than Vancouver.”

    Tokyo has also 30 million people and some of the largest corporations on earth.
    Just to give you an idea, one neighborhood in Tokyo can contain the population of the lower mainland.

    And, what’s the argument for bulls? Is a drop of 99% of your investment value a good return? Some people experienced just that…..but let’s not be extreme here, and let’s suppose that you were not one of the poor souls buying at the peak in the early 90s…..still, you might have lost half of your money. Good move, man!

  80. Domus

    Vanreal,

    Rob’s numbers show you that the asking priced are consistently being revised downwards. Most changes are downwards revisions: does that suggest to you high transaction prices, well above asking?

    Why would 90% of listings be repriced down? Just for fun?

  81. Johnnyrent

    It is entirely possible for prices to keep going up, meaningfully and for the mid term. For this to happen, only a few new precendents have to be set here in Vancouver:

    – History will not repeat itself
    – Fundamentals no longer matter (low population growth, very modest income growth, over-building, rents out of whack with prices, affordability off the dial, high level of speculation)
    – Vancouver will be the first city in the world where the Olympics had a meaningful effect on RE prices
    – Vancouver will be the only frothy market in North America not to be negatively affected by market psychology

    Nothing but death and taxes are certain, so most everything else is possible. Probable? You connect the dots.

  82. $froma$ia

    Bah… sarcasm is not what you want to bring to this blog Rob. Get it together and lead the way don’t have us second guess a future purchase with you because you are comming across shady or maybe delerious.

  83. bakakuse

    Domus, I have to disagree with that 1/10 part about Tokyo real estate(maybe for Ginza or Nihonbashi). I would have to say 1/3, and it STILL is expensive for the local population. We looked at a new 2 bedroom when we were there last year that was going for 350K Canadian, but it wasn’t in a nice part of town.

    What I learned about real estate while there was that prices don’t drop overnight, just NOTHING sells for a long time and then there are price drops, followed by a few sales, and more price drops, and fewer…..Sounds like our neighbour to the South!

    So until Rob’s numbers get below 40% on a regular basis I will have to be short term bullish, even though I’m long term bearish. I also believe it’s better to buy a place around Christmas than in spring, no matter what the market.

    However, if I knew which way markets were going to go I would have bought 2000 shares of Teck Cominco today 😉

  84. Deedub

    that’s the argument for bulls? Is a drop of 99% of your investment value a good return?

    Because a 99% drop in value still left properties valued above local levels, his argument (presumably inadvertently) demonstrates that Vancouver does not, in fact, have a RE bubble.

    Which means that prices can, in fact, run a hell of a lot faster and farther then they have already run, since locality-specific “frothiness” hasn’t even been a factor yet.

  85. jim

    skeptic: Are you for real? Areyou a realtor or a recent highly leveraged home buyer? Seriously.- “50% increase over the next 5 years is less than 10% a year with compounding. Its probably a flattening of the curve if anything. Not impossible. ” I am glad you are not part of our syndicate. Scary.

  86. millionpitfall

    Skeptic,

    Ten – million dollar properties being sold in a day is very little volume compared to the other 290 sales that take place in one day of lower priced properties.

    The little guy is propping up the market with those sales volumes, not the million dollar buyers. If prices rise to 50% over five years then the average home would be a million dollars.

    How the market could sustain itself at million dollar levels would require a miracle as million dollar home sales only represent 5% or less of the daily sales volume.

    Are prices going to go down? Probably, when people can no longer afford the prices. Looks like a million is a good sticking point. Perhaps, we will have a million pit fall?

  87. Skeptic

    Jim, we’ve done what, nearly 100% over the last 5 years ? Things have slowed a little, 50% up over the next 5 years is not a bad estimate and certainly more believable than 50% down.

    What’s your take on interest rates, I’m keen to hear why you think they are going to get hiked. What do you expect, 0.5% ?, 2% ? What’s your reasoning ?

    I’m sorry I couldn’t be part of your club.

  88. Domus

    “Because a 99% drop in value still left properties valued above local levels, his argument (presumably inadvertently) demonstrates that Vancouver does not, in fact, have a RE bubble.”

    Deedub:

    what a stroke of genius! So, let me recap your argument:

    1) Vancouver is overpriced now, after the recent run-up;
    2) Tokyo is overpriced now, after the collapse;
    3) It means that Tokyo was exceptionally overpriced 15 years ago;

    Conclusion: there is still room for price increases in Vancouver!
    And, may I ask, who are the brave buyers who are willing to lose their money simply because, albeit lower, prices will still be expensive when they have to sell.
    Let me think: I buy today at 100, I sell tomorrow at 80 (which is still a very expensive price, suppose) and then I go in front of the mirror and congratulate myself. Brilliant, flawless logic!

  89. dignanmaplethorpe

    Skeptic said…… “What’s your take on interest rates, I’m keen to hear why you think they are going to get hiked. What do you expect, 0.5% ?, 2% ? What’s your reasoning ?”

    They’ve (5 year fixed) gone from 5.24 to 5.74 in 3 weeks and the BOC has yet to raise the overnights. That’s 10% in 3 weeks. Only time will tell and stay pre approved!!!

  90. Skeptic

    Domus, just because you are wishing for lower prices doesn’t mean its going to happen. Two other alternatives that you have ignored or discarded are that prices may go flat or continue upward. Its kind of arrogant that you say “And, may I ask, who are the brave buyers who are willing to lose their money simply because, albeit lower, prices will still be expensive when they have to sell.” which states that prices will fall as if its a fact.

    Maybe you are the one who needs to go and stand in front of the mirror.

    The point I was making about the million dollar houses above is that there are people with serious money out there. Sure they are in the minority.

  91. Skeptic

    Dignan, this is the banks trying to pre-empt what the BOC will do. if the BOC doesn’t raise rates, they will drop again just as quickly. You’d think the banks would be good at guessing what the BOC is going to do, however they get it wrong quite often.

  92. Domus

    Skeptic,

    I am not claiming I know what will happen. Nobody does. Yes, prices might go up and I may be wrong. Never claimed anything else.

    However, I am hard pressed to find reasons or, even, feasible scenarios which could allow prices to go up more.

    The basic information I can gather from sources like StatsCan and Sauder all point to stretched affordability and historical highs for real prices. Hence my reiterated statement that prices will go down.

    “The point I was making about the million dollar houses above is that there are people with serious money out there. Sure they are in the minority.”

    Hey, I see a guy driving a Ferrari every day in Kitsilano but I would probably not base my judgement of where the market is heading on his income…….the other 2 million people around drive Toyota, Honda, GM and BMW.

  93. dignanmaplethorpe

    Skeptic,

    70% of canadian mortgages are fixed rates and for now they are definitely not in the historically low territory that is fuelling the RE fire, or that we are led to believe is. 4.3 is low, i’ll even give you 5.3, but 5.7? C’mon, this is the banks “tightening” lending standards without “tightening” lending standards.

  94. Johnnyrent

    Skeptic

    Your handle is very apt.

    What I find interesting about your perspectives is that they are not based on any historical fact, or reasoned argument, just the assumption that the current scenario will perpetuate itself. It may, but in light of what has actually happend in this City historically, it would be more contributory if you cited some plausible rationale for your predictions. I have yet to read one from you.

  95. concerto

    Domus said:” I am hard pressed to find reasons or, even, feasible scenarios which could allow prices to go up more. ”

    Have prices gone up again this month?

  96. Deedub

    Conclusion: there is still room for price increases in Vancouver!

    Yep. Was true 3 years. Was true 2 years. Was true 1 year go.

    Is true today.

    Brilliant, flawless logic!

    Folks who keep saying “there is no logical reason for X…” in the face of X happening over and over and over again are clearly not in a position to judge anyone else’s logic.

  97. robchipman

    Deedub, you win the MOTO award.

  98. tqn

    This is just in from Bogus News Express on Jun 1, future year:
    “the city of vancouver had a debate about offering free cleared-title character houses on the west side to those who could prove that they really wanted to live in Vancouver, must live in Vancouver and entitled to live in Vancouver for cheap. But, vancouverites protested on the offer because they did not want to pay the property taxes, and the offer should have come with free utilities.”

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