“It has become fashionable to suggest that price levels in Vancouver are set to correct substantially. Central 1 does not subscribe to this view.”

“It has become fashionable to suggest that price levels in Lower Mainland-Southwest region of the province, and particularly Greater Vancouver, are set to correct substantially due to the significant price gains in recent years and a de-linking of home prices relative to income and rental rates. Central 1 does not subscribe to this view, but does expect price gains to slow considerably over the forecast horizon.
While price levels may turn lower in the near term, the annual Lower Mainland-Southwest median resale price level in 2012 is forecast to surpass 2011 by 1.4% to reach $497,000. A further gain of 3.6% is forecast in 2013.
Central 1 deems a significant price correction in the Lower Mainland-Southwest to be unlikely for various reasons. First, much of the price growth in the region has been attributed to disproportionately strong demand for higher priced single-detached product in localized regions such as the west side of the City of Vancouver and Richmond. In contrast, price gains have been less substantial in other markets and product types, meaning this has not been a regionwide price surge. Moving forward, demand will likely remain stable as economic growth, albeit slow, persists and mortgage rates remain low.
In addition, speculative demand in the region remains low. The proportion of units re-sold within six months of purchase can be used a proxy for speculative activity.
In theory, speculators look to gain through capital appreciation over a shorter time-frame relative to home-owner occupiers. In a period of higher speculation, which is generated by strong market activity and price gains, this proxy generally rises. However, this metric has exhibited a declining trend since early 2008, currently hovers near 2% and operates near normal levels. In contrast, this proxy surpassed 10% in the late 1980s, and was closer to 6% in 2006 when markets were overheated. The lack of excessive speculation suggests that we are unlikely to see a speculation-induced bust in pricing.
Meanwhile, price levels will be further supported by supply-side adjustments. Sales activity and the flow of new listings are positively correlated – when demand increases, new listings tend to follow in the months that follow. The opposite is also true. This reflects the tendency of sellers to capitalize on strong markets and rising prices, and sit tight when market conditions weaken. In the absence of any major shock in the economy such as a large and unexpected increase in interest rates or another recession, Central 1 expects the recent slowdown in demand to be met by declining listings activity, which will mitigate growth in standing inventory of resale product.”

- from Brian Yu, Economist, Central 1 Credit Union, Economic Analysis of British Columbia, p4-5, Vol 31 Issue 4, Sept 2011 [pdf]

“Fashionable” to suggest a “substantial price correction”? The only current prominent ‘fashion’ in Vancouver RE ‘circles’ is to debate the exact nature that the “Vanhattanization” of the City will take, or discussing whether foreign buyers are each bring in 10s of millions or 100s of millions.
It remains rare to find a Vancouverite who truly believes we’re in a bubble. Calling the bubble will only become “fashionable” in retrospect, and once we hit the trough everybody will know we were in a bubble (see US RE, still plumbing for a bottom).

This report grossly underestimates ‘speculative’ action in our market. Anybody who buys any property not simply for it’s utility as a home or as an investment, but also for expected future price gains above the rate of inflation, is speculating. The vast majority of RE purchases in Vancouver thus have a speculative component.

And another thing: Looking at the price chart, note how this Credit Union has simply extrapolated price gains forward in the channel from the early 2000′s. In other words, “We expect more of the same”. These guys are rear-mirror commentators disguised as forecasters, and their forecasts are consequently of questionable value.
- vreaa

21 responses to ““It has become fashionable to suggest that price levels in Vancouver are set to correct substantially. Central 1 does not subscribe to this view.”

  1. Did it ever occur to Mr. Yu that turnover is low because people tried to sell but couldn’t?

    Anyways, off to the “low mortgage rate” platitude again. Never mind a solution exists where prices can drop even as rates are at historic lows. Obviously math is not this fellow’s forte.

    GG at worldhousingbubble is killing recently. Here’s the take on the same informational: http://worldhousingbubble.blogspot.com/2011/09/no-bubble-in-vancouver-prices-to-rise.html

  2. Oh and while we’re at it, I’ll spare revealing the scene under the dress of BC’s credit union’s balance sheets. The big concern I have is that credit unions are in danger of losing containment on their outer hull if prices tank fast. It’s sad; credit unions like Vancity are so active in the community it would be a shame for them to be blown to smithereens. I really want to know how in danger member deposits are if the housing market turns sour.

    I checked the deposit insurance agreement on my credit union’s account. Covered 100%, luckily, though no word on how long the payout will take. Let’s just say I’m “diversifying”.

    • I remember during the Irish financial collapse an English financial advisor stating he’d never keep more than £6,000 in one bank as to protect his savings against the collapse of institutions. Not a bad idea at all, I recall massive line ups at Northern Rock…

  3. It’s hard to take Brian Yu seriously … he used to work as an “economist” for the BC Real Estate Association and it looks like his math has not improved.

    “Moving forward, demand will likely remain stable as economic growth, albeit slow, persists and mortgage rates remain low.”

    So his whole forecast is based on mortgage rates remaining low … Is interest rate moving higher even a possible scenario in his world? If Mr. Yu was really interested in improving the well-being of our society he would be more honest and put all cards on the table.

    Credit 1 and BCREA economists are the equivalent of those “scientists” paid by the tobacco industry to write “independent” research.

  4. I would suspect that a significant number of amateur flippers hold for > 12 months to avoid capital gains taxes.

  5. No housing bubble yet BC is leading the world in household debt. Come on connect the dots people.
    And who the hell is Credit 1?

  6. Sorry…Central 1. That sounds more than just a bit fascist/Orwellian!

  7. and despite their view that prices will not correct, later in the article this is what they have to say on rental vacancy:

    “The average vacancy rate in B.C. will remain elevated over the forecast horizon, rising from 2.8% in 2010 to 3% in 2011. The increase reflects the slow pace of growth in employment and elevated unemployment rates, particularly for youth.”

    and on population growth:

    “Weak population growth through 2013 will be a limiting factor for housing over the forecast horizon. The provincial population is forecast to expand at a lackluster rate of 1.1% this year, and fare only slightly better in 2012 and 2013 with 1.2% growth. The slow pace of growth will reflect a drop in the
    number of landed immigrants to B.C. from international markets this year and increased net outflow of residents to other provinces, primarily Alberta,
    in 2012 and 2013. This interprovincial net outflow reflects the stronger rebound in Alberta’s economy and improved labour market conditions.”

    • Yeah, amazing, eh?
      It’s almost 100% certain that if these data were going the other way, they would have drawn price supportive conclusions.

    • “Other than a net outflow of residents, what could possibly dampen housing demand?”

      This Yu may not be the sharpest knife in the drawer.

  8. “As long as interest rates stay at historic lows forever, and never revert to the mean, we’ll be just fine!”

    This guy is an economist? Then he should know that you don’t need everyone to start selling to pop a bubble, you just need the marginal buyers to decide the prices have gotten too rich and they’ll “wait and see” for awhile.

  9. I don’t know where Brian Yu gets his information, but as someone who’s spent the last few months trying to find a decent rental in this town, I’d like to say that my impression is that the majority of would-be landlords on the West Side are looking to sell just as soon as they can, and many of them have only recently bought these properties! Doesn’t that count as “flipping”? At potential rental after rental, house or condo, we discovered a). the place had been bought fairly recently and b). the answer to “How long can we stay?” was “Depends on market.”

    Thanks VREAA for calling it as you see it. I love the Canadian distaste for untruths!

    • Interesting.
      Does “Depends on market” mean owners will sell if prices go up, or if they go down?

    • http://vancouver.en.craigslist.ca/van/apa/2592488761.html try calling Dr. Aladdin … No you cannot view this rental-to-be …he just purchased it and won’t have posession until the end of October. Craigslist has been littered with newly purchased rental-to-be s this year. Google 6188 Mackenzie st or 3118 West 44th Avenue. both “March madness” sales …now rental properties managed by Macdonald Realty and Advent Propetry Mgmt respectively. Are they available for long-term lease? No. Vesta is right.

    • Thanks Vesta and Epica; we’ll headline your observations.

      • Thanks VREEA host, excellent question about whether or not these landlords will sell when the market rises or drops — I wish I knew. With your expertise, I’m sure your guess would be better than mine.

        And Epica, this is exactly what I’ve found all over Craigslist. These kinds of listings count for the overwhelming majority of rentals listed, in my experience. Landlords looking for longterm tenants seem to be very much the exception rather than the rule

        Moreover: this phenomenon of short-term rentals or relatively short-term rentals seems extremely widespread at UBC as well. As my partner works there, we had investigated many rentals there, only to discover that a). many condos are owned by overseas landlords, many in mainland China; b). they are available until the market changes, or until the landlords’ children who may attend UBC will need them as residences.

        This is such a widespread phenomenon on that campus, in fact, that the one new market-housing building currently going up on campus is not even being marketed to people who work at UBC. A rep for the builder, Adera, revealed that “99% of the units are being sold to mainland Chinese buyers.”

  10. I find the subtle shifts in language to be interesting. First the organization owns the vague, abstract commentary with an active sentence structure:

    ” Central 1 does … expect price gains to slow considerably over the forecast horizon.”

    But when quoting actual numbers, that are highly suspect, in the very next sentence, they present like they are reporting some statistics from a third party expert, turning to passive and lazy sentence structure:

    “the annual Lower Mainland-Southwest median resale price level in 2012 is forecast to surpass 2011 by 1.4% to reach $497,000. A further gain of 3.6% is forecast in 2013.”

    It’s like they want to pump, but they don’t want to own the numbers that are almost certainly going to look foolish by the end of 2013.

  11. Just goes to prove that you can pay someone to say whatever you want. Next Don Campbell with a tasteful intro on on his latest book “Secrets of the Canadian Real Estate Cycle”

    http://kickasscanadians.ca/don-r-campbell

    Of course there may be some tasteful references to join REIN at a $3400 minimum credit card purchase in his book/marketing material.

    For those who read his bio please note Mr. Campbell has no “formal post secondary education” that would indicate that he is in any way qualified to tell other people where to buy real estate and does not disclose any of his current properties and their locations either.

    I also like the cool graphic that shows how prices are going to increase in a couple years…it seems like REIN has found a way to predict the future.

    Yu and Campbell should work together.

  12. I agree the rental market seems ridiculously tight these past few months, at least for anything family and pet friendly and west of Main. My partner went to an open house showing near Cambie and 22nd the other night; he gave up on viewing it because when he arrived there were already about 50 people waiting to get in. We’ve seen a number of Craigslist ads advertising short term leases while landlords await demolition permits.

  13. Pingback: “At potential rental after rental we discovered that the answer to “How long can we stay?” was “Depends on market.” | Vancouver Real Estate Anecdote Archive

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