“When the August resale data for Vancouver came out last week, the headline news was that sales had fallen to their second lowest level for the month since 1998. Sales were 30 per cent below what they were in August of last year and 40 per cent lower than the August average of the past 10 years.
But the numbers are even worse than the headline reveals. On paper, August 2008 holds the record as the weakest month of the past 15 years. However, it had two fewer week days than August 2012. If calendar differences are taken into account, last month represents the lowest sales volume of any August in 15 years.”
“At the same time, total months of inventory in Vancouver hit double digits for the first time since 2009. (Months of inventory represents the length of time it would take to sell all the homes listed for sale given the number of sales in the previous month. In other words, it is a quick snapshot of supply and demand: The higher the number, the worse the reading.)”
“Admittedly, the pace at which homes are being put up for sale has slowed considerably in August from the mid-summer peak, but builders don’t seem to have gotten the memo that demand has been cooling rapidly for months now: the number of housing starts and dwellings under construction, particularly condos, has risen rapidly from the 2009 lows and continues to grow.”
“In other words, while sale volumes are nearing recession levels, building in the Vancouver region has been booming. Barring a strong reversal of current trends, this supply of new homes will only increase inventory and further pressure prices, which showed the first year over year dip since 2009 according to the MLS Home Price Index.”
The last time the numbers were this bad in places like Vancouver and the downtown Toronto condo market, it was August 2008, but things looked quite different then.
The Bank of Canada overnight interest rate was three per cent and would drop to 0.25 per cent over the next eight months, bringing variable-rate mortgages and HELOC rates down with it. The discounted mortgage rate (the rate borrowers actually get from the bank, as opposed to the overnight rate) was about to plummet nearly 200 basis points in five months, providing a massive boost in affordability.
In addition, the government and CMHC were about to launch an aggressive campaign to insure low-ratio mortgages and purchase them and other insured mortgages off bank balance sheets in an effort to keep mortgage credit flowing.
Today, however, we have the exact opposite dynamic. Rates are near record lows, particularly for fixed mortgage rates and widely expected to rise sometime next year. It is much more difficult for lenders to obtain bulk insurance from the Canada Mortgage and Housing Corporation and I’m now hearing of big banks asking for a greater down payment on conventional mortgages in certain markets where they see a higher risk of a housing correction. Also, the Office of the Superintendent of Financial Institutions Canada has axed cash-back and stated-income mortgages by the big banks while the CMHC has tightened mortgage rules again.
The sudden slowdown in sales in key markets as a result of new lending rules is perhaps the clearest sign yet that the Canadian housing market is being driven and sustained by mortgage debt rather than true fundamentals. In August, Canada’s three-largest metropolitan areas saw significant declines in home sales and growing inventories of unsold dwellings relative to last year at this time. While this may not constitute a trend yet, it should at the very least cause us to ponder the implications of the long-anticipated slowing in the resale market. Indeed, should soft sales persist, and I see little on the horizon to reinvigorate them, they will weigh on prices in these key markets and likely in short order.
- charts and wholesale reposting of text from ‘Canadian housing: There’s an obvious oversupply problem in Vancouver, Toronto and Montreal’, Ben Rabidoux, Macleans, 11 Sep 2012
Great summary of ‘where we are now’, Ben.
Reproduced here for the chronological record.
For those interested, sales, inventory, and prices are regularly and vigorously monitored and discussed at vancouvercondo.info (VCI).
Topping is a process, and it appears clear to us that Vancouver RE is a bubble in the process of preparing for some serious deflation.
Here’s another angle on ‘where we are now’, via Garth Turner:
“Let’s use poor Vancouver as an example of what happens when hot turns not. For an on-the-spot report we turn to one of our insiders:
“September’s first week has gone by. We’re well on track to have the worst September in 12 years. A couple of disasters now are North Vancouver (the last bastion of 2-salary professional home buying). Can Richmond really go lower? Well – last month was a disaster – this month we are now on track for only 45 sales (down again from 60). We’ll see how this goes.
“Just saw an interesting sale in Quilchena in Vancouver [West-side]. Sold for 1.5M which was 600,000 below assessed. The owner was likely 80 years old, bought 55 years ago. This was big lot in a great area. An area I would really like to live in. This was a 6,000 sq foot lot. Took a while to sell and I’m sure the owner said she just wanted her money. They did list close to $2 million but on the 3rd price drop a low ball came in and she took it. Must be shocking.
“Anyhow, we are on track for 1360 sales compared 1585 in 2008. That’s a pretty decent drop – and may even get the MOI above the 2008 level. People here are so completely delusional.”
- from Garth Turner at greaterfool.ca 11 Sep 2012