The Crash May Have Begun – “We’ve had 6 straight days of 300+ new listings. The last time this happened was in early April 2010 in the post Olympics listing rush. This my friends, is a rush to the exits.”

“We’ve had 6 straight days of 300+ new listings. The last time this happened was in early April 2010 in the post Olympics listing rush. This my friends, is a rush to the exits.”
VHB (Vancouver Housing Blogger), at VCI, 7 May 2012 11:15pm

“Richmond Detached Inventory is Sizzling. Everyday is a record.”
30/Sep/2008 = 1012 (the last peak)
7/May/2012 = 1073

Van West Detached Sales
Down 48% compared with 2011
Year to date 06/May/2012 = 569
“Sales should be around 1090+ by now.”

Change in Detached sales 2012 compared with 2011,
Year to Date (to May 6)

Bowen Island = 0%
Burnaby East = -34%
Burnaby North = -42%
Burnaby South = -46%
Coquitlam = -19%
Islands-Van & Gulf = -36%
Ladner = -43%
Maple Ridge = -19%
New West = -32%
North Vancouver = -25%
Pitt Meadows = -13%
Port Coquitlam = -35%
Port Moody = -27%
Richmond = -53%
Squamish = -23%
Sunshine Coast = -9%
Tsawwassen = -47%
Van East = -38%
Van West = -48%
West Van = -52%
Whistler = -2%

all above stats care of ‘Inventory’ at VCI, in comments 7 May 2012.

Many areas show sales pace at about half of what it was last year.
This is what the beginning of a crash looks like; low sales, increasing inventory. We’ll see if it follows through. Price reductions come next.
Will hoardes of buyers step in at 10% to 15% ‘off’?
We think not, but we’ll find out for sure, perhaps soon.
– vreaa

70 responses to “The Crash May Have Begun – “We’ve had 6 straight days of 300+ new listings. The last time this happened was in early April 2010 in the post Olympics listing rush. This my friends, is a rush to the exits.”

  1. It’s only a flesh wound. —–>

  2. The last time this happened was in early April 2010 in the post Olympics listing rush.
    ______
    And following the listing rush, you had prices continue to go up for two more years…..
    I remember those inventory parties well. Bears looked foolish once again after proclaiming “this is the crash” as month after month prices went up…

    • Correct.
      Your point being?

    • “It’s different this time.”

      How? Because we have entered this spring market with high listings and cooler sales. In 2010, the market was still fairly hot. Active days on the market is much longer and prices are down YoY.

    • Yah, we dropped interest rates to spur buying to keep our heads above water… that won’t be happening again.

      • “Yah, we dropped interest rates to spur buying to keep our heads above water… that won’t be happening again”.

        nothing changed in 2010 – inventory went up, down – prices went up in face of an unchanged rate.

      • Anonymouse

        Nothing changed in 2010, you say? Aside from the introduction of HST, borrowers having to qualify at the 5yr posted rate, 80% max financing for rentals, and 90% max for refinancing, you mean? All of which, we were told, would be the proverbial final nail…..

    • Big John, you just convinced me to buy

    • So you’ll be heading out to snap up some new properties I take it, Big John?

  3. Paul Streppel

    Van RE showing classic 5th wave, 2010-2012. It’s often been said you make your money on the 3rd wave. Of course 1,3,5 being Up waves, 2,4 being Down waves.

    • it’s the classic 5th wave until it’s the underreported 7th wave. It’s the underreported 7th wave until it’s the mysterious 9th wave…
      Maybe we can avoid applying systems and theories to a market that has been defying them for 25 years.

  4. “Price reductions come next. Will hoards of buyers step in at 10% to 15% ‘off’?
    This is the real dilemma, at least for my small group of RE bear friends. When do we make the move? I know it is difficult to predict, but I wonder how much cash is sitting on the side-lines, and if it will keep this market from a severe correction. Tricky.

    • We believe that the high probability outcome will be that support at 10%-15% off will be weak, and that there will be stronger support at the 2008-2009 lows (thus high-probability of a bounce there)… but then that support will give way, too.
      Essentially, when we get going to the downside, there will be so much speculative fresh air below that we won’t bottom until fundamental support in the 50%- to 66%-off range (in years to come).
      There will, of course, be buyers and sellers all the way down.

      • reality check

        Of course you believe that vreaa because you want to believe that desperately i might add.

      • Anonymouse

        You really believe in that technical analysis mumbo-jumbo?

      • reality check -> My emotions are completely irrelevant as to where the markets will head. You may wish to believe that my analysis is based on wishful thinking, that’s certainly your privilege, believe whatever you want.

        Anonymouse -> Anybody who follows any market carefully comes to respect the very basic concepts of price support and resistance; just ask any such individuals you may know. Do you yourself have any experience following any markets other than Vancouver RE?

    • Allan,
      If you’re an eventual serious buyer I have some observations on this.
      Not only do you need to watch prices levels via month end stats, but you need to keep your eye on inventory. There will be months when prices have just started to head down and inventory is still peaking. This is the time to step in. It might be counter-intuitive as your instinct is to wait for more discounts – but inventory will become your enemy as listings disappear. At best you have about 3 months of price declines with high inventory. The fourth month is too late…this market turns on a dime

    • Bull trap

      • “bull trap” “double top” “false bottom” “fresh air below” etc. are terms used by perpetual renters. There are some who have the intention of buying at some point.

      • No, they are terms used by students of the markets.
        Watch, listen, and learn.

    • Allen: Above you’ll see laid out the oft-repeated f1/vreaa abbott/costello routine; soon to be tested by a market very near you.
      f1 believes SFHs won’t drop more than 15%; we think 15% will give way, as will 20%, 25%, etc down to aforementioned 50%-66%-off.

      Bottomline: do your own due diligence; also, read and gather opinions/data wherever you can.

      • Thanks VREAA. Good advice. My main concern is how new buyers might slow the decline in SFH prices. I agree we could be looking at a substantial correction, but I wonder if the decline will look more like a staircase than a slide. Interesting times we live in…

    • The true bottom will be when the market has fallen so much that the average person is disgusted with real estate and no one talks about it as an investment any more, only as a home. People will still buy for reasons of lifecycle or schools, but even as they buy, they will talk as if they still expect some losses over the next year or two.

      My personal opinion is that before that happens the market will fall much more than 10% or 15%, but I may be wrong.

      • Agreed; disgust with RE will be the hallmark of a bottom.
        Students of markets understand that.
        People who aren’t students of markets won’t understand why people won’t be lining up to take their house off their hands for the bargain price of $800K when its ‘value’ was “$1.35M just two years ago” (but it’s underlying fundamental value is still only $500K).

      • “The true bottom will be when the market has fallen so much that the average person is disgusted with real estate and no one talks about it as an investment any more, only as a home.”

        Yes, and one only has to look about 30km south to see this happening.

        http://globaleconomicanalysis.blogspot.ca/2012/05/new-american-dream-is-renting.html

      • reality check

        I agree 10 to 15 percent would be a typical correction. 50 to 66% I don’t think so

      • After a run up like the one we’ve had in Vancouver RE, 10-15% is noise, not a correction.

  5. ohhhh … it’s looking dicey out there in the markets … let’s see how much pain they’re willing to take – “she’s breaking up captain” … if eu elections were any indication – very little before loading up the nuclear xerox … 🙂
    ps. no idea what that translates to for vancity prices near-term but the fundies sure aren’t getting better

    • Vancity isn’t publicly traded but might be seeing some increased traffic. Something to ask the Board is how much they’re increasing their portfolio.

      • sorry j, trading too many witticisms with you … can’t tell anymore … what i meant was van city house prices and fundamentals … if that’s what you thought, then i’m the dumb one

      • OT … fight club loses an icon today …
        http://tinyurl.com/d9r25jr

      • I know, just thought I’d enter a little Vancity credit union quip in there, they will be front line in underwriting degradation if TSHTF

      • hilarious interview …

        TGR: Finally, what is your investment model?

        DS: My investing model is ABCD: Anything Bernanke Cannot Destroy: flashlight batteries, canned beans, bottled water, gold, a cabin in the mountains.

        http://www.zerohedge.com/news/guest-post-emperor-naked

      • fwiw, in case people get the wrong idea, there is some hyperbole being used by DS wrt outcomes … but, the facts are pretty straight up

      • Bill McBride (aka Calculated Risk) wrote, “I never read zero.”

      • zh? it’s an editorial perspective with more false +ve’s surely … but there’s some interesting stuff often enough … interview was DS … just info, fwiw … there’s a maxim, i forget from where, roughly … to pay close attention to enemies because they understand your weaknesses best … eg. even the bolsheviks paid attention to mises and restored some private ppty rights mid-30’s, without that they would have been toast a lot sooner … anyway, i’m having a good time slipping this ‘radical conservatism’ to get a cdn view … still haven’t figured out why mises and chomsky disagree so strongly on private ppty, but am getting some insights from respectable socialists … 🙂 have a good evening

  6. @ Allen,

    I am in the same situation. It would be tempting to step in after a 10 %-15% reduction but it would still be a rip off. I would probably stay put even if prices drop by 15%.

    If prices go down, I can foresee some bulls telling me: “Buy now or you’ll be priced out forever”.

    I guess the best is to hold off until prices make sense.

    • At what level would “prices make sense”?

      • I personally believe that they would make sense at 40-50% off the current level.

      • Renters Revenge

        At 50% off it might make sense to buy. Unfortunately, at that point no one will have jobs and no lenders will lend so we will likely end up at cash only prices – 75%.

      • 66% decline may be for certain neighborhoods. I’m certain it won’t be a 66% decline in the average or median prices for sfh. And for condos? Condos are likely screwed

      • Anonymouse

        I was looking at investment condos in Vegas last week. Still lots for sale for $800-900/sqft, post-crash. And the maintenance fees are considerable.

    • HD,
      buy the market not the stats. When prices are headed down you’ll find the odd desperate seller who will accept a deep discount. Gotta know how to get to them before an open house though. Tricky area.

      • “When prices are headed down you’ll find the odd desperate seller who will accept a deep discount”

        Isn’t it what VREEA has been telling us from the get go? We only need a few (5-10%) of those desperate sellers for the market to take a nose dive?

        My main concern would be to step in at -15% and face another drop of -20% later on. It can become very tricky indeed.

        Well, we’re not there yet so I don’t need to worry about it too much 😀

      • “buy the market not the stats.”

        Buy the deal not the market.

      • @HD

        Despite sales being down, the market is still in peak season, therefore many sellers/speculators are holding out with hope or are listing their properties to secure rental income. Once peak season is over — those who hold empty units who wish to get out of the market are likely to lower the listing price. The competition will be between old vs new sellers, being that older sellers can afford a loss while new sellers are forced to take a loss.

        Stats will get interesting after May.

      • Formula, the “odd desperate seller” is what comparables are based upon. That is exactly why the city is headed for a nasty correction. Worse for the neighbors, many long-time Vancouverites have fully paid off homes having bought them many years back. THEY have every intention of taking profits once it is clear the market has gone South. They care not for asks and bids but only for the best price they can achieve before it is too late. As a result they will draw in the bulk of offers on the basis of price while everyone else with high debt is sticky going down. And make no mistake, those sales will drive the whole market into a funk putting thousands of newbie virginal 5% down buyers underwater. It is happening already.

      • “…the odd desperate seller..”

        Before this is all over, the desperate seller won’t seem that “odd”; there will be enough of them to overwhelm demand (which will be running scared in view of falling prices, at the same time).

      • Agreed, Farmer

    • I have a particular neighbourhood in mind and would need to see much more than 15% for prices to seem even close to reasonable. Good luck in your search!

  7. Allen,
    I looked for my first home in 2001 – and was repeatedly told house prices were low and it was a terrible time to buy. I looked and looked and finally bought in the summer of 2002. When I sold in May 2008, the place had doubled in value. So, I agree with one of the previous posters – buy when the broad public opinion is that it is a terrible time to buy – and when you are convinced prices are bottoming out. Do your own local research. I followed our local market very carefully before selling in 2008 – and afterwards before buying again. Blogs are good for trends in a city, province or country, but you need to follow your own local market carefully. I bought again in early 2009 after the crash in the fall of 2008, and then sold again in the spring of 2010 – making more money. I sold in 2010 because I was convinced values had hit a peak in our local market and would only decline again slowly. And they have and will continue to decline. My local market is Victoria. Foreclosures are in. I checked the court list this morning – and saw a foreclosure application for a mortgage less than $150,000 with interest at 2% per annum. Some people are really facing tough times if they can’t remortgage or sell to pay such a debt.

    • Thanks for the input Kate. You seem to have solved the whole “market timing” issue! 🙂 Agree, I am hoping that awareness of local conditions and just a general awareness of what is going on in this world will give me an advantage. Thanks again.

      • if you want a super price, likely won’t be for yrs, just have to wait, even then the fundamentals for long-term appreciation do not look great … if you just want out of the state of non-ownership at a reasonable price, could happen <2 yrs … hard to see a way to getting both good timing and good pricing, unless tptb somehow eschew use of nuclear xerox … just a persepective

  8. theblackboxproject

    “So the news that the housing bubble is over won’t come in the form of plunging prices; it will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers are no longer willing to pay. And the process may already have started.”

    – Paul Krugman, New York Times, August 2005.

  9. A 10% drop in GVRD SFH prices barely covers the PTT. Only HAM will buy such a dip likely doubling down on more cash flow negative investments. Vancouver will still be one of the world’s most unaffordable cities when SFH prices drop 30% and in such a market few people requiring mortgages will be able to buy because banks will not be lending and many will have to leave to find employment elsewhere – true bear market carnage.

    • Craig Sterling

      I absolutely agree with this post and ask you all to look to Europe. Call it a “disaster” if you will, but prices are “only” down 30% in UK – that still leaves them far above where they were 10-12 years ago. So my prediction for YVR is SFH at (say) $1,4 mil goes down to $900,000 – still a long way from cheap, but a “crash” nonetheless. Please remember, guys – Canada, a country I love, has piles and piles of natural resources that no developed European country can match, and a comparatively young and growing population – factors that make it very different to Europe. But these are still not factors that justify 3 bed ranchers in W Van going for $3.5 mil!!!

  10. reality check

    You could be right that listings are shooting up but it must be area dependent because in my area of the eastside, houses still seem to be selling pretty quickly. Especially if they are character and around 900,000 to 1 million and are renovated.

    • detached inventory in the city of Vancouver is very low. Lot’s of west side 3million plus homes but next to nothing on the east side.

      • Funny because east side detached sales are down from last year. I guess low inventory doesn’t necessarily mean more sales.

        There should be no mistake that the incomes of more than a few people are, so far, lower — much lower — than they were in past years, even 2008. 2008 is a mighty high bar to leap, nonetheless all’s we can hope is that people with variable income sources have saved for a rainy day. Not literally, of course. Today is gorgeous.

  11. 3 of my friends who wanted to emigrate to Canada (two BC, one Quebec) are giving up

    These are well educated guys, CS and EE degrees for the most part. In my experience, when research goes down, no amount of banking and mining can help balance the economy.

    Reason? “Fsck that, man, a condo in Munich or similar might be around 200k euros, not that far off, but the pay is at least 3x what it would be anywhere in Canada”

    Also, Europe, on a whole, is not far from a second crash. Socialist policies kept the prices from crashing in some areas (funny enough, even Paris and London – it’s not all HAM and Russians, it’s also 2-3 generations of locals or poor immigrants putting all their resources into a multi-generation home, maybe with a basement mortgage helper – does it sound familiar?)

    So my take on this is: keep thinking that mines and forresting can sustain those kinds of prices. I’d be very surprised.

  12. PS: In Paris’ case, it’s even more dramatic: how about a bedroom helper, while you sleep in the living room?

  13. Looks like Vancouver is in for a reversion to the MEAN

    • The mean includes speculative excesses that aren’t necessarily indicative of future levels. That is, say there were 20 years of flat prices say averaging $200K in real terms, then 10 years of massive runups and a massive crash that together averaged $300K in real terms. The mean would tell us the expected price is 200K*2/3 + 300K*1/3 = $233K. But of course the forward looking price would be $200K real because the bubble was an anomaly. Unless you think subsequent boom/bust cycles are ingrained.

      • guess you missed the double entendre….

      • Airedales

        An interesting comment because it does potentially highlight a difficulty in determining what “mean” prices tend to revert to. Technically, mean reversion describes a price process that is pulled back to it’s “long run” price or long run drift (ie. return). The drift for long run RE prices should probably be the inflation rate and it’s common to assume that the long run price has some diffusion (random) component despite a relatively constant drift / return.

        The speed of mean reversion for RE appears to be relatively slow which increases the liklihood that some markets (like Vancouver) are likely to mean-revert over periods of many years. This doesn’t rule out large declines in any given year but it can take many years for prices to return to their long run mean (think Japan here). There are obviously many Vancouver buyers/owners who are speculating on much much higher general price inflation over the next 5 years so that the mean-reverting price decline is relatively shallow (10 to 15%). If there’s general price deflation then one should expect Vancouver RE prices to decline much more and with slightly more speed (think worse than Japan and more like China over the rest of this decade).

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