Don’t Confuse A ‘Buyer’s Market’ With A True Buyer’s Market.

“The number of residential property sales has hit a 10-year low in Metro Vancouver leading the Real Estate Board of Greater Vancouver to declare a buyer’s market.
The announcement is significant since the board has in recent months been calling the market “balanced.”
According to the board’s June report, sales of houses and apartments dropped to 2,362 last month, a 27.6 per cent decline compared with 3,262 sales in June 2011, and a 17.2 per cent drop over the previous month of May.
“Overall conditions have trended in favour of buyers in our marketplace in recent months,” said Eugen Klein, the board’s president, in a news release on Wednesday. “This means buyers are facing less competition and have more selection to choose from compared to earlier in the year.”
June sales were the lowest total for the month in the region since 2000 and 32.2 per cent below the 10-year June sales average of 3,484, the report shows.”

– from ‘Vancouver sales hit 10-year low, real estate board declares a buyer’s market’, Vancouver Sun, 4 July 2012 [hat-tip Loon]

One will be hearing much talk of a ‘Buyer’s Market’ in local media in the near future, and Vancouver Sun/REBGV news release is an example. Most readers on the Vancouver RE blogosphere are very familiar with the difference we refer to, but, for sake of the newbie reader, we thought we’d pop up this post in an attempt at clarification.

The RE Board of Vancouver uses the ratio of sales to listings to decide whether to call the market a ‘seller’s market’, ‘balanced’, or a ‘buyer’s market’. Thus, if listings are high and sales are low (as they are at present), it is automatically deemed to be a ‘buyer’s market’.
This ratio can also be expressed as MOI (or ‘months of inventory’), the theoretical number of months that sales at the current pace would ‘clear’ the inventory (total listings). There is a good correlation between high MOI and downward pressure on prices. See jesse’s articles at ‘Housing Analysis’ for eloquent  discussion of that relationship.
Thus, when the REBGV refer to a ‘buyer’s market’, they mean one where sales are low compared to total listing. Note that this in no way refers to absolute price levels. Yes, it is better for a buyer if there is a low sales:listing ratio and downward pressure on prices (more homes to consider, less time pressure, more bargaining strength) BUT it is immediately apparent that absolute price levels are far, far more important to a buyer. The buyer gets more for their money when prices are lower.
In our own terms, and from the perspective of the vast majority of prospective buyers, it is far better to buy a property that is priced at fair value than it is to buy a very, very over-priced property that happens to be falling in price from very, very over-priced to merely very over-priced.
A true buyer’s market is one where the buyer receives good, or at least fair, value for their money.

Vancouver prices have only recently begun to weaken from their stratospheric heights.
By fundamental measures, they ran up, in the speculative mania of 2003-2011, to levels that are two to three times fair value. Prices have weakened by about 3%-14% since the 2011 peak, depending on which sector you look at, and which price measures you use.
This is not by any sensible measure now a true buyer’s market. It’ll be a buyer’s market when prices hit the vague vicinity of fair value; they still have a long way to go downward prior to that.
– vreaa

23 responses to “Don’t Confuse A ‘Buyer’s Market’ With A True Buyer’s Market.

  1. This is RE industry propaganda dressed up as “news.” As usual.

    This line:

    “The benchmark price for detached properties increased 3.3 per cent from June 2011 to $961,600, while apartments increased 0.3 per cent to $376,200.”

    …is the worst. Why on earth the reporter didn’t also mention the massive shift in average prices, since they’re right there in the REBGV report, is… well, not beyond me. Too much RE-industry sponsorship of the media, that’s why.

    No one even knows what a “benchmark” is. They all just assume it means “average.”

  2. Actually, the REBGV report didn’t show average prices this month:

    Numbers too bad for the public to see?

  3. Real Estate is Not Cyclical – by Ramsey Su
    “This is the introduction and first part of a series of articles by Ramsey on what to expect for the real estate market over the next five years. At the beginning of these deliberations Ramsey asserts that real estate is not subject to short term cycles, but rather very sticky secular cycles. Today’s real estate market, so Ramsey, has become extremely distorted through government accommodation and intervention. It is no longer easy for investors to discern to which extent market prices reflect genuine market valuations or the effect of these interventions. As a result, the market has become ‘broken’. The secular cycle now underway suggests that absent such government intervention, demographic drag and the large extant supply should lead to further prices declines.”

  4. A bit off topic, but found this interesting article regardingmental health vs renting/owning a home.

  5. no debt, no stress

    Here is the Financial Posts take on the Vancouver housing market: Get a load of the B*llshit being spread by Don Lawby, chief executive of Century 21 Canada…….all is fine in Vancouver, the laws of supply and demand don’t apply in Vancouver, don’t you know its different here……

    Don Lawby, chief executive of Century 21 Canada, says the decline in activity can probably be at least partially chalked up to an expectation from prospective buyers of lower prices. But he doesn’t see that price drop necessarily coming.

    “There is no real change in unemployment and the economy isn’t changing,” said Mr. Lawby. “People are not being forced to reduce price to just sale. What we are going to see is a resistance to a reduction in price. I think if they’ve been reading the media they expect prices to drop dramatically. I don’t think they will. For that to happen, you are going to have to have combination of people not being able to meet mortgage payments because of increased interest rates or not having employment any more.”

    Others, including Mr. Tal, say the market has already declining even before the full impact of new lending standards have hit the market. New rules that go into effect for government-backed insured mortgages on July 9 include a shorter amortization period, tougher rules on ratios for calculating debt service costs, a lower refinance limit and a $1-million cap on home prices.

    Here is the entire article:

  6. Van east guy

    The fvreb has seen slow sales and a avg 6 moi for the last 2 years. Prices are pretty much flat in the same period.

  7. Numbers are easily spun, “figures don’t lie but liars sure can figure.” I ask for people on this blog to find indicators of balance in the market, specifically I would like to know when offers are being accepted subject to the sale of an existing property. I would also like to hear what people believe is an acceptable length of time that a property should be listed before selling. We have been so long away from “normal” market conditions I would welcome some different ways of looking at the market that would supplement the numbers that are being used today.

  8. That hissing sound is getting louder!

  9. Not a buyer’s market, a lack of buyer’s market. Amiright?

    PS the link to mohican’s blog goes to the Sun article. Forgiven.

    • jesse -> A thousand… no, a thousand thousand… no, a thousand thousand thousand pardons for my egregious error. Inexcusable, really; many thanks for excusing. Corrected.

  10. Lead stories on both CTV Vancouver News and CBC Vancouver tonight about the slowing Vancouver area real estate market. House sales have tanked, but don’t worry….an un-named economist with the BC Real Estate Association claims prices won’t fall past the 3.3% they’ve already corrected by…..

    Whew! For awhile there I was terrified worried prices might actually drop….

    • Did you catch the two Realtors brought on CBC On The Coast this afternoon talking about recent numbers? An interesting change of tack — cracking solidarity and the realities of commission-based incomes keep it real. Nonetheless the spin remains, with an added bonus of internal torment for some artistic juxtaposition.

  11. Really good commentary, Vreaa. I was wondering just a few days back if it was even worth delving into the whole “buyers market” term. We all know that is just another manipulation and I think you summed it up quite well. The very idea of REBGV promoting house prices and the market as being one that favours buyers (hurry, the advantage is yours!!!) when value is still so low and homes so overpriced is just a dirty trick in my books. It might be enough to pull a few of the unwary into a declining price environment but it is surely just games with words and a form of sales deception.

    • Future price direction has never the concern of RE boards because they assume from their limited experience that home prices don’t go down in the long run. From the boards’ perspective, the term “buyers market” relates only to the amount of selection of houses that a prospective buyer has to choose from and that realtors should start making the switch to focus on the buyer because this is where the money will be. With the new focus on buyers, market prices are guaranteed to drop once listing realtors reluctantly fall in line with the inevitability of the current and future market. A buyers market does not mean its necessarily a good time to buy – timing has always mattered and never was this so much the case as now in Vancouver.

      • I think the issue is the name. What would we call it that reflects the reality of the situation, not the spin? I’m going with “downward-pressure” market, heck why not “bear” market.

        At times like these, as the mockery from marketers and industry shills, as well as that from the more dispersed commentary on the “buy side”, intensifies, there’s a chance the public wants it called for what it is. Atonement and eventual reconciliation by the indicted wordsmiths and spinsters is forthcoming, but will be nothing more than the Hail Mary pass in an effort to boost sales, after all other methods have been exhausted and refuted, and unlikely to be any true measure of meaningful moral improvement. Nonetheless I’ll take it, if only for the entertainment value.

      • Yes, good point Airdales. It is a buyers market even while it is a terrible time to buy. So much for giving the advantage to all those poor saps who endured overpaying in bidding wars and being snubbed by agents. What I want to know……. is it a balanced buyers market or is this just the usual bipolar spin as the board reaches into it’s bag of spin-terms to lip-gloss a pig?

      • I like jesse’s suggestion – why not call it what it is – plain and simple – a bear market – don’t see why RE boards wouldn’t accept the terminology especially after a successful lawsuit in which the plaintiff claims misrepresentation. It’s just a matter of time in my opinion.

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