Realtor CEO – “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.” [We Disagree]

It’s just a house.

“Sales in Canada’s most expensive housing market continue to plummet with the Greater Vancouver area hitting a 10-year low in June for activity.” …
“There is the beginning of a trend,” said Benjamin Tal, deputy economist with CIBC World Markets, about the steep decline in Vancouver sales from May. “We see significant softening in investment, we see reduced penetration of Chinese money into the city. I’m not surprised by this. Prices will fall. It’s just a question of time.” …
“There is no real change in unemployment and the economy isn’t changing,” said Don Lawby, chief executive of Century 21 Canada. “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.”

– from ‘Vancouver home sales plunge to 10-year low in June’, Garry Marr, Financial Post, 4 Jul 2012 [hat-tip ‘no debt, no stress’]

No, it’s not going to be necessary for “people to not be able to meet mortgage payments because of increased interest rates or not having employment any more” for prices to drop. Those factors would speed a descent, but they are far from necessary for a price implosion.
At the end of a speculative mania, all you need is for psychology to change, and you rapidly find out there is nothing supporting prices except lots and lots of fresh air. Once they see that prices can fall, people stop overextending themselves to buy. Falling prices beget lower prices still. 
That’s all it takes. Supports as determined by fundamental values are far below current price levels.
– vreaa

45 responses to “Realtor CEO – “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.” [We Disagree]

  1. The Century 21 CEO didn’t mention the new CMHC / OSFI rules, which in many ways may be more significant than an interest-rate increase (goodbye, 30-year amortization; sayonara, $1M+ CMHC-insured mortgage)

  2. I think what we are seeing is the understanding from previous bubble crashes, which were employment-driven. This one has been longer and more insane than any of these wise old-timers have seen before. Bubbles can break from their own sheer size. Then the employment thing kicks in as an accelerating effect.

  3. joe_blown_away_by_high_housing_costs

    Look at this monstrosity they want to build on False Creek where the viaducts currently are. They are going to demolish the viaducts and build a 2000 unit glass tower that is shaped like a square arch. You have to click on the link and look at the picture to see how ugly this building will truly be. This building will ruin Vancouver’s skyline. It looks like a monumnent to Vancouver’s obsession with bad architecture, glass buildings, and cramped high density living.

    To top it all off, Mayor Robertson is saying that the viaducts are being demolished to create green space and reduce traffic into downtown. Who actually buys that crap excuse for selling out more land to developers???

    Meanwhile, the protests are already starting the Downtown Eastside over concerns about increased traffic congestion on local roads after the viaducts are demolished, just as I predicted:

    • Joe -> Thanks for highlighting this story, will headline at a some point.

    • joe_blown_away_by_high_housing_costs

      The second link in my post should have been this one, Van Sun article about Prior Street protests due to increased traffic from demolished viaducts:

      • joe_blown_away_by_high_housing_costs

        PS: I know you guys like to stick to real estate economics, but this is just insane. Demolish the viadcuts and put up a glass arch of 2000 units! And this is all coming about as the real estate bubble is popping in the public mind!!!

      • that glass structure has to be one of the fugliest designs I’ve ever seen.

    • Politicians are always at least one step behind economic reality.

      As we see from the blog post above, realtors suffer from delusions as well… but in their case it’s just wishful thinking.

    • Is there anyone that *doesn’t* think that design is hideous?

      • The only way that bulky design would win me over is if I could get a glass-floored suite under the arch.

      • Yes. It’s awful. But, frankly, downtown Vancouver has become a mess anyhow. And just wait a decade when all those glass condos start to show their age (or start dropping glass to the streets below).

    • Symbol of a market top? Hopefully, the project moves forward slowly enough that it doesn’t get started before the market kills it.

      “the viaducts are being demolished to create green space and reduce traffic into downtown”

      I share your pain on living in a city that intentionally sabotages it’s own traffic. “Smart planning” and “sustainability” are the new religion. As with any religion, rationality and common sense are simply ignored when they contradict The Faith.

  4. mmmm…. VREAA, I love the blog and I hope you won’t mind a word of dissent from a Canuck across the pond. Actually — as I’ve said before — I believe the pattern in Canada will follow that we’ve seen in UK, US and Australia – namely, 15-20% off (let’s say top end of that given Vancouver’s epic frothiness) followed by another 15-20% drop ground out over years and years – around four years so far in the UK, to be precise. This would see a home at $1.1 million dropping fast to $850-900K, then slowly declining to around $670-$700K over a long period of years. I say all this to say that MAYBE the realtor has something of a point – after the first drop, I believe you will see resistance and stand-offs. Let’s see who’s right!

    • No need for apologies, particularly since we’re discussing magnitude and not direction. You foresee a bottom that may be 40% below peak; I say more likely 50%-66%. Not a million miles apart.
      And, agreed, could take years.

      Even your scenario is highly contrarian.
      Respected analysts have called predictions of 40%-off “farcical”.

  5. Other thing I should add is that in the UK, outlying SFHs ended up getting hit hardest, with city centre condos being much less affected than more distant SFHs…

  6. I think you’re wrong. It’s the people who *need* to sell who ultimately have to drop prices to meet the buyers. Those who *chose* to sell can also chose to delist and wait for better times.

    Nobody is ever forced to buy, but some are forced to sell (due to change in employment, relationship, other financial situations).

    • In the Vancouver market, there are a significant percentage of owners whose financial futures are dependent on the value of their real estate holdings, not uncommonly their primary residence. Let’s wait and see how they all respond as prices drop 10%, 20%, 25%.

  7. @Anonymouse, you are correct in what will happen but it will not help those with ability to time the market by waiting. As those sales that result from sellers who lowering their price to stand out from the market and increase the likelihood of a transaction happen, a new market bar is set. Buyers will see it clearly, even if sellers don’t. What will occur is that those who wait it out will find that the price has dropped even further than their first encounter with this new market and will need to evaluate based on the future reality at that point in time. Ultimately, they will need to decide – do they wish to sell at market price or hold on to the home and not sell. Depending on each individual situation, the natural result will happen.

  8. oneangryslav2

    The elephant in the room (or elephants, to be more precise) is the “speculator”. Because Vancouver RE has been cash-flow negative for most RE purchases over the last X years, speculators have been holding onto real estate due mainly to a belief that prices will keep rising. We saw in 2008-2009 what a drop in prices can do to the psychology (and concomitant behaviour) of “investor speculatis.”

  9. The most important part of declines that is so often missed, especially by the bulls, is the time it takes. I am a believer that this will take 5-10 years to unwind, matching in many ways the period of time that corresponded to unusual appreciation.

    Even a 10% drop in a year, when matched against 5-10 yrs of depreciation is extremely significant over time. The bulls, will point out after a single year has passed, that – hey – it’s only dropped 10% – and then proceed to argue that the froth has been removed. Things are somehow in a great state again. However, a price level at a point in time, is just that – at a point in time. The trajectory down will continue over time until economic fundamentals can support the price level. For Vancouver, unfortunately for many, this means that a long protracted period of decline portends.

    • I believe there will be an initial 15-20% drop followed by a 5 to 10 year slower erosion in prices with a peak to bottom drop of 40-60%. The 15% drop in average prices we see now doesn’t really mean too much since it represents the types of homes selling, not an actual drop yet except in a few areas for SFH’s and condo’s in many areas. Even on my own site, those drops are just people who’s expectations were ridiculous for the most part. Down the road, and probably not far off, we will see real drops.

      I also think things are going to get extremely ugly around here (and likely around most of the developed world) and hopefully that is allowed to happen without massive government interference that will inevitably make it worse and last much longer than it needs to. This needs to happen for Vancouver to recover and be a good place to live for the next generations.

    • Indeed, this is the very best we can hope for. A slow, grinding RE bear market that takes 10 years to unravel. That would be the most humane, least devastating scenario. Oh, it will still destroy the financial prospects of an entire generation of home-buyers (multiple generations if the anecdotes posted here are any indication). But their prospects have already been destroyed – they just don’t realize it yet.

      However, any external shock would seriously mess up this “ideal” situation. What are the odds of an entire decade going by without a single serious external shock? Looking at it that way, my first paragraph looks like little more than wishful thinking. 🙂

      • Believe it or not, Cranky… “Here Come The Seventies” is actually the BestCase scenario…. In that spirit…

      • Nem, the 70s had external shocks – OPEC oil embargo in ’73, and a second one in ’79. And I am NOT going to grow a beard and wear a bright orange one-piece jumpsuit with short sleeves, and I don’t care HOW cool they look.

    • If it can go up 30% in 3 years, it can come down 50% in 2, that’s because the price inflation this time around (unlike the 80’s) has no fundamental basis whatsoever, just cheap or no cost money, and speculation has been far more rife than in the 80’s. With very little skin in the game as opposed to the 80’s when 20% downs were the norm, it won’t take a 20% drop for 1st timers to simply walk away through bankruptcy. Bankruptcy and divorce rates are about to go through the roof – there’s no alternative. And it will happen much faster than most expect especially if there is a Global black swan. Toronto can take a beating much better than Vancouver. I guess left coasters can then all go back to smoking pot and being hippies again, which comes to them naturally, instead of trying to be metrosexual stainless steel and granite yuppies!

      • …”Bankruptcy and divorce rates are about to go through the roof.”….

        Any bets PlentyOfFish IPO’s on this? Alternatively, one certainly doesn’t need a CrayJaguar to predict the HotNew LegalSpecialisms… Perhaps those YVR RE savvy student lawyers will finally get their ‘FreeHouses’ after all? 😉

      • I’m betting Lululemon tanks. The condo-dwelling yoga-grrrlz will be insolvent. No more $90 yoga pants made out of seaweed. They’ll be boiling their old ones for food.

  10. “There is no real change in unemployment and the economy isn’t changing”


    • Since the economy that exists right now does not provide the fundamentals necessary to sustain current RE prices, you’d think the Century 21 dude would realize that this in fact is very bad news. No real change means no real improvement, which means housing prices must return to earth.

  11. Van east guy

    If a realtor is selling, you should sell.–1976393

    • Great link! We should forward it to as many people as possible!

    • We’ll be headlining this story later today.

    • Smart guy. He sees the writing on the wall, and is trying to get ahead of his fellow realtors by encouraging people to list and sell before the crash. Volume has dropped precipitously, and is now at ten year lows. Realtors don’t make money when houses aren’t changing hands, regardless of price. May as well make an all out effort to trigger some panic sales and earn commissions on them.

    • this Keith Roy think is hilarious.
      This is at the bottom of the post:

      “If you are on fence about selling your home, thinking of cashing out, nearing retirement or need your equity to buy your next home, now might be the right time to call a REALTOR”.

      (fast forward to next paragraph)

      “Keith Roy is an award winning REALTOR at Macdonald Realty in Vancouver, BC. He has been ranked in the top 10% of all Greater Vancouver REALTORS for the last 5 years. Keith sold his own home 4 weeks ago based on these numbers. Keith can be reached at

      Seems Keith is pushing hard to drum up listings. He doesn’t want you to call just any old realtor – he wants you to call one who “calls it like it is” a real “straight shooter”.
      Nice angle Keith.

      • Volume (i.e. sales) is way down. Keith’s income is hurting. But, at least he sees the writing on the wall. He knows the party’s over. He’s only trying to get a jump on his cohorts by trying to scare up some early panic sales before the landslide starts. Stupid he ain’t.

  12. Global TV special report “Smoking is not bad for you” according to impartial Benson and Hedges executive

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