“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.