Andrey Pavlov, Professor of Finance, SFU – “I think this debt accumulation engine of real estate price growth is now done. I don’t see where the future support for real estate can come from.”

“According to the Real Estate Board of Greater Vancouver (REBGV), home sales dropped 18.4 per cent in July, marking the lowest total in the region since 2000. In Coquitlam, the number of sales in July dropped 26 per cent from the previous year. …
“We’re seeing some areas that are quite flat and no changes, and some areas we still have pockets of activity,” said Sandra Wyant, president-elect of REBGV.
She suggested July is typically a slow month for real estate sales, noting buyers and real estate agents alike often tend to be on holidays. …
She said prices could start to come down as competition amongst sellers heats up.
However, Wyant said it often takes a while for sellers to make an adjustment in the marketplace.
“Right now it’s a fabulous time to jump into the market,” she said, adding there are many choices and no pressure to make a decision.


“But one financial expert believes Lower Mainland real estate has reached a turning point.
Andrey Pavlov, a professor of finance with Simon Fraser University, noted prices in Vancouver have rocketed past those in places like New York and San Francisco, and in the case of the Tri-Cities, are comparable to suburbs of those major cities.
He suggested the pace will not continue and predicts prices will likely drop in the Vancouver area.
Pavlov argued home prices rose dramatically in the Lower Mainland, not out of income or general economic growth, but rather debt accumulation.
With low interest rates and easy qualification terms, people have been taking on more and more debt.
“I think this engine of real estate price growth is now done,” Pavlov told The NOW in an e-mail.
“So I don’t see where the future support for real estate can come from.”
And he’s especially concerned for the condo market.
He explained that singlefamily properties would always hold their value to some extent because usable land in the Lower Mainland is limited.
But he contends condos have absolutely nothing that can support them. And in cases where the quality of a new development might be in question, he can see prices of condos in the suburbs dropping by half or more.


– from ‘Housing sales plummet, SFU professor believes price of some suburban condos could drop by half’, Jeremy Deutsch, Coquitlam Now, 10 Aug 2012 [hat-tip Gord and Alexcanuck]

Another article of interest because it involves named locals coming out publicly with bearish predictions.
We agree with Pavlov that the home price rises have been the result of a debt fuelled bubble, and that future support is tenuous.
As for the quantitative aspect of his prediction: we’d agree that “condos in the suburbs” will drop by more than 50%. However, so will condos in the city, and, contrary to Pavlov’s apparent suggestion, so will SFHs, in all areas.
During the speculative mania, it was argued that SFHs were something particularly special, and they received that much more speculative juice as a result. During the descent, that speculative component will be wrung out, and prices will return to those of the early 2000’s. For the vast majority of SFHs that means drops of greater than 50%.
– vreaa

20 responses to “Andrey Pavlov, Professor of Finance, SFU – “I think this debt accumulation engine of real estate price growth is now done. I don’t see where the future support for real estate can come from.”

  1. Renters Revenge

    “So I don’t see where the future support for real estate can come from.”
    Look down, way down. Household/family incomes of $70k/yr, what kind of mortgage does that support?

    • Rule of thumb, annual gross income x 2.5. Derivative value evaporates and after a deflationary period replaced by saving/production paradigm once again. Wild card is monetary policy. They’re just children playing in a sandbox called Vancouver.

    • CanuckDownUnder

      No kidding. I was momentarily stunned when I was reading an article that brought up Sydney’s median household income of $76K/year.

      Is that really the strong fundamental supporting our average house price of $595K and average apartment price of $480K?

  2. Agreed, a 50% drop has been seen in Canada before when fundamentals were much sounder in the 80’s and 90’s; people actually had skin in the game. It’s a whole different ballgame now, so 70% by 2017 is not out of the question. Even the early 2000’s prices were juiced by Chretien / Martin changing RRSP rules and lowering interest rates. I bought in ’97 @ 5.5% / 5 yrs. These rates were unheard of in the 80’s and most of the 90’s. So based purely on fundamentals, prices should recede to mid 90’s levels. The fact that nothing in the 21st century world is based on fundamentals may prevent that dramatic a drop but I don’t see how 50% across every major city in Canada will be avoided!

    • 🙂 despite serious efforts to the contrary, fundamentals have never failed to reassert … but it may take longer than expected
      aside: missing some f1 color … http://tinyurl.com/8zaor5d
      “How One Drink Almost Got Me Murdered By A Rich F1 Fan” (cdn content approved)

      • Yep fundamentals will reassert. As much I dislike the Ayn Rand-ians, I liked her quote about the economy, “You can avoid reality, but you can’t avoid the consequences of avoiding reality.”

  3. “…prices in Vancouver have rocketed past those in places like New York and San Francisco…”

    Ruh-ro!

  4. Debt accumulation engine. A perfect metaphor.

  5. Sandra, “nows a fabulous time to jump into the market”

    Question for Sandra:

    When isn’t a fabulous time to jump into the market?
    NEVER SILLY, buy now it might not go lower vs buy now it might go higher.
    Spin doctor, full of crap knows not of what she speaks.
    Go to school study history, economics, research RE trends that are maxed out and what happens.
    Again the monkeys are running the zoo.
    Sandra should package her crap and sell it as fertilizer and grow a brain.

    • Don’t be shy, tell us what you really think!
      (I agree BTW, that’s for a chuckle, not a dig.)

    • Ralph Cramdown

      Her BS advice got me thinking: Why do big RE boards elect a new president every year? It ain’t the Rotary club; twenty or thirty thousand members paying a $500-800 a year in fees is a low 8 figure budget. One might think tenured professional management would be called for, as amateurs would be barely settling into the job as their terms end, thus unable to effect change on what must be an organization run largely by hidebound, undersupervised employees.

      Then I thought, maybe the constant BS wears you out after a while, but on the other hand, that’s their day job before running for president, too, and the “chief economists” at the national associations seem to last for years doing about the same thing. What a joke.

  6. Andrey Pavlov is an economic expert who is not funded by any of the local development industry. Hmm . . . seems to be more willing to make a negative statement compared to TS at UBC.

    • This is unfortunate…. This scholar will likely not receive the sponsorship that Tsur’s institute does (i.e. Grosvenor, Henderson Development, NAIOP) or teach courses that Tsur does (Real Estate Development, Real Estate Investment)….

      How can this TS clown be considered a “scholar” in the classic sense? What a farce.

  7. Andrey is not in economics. He is practially the head of the business school . He runs one of the Masters in Finance programs. I have spoken with him on many occasions and as I seem to get from him is that there is no economic reason for the current pricing levels.

  8. Mark Johnstone

    The sales of condos in this area is down about 20-30% this summer and detached housing is down somewhat less. In Poco sales of detached housing was down by 4 units as compared to July 2011, and attached units in Poco qre only down 13 units for the month, despite the fact that mis-informed News (?) purveyors such as Jeremy Deutsch are bombarding buyers with scary if untrue information and quoting anyone who has a title that makes them sound like they might perhaps possibly know something or other. Sales in the North-east suburbs are not the problem but rather buying patterns in Burnaby and especially North Van where detached houses have doubled in about 4 years while we have inflated a fraction of that amount. I ran the lower British properties on the MLSLINK>MLXCHANGE to see that there are about 15 houses in the lower British Properties that had lots varying from 1/3 to 1/2 acres and with floor areas from 3000 to 4500 sq ft for under 1.2 million dollars while many bungalows in the 2200 sq ft range with lots in the 7200 sq range sold for about the same amount. Newcomers to the Burnaby area also drove the prices for marginally built econo quality homes on what would be junk lots traditionally, ( Burnaby Edmonds area, right on Canada Way, etc), have been selling for ridiculous prices. Maybe Jeremy ought to be clearer in his thinking, not make uninformed headlines of personal opinions of any old”financial ” academic who wants to see his name in print, and Mr Deutsch, should be clearer in his ramblings about what he wants to say. He is supposed to report the story and not make it happen through either ignorance, malice, or a need to hear himself talk. If there is a 4th explanation for making a headline that the type of uninformed people who get their facts from Mr Deutsch, that headline being a plummet in our relatively stable market given the summer of bashing from the local media, I am listening. The market always has slow times when the rain finally lets up, and to call the fluctuations in the Tri Cities the same as North Van, Commercial Drive Area, Burnaby, and White Rock which is also surging, is . . . . . sorry, only my opinion but I gotta say it . . . .STUPID!!!.
    I note that Bob Rennie, who by the way, actually IS an accepted expert in this field unlike Mr.s Deutsch and Andre Who-ever-he-is Pavlov, is still putting full page ads i the Now. Maybe Mr Pavlov will sell me HIS home for half price. Mr Pavlov, I will make a guarantee that if you list your home in the Greater Vancouver Area for even 30% off current market value, it will sell for over asking price in days if not hours.

    In my humble opinion Mr Deutsch, and Mr Pavlov, unless they have been misquoted, are horse’s rear ends.

    Mark Johnstone
    Johnstone Home Inspections (ASTTBC CHI) /
    Amex Broadway Realty (Associate Broker).

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