Ben Rabidoux’s Vancouver Summary At Macleans – “While sale volumes are nearing recession levels, building in the Vancouver region has been booming.”

“When the August resale data for Vancouver came out last week, the headline news was that sales had fallen to their second lowest level for the month since 1998. Sales were 30 per cent below what they were in August of last year and 40 per cent lower than the August average of the past 10 years.
But the numbers are even worse than the headline reveals. On paper, August 2008 holds the record as the weakest month of the past 15 years. However, it had two fewer week days than August 2012. If calendar differences are taken into account, last month represents the lowest sales volume of any August in 15 years.”

“At the same time, total months of inventory in Vancouver hit double digits for the first time since 2009. (Months of inventory represents the length of time it would take to sell all the homes listed for sale given the number of sales in the previous month. In other words, it is a quick snapshot of supply and demand: The higher the number, the worse the reading.)”

“Admittedly, the pace at which homes are being put up for sale has slowed considerably in August from the mid-summer peak, but builders don’t seem to have gotten the memo that demand has been cooling rapidly for months now: the number of housing starts and dwellings under construction, particularly condos, has risen rapidly from the 2009 lows and continues to grow.”

“In other words, while sale volumes are nearing recession levels, building in the Vancouver region has been booming. Barring a strong reversal of current trends, this supply of new homes will only increase inventory and further pressure prices, which showed the first year over year dip since 2009 according to the MLS Home Price Index.”

The last time the numbers were this bad in places like Vancouver and the downtown Toronto condo market, it was August 2008, but things looked quite different then.
The Bank of Canada overnight interest rate was three per cent and would drop to 0.25 per cent over the next eight months, bringing variable-rate mortgages and HELOC rates down with it. The discounted mortgage rate (the rate borrowers actually get from the bank, as opposed to the overnight rate) was about to plummet nearly 200 basis points in five months, providing a massive boost in affordability.
In addition, the government and CMHC were about to launch an aggressive campaign to insure low-ratio mortgages and purchase them and other insured mortgages off bank balance sheets in an effort to keep mortgage credit flowing.

Today, however, we have the exact opposite dynamic. Rates are near record lows, particularly for fixed mortgage rates and widely expected to rise sometime next year. It is much more difficult for lenders to obtain bulk insurance from the Canada Mortgage and Housing Corporation and I’m now hearing of big banks asking for a greater down payment on conventional mortgages in certain markets where they see a higher risk of a housing correction. Also, the Office of the Superintendent of Financial Institutions Canada has axed cash-back and stated-income mortgages by the big banks while the CMHC has tightened mortgage rules again.

The take-away:
The sudden slowdown in sales in key markets as a result of new lending rules is perhaps the clearest sign yet that the Canadian housing market is being driven and sustained by mortgage debt rather than true fundamentals. In August, Canada’s three-largest metropolitan areas saw significant declines in home sales and growing inventories of unsold dwellings relative to last year at this time. While this may not constitute a trend yet, it should at the very least cause us to ponder the implications of the long-anticipated slowing in the resale market. Indeed, should soft sales persist, and I see little on the horizon to reinvigorate them, they will weigh on prices in these key markets and likely in short order.

– charts and wholesale reposting of text from ‘Canadian housing: There’s an obvious oversupply problem in Vancouver, Toronto and Montreal’, Ben Rabidoux, Macleans, 11 Sep 2012

Great summary of ‘where we are now’, Ben.
Reproduced here for the chronological record.
For those interested, sales, inventory, and prices are regularly and vigorously monitored and discussed at (VCI).
Topping is a process, and it appears clear to us that Vancouver RE is a bubble in the process of preparing for some serious deflation.
– vreaa

Here’s another angle on ‘where we are now’, via Garth Turner:
“Let’s use poor Vancouver as an example of what happens when hot turns not. For an on-the-spot report we turn to one of our insiders:
“September’s first week has gone by. We’re well on track to have the worst September in 12 years. A couple of disasters now are North Vancouver (the last bastion of 2-salary professional home buying). Can Richmond really go lower? Well – last month was a disaster – this month we are now on track for only 45 sales (down again from 60). We’ll see how this goes.
“Just saw an interesting sale in Quilchena in Vancouver [West-side]. Sold for 1.5M which was 600,000 below assessed. The owner was likely 80 years old, bought 55 years ago. This was big lot in a great area. An area I would really like to live in. This was a 6,000 sq foot lot. Took a while to sell and I’m sure the owner said she just wanted her money. They did list close to $2 million but on the 3rd price drop a low ball came in and she took it. Must be shocking.
“Anyhow, we are on track for 1360 sales compared 1585 in 2008. That’s a pretty decent drop – and may even get the MOI above the 2008 level. People here are so completely delusional.”

– from Garth Turner at 11 Sep 2012

36 responses to “Ben Rabidoux’s Vancouver Summary At Macleans – “While sale volumes are nearing recession levels, building in the Vancouver region has been booming.”

  1. ‘Suddenly’, we’re popular!

    “It goes against our cultural beliefs and values of management of our territories and bears in particular, and because we have an increasing presence on our land with research projects, with our people reconnecting to the land, it doesn’t make sense to have real estate speculators hunters in the same area.” – William Housty, FirstNations Spokesperson

    [CBC] – Bear hunting ban declared by 10 B.C. First Nations

  2. Year on year total home sales change and MOI:
    Vancouver -31% 10.7 MOI
    Quebec -26% 12 MOI
    Victoria -17% 10.9 MOI
    Ottawa -14% (Total inventory not provided)
    Hamilton-Burlington -13% 3.2 MOI
    Edmonton -11% 5.2 MOI
    Montreal -7% 10.8 MOI
    Kitchener-Waterloo -4% (Total inventory not provided)
    Calgary 16% 6.3 MOI

    Anyone have inventory for Ottawa or KW?

  3. Ah yes, speaking of bubbles, PropertyBooms, ‘sudden slowdowns’ and changed lending ‘rules’/practices… This just in from China [definitely a “Could be worse.”]….

    [BloomBerg] – Shadow Bankers Vanishing Leave China Victims Seeing Scams

    …”To live out his retirement years, He Zhongkui was counting on steady income from an investment that promised interest payments five times higher than what he could earn in a Chinese bank. Now He, a 62-year-old former municipal official in Wenzhou who rides a rusty bicycle, is cutting back on food and gasoline, having found himself one of a growing number of victims of China’s nebulous world of shadow banking. A “friend,” who he said had been paying him 2,400 yuan ($379) a month after He gave him one-third of his 600,000-yuan life savings to invest in real estate, suddenly disappeared. So did the payments and principal.”…

    • And then there’s this… Just in from Blighty/HydePark [NoteToEd: You just can’t make this stuff up… File this one under evidence supporting Nem’s BlueSkyCatastrophe BifurcationTheorem]…

      [FT] – Hyde Park mansion on sale for £300m

      …”The London mansion of Rafiq Hariri, Lebanon’s late prime minister, has been put up for sale in what is expected to be the most valuable housing transaction in British history.

      The stucco-fronted property, which overlooks Hyde Park, is being offered to a select list of wealthy international buyers at an asking price of £300m, according to insiders.

      The figure, more than double the previous UK house-price record of £140m, underlines the position of London’s luxury property market as an asset class cocooned from the country’s economic realities.

      The 45-bedroom, seven-storey building runs from 2-8A Rutland Gate and covers an area of 60,000 sq ft – slightly smaller than the playing surface of a Premier League football pitch.

      The property, built as four separate family houses, was owned by Mr Hariri until his assassination in 2005. After his death, the building was made over as a gift to Sultan bin Abdulaziz, crown prince of Saudi Arabia who died in October. Mr Harari had close business ties with the prince’s family.”…

      • Well, never mind all that, DearReaders…. Indeed, just forget all about HydePark and the late Sultan bin Abdulaziz’s Renos & subsequent EstateSale… For after all, there’s always Bromley’s GreenMidgetCafe ‘for the likes ‘o us’…

  4. Fascinating article by Rabidoux. VREAA host and commenters, I think we’ve been seeing all this happening before our eyes and posting about it. Are we all informal consultants to Rabidoux? 🙂

    As I’m no statistics jock, for me this corroboration is the proof of the value of eyewitness testimony (anecdotes). I understand, as housing expert Andy Yan once said, “the plural of anecdote is not data.” However, I’ve been bewildered for some time now at the convergence of these factors in my own Vancouver neighbourhood:
    1). Evidence of a bubble
    2). Evidence of new builds sitting on the market for a year or more
    3). Evidence of houses that are clearly empty and have been so for a while
    4). Frenzied pace of demolitions and new builds going up.

    As I’m writing this, I can hear the hammers on some of the seven new luxury single-family houses being built within *one block* of my own rental. Indeed, there are not only For Sale signs on literally every block near me, there are often multiple houses/apartments for sale. Furthermore, there seems to be at least one SFH going up on nearly every block near me, sometimes more.

    I had posted some weeks and months ago about how builders didn’t seem to be getting the message about the housing market slowing down. After I read the Mayor’s excited comments a few weeks ago about a billion dollars’ worth of new building permits, I wrote to someone on City Council saying that what was being built near me, just as one example, didn’t look like it was selling well at all.

    It’s the same old story as it was when I first starting posting at VREAA a year ago: affordable (some of it admittedly not in good shape) housing going down in favour of new builds that are way out of reach (statistically even!) for Vancouver incomes. I predict the West Side will have tumbleweeds rolling through it by next summer.

    The video above of the break-dancing bear has to be one of my favourites ever posted here. (Nem, thanks too for your steady supply of visual analogues/commentary — loved the Century 21 signs flapping in the wind you posted a few weeks ago.)

    Obviously, I’m a total amateur when it comes to city planning, the economics of housing, building issues, etc., but what I’ve observed just walking around is borne out by Rabidoux’s graphs above. It really boggles my mind that people who are supposedly experts in housing and economics and city planning either can’t see what commenters on this blog see or have too many vested interests to be honest about what is going on.

    • Whoops — when I said “affordable housing” above was being torn down, I should have written “once and perhaps [when bubble pops] affordable housing” — e.g. bungalows that used to be affordable and might be again, if they were left standing, should prices tank.

    • ” It really boggles my mind that people who are supposedly experts in housing and economics and city planning either can’t see what commenters on this blog see or have too many vested interests to be honest about what is going on.”

      I don’t know much about it epte but Ben Rabidoux rolls with “the best”.

      You know what they say about higher education:
      With a bachelor’s you think you know everything
      With a master’s you realise you know nothing
      With a PhD you realise everyone else knows nothing as well

      • My dad is a boomer and was a city planner for years. He left his job because of the insane amount of corruption within the department and because council was mostly made up of developers, real estate agents and the like. He couldn’t make a difference any way he tried and basically had a meltdown in the end.
        My parents have a good retirement plan that does not include equity in any way. They would also have a spaz attack if they found out we were buying houses in this market. They’ve been talking about the bubble for years.

      • I have a masters in urban planning. While in graduate school I interned at a city and worked there a year afterward.

        Since then, my professional track as been about me trying to distance myself from that stuff as quickly and throroughly as possible. Luckily I also studied real estate development at the same time which helped me move into the private sector.

        Modern city planning is generally a collection of ideological positions about density and the morality of cars with very few hard facts or data to back it up. Planners tend to cite each other as sources, and if you follow the trail of expertise, there is not much at the end of it.

        In my city, it is amazing the extent to which current planning dogma and developer/large property owner interests have become completely aligned. Planners are absolutley convinced they are “doing good” for the public while we subsidize development in any number of ways with tax payer dollars.

      • I meant to compliment your saying about the bachelors, masters and PhD. Hadn’t heard that before.

      • +1 pip’s post … epte -always enjoy reading your stories, not sure why … they’re sort of outraged/reflective/measured/hopeful vignettes from where i grew up … fwiw, the outrage went away to the extent i gave up on the hope … it was a process … not sure when the last straw came but stockman probably did it … he’s got a funny way of pulling out weird little factoids that spin the wheels of your mind … “Just take one example. According to the Bureau of Labor Statistics monthly report, there are 650,000 or so jobs in the U.S. Postal Service alone. That is 650,000 people who pretend to work at jobs that have more or less been made obsolete and redundant by the Internet and who are paid through borrowings from Uncle Sam because the post office is broke. Yet, the courageous ladies and gentlemen on Capitol Hill cannot even bring themselves to vote to discontinue Saturday mail delivery; they voted to study it! That is a measure of the loss of capacity to rationally cognate about our fiscal circumstance.” … that is to say … we’re past the point of no return and this ‘thing’ will only resolve itself the ugly way … i’d prefer to wager on the best in people but here and now, it’s much easier taking the other side

      • I’m so glad I declined that Fellowship, Dr. J! Otherwise, how else would I maintain the cherished ontological illusions of youth [that somebody must know something]?…

        Thank goodness for that spell sorting HM’s post though… It was a most refreshing break from RayBans and TrenchCoats…

      • “the insane amount of corruption within the department and because council was mostly made up of developers, real estate agents and the like”

        In Vancouver, for one, one out of every four dollars of revenue comes from construction activity. Council’s in for a pound no matter what.

      • UBCghettodweller

        With a bachelor’s you think you know everything
        With a master’s you realise you know nothing
        With a PhD you realise everyone else knows nothing as well

        HA! That totally made my day- if not my week.

        My PhD in science has been a consistent lesson in how I know bugger all and how even the collective efforts of my field, if not all humanity, over centuries barely has figured out anything at the best of times.

        … Then I TA those little shit undergrads who think they understand the entirety of science and have a handle on how the universe actually works. There’s a reason why us more senior academics are a little bit prickly at times.

  5. “Citing the impact of falling natural gas prices, Finance Minister Mike de Jong said the province will immediately freeze hiring across the public service, immediately freeze salaries for all public sector management staff and introduce “extreme spending controls on travel.” ”

    But everybody wants to live in BC though, best place on earth… tons of jobs and opportunities. What a vibrant economy they have! Must be the reason why houses are so extremely overpriced, “consumer confidence” through the roof! Driving prices to the moon, cause well, everybody wants a piece of the thriving BC pie ….. -_- ……

    What a circus…

  6. If you’re a builder in this scenario, if you see the bubble popping in the near future, your course of action is to maximize profits while you can. Hence the flurry of building. Everyone’s trying to make hay, even though they can see the sun setting.

    • UBCghettodweller

      I think you’re right.

      Hell, if I was in the same position, I’d do the same damn thing while denying that the market it changing for as long as possible. There’s economics in terms of the math of money flow with and assumption of a rational market, and then there’s economics in terms of psychology, society and the money flow within it. The latter case is what usually makes or breaks any capitalistic operation. Right product, right time, right market. Any one of those is lacking, you’re in trouble. Right now, with the house/condo horniness pretty much at its peak, those three criterion are still being met.

    • That could also explain a bit of the “lag” in prices. Those places will not be finished for months and effectively holds the inventory off the market until they are done. Thus, by sometime in spring we should see a massive flood of new property listings. Just as things get ugly.

  7. I say, ‘OlChub… Did you enjoy a taste of ‘Uncle Ben’s ‘NewRice’… “In an instant”, today?… [NoteToEd: No, not Rabidoux – the other UncleBen.]

    No? Never mind, Chubster – there’s always Sheryl by way of consolation. She doesn’t have a 3D printer [or prepare ‘rice’ in, “an instant”]… But she does have a SqueezeBox! [a rare musical treat, yet hardly surprising for such a talented, VariegatedChanteuse from… the “Show Me” state.]…

    [NoteToEd: FairGame. Sheryl’s 50, ya know… TeeHee!]

    • sir_nem … history’s 1st full spectrum dominant nuclear banana republic … the mind wanders … to perhaps ultimately, a schindler moment

  8. Some excellent graphs and data to support our anecdotes!! Now how to get this info to all the sellers who have not budged on price. Anybody else noticed that many properties just have ridiculous expectations in terms of price. Heck I looked at a colleague’s “Home and Land – Malibu and Beverly Hills” and was actually quietly saying to myself that many of these homes are really nice and cheaper than Vancouver!

    • Click on Nem’s Gravatar, CowTownBoy…. you might recognize his LongLost Favoured’Hood [hint: 4th frame]… Alas. NeverMind. NemNeedsMustBeHere. ForNow.

    • UBCghettodweller

      Vancouverites will just tell you that LA is a shithole American sprawl and the reason why it’s so expensive in Vancouver is because, well, it’s Vancouver and every other city is lesser. It’s axiomatic to the thinking here.

  9. “Quote from Bob Rennie on Vancouver real estate: Why it’s different there and why we should abandon all logic “

    • Well, 4Slices… All I can say is… “Don’t they make a ‘LovelyCouple’!”…. [BR+Arianna]….

      [Forbes*] – AOL, Arianna Huffington Hit with Class Action Suit

      …”Huffington Post bloggers who think they ought to get paid for their volunteer writing have been litigating their case in the court of public opinion. Now they’re taking it to a real one.

      Today, a group of bloggers led by union organizer and journalist Jonathan Tasini filed a class-action suit against the Huffington Post, founder Arianna Huffington, and AOL, which acquired the news-and-blogs site in February.
      Tasini, the lead plaintiff, has been a blogger for Huffpo since December 2005, when the site was just seven months old. According to his blogger page, however, he stopped posting on February 10, three days after the purchase of the site by AOL was announced. I emailed him for more information about the suit; he responded by inviting me to participate in a telephone press conference. (Update: On the call this morning, Tasini vowed to make Huffington “a pariah in the progressive community” and said his goal is to set a precedent that writers must share in the value they create.)

      Tasini was also the lead plaintiff in New York Times Co. vs. Tasini, a lawsuit over the rights of papers to license the work of freelancers for distribution via electronic databases.That case was decided in favor of the plaintiffs.”…

      [NoteToEd: Subsequent to previous allusions, you&DearReaders may recall… ahem… ‘Nem’ is a Forbes ‘alumnus’ – before the RayBans. Naturally.]

  10. Pingback: “While sale volumes are nearing recession levels, building in the Vancouver region has been booming.” |

  11. The comparison to London is apt, as foreign money seems to be putting a floor under prices in both cities despite lacklustre economies. Even though prices here are massively overvalued despite recent declines, there are people who will pay them. And those homes that don’t sell are taken off the market by owners who seemingly don’t really need to sell.

    • There may be some of that going on in Vancouver, but we’d still argue that the comparison to London is a stretch. It’s all about quantities, and sentiment. We suspect Vancouver could lose it’s “safe-haven” story in a flash… London, less so.

  12. Pingback: “As I’m writing this, I can hear the hammers on some of the seven new luxury single-family houses being built within *one block* of my own West Side rental.” | Vancouver Real Estate Anecdote Archive

  13. Pingback: REAL ESTATE: Builders Could Not Possibly Have Timed This Any Worse ……. |

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