Welcome to Housing Analysis - Vancouver Condo Info Shuts Down

This post is the 400th post for this blog and I had hoped that I could post about something good but it appears that just as pope's blog - vancouver condo info - was really starting to hit it's stride, the Real Estate Board of Greater Vancouver has 'expressed concerns' about some of the content. Consequently the blog has been shut down.

I am interested in what concerns the REBGV has precisely and if they try to pull a stunt like that with me, I will make it very hard on them. I will vigourously defend my freedom to speak the truth.

I have my hunches on what the REBGV was concerned about and I would note that the pope's 'wiki' was likely incredibly embarrassing to many people in the real estate community. Although the real estate board could likely never win a legal action, they can exert pressure to make it difficult for a blogger to express themselves.

As usual this blog will be data based and analysis driven. I take a great amount of pride in the work we do here. Me and my co-bloggers really enjoy doing the analysis.

Pope's wiki is still up: http://vancouvercondo.info/wiki/index.php?title=Main_Page

Greater Vancouver Price / Rent Ratio

House prices in Greater Vancouver are overpriced and consequently the rental yield on properties is very low. The chart above (click to enlarge) shows the long term detached house price adjusted for inflation, the inflation adjusted rents for a 3 bedroom apartment and the price to rent ratio for the benchmark detached family home (I used a multiplier of 2 on the 3 bedroom apartment rent to represent the benchmark detached rent).

The price to rent ratio is at all time highs by a long shot with monthly rent representing 1/300th of the purchase price of a home. In some cases the ratio is much worse.


Any analysis of price vs rent would be ignorant if it did not account of the cost of capital, which is represented here by the five year mortgage rate. Mortgage rates were extremely high in the early 1980s and prices were also very high so the mortgage payment to rent ratio was extreme. It peaked in the third quarter of 1981 at 3.5 times equivalent rent to purchase the same property. In the current cycle we peaked at 2 times rent for equivalent properties. Clearly affordability was worse for a brief time in late 1980 through early 1982 compared to today.

The risk today is of course the prices themselves but the risk of mortgage rates rising is an additional risk that mortgage renewers must keep in mind. Would they be able to absorb an unexpected drop in house prices of 20% combined with a rate increase of 2-3%? Variable rate mortgage holders are in for just such a surprise over the next couple years. Fixed rate mortgage holders may dodge the bullet on the rate increase but the price decreases may leave them feeling a little trapped, especially if the payee loses his or her job.

Ratio of Owners to Renters

I was thinking about the state of the current real estate market in Greater Vancouver and I was wondering where future buyers of real estate are going to come from given the abysmally low current sales levels and the atrociously high prices. Who can afford to buy and how big is that pool of buyers compared to the population.

I had a look at the historic census data on home ownership versus renters in 1991, 1996, 2001, and 2006 and this is what I found. CMA = Census Metro Area.

In 1991, there were 588,590 occupied dwellings in the Vancouver CMA. 334,420 (57%) were owner occupied. 254,170 (43%) were rented.

In 1996, there were 692,720 occupied dwellings in the Vancouver CMA. 411,400 (59%) were owner occupied. 281,320 (41%) were rented.

In 2001, there were 758,390 occupied dwellings in the Vancouver CMA. 462,645 (61%) were owner occupied. 295,745 (39%) were rented.

In 2006, there were 816,770 occupied dwellings in the Vancouver CMA. 531,725 (65%) were owner occupied. 285,045 (35%) were rented.

We can safely assume that the owner occupied percentage has not fallen from the 2006 level. The current housing bubble was born out of a natural predilection towards home ownership and demographic trends, developed rapidly via low interest rates, and grew into a fat, disgusting beast via irrational ownership psychology and greater fool mentality. It is now time to pay for these excesses. Some of the excesses were part of the natural cycle but the bubble developed out of the unnaturally low interest rate environment and the bubble mentality

Given the above data, I just don't see any turnaround soon. Most of the potential buyers are gone. There are no more greater fools. The supply of homes for sale continues to build but there are very few willing buyers at todays prices. I expect that some renters may be convinced to buy if prices came in line with rents but this pool of buyers has shrunk over the past 20 years so there is little opportunity. Add to this the fact that many baby boomers will be looking to downsize from their large suburban homes into smaller dwellings over the next 10 - 15 years and you have a recipe for a very long and deep correction in housing.

Statistics from here. http://www.metrovancouver.org/about/statistics/Pages/KeyFacts.aspx

FVREB November 2008

Missus mohican is out and I'm looking after mohican junior. He is content with his snack for the moment while watching 'Big Comfy Couch' so I thought I'd put down a few thoughts after a celebratory smooth drink of Hennessey paired with some wonderful dark chocolate. A good way to end a day.

Why am I celebrating? Real estate prices are down, down a lot in fact and down very fast. I am going to celebrate every decile (10%) decline in benchmark prices because I don't want families who want to purchase a decent home to mortgage their future away just for the opportunity to own a home. We have a long way to go yet but, as predicted, this is becoming reality very quickly. In fact, I may be willing to throw a -40% party at a local pub when the time comes with the first 40 beers on me - I think that would be very nice - one for each percent decline. At the rate things are going, we may not have to wait very long, assuming the pub is still open and I'm still getting a paycheck!

Sales in the Fraser Valley were low, so low in fact that November 2008 broke the record for lowest sales in one month as far as the current records go back. Only 507 homes changed hands in November and with over 500,000 homes in the board jurisdiction, that fact is truly astonishing. Talk about illiquid.

Active listings in the FVREB were still extremely high for the time of year. We should see a sizeable decrease in listings during December.

With high active listings and low sales the months of inventory rose to the stratosphere in November. There is over 23 months of inventory in the FVREB and this bodes ill for any quick turnaround in the local real estate market.

Price changes are highly correlated to months of inventory so I'll be looking for substantial price decreases over the next 6 months. I waited 6 months for the first celebration at -10% but I may not have to wait that long for the -20% celebration.

Benchmark prices for all housing types in the Fraser Valley are now back to February 2007 levels and I am looking for them to break through to August 2006 levels next month.

Wow!

REBGV November 2008

Here it is in a nutshell. See the FVREB post above for more commentary.

Sales are really low - nobody wants to buy a house at current asking prices.

There are lots of people who have their house for sale and their asking price is too high.


Consequently, nobody is buying because buyers and sellers can't come to a broad agreement on what homes are worth.

At the current sales rate it would take nearly two years to sell through all the inventory.


Prices are taking a trip in the waaaay back machine and now they are back to February 2007 levels. Oops for all you recent buyers who paid too much.

It sure looks like more price declines are on the way with such a high level of supply and low low low sales numbers.

REBGV Detached Benchmark House Price Falls 4.2%, FVREB -4.9% in November

The Real Estate Board of Greater Vancouver has released their monthly statistics package and it is in stark contrast to the 4 years ending in April 2008. Sales are insanely low, inventory is a record highs for this time of year and prices are collapsing.

Jesse updated his chart comparing Vancouver to other markets - wow!

And Agent Will said this of the November statistics on Real Estate Talks:

". . . what is not said in that report is that we had the lowest November sales (volume wise) in at least 16 years. Not just by a little but by nearly 50% below the previous lowest November. The question then becomes: If no one is buying (OK, 800+ sales is not no one) then who is? And why?

I'll tell you who is: Cherry pickers. The lowest price properties are getting bought at much lower prices. Weekly stats on my site show that sales price to the original list price is anywhere from 10-15% less. The biggest difference I have seen this past week was a 2.888m house selling for, gasp, 1.8m. That's a good 33% below. Now really is a good time to be making offers that make sense to you (I didn't say buying anything... only buying if the offer works in your favour).

A lot of time will be spent to get these offers through and many will be rejected but you potential buyers out there are now shopping in a market that is absolutely panicked and filled with Sellers acting like a deer in headlights, frozen stiff not moving (prices) at all. They want to move (who wants to get hit?) but are completely stunned by the turnaround. Some will be run over... others, with your
encouragement (offers), will move.

I will be back with charts later. Meanwhile, I have work to do.

Bull vs. Bear

Various versions of this chart have floated around for some time but I thought I'd post it here for discussion.

I think the conclusion you can draw from this chart is that the duration of bull markets is longer than the duration of bear markets. Additionally, bull markets nearly always rise higher than the previous bear market fell.

Keep in mind that a 50% fall requires a 100% increase to put you back at the same starting point. Additionally the chart is out of date because as of November 20th, 2008 the TSX had fallen 52% since June 18th, 2008.

When will things turnaround? I don't know, trying to time the market is for fools. Stocks are 'quite cheap' right now so I'm comfortable buying stocks because I have a long time horizon and a high risk tolerance. Perhaps the market will go down further but then stocks won't just be 'quite cheap', they'll be ridiculously cheap.

The advice of investing to your risk tolerance still stands.