Comparing US Prices at peak to Canada Today

It's always refreshing to see new data to analyse but it's equally as refreshing to see existing data analysed in a different way. Over at vancouvercondo.info poster vibe performed some analysis comparing the price-income ratios in Canada today to the US in 2006, around the peak of their prices [jesse: I inserted an updated graph]:

"...there was some discussion about whether Canada is in a real estate bubble. Everyone pretty much agrees about Vancouver, but here are a couple of points that were made about the national scene:

1. It is reasonable to claim that there is not a housing bubble in Canada because only certain areas are over inflated.
2. Vancouver's very high prices skew the national average and cause Canada to look worse than it really is.

One thing I think we can all agree on is that the US did have a housing bubble. Well I put together a spreadsheet that I feel shows that affordability is about as bad across Canada as it was in the US at their peak. It also shows that Vancouver is not skewing our national data any more than the most overpriced cities in the US were skewing their data. In order to measure affordability I used house price to personal income ratios. I compared the 20 cities used in the Case Shiller Housing Index to the 6 cities used in the Teranet Housing Index. The US data is from 2006 while the Canadian data is from 2009.

I think the following graph most clearly illustrates my point:

Vancouver is the only Canadian city with a ratio over 9, while the US had 3: LA, San Fran and San Diego. Toronto is the only Canadian city with a ratio between 5 and 9, the US had 9 in this range. The under 5 range looks bigger for Canada but we have more population covered by our index than they do by theirs. The important thing is that the percentage of each nations population living in cities with elevated ratios is similar.

The distribution and average ratios for both countries are almost identical.

(Highlighting above is mine.)

Almost identical.

These data would be less of a concern if sales volume were low but, based on the volume of sales in the past several years, we know a not-insignificant portion of the population have bought at high prices. In addition we know the make-up of personal debt in Canada has been trending into the "unsustainable" territory, throwing into serious question the argument that future income gains justify high prices, even in part.

Gird yer loins!

You are here--updated

I have seen a few requests for an update to the 'you are here' graph. Well, here it is. Data are from Royal Lepage here.

Here are all the caveats. All prices are adjusted for inflation, using Q1 2010 prices. The graph looks pretty much the same with a log scale or if you put the y-axis to zero. This is for Vancouver West condos--not because they are representative of the broader market but because this is ground zero for the bubble.


How far down to you expect this to go? How long? Why?

Canada's brewing debt storm - - Globe and Mail

For every $1 of disposable income, Canadians owe a record $1.47. How did it come to this?

By Paul Waldie and Steve Ladurantaye

From Saturday's Globe and Mail

Canadian borrowers are fast approaching a day of reckoning.

Lured by cheap money to buy up, buy in, expand and make over, families have pushed credit levels to a record high.

Now, mortgage rates are beginning to creep up and the Bank of Canada is poised to retreat from the record-low interest rates it adopted to fight the recession and spur recovery.

The end of the free-money era has left consumers more vulnerable than ever, and those who threw caution to the wind could soon face costs they can't handle.

Household debt has surged three time faster than income in recent years and now stands at a record high of more than $1-trillion. Put another way, Canadians owe about $1.47 for every dollar of disposable income. Even more remarkably, they took on more debt during the slump - a first for a recession - because borrowing was so cheap.

With debt levels this high, even a small hike in interest rates will be ugly for those whose incomes aren't rising fast enough to meet their day-to-day expenses.Their woes could have a snowball effect: As debt-strapped consumers pull back, their credit woes spill over into the broader economy and risk putting a damper on the recovery.

For some, the trouble has already begun. John Silver, who runs Community Financial Counselling Services in Winnipeg, has seen his caseload increase 20 per cent from last year. "We re seeing more people coming in with more stress with regard to their debt," he said.

Much of the recent rise in debt in Canada has been due to low interest rates, generally easier credit terms and fierce competition among lenders. Even when the recession hit in late 2008, Canadians remained far more confident than Americans in part because of a better housing market and stronger financial institutions. Consumer confidence in Canada is only about 20 per cent below where it was in 2007 whereas it's 60 per cent lower in the U.S.

The higher confidence level and stronger banks meant Canadians were far more eager to borrow during the recession than Americans, said Benjamin Tal, senior economist at CIBC World Markets."I can offer you a very low mortgage in the United States and you won't take it," he said. "In Canada you jump on it, because confidence is high."

Now though, "what I'm seeing is a consumer that is more sensitive to higher interest rates," he added.

Most of the increased debt, roughly 70 per cent, has been in mortgages, reflecting the still hot housing market in much of the country. That has left many households struggling to meet monthly payments on hefty mortgages and more susceptible to rising rates. Families in Vancouver, for example, spend about 68 per cent of their disposable income on the cost of maintaining their house, compared to less than 40 per cent 10 years ago.

"There's been a real frenzy just to get in [to a house] at all cost, because if you don't get in you may never get in," said Scott Hanah chief executive of the Credit Counselling Society, a non-profit group based in Vancouver that helps people sort out their debts.His organization is fielding about 4,000 calls a month and has seen a 10-per-cent increase this year in the number of people seeking help."Last year we saw an increase in activity of over 50 per cent. So to have a further 10 per cent increase on top of that is significant," he added.

There are many people in the same position as James Laidlaw and his young family, who borrowed to build onto their Toronto home, adding construction costs on to a mortgage to help finance $250,000 in renovations and an expansion of 600 square feet.

Even a jump in mortgage rates of just half a percentage point will mean an extra $1,700 a year for Mr. Laidlaw, his wife and two children."Every dollar counts and I'm already thinking about the other things that may suffer," he said. "Maybe we'll have to lose the vacation, or scale back Christmas.

"Canadians used to be big savers and cautious borrowers. In 1982, Canadians socked away 20 per cent of their disposable income and per capita debt stood at about $5,500, according to Statistics Canada. By contrast, Americans were saving just 7.5 per cent of their disposable income at that time and borrowed $6,500 per capita.

Savings and borrowing soon went in opposite directions in both countries and by 2002 debt levels surpassed disposable income for the first time. In 2005, the savings rate in Canada fell to 1.2 per cent, about the same as in the U.S. Meanwhile, per capital borrowing jumped to $28,390 in Canada and $48,700 in the U.S.Consumers are feeling the pinch. A survey last year by the Certified General Accountants Association of Canada showed 21 per cent of respondents could barely meet the interest payments on their loans. The group is about to release a similar survey this year and, said the group's chief executive Anthony Ariganello, the level of those struggling to cope has climbed to about 23 per cent.

"We may be back into a recession [next year] because, remember, part of what has helped us get out of this recession was spending and consumer spending at that, and if people don't have money to spend we could be rapidly back in to where we started," he added.And while consumer spending and confidence have increased recently, both may be short lived, said CIBC's Mr. Tal.

"There is a gap between confidence and ability," he said. "It's a gap between what's in your head and what's in your pocket. And this gap is, of course, a matter of concern because consumer confidence is high due to the fact that interest rates have been extremely low and people are able to finance those mortgages and those loans.

"In a recent report, Mr. Tal concluded that "Canadian consumer fundamentals are weaker than they have been in almost 15 years."That's something that concerns officials at the Bank of Canada. If consumers run into trouble with their mortgage payments, that in turn can lead to "wider problems with other consumer loans, such as credit card debt," David Wolf, a Bank of Canada economist, said in a speech in January. "Consumers may also have to curtail other spending to cope with their debt burdens, creating adverse spillovers to the real economy.

"Michael Hammond has already scaled back his plans. The Ottawa resident has a pre-approved mortgage of $220,000 and has been looking for a house. He nearly bought a $214,000 townhouse last week, but backed off because he's still considering the effect of eventual higher rates."I am mulling over mortgage scenarios in my head like crazy right now," he says. "It's a scary time to be looking for a house. I'm looking at three cheaper homes today because I am so worried about overextending myself and getting caught five years from now.

"Neil Bigelow and his partner Tina Boudreau are also running over financial calculations as they prepare to buy their first home. The couple has been planning to buy a piece of land in Halifax and build their own home. But the prospect of rising rates has them worried about how much to borrow.

"Right now I could probably get $200,000 mortgage," said Mr. Bigelow. "But what's going to happen down the road because interest rates are not going to stay where they are at."

By the numbers

68%: Average amount of disposable income households in Vancouver spend on the cost of a home

44%: Average in Toronto

35%: Average in Calgary

36%: Average in Montreal

30%: Average in Ottawa

21%: Percentage of Canadians who say they can't manage their debt load

147%: Debt-to-income ratio in Canada, a record high

157%: Debt-to-income ratio in the United States

70%: Percentage of debt held in mortgages in Canada

Certified General Accountants Association of Canada, CIBC Economics, National Bank economics and Statistics Canada

Danielle Park on Canadian Housing

Danielle Park gives an interview on howestreet.com on the Canadian housing market.

You can listen to the 16 minute interview here.

Housing Bubble - - Yes or No

Canadian Housing Bubble by Alexandre Pestov at York University's Schulich School of Business.

Here is the abstract, click on the above link for the full meal deal.

The cause of the housing bubble associated with the sharp run-up and the subsequent drop in home prices in the US over the period of 1999-2008 has been the focus of significant research attention. Despite numerous similarities, the Canadian housing market escapes the same level of interest, mostly due to the seemingly stable housing prices.

This paper explores the subject of a possible housing bubble in Canada. It examines a diverse array of factors that may have contributed to the rise in house prices in Canada. The paper evaluates each factor individually and determines the health of the Canadian housing market using common valuation techniques.

Results suggest that economic fundamentals in Canada provide little explanation for the Canadian house price dynamics. Market fundamentals have become insignificant in affecting house prices, and the price-momentum conditions characteristic of a bubble now exist. The extreme decoupling of the market prices from the underlying fundamentals suggests an upcoming correction in housing prices in Canada.

Rosenberg: Is the Canadian Housing Market in a Bubble?

In today’s Breakfast with Dave, Rosie discusses the Canadian housing market:

It sure looks that way. At a time when personal income is down around 1% in the last year, we have seen nationwide average home prices soar 21% and last month hit a record high, as did sales. In real terms, home price appreciation is back to where it was in 1989. Of course, back then, interest rates were far higher but then again, the economy was in the late stages of a phenomenal multi-year economic expansion, not making a transition from deep recession to nascent recovery.

While the Canadian economy is recovering, overall growth is still barely above zero as manufacturers grappled with excess inventories, a strong currency and a soft domestic demand picture south of the border. Employment conditions have improved, but are hardly that healthy, as we saw in the November jobs report where wages and the workweek were both down despite a constructive headline number (half of which were in the education sector, an inherently difficult area for statisticians to adequately seasonally adjust).

In answer to the question as to whether prices are in a bubble, all we will say is that when we ran some models showing Canadian home prices normalized by personal income or by residential rent, what we found is that housing values are anywhere between 15-35% above levels we would label as being consistent with the fundamentals. If being 15% to 35% overvalued isn’t a bubble, then it’s the next closest thing. We are talking about 2-3 standard deviation events here in terms of the parabolic move in Canadian home prices from their lows. So if it walks like a duck …

Source: Breakfast with Dave, Gluskin Sheff, December 10, 2009

Special Report - Canadian Housing Market, Dec 2009

Yes Virginia, There is a Housing Bubble

Condo lineups return

Yes Virginia, There is a Housing Bubble

Total madness. People lining up to buy a small box in the sky on a busy street next to a polluted waterway. Awesome!! Sign me up!

Reminder - the interest only payments on $500,000 are $1350 / month at today's 3.25% or nearly $2,200 / month at 5.25%.

TD Economics - Real Estate Trends Could Impact Future Path Of Canadian Monetary Policy

I suggest you read this TD Economics report released today. It contains some interesting thoughts about monetary policy and the real estate market across Canada.

Great Interview

I think this is a must read interview.

http://www.itulip.com/forums/showthread.php?p=123526#post123526

The Argument Against Value Analysis in Vancouver

Much has been made by me and other long-time commenters on this blog about what housing prices would be in the absence of a bubble, the market's so-called fundamental value. Yet Vancouver's housing market has rarely (not never) been at a "fundamental" valuation in the past generation. Does value investing have a place in Vancouver real estate if prices rarely agree with the theory? I will outline the case for why not and offer some commentary.

Here I have attempted to paraphrase many of this blog's comments into this post. The information is not new, only presented. I do hope that readers, if they have time, read some of the comments here and in the archives for more insights into the fascinating subject of real estate in Vancouver, the "most bubbly city in the world".

The simple way of determining fundamental value is to look at an asset's current and expected future cash flows, discount them at your cost of capital, and sum them up. mohican uses a simple formula that I crudely derived here. There are other simpler and more complex methods of course and there is always disagreement over assumptions. With Vancouver specifically the last time properties were valued at what I consider to be fundamental valuation was around 2000 and before that in the mid '80s. Others will say 2000 was never at fundamental valuation, a local minimum that never quite reached the trigger point for them to consider it a good value investment.

The question is, if fundamental valuations have not been present since, say, the mid '80s, do they still have merit? The argument for why fundamental analysis is flawed for Vancouver real estate goes as follows. Real estate consists of cash flows from rents and capital appreciation. The Vancouver market has had many boom-bust cycles in its past. Even if an investor buys when prices are above fundamental value (not necessarily at the peak, mind), a subsequent boom cycle will allow the investor to exit with a decent overall return. Booms and busts are inherent to Vancouver's psyche. Given enough time, typically 7-10 years, you will always be able to cash out positive, the caveat being of course you avoid buying near or at the peak. Fundamental valuation is therefore rarely, if ever, achieved because investors anticipate future bubbles to compensate for poor rental yields.

In a nutshell, that is the argument. And before commenters rip it apart I will say that many people over the past generation have made decent real (or paper…) returns in this fashion. Most I have had discussions with do not engage in "pure" speculation (i.e. flipping) but actually rely mostly on rents for their return; "mostly" because for the return to really make sense they require some form of capital appreciation above inflation. The speculative component (i.e. prices above fundamentals) is apparently omnipresent within a typical investor's time frame.

The Vancouver price graph is indeed "biased" above fundamental value. So the argument goes, as I can make it out, you may have to wait a long long time for true fundamental valuations to return. If this is true, that Vancouver has a propensity for speculation, prices may never retreat to fundamentals in one's lifetime. In fact this is effectively the argument I hear on local blogs and amongst my acquaintances and family. Really they are saying that Vancouver is full of greater fools who will inevitably compensate us for poor cash flows or that their still fruitless but eternal hope of real income growth will manifest itself. And maybe they are right.

Of course speculation is a zero sum game and many we know have done well in the past generation in their real estate investments, "others" not so much. Here though I lob a few words of caution into the hubris.

First the assumption that Vancouver will experience another boom-bust cycle in most investors' time horizons is just that -- an assumption. There are precedents in other cities, most notably Tokyo, where prices have fallen for twenty years and counting. The market there had the ability to absorb a significant amount of investors with speculative components to their business cases and not lead to a subsequent boom; in other words a lot of speculators got burned waiting for the recovery that was not. Indeed the Japanese property market remained rational longer than speculators could remain solvent. Not to say this will not happen in Vancouver, but convincing yourself it won't is a high stakes assumption nonetheless.

Second is that oversupply this time around may all but guarantee a return to fundamentals. There are just not enough people for the number of units being built and, worse, we have seen Vancouver's population "spread out" from past decades. That is, the ratio of occupied bedrooms to the total number of bedrooms has been decreasing for the past decade due to what I believe to be both a demographic shift, and historically low and lasting unemployment (due in significant part to the construction boom as it happens). What is to stop this trend from reversing when average wages are falling? If you think mohican's graph of CMHC units under construction is scary, wait until under-productive dwellings are brought back to more full productivity as people tighten their belts.

Third the past generation has seen a perpetual reduction in mortgage rates and mortgage qualification thresholds from their highs in the early '80s. This in turn has improved affordability for existing owners and pushed up prices for future ones who can still miraculously tap credit lines. That trend is unlikely to continue much further. If mortgage rates increase, it will be decidedly bad for affordability. If mortgage approvals are stricter, fewer can qualify to buy at all. And prices will suffer.

It comes down to one thing, that Vancouver real estate has had a lengthy CV of booms and busts with a distinct bias above what would be justified by fundamentals. As an investor, you may well be relying on Vancouver's house price volatility to ensure your overall returns are satisfactory. Food for thought, though, that THIS time, it may indeed be different, though not in a good way for your future savings. On the flipside, for families looking to buy a personal residence only at fundamental value, there is some chance you could be waiting a long time, though perhaps not.

Calamity on the Creek

I enjoyed reading the updates on the Olympic Village fiasco at Frances Bula and Condohype.

What I found striking in reading Bula and other journalists is that what they consider the 'worst case scenario' for the condo market is actually *still* pretty much in the lands of hopes and dreams. The scenarios they seem to be running are things like 20% off pricing, or waiting 2 or 3 years until the market 'comes back.' What I find striking is how people that are intelligent and presumably well-informed seem to be unable to clearly see where this market is going.

Here's one thing that Frances said:

Being a fence-sitter, as my loving critics like to call me, I find myself as unconvinced by those who say (with considerable glee) that the housing market as we knew it will never EVER return to anything near what it was as by those who thought condos would keep selling like cheap underwear at Wal-Mart.

What does she mean by 'what it was'? Yes, people will continue to buy and sell condos. At some point, sales will rebound. They will in fact again sell like underwear at Walmart. But at what price? Does she mean 2007 pricing? Of course, in nominal terms this will happen at some point, but not any time soon.

Here's how I see it. No, prices will not fall forever and they won't fall to zero. Instead, with speculators out of the market, the bottom for prices will be set by cash-flow investors and/or rent vs. buy residents. If these people need, say, a 7% gross yield on investment, then in order to get $1000/sf (which is the number bandied around as break-even for the Olympic Village), we need to see rents at (1000*.07/12)=$5.83/sf per month. This means that a 1000sf condo rents for $5830. Now, the Oly Village might be nice and ultraluxury and all that, but I think it will be awhile until incomes rise to allow $5.83/sf.

Now, maybe one of these assumptions is wrong. Maybe speculators will return to the market and blow a new bubble. Could happen, but I doubt it will happen in the next few years. Maybe investors don't need 7% gross. I don't know. But I'm pretty sure that, while not forever, it will be a l o n g time before rents justify $1000/sf.

Look. It's as simple as this graph. Forget the politics. Forget the legal mumbo jumbo. Forget Bob Rennie's new age condo spin. What people are apparently still not getting is that a 'return to normal' does not mean returning to 2007. It was 2003-2007 that is the anomaly; not 2008-09.



[note: updated graph to Q3 2008. Data here.]
UPDATE: Here is Gary Mason in today's G&M. My impression of Mason is that he is a hard-nosed, cynical journalist. Yet he is still caught in the hype:

The city may be able to take the long view and hold on to unsold condominiums until the economy and real-estate market turn around and the value of the units returns to something resembling what they were expected to be about now.

Then again, that might not be for another six or seven years. No one knows.

See, his worst case scenario is that the market recovers to 2007 wish prices (not actual prices, but the 2007 presale wish prices) in 6 or 7 years. Not. Going. To. Happen.

The Ownership Premium

No analysis blog would be complete without a paradox and I believe there is none more relevant now than the so-called "ownership premium" that owner-occupiers place on property values. I would like to offer an alternate view of the so-called "ownership premium" that has been discussed on this blog and others in the past years.

The "ownership premium", sometimes called the "control premium", is a premium that a potential buyer will pay for the right of owning (and "controlling") a property compared to renting. Here is an example thought process of how the premium concept works, from a buyer's perspective:

jesse is renting a condominium for $1200 per month but is on a month-to-month lease. With a wife and young child, jesse does not want the uncertainty of renting month-to-month and his wife wants to customize the suite, something not always possible when renting. jesse looks at the condo for sale next door. If he were to buy it at market rate, the total costs of doing so far exceed that of continuing to rent. After factoring in all expected costs and trade-offs, jesse decides he is willing and able to pay a monetary premium to buy. But – and here's the thing – he doesn't have to.

The alternate view of the ownership premium looks not at individual circumstances but at the overall market comprised of owner-occupiers and investors competing over the same product. Here, for simplicity, we can look at condominiums that have a healthy mix of both owner-occupiers and investors. If owner-occupiers will pay a market premium to own, the investor must compete by also paying the same premium. This has the effect of reducing the investor's yield and instead must rely on capital gains to compensate for the poor yield.

In speculative bubbles, low rental yields go virtually unnoticed because everybody is "making money" on capital appreciation. Investors can compete head-to-head with owner-occupiers because rental yield is dwarfed by capital appreciation. The "ownership premium" train of thought becomes justified, even amongst many investors who justify it as a premium for scarcity and control of how the property is used. During bubbles, the premium continually increases.

However, when a bubble deflates, total return is not about capital appreciation but net income from rents. At this point the investor will require higher rents or lower prices to make the investment worthwhile. Housing markets around the world are starting to revert to where cash flows make sense again and this means lower prices. Rising rents are next to impossible when there is an oversupply of dwellings and wages are flat to falling with rising unemployment. The ownership premium, for investors, is once again meaningless.

This does not mean that the ownership premium for owner-occupiers is a fallacy. It exists and is real. In addition, for many others, the mobility and lower responsibility offered by renting means their personal premiums are negative. The point is that it doesn't matter. When a significant portion of a market is focused on monetary returns ex intangible benefits – i.e. investors –they will eventually and invariably set the price. It also doesn't mean anyone is necessarily wrong for paying a premium but ones doing so should not use it to justify high prices and instead realize they made an investment with a lower monetary return.

Edit: the "ownership premium", as described here, is in its essence describing one's personal preference to own or rent a property -- the "intangibles" of ownership. It is not to do with more tangible premiums related to speculation of future price gains or expected increased utility by densification. The point is the intangibles of ownership do not in themselves justify higher prices.

Greater Vancouver Prices Decline Dramatically for 7 Months in a Row

Data from REBGV Press Release.

2008 certainly was an interesting year for real estate market observers in Vancouver. For nearly 2 years the local market bucked the declining price trends seen in the US and elsewhere. Pundits had proclaimed that the local market was immune or insulated from the turmoil elsewhere. Oh how wrong they were. Benchmark detached home prices in the Greater Vancouver area are now at the same level as they were in June 2006.

This story is really all about supply and demand. There is lots of supply with even more coming and very little demand. Active listings are significantly above previous year's levels so the supply side is not helping those who want higher prices.


One may look to the demand side of the equation for some hope for some price appreciation but monthly sales are at half the level they were during the boom years with no quick fixes in sight.

Consequently, it would take a very long time, 16.4 months to be exact, for the current level of inventory to be sold off at the current rate of sales. This essentially means that the market is completely saturated with product and the only sales to be seen are the deep discounts.


The correlation between months of inventory and price changes is extremely tight with any MOI level above 7 MOI indicating further price declines. At the current level of more than double that, I do not expect rising prices anytime soon.

As mentioned previously, prices are now back at mid-2006 levels and the retreat has only begun. I fully expect inventory to swell in the new year and sales to continue at a lacklustre pace which will put continued and significant negative price pressure on sellers for the next while.

Good luck to everyone.

Fraser Valley Real Estate Now at 7 Months of Price Declines

Active Listings in the Fraser Valley real estate market fell by a normal seasonal amount from November to December as many hopeful real estate sellers pull their homes off the market during the dreary winter months hoping for better luck in the spring. Good luck with that. Active listings are at the highest year end level for which I have records which does not bode well for those trying to get top dollar for their listed properties in 2009. Click on a chart to enlarge it for a better view.


Sales were extremely low at well under half the monthly volume of the heyday years of not so long ago. 508 sales is very little. It amuses me how the Real Estate Board highlighted the fact that December sales were higher than November sales. Yes, I can do math too Kelvin - - 508 is bigger than 507. How this is relevant I do not know.

Months of inventory remains highly elevated and is an important indicator of a distressed real estate market at these levels. Look for further price declines throughout 2009.

The sell list ratio is extremely low which indicates that very few real estate wanna-be-sellers are turning into real estate sellers. Consequently, price pressure is highly negative as those who must sell are forced to lower prices to draw in potential buyers.

Median Prices are continuing to retreat.

The correlation of the supply/demand metric and price changes is continuing to be remarkably resilient as we have moved to the other end of the see saw. It is as if somebody flipped a switch in May 2008 and buyers stopped showing up.

Benchmark home prices, which are the best indicator of the actual change in property values have declined nearly 10% now and values are at the September 2006 level.

The story for 2009 will be more of the same. Bargain hunters will likely start seeing more and more value as desperate sellers try to move their properties. I fully expect that 2009 will be a flipper bloodbath as many of these wanna-be real estate moguls get smacked with month after month of carrying costs and are forced into the new reality of declining real estate values. If you need to sell a home in 2009 make sure you price it lower than everybody else unless you want to chase the market down.

Housing Bubble - Canada Style

TORONTO, Dec 15 (Reuters) - Existing home sales in Canada fell to their lowest level in nearly eight years in November, as the economic slowdown squeezed housing markets across the country, the Canadian Real Estate Association said on Monday.

Existing home sales were down 12.3 percent to a seasonally adjusted 27,743 units in November from October, CREA said, which marked the lowest level for monthly activity since January 2001.

The average price was down 9.8 percent at C$280,880 ($226,516), compared with the level recorded in the same month last year.

CREA said the housing market reflected the economic reality of the country, which the Bank of Canada said last week was entering a recession.

"These changes in the Canadian housing market reflect a broader and weakened picture of both the economy and buyer sentiment," said CREA Chief Economist Gregory Klump.

"National sales activity and price trends will continue reflecting increased cautiousness on the part of lenders and buyers, as the economy works its way through and out of the current recession."

The drop in existing home sales for the month was not as sharp as the 14 percent skid recorded in October, but the latest decline reinforced the view that consumers were growing more cautious and spending less as fears of a recession mount.

"The report underscores that the Canadian housing correction continued in earnest in November as sales activity continues to moderate at a fairly brisk pace," Millan Mulraine, economics strategist at TD Securities, wrote in a note.

Home sales dropped by double digits in most provinces. Sales skidded 14.0 percent in Alberta, 13.1 percent in British Columbia, 12.4 percent in Quebec and 12.1 percent in Ontario, said the association, which represents about 97,000 brokers and agents across the country.

($1=$1.24 Canadian) (Reporting by Frank Pingue; editing by Rob Wilson)

But there is no subprime in Canada and we don't have all those 'risky' mortgages here in Canada so I guess we won't see the kind of problems the US is having.

........

Oh wait a sec. . . . . . we did have risky mortgages and . . . . what's that . . . . . our house prices are falling extremely fast. . . . . hmmmmm. What do you mean . . . the Canadian economy is extremely vulnerable?

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

Vancouver Winning Race Down

Updated with September data.

Seattle Bubble Blog has been posting this chart for many months now as the Seattle market has been correcting along with all of the other bubble markets across North America. Vancouver is now no exception. Price declines are the steepest witnessed so far in North America and we shall see if this trend continues.

Thanks to Jesse for putting the chart together.

REBGV August 2008 Stats and Charts

Well, I'm back from vacation and, other than a little bit of rain, it was wonderful.

Here are the details regarding the market activity during August 2008 in the Real Estate Board of Greater Vancouver area. Click on the images to make them bigger.

Sales were 53% lower than last August.

Active Listings are at unseasonably high levels - 75% higher than last year.

Months of Inventory is ridiculously high at over 12 months. This is an extreme level, which is putting lots of pressure on sellers to cut prices and gives buyers the upper hand in negotiations.

The ratio of sales to active listings is so low right now that it appears as if nothing is selling at all.

The current level of inventory and extremely low sales is leading to some very negative price pressure, with the benchmark price falling 2% during August alone and over 4% during the last 3 months. It looks as if prices will be negative Year over Year at the end of September.

The real estate market is a 'market' after all and markets are subject to the laws of supply and demand. A new equilibrium is being reached right now, which is causing prices to fall, as buyers are negotiating tougher deals and sellers are being forced to be more creative or aggressive.


That's it for now. FVREB report will be out soon and I will provide another update then.

I'm Bored

Well, I'm not really bored generally speaking since work and life are very busy. I am bored of following our real estate market. It just seems so fatalistic at this stage of the process. We've seen this happen before in a myriad of places at many different times.

• Inventory rises amidst general exuberance about real estate
• Sales fall amidst claims of a 'seasonal' slow down
• Prices stagnate with claims of a rebounding market in the fall/spring/summer whatever
• Developers slash prices and introduce sales incentives with the general populace in denial
• Prices fall modestly as some sellers who must sell come to the realization that price matters!
• Inventory rises further and sales fall even more as the general public becomes aware that real estate does not always go up in value.
• Prices fall dramatically.
• Eventually people will avoid real estate investing and discussions like the plague.

The script has been written, auditions are complete, the set is ready, everyone is in place, quiet on the set and 'ACTION!'

REBGV Sales Tank, Inventory Balloons, and Prices Fall at an Annualized -17.91%

Well, this is it, the market is officially done like dinner.

The REBGV released their monthly price, sales, and inventory statistics for July 2008 and here it is on the down low.

Active Listings are at an unprecedented level.

Sales are at an abysmal level.


The number of months of inventory is sky high representing the inability of buyers and sellers to come to a quick agreement on the value of properties in the area.

Prices have fallen for two straight months now and are rapidly retreating to year ago levels as the few sellers who must sell drop their prices and buyers who have the means are agreeing to these lower price levels.

I was truly amazed at how quickly inventory levels have grown this year and I was wondering if the tight correlation between months of inventory and price changes would continue during a down market. It is continuing and seems to be an amazingly accurate representation of the effect of high MOI on price change.