January 2009 Real Estate stats...

[Cosmo]

Now... where were we?

Oh yes. The R/E industry puts the full court press on home owners starting in November who do not HAVE to sell and encourages them to let their listings expire ("relist in spirng" they are told). This will, hopefully, create an artificial reduction in inventory.

The plan... reduce inventory, create demand, increase sales, halt the decline in housing prices.

January is the first month to really test the results.

And what will we see in the newspapers next week?

Sales should come in at about 764 v. 1,819 from January 2008. That's a 58% drop in sales from this time last year.

Inventory reached 15,066 listings, resulting in a 51% increase in inventory from this time last year.

A 60% drop in sales and a 50% increase in inventory.

The best stat to watch is Months of Inventory (MOI). This figure illustrates the strength (or lack thereof) of the market best of all. Last January (2008) the MOI sat at 5.5 months (your house, on average, would take 5.5 months to sell if priced like other comparable homes).

This month? The MOI is sitting at 20 months, almost two years.

Unless the market dramatically explodes in February and March, you will see the number of listings (and thus the amount of available inventory) explode in April.

And tons of product combined with few sales will produce only one result.

Let's face it... 764 properties sold last month. Buyers are out there... but they will only buy if there is a screaming deal (read minimum of 30% below comparable properties).

And there are a whole raft of condos coming on the market this year (from those developments who have not halted construction).

Inventory is going to explode upwards.

With the economy and these conditions on the horizon, would you buy a house right now?

 

[HeMadeMeDoIt]

Now... where were we?

Oh yes. The R/E industry puts the full court press on home owners starting in November who do not HAVE to sell and encourages them to let their listings expire ("relist in spirng" they are told). This will, hopefully, create an artificial reduction in inventory.

The plan... reduce inventory, create demand, increase sales, halt the decline in housing prices.

January is the first month to really test the results.

And what will we see in the newspapers next week?

Sales should come in at about 764 v. 1,819 from January 2008. That's a 58% drop in sales from this time last year.

Inventory reached 15,066 listings, resulting in a 51% increase in inventory from this time last year.

A 60% drop in sales and a 50% increase in inventory.

The best stat to watch is Months of Inventory (MOI). This figure illustrates the strength (or lack thereof) of the market best of all. Last January (2008) the MOI sat at 5.5 months (your house, on average, would take 5.5 months to sell if priced like other comparable homes).

This month? The MOI is sitting at 20 months, almost two years.

Unless the market dramatically explodes in February and March, you will see the number of listings (and thus the amount of available inventory) explode in April.

And tons of product combined with few sales will produce only one result.

Let's face it... 764 properties sold last month. Buyers are out there... but they will only buy if there is a screaming deal (read minimum of 30% below comparable properties).

And there are a whole raft of condos coming on the market this year (from those developments who have not halted construction).

Inventory is going to explode upwards.

With the economy and these conditions on the horizon, would you buy a house right now?

Cosmo do you work for one of the pharmaceutical companies that make anti-depressants? I've only seen doom and gloom posts, maybe brighten it up a bit with a few busted nuts buddy.

 

[zaig]

Cosmo do you work for one of the pharmaceutical companies that make anti-depressants? I've only seen doom and gloom posts, maybe brighten it up a bit with a few busted nuts buddy.

Perfect.

Just a thought. With all his negativity, doom and gloom, the world is coming apart at the seems postings, do you think Cosmo has any friends? I mean, who would want to constantly hear how bad everything in the world is. We can read the news, watch TV, now we have this becon of negative light invading what should be a board about screwing. Sounds like to me he hasn't gotten laid in a long time.

Of course , I am sure he has made an absoulute fortune with all his knowledge of economics and real estate, so I guess its not that bad for him.
I guess some people just love being the bearers of bad news.

 

[Cosmo]

I guess some people just love being the bearers of bad news.

LOL... If conditions are brewing to create dramatically lower housing prices... is it bad news or good news?

If the economy is swinging wildly one way, creating the perfect conditions which have allowed people in the past to make a ton of money investing in certain areas... is it bad news or good news?

I am the eternal optomist. Look at what is happening and seize on the opportunities presented.

This month's numbers reinforce a trend which is going to play out to be very dramatic in Vancouver (contrary to all those who have said on this board "ain't no way that could happen here").

A number of people here pm me asking if they should buy now... or when they should buy. I refer them to the posts and I think they are self-explanatory.

To them, the topic and numbers in the post are a harbinger of tremendous opportunity.

As I have said before, this is a once-in-a-multi-generational time in history. There are some people who were in their prime in the 50s, 60s, 70s, 80s and 90s who would have given anything to be around for this type of economic maelstrom.

(shrug)

 

[zaig]

Cosmo, I get your point. But, you know as well as I, that in times such as this it is the average person who gets hurt, the ones who will be able to capitalize on the economic situation probably don't really need more wealth. Forget about the housing market, what about good people losing their jobs, a way for them to support their family with dignity and self respect. If everyone could prosper in these new times, it would be great but the reality is that the Rich will get richer and poor will have babies.

I have no doubt you are not a meanspirited person, just stating the facts the way you see them, but by god man, you really know how to take the wind out of everyone's sails.

I do hope you make a fortune in the next few years, but remember should that come to pass, help out the less fortunate.

 

[Savage]

Sure the posts can be drepreesing but I for one find them informative.

 

[FunSugarDaddy]

Informative yes..but

I didn't see any information about the decline is sales prices on a year over year basis. Activity yes, prices no.

We know the activity is down, and we know prices have declined, but by how much?

I suspect it's significantly less than the 40% figure being bantered about but who knows?

 

[FunSugarDaddy]

This was one link.

Vancouver Real Estate Average Price // Percent YOY:

Detached

Jan 08 - 877,272 - Jan 08
Jan 09 - 782,961 / -10%

Attached

Jan 08 - 511,920 -
Jan 09 - 449,389 / -12%

Appartment

Jan 08 - 406,935
Jan 09 - 365,657 = -10%


This chart, if correct, is indicating that year over year prices have dropped between 10-12% depending on the type of dwelling your interested in.

Be interesting to see where the discrepancy is between these figures and the 40% decline that's been bantered about.

 

[ReluctantPooner]

WOOHOO!!!

Maybe by the time I pay off my debts, the prices will be low enough that I can save up a down payment pretty quickly!!!

KEEP ON DROPPIN!!

 

[Cosmo]

Percent YOY

Ahh yes... how does the quote go?

Lies, damn lies and statistics?

The bubble didn't start bursting until May 2008. In January, February, March and April the market was still making large gains.

Compared to December 31, 2007, the year 2008 isn't so bad.

Compared to May 31, 2008 - well, that's another story entirely.

As I said, my predictions are based on drops from the high in May 2008 (specifically the benchmark price for houses).

===================

A man has $100 and invests it on January 1 in the stock market. By May, that $100 balloons to $50,000.

On the strength of the equity in his portfolio, he borrows $40,000 from the bank to do home renovations (the $50,000 remains in the market).

By the end of the year, the market has crashed and his investments are worth a paltry $99.

No big deal... he's only lost $1, right? YOY.

Or has he lost $49,899?

Or is he screwed to the tune of $89,899 (the drop from the highs of his investments plus the money he borrowed against it from the bank)?

===============

Guess it depends how you want to do the statistics.

Here's a true story eerily similar to that parable for you...

A man buys a house for $40,000 in 1979.

In May of 2008, it's appraised at $780,000.

He puts in on the market and it sells in December for $580,000.

Has he lost $200,000 or has he gained $540,000 on the sale of his house?

How relevant is the fact he borrowed $500,000 against the equity of his home to finance a business (which is tanking right now btw) in 2006?

Does that mean he is still ahead by $40,000? Or does the interest he paid on the original $40,000 mortgage drop that profit figure even lower? What about the costs of upkeep and improvements these last 30 years?

All depends how you want to measure it and draft the statistics.

======================

Measuring the drop since May 2008 shows a marked drop, particularly in the benchmark price which is the accepted guide.

YOY hides the drop we have seen from the highs in the market of May 2008.

If you compare the YOY from January to January, we have a slight drop.

If you compare the drop from May 2008, it is significant.

If you compare the YOY to 2006, housing prices are still way up.

Bottom line, the market continues to slide from May 2008 and it's the slide and crash we are following.

Hell... if you compare the stock market to 1997. Decade over decade, the hasn't been a crash at all... so why are the world's financial markets in crisis?????

Lies, damn lies and statistics.

PS. While your at it, you should share some of Yatte's snapshots for the last 30 days of sales in the various Vancouver neighbourhoods. A lot of people here would find them interesting.

 

[FunSugarDaddy]

Ahh yes... how does the quote go?

Lies, damn lies and statistics?


Guess it depends how you want to do the statistics.

Here's a true story eerily similar to that parable for you...

A man buys a house for $40,000 in 1979.

In May of 2008, it's appraised at $780,000.

He puts in on the market and it sells in December for $580,000.

Has he lost $200,000 or has he gained $540,000 on the sale of his house?

How relevant is the fact he borrowed $500,000 against the equity of his home to finance a business (which is tanking right now btw) in 2006?

Does that mean he is still ahead by $40,000? Or does the interest he paid on the original $40,000 mortgage drop that profit figure even lower? What about the costs of upkeep and improvements these last 30 years?.

Actually there's stats and there's smoke and mirrors.

In this example it's pretty straight forward. The guy made $540,000 excluding any adjustment for inflation. What he could have made had he sold at peak is irrelevant. And the fact he borrowed $500,000 for another business venture is also irrelevant because it's an entirely different investment. He could have gambled it away but it's got nothing to do with what his profit was on the house.

As to the cost of upkeep, mortgage payments etc. depends on how you look at it. staying alive and housed has never been a costless exercise, so the costs should at least be compared to renting somewhere else, at the very least.

If it was an investment, ie it was tenanted he would have income to offset many of these costs and very well could have made a huge profit on the increase in value. And if one isn't sure how to value varies components, use the tax rules, they're a pretty good guideline. Yes you're paying tax on inflated dollars, but the offset is the inclussion rate is only 50%, and if it's jointly owned, it's divided in half.

And instead of dwelling on what the figures MAY be in May onward, why not focus on what the figures are today.

We know you're predicting a 40-50% decline (presumably on a year over year basis), everyone knows that, but as things stand at the moment, it hasn't occurred. Perhaps it's on track to occur, but as things stand at the moment the YOY figures seem to suggest a 10-12% correction.

Now I have no way of knowing how accurate these figures are, so if they're incorrect, then by all means, I'd be happy to see adjusted figures.

Personally I couldn't care less what the results end up being, I just want an accurate assessment of where things are today, not 4-5 months into the future.

 

[Cosmo]

And instead of dwelling on what the figures MAY be in May onward, why not focus on what the figures are today.

I am not sure if we are talking about the same month of May.

I am referencing May of last year (2008), which was when the Real Estate crash started. The drop started then.

The YOY stats cover January 2008 to December 31, 2008 - thus incorporating data from January to April of last year, which skewers the results.

It's only the Real Estate industry that does this. And it is done to play smoke and mirrors with bad numbers.

Look at the stock market. They start recording the crash from the high of 14,164. They don't go back to January, when the dow was in the 11,000 range, and say the YOY drop is actually much lower. The Market has gone from 14,164 to as low as the 7500, losing almost half of it's value.

The Benchmark Vancouver price in May 2008 was at $771,250 - this was it's high.

By the end of December, 2008 the benchmark price was down to $648,000 - a drop of 14.8%.

Or, put another way, houses lost $530 a day in value since May.

The January 2009 figure is predicted to be $628,560, a drop of another $19,440 over the course of the month (an acclerated rate of $627 per day)

However, if you go YOY... the drop from January 2008 to December 31, 2008 is only 1% because of the way prices rose in January, February, March and April.

But just like the stock market, we measure the drop when the market started to crash from it's high... not some back-dated lower figure so that you can make the crash look smaller than it really is.

 

[InTheBum]

Now... where were we?

Oh yes. The R/E industry puts the full court press on home owners starting in November who do not HAVE to sell and encourages them to let their listings expire ("relist in spirng" they are told). This will, hopefully, create an artificial reduction in inventory.

The plan... reduce inventory, create demand, increase sales, halt the decline in housing prices.

January is the first month to really test the results.

And what will we see in the newspapers next week?

Sales should come in at about 764 v. 1,819 from January 2008. That's a 58% drop in sales from this time last year.

Inventory reached 15,066 listings, resulting in a 51% increase in inventory from this time last year.

A 60% drop in sales and a 50% increase in inventory.

The best stat to watch is Months of Inventory (MOI). This figure illustrates the strength (or lack thereof) of the market best of all. Last January (2008) the MOI sat at 5.5 months (your house, on average, would take 5.5 months to sell if priced like other comparable homes).

This month? The MOI is sitting at 20 months, almost two years.

Unless the market dramatically explodes in February and March, you will see the number of listings (and thus the amount of available inventory) explode in April.

And tons of product combined with few sales will produce only one result.

Let's face it... 764 properties sold last month. Buyers are out there... but they will only buy if there is a screaming deal (read minimum of 30% below comparable properties).

And there are a whole raft of condos coming on the market this year (from those developments who have not halted construction).

Inventory is going to explode upwards.

With the economy and these conditions on the horizon, would you buy a house right now?

Great post Cosmo! Where did you get your facts from?

To answer your question: No...I am waiting until at least the fall before I start looking...

 

[FunSugarDaddy]

I am not sure if we are talking about the same month of May.

I am referencing May of last year (2008), which was when the Real Estate crash started. The drop started then.

The YOY stats cover January 2008 to December 31, 2008 - thus incorporating data from January to April of last year, which skewers the results.

It's only the Real Estate industry that does this. And it is done to play smoke and mirrors with bad numbers.

Look at the stock market. They start recording the crash from the high of 14,164. They don't go back to January, when the dow was in the 11,000 range, and say the YOY drop is actually much lower. The Market has gone from 14,164 to as low as the 7500, losing almost half of it's value.

The Benchmark Vancouver price in May 2008 was at $771,250 - this was it's high.

By the end of December, 2008 the benchmark price was down to $648,000 - a drop of 14.8%.

Or, put another way, houses lost $530 a day in value since May.

The January 2009 figure is predicted to be $628,560, a drop of another $19,440 over the course of the month (an acclerated rate of $627 per day)

However, if you go YOY... the drop from January 2008 to December 31, 2008 is only 1% because of the way prices rose in January, February, March and April.

But just like the stock market, we measure the drop when the market started to crash from it's high... not some back-dated lower figure so that you can make the crash look smaller than it really is.

Fine, than it's agreed that the market has dropped by 14.8%, and is heading downward, I'm fine with that and I'm fine with your comments.

FWIW, the stock market does both. The news media will post from a high to where the market is now because it's newsworthy, not because it provides an information to a particular individual. Similarly if I bought a house 3-4 years ago, I only care what it's worth in relation to what I paid for it, and perhaps I'm worried about the direction of where the market is going. But as to when the peak was, that's less important unless I bought close to that particular time.

Similarly, most people who manage portfolio's etc, provide returns in relation to where things were at a point in time. Sometimes it's when you invested your money and sometimes it's on a YTD basis and sometimes it's on a fiscal or calendar year basis, and it may be also on a cummulative return basis, or a combination of these.

But a portfolio return isn't going to just pick a peak market number and use that as a reference point with providing portfolio return information, unless by coincidence it corresponded to one of these other metrics.

 

[FunSugarDaddy]

Here's a national article on BC real estate situtation

http://www.theglobeandmail.com/servlet/story/LAC.20090202.BCCONDO02/TPStory/National?ref=patrick.net

 

[Cosmo]

Fine, than it's agreed that the market has dropped by 14.8%, and is heading downward, I'm fine with that and I'm fine with your comments.

(grins)

Well, I am glad we agree on a bit of what I say.

and perhaps I'm worried about the direction of where the market is going.

Everyone should be worried because even if you have been priced out of the market, and cheerily hail the dropping values, the impact on our economy will be profound and you will be severly impacted by it.

The challenge for each and every one of us is to understand where the market and economy is going, and understand the impact the real estate market will have on our economic environment. Then the challenge is to position ourselves to best withstand &/or take advantage of it.

I think the facts speak volumes.

Sales have collapsed by more than half in January, to a point not seen in a quarter century.

Take Surrey (home of the biggest RCMP detachment in the entire country and soon to be a larger city than Vancouver. Surrey is so large, the RCMP detachment is headed by an Assistant Commissioner. All the other Canadian provinces only have one Assistant Commisioner who heads the entire province. BC has two A/Comm's and one of them is responsible just for just this detachment).

In the largest city in Canada to house an RCMP detachment, a mere 762 houses changed hands last month while 14,000 could not find buyers. At this rate, there are enough homes to sate buyer demand for a full year and a half, and yet things are about to get far worse.

It’s estimated at least 6,000 more listings will come on the market in the next 80 days. What makes anyone think many more buyers will materialize without prices collapsing considerably more?.

Vancouver is a city with the highest home prices in the country, which is less affordable than New York, London or LA (!!!!!)

In our city real estate is an obsession often demanding 80% of net income to carry, this is shocking.

I say home prices will be collapsing, then flatlining for years. If hyper-inflation does return - values will then be completely crushed (that minimum 40%-50% drop becomes an minimum 80% drop under those conditions).

Regardless of your personal situation, this will dramatically impact all of us in ancillary ways.

And we get so called 'professionals' like Dave Watt, president of the Vancouver real estate board, saying consumer confidence may be at low tide right now, “but the long-term strength and security of our housing market are beyond the reach of the economic clouds of today."

Say WHAAAA????

"Today’s short-term conditions are creating long-term opportunities. Buying opportunities have not been this strong in a decade, with low interest rates, broad selection, and more affordable prices.”

Buying opportunities? Good lord, based on what???

Vancouver lacks the economic engines possessed by cities like New York, London and L.A. British Columbia depends on the American market for our lumber, our mining, our tourism... our construction industry. And with the collapsing world economy, other nations won't be picking up the slack.

Mining, Lumber, Tourism, Construction... they just lost all of their customers and the impact is only just starting to slam into British Columbia.

Real Estate sales volumes have collapsed, even though we are just months away from hosting the Olympic Games, even though mortgage rates have tumbled and even when the average home is now more than $122,000 cheaper. Clearly the momentum is negative, and it’s growing stronger. For sale signs pepper the landscape and those once-trendy downtown condos are losing value by the day.

And the spectre of 15% plus mortgage rates under a hyper-inflationary period should scare the beejesus out of everyone.

Any buyers naive or manipulated enough to believe Dave Watt’s message and interpret this as an opportunity are walking into the jaws of a property trap and financial disaster.

Some say I am heartless and don't care about how some people are going to get hurt in this evolving malestrom.

They are wrong. I do care. And that's why I keep pounding the drum, telling people to look at the obvious.

 

[FunSugarDaddy]

There's really no reason to think inflation, hyper or not, will be returning in the near future. Unless the economic theories I studied many years ago have under gone a radical change and the Economist failed to inform me about it.

Essentially interest rates are a function of two components. The real rate of return people expect for lending their money, and the expected rate of inflation. In the 80's because unions had all of these cost of living clauses and other provisions there costs because inelastic and strikes and other activities allowed them to win sizable wage increases far above what market conditions warranted. So essentially what happened was there was an expectation of inflation build into wages, bonds, etc. which in term affected the expected rate of inflation, which was/is a component of interest rates. At the same time, the monetary policies of the central governments weren't focused and were often manipulated by politicians. This essentially made things worse. However, over time the governments smarted up, gave up the right to influence monitary policy, Trudeau and others impossed wage and price controls, and they wrestled this beast to the ground. If it was felt that inflation was back, the bond markets and long term mortgage rates would reflect this fear. So expected inflation is basically zero.

So as mentioned, the much greater concern is deflation. Deflation is also potentially more destructive because if people believe prices are going to drop they stop spending. This causes lay offs which creates less spending and more insecurity and it's a perpetual cycle.

That's the greater of the two dangers by a long shot.

 

[Cosmo]

the much greater concern is deflation. Deflation is also potentially more destructive because if people believe prices are going to drop they stop spending. This causes lay offs which creates less spending and more insecurity and it's a perpetual cycle.

That's the greater of the two dangers by a long shot.

Agreed. I believe Deflation is going to hit in the short term and it will be a while before it changes. Rising interest rates aren't a concern for a couple of years yet.

Deficit spending, particularly in the US, is the next concern.

Government can account for its debt in only two ways. It can raise taxes, preying on productivity, or it can simply print more money. The US is already doing the latter.

After the deleveraging is over, massive amounts of liquidity will lead to hyperinflation, or a return to stagflation.

This is why Real Estate values will drop significantly, flatline for quite a while and then be hammered again.

Will we see 1980 values? Maybe not that low, but I'm willing to guess damn close if this plays out.

One thing I am postive of... real estate values will not be rising for a long time.

 

[FunSugarDaddy]

Deficit spending, particularly in the US, is the next concern.

Government can account for its debt in only two ways. It can raise taxes, preying on productivity, or it can simply print more money. The US is already doing the latter.

After the deleveraging is over, massive amounts of liquidity will lead to hyperinflation, or a return to stagflation.

This is why Real Estate values will drop significantly, flatline for quite a while and then be hammered again.

Will we see 1980 values? Maybe not that low, but I'm willing to guess damn close if this plays out.

One thing I am postive of... real estate values will not be rising for a long time.

Well it's certainly an issue, and those wanting more info might want to watch a documentary called I.O.U.S.A which deals with the current debt load and the the unfunded liabilities creeping up on the US government due to healthcare and old age support for the elderly.

However, whether or not it will lead to hyperinflation is unknown. If anything the most likely scenario is the exact opposite. The US will have to raise interest rates to sell their treasury bills to foreigners without the dollar getting devalued, thereby triggering an economic slowdown when it's not wanted. That would be a much more likely scenario. If that happened that would likely devalue our dollar, unless we too chose to raise interest rates.

However, another alternative, one which Obama seems to be aware of, it to make the necessary hard choices now and try and avoid this esculating debt, by raising the old age entitlement amount and by trying to control health costs.

Personally I'm predicting there going to have some sort of gas tax to deal with this, but this is simply speculation on my part. But given that gas was $4 a gallon last summer and is about 1/2 that now, and it's cheap by world standards and environmentally unfriendly it's one option they have.

 

[paulal]

Debt financing

Deficit spending, particularly in the US, is the next concern.

Government can account for its debt in only two ways. It can raise taxes, preying on productivity, or it can simply print more money. The US is already doing the latter.

There is a third important way that was not mentioned, and until last month was always the way the US governments raised funds to cover their debt: issuing bonds!

The US has never, until last month, simply "printed money". The last time a serious western government did that was Weimar Germany, with disastrous results.

Indeed, debt-financing and the incapacity of democratic socities to discipline themselves is a serious cloud on the horizon for our society. The US government has gone so far as to purchase its own bonds to avoid giving into the temptation of "printing money" full bore.

Thomas D'Aquino, head of an association of Canada's 500 largest corporations said yesterday that an unheaval of the entire world order is at stake. Judging by Mr. D'Aquino's normally reserved statements, this hyperbole is especially indicative.

Of course, the fact that troubles encompassing the sale of government bonds weren't highlighted does not detract at all from all of Cosmo's other fine points. In fact, it validates them all the more, since the US deviation from a long-standing monetary and debt policy reveals how desperate the situation is. California has been unable to sell their state bonds on the open market and US 30-year bonds are practically selling at nothing. California's unemployment rate crossed over the 10% threshold for the first time since the 1930s.

People in this province that deny there's a tsunami on the way have their heads in the sand. Who cares what the real estate guru says? He has a vested interest to assuage the deep-seated fears of his industry by "moving chairs on the Titanic". His opinion is irrelevant - he's not an economist nor a reliable predictor.

To understand the depth of the economic storm underway, please consult my thread in this section quoting Warren Buffett and his articulation of financial armageddon created by a runaway derivative market.