CREA releases November sales data: Real estate showing clear signs of strengthening, but questions remain.

CREA released their final sales data for November.  Needless to say, the market is showing some surprising strength, though some unanswered questions remain.

Sales did register 9% below 2009 levels, but they were certainly not alarmingly low.  However, with the exception of the panic-induced abysmal sales levels of 2008, they did come in at the lowest numbers in at least 5 years.

In addition, given that the sales numbers from October and November have been substantially lower than the Q4 results from the past 5 years (again with the exception of 2008), it would take a shocking rebound in December sales to pull the Q4 average anywhere near the typical Q4 result of the past half decade.

More tellingly however is the trend in sales and inventory which continue to show a pronounced sellers strike.  It seems that the sellers have clearly gained the upper hand as new listings and months of inventory continue to decline while the sales-to-new listings ratio has bounced back nicely.

While demand is clearly rebounding, it remains weak by recent historical standards.  The question of where the interested sellers went is certainly worth asking.  The notion that sellers are inclined to pull their homes from the market when sales and price conditions deteriorate is clearly validated, but if demand stays below average or even weakens as I expect it will, price pressure will eventually result.

CREA acknowledges this, noting that, “An increase in new listings is likely to return many sellers markets to balanced territory over the coming months…sellers who previously shied away from putting their home on the market are expected to list their home in response to improved housing demand in recent months.”

The question now is whether the demand will rebound as sharply as the inevitable increase in listings.

Home prices were up 2% year-over-year.

The press release ended with this quote by Greg Klup, CREA’s chief pumper economist.  It’s clearly intended as a statement to those in Ottawa currently debating amortization rule changes:

“Changes to mortgage regulations earlier this year were prudent and sufficient, striking the right balance between preventing speculative housing market activity and keeping homeownership affordability within reach for creditworthy home buyers.”

Translation:  Please, please, please don’t kill the 5/35 mortgage.

“That’s a good thing, since housing activity helped support Canadian economic growth this year.”

Correction:  It WAS the economic growth this year.

“Rising interest rates and weaker expected job growth are likely to contribute to softer prospects for housing market activity and average price growth next year, reflecting weakening economic growth prospects.”

Agreed.  At least in principle, if not in scale.

Bottom line here is that the residential market continues to show surprising strength, giving yet another round to the bull crowd.  The bears will have to take it on the chin for a little longer.  They can take some comfort in the fact that fatigue in demand is showing while questions about the dwindling inventory remain unanswered.

Cheers

Ben

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21 Responses to CREA releases November sales data: Real estate showing clear signs of strengthening, but questions remain.

  1. Sam says:

    oh no. Now what?

    • SuperPL says:

      nothing… 10% drop from 2009 is nothing to sneeze at.
      Would you be happy if 1 property sold in October and 2 in November and CREA announced 100% jump in sales? No, because m/m sales stats are useless.

    • The CREA report is hardly bullish. It’s just not as bearish as I figured it would be a few months ago. But nothing has changed, and I still see weakness underlying the data.

  2. mac says:

    Add to that the end of HST in 2011 as BC politicos trip over themselves to be the one to promise to abolish it without a referendum and you should see a slight rebound in new home sales in the Lower Mainland as well (which are currently abysmal). That, of course, should get some OV condos sold. Add to that the headlines RE pumpers will grab in the press and yup, more of the same for the YVR bears.

    Although I always take heart when a trend is repeated across Canada. It makes it harder to believe it’s different here.

    Sam! Full Disclosure. You live in New York but what’s your interest in Vancouver? Do you currently own there?

    • Sam says:

      Married into Vancouver, visited many many times, but I don’t feel as I am in Canada. You arrive in native themed airport and then exit into Hong Kong. I have been to HK many times, they have the same feel, it’s scary. The prices in Vancouver are not an issue, as comparing them to Cad income, etc, rent ratio, etc makes no sense. You have to use HK metrics. But more than Manhattan prices for a glass box in the sky, never.

      My wife has tried to get us to take the real estate plunge, but I just cannot live in a city that is not diverse and has only one culture. It would be great if had lot more mix of people and more head office type jobs. Not sure what people do in that city. It’s seems very self segra -gated

      u mac?

  3. mac says:

    For Vancouver, there is both weakness and strength. The unfortunate fact is that in September we were touting that sales were the worst in a decade, except for 2008, and it felt good. Now they’re the worst in 5 years and it feels less good, if that’s grammatically possible.

    That’s an unfortunate improvement in my books. But, like I said, if it’s happening all over Canada, I perhaps it has more to do with monetary policy than it does with any other factor. But when will this madness end. We are not our own masters, we simply follow the US and are concerned more with manufacturing jobs out east than we are insanely inflated house prices out west.

    • jesse says:

      Good pt that strong sales seems more to do with the drop in longer term bond yields from the summer than any local phenomenon.

    • Sam says:

      I believe the strong sales are driven by the lost cost of debt – at floaters, you borrow at 2 and five year fixed is offered at 3.25 – canequity.com 32,500$ a year to borrow a million bucks? That is amazing, plus you can take the money out of an investment account and work some of that interest into your taxes.

      Personally, I believe in Canada and from a US standpoint, I believe the USDCAD will be .85-.90 range, so I want the levered cad $ exposure.

      Canadian banks I don’t know about, but the stable, healthcare, education class system is the best in the world. It’s a very good place to be born, raised, leave and then return to come back and die. The country has such a high density of University grads, but lacks jobs for those people so they move to other places in the world. I prefer the risk embracing boom/bust in earning years.

      • Lumpen says:

        If you want levered exposure to CAD, why not LEAPS on FXC, or just go to the futures market if you’re comfortable with the margin reqs. Sure, not super-liquid, but pick your point and be done with it. Or go with a proxy – if 0.85 CAD = 1 USD, where are the oils or base metals? Seems like RE is an overly complicated way of getting CAD exposure.

  4. Etienne says:

    The two blogs I can’t miss a post from is yours and Garth Turner’s (I could deal without the pictures though)…
    His view on the same data is interesting: http://www.greaterfool.ca/2010/12/15/seasonally-adjusted/
    Yet another way the realtors found to screw the numbers so they look good to in the media. Your analysis compares apples to apples (all data adjusted) andGarth’s analysis compares what was not media-plastered.. the month-over-month and year-over-year data. Same figures the Realtor used when the numbers were better shown from that angle.

    Continue your awesome work, it’s extremely interesting.

  5. Sam says:

    Ben, seeking alpha is suggesting this or I am wrong here

    Suggesting that once people are making monthly payments towards mtg payments, they are turning around and taking the money out via credit lines? so the banks are moving debt from secured to unsecured? Any tax advantage to do this? This activity would make the LTV’s look solid while the oustanding debt number would continue to increase. It would also mean that CMHC is off the hook more and more as people to unsecured. The banks would be crazy to do this and should all be a short

    Please advise if I follow right????

    • Lumpen says:

      Likely that a significant portion of the LoC borrowings are for renovations as opposed to funding mortgage payments. LTV effect is similar, and benefit to CMHC remains the same.

  6. mac says:

    Wow, Sam. I envy you. I would love to live in NY. And I agree Vancouver is a duo-culture quickly becoming a mono-culture. I’ve lived here for decades but am originally from back east.

    I have yet to visit Hong Kong and have no idea how to compare it to Vancouver but Vancouver is quickly losing its heritage. Every western restaurant that goes out of business is replaced by some variation of Japanese, Chinese, Malaysian, Taiwanese, etc.

    I’ve brought up the comparison of local Vancouver housing prices to Chinese/Hong Kong/Korean pricing and I get shot down on this blog and I get called a bull, of all things, just for making this observation. Can you believe it?

    I bristle when the blog writer laughs off articles from the MSM detailing the influence of Asia on prices, culture, etc. here and when the blog writer refers to said influence as “mythology”. Can you believe anyone can say the “mythological” rich Chinese buyer? What about the 3 other waves of not so rich Asian buyers who have transformed this city? I mean, just walk the street looking for a mom and pop restaurant that will serve you roast turkey and sides from now until Christmas. You’ll be doing a lot of walking and no eatin’.

  7. mac says:

    Your dismissal of MSM articles concerning Asian buyers in Vancouver makes me bristle. You have dismissed a successful Asian actor, missing the point that he may be representative of a greater cultural preference for purchasing real estate, not to mention this individual’s success at investing. You have dismissed a well-presented and thought-out piece in the G&M about the current wave of Mainland Chinese buyers because it doesn’t have the kind of data you’re looking for, which would be impossible to collect. But which had the only form of data currently available, although it was from a realtor, which doesn’t mean it’s a de facto lie.

    It makes me bristle, that’s all. Because we’ve been living something different for close to 20 years here. I appreciate your blog. I read it. I enjoy it. I consider it. But like Sam, I believe there’s some balance missing. Every blogger mocks the MSM, but journalists and editors are more balanced. Bloggers (not you specifically) tend towards the more conspiratorial scoop and tend to create a “story” from article to article, which they tend not to stray to0 far from (think Garth), no matter what the data.

    But I enjoy your blog. So don’t get bent out of shape and take my opinion as a personal attack on you.

  8. mac says:

    My last post was directed to Ben not Sam.

    Well, Sam, every country has its own character. In Canada we opt for the mosaic, not the melting pot. After a while, it all comes out in the wash as people integrate and become Canadian. Robson St., where you ended up, is now mostly foreign students. Most of these kids will head back home after learning English but more will come. Many of them have apartments bought for them by parents overseas.

    It’s a different mindset. I went to look at a rental a few months back and met up with a family whose kids are in their 20s and have lived here through high school all the way until University. They wanted to move out of their luxury condo, high floor, view from every room, priced in the 800Ks because they didn’t like it and their parents, who live full time in Asia, own 3 other apartments they can choose from.

    This kind of money is very different from anything any Canadian has ever known. You guys down South used to be the “spendy types” with loads of cash. Even the local folk of Chinese descent can’t keep up with the bags of cash brought into this city for housing. My question, to myself, is can it possibly ever end, or will wave after wave after wave of foreign money mean high house prices for the foreseeable future.

    Granted, Canadians are in a debt bubble and condo prices here could come down sharp. But theoretically, there could be a whole bunch of real estate believin’ and lovin’ new Canadians ready to scoop it up. It’s not a bad thing. In fact, it’s probably better to avoid disaster and catastrophe. It’s just a question of when do you make the mental shift of accepting you’ll be a small, poor minority of a city you once loved? The kinda honky that makes the locals hit the door locks of their Aston Martin when you walk by just because you’re wearing non-designer clothes?

    • Sam says:

      many major world cities are the same way, London is driven from wealth from the middle east and russia. Locals are being pushed out to the burbs. Will a balance come as you say one day? I don’t think until the actual world markets are balanced. Today the developed world middle class is shrinking and the developing world middle class is growing and replacing them. Our worlds are becoming binary. i don’t believe that will change, however it does have a glass ceiling as masses can only be so indebted or pay so much for things. We are not close to that point of reversal.

  9. New says:

    Ben, I’ve read many of your posts and remain curious … that’s a good sign for me.

    I am new to the world of finance, investment, housing markets and the like. Not that I was born yesterday, just that I was concerned with other things until yesterday.

    Now my husband and I sit on cash in the bank (low risk investments as it’s our home equity) and rent a home in Vancouver. Since we sold our home over a year ago we have been waiting for “something” to happen before we enter the market again.

    Originally we were waiting for house prices to fall, then we were waiting for a housing market crash, now we’re waiting for some homes to come on the market.

    A couple of your posts refer to a recession in Q3 of 2011. Could you please explain what a recession is and what it means to me as a person who wants to purchase a home? I am guessing taxes will tend to rise, disposable income decrease … but do sale prices of houses tend to plummet in a recession?

    Thank you,
    New

    • Hi there

      A recession is typically defined as two successive quarters of negative GDP growth. They tend to be associated with rising unemployment and, yes, a declining housing market.

      Despite some measures in the US which should keep their economy artificially boosted in the near-term, I stand by my prediction of a recession in 2011, though the remarkable resilience in the housing market may push that back by a quarter. Regardless, the fallout from a real estate correction (whenever that will be) will be the catalyst for the recession. I do think we are seeing significant cracks in the market in the form of demand fatigue. I think the correction is nearer than most realize.

      Hope that helps.

      -Ben

  10. Pingback: Who’s the ‘hare-brained’ one? More hot air from perma-bull Jay Bryan | Financial Insights

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