Quick tour through the board stats- December 2010

It’s that time of the month again.  We once again turn our eyes to the big realtor boards and dissect the sales, inventory, and price trends in their real estate markets.  Click on the city name to see the actual press release from each board.

Victoria

Total sales volume for 2010 registered 19% lower than 2009.  But with the bulk of the decline in the second half of the year, it’s safe to say the wheels have officially fallen off.  Most months in the second half of the year saw 30-40% sales declines.

But that doesn’t prevent the President of the Victoria Realtor Association from making claims like this:

(Dennis) Fimrite says the return to balanced market conditions is good news for both buyers and sellers, “We expect balanced market conditions to continue in the coming months and this will give both sellers and buyers a sense of stability”

Once again we see that it is always a good time to buy OR sell a home.  Now you know.

December saw an approximate 30% decline in home sales from the same month in 2009 while prices are up less than 1 percent over 2009 levels.  Property taxes alone would consume most of that gain.

Listings are still 25 percent above year ago levels and are set to increase with the onset of the Spring buying season just around the corner.  No doubt realtors are praying for buyers to return to the market, otherwise prices are set for a nasty fall.

Vancouver

There’s no way to spin this one.  Despite the board press release proclaiming a ‘stable’ market, the stats reveal a market that is drying up, despite the oft-reported deluge of rich Asians sustaining demand for the world’s most overpriced real estate.

After rebounding slightly in November, sales tanked in December.

“Residential property sales in Greater Vancouver totaled 1,899 in December 2010, a decrease of 24.5 per cent from the 2,515 sales recorded in December 2009…..and a 24.3 per cent decline compared to November 2010 when 2,509 home sales occurred.”

Ouch!

“The residential benchmark price…for Greater Vancouver increased 2.7 per cent to $577,808 between Decembers 2009 and 2010. However, prices have decreased 2.6 per cent since hitting a peak of $593,419 in April 2010.”

Year over year price increases are approaching those of a high interest savings account, yet with immeasurably more risk.  I suspect the extreme seller strike has put temporary resistance under house prices.  New listings in Greater Vancouver totaled 1,699 in December, representing a 21.1 per cent decline compared to December 2009 and a ridiculous 43.9 per cent decline compared to November.  As Larry Yatkowsky noted over on his blog, homes for sale in Vancouver have imploded over the past few months.

The question is where did they all go and how many will re-list in the spring?  The stubbornness of sellers is easy to underestimate, but eventually they will be forced to contend with extremely weak buying demand unless demand can again be stimulated.  I’m highly skeptical that such a rebound in demand can be orchestrated with the central bank out of big ammo and the consumer out of room on their credit card.

With January typically adding somewhere between 1000 and 2000 new units, this month will be an important indicator of what the Spring selling season will look like.  But with the first two days of the new month seeing over 300 net new listings in the city of Vancouver alone, I suspect we’ll see a near record inventory build.

Calgary

“The number of single family home sales in the month of December 2010 were 734, compared with November 2010, when sales were 891—a decline of about 18 per cent. The number of condominium sales for the month of December 2010 was 320. This was up from the 310 condominium transactions recorded in November 2010.”

While the month-over-month sales were ugly, the year-over-year sales actually weren’t that bad.  YOY sales were only down 8%, faring among the best out of all the big boards.

Houses and condo prices were down 2-3% year-over-year.

As with most boards, inventory also fell substantially with new listings falling 40% over November numbers.

Edmonton

“The average price for a single family detached home in December was $355,270, down about $10,000 as compared to the price in November. The average condo price dropped less than $6,000 to $223,454. The marginal price reduction (down 0.45%) continued a SFD slide that started in June when average prices were over $390,000. Condo prices peaked at $252,700 in April and have continued a relentless march downward since then.”

That pretty much sums it up.  Residential sales activity in December was off 34% over November and down 12% from December 2009.  Total inventory was down 18%, continuing the theme in the major boards.

Toronto

Sales fell 21% year over year in December, largely in line with the mid-month trend.  Year-over-year prices were up a paltry 1.7% in their worst YOY monthly comparison of the year.

While new listings for the month of December were down 22% from December 2009 levels, total active listings remained 9% above the levels of last December.

Perhaps most troubling is the nearly 40% rise in average days on the market, which surged from 27 in December 2009 to 37 last month.

In a matter of a few months, Toronto has gone from having the strongest sales trends to having the most ominous storm clouds on the horizon.

Ottawa

Sales totaled 620 properties in December 2010, a fairly minor 10% drop from December 2009 levels.  Total annual volume for 2010 declined 3.6 percent from 2009, with the bulk of the decline again concentrated in the second half of the year.  The average price for December 2010 showed a 5.6% increase over 2009.

Conclusion

After what may have amounted to a dead cat bounce in November, most major markets experienced significant renewed declines in sales volumes in December.  The fact that inventory remains significantly depressed is likely all that is keep prices firm for the time being.  Final aggregate numbers are released by CREA on the 15th.  While I suspect that it will close the books on my prediction of 5 to  10% year over year price declines by the end of 2010, the macro picture is certainly intact.  Demand is not there…but neither is the inventory.  Which one will rebound first will quite likely determine the market’s direction in 2011.  If mortgage requirements are again tightened, it will only put additional pressure on demand.  My predictions for 2011 still stand:  10 to 20% year-over-year drop in price on a national basis by the end of the year.

Cheers

Ben

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28 Responses to Quick tour through the board stats- December 2010

  1. pricedoutfornow says:

    I feel that we’re in a waiting period-some people who are overextended on mortgages can afford to hold on a bit longer due to interest rates, and similarily, people who are thinking of buying might just wait awhile, since prices are not racing ahead, there’s no risk of being “priced out forever.” I’m starting to hear stories of financial difficulty from various friends and family, entirely due to unmanageable real estate debt. One has declared bankruptcy and moved out of their principal residence, one is in the process of being foreclosed on, and the other is just barely holding on, waiting for a miracle. This market is definitely not coming back in 2011, given what I know, so many are maxed out on real estate. It’s taken a long time to get to this point, but here we are.

    • Sam says:

      Which Canadian banks gave these folks mortgages?

      • SuperPL says:

        Every Canadian bank will give you a loan you cant afford 😉 Its because they are backed by CHMC and 100% secured. I was offered a 0% down mortgage just a few months ago for 50% more than I could ever afford. Dont believe me? Get a hold of a mortgage broker and see what they offer you, you will be schocked!

      • SuperPL says:

        shocked 😉

  2. mac says:

    If they change mortgage rule requirements, there will be another small to medium rush to buy over here in YVR centrale. However, I have emailed F, in an attempt to encourage him to listen to the banks and avoid the unnecessary pain of what went on in the US. Either way, I just don’t think 2011 will be a clear and decisive win for YVR centrale bears. Condos will flatten. Land will continue to skyrocket.

    Don’t read too much negativity into what Larry Yatkowsky says. He’s a realtor and talks out of both sides of his mouth. He’s just feeding the bears when he shows declining inventory. Next, he’ll credit rising prices lower than normal inventory. My impression is his real view is that it’s an active market with good money to be made on fixed up properties. You can read through his comments to watch him back off any bearish predictions he makes.

    I still believe the gov’t is trying to keep house prices floating sideways until the economy recovers and more good news balances any potential bad news of flattening house prices. And if US house prices continue to collapse at the most current levels, B will act to buoy prices again, even if he gets only 1/2 the bang for his buck. US house price delusion just feeds La La Land house price delusion. Add to that the continual “illegal” flow of hot money from Asia and you’ve got another YEAR of waiting on the sidelines. What does that make it for local bears now? 10 YEARS of waiting? That sucks.

  3. debunking says:

    @mac
    Now that you have e-mailed F, we sure can expext him to listen to you. lol

  4. Sam says:

    So Ben, prices continue to boom and less people went out in the freezing cold to buy houses..PRICES ARE UP!!!! People can expect more for that home then they did a year ago on average. Sam 1, Ben 0

    Next round? You and Garth seem to be “ctrl c” and “ctrl v” ‘ ing each other to hold on to what is left of the gloom thesis, debt load blah blah..

    Rates will go lower, prices go higher at worst flat and the world will go on spending and drinking Molson. Tomorrow job’s number should be interesting in Canada, the IVY result was not to hot, but that is a weak pointer.

    We here lots on blogs about people in debt, but what is going with your friends?

    • Sam says:

      friends jobs?

    • Lumpen says:

      When there is a robust recovery, rates will be higher, not lower. This is clearly a headwind.

      The real question is how much will have incomes grown by then? Let’s put aside the top 5% of any given market – that’s driven by wealth, not “how much a month.” If nominal AT income growth > increased food/utility/car costs + higher mortgage payment, then yes, a tailwind exists to counteract the higher rate headwind. The magnitude of the tailwind is determined by the size of the differential.

      The other “wind” is leverage levels. If people are willing to cut back on other things, many can sustain higher leverage, probably even at higher rates. Trade from BMW to Toyota, ahi to chicken of the sea, etc.

      Care to take a stab at the potential magnitudes of each factor to get a net tailwind? I think you’d be surprised at the scenarios that develop.

      • Sam says:

        the problem with this assumption is that you have to be in some isolated island for it to work. In Canada people are bringing money in from outside and who knows how that dim sum push cart guys cash pay is being accounted for. Yes people may re-allocate balance sheet expenses from a, b, c to mortgage, but that is ok and prices are allowed to go up if that is what everyone wants, a mortgage.

        Humans are allowed to have as much debt as they want, lets focus on that, if they have a job and can make the monthly payments, no one cares. For this market to break as the gloom people say, you need to see

        a) Severe job losses in all sectors
        b) immigrants no longer want to come to Canada
        c) tax or law change making it almost prohibitive to transact

        We are not in that situation, possible weak loans on the margin, but nothing to cause people to hit eject on homes.

      • Lumpen says:

        The $ from outside is why we’re ignoring the top 5% of the market – it’s got its own set of rules. Let’s look at the 30+mm people that currently live in Canada, and work in Canada to earn $ to spend in Canada.

        The dim sum cart guy is a good place to look. Unless he has significant assets, he’s not in the 5% of high end properties, and is subject to total spending restrictions based loosely upon income.

        I agree that individuals and entities can take on as much debt as they can get. The question I posed is can they service it in a full-fledged recovery, not a theoretical depression? At the end of 2007, 1yr mortgage rates were 7.35%; now, 3.35% (per BoC). Are these the cheapest you could find? Probably not, but provides the most recent difference I can find.

        Cart guy & family make $200k/yr gross, after-tax of $160k. They’ve borrowed 5x gross income at 3.35%. Current payments are $49k/yr. Other household expenses are $100k (2 adults, 2 kids, 1 nanny).

        Recovery ensues. Food, energy, utilities, nanny, school fees, car leases and property taxes are 30% higher than in baseline. Vacations and some other discretionary cut back. Household now costs $120k.

        Mortgage rates up to 7.35%. Payments are now $80k/yr. So the question is, has their income increased enough to keep pace with inflation? i.e., is the family’s income now $280k gross, $200k net, evenly split between the two? (I’ve been nice and given them some capital gains income in both) If not, they’re running a deficit instead of saving $11k a year.

        History would suggest that unless you’re in capital markets, energy or mining, no, wage increases and seniority bumps do not keep pace in periods of moderately high inflation, let alone outpace them as the example above requires (40% wages vs 30% inflation).

        Immigrati0n has nothing to do with whether this family is able to move forward, tread water, or fall backward. This is the dynamic that drives most of the market, and whether you’re born in Canada or are an immigrant, 98% of people need to work to keep a roof over their heads and are subject to this kind of income statement reality, as opposed to the 2% of people that use their balance sheets.

        Also note that I’m not absolutely bearish on housing, or RE in general. It’s historically been a good forced savings program for most people, and has provided stability in old age for many. However, it’s simply not an attractive asset class _relative_ to others at this point.

      • Sam says:

        that is good response, but I don’t think you can jump rates that quick, it would gradual and other things as wages and saving rates would follow. A strechted balance sheet, cannot take large shocks no matter how you fudge the numbers. What I am suggesting is that is the debt part of the balance everyone knows and and can service.

        The most important factor here is that the large part of most peoples debt is in mortgage – NO MARGIN calls, the house can go from 1M to 1$ and no one will ever ask you a thing as long as you make those payments. Interest rates shocks in the US came from teaser rates being way below markets. In Canada, people are paying the rates at the current markets. I don’t think the governments can squeeze you out of your homes when they are going to bear the cost.

        No on the income side, people are doing ok, earning, paying bills etc. Rational humans should be focused on increasing this all the time. Family of two earns say 100K, avg house is 350k –

        0% down, 7% rates is ~25k a year interest. easily done after taxes.

        This is what people don’t get, the numbers even at zero payments are not of whack for two people earning 50k a year. That is at 7%.

  5. Marty says:

    “If mortgage requirements are again tightened, it will only put additional pressure on demand”

    My 2 cents are that if H/F go ahead and tighten mortgage requirements, whatever demand there is for housing in 2011 will be shifted forward before the changes are put in effect. This would be similar to last year where the demand was front loaded in the first half of the year – to beat tighter mortgage requirements in April, or to beat the HST by July, etc. Would that be enough to hold the line on house prices until that deadline? Time will tell… However, after that deadline, then expect to see demand drop off a cliff…

    • Sam says:

      Don’t think so, jobs are booming and that will keep robust demand

      • Marty says:

        What robust demand? The “robust demand” coming from the declining sales the real estate boards across the country are reporting? An without a real economic recovery in the US (and that could take years for that to sort out), any recovery here will be stagnant, since we’re largely dependent on them to sell our products (and it’s no surprise Canada has now had a net trade deficit the last couple of months). I don’t see the job boom happening here that you keep alluding to.

        So out of curiosity what realty firm do you work for?

      • Sam says:

        They will pick back up in the spring. It’s not realty, more the reality

  6. pricedoutfornow says:

    Whatever the stats are showing today, I’m not worried. My significant other worries because the house across the street from parents sold (to a WHITE person, believe it or not!gasp!) for around $600k. I say, don’t worry. I’m sure not worrying because I work in the financial industry and I see the state of people’s finances- a total mess for many. When interest rates go up, these people will be screwed. Heck, many are already screwed, as you can see above. No doubt about it. If your biggest worry is that you believe you can’t buy a house for a reasonable price, well, then I’d say you have nothing to lose sleep over. There are so many people out there who are just worried about making the next mortgage payment, be glad you’re still renting and don’t have a whole bunch of debt hanging over your head! Money in the bank? Many people out there with mortgages would kill to be in your position! I have more and more clients who are saying to me “Gee, I sure wish I’d never bought that condo.”

    Prices in the US have gone down to what they were ten years ago and there’s no reason why they won’t here. (and don’t say Asian immigrants to me, that’s not a valid argument.)

    • Sam says:

      If they don’t like that, they can sell the house and become liquid ?..sounds as of they greedy and want to make money. The market is up and prices are higher, so you don’t make any sense

  7. mac says:

    jobs are not booming in van.

  8. Gordan says:

    And they certainly arn’t booming in Alberta.

  9. tw says:

    I suppose one might find it a tad ironic to contemplate how great housing is, how prices will be flat or higher, or how much some will make on their houses….when this is all a result of government meddling rather than “market forces”, whatever the hell that means today.

    I guess everyone loves free market capitalism….as long as it’s the governments version.

    And to add to the comments by priced out, the people you speak of and many others have car payments, credit cards, (multiple in both cases) and other layers of loans you are unaware of. The mortgage is only part of the imaginary lifestyle problem many have adopted; and sadly these “hidden” obligations are the killer.

  10. Sam says:

    Awesome jobs in Canada, stronger then expected, loonie booming! The recovery continues.

  11. buff_butler says:

    Your note on credit creation in your last is a good one; with 30 years of increaseing the pool of net outsanding credit (ie dollars) is now shifting in reverse. Couple this with the rise of fiscal conservatism given the issues in the UK being mistakingly applied here. There are anecdotes from the early 70’s of it being uncommon for houses to sell over list for this very reason.

    Another intersting issue will be with capital gains comming off a full cycle of inflation with the boomers; the displacement between real gains and capital gains is an interesting one simply because the cost basis does not get adjusted upwards with inflation so there is more of a real outstanding tax expense then people typically realise.

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  13. Rocket guy says:

    I predict an improved economy in 2011, and a
    continued slow and persistent bust in housing. Why? Because even when people are making good money and feeling secure about the future, once they start believing that the future holds lower house prices, they’ll stop buying houses / start selling them.

    Read “Irrational Exuberance” by Robert Schiller and learn from the expert in the psychology of asset bubbles. It doesn’t take anything in particular to pop or inflate a bubble – just the group think that an asset class is going to rise or fall in the future.

  14. Valueseeker says:

    Anyone thinking that Aussie market was “immune” to any bubble only needs to see the obvious signs.

    Sam, are you telling me that you would hold onto a property if you knew that the next day listings would jump up by 44% with rates going up further in the coming year?

    http://www.smartcompany.com.au/economy/20110110-44-jump-in-property-listings-points-to-price-falls-in-2011-expert.html

    Someone mentioned that when it’s obvious that house prices are at a peak. The majority of potential buyers will wait for lower prices. If the number of listings balloons further it only means that more discounts are coming. This will precipitate the fall.

    Steady revenue or not, when prices get too high and easy credit fails to expand further, prices will come down because majority of investors will panic.

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