Today’s dose of cold reality was immediately picked up by the major papers, Noon news, dinner news, evening news, blogs, forums, and radio. Far as I can tell it was right here that the details got out first with Canada.com coming in 30 minutes later.
So what do people have to say out there?
Cameron Muir, Chief Economist for the BCREA (the provincial real estate board overlords) has come out saying that a reduction in the supply will get the market going again.
Muir thinks that what will get the market going is a supply adjustment. “This means fewer listings coming on and remaining, a process that will play out and is now underway.”
In August, the Board saw active listings decline 6.2 per cent from the previous month.
He adds in another article:
he does not foresee a U.S.-style meltdown in B.C.”We don’t have the subprime mortgage crisis they have there,” said Muir.
“There is no spike in mortgage rates on the horizon, or sharp increases expected in interest rates.”
In fact, conditions might be ripe for a reversal. Muir believes listings will decline as sellers become wary of lower sale prices and the longer time required to sell in a slow market.
“It’s going to have the effect of home sellers pulling their homes off the market and taking a wait-and-see approach themselves.”
Brian Yu, a new face on TV from the BCREA (I guess Cameron Muir was busy) calls for 12-18 months of prices remaining pretty flat (with dips and climbs along the way) as wages catch up to prices and homes become more affordable.
Tsur Sommerville of UBC’s Sauder School (he of the “off a cliff” remark last month) says:
“If you’re looking to buy, you’re not having to rush to buy,” said Tsur Sommerville, director of the Centre for Urban Economics and Real Estate at UBC’s Sauder School of Business.
“It’s creating an environment of downward pressure because you’ve got a lot of product looking for buyers.”
And Pastrick, another oft quoted pundit who last month predicted a 10% decline in prices from peak, is calling for continued declines.
Pastrick expects home prices will likely continue to decline for the rest of 2008 and through 2009 in most of the Lower Mainland. “An important statistic will be the supply of homes for sale. When this number begins to shrink, the bottom is near.”
Again with the supply side argument. Were it merely supply that had increased and sales had remained steady or at least within a respectable range I would agree with them but what we are seeing is that people are listing but few are buying. Yes, people are buying but not in any way that indicates to me that an overabundance of listings is what is dropping prices. Looks to me that the market (and I’ve said this for much of the year) has undergone a major shift in mindset. Fundamentals and perceptions of value have all shifted. Until the those two factors meet their price I do not see this market picking up, number of active listings be damned. I’m not a big fan of Robert Shiller and his Freakonomics book (paints realtors in a bad light with a broad brush) though he certainly got it right with Irrational Exuberance and he and I can surely agree on this:
Shiller, co-founder of the S&P Case/Shiller Home Price Index, said psychology is the primary driver of bubbles, and it appears that Canada has been caught up with home-buying fever just like the United States and other countries around the world.
Dave Watt, President of the Real Estate Board of Greater Vancouver has been watching too much TV, methinks, with this line:
“Although the economic situation in the United States has affected consumer confidence globally, the consensus view remains that our local housing market is underpinned by solid economic fundamentals,” Watt said in a statement.
Ah, the fundamentals are strong. So says John McCain over and over again (we know where that economy is going) and Stephen Harper (we have no idea where our economy is going) in a political ad which is played far too much. “The fundamentals are strong” is becoming a cliche. What are these fundamentals Mr Watt refers to? Low interest rates, strong employment, no foreseeable interest rate hikes to come, the lowest mortgage delinquency rate in 10 years, and continued expectation of people to move here. And if prices were in line with what most people could afford I’d be inclined to agree (oh yeah, and I’ll need that 20% hit I just took in the stock markets over the past 10 days back).
If we’re to find a silver lining then let it be that people are still buying and if you’re looking to sell go in to it to be the next sale (not the next, next one). If you’re looking to buy, there are a lot of people who really have to sell and are not getting offers of any kind. There may be some good opportunities out there. Just remember that patience is a virtue, negotiations can take time, and do your research to find the best deals.
Vancouver, BC 
Good post Will. One correction though: Shiller didn’t write Freakonomics. That was Levitt and Dubner. I can see why you wouldn’t want to be tarred with the same brush that Levitt and Dubner use in their analysis of realtors, but their data don’t lie. Realtors spend more time, and get a higher price, for their own property than they do for their clients. In a market like this one, I wonder if that will be reversed – perhaps realtors are now unloading their own holdings more quickly than their clients.
You’re right. Thank you for the correction on that. I should never have confused the two.
Not to take this off topic but while Levitt and Dubner’s data may “not lie” my own anecdotal story folder is filled with realtors who did not follow their own advice dispensed to their clients, shunned good offers, and never saw a higher offer again (and that was during the good times). Another reason why only a fool has himself for a client.
Oh, and realtors selling their own places now? Lots of those. Priced well? Not that I have seen. Of course, every seller (realtor or other) has their own motivations.
Will, great post. Your observations about “fundamentals” are exactly correct and, interestingly, was EXACTLY the same mistake Bernanke et al made in the US — looking at job growth, inflation, anything EXCEPT the poor affordability numbers, the ones that really matter. It is a typical free-market proponent mistake to avoid comments on price levels and hope the market is rational. Oops. Note the BoC has commented on price levels but nobody is going to like the medicine.
The local economists have made the same mistake about “fundamentals”, though note I think Somerville is starting (just a weeny teeny tiny bit) to start to figure it out. The others I cannot fault for being so disingenuous since they not prone to biting the hand that feeds. If they ever need a job that requires honesty and rigorous analytical abilities they have not earned their keep.
Pastrick’s supply side argument is one of the dumbest, idiotic, boneheaded arguments I have seen around, and he’s the CHIEF ECONOMIST for a bank! It basically says that there are lots of apples in the market and few people buying them. If we merely reduce the number of apples, people will buy them. Wrong. The reason there are so many apples is because people think they’re too expensive relative to what they can afford. Changing the supply will not increase demand if price is the issue.
Say it with me: it’s the price, stupid.
Well… I think it’s a fair comment when he qualifies it with “the bottom is near”. As the supply dwindles prices will stabilize. They can still be high, sure, and maybe by many considered unaffordable, but if your alternative is to rent something and the spread between the buying and renting is much more narrow than it is today I have to agree that you got a bottom.
Say you see a 10% decline (Pastrick’s number) and what was once a $300,000 condo is now a $270,000 condo. Mortgage rates remaining the same you have payments of $1500/month (on 0 down which won’t happen but we need to use that number to compare apples to apples). Renting that same place could be as much as $1500/month. Even less then that the spread is still close enough to swing some potential renters into buyers. With a downpayment of 10% ($27,000) the monthly payment works out to about $1400/month (at 4.75% 25 year amort) and that will be very attractive to many and could start to reverse the trend.
With lineups occurring at rental properties and the always unsure feeling that it isn’t your place when the numbers make sense, people buy. That has been shown time and again.
But then, only time will tell. Perhaps in such a scenario we will see a bottom… or maybe a dead cat bounce. Markets are fickle and come in and out of fashion almost without warning.
Great post will. On your 1500/month buy vs rent, I honestly think that a person who can afford to buy can pretty much walk into a competitive rental situation and “win” the rental. I don’t see it difficult to get cheap rents. I consistently get below market rentals since the owners know I can pay and they are not sure about the others. I don’t know how it could ever be cost effective for me to buy when owners give me below market rents.