Agent Will

So as I posted earlier this week, a representative from CMHC came to our office to share some federally funded love and incite into the Greater Vancouver real estate market.  From my rapidly scribbled notes, (I really wanted to post the presentation but have not received it yet) here is what they had to say:

Some positive reinforcement:

• Greater Vancouver has a net gain in population of around 33,000.
• 34,000 come from outside Canada, a few thousand from within Canada, and we lose a few thousand to wherever  they go.
• 20-21,000 homes are needed each year to house the new folk every year.
• We have had a gain of about 20,000 jobs.
• We have the lowest unemployment rate of the last 20 years.
• Incomes have grown 5% this past year and are predicted to grow 4%, 3.6%, and 3.2% in the next few years.
• The average household income is $64,000.

Why the CMHC thinks sales have tanked:

• Uncertainty in the markets
• High Prices

We are experiencing the lowest consumer confidence in a very long time as we are barraged by negative news from the US and global markets.  This has shaken not just housing but all investments which have tumbled from buoyant highs.

The high price of housing has also reduced the number of buyers who qualify for financing or find the idea of purchasing attractive.

We currently have the highest supply of listings (homes for sale) on the MLS in 20 years (that was the period covered in their graph).

We just had the lowest month of sales in October in comparison to the last 20 years (again the length of their graph’s period).

We have the lowest sales/active listings ratio is 20 years (ditto, the graph).

Prices are dropping and the CMHC is now predicting a further 9% drop in 2009.  For 2008 they predict an overall 3% gain which would be only because prices were still rising through the first five months of the year.  Sales are also expected to pick up 4% in volume next year.

Regional Notes:

• Westside Detached Property sales are slowing down the fastest (- glass half full terminology; “dropping the quickest” – glass half empty terminology)
• The Eastside is doing much better.

Housing Starts were the 3rd highest in 2007 over the past 20 years and the first 10 months of this year exceeded that number.  27,000 homes are being built right now.  The vast majority are multifamily (condos and townhomes).

The rate of unabsorbed units is rising rapidly (I really wish I had their presentation to post here).

On foreign owners:  Only about 5% of tax assessments are mailed internationally.  They do not calculate for those mailed to property managers.  Their general belief is that vancouver is primarily owned locally and within BC/Canada.

Shocking Admissions:

Vancouver is the largest city to host the Winter Olympics so the effect on the local economy will not be near as large as many have stated as it gets dilluted to so many people and spaces.  A much greater effect will be felt in Squamish and Whistler which are obviously smaller communities.

CMHC has “dramatically” increased the amount of presale developments they are insuring as many third party private companies have left that market.

Analysis:

OK.  all that you just read above came from the presentation and my notes.  The presentation was very well done in our TRG Kitsilano Office and the presenter was open to questions throughout the show.  And questions he received!  He gave the good news and the bad news.

Question (from yours truly):  Why does CMHC believe sales will rise next year and values will fall 9%?  Where do they get those numbers from?  Why has there been so much flip-flopping?

Answer: He doesn’t make the predictions and the numbers come from economists within CMHC and their regression models.  (It’s all vewy vewy secwet, shhhhh).  Ottawa mandates that they make their reports quarterly (though the presenter thought monthly would be far more accurate) so that is why so much can happen in the marketplace between reports, appearing like a greater flip flop than it is.

Question (also from me):  How does CMHC think people have afforded homes on a $64,000 annual salary (that’s post tax)?

Answer: People in Vancouver have always found ways to spend more money than they have, either from borrowing from family or other (translation: admits borrowing from the future and that people in Vancouver, on average, really cannot afford their homes at these prices).  He further used the word “exuberance” to describe the past few years.

Additionally, the sense I got from this speaker is a very bearish outlook on home sales going forward.  He reports what the CMHC publishes and has absolute allegiance to them but there was a definite sense on my part that he knew he didn’t have the whole picture.

Why are there so many different, conflicting reports from high ranking pundits from month to month?   It would appear to me to be that they are all looking at different sets of data and using on a micro rather macro economic lense.  For example, why only look at the simple 5% of foreign tax assessment mailings and not consider the assessments that go to property managers?

In anycase, when it comes to the Vancouver real estate market we will be keeping an eye on what CMHC has to say.  Their next report should be coming out sometime around February, I believe.

If I ever get that presentation I will find a way to post it up here and let you all know.

This entry was posted on Friday, November 21st, 2008 at 2:33 pm and is filed under The Industry. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.