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Sales Have Been Weak, We Have Too Much Inventory And Prices Have Been Falling

A report from Macleans in Canada. “Kirk Marsh first noticed the mood start to turn in Vancouver’s housing market a year ago. As a real estate investor who buys homes and condos then fixes them up for resale, Marsh has an excellent vantage point on the market. ‘Today, everything has stalled,’ he says. ‘There’s just nobody showing up at the open houses now.'”

“He’s also keenly aware of the slowdown because he’s trying to unload a renovated two-bedroom condo in New Westminster, just east of Vancouver. The unit, with an asking price of $569,000, had been sitting on the market for two months as of mid-December, with almost no interest.”

From Global News. “Housing numbers released this week have confirmed the predictions of some economists and industry experts: Metro Vancouver’s once red-hot market has cooled down substantially — with total sales plummeting to the lowest rate in the region in 18 years.”

“‘People used to say, ‘I’d better jump in the market — it’s going to be higher next month,’ said Michael Campbell, a business analyst. ‘Now they say, ‘I’d better sit back.'”

From The Province. “Condominium owners in Metro Vancouver are opening up 2019 property-assessment notices showing increases in value from a year ago. But much has changed in property markets since B.C. Assessment set those values on July 1.”

“Across most of Metro Vancouver, condo prices are down 6.4 per cent since July to a benchmark prices $664,100, according to the Real Estate Board of Greater Vancouver. And since July, in Metro Vancouver submarkets, benchmark condo prices have declined as much as 14 per cent in Squamish (now $455,900), 10.3 per cent in Port Moody (now $627,300), 6.3 per cent on Vancouver’s east side (now $538,000) and seven per cent on Vancouver’s west side (now $783,700), according to real-estate-board figures.”

The Clinton News Record. “Housing markets across Canada contribute billions of dollars annually to the country’s economy, making up almost eight percent of gross domestic product (GDP) between 2010 and 2017. But those halcyon days ended in 2018, say CIBC economists Benjamin Tal and Royce Mendes.”

“‘It was a good run while it lasted, but the sun has officially set on the days of heady housing market growth fueling Canada’s national economy,’ write Tal and Mendes. ‘The combination of restrictive macroprudential policy measures and higher interest rates has taken a major bite out of housing activity.'”

The St. Albert Gazette. “Along with the weather, the housing market in St. Albert has frosted over. In December, sales for both single family houses and condos plummeted by 41.6 per cent compared to that same month in 2017, the latest Realtors Association of Edmonton numbers show.”

“‘We’re looking at decade-high numbers now,’ Michael Brodrick, the chair of the association, said of the amount of homes saturating the market. When it comes to whether the metro region has over-built housing complexes, Brodrick said the answer isn’t so simple.”

“‘It’s easy to say ‘sure, we’ve overbuilt,’ but you also have to remember that you don’t get a large condo tower approved today and you break ground tomorrow. These projects were submitted a long time ago, they were approved a long time ago,’ he said.”

From CTV Edmonton. “Edmonton’s real estate market is looking forward to a new start this year, after 2018 brought with it a decrease in prices and listings sitting on the market longer. ‘The real estate market has been difficult,’ said Michael Brodrick, Chair of the Realtors Association of Edmonton. ‘It’s been difficult for realtors, it’s been difficult for buyers and sellers.'”

“Brodrick says a high amount of inventory for condos across the province weighed down on prices. ‘Condo prices were really affected simply by the level of inventory we had. There was a tremendously high level of condos on the market that drove prices down further than the average overall residential price.'”

The Canadian Press. “Concerns about fresh job losses, volatile oil prices and lower capital spending are weighing on Calgary’s real-estate market and economists predict another slow year for home sales and falling prices in the city.”

“‘For many people out there, I feel for them, said Ann-Marie Lurie, Calgary Real Estate Board’s chief economist. ‘We’re in a situation where sales have been weak, we have too much inventory in our market and prices have been falling.'”

From RD News Now. “‘It’s been a pretty tough past 12 months.’ That from Richard Pochylko, the newly-elected President of the Central Alberta Realtors Association (CARA) in describing 2018 for the local real estate industry.”

“‘There were 1,331 properties sold inside the city of Red Deer in the last 12 months but 3,006 were listed for sale, so there was a lot of people that wanted to sell that were unable to do so, he explains. In terms of prices, Pochylko says the average sale value for a detached home in Red Deer last year was $370,196, down about three per cent from 2017.”

“‘It’s down about, probably a good 10-11 per cent from say 2015,’ adds Pochylko. ‘One of the things that you run into now because people generally don’t buy a house and sell it in six months, they’re selling it three to five years later. So now we’re in that three to five year bracket from 2015 and you’ll sit down with people and their equity position has been eroded because the market’s been bad basically 2016, 2017 and 2018.'”

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This Post Has 35 Comments

  1. The Macleans article is worth reading in full, as usual.

    ‘those halcyon days ended in 2018, say CIBC economists Benjamin Tal and Royce Mendes’

    It’s 2019 Ben and Royce. Speaking of asshats:

    What if it’s not a bubble? – Real Estate Marketer Bob Rennie addresses UDI

    https://www.youtube.com/watch?v=NCSIg51DLDk

    Leading Vancouver Real Estate Marketer, Bob Rennie, responds to recent public discourse of a ‘bubble’ in the Vancouver housing market. Mr Rennie’s speech to over 900 members of the Urban Development Institute was given on 17 May 2012 at Fairmont Hotel Vancouver.

    1. A snippet from the Macleans article …

      “It was plain to see what fuelled this consumption: cheap debt.”

      😁

      “Interest rates spent most of the past two decades going down and were at or near four-alarm emergency lows since the Great Recession. Canadians took their cue and gorged on debt.”

      😁

      “We now owe $2.16 trillion in mortgage, credit card and other consumer debt—an 80 per cent jump from 2008, and an amount that now exceeds the value of the entire Canadian economy.”

      😁

      “Even Americans didn’t go that overboard during their housing bubble.”

      Perhaps the next time around. Stay tuned.

      “Now rates are rising, and many heavily indebted households are feeling crunched.”

      Ah, the music.

      “In 2018, the Bank of Canada increased its benchmark rate three times to 1.75 per cent. Another two or three hikes are expected in 2019. For the first time in a quarter century, households are having to renew their mortgages at rates that are higher than when they first signed.”

      Suck ’em in, shake ’em out. God’s Plan.

  2. ‘their equity position has been eroded because the market’s been bad basically 2016, 2017 and 2018’

    Like the US, these bubbles popped long ago.

    ‘the average sale value for a detached home in Red Deer last year was $370,196’

    That’s still a ton of money Dick. The Calgary article says Alberta lost 16,000 jobs from November to December.

  3. Was the curiously perfect jobs report, issued while the workers were away, a fraud? It’s time to think the unthinkable.

    One of the most deceitful members of one of the most deceitful generations in history probably believes it stupid to tell the truth when lying helps you come out ahead at the expense of the losers.

    Huge increase in jobs, justifying the inflated stock prices and big bonuses for executives, but also rising unemployment, so there is no need to increase interest rates to prevent wage increases. Perfect.

    1. “One of the most deceitful members of one of the most deceitful generations in history probably believes it stupid to tell the truth when lying helps you come out ahead at the expense of the losers.”

      You use what works.

    2. I see no evidence to dismiss the jobs report. The BLS has pretty robust methodology and it would be extremely difficult to marshal the necessary internal collusion to create a conspiracy such as the type you are suggesting. There are plenty of reasons to find fault with the current administration–and some reasons to applaud it I will add–but I don’t think that this is one of them.

      1. “The BLS has pretty robust methodology and it would be extremely difficult to marshal the necessary internal collusion to create a conspiracy such as the type you are suggesting.”

        Normally, I would agree. And there are some through the eye of the needle arguments to make this possible.

        But just consider that this generation has done in general. Everyone sold out and lied. Accountants. Property appraisers. Bond raters. Executive pay consultants.

        And then remember that this report was issued while federal employees were furloughed.

        The household based data would be easier to fudge than the establishment data. The latter is collected by the states, and someone could add up what the states reported independently and see what it added up to. I hope someone is checking.

        But as for the household-based data, that showed a surge of labor force participation, that is collected by the federal census bureau, which is shut down.

        https://www.marketwatch.com/story/why-the-jobs-report-will-continue-to-be-produced-even-though-it-relies-on-the-shutdown-census-bureau-2019-01-02

        1. I still don’t see it. Theoretically such a thing could happen, but I find it unlikely. The article you linked to referenced the Current Population Survey and insinuated that the Census workers doing that were likely being funded by the Labor Department, not the Department of Commerce, which is unfunded.

          But on a personal level, my gut tells me that jobs are plentiful. Everywhere I go I still see signs of strong demand for workers. There might not be the wage growth one would hope for, or the work-life balance required for sanity for young families, but I see plenty of jobs.

        3. “Everyone sold out and lied. Accountants. Property appraisers. Bond raters. Executive pay consultants.”

          And most of them got away with it, scot free. I used yo believe that financial fraud was a punishable crime in the U.S., but it seems so rampant that it almost seems like standard operating procedure, especially in the real estate sector.

    3. You really have a thing against some previous generations. Are you viewing this through a superior lens? Rage on.

      1. It’s easy for the disenfranchised younger generations to be angry with the older ones – the older people rigged the game and hold all the wealth.

        1. the older people rigged the game

          Most people of my (older) generation have no net worth and will end up without a pot to piss in. You’ll need another explanation.

          1. Ah yes, the old “if it doesn’t describe everyone then it must not be true” fallacy.

            The fact that many older people will end up poor doesn’t make the “older people rigged the game” statement untrue. It’s not necessary for everyone to have benefited — the fact is that there were enough people in enough positions to do enough damage that US economic policy is now de facto geared towards preserving boomer wealth and influence. You and friends may not be among them, but that don’t make it untrue.

  4. Remember how prices of farms were rapidly moving up into the sky several years ago? Yes? Well, something happened …

    From Forbes: “By Raising Productivity, Agtech Boosts Value Of Farmland”

    (snip)

    “The Kansas City Fed’s credit survey of banks notes the “strain” on farms’ working capital across the 10th District’s plains and mountain states. The Minneapolis Fed reports that in the 9th District of the upper Midwest, the number of farms filing for Chapter 12 bankruptcy has doubled compared to five years ago.

    “Finally, according to the USDA’s preliminary estimates, net farm income in 2018 is down 12% from 2017 and, at $66.3 billion, is down nearly 24% from the prior 10-year average. Net farm income is down 46% from its record level reached in 2013.”

    (another snip)

    “‘Appreciation in the value of an acre of land is directly correlated to the profits that can be earned from that acre,’ according to Bill Lapp, president of Advanced Economic Solutions, an Omaha-based agricultural commodity analytical firm.

    “True, productivity is not the only factor: low interest rates have driven a price surge in most fixed asset classes. At urban peripheries, land demand for suburban expansion is another factor. But the biggest determinant of farmland value remains the potential profit it can generate as farmland. And productivity gains directly flow into higher profits.”

    FWIW.

    https://www.forbes.com/sites/donaldmarvin/2019/01/04/by-raising-productivity-agtech-boosts-value-of-farmland/#5d5dfeec6b57

    1. But the biggest determinant of farmland value remains the potential profit it can generate as farmland.

      Right. That accounts for the first $300 per acre. How about the other $10,000?

  5. Cheer up, millennials! It will become easier to buy a house
    The Economist
    January 3rd, 2019

    “Cheer up, millennials! It will become easier to buy a house.”

    “The snag? It’s because your parents are going to die.”

    “The thinking goes that, within a decade or two, baby-boomers—the bumper generation born between roughly the early 1940s and early 1960s—will begin to sell up, as they first start to downsize, then move into elderly people’s accommodation and, eventually, to the great old-folks’ home in the sky. As their properties are put on the market, supply will rise, depressing prices and bringing ownership within reach for more people. This is much talked about in America, where a recent article co-authored by an economist at Fannie Mae, a government-backed mortgage provider, pointed to the “coming exodus of older homeowners”.”

    1. Per the article, “Peak Death” in Britain is purported to be 2034. Peak Death will probably be a 3-5 years earlier in the US due to the lack of universal healthcare and wider disparities in mortality which correlate with education and wealth.

      The housing correction is coming sooner or later, despite any tax finagling or interest rate backsliding. In the frothiest of areas it is well underway, but it’s only a matter of time before it consumes all of the US. Demography demands it.

      1. They misestimated. If they are right about death at age 87, then 2034 is when the first Baby Boomers die off in large numbers. The peak will probably come seven years later.

        Then again, life expectancy may be going down for those born later, which may increase deaths sooner.

        1. The peak will probably come seven years later.

          I don’t think it matters. The bubble was not caused by a shortage of housing. Most of the stuff the Boomers and subsequent generations built will be worthless long before then anyway because it is oversized shoddy crap built in the wrong place.

        2. I’m encouraging my kids to save, be patient, and watch the news regarding the demographic transition of Baby Boomers into the next existential realm before thinking about buying a home.

      2. “Peak Death… earlier in the US due to the lack of universal healthcare… wider disparities in mortality”

        These assertions are absolute dreck.

        —
        Breast Cancer Survival and Screening US vs. UK:

        “five-year survival rates for all forms of the disease – including the most advanced – stand at 85 per cent in the U.S and just under 74 per cent in the UK. If the cancer is caught early… an American woman has a 97 per cent chance of being alive five years after diagnosis. In Britain, this figure is only 78 per cent.”

        “Routine breast screening in the U.S. starts at 40 rather than 50, as in Britain, and women are thoroughly checked every one to two years, rather than every three years under the NHS.” [1]

        —
        Hospital Death Rates US vs. UK:

        “Death rate ‘much higher’ in English than US hospitals…NHS patients are 45% more likely to die than patients in the US.” [2]

        Or check out the specific death rates following hospital admission for stroke (3.6 per 100 patients in the US vs. 9.2 in the UK) and heart attack (5.5 US vs. 7.6 UK) [3]

        —
        Income/Lifespan Disparity US vs. UK:

        “Wealthy Americans can now expect to live up to 15 years longer than their poor counterparts” [4]

        “In England, people living in the least deprived areas of the country live around 20 years longer in good health than people in the most deprived areas.” [5]

        —
        Hospital Access US vs. UK:

        “While the NHS in England and Wales provides care through 200 hospitals, America’s public Medicare program entitles its enrollees to receive care at their choice of 4,700 hospitals– around 4 times as many per capita.” [2]

        –
        [1] https://www.dailymail.co.uk/health/article-136377/US-v-UK-The-breast-cancer-survival-stakes.html
        [2] https://spectator.us/american-healthcare-and-the-nhs/
        [3] https://blogs.sph.harvard.edu/ashish-jha/2017/09/18/judging-health-systems-focusing-on-what-matters/
        [4] https://www.theguardian.com/us-news/2017/apr/06/us-healthcare-wealth-income-inequality-lifespan
        [5] https://publichealthmatters.blog.gov.uk/2017/07/13/understanding-health-inequalities-in-england/

        (Sorry for the long post Ben.)

        1. It is easy to get muddled in chronic vs. acute diseases and to confuse morbidity with mortality. One of the surgeons I work with has an excellent rating, but that is because he selects only the healthiest people to operate on. Selection bias matters. When you have a medical system that accepts everyone, you’re going to get a sicker, more unhealthy population. The US requires treatment of everyone in the ER, but that is a world apart from universal healthcare.

          Yes, it is true that the wealthy in the US and the UK live longer than their poorer counterparts, no qualms there. Hospital death rates is a poor proxy for health outcomes at the population level because you are excluding a huge portion of the medically under-served in the US.

          Maybe I’ll just make this simpler:

          Adjusted life expectancy for both sexes:

          UK: 81.2
          US: 79.3

          The US life expectancy has been falling for the past 3 years now, so the gulf is widening. Whether the statistically significant gap of 2 years is attributable to universal healthcare or other factors is definitely up for discussion. I tend to believe that universal healthcare access counts for some of this difference, though doubtless other policies are at play.

    2. We’ve been over this discussion a gazillion times here, but now that a Fannie economist has published a study, I guess it’s true.

    1. Most immediately, Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corp.), the mortgage behemoths in government conservatorship, could reduce mortgage rates. Together, Fannie and Freddie account for about half of all mortgage loans made today, mostly to households with modest means.”

      More financial engineering …

      1. WaPo also had an article this past week about the “demographic time bomb” that could hit the US with the fewest number of children born ever in 2017. I wonder how housing prices will react to massive downsizing boomer cohort, including those set to join the “nursing home in the sky” and dwindling number of children being born.

        2. Unchecked immigration will keep the population growing. Both parties will support it, secretly (GOP) if not overtly (Dems).

          One day last year, the talking heads on Bloomberg or CNBC were fretting about the implications of population growth slowing. Or, god forbid, turning negative. Why? Because our ponzi-scheme economic paradigm requires ever increasing growth.

          1. Completely agree on the bipartisan political parties encouraging immigration. Once we get to the demographic nature of Japan, then we can change course. But for now we should be reducing immigration, legal and illegal, until we can reduce poverty within our own borders.

      2. “Together, Fannie and Freddie account for about half of all mortgage loans made today …”

        Oh? And just whom are their customers?

        “… mostly to households with modest means.”

        Bahahahaha … no red flag to be found anywhere near here. Move along now.

        (A nation of dummies. Profitable ones at that.)

  8. “He’s also keenly aware of the slowdown because he’s trying to unload a renovated two-bedroom condo in New Westminster, just east of Vancouver. The unit, with an asking price of $569,000, had been sitting on the market for two months as of mid-December, with almost no interest.”

    I have to wonder if he tried reducing the list price down to current market value, which apparently is below $569,000?

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