Sixteen days ago I told a ballroom full of latte-sipping, tat-wearing, Lululemon-clad, Vespa-loving, Vancouver metrosexual real estate addicts that the end was nigh. The downturn in the last hundred days was no fluke. No aberration. No anomaly. No lull. It presages a long and deep slide taking the market back to its median, and ultimately a correction in prices which could include 40% drops in many neighbourhoods.
I based this on facts. Affordability is off the charts. Population inflows are down. Wages and salaries have stagnated. More young people are now leaving BC than going there. And Ottawa’s War on the House – upping carrying costs, killing cash-back mortgages and disqualifying $1 million listings from CMHC insurance – will have the single greatest impact in the most delusional market. So, this is no time to be buying a house.
Nobody should have been surprised at the latest numbers, then. They tell a tale of a market in serious distress. Sales of detached houses in August crashed 39% from last year. Overall, there were 31% fewer deals than in the same period in 2011. This made it the worst August since the depths of the GFC in 2008, while sales in general are running 39% below the ten-year average.
The news for sellers is brutal. The ratio of sales to active listings has melted to just 9%, for example. And when you look at neighbourhoods which led the continent in buzz two years ago, it’s an even more dramatic tale.
For example, on the tony Westside there are 995 houses for sale today, but only 75 found buyers last month. That equals a 13-month supply. Anything over eight months heralds a coming dump in prices.
Do you remember real estate agent Sam Wyatt? He’s the dude showcased here a few months ago, unique among realtors for enough candor and honesty to get mugged and wedgied at the next Re/Max convention. Wyatt’s telling clients who must sell that their only hope is to take a dive. “If you want to sell, you will need to price BELOW the most recent comparable sales prices and you need to do this from the very beginning of the listing. If you don’t do this, your listing will almost certainly stagnate. “
Last year, Wyatt says, the listing success ratio for houses was 59%. Now it’s 33% – which means two-thirds of houses probably won’t sell in a year.
Now, what about prices?
Many people, especially mouldy West Coast basement dwellers who share their dank suites with lichen and moss, think prices should collapse along with sales. But this isn’t how real estate markets work. Sure, there are some quick and spectacular erosions at the top end – for example, two Westside houses priced at almost $14 million and $16 million went slumming for just twelve mill each – but real reductions across-the-board take time.
Sellers are thick. They need 90 or 120 days of crickets before they clue into the fact their houses aren’t special or that conditions won’t suddenly improve. Once that happens, prices fade. Or, a number of owners will withdraw their listings in the mistaken belief that things will get better and they’re fooling people. This is why new listings in Vancouver just dropped 16% from July. But in a market that’s truly in decline, it’s a bad strategy. Those who must sell will end up re-listing in a downdraft, forced to seriously cut their asking or risk sitting through empty Open Houses for the next fourteen months.
Besides, what are houses really selling for, anyway?
Vancouver’s real estate board is the home of the original Frankenumber, the MLSLink® Housing Price Index (HPI) composite benchmark price, blatantly intended to smooth out peaks and valleys, giving the impression of an eternally stable market. So while the average detached SFH has lost $200,000 in value in recent months, the Frankenumber stays serene. In August, for example, “the decline of 0.5% compared to this time last year and a decline of 1.1% compared to last month.”
Could this be because the Real Estate Board of Greater Vancouver secretly did an organ transplant when nobody was watching? Well, nobody except for the poster called Canadian Watchdog. “REBGV revised last year’s benchmark prices lower again. I had all their website data copied from earlier this year and sure enough, when I checked today’s detached home price for last August, it was revised below $1M, otherwise it would have posted a 9.2% decline, not -0.5%. It’s useless. They’re doing everything they can to smooth out data before the coming cliff in Q1 2013.”
Adds realtor Sam: “Things will not “get back to normal in the fall when everyone has settled back in”; in fact they will likely continue to get a lot worse.”
Which is exactly what I told that hall full of sodden Van house-hornies weeks ago. This is about to get a lot more dramatic.
Will it infect Toronto? I will answer that in person next month.