Tuesday, October 16, 2007

grief in 5 easy stages

Thanks to zed for sending me this link to CBC's story entitled Canadian real estate sales slip. (I have copied their style of a bold red font for the headline. It's like the colour of...blood in the streets. Very provocative.)

There is a lot of blah, blah - pointing out how things are down, but from a giddy escalation. Good news with the bad news, wot?
Vancouver's real estate market once again topped the country's most expensive. The average home sold for $582,354. That's down by about $5,000 from August, but still represents a better than 10 per cent hike in the past year.

"The underlying economic conditions in Canada that affect real estate are still very strong," said CREA president Ann Bosley in a statement. She attributed lower overall sales to the "volume of new listings."
And just what might be driving that "volume of new listings"? Has someone accepted the diagnosis of terminal bubblecoma?

As I read all of this, and along with everything else, I was minded of Kubler-Ross' Five Stages of Grief, and wondered if we were into acceptance yet. The bargaining is yet to come, and then, the depression - in my rosy view.


solipsist said...

That's down by about $5,000 from August, but still represents a better than 10 per cent hike in the past year.

I forgot to mention that the 5k down since August will easily return that 10% by August 2008. But I'm wagering that it will be much, much more than that.

Anonymous said...

For more bearish numbers, check out the Chilliwack and District Real Estate Board stats for September.

(sorry, not sure how to link)

Anonymous said...

The thing about the five stages of grief is that they don't go in a line and when one is over the other one comes along.

They are all over the place. You go through anger, then depression, then anger again, then acceptance, then depression, then bargining and then anger again.

I think this is how this market will play out. It will go all over the place on the way down.

oh please said...

Chilliwack stats are here. But as I've said before, they only look really when you compare Sept with August, which was an unusually up month. Overall for the summer things look mostly flat for SFH.

OTOH it does look like MLS asking prices in Abbotsford have retreated a little from the summer peak, back to spring levels.

So maybe it's the beginning of the end in the last Canadian stronghold (excepting perhaps S'toon and Winnipeg - there's almost no supply of homes in the latter). Or maybe it's just another hiccup. All I am reasonably sure of is something a realtor said to me the other day - everyone knows it's going to go down; we just don't know when it's going to go down.

oh please said...

um, "they only look really bearish" is what I meant to say.

Anonymous said...

Thanks for the link o.p. I was looking at Chilliwack stats year over year. I think we would both agree that month to month stats are not useful.

oh please said...

Average selling prices in Chilliwack and area:

2005 - 264207
2006 - 306881
2007 - 336936

Yes, # of sales is off significantly this Sept, but that alone doesn't herald a price drop.

I'm really really hopeful this is the beginning of the end of the insanity, but as it is insanity, I think it's pretty hard to be sure it's over until it's over. It's certainly gone on about two years longer than I ever thought it would.

Kevin said...



did you see this?! The Edmonton thing didn't really phase me. A 50K-150K drop would bring things back in line in a hurry, especially with local incomes.

I was floored by the 800K figures for Vancouver. WOW. The bears have pretty much been defeated and common sense has lost. Precisely the time of the great unwinding.

Even if average went down to 500K that would be a lot of wealth vanishing and its not like Vancouver would be cheap. Seattle is much cheaper and had real world companies contributing producive value to the economy. Unlike Vancouver.

Sorry for the rant but while Vancouver is holding out it is destroying my worldview and makes it less appropriate to complain about the 400K Edmonton bungalow.

Anonymous said...

Great post


Drachen said...

London held out for years before the international collapse. There is no measure to how long irrationality can last but it is always certain it will end eventually.

A study showed that normal housing costs between 125x and 150x the monthly rent of a place. If prices go over 200x they ALWAYS drop below again unless there is an equivalent increase in real wages.

I occasionally do calculations on the flyers I get from RE agents when they advertise it as a fully rented out 'investment opportunity'.

Here's the stats on a recent place.

Rent = 5,400 per month
Asking price = 1,648,000

That's 305x the monthly rent, which means that at half that price it could fit into the high end of a normal market.

The average cost of housing in Vancouver is 580,000. Population of Metro Vancouver is 2,000,000

Rounding down a bit that's 1,000,000,000,000 in RE at current values. If prices drop by half that's a half TRILLION in paper losses.

The GDP of Canada in 2006 was 1.089 trillion.

That is a LOT of money...

Panda said...

drachen, do you have a reference for the study? That is something I'd like to read!

Drachen said...

I can't find the study right now Panda, a few months ago I found the abstract (I don't have access to scholarly papers so I couldn't read the whole thing).

Here is what the Motley Fool had to say (the earliest source I could find referencing the study)

" Bringing it home: The 150 to 200 rule
If a home is selling for 150 times the monthly rent (or less), it's generally a good deal. If it's selling for more than 200 times the monthly rent of a comparable property, you're better off renting. I ran this little test for a house near Fool HQ in Alexandria, Va. House A has five bedrooms and 4.5 baths, and it sits on one pristine acre. You can rent House A for $3,900 per month. Based on comparable sales, this home would sell for approximately $2 million. Therefore, it's selling for 512 times the monthly rent! Put another way, if you mortgaged the whole $2 million at 5.42% over 30 years, your monthly payment would be more than $11,000.

If it seems like something doesn't add up, you're right."

The abstract had a lot better info, I'll post it if I find it.

Drachen said...

I couldn't find the original paper on the 150 - 200 rule but I did find this.
3rd Annual Demographia International Housing Affordability Survey: 2007

According to the authors Vancouver is a 7.7 median house to median income multiple (Q3, 2006), 13th worst of all cities surveyed and 256% of what the study defines as "affordable" and "normal".

Panda said...

Thank you, drachen. I will do some digging starting from your sources.

Anonymous said...

You can not expect BC Real Estate prices to continue to rise at 10-15% a year. Market is returning to normal levels. Media is just looking for news to sell.