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July 5, 2016 | A Bad Sign

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

BIRD modified

 

Wobble, wobble.

When the price of a financial asset shoots dramatically higher as the volume of trading thins, the pros head for the exits. Why? Because the dewy amateurs have arrived. By the busload — those people who look at a sole indicator (price) and scream at each other, “we better get in, because it’s now or never!…

What happens next is a slam dunk. The asset peaks, some buyers realize it’s a top, the selling starts, then snowballs as foolish greed becomes regret. Thus (in part) Nortel went from $120 to zero. And it may well be the yet-to-be-written tale of a $2.6 million semi in Kitsilano or a $1.7 million Vancouver Special in a schlocky part of town.

“There’s been a massive divergence in the yvr market which shows it is close to the crash now,… says a wise and experienced player. He’s right. Buried in the latest realtor media release about uppa-uppa-uppa prices lie the seeds of demise.

The pattern of sales is worrisome to anyone who recently bought. Overall, sales declined by a little less than 1% in June from the same time a year ago, but they plopped a whopping 7.7% from May. And this during a time when mortgage rates were falling and prices spiking wildly — up 32.1% from year-ago levels and 3.2% from the previous month (annualized 38%). Classic.

Worse, looks what happened to sales of detached houses across the region. T-I-M-B-E-R-R-R.

CHART 1

In case the GreaterFool Charting Department created another piece of crap, here are some of the sales declines:

Burnaby -30%
New West -8%
Poco -33%
Richmond -28%
Squamish -52%
Van East -26%
Van West -35%
Van North -1.2%
Whistler -41%

Is it still a strong market? You betcha. Sales are running 28% above the 10-year average and the typical detached house is fetching well over $1.7 million. But all that hoopla, greed and naked FOMO matters little if market sentiment is turning. After all, fools keep on buying long after the smart money has packed up and left town.

It’s also interesting to note that while detached sales were falling like Boomer pop stars, money continued to gush into condos — a sales surge of 18%, with a 25% spike in prices. “The lemmings in the local market continue to buy condos based on fomo and so the total unit sales was still deceptively high,… says Deep Listing. “The divergence in the detached vs attached is unprecedented. I also am talking with agents who are getting a ‘no bid’ situation on the high priced product. 40 people come through but ultimately no bid. Even on sales that are occurring you are getting one bid which is high and next bid which is 30% lower. A bad sign.…

There’s no doubt the Van market has detached from economic fundamentals, with the GTA market not far behind. As you know, the average family long ago lost the ability to buy and carry the average home, and RBC’s unaffordability needle is now off the charts. While the locals point at Chinese dudes as the reason, there’s zero evidence to suggest offshore buyers represent more than single digits of overall sales. But FOMO has stalked the land, spawning everything from unmitigated Westside greed among the elite to #donthave1million protests by the moist virgins on the steps of the iconic downtown library. In short, they’re all nuts.

“I think the cracks are now showing,… says DL. “Market is strong but the turn has started.…

The price of a detached home is up 38.9% in a year. Sales in the west end are down 35%. If YVR was a stock, the shorting would be epic.

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July 5th, 2016

Posted In: The Greater Fool

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