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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

August 19, 2016 | Vicious

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.

BEWARE-OF-DOG

It’s now a month since I issued the latest (and last) ‘get out’ warning for homeowners in Delusia, aka YVR. Let’s review what’s happened since then.

But first, why (in early July) did I tell you the Van market was about to roll over?

Here was the warning on July 11th:

My advice on real estate in Vancouver bears repeating. Get out.

If you’ve made a windfall profit, take it and run. If you’re leveraged up to the pits and speculating on big gains, bail. If you’re within a few years of retirement with most of your net worth in four walls, suck it out. If you cannot afford to see your equity peeled back by a third or more, and stay that way for years, then retreat. If you listened to Mom and bought a condo with diddly down, get out. If you’re a Westside gazillionaire, and want to stay that way, sell. If you just bought a shack for $2.8 million, well, too late.

The evidence of a substantial decline in the months ahead seems overwhelming.

That evidence, presented at the time, was bountiful. Detached home sales were plummeting – even before the Chinese Dudes Crash Tax was applied by an accident-prone provincial government. The number of deals tanked by 8% from May to June. The decline was 30% in Burnaby, 28% in Richmond, 26% in East Van and 35% in the west. I asked: Does this look healthy to you?

Meanwhile the sales-to-list ratio was plunging, a barometer of supply-and-demand which was flashing yellow. In early July it was at the lowest level in three years, toppling from a peak of 73% in March to 59% during the summer. In the east end of town, it plopped from 86% to 49% and in the west from 82% to 46%. Ill winds were blowing.

And more: RBC’s affordability survey showed families being crushed, with over 100% of net income required to afford the average home even with a 25% deposit. Your city is an accident waiting to happen, this pathetic blog said. Get out.

And more: fewer jobs, as 40,000 full-time positions were being lost, replaced with thirty thousand part-timers. The national labour stats were turning in April and May as the economy stuttered in the wake of the Fort Mac fires, trailing trade numbers, weakening dollar and volatile oil. In July, they hit fail.

How could it not have been obvious a month ago, and earlier, that this gasbag was ready to blow? Prices wobbled higher on thinning trade, with fewer market participants, an abrupt end to multiple offers and a withering of interest at the top end of the market. Of course, all of this was being cleverly masked by the Greater Vancouver Real Estate Board which publishes headline-grabbing year/year price stats and attempts to fool the mainstream media. It works. Month after month. That’s what an engineered Frankenumber is supposed to do – keep consumers blind to key trends.

Well, since then things have (predictably) fallen off a cliff. The BC 15% levy on Chinese buyers (the new head tax) was the final straw. The market is now in serious trouble. It’s not so much that foreigners have dissipated, but that FOMO has. Remember that over 90% of all transactions in Vancouver are local-to-local, but that the irrational fear of missing out had driven these folks into a debt-snorfling, buy-now-or-buy-never frenzy. So when people think the Chinese dudes have departed (thanks to the tax), they back off, join the sidelines and wait for the market to fall. So it does. Even more than it already was.

Real estate is the most volatile and emotional of assets. This should give you all the proof you need that people create bubbles. Economies never do. And everyone will pay a price for this gaseous Godzilla.

Days ago I gave you Zolo’s report on the market, which the MSM has since picked up and spread widely. Here’s the latest summary of Vancouver detached houses. Ouch. Down 21% in a month, and now down 9% over the year – just weeks after the realtors told us it was up 32%.

SUMMARY-768x149

 

And here is a chart showing average sold prices in Vancouver. This is exactly why it made utter sense for anyone with a windfall gain in YVR to be cashing out of that market over the past year. Nobody ever gets creamed by selling too soon.

SOLD-CHART-768x584

Prices are down 18% in Richmond in a month. They are negative 22% in Burnaby over the past 90 days, while North Van houses have given up 10% so far. Over the whole region, there was a drop of 19% in sales last month, even before the tax took place. Richmond sales are down 96% and in Burbaby it’s a 95% collapse. As this blog also told you, the sales/list ratio went from over 100% before July 25th to just over 50% two weeks later. In the first two weeks of August, total sales in the west end fell by 94%, to just three.

In a word, it’s freefall. The average detached house is $300,000 cheaper than it was at the peak, with more to come. How much more is an open guess. Count on lots.

TOTAL-SALES

Finally, this is not just a Vancouver story. With real estate-related activity now adding up to 20% of the national economy – more than energy and all manufacturing combined – a collapse in YVR will have national implications. “Over-reliance on the real estate market is hardly the sign of a healthy economy,” TD economists said this week.

Of course, nobody in Toronto believes it. But it’s time to get out there, too.

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August 19th, 2016

Posted In: The Greater Fool

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