Richmond realtor warns:”price declines in excess of 30% coming, price collapse looks inevitable!”

Richmond realtor warns:”price declines in excess of 30% coming, price collapse looks inevitable!”

Thursday, August 9, 2012

Two months ago we introduced you to Richmond realtor James Wong.

Mr. Wong was the first of a growing legion of realtors we profiled in the Greater Vancouver area who have been telling you that if you want to sell “deep price cuts are needed.”
 
He’s out with his latest monthly report and comes to a conclusion that should send a chill down the back of any Richmond homeowner looking (or planning) to sell.
“In Richmond, there is a high probability of a price decline for detached homes in excess of 30%.”
Wong sees the events over the next few months following the pattern we saw in 2008/2009. But, instead of a recovery like 2009, Wong thinks sales will stay at their current dismal rates with home prices declining even more.
 
As that happens, Wong finally connects the dots to paint the picture we know all too well is coming:
“Sellers who need to sell will have to cut their prices more deeply to attract buyers. This could be the beginning of a real estate down cycle. The momentum will pick up when more sellers realize that a real estate downturn is in motion.”
And by then, of course, it will be too late.

The writing is on the wall. More from Wong:

“The cascading effect of declining home prices will snowball, causing more home sellers to sell before home prices drop further… The in-balance in supply and demand is massive for million dollar homes in Richmond. A price collapse in Richmond detached homes looks inevitable!”

That imbalance Wong speaks of is epic.

There are a total of 722 listings in Richmond right now for homes over $1,000,000. With average sale around 27 homes the past 2 months, there are 27 months supply of homes.

For detached homes over $1,500,000, the past 2 month’s sale averaging 11 units against 361 listings. This translates into a staggering 33 months supply of homes.

As prices implode on the million dollar homes in Richmond, sub-million dollar homes will be dragged down accordingly.

And as Richmond collapses, the contagion will spread quickly around the Lower Mainland.

Here is Wong’s full July 2012 month end report….

July home sales in Richmond turned out to be worst than in June and the month before in May. The number of homes sold for the month was 216 which was 13% lower than the previous month sales of 248 homes. Active listings for detached homes, townhomes and condos/apartments in Richmond at the end of July, 2012 totalled 2,700 units, just 30 units shy of the previous month high of 2,730. Home sellers are faced with a dilemma, cutting prices more aggressively to sell or to take their properties off the market.
The real estate market in Richmond deteriorated further at the end of July. The supply of homes now reached 11.02 months compared to the previous month of 9.93 months of supply. The higher ratio was due to lower average sales, although the total listings were around the same level as the month before. Some home sellers were making drastic price reductions and generous concessions in selling their homes. More homes were now listed and sold at prices significantly below their city assessment values for 2012.

Richmond real estate market outlook

The next few months are expected to remain lacklustre. The next few weeks and months would probably follow what happened in 2008. But, instead of a recovery like 2009, home sales could stayed low at current level with home prices declining. In Richmond, there is a high probability of a price decline for detached homes in excess of 30%, and attached homes in the range of 20% or more over the next 3 years.

The biggest problem faced by home buyers are getting their mortgages approved. Canadian banks are now required to underwrite their mortgages based on borrowers’ ability to debt service their loans”.

The cascading effect of declining home prices will snowball, causing more home sellers to sell before home prices drop further. Unlike 2009, even if home prices drop 20% or more, many home buyers and investors would be prevented from buying due to the difficulty in getting financing.

Richmond detached homes over $1,000,000 are not seeing much buying interest. With total listings of 722 and average sale around 27 homes the past 2 months, there are 27 months supply of homes. For detached homes over $1,500,000, the past 2 month’s sale averaging 11 units against 361 listings, translates into 33 months supply of homes. The in-balance in supply and demand is massive million dollar homes in Richmond. A price collapse in Richmond detached homes looks inevitable!

Sellers who need to sell will have to cut their prices more deeply to attract buyers. This could be the beginning of a real estate down cycle. The momentum will pick up when more sellers realize that a real estate downturn is in motion. This could take a few years for home prices in Richmond to reach a more sensible level.

The smart Richmond Boomer is making that minimum 30% price cut right now.
 
Because, as Wong says, when “sellers realize that a real estate downturn is in motion” – a 30% reduction in asking price won’t even begin to attract interest. “The cascading effect of declining home prices will snowball, causing more home sellers to sell before home prices drop further.”
 
Sure you can.
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COMMENT:
Psychologically, it is difficult to,  as an example, see one’s latest assessment, and then trying to sell afterward, and realizing the “paper”  loss.
Or that you know someone, say a neighbour, had very similar house that sold for say $1 Million two  month ago ……..and yet you don’t get offers over $ 800,000. 
You feel you lost $200,000, like it was ” stolen “ ?
No…not really. The market has been a bubble for years, and driven by speculation. People bought out of fear and ignorance.  Now reality hits. We have had the U.S. example to refer to, for over 6 years…and the same result is unfolding here.
The Losers…and there will be lots of them….who are “under water” aka they paid more than it is currently worth.
Others? …it is simply a matter of greed. aka The older ” Boomers ” are those that bought decades ago .
I might add, that my own age group,”tail end” of the Boomer demographic , was just at the edge of affordability in Richmond ….in the early 1980’s…most just missed the boat in that boom 1979-1981 …and were forced to buy in Ladner, Delta,  Surrey…this was before the massive offshore immigration post 1986.
These older boomers technically have a lot of wiggle room, given their properties have greatly appreciated (but one could also say that inflation has inflated everything else, and their mortgage payments were not cheap over the course).
Then it becomes a game of proportions. Where do they wish to move ? To a more expensive house ?
Or , live out of town , where it should be cheaper ?  Yes …your house has lost value, but so has the property you wish to buy. The same house you sold in Richmond may cost 30% less in say Surrey….thus you have money in the bank.
Or as many suggest…..cash out and rent…and then wait for prices to settle. In all probability you will not see thes CURRENT prices for years..if Ever. The above article’s advice  is similar to what I noted before…set a price that is attractive….before others follow suit, and then a deeper cut = more loss.
Example: If the prices have dropped from $1 Million to $800,000…..try listing at $779,000 ……before others do.
Waiting, say ( 6) months , would likely save one thousands of dollars…as prices drop further , which is what many predict.  
Get educated…Knowledge is Power…this is more an era of “cut your losses”.
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