“While sale volumes are nearing recession levels, building in the Vancouver region has been booming.”

Ben Rabidoux’s Vancouver Summary At Macleans – “While sale volumes are nearing recession levels, building in the Vancouver region has been booming.”

“When the August resale data for Vancouver came out last week, the headline news was that sales had fallen to their second lowest level for the month since 1998. Sales were 30 per cent below what they were in August of last year and 40 per cent lower than the August average of the past 10 years.


But the numbers are even worse than the headline reveals. On paper, August 2008 holds the record as the weakest month of the past 15 years. However, it had two fewer week days than August 2012. If calendar differences are taken into account, last month represents the lowest sales volume of any August in 15 years.”

“At the same time, total months of inventory in Vancouver hit double digits for the first time since 2009. (Months of inventory represents the length of time it would take to sell all the homes listed for sale given the number of sales in the previous month. In other words, it is a quick snapshot of supply and demand: The higher the number, the worse the reading.)”

“Admittedly, the pace at which homes are being put up for sale has slowed considerably in August from the mid-summer peak, but builders don’t seem to have gotten the memo that demand has been cooling rapidly for months now: the number of housing starts and dwellings under construction, particularly condos, has risen rapidly from the 2009 lows and continues to grow.”

“In other words, while sale volumes are nearing recession levels, building in the Vancouver region has been booming. Barring a strong reversal of current trends, this supply of new homes will only increase inventory and further pressure prices, which showed the first year over year dip since 2009 according to the MLS Home Price Index.”

The last time the numbers were this bad in places like Vancouver and the downtown Toronto condo market, it was August 2008, but things looked quite different then.
The Bank of Canada overnight interest rate was three per cent and would drop to 0.25 per cent over the next eight months, bringing variable-rate mortgages and HELOC rates down with it. The discounted mortgage rate (the rate borrowers actually get from the bank, as opposed to the overnight rate) was about to plummet nearly 200 basis points in five months, providing a massive boost in affordability.


In addition, the government and CMHC were about to launch an aggressive campaign to insure low-ratio mortgages and purchase them and other insured mortgages off bank balance sheets in an effort to keep mortgage credit flowing.

Today, however, we have the exact opposite dynamic. Rates are near record lows, particularly for fixed mortgage rates and widely expected to rise sometime next year. It is much more difficult for lenders to obtain bulk insurance from the Canada Mortgage and Housing Corporation and I’m now hearing of big banks asking for a greater down payment on conventional mortgages in certain markets where they see a higher risk of a housing correction. Also, the Office of the Superintendent of Financial Institutions Canada has axed cash-back and stated-income mortgages by the big banks while the CMHC has tightened mortgage rules again.

The take-away:
The sudden slowdown in sales in key markets as a result of new lending rules is perhaps the clearest sign yet that the Canadian housing market is being driven and sustained by mortgage debt rather than true fundamentals. In August, Canada’s three-largest metropolitan areas saw significant declines in home sales and growing inventories of unsold dwellings relative to last year at this time. While this may not constitute a trend yet, it should at the very least cause us to ponder the implications of the long-anticipated slowing in the resale market. Indeed, should soft sales persist, and I see little on the horizon to reinvigorate them, they will weigh on prices in these key markets and likely in short order.

– charts and wholesale reposting of text from ‘Canadian housing: There’s an obvious oversupply problem in Vancouver, Toronto and Montreal’, Ben Rabidoux, Macleans, 11 Sep 2012

 

=======================================================================================

COMMENT:

The party Ben Rabidoux, is quoted often by bloggers, and provides a lot of good information via the snapshots the graphs above provide.

QUOTES:

“Admittedly, the pace at which homes are being put up for sale has slowed considerably in August from the mid-summer peak, but builders don’t seem to have gotten the memo that demand has been cooling rapidly for months now: the number of housing starts and dwellings under construction, particularly condos, has risen rapidly from the 2009 lows and continues to grow.”

I still don’t get it as to projects still commencing, though I do see projects on hold. ie the properties are cleared, but no excavation pre-load etc.  Sense of caution in the wind. I do see many completed units with multiple For Sale signs. My view is that those units still being  completed will simply add more unsold inventory and thus depress prices even moreso on existing inventory. As I have said before,  when the dust settles….no one benefits from this except a cash grab by Gov’ts ie DCC’s and Property taxes….

QUOTES:

It is much more difficult for lenders to obtain bulk insurance from the Canada Mortgage and Housing Corporation and I’m now hearing of big banks asking for a greater down payment on conventional mortgages in certain markets where they see a higher risk of a housing correction.

CMHC = YOU and ME……..we the taxpayer have funded or should I say Guaranteed this insurance to the banks. In other words, YOU and ME are on the hook if that 22 year old  with say 5% down buys a condo for $400,000 and can’t make their payments anymore.  IMHO, this may explain why building is still commencing, that the old rules still apply to projects in the pipeline.  So..the players like Govt’s, banks and builders will get paid on what is in the pipeline …..till the door slams shut.  This is similar to what happened in the US, except they didn’t have a US version of the CMHC, the banks simply loaned money and repackaged the debt into toxic assets, and when it unravelled they put a gun to the US Gov’ts head stating they must be bailed out or the country will be plunged into Martial law. Here in overly smug Canada….its only a matter of time….not IF but When..then watch out.

QUOTES:

The sudden slowdown in sales in key markets as a result of new lending rules is perhaps the clearest sign yet that the Canadian housing market is being driven and sustained by mortgage debt rather than true fundamentals.

In other words a lot of cheap credit , little down payment = looming disaster. True fundamentals would be having say a 25% downpayment and more rigorous credit checks, showing job history etc. aka a good risk .These have been ignored. Why? …….because politicians all over the world bought into this scam and it has failed miserably in each country that it occurred. Many, including myself, have felt that the global housing boom was simply the last gasp of an economic system that was due to implode no matter what…this delayed it and provided a false sense of security.(The next distraction is usually war)

The graphs above show that detached Single Family Homes appear to be the most stable of all the other types ie multiple family units as far as inventory is concerned, excluding prices. Multiple family units are simply exploding in inventory. Single family units usually put the brakes on sooner….mostly small time builders…who can’t afford to sit on an unsold home or build many and take the risk.

As usual …..stay tuned !!!!!.

Advertisements
Gallery | This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s