Richmond realtor James Wong takes a look at the evolving market conditions and comes to the stunning conclusion (for a realtor) that there are “strong signs for a prolonged market downturn.” It has Wong asking, Are We Headed For a Housing Market Downturn?
Wong takes a look at the last downturn our market suffered and makes the following observations:
The last real estate cycle started around 1985 to reach a peak around 1994. It was a good 10 years run where average detached home prices in Greater Vancouver was just around $100,000. At it’s peak, home prices were at just over $420,000. The correction that took place was mild, reaching the bottom in 1998 with average price hovering around $360,000.
There were around 1,030 detached homes listed for sale with average monthly sale around 80 units. The months of inventory (MOI) recorded then was 12.9 months. The current supply/demand ratio for detached homes in Richmond is much worse than the beginning of the downturn in 1995.
Wong then looks at the current boom:
The run up in detached home prices in Greater Vancouver from 2001 took another 10 years, rising from around $380,000 to about $1,300,000 at it’s peak in 2011. The increase in average home prices in Greater Vancouver during this period was around 3.5 times. Housing affordability started to become an issue as early as 2005. Declining sales since 2006 was the first sign of the crack in the housing market in Greater Vancouver.
Wong then takes a stab at predicting where things might be going. He plots a “reverse image” of the Greater Vancouver price chart (with home price topping around March 2011). He hypothesizes how a down cycle for real estate might play out, including the duration and the extend of price decline that could happen the next few years (click on image to enlarge).
Wong’s chart forecasts the average price dropping from over $1.1 million to the high $300,000’s by 2020.
A drop of over 70%.
Wong then makes a stunning analysis for a realtor. First he recognizes that the market should have strongly corrected in 2006 but didn’t for the following reasons:
In spite of many new homes being added to the market each year, sales decline since 2006 was an ominous sign the housing market is ripe for a fall. Strong buying interest from Chinese from mainland China, easy credit and irrational market sentiment continued to drive home prices higher until 2011.
Then he summarizes EXACTLY what is going on:
We are now witnessing the unwinding of the housing market. The severity and pace of price decline are dependant on the interaction of buyers and sellers perception of the market. At current price point, getting financing for a family earning $65,000 a year with 5% down payment will allow the buyer to afford a home valued at $280,000.
It will take many years before owning a home makes sense again. Home prices are not going up now or holding. Instead, the housing market is coming down in values. The rush to exit the market will take its toll on sellers who bought their homes recently.
Wong has concluded the crash is underway and that values are going to drop dramatically to the point where owning a home makes fiscal sense again.
And that… is one hell of a drop.
I meant to post re: Mr. Wong sooner…..he has been cited several times in various blogs seems to be a well – researched straight shooter .
The above article is quite a prediction.
IMHO….Mr. Wong is not trying to be dramatic, what he states is actually common sense and very probable.
This has some interesting ties in economics, demographics and social engineering. Now in my 50’s I had a good view of this growing up. Also I am not trying to be sexist (overused word anyway)…I am simply laying out the case that this is all integrated.
Post W W 2, there was an outbreak of peace and the economy started to recover. Baby booms commenced, and people were having families , thus the population grew substantially.
The baby boom started in 1944. By the 1960’s, many of these were in their teens and young adults. The oldest boomers are now close to 70.
Those of us that try to connect the dots noticed certain patterns. The hippy movement, women’s liberation movement etc. Simple expressions in a free and open society….freed from the shackles of what was deemed as an oppressive society….or no, what is referred to as Cultural Marxism.
It is probably too deep a topic to get into right now, but suffice it to say that the impact of this social movement can be audited fairly well. By promoting the feminist agenda…women were encouraged to get out of the home and establish their own careers. Thus, a family had (2) sources of income. As I have stated before,if the family income doubled via (2) wage earners…what happened to say the price of homes…were they paid off twice as fast? No…they ratcheted up..”inflated”… So, the second income on average did not trickle down as a benefit , it acted as an inflationary mechanism, and then it became necessary to have dual incomes.
The classic evaluation parameter to determine what the average house price should be is the 3:1 ratio…ie the house price should be approx. 3 X’s the average family income in the given market. Or…re: RENT….for a rental unit to carry the payments, the ratio is 100:1 re purchase price/rent. As one can see, these classic ratios are far out of whack in Metro Vancouver.
The only reason we have such high prices is speculation and cheap credit, certainly NOT based on average family income. Once the fuel for the reason of high prices is gone, what is left ? Simply the old natural order. When voodoo economics are gone, gravity takes over…one may refer to it as a ” buyers market”.
70 % price drop ? ask yourself WHY it could not happen. Sooner or later everyone has to sell aka become a Seller. However….Have we allowed enough Buyers, or basically scared them off / turned them off ? The higher you go up the mountain, the more painful the fall.
Side Note: The photo above is of the old Seattle Kingdome. I remember touring it in the ealry 1980’s when it was quite new…when it was demolished it was approx. 30 years old.