REAL ESTATE: “Substantial declines in home sales are usually a precursor of home price corrections.”

REAL ESTATE:  “Substantial declines in home sales are usually a precursor of home price corrections.”

“Our in-house investment managers in NYC have a global portfolio of around $300bn USD; this was their take on Canada sent to me yesterday:


“It is reported that home sales in Vancouver and Toronto metropolitan areas dropped by 20-33% in September from a year ago. Substantial declines in home sales are usually a precursor of home price corrections. While almost all high loan-to-value mortgages in Canada have guarantees from government backed entities, a housing correction will likely impact consumer finances and aggravate credit card ABS credit performance”
Word is getting out there pretty fast now. Housing market correction = recession in Canada.”

Toronto_CA at greaterfool.ca 7 Nov 2012 10:04am

Price follows volume. The weakness we are seeing in sales will be followed by similarly impressive price drops.
And, yes, a housing market correction will have profound effects on our economy, particularly in areas like the lower mainland where we are sorely overdependent on economic activity either directly or indirectly linked to RE.
– vreaa

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COMMENT :

Interesting bit of old wisdom. Simply stated, declines in Home Sales don’t concurrently result in lower prices. First come the sales declines which can be equated as  lower demand / higher supply. People and their asking prices are stuck in neutral. Its simply human nature to not realize the tide has turned….it takes time to wake up to the cold hard facts. Then when they see they have a lot of competition, and more on the way, they realize that if they wish to sell, they realize the old Economics 101 lesson…supply high?  to create “demand” ……then lower the price.

On many previous posts, I noted price drops of Unsold homes. New listings , which add to the supply, are likely priced at 30% off than peak price..as they have looked at the market, see the dynamics,  and make the price corections..or should we say, “asking the (new)realistic market price” .  Thats the point..to understand that these are historical dynamics coming into play, beyond the control of the individual, but to adapt accordingly.

 

 

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