Canada's Housing Bubble

Jan 08, 2011 Ben Rabidoux financialinsights.wordpress.com

It’s that time of the month again.  We once again turn our eyes to the big realtor boards and dissect the sales, inventory, and price trends in their real estate markets.  Click on the city name to see the actual press release from each board.

Victoria

Total sales volume for 2010 registered 19% lower than 2009.  But with the bulk of the decline in the second half of the year, it’s safe to say the wheels have officially fallen off.  Most months in the second half of the year saw 30-40% sales declines.

But that doesn’t prevent the President of the Victoria Realtor Association from making claims like this:

(Dennis) Fimrite says the return to balanced market conditions is good news for both buyers and sellers, “We expect balanced market conditions to continue in the coming months and this will give both sellers and buyers a sense of stability”

Once again we see that it is always a good time to buy OR sell a home.  Now you know.

December saw an approximate 30% decline in home sales from the same month in 2009 while prices are up less than 1 percent over 2009 levels.  Property taxes alone would consume most of that gain.

Listings are still 25 percent above year ago levels and are set to increase with the onset of the Spring buying season just around the corner.  No doubt realtors are praying for buyers to return to the market, otherwise prices are set for a nasty fall.

Vancouver

There’s no way to spin this one.  Despite the board press release proclaiming a ‘stable’ market, the stats reveal a market that is drying up, despite the oft-reported deluge of rich Asians sustaining demand for the world’s most overpriced real estate.

After rebounding slightly in November, sales tanked in December.

“Residential property sales in Greater Vancouver totaled 1,899 in December 2010, a decrease of 24.5 per cent from the 2,515 sales recorded in December 2009…..and a 24.3 per cent decline compared to November 2010 when 2,509 home sales occurred.”

Ouch!

“The residential benchmark price…for Greater Vancouver increased 2.7 per cent to $577,808 between Decembers 2009 and 2010. However, prices have decreased 2.6 per cent since hitting a peak of $593,419 in April 2010.”

Year over year price increases are approaching those of a high interest savings account, yet with immeasurably more risk.  I suspect the extreme seller strike has put temporary resistance under house prices.  New listings in Greater Vancouver totaled 1,699 in December, representing a 21.1 per cent decline compared to December 2009 and a ridiculous 43.9 per cent decline compared to November.  As Larry Yatkowsky noted over on his blog, homes for sale in Vancouver have imploded over the past few months.

The question is where did they all go and how many will re-list in the spring?  The stubbornness of sellers is easy to underestimate, but eventually they will be forced to contend with extremely weak buying demand unless demand can again be stimulated.  I’m highly skeptical that such a rebound in demand can be orchestrated with the central bank out of big ammo and the consumer out of room on their credit card.

With January typically adding somewhere between 1000 and 2000 new units, this month will be an important indicator of what the Spring selling season will look like.  But with the first two days of the new month seeing over 300 net new listings in the city of Vancouver alone, I suspect we’ll see a near record inventory build.

Calgary

“The number of single family home sales in the month of December 2010 were 734, compared with November 2010, when sales were 891—a decline of about 18 per cent. The number of condominium sales for the month of December 2010 was 320. This was up from the 310 condominium transactions recorded in November 2010.”

While the month-over-month sales were ugly, the year-over-year sales actually weren’t that bad.  YOY sales were only down 8%, faring among the best out of all the big boards.

Houses and condo prices were down 2-3% year-over-year.

As with most boards, inventory also fell substantially with new listings falling 40% over November numbers.

Edmonton

“The average price for a single family detached home in December was $355,270, down about $10,000 as compared to the price in November. The average condo price dropped less than $6,000 to $223,454. The marginal price reduction (down 0.45%) continued a SFD slide that started in June when average prices were over $390,000. Condo prices peaked at $252,700 in April and have continued a relentless march downward since then.”

That pretty much sums it up.  Residential sales activity in December was off 34% over November and down 12% from December 2009.  Total inventory was down 18%, continuing the theme in the major boards.

Toronto

Sales fell 21% year over year in December, largely in line with the mid-month trend.  Year-over-year prices were up a paltry 1.7% in their worst YOY monthly comparison of the year.

While new listings for the month of December were down 22% from December 2009 levels, total active listings remained 9% above the levels of last December.

Perhaps most troubling is the nearly 40% rise in average days on the market, which surged from 27 in December 2009 to 37 last month.

In a matter of a few months, Toronto has gone from having the strongest sales trends to having the most ominous storm clouds on the horizon.

Ottawa

Sales totaled 620 properties in December 2010, a fairly minor 10% drop from December 2009 levels.  Total annual volume for 2010 declined 3.6 percent from 2009, with the bulk of the decline again concentrated in the second half of the year.  The average price for December 2010 showed a 5.6% increase over 2009.

Conclusion

After what may have amounted to a dead cat bounce in November, most major markets experienced significant renewed declines in sales volumes in December.  The fact that inventory remains significantly depressed is likely all that is keep prices firm for the time being.  Final aggregate numbers are released by CREA on the 15th.  While I suspect that it will close the books on my prediction of 5 to  10% year over year price declines by the end of 2010, the macro picture is certainly intact.  Demand is not there…but neither is the inventory.  Which one will rebound first will quite likely determine the market’s direction in 2011.  If mortgage requirements are again tightened, it will only put additional pressure on demand.  My predictions for 2011 still stand:  10 to 20% year-over-year drop in price on a national basis by the end of the year.

Cheers

Ben