Who is Right? – We want to Know Now!

Would those of you in the cheaper seats clap your hands? And the rest of you, if you’ll just rattle your jewelry. – John Lennon

The Battle

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Photo Credit: Flickr -Explosion in the Sky- Tony Villen

The heat is on! The Bears and the Bulls in Vancouver Real Estate have notched up the rhetoric about who is going to be right. The Bears “clapped their hands” when given offensive ammunition in Lori Mcleod’s Housing sales tumble across Canada in her April 18th article Globe and Mail article that put more fat in their fire. The Bulls – “rattled their jewelry” pointing to world indicators noted in Mcleod’s- “Housing markets on shaky ground” from April 10th. The byline of the article being the Bull’s defense using the IMF who claims that Prices don’t reflect economic fundamentals in most developed countries.

The positions:-

The Bears say:

  • “Canada’s six-year housing market boom is officially over. Aside from a few choice prairie locales, sales are melting faster than this year’s snow pack,” Douglas Porter, deputy chief economist at BMO Nesbitt Burns
  • In the first three months of the year, 75,467 resale units changed hands, a 13-per-cent drop from the first quarter of 2007, according to CREA
  • What will go down as a “housing boom for the history books” actually started nearly 10 years ago, according to a recent presentation by Adrienne Warren, senior economist at the Bank of Nova Scotia.
  • The current slowdown would probably have started 12 months earlier were it not for a wave of buyers entering the market by way of longer amortization mortgages that became available in 2007, said Craig Alexander, deputy chief economist at Toronto-Dominion Bank.

The Bulls say:

  • In the aftermath of the global credit crunch Canada is less vulnerable to a large drop in house prices than any other major advanced economy except Austria, according to the Washington, D.C.-based International Monetary Fund’s World Economic Outlook.
  • “I’d be much more worried if I was from Barcelona than if I was from Toronto right now,” said Roberto Cardarelli, senior economist at the IMF. “The dynamics of house prices in Canada are in line with what we would expect based on the fundamentals of the economy.”
  • Canada is in better shape than many other countries and home prices here aren’t expected to drop this year, said Benjamin Tal, senior economist at CIBC World Markets Inc.
  • A decline in interest rates is part of the reason Canadian home prices haven’t shot past the country’s economic fundamentals, Mr. Cardarelli said.
  • Fewer speculators and more conservative lending practices have helped protect Canada from a big housing market downturn like that in the U.S. and some European markets, said Sherry Cooper, chief economist at BMO Nesbitt Burns Inc.
  • “Remember that things were fine there [in the U.S.] in 2004. Then rates went up, and bankers with imagination created this bubble,” said Tal.

The World’s a Stage but Real Estate is Local

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While listening to pundits and looking at the Canada wide numbers don’t forget that in the mix Toronto alone, represents about 20% of the statistic generated. Further not all real estate markets in the U.S. have suffered from the “imagination bankers” whose dream results are monumental and tragic. To suggest that the world has no influence on our market prices is heresy however, for most people the immediacy of our concern is our local market.

Have we paralleled the global outlook? Looking at board statistics it’s much like the positions the bears and the bulls are posturing. No question, it is a strange brew. From the graph of the West Side numbers, listings are down to 225 detached homes compared to last years 307. A bothersome point is that only 83 properties have sold, just around half of the 162 properties that sold last year at this time. Concurrently, there is high inventory of 607 listings compared to 469 last year. Supply/demand perspective suggests that demand level combined with the high inventory should be resulting in lower prices. Not so in Vancouver! Prices have increased from $1.50 million to over $1.96 million per unit.

Confused?

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Photo Credit: Flickr- Government Leaders! Religious Leaders! Leaders of Your Own Cause!……. I Ask You…. -Donna *deestea*

The reasons that seem to justify these price levels is the constant lowering interest rates and the willingness of individuals to continue to load up on debt for longer periods. Canadians are not known for this brash behavior. It is uncharted territory. Can it be far away when economic psychiatrists throw their hats into the ring to rationalize all this?

Dazed Fundamentals!

There will soon come a time when bank shareholders will want a fundamental return on their investments. As an impatient lot, the Bears will be noisily clapping – demanding their investments grow more quickly. Likewise, the Bulls will rattle their jewelery seeking returns to profitability. The question is – will those actions be the straw that breaks therein catapulting those with high debt levels into a daze of chaos similar to our southern neighbours? A simplistic view perhaps, but possible. As in all things, time will tell.

Got a Vancouver Real Estate question? I’ll do my best to answer it. Call or send me an email. Larry

About Larry Yatkowsky

Larry is a recognized real estate expert. A veteran professional, his experienced counsel leads Vancouverites in his west side community to place their trust in a man passionate about his work. Uncompromising ethics bring a balanced approach to realizing your real estate dreams.

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*Disclaimer: Statistics Courtesy REBGV. While believed to be accurate they are not guaranteed.
**Numbers provided may vary as they are dynamically posted by the REBGV.

Reader Comments:

April 21st, 2008 at 9:46 pm

great graph! i’m with the bulls!! strong $ equals low inflation, feds balance the budget and pay down the debt, in-migration (50,000 pr yr to BC), we have energy, resources and water. oh yes, and harper’s corporate tax reduction going forward…sit back and enjoy the ride.

April 22nd, 2008 at 6:53 am

Maggie,

Was that the sound of diamonds or pearls or wisdom?

April 22nd, 2008 at 7:24 am

I am also confused. I am dealing with a real estate in Toronto and I have also recorded some slow down. But hopefully thanks to lower rates it will change soon. Problem I do not really understand is one mentioned in your comment like statement of IMF. Prices of the real estate don’t follow economic fundamentals. Ok, but what does this mean for Canada? Prices are not flexible down, especially the real estates ones. Should we expect some shock now?

April 22nd, 2008 at 8:23 am

Julie,
I interprit what Cardarelli is saying as this: compared to the rest of the world our real estate is in line with the models that these guys build based on the overall state of the Canada’s economy relative to others.

Unfortunately, economic models are past tense. So it would not be reflective of the “slow” down that Toronto experienced this spring. Our respective markets change quite quickly. 6 months from now when they re-digest the numbers I suspect Cardarelli will sing a different tune.

Locally we have a model that doesn’t fit the supply/demand model, at least as I understand it.
High inventory, slow sales but prices keep going up. This doesn’t fit!

What is confusing me as well are the boosters rattling their jewelry (see Maggie’s comment), while the sensationalist bears are clapping doom and gloom.

Real Estate in Canada today I envision much like a three ring circus, your view of the market place depends on which act are you watching?

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