Invisible Force Guide Buyers and Sellers of Vancouver Real Estate?

Murmuration

An invisible force has guided Buyers and Sellers of Vancouver homes. An unprecedented number of Sellers have listed their homes for sale while at the same time many Vancouver home buyers have decided that they are ‘not buying now’. This collective behavior is often called a ‘murmuration’.

Curious is how these Vancouver home buyers and sellers arrived at the same conclusions at about the same time.

Not Alone

Vancouver home buyers and sellers are not alone in this manifestation. Perhaps recent examples of a similar activity might be the ‘Occupy’ movement or globally we might consider how it came to be that so many countries in Europe arrived at the brink of financial disaster at the same time. Admittedly, there are unique events within each that serve as the trigger or triggers that bring about such collective behavior but it is the act where humans coalesce with single purpose that most interesting.

Murmuration May Define Vancouver’s Real Estate Market

At the right time of year if you were to visit Otmoor, a bird sanctuary near Oxford England, you will find Starlings performing a spectacular event known as murmurations. Some might describe these events as spectacular pulsating avian aerobatic operas. Scientists more pragmatic, note it as the Starling’s way of ensuring survival against predators and the maintaining of Starling social hierarchy.

Using murmuration as a model one asks why so many Vancouver home sellers decided to sell at the same time? Was it about survival? Are they acting selfishly in the hope of protecting themselves from the predator of financial disaster by selling their homes and escaping. What was the trigger? Was it the neighbour selling at a price much higher than they anticipated that lead them to believe they could only maintain their social status by selling their home at a higher price?

Accordingly, why did the mass of Vancouver home buyers decide to stop buying? Certainly there were signs of warning that the predator of financial ruin was on the horizon. Bank of Canada’s Governor Carney claimed impending doom in the last year that financial disaster brought on by increasing mortgage rates was near. In conjunction, so too is the threat of ever increasing levels of personal debt. Were those warnings the trigger that stopped the tide of buying?

One For All

Three things make murmurations work – participants are attracted to others of their own kind, each precludes collision with each other and like a democracy where one leads, the rest are prepared to move in the same direction.

In the blogging world one might look to Garth Turner’s menu of scribbles where as a proclaimed ‘bear’ blog, fear and doom are served up like blue plate specials on a daily basis. That darkness – the kitchen where he crafts his servings, bring many to follow only to turn and twist in the air like the starlings trying to find a safe place.

Presumption is that when the terror of an attack is ‘mediatised’ there is one who is aware and who will be the first to turn. Similarly, whether the news is real or imagined the first neighbour to sell may have been the turning signal to others in the neighbourhood. They do likewise and soon they too are selling their Vancouver home. The neighbourhood adjoining then follows and a murmuration is afoot. Buyers too of will hear the call or see the flash of wing from others abstaining and join the throng.

Dangerous Thoughts

The most recent ‘Coffee Chat’ saw a gathering of long tenured REALTORS®. It had an agenda. We gathered hoping to find an understanding for Vancouver real estate market’s current stalemate. Ultimately, the result proved similar to conclusions reached by scientists trying to understand how Starlings manage their murmurations. None have a definitive answer!

It is fair to say that human behavior is at times shaped by invisible forces which lead us to behave in ways that may not be in our best interest. While it is fascinating to observe this kind of behavior in animals, for humans it has in many cases proven destructive. You can see this in the number of sales of Vancouver homes and the frustration of Buyers not able to pay the price asked.

Assuming that Vancouver home buyer and sellers are murmurating as do the Starlings of Otmoor one asks how it is possible to achieve such unpredictable behavior from predictable rules.

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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.

When Life Moves You - contact Larry:

*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:

Makaya Says:
September 13th, 2012 at 12:08 pm

What triggered the change?

The Wile e Coyote moment… The realization that there is just air between him and the ground.

vangrl Says:
September 13th, 2012 at 12:27 pm

“It is fair to say that human behavior is at times shaped by invisible forces which lead us to behave in ways that may not be in our best interest”

thanks for your coffee chat update Larry.
In regards to your above quote, I’d have to say that buyers not buying right now is definitely in their best interest….the longer they wait the better deal they’ll get, a collective buyers strike will bode well for this group.

Bo Xilai Says:
September 13th, 2012 at 1:21 pm

It has nothing to do with “murmurations”… It is simply a tipping point… At some point prices increase to a point where the numbers no longer “work” and buyers go on strike… They may be “able” to pay the price asked, but they are no longer “willing”.
At some point prices increase to the point where sellers look around and say “This is a good time to get out”. There may be willing buyers who have been constrained by the recent government announcements.
It’s naive to believe Vancouver would somehow escape the deleveraging which has swept the US, Spain, Ireland and many other real estate markets.

Dan Says:
September 13th, 2012 at 1:23 pm

Posts like this and the rest of the media world is the reason why people aren’t buying.

As I always say if you are not in the market to flip but to live now is a good time. There’s bargaining power.

Saying the world is crashing just makes it crash.

Reasonfirst Says:
September 13th, 2012 at 1:57 pm

High prices, ecomonic uncertainty, high consumer debt loads, high unemployment, low income growth, interest rates that have been low so long that their benefit has been used up, low in-migration, China slowing down…it’s not that mysterious.

Greg T Says:
September 13th, 2012 at 2:24 pm

Look back at history. Why did the tech bubble burst? Why did everyone sell their technology stocks on the same day?

Why did other asset run-ups fizzle out? Some people act like no assets have ever run out of steam or collapsed before. It happens all the time.

Ray Says:
September 13th, 2012 at 2:36 pm

These posts are incredibly difficult to read. I wouldn’t recommend your website analysis to anyone… especially someone learning the English language. You have way too many bad habits. My biggest pet peeve is when you start your sentence with a Verb and follow it up with “is”. You had one post with three sentences like that back to back. What are you teaching our young?? Illiteracy?

September 13th, 2012 at 2:47 pm

@ray

How did this become an ESL blog. 🙁

vangrl Says:
September 13th, 2012 at 3:28 pm

OMG RAY…are you for real?
Larry can write his blog any way that he chooses, and he certainly shouldn’t change his style to please the esl students that you may send this way.

people freak me out sometimes..

Dan Says:
September 13th, 2012 at 3:49 pm

He told you Larry…. LMAO!

vangrl Says:
September 13th, 2012 at 4:16 pm

Dan @
“As I always say if you are not in the market to flip but to live now is a good time. There’s bargaining power.”

why buy now to “live”, when you can buy to “live”at a discount in a year from now? I’d rather wait and possibly save $100,000 with a 10% reduction on a million dollar home, that’s a hell of a lot of nice vacations for the next ten years. Personally I see a much bigger decline than 10% but I thought I’d just use some basic conservative math.

Reasonfirst Says:
September 13th, 2012 at 4:23 pm

..oh yeah…and mortgage tightening.

September 13th, 2012 at 4:44 pm

@reason

After lunch today I was Mainland street taking pictures when a passer by, a pleasant young lady who is a student, started a conversation. The essence of that conversation reminded me of the ‘trust horizon’ – that place where you begin to have faith in your hopes again. She figured that even though she is ‘belt tightening’ in a large way, attending school to get job qualified and working she can’t see herself owning until she is 40ish. She claimed if she had the money she would buy today however, with the debt load she will be carrying for her education she didn’t think that was in the realm of possibility.

She is 27 and this may be stretching the point but a very generalized implication derived from that conversation might suggest that there is potential for 10 plus years of this type of market before this crop of young people even begin to consider making the leap into home ownership.

September 13th, 2012 at 4:44 pm

@reason

After lunch today I was Mainland street taking pictures when a passer by, a pleasant young lady who is a student, started a conversation. The essence of that conversation reminded me of the ‘trust horizon’ – that place where you begin to have faith in your hopes again. She figured that even though she is ‘belt tightening’ in a large way, attending school to get job qualified and working she can’t see herself owning until she is 40ish. She claimed if she had the money she would buy today however, with the debt load she will be carrying for her education she didn’t think that was in the realm of possibility.

She is 27 and this may be stretching the point but a very generalized implication derived from that conversation might suggest that there is potential for 10 plus years of this type of market before this crop of young people even begin to consider making the leap into home ownership.

vanpro Says:
September 13th, 2012 at 7:54 pm

Thanks Larry for the insight from your realtors coffee chat. One thing that may help them see the “light” and perhaps some answers to your collective wonderment at the state of the current Vancouver market: juts look at what happened in the rest of the world housing markets that all collapsed (“bubbles burst”) in the exact same way – and nothing to do with high interest rates, just crazy high prices relative to what people could afford or could stomach paying any longer – and those markets crashed at levels WAY more “reasonable” in terms of price and incomes compared to where uber-whacky Vancouver is currently: just think about it: we are at $1.14M avg price for a SFH and that is and AVG PRICE across ALL of greater Vancouver, not juts the ritzy areas. When (or perhaps “if”) our bubble bursts and we crash similar to the US, UK, Eurozone, I think your coffee chat will go something like: “Oh, yah it was bound to crash big time. Remember how high the prices got – it was comical: $1.0M for a crack shack or $1.5M for a Vancouver special, teardown!!!”

Ziggy Says:
September 13th, 2012 at 7:54 pm

A few housing related stats for Vancouver:

Price to Income: >10
Savings Rate: -9%
Debt to Income: 172%
Price to rent: 1.8

Either incomes would have to skyrocket or housing prices crash for the numbers to make any sense.

lefttheprovince Says:
September 13th, 2012 at 8:10 pm

Larry,

“None have a definitive answer!”

Seriously? Even a six week realtor course should be enough education to provide the insight to answer the question of why the market has stalled…

It’s too damn expensive!

Froogle Scott Says:
September 13th, 2012 at 10:04 pm

Not sure about the ‘Verbs’, but I rather enjoyed the brief meditation on Garth, and the restaurant he runs in Mordor…

Sultan Says:
September 13th, 2012 at 10:48 pm

@Dan:

Sooo…. why would we buy now with an impending and very necessary crash on the horizon?
Sure there is bargaining power right now, the leverage is there, but even that won’t come close buyer savings post and within the rubble of the crash.

“Saying the world is crashing just makes it crash.”

At this point in global economics, you are so off the mark with that statement.

Anyhow, things are really F*@#ing serious right now. Great insight found here::
http://worldhousingbubble.blogspot.ca/

September 14th, 2012 at 12:49 am

@froogle

yah gotta have fun sometimes 🙂

September 14th, 2012 at 12:52 am

@left

the point of the post doesn’t lie in the answer but rather the methodology by which it is determined.

Moneybags Says:
September 14th, 2012 at 6:14 am

Currently I rent because it simply makes no sense to buy. Prices are too high. I’m not waiting for prices to come down however if they do (substantially) I will consider buying real estate. I believe this is acting in my own best interst.

Boombust Says:
September 14th, 2012 at 6:18 am

It’s not rocket science, Larry.

Like my name suggests: From Boom to BUST!

Ralph Cramdown Says:
September 14th, 2012 at 6:27 am

But they told us that a crash required a trigger, and without a triggering event, there’d be no crash! I predict Flaherty will end up getting blamed for this, at least by those who believe a triggering event is necessary.

Milan Says:
September 14th, 2012 at 6:41 am

Average family income for 2010: $67,090 (Stats Canada)

Average SFH: $1.2 million.

Game over.

dan Says:
September 14th, 2012 at 7:47 am

@Sultan

When I bought my first 800 sq/foot condo 10 years ago in vancouver for $248000, people told me the same thing then. If this blog was there they would have posted very similar links. I’m glad I didn’t listen because of real real estate my equity it far greater than my first condo. I’m not saying the same is happening now but until proven otherwise I refuse to believe a 2 million dollar house will suddenly be affordable. Vancouver will always be Vancouver. The slightest bounce in the economy will make people buy again. Truth is some people have not felt the economy crash at all and it MIGHT bounce back before they do.

Ive said this on a few of Larry’s post and just waiting until time will tell to come back and admit I was wrong or come back and say I told you so.

vangrl Says:
September 14th, 2012 at 8:37 am

Dan@ “because of real real estate my equity it far greater than my first condo”

on paper, unless you sold?

my opinion is that condo’s could fall back to prices they were 10 years ago.

“I refuse to believe a 2 million dollar house will suddenly be affordable”

affordable means different things for different people, “more affordable” means the same to everybody.

The general consensus right now is that real estate in Canada will be more affordable further out….am i right with this Larry?

vanpro Says:
September 14th, 2012 at 8:44 am

dan:

Buying a condo in 2002 in Vancouver was nearly THE most affordable since at least 1986 (and TWICE as affordable as today) – see graph on page 5:

http://www.rbc.com/economics/market/pdf/house.pdf

And Vancouver’s economy was doing WAY better with unemployment around 4.5% vs. close to 7% today….

In other words: it IS different today….

L8erDude Says:
September 14th, 2012 at 8:48 am

“Saying the world is crashing just makes it crash”.

No, it makes you Chicken Little

Craig C Says:
September 14th, 2012 at 8:53 am

The invisible force is consumer confidence.

For the last 10 years media and the real estate industry have “educated” the masses that real estate always goes up. “Buy now or never.” etc…

This has become “common knowledge” among the non-financial/economics literate masses and was fact for the past 10 years supported by government and banking policy.

Now that we have reached a peak in prices, the fundamentals are way off like Ziggy pointed out above, policies have changed, media is telling more truths and as a result consumer confidence is shifting.

The “education” that real estate always goes up has been falsified, supported by media and a few realistic realtors and the masses are starting to believe a different truth. Real estate can go down. As this message spreads more and more sellers panic and list their house and buyers freeze wondering how low will prices go.

It may be invisible but human behavior is predictable.

L8erDude Says:
September 14th, 2012 at 9:02 am

“what happened in the rest of the world housing markets that all collapsed (“bubbles burst”) in the exact same way”

all markets did not collapse, just the ones you read about in the newpaper. Do your research

grambo Says:
September 14th, 2012 at 9:13 am

Doesn’t part of the real estate licensing program require basic macroeconomic knowledge?

It’s shocking that a group of experienced realtors could not put together the pieces of what is going on in the market today. Also, comical, unless one has had to pay the obnoxious 7%/3% commissions.

L8erDude Says:
September 14th, 2012 at 9:47 am

“Average family income for 2010: $67,090 (Stats Canada)

Average SFH: $1.2 million.

Game over”.

Why do you compare average income to a select and elite section of the housing mix? Compare a whole to the whole, correct?

September 14th, 2012 at 9:56 am

@grambo

putting the pieces together –

Don’t hold back – you tell us!

With respect to macroeconomic training that would of course command higher commission – be careful what you wish for 🙂

rf Says:
September 14th, 2012 at 10:17 am

It’s like the old Keynes theory, “At times, an understanding of psychology is more important than an understanding of economics”

September 14th, 2012 at 10:33 am

@rf

Excellent summation!

Milan Says:
September 14th, 2012 at 1:47 pm

In response to L8erDude:

“Average family income for 2010: $67,090 (Stats Canada)

Average SFH: $1.2 million.

Game over”.

Why do you compare average income to a select and elite section of the housing mix? Compare a whole to the whole, correct?

I am not following?

That is an average family income in Vancouver.
Compared to an average SFH in Vancouver.

When average family cannot compare average SFH in some environment, that environment will change. Hence game over.

Or are you saying that we should get accustomed to the idea that average family should not be able to afford an average SFH?

panbao Says:
September 14th, 2012 at 2:32 pm

Thanks for another interesting blog post. Human nature is herd like, as you do point out.

I suspect Vancouver will likely see low volumes, with minimal price declines for another 36-48 months before things pick up again.

Btw, ignore all the trolls!

Steve T Says:
September 14th, 2012 at 2:35 pm

I can’t believe that all of you realtors meeting could not figure it out! Why should Canada’s experience be any different to that of any other major country – the price of residential real estate hhas fallen in 13 of the top 15 major western economies over the last two years– when it is plugged into the global market?
The costs of borrowing have been so low for such a long time, that many consumers have become too focused on what they can afford on a monthly basis, rather than what the value of something is. When I’m looking at SFH in Surrey and Langley, I look at them (about $850k), and I say to myself, “Is that 4 bedroom house really worth almost a million dollars?” No way!!!

I see people buying 4 bedroom, 1500 sq ft new houses for $550k….half a million dollars for that!

People have to look at the total cost and not what is being paid out monthly. I think gradually this realisation is hitting home.

Fred Says:
September 15th, 2012 at 6:32 am

Do people really believe that the real estate market is influenced in any way by a blogger?

“Saying the world is crashing just makes it crash”.

I don’t even know where to begin with that statement. There is so much flawed logic at play that it boggles the mind.

No folks, a handful of people saying and writing “negative” things about the real estate market does not cause a market to turn. I feel like I’m in the Twilight Zone…

vangrl Says:
September 15th, 2012 at 9:24 am

“No folks, a handful of people saying and writing “negative” things about the real estate market does not cause a market to turn. I feel like I’m in the Twilight Zone…”

you’re right, but this does..

“The median house price in Vancouver is 10.6 times greater than the median income, according to urban policy consulting firm Demographia. That makes it the second-most-unaffordable major city on the planet after Hong Kong. The only way to account for the market becoming so detached from fundamentals, in Madani’s view, is a pervasive belief among buyers that prices will keep rising. “Vancouver is far, far beyond what anyone would expect, based on trends in immigration, income or interest rates,” he says. “That’s just not sustainable.”

http://www.canadianbusiness.com/article/98306–canada-s-housing-crash-begins

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