2 Much 2 Fast

Is This Right?

If the TD Bank is right then real estate in Vancouver is not as green as some would suggest.

The latest from TD Economics. In a report from the TD Bank Financial Group entitled ‘Resale Housing Outlook, the report asks if the Vancouver real estate market was “too much too fast”? The concern is “the fact that existing home sales have more than recovered and now exceed pre-recession levels matching the lofty sales volumes of 2007.”

As a casual observer, this author does not profess to understand the inner workings of macroeconomics. However, the TD report by their economist Pascal Gauthier, will not leave you with a headache.

Scribbling notes here are Gautier’s highlights:

• Vancouver’s market rebound should not be underestimated
• the real economy and housing markets are out of sync
• boom and bust – this time it is different
• reason – central bank’s control is fully operational due to different monetary policy
• contrary to previous recessions interest rates didn’t spike
• reason – recession in US started a year earlier
• reason – Canada bond yields lower at onset
• reason – overnight rate slashed
• dramatic improvement in consumer confidence
• rationale for 08′s market melt down – uncertainty, the problem was not deterioration of individual circumstance
• ergo 09 – rebound a function of pent up demand

Green Question – How much longer?

• estimates that in 2008 45,000 to 53,000 home sales didn’t happen
• Why? – uncertainty caused by financial market turmoil
• not as bad as expected – consumers took another look – low interest rates, sellers giving price concessions = incredible opportunity
• buying a home was affordable
• the equation -> lower prices, lower interest, sustained income

The Driver

According to Gautier – “Borrowing rates, and more general measures of affordability, remain the single most important driver of home sales. On this front, favourable interest rates are still expected to prevail until late next year, even if the lowest of low rates may be behind us.”

The Kicker

‘Assuming sales continue near their current pace over the next few months pent up demand will dry up.’

Now about Vancouver

The essential greening –

• Greater Vancouver lost 1/3 of their value between October 08 and April 09 – nasty.
• reality -> simple fall back in line with historical personal disposable income
• price climb too fast
• short term future -> expect sustained dip as more listings come to market
• current affordability rests ‘almost solely on low interest rates’, **incomes not yet growing
• rising rates will reverse -> depressed sales
• in true Vancouver style could be another abrupt adjustment

Bottom line – don’t blink!

*Liberal quotations from TD Bank Financial Group entitled ‘Resale Housing Outlook Oct 07,09

**Canwest/Vancouver Sun Derrick Penner’s view.

***TD Report

****Disclaimer: Information Courtesy of TD Financial Group. While believed to be accurate it is are not guaranteed.