Price Deflation Are Forming

July 12, 2010

A number of real estate boards across the country have recently released their June sales numbers and the news is not good. Sales are down across the board with a whopping 30.2% drop in June sales numbers (compared to a year earlier) in the previously frothy Vancouver real estate market near the front of the pack.

While the news for Vancouver homeowners trying to sell is bad they are not alone in feeling the pain. Toronto saw it’s sales numbers drop 23% over the same time a year earlier and Calgary saw their existing home sales drop a whopping 40% over a year earlier and is down 16% compared to May. Other markets are also feeling the pain albeit more moderately such as Ottawa which saw a 15% drop in sales in the region in June.

Air Is Coming Out Of Home Sales

It doesn’t take a brain surgeon to realize that some of the air is coming out of the sails of the housing market in Canada. It’s a bit of a mystery what has taken things this long to slow down given the slowdown in the economies of Canada’s top trading partners the US, Europe, Japan and China. The demand for Canada’s commodities especially from China and Asia has helped Canada avoid much of the pain that the global economic slowdown has wrought but there are signs the stimulus efforts in China and the US are running out of steam.

On the Canadian front interest rates near record lows and seemingly upbeat numbers being touted by Canada’s major news outlets daily has not been enough to keep the real estate bubble from starting to burst. The question quickly becomes after two straight months of disappointing sales numbers since the institution of the new tighter mortgage rules issued by Finance Minister Flaherty have we seen the peak in the Canadian real estate market and are we in for a mild or deep correction in the coming months and years.

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Metro Vancouver – Demand Sparks Bump in Rental Units

July 12, 2010
By Derrick Penner, Vancouver SunJuly 10, 2010
Forty apartment buildings traded hands in Metro in first half of 2010.

Rental apartments are frustratingly difficult for developers to build in Metro Vancouver’s high-priced real estate markets, but builders have started work on more of them in the first half of 2010 than in similar periods over the past five years.  The total number is quite small, 475 compared with 6,881 housing starts overall in Metro Vancouver, Canada Mortgage and Housing Corp. reported Friday. However, market analyst Robyn Adamache said it reflects that developers may be responding to the city’s demographic needs.

Adamache said the new units are spread across five buildings, which include mixes of market-rental housing, seniors’ housing and other unit types.

“I think it’s mostly population-based demand, whether that be an aging population or a growing population through migration,” Adamache said.  For population growth, Adamache said Metro Vancouver expects to absorb 40,000 new immigrants and migrants from other provinces this year, which should represent some 16,000 to 18,000 new households in need of some form of accommodation.

“[Developers] wouldn’t be starting [rental apartments] if they didn’t think there was demand for them.”

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Vancouver and Calgary Home Sales Drop Sharply in June 2010

July 8, 2010

Globe and Mail – Wednesday, Jul. 07, 2010 – by Steve Ladurantaye

Vancouver’s housing market slowed considerably in June, with 30 per cent fewer sales than a year ago. Still, the 2,972 sales made it the second-busiest June on record for the West Coast city. The sharp drop is further evidence that the real estate market is beginning to cool after its sharp post-recession runup after a similar drop in May.

Observers have been projecting a slower market, though not one that will come crashing down, in the face of higher mortgage rates and tighter mortgage rules. National numbers are released by the Canadian Real Estate Association in the middle of the month, but individual real estate boards around the country often release their sales data earlier.  In May, buyers backed away from Canada’s housing market, driving sales lower in what is traditionally the busiest month of the year for the country’s real estate agents.  Sales fell to 8.5 per cent to 40,393 units in May compared with April. Sales remain elevated by historical markers, but are 15 per lower than last fall’s peak.

The housing market has been key to Canada’s economic recovery, as low interest rates and pent-up demand drove buyers into the market after months of stagnation in 2008. But with interest rates likely heading higher in the second half of the year, many buyers who would have preferred to buy in the fall or early winter chose to buy sooner.

Tougher mortgage rules imposed by the federal government in mid-April also prompted buyers to act sooner. Meanwhile, tens of thousands of homeowners have seen the rampant demand and listed their houses for sale to take advantage of high prices.

The Real Estate Board of Greater Vancouver reported yesterday that home sales fell 30.2 per cent in June from the inflated levels of a year earlier, and 5.8 per cent from May. New property listings rose 1.2 per cent from May and 32 per cent from a year earlier.

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Vancouver Sun – Metropolitan 50,000 Increase in Population Annually

July 5, 2010

Real estate news can mean different things to different people.  A headline announcing either a dramatic drop or a wild increase in real estate sales will attract a lot of attention.

But the change being recorded is cause for concern or excitement only for those who broker real estate. The news isn’t necessarily a reflection of values, and needn’t necessarily alarm or excite the owners of real estate.

For example, in April, 2009, the number of real estate transactions both declined and increased locally.

The headlines focused on a year-over-year decline, news that would have certainly concerned real estate agents, but that should not have concerned real estate owners: whatever took place in April 2009 was not a reflection of value. In fact, in that month, the number of transactions increased more than 30 per cent from the previous month and the value of the average transaction increased three per cent.

Those numbers offer important lessons. As a developer, I’m primarily concerned about value. As a real estate broker, I’d likely be more concerned with volume. Value and volume can fluctuate in parallel, or in opposition, depending on underlying market dynamics.

Greater Vancouver real estate values have now approximately recovered to their peaks of about two years ago, before the global economic and credit tsunami. Greater Vancouver’s recovery surprised some, but it shouldn’t have.

Although the principle of supply and demand is widely recognized, its context within a real estate market is often misunderstood. There are a specific number of people living in Greater Vancouver, and a finite number of homes. Some homes are owned by residents and others by landlords. Although that ownership balance varies over time due to market, economic and credit conditions, it’s a diversion from the critical fact that a certain number of homes are required to keep everybody housed, regardless of ownership structure.

Let’s get specific about supply and demand. Within a given real estate market, the overall supply is the total number of finished, habitable homes. In Greater Vancouver, that’s about one million. Demand, on the other hand, is represented by the total number of individuals and families that need those homes. That includes just about everybody, not just those in the market for a new home.

Home-supply increasing

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