DATE

the perfect storm
Steve Saretsky -

The Psychology Behind Vancouver’s Bubble Back in August I wrote an article called FOMO Drives Vancouver Real Estate Market. This intense psychological behaviour throttled the market to new heights and has never been so obvious as I explained in my most recent post Irrational Exuberance in Vancouver.  There are many factors which pushed the Vancouver real estate ship into a category 5 storm. But perhaps none more powerful than the psychological forces steering it. Excessive media exposure created a wave of desperate buyers. Vancouver real estate dominated conversations everywhere you went and soon investor speculation morphed into a tidal wave destined to take the ship down. Just like the stock market crash in 1929, media attention was rampant in the years leading up to it. For example, there were 29 articles about the stock market from 1922-1924. From 1925-1928 there were 67 articles, and 182 articles from 1929-1932. Over the 1920’s the percentage of articles about the stock market almost quadrupled then died off significantly years later. A similar pattern can be seen in Vancouver where headlines highlighted enormous price growth, record sales, and never ending gains. News spread rapidly and encouraged more investor participation and increased speculation. This is known

Steve Saretsky -

CMHC Defines Affordable as Anything Under $400,000 It’s obvious that pathetically low incomes and excessively high house prices are a real drag on the Canadian economy.  With Canadians now indebted up to their eyeballs, thanks in part to massive mortgages, many bankers fear it’s threatening Canadas financial stability.  Low incomes, high debt levels, and a recent case of Irrational Exuberance in Vancouver has forced CMHC to raise the red flag today. CMHC called Vancouver real estate problematic and overvalued. They also released this chart which shows how much household income you need to qualify for a home across Metro Vancouver. Considering that the median family income in Vancouver is a meager $76,040 pre tax, it’s evident we barely qualify for a cardboard box. As locals continue to get squeezed further and further out to the suburbs jobs in the city are becoming much less attractive. Not to mention the added travel time and expenses when commuting. What’s the average household income in Vancouver? [table id=15 /] Although Vancouver doesn’t have the lowest wages, we certainly have the highest home prices by a long shot. Perhaps the most ironic part is what CMHC considers affordable, “housing is considered to be affordable when

Steve Saretsky -

How Vancouver Turned into a Speculative Bubble “A speculative bubble is a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, and, in the process, amplifies stories that might justify the price increase and brings in a larger and larger class of investors, who despite doubts about the real value of the investment, are drawn to it partly through envy of others’ successes and partly through a gambler’s excitement.” – Robert J. Shiller, economist, Nobel prize winner, and author of the New York Times Bestseller, Irrational Exuberance. Does any of the above ring a bell to what has occurred recently in Vancouver? I certainly think so. Detached Market Takes Off It all started in the detached market around February, 2015. In what appears to be a mass exodus of foreign capital. China’s economy begins to falter, a panic sets in and a flood of money exits the country into safe havens such as Vancouver real estate. A typical West Vancouver home (well out of the reach of local income earners) sells for $2,003,700 in December of 2014. Prices explode to $3,365,600 by July 2016, an increase of 68%. This epidemic

Steve Saretsky -

Sales to Active Ratios Continue Free Fall Three weeks into October and it’s much of the same. Sales continue to fall and listings are piling up. It appears clear as day the market is correcting even the CEO of Royal Lepage was quoted as saying “Vancouver prices have seen their last hurrah.” That’s a pretty bold statement from someone in the real estate industry. I’m still in awe when the keyboard warriors come out and attack my blog. Just today a nice man from the Eastside of Vancouver commented “yea but the prices are still rising. Sleazy spin on the stats.” He was referring to my post Detached Sales 46% Below 10 Year Average. Pray for him. Anyways, i’m sure this nice man won’t like what I have to say today. The October sales to actives ratio (a measurement of demand) is down again this month. I highlight this stat all the time, most recently in the September Detached Market Report and the September Condo/Townhouse Market Report.  Demand has fallen every month since March in the detached market, and in June the condo/townhouse market followed. Here’s how it looks so far in October: Detached Market Vancouver West- 8.6% Vancouver East- 6.7% Richmond- 5.9% Burnaby-

Steve Saretsky -

Buyers & Sellers at a Crossroads There’s no question the market has been on a downwards spiral the last few months. I’ve outlined the declines in almost every report. With foreign buyers heading for greener pasture, new lending policies making it tougher for locals, and an upcoming provincial election it’s hard to be optimistic about the short term future of Vancouver real estate prices. However, for some sellers it appears reality has not set in. We all know these windfall gains of 49% over the past 2 years are unsustainable. (What is the ROI of Vancouver Real Estate?) Yet just the other day I showed a bunch of downtown condos to a prospective buyer. Every listing we saw was overpriced. In some cases I gauged they were over listed by about $50,000. It should come as no surprise the listings had been sitting on the market for awhile. It’s almost a certainty these overpriced condos were a result of an overly optimistic seller. We all know most Realtors are the first to suggest a price reduction. So what gives? It’s well documented prices take time to move. Although we have seen Multiple Offers Plummet on Downtown Condos and prices drop 5%

Steve Saretsky -

Analyzing the Return on Investment of Vancouver Real Estate Forget gold, invest in Vancouver real estate. That was the message from the world’s biggest asset manager, Laurence D. Fink, back in 2015. His message was heard loud and clear; Vancouver prices have since soared roughly 30%. But despite an incredible last couple years, just how good is the ROI of Vancouver real estate? I decided to look back at the numbers over the past 10 years. (It’s as far back as the system would let me go). Using the Real Estate boards MLS Benchmark price for all of Metro Vancouver I was able to determine the average ROI each year for a detached house, townhouse, and condos. See below. Detached House ROI Over the past 10 years (January 2006-January 2016) detached house prices have increased on average 8.7% each year. This number includes the recent 25.9% increase from January 2015-January 2016. However, it does not include the most recent 23.1% increase from January 2016- September 2016. The red line on the graph indicates the 8.7% average over the past 10 years. As you can see, the most recent price gains over the past 2 years are unprecedented. Townhouse ROI The typical

Steve Saretsky -

Detached Home Sales Far From Historical Averages I’ve been saying for quite some time that detached sales are well below historical averages. In September Detached Market Report I reported that East Vancouver had the fewest sales that September than any other September over the past 10 years. However, the Real Estate Board’s release went on to say that sales were returning to more normal historical levels. I’m almost certain it’s because they combined detached and attached sales. This can be quite misleading since we all know they are two very different markets. Here’s what I found in the single family market. Using the sold date not the processed date (I explained the difference in this short video) I was able to determine that September detached sales were 47% below the 10 year average. Areas covered by this study include all detached homes in REBGV (Whistler, Sunshine Coast, Squamish, West Vancouver, North Vancouver, Vancouver, Burnaby, New Westminster, Richmond, Port Moody, Port Coquitlam, Coquitlam, Pitt Meadows, Maple Ridge, and South Delta.) Historical Detached Sales Average (2005-2015) January- 1076 February- 1447 March- 1568 April- 1605 May- 1643 June- 1472 July- 1278 August- 1156 September- 1171 2016 Detached Sales January- 1220 February- 1963 March- 2024

Steve Saretsky -

Why It’s Time to Cash out of Vancouver Real Estate Oh look a Vancouver Realtor telling you to sell your home. I’ll bet you’ve heard that one before? Except this time it’s different and it’s very real. If you were ever thinking about cashing out of Vancouver real estate now is the time. First off, this is not a sales post. When I tell you to sell I mean just sell. I don’t care who you use, i’m sure there’s someone capable of doing it amongst the 13,232 Realtors in REBGV. If you want to use me, great, you can do that here.  So why now? Look I’ve been following the trends for some time now. As I mentioned yesterday October sales Off to Slow Start. There is no immediate turnaround coming for Vancouver real estate. The next few months coming up, the winter months, are historically very slow. That will likely only fuel a continued slowdown in the market. So your options are to cash out now and still have a chance to walk away with some massive profits or take a gamble, roll the dice, and hope for a turnaround in the Spring. Look prices could very well turnaround

Steve Saretsky -

October Sales on Pace to Be Lower than September Albeit a little pre mature as we are only 12 days into October I decided to do a little digging today. How are the first couple weeks of October sales and what should we expect to see at months end? Early sales numbers show we are on pace for another slow month. In fact, if these numbers keep up we will have fewer sales than September. Maybe the real estate pundits will blame this slowdown on the Thanksgiving Turkey! I pulled the data for the first 11 days of October. No doubt a long weekend slows activity, but luckily Thanksgiving falls basically on the same week each year. Detached Sales Through October 11 Vancouver East- 23 sales Vancouver West- 27 sales Richmond- 22 Burnaby- 16 REBGV- 224 So if these numbers continue we should expect to see 65 sales in Vancouver East, 76 in Vancouver West, 62 sales in Richmond, 45 sales in Burnaby, 631 sales in REBGV. Here’s how the projection looks on a graph which shows detached sales from January through to Octobers projected number. Although sales activity could very well pick up after Thanksgiving it’s also important to

Steve Saretsky -

Multiple Offers on Downtown Condos Plummet. Prices fall 5%. There’s been a lot of questions lately asking me how the condo market is doing. Especially since the announcement of the latest lending policies. I wrote a post last week How The Stress Test Could Curb Demand. While it’s still too early to tell if I’ll be right there are clear signs of a slowdown. I’ve said it before, and i’ll say it again. Condos will not be exempt from any sort of correction if the market turns. Think about it, if a detached house and or townhouse price comes down what would be the value in buying a condo? So what am I seeing with downtown condos? A huge drop in multiple offers. Or, rather a huge drop in condos selling over asking price. I went back and researched condos sold in the downtown area for the first 8 days of each month. Areas included (Yaletown, Downtown, West End, Coal Harbour). I counted how many sold for over asking price. Here’s what I found: April- 44/86 condos (51%) sold over asking May- 44/72 condos (61%) sold over asking June- 58/89 condos (65%) sold over asking July- 40/62 condos (58%) sold over

Steve Saretsky -

Full Analysis of the attached Market in September This is a few days later than I had originally hoped for. I apologize for the delay, but I’ll try to make this worth the wait. The other day I published the September Detached Market Report. The report basically highlights another slow month for Vancouver real estate. Sales were down from August and inventory was up. Sales to actives ratio continues to take a beating. But enough about the detached market, how is the condo/townhouse market doing? In August it appeared things were stabilizing and returning to historical levels. So where are they after September? Full breakdown below. Condo Sales Vancouver East- 113 Vancouver West- 331 Richmond- 135 Burnaby-169 REBGV- 1239 Sales dropped in all areas from a slow August month. Not by much, but they did drop. Sales dropped from August to September, Vancouver East 2%, Vancouver West 4%, Richmond 29%, Burnaby 9%, REBGV (Metro Vancouver) 9%. Townhouse Sales Vancouver East- 20 Vancouver West- 31 Richmond- 61 Burnaby- 29 Compared to August townhouse sales were down 18% in Vancouver West, 10% in Richmond, 24% in Burnaby, 13% in REBGV (Metro Vancouver). Townhouse sales were up 10% in East Vancouver. Because there

Steve Saretsky -

New Lending Policies Will Wipe Out Over Leveraged Buyers The recent announcement from the Federal Government regarding new lending policies will have a significant impact on the lower-mid range market. Before I explain, you can read the new lending policies here.  For a quick and simple summary, here’s what it means. As of right now, anyone who requires a loan and puts down less than 20% is required to have their mortgage insured by CMHC (Canada Mortgage and Housing Corporation). The lender qualifies you at the borrowing rate of currently anywhere between 2.17-2.5%. As of October 17, a new stress test will be used for approving high-ratio mortgages and will be applied to all new insured mortgages – including those where the buyer has more than 20 per cent for a down payment. So even though you are only paying a 2.17-2.5% interest rate on your mortgage, the lenders are going to qualify you at the 5 year fixed mortgage rate of 4.64%. This basically means your loan will be much less than before. Impacts on the market? We already know the detached housing market has taken a huge hit. Recent numbers in my September Detached Market Report show sales were

Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

The Psychology Behind Vancouver’s Bubble Back in August I wrote an article called FOMO Drives Vancouver Real Estate Market. This intense psychological behaviour throttled the market to new heights and has never been so obvious as I explained in my most recent post Irrational Exuberance in Vancouver.  There are many factors...

Steve Saretsky -

CMHC Defines Affordable as Anything Under $400,000 It’s obvious that pathetically low incomes and excessively high house prices are a real drag on the Canadian economy.  With Canadians now indebted up to their eyeballs, thanks in part to massive mortgages, many bankers fear it’s threatening Canadas financial stability.  Low incomes,...

Steve Saretsky -

How Vancouver Turned into a Speculative Bubble “A speculative bubble is a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, and, in the process, amplifies stories that might justify the price increase and brings in a larger and larger...

Steve Saretsky -

Sales to Active Ratios Continue Free Fall Three weeks into October and it’s much of the same. Sales continue to fall and listings are piling up. It appears clear as day the market is correcting even the CEO of Royal Lepage was quoted as saying “Vancouver prices have seen their...

Steve Saretsky -

Buyers & Sellers at a Crossroads There’s no question the market has been on a downwards spiral the last few months. I’ve outlined the declines in almost every report. With foreign buyers heading for greener pasture, new lending policies making it tougher for locals, and an upcoming provincial election it’s...

Steve Saretsky -

Analyzing the Return on Investment of Vancouver Real Estate Forget gold, invest in Vancouver real estate. That was the message from the world’s biggest asset manager, Laurence D. Fink, back in 2015. His message was heard loud and clear; Vancouver prices have since soared roughly 30%. But despite an incredible last...

Steve Saretsky -

Detached Home Sales Far From Historical Averages I’ve been saying for quite some time that detached sales are well below historical averages. In September Detached Market Report I reported that East Vancouver had the fewest sales that September than any other September over the past 10 years. However, the Real Estate...

Steve Saretsky -

Why It’s Time to Cash out of Vancouver Real Estate Oh look a Vancouver Realtor telling you to sell your home. I’ll bet you’ve heard that one before? Except this time it’s different and it’s very real. If you were ever thinking about cashing out of Vancouver real estate now...

Steve Saretsky -

October Sales on Pace to Be Lower than September Albeit a little pre mature as we are only 12 days into October I decided to do a little digging today. How are the first couple weeks of October sales and what should we expect to see at months end? Early...

Steve Saretsky -

Multiple Offers on Downtown Condos Plummet. Prices fall 5%. There’s been a lot of questions lately asking me how the condo market is doing. Especially since the announcement of the latest lending policies. I wrote a post last week How The Stress Test Could Curb Demand. While it’s still too early...

Steve Saretsky -

Full Analysis of the attached Market in September This is a few days later than I had originally hoped for. I apologize for the delay, but I’ll try to make this worth the wait. The other day I published the September Detached Market Report. The report basically highlights another slow...

Steve Saretsky -

New Lending Policies Will Wipe Out Over Leveraged Buyers The recent announcement from the Federal Government regarding new lending policies will have a significant impact on the lower-mid range market. Before I explain, you can read the new lending policies here.  For a quick and simple summary, here’s what it...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022