The detached housing market remained sluggish in November. In the city of Vancouver detached sales fell 32% year-over-year and trickled in at a ten-year low for the month. Again, to suggest sales are weak would be an understatement. Detached sales were 55% below the 10-year average for the month of November.
Sales volumes are incredibly weak with buyers looking for steep discounts and many sellers still unrealistic with their asking prices. However, sellers who need to sell for whatever reason are increasingly having to lower their prices. There is often a rhetoric that “sellers simply won’t sell” if they don’t get their price, and while this may be true the reality is there are still sellers who absolutely need to move on, such as estate sales, divorces or job relocation. These sellers are ultimately setting the benchmark lower. Homeowners who are actually wanting to sell would be wise to create the market, i.e. set an asking price that factors in current conditions and anticipate that prices will move lower, as opposed to slowly cutting prices and constantly chasing the market lower.
On a more positive note, new listings actually fell 26% year-over-year, this pushed inventory lower by 6% compared to last year. However, total inventory was still 8% above the 10-year average for November. The drop in new listings re-enforces the view that we are not seeing any panic or rush for the exits so to speak. But again, we are hearing of more and more sellers pulling their listing out of frustration with the aim to re-list the property in the spring. Will this create a spike in new listings? It is certainly possible and could be a further catalyst to push prices lower.
The sales/actives ratio remains near historic lows, sitting at just 8% in November. In other words, just 8% of currently listed homes sold this month, which means it would take 13 months to sell the current supply assuming no new homes were listed.
In a research paper titled “Housing is the Business Cycle” the author provides evidence that typically in housing downturns it takes about two years from the time sales volumes peak to price declines being realized. One of the reasons for that, we believe, is that price discovery in real estate is particularly difficult. Each house is unique and there is no perfect price metric to gauge how much prices have declined. A good example of this is in the city of Vancouver where the average sales price of a detached home shows a drop of 2.3% year-over-year in November, and the median shows a decline of 4.2%. Both of these are unrealistic, and real prices declines from the peak in 2016 are off about 15-25% depending on the price point. To better illustrate the price declines we used a 3-month moving average. This now shows an 18% decline from peak prices set in April 2016.
The Real Estate Board’s more conservative MLS benchmark now shows an 8.5% decline from last year.