Excerpted from The Landcor Report — Q3 2012 Residential Sales Summary. This report summarizes all residential sales transactions occurring in BC between July 1st and September 30th of 2012. All numbers are based on BC Assessment data available as of November 12th, 2012.
Here in Canada, in BC and especially in the Lower Mainland, the residential real estate markets have piled on the price gains for years. Meanwhile the feckless homeowners have piled up the debt, mortgage and non-mortgage, to record heights and heft.
Something must give, although the when and extent is debatable . . . something will give.
The Lower Mainland and the Capital Regional District, a.k.a. Victoria and environs, have already taken solid blows. Local real estate boards have year-over-year residential sales off by more than 32 percent in Vancouver, off 8.3 percent in the CRD. In turn, the Teranet Index has y-o-y prices off by 2.6 percent in the CRD and a mere 1.4 percent in Vancouver.
Call it self-fulfilling or natural cycles of peaks and falls, but there’s a creeping recognition that markets have peaked, with estimates of the correction-to-come ranging from 10 to 15 percent among the optimistic economists (yes, that’s an oxymoron) to up to 40 percent among the most grumpy.
Predictions are all over the place: status quo, slight easing, that Chicken-Little collapse. If the latter, or even sort of, it will put a huge cohort of financially stretched homeowners into negative equity and squash the financially weak and/or ill-prepared.
Underpinned by the shifting sands of historic low interest rates, bedded in the reassurance of years of rising home prices and steady “paper” gains, homeowners and others blithely pile on new debt. The haystack is rising, even as real estate markets finally go soft, their foundation bales chewed out . . .
. . . heads up!
When markets shift and what had been ever-rising prices appear to stall, many homeowners, retired and/or otherwise unencumbered, blessed with lots of equity and itchy feet, will decide to cash out. However, if these homeowners’ timing is off, would be buyers having already tested the wind, are more prone to haggle, even as the increasingly petulant homeowners hold out. Sales volumes fall, listing counts go up and later or sooner, a “correction” becomes self-fulfilling as prices adjust to the new market realities. Demand and supply; basic economics.
Assuming the homeowners see their abodes as “homes” and not “investments” and are there for the long haul — and can make the payments when interest rates rise — slipping prices dull the self-congratulatory glow but long-haul pragmatically, no big deal.
However, for newish homeowners who bought with minimum down payments, at market peak, now carrying substantial mortgages vis-à-vis their incomes, it’s a very big deal.
As prices cool, these buyers might be having second thoughts. Especially if they’re out in the cold when the weather turns bad and even more so if these feckless folk are carrying excessive “bad” (non-mortgage) debt heaped on when times were good and interest rates rock-bottom low.
In September, TD updated its forecast for the provincial housing market, predicting that average prices for existing or resale homes in BC will slip 8.9 percent in 2012, well above the bank’s earlier provincial forecast of a 4.6-percent decline overall. The revision is based on the unexpectedly deepening slowdown in the Metro Vancouver market.
According to TD Bank, British Columbia is the only province experiencing an average decrease in resale values year-over-year. TD’s Jacques Marcil opined the market was overheated, it needed cooling and, good news, the word “bubble” is no longer synonymous with “Vancouver housing market.” In a Globe article Marcil was quoted as saying: “That’s a good sign, because the market is adjusting gradually and in a moderate way, and in a way that won’t cause major concern in the medium term about the growth prospects for BC.”
Sales and Price Data for New and Resale Residential Transactions