Time to Cash Out? Is the Vancouver Real Estate Market heading for another crash? 

July 3, 2012

 

*This version has been edited because it was deemed by some of my colleagues to be disrespectful to the industry of which I am a part.

I’m a REALTOR and I sold my own home 4 weeks ago.  It wasn’t too big or too small.  It’s only 6 years old and still feels new.  I sold because in 6 months my home will be worth less than it is today.  I think its time to cash out!  Let me explain…..

To ignore the truth doesn’t change the truth.  And so it is in the Vancouver real estate lately.  The facts are simple; real estate is easier to sell when prices are going up, realtors are happier when more houses are selling and open houses are more fun when buyers come to look.  However, the good times pass like the bad ones do.  I would suggest that good times have passed in the Vancouver real estate market, at least for the foreseeable future.

Here is a great example of where the real estate industry loses the public trust.  The headline of the June 2012 Real Estate Board of Greater Vancouver Newsflash is “Greater Vancouver housing market favoured buyers in June”.  The opening line was a bit more accurate: “The number of residential property sales hit a 10-year low in Greater Vancouver for June, while prices remained relatively stable.”  But what does “relatively stable” mean in a market as hyper sensitive as Vancouver where real estate is a hobby, sport, profession, retirement plan and cocktail party conversation all rolled into one?

The Greater Vancouver real estate market is anchored on the west side of Vancouver.  With its limited land supply and stunning views of English Bay and the north shore mountains, the west side of Vancouver from Main St. to UBC has always been a hot spot for Canadian real estate.  It has been 2 generations since owning a home on the west side of Vancouver made sense for an average income family and I doubt those days will ever return.  The west side housing market is a great bell weather for the rest of the lower mainland because it drives media headlines and experiences the largest swings.

Two key factors drive real estate activity – Supply and Demand.  These factors work together to determine volume and prices.  The equations looks like this:

Low supply + low demand = Prices are stable.

High supply + high demand = Prices are stable.

Low supply + high demand = Prices go up.

High supply + low demand = Prices go down.

 

Remember, according to the real estate board of Greater Vancouver, prices in June remained “relatively stable”.  Stability is a result of low supply and low demand or high supply and high demand.  And in a dynamic real estate market such as Vancouver one month does not determine “stability”.

Lets look at the numbers:

Supply

WEST SIDE MLS DETACHED LISTINGS 2003 – 2012

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Average
JAN 592 489 442 370 344 374 694 380 402 796 488
FEB 634 498 473 359 375 430 708 430 463 777 515
MAR 710 556 472 404 384 514 677 521 525 854 562
APR 737 581 508 412 469 690 653 669 590 949 626
MAY 760 686 511 452 448 862 591 794 599 1,067 677
JUN 803 783 502 477 499 982 586 797 603 1,078 711
JUL 810 799 520 502 466 996 551 720 632 666
AUG 741 769 551 530 422 915 497 681 643 639
SEP 746 784 574 622 504 1053 570 675 823 706
OCT 682 720 545 621 422 1014 527 575 827 659
NOV 604 642 486 507 394 949 451 450 705 576
DEC 511 500 374 385 291 756 325 331 558 448

 

There are only 4 months in the last 10 years where the number of available houses on the west side of Vancouver was higher than 1000 – September and October 2008 and May and June 2012.

 

The truth of the supply side of the equation is:

There are more sellers competing to sell their home on the west side of Vancouver now than at any time in the last 10 years!

 

Demand

WEST SIDE MLS DETACHED SALES 2003 – 2012

 

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Average
JAN 112 103 67 77 90 75 46 102 134 86 89
FEB 142 150 136 159 133 138 100 130 242 177 151
MAR 175 170 200 176 170 136 144 208 279 152 181
APR 168 205 205 158 162 121 193 193 214 130 175
MAY 179 179 210 201 246 142 232 150 228 122 189
JUN 180 154 185 181 177 105 200 147 213 102 164
JUL 197 139 142 122 170 88 180 122 139 144
AUG 176 115 156 119 158 46 202 134 130 137
SEP 161 125 160 106 112 46 175 143 104 126
OCT 186 119 133 140 156 52 200 161 120 141
NOV 160 113 121 121 115 25 141 161 121 120
DEC 101 103 102 65 56 56 133 116 62 88

 

Demand for homes on the west side of Vancouver is falling.  In fact, it has been falling for 5 straight months.  Demand has actually been about 35% – 40% off of the 10 year average for 4 months now.  If this trend keeps up the number of sales in July will drop below 100 – which it has only done once in the last 10 years – July 2008 – which was just  4 months before the worst month ever which produced one of the sharpest price drops Vancouver has ever seen.

 

The truth of the demand side of the equation is:

Lowest June home sales on the west side of Vancouver in the last 10 years!

 

So the new equation looks like this:

 

More sellers than ever

+ Less sales than any previous June

____________________________________

Today’s real estate market

 

As a REALTOR, I can assure you people are still buying homes.  In fact, 2362 homes were sold in June in Greater Vancouver (Remember, this is the lowest number of sales in the Real Estate board of Greater Vancouver in 10 years).   There are all sorts of reasons people buy and sell homes – not just price.  Whether it is a newly married couple who want a place of their own, a lower income buyer taking advantage of mortgage rules before they change, growing families, empty nesters, downsizing seniors or people moving up and down the property ladder who don’t want to rent, there will always be sales.  Demand will never reach zero.

Right now, supply is up.  Way up.  Demand is down and trending lower.  I hate to point out the obvious, but prices are a result of supply and demand.  In today’s real estate market, the equation looks like this: High supply + low demand = Lower prices.

There is still lots of opportunity to sell your home.  I’m just not sure how much longer it lasts.    Prices have started to fall but demand is nowhere near the levels it dropped to in fall 2008.  Different product types have different dynamics.  Condos, townhomes and luxury homes are all markets unto themselves.  But its the west side houses that make the news headlines.  If the media picks up on this story, you can be sure the rest of the market will follow the west side.  If you are on fence about selling your home, thinking of cashing out, nearing retirement or need your equity to buy your next home, now might be the right time to call a REALTOR.  Otherwise, I’d plan to hold on for another rough ride.   I think 2012 will be another one of those years where Summer is better than Fall.