It’s that time of the month again. The Greater Vancouver housing numbers for the month of January 2017 came out. They were not hot. Ice cold in fact. Sales were down drastically and prices are now starting to follow. Not good news for over-leveraged households.
- Sales of detached houses, condos, and townhouses in Greater Vancouver were down 40% compared to January 2016. The 10th straight time sales have declined month over month and 7th month in a row that they fell year over year. Including only detached homes, sales were down 58% from January 2016! Even apartment property sales were down 25% compared to January 2016. It’s important to note that Greater Vancouver includes Vancouver and its suburbs such as Richmond, Burnaby, etc…
- January 2016 was abnormally hot for housing so one would expect a decline in January 2017. But even then, sales in January 2017 were 10% below the 10-year average for January. Not a good sign.
- All of these sales declines are in the face of rising inventory. Inventory was up a whopping 216% from December 2016. The number of homes listed for sale on MLS in Greater Vancouver were up 9% from January 2016. If inventory continues to hit the market and sales don’t pick up, expect more downward pressure on prices.
What about prices?
- Over the last six months, the benchmark price for detached houses, condos, and townhouses in Greater Vancouver was down 3.7%. The benchmark price is a real estate industry depiction of what a typical property would sell for in a certain neighborhood. I’ve found the calculation of the benchmark price a “black box” and tough to decipher.
- Over the last six months, the benchmark price for detached homes in Greater Vancouver was down 6.6%.
- The average price for a detached property sold in Greater Vancouver was down 18% compared to January 2016!
How about the Fraser Valley area?
- Sales were down 27% from January 2016.
- The average price for detached houses was down 3% from December 2016 but still up 5% from January 2016. The average price for detached homes sold in Surrey (part of the Fraser Valley area) were down 6% compared with December.
The President of the Real Estate Board of Greater Vancouver called the start to 2017 “lukewarm”. I think the correct term is “frigid”.
What does all of this mean?
The facts above are nice but what do they mean when put together. It is clear that there is a downtrend in the number of sales of all types of properties in Greater Vancouver and the Fraser Valley. This has been going on for more than half a year. In the face of all of this, inventory is picking up. Increasing inventory is normally the case in the early part of the new year. However, sales normally pick up as well and offset inventory. But this isn’t the case as new inventory is not being offset by higher sales. What’s the impact of increasing inventory coupled with decreasing sales? Lower prices. This is what we’re seeing now in the Greater Vancouver region. Prices are trending downward and if inventory keeps going up and sales remain mute, prices will continue to fall.
Check out My Realty Check and look at the price decreases compared to price increases. The decreases greatly outnumber the increases. Also compare the prices houses are listed for to their July 2016 assessments at e-Value BC. You will note that many properties are listed for sale below their assessed values. There are no more bidding wars so many of these properties are going for below list price, thus, below assessed value.
What if someone only put 5% down on a home? With CMHC insurance added in, their equity in their home is probably less than 5% now with the recent price decreases. These people would then be underwater. Further declines would make it even worse. This may cause issues with mortgage lenders when mortgage renewal time comes up. Lenders may want these borrowers to make up the difference if they’re under water.
I think things could get a lot more interesting if inventory keeps piling on and no one is there to buy. Look for further price declines and possible pain for over-leveraged borrowers.
FINANCIAL FREEDOM 45 