Thursday, May 24, 2007

Just in case you were wondering

Just doing some late-evening blog reading and happened upon this post over at Langley financial planning... anyway, it got me thinking, what exactly is the ratio of US numbers to Canadian numbers when we talk about housing-related market info between there and here?

We know that Canada exports 86% of its total to the US. So when a mill closes in Northern BC, should we in Victoria give a damn? The island has lost mills many times over and housing prices have continued to skyrocket and mill workers have gone on to find alternative work. If you live anywhere near Northeast BC, you should have no trouble finding work regardless of your skills what with the oil and gas boom going on up there.

But is this just the start of a much larger trend?

Canfor said the cutbacks are due to a market downturn spurred by falling housing starts in the United States.

The company's interim president and CEO, James Shepard, said Tuesday he had been directed by the company's board to cut costs "and position the company to weather this market downturn, which is the worst this industry has seen in decades." emphasis mine

Let's play with some numbers shall we? US housing starts as of January 1, 2007 were just over 1.4 Million. That number is the lowest it has been since 1995. In Canada, where it is different, we're at 248,100 in January. That number is Canada-wide and represents 17% (roughly) of the US total. Consider the two numbers: exports at 86% and our housing starts at 17%; eerily similar gap there, don't cha think?

How about population then? US = 301,919,275 Canada = 32,917,579 or in % = 11%. Seems to my rudimentary economics understandings, we're awfully dependant on the US markets for our economic well-being.

I'm not sure where I'm going with this analysis, but it seems to me that the inter-connectedness of our markets should not be overlooked. The next time someone says: "it's different here", do what Mohican suggests, and tell them a different story.


Just making some links from comments live.
  1. SF Chronicle: The Wealth Effect (VicGuy asks: is this us?)
  2. Thank Goodness for Shiller and the S&P
  3. Even Credit Unions sing the Bubble Jingles: from the TC. My Favourite line is Condos and the applainces that go in 'em. 3 years ago that would have read: Houses and the applainces that go in 'em.
Keep up the good hunting people. As always post your links in comments. I will add them here. If you cut and paste instead of linking to the source, don't forget to add the http:etc so I can create a "live link" to the original. Cheers.


VG said...

Ooops, sorry for the double thread post, meant to post it here the first time.

Check this article out HHV. Are we a mirror of the San Fransisco market ? Kinda looks this way,exagerated growth in the high end due to the "wealth effect" while the lower end suffers cause 20-30% can't qualify for a mortgage.

On top of this we may be on the ocean but we aint no Frisco by any means. How long can this "wealth effect" keep the market here going ? Answer this question and I believe we will be able to tell us when this madness will come to a screeching halt.

vicguy, now signing on as VG for the sake of it's easier. :)

VG said...

Here's another one for you to chew on HHV,a very interesting Shiller chart indeed,but we are different,we are etc....yeah,whatever.

Anonymous said...

From CNNMoney (when are we going to start seeing articles like this about BC/Canada?)

"Weakest home sales since '03 hit values
Subprime mortgage woes cuts supply of buyers, leading to weaker April than forecast, glut of homes on market and lower prices.
By Chris Isidore, senior writer
May 25 2007: 11:58 AM EDT


Homeowners trying to sell properties found the market weaker than expected in April, as the pace of sales fell to nearly a four-year low, feeding a glut on the market that continues to cut into home values.

The National Association of Realtors (NAR) said Friday in its latest reading on existing home sales that the problems in the subprime mortgage market are now cutting into sales, as they limit the availability of financing for potential buyers.

Weak home sales led to further declines in home prices in an April reading.

The group's closely watched report showed the annual pace of existing home sales fell 2.6 percent to 5.99 million in April, down from a revised 6.15 million pace in March. It's the first time the pace of sales fell below the 6 million level since June 2003. Economists surveyed by had forecast a little-changed sales rate of 6.13 million.

The report follows Thursday's reading from the Census Bureau that showed a sharp increase in the sales of new homes. But that was sparked by a nearly 11 percent plunge in median price compared to a year earlier, the sharpest drop in that key price measure since 1970.

"We've been anticipating slower home sales because many subprime loan products are no longer available," Lawrence Yun, NAR senior economist, said in the existing home sales report. "In addition, increased scrutiny by lenders is stopping risky mortgage origination."

Yun said the changes in the mortgage market are positive long term. Tougher lending standards will make it less likely that buyers will get home loans they can't afford.

But those tougher standards are now cutting into sales, causing a rise in the supply of homes on the market for what is typically the start of the spring selling season.

That glut continues to slam home values. The median price of a home sold in the month was $220,900, down 0.8 percent from the $222,600 price for a typical home sale a year earlier. It marked the ninth straight month that prices showed a decline from a year earlier, a relatively rare condition that had not been seen in 11 years before the current housing slump.

Adding to a home's curb appeal
The slower sales pace and a 10.4 percent increase in the inventory of homes on the market in the last month to 4.2 million means there is now an 8.4 month supply of homes for sale nationwide, up from a 7.4 month supply in March.

Bill Hampel, chief economist at Credit Union National Association, said he agrees with the assessment of Realtors that a relatively strong economy should stop a complete meltdown in the housing market. But he said home sales and prices are likely to still see some further declines, and that a recovery in sales and home values could take years.

"I don't expect a snap back in housing market for maybe five or six years, with hardly any price increases and subdued sales," he said. "A modest recovery might start in a year or two, but it'll be four years or more before any one notices."

Fastest and slowest growing home markets

Hampel said that home prices need to correct after a sharp run-up during the real estate boom of 2004 and 2005, when the median price of existing homes shot up 23 percent above the 2003 level.

That boom was at least partly fed by an increase in non-traditional mortgage loans, which expanded the number of potential home buyers.

The problems with rising delinquency and default rates in the subprime mortgage sector first started to come into focus in February and March, causing a number of lenders to exit the field and one of the largest, New Century, to file for bankruptcy.

The existing home sales figures are recorded at the time a sales is closed, which is typically a month or two after a sales contract is signed and a buyer arranges for financing. So the April report is among the first to show the impact of those lending problems.

"This week's home sales data illustrate the fundamental differences in how home builders and home owners are dealing with a weakening market," said Peter Schiff, president of Euro Pacific Capita. "The new home sales report shows builders acting like sober-eyed businesspeople, slashing prices to move bloated inventory."

"The existing home sales report shows homeowners clinging to their dreams of real estate windfalls," he added. "It is only a matter of time before homeowners realize that the dream is over, and that price cuts are now necessary to sell their homes."

The downturn in new home sales and home building has hammered results at the nation's largest builders, which are reporting losses and lowering financial guidance, as cancellation rates from buyers rise along with charges for walking away from land options.

Thursday, luxury home builder Toll Brothers (Charts, Fortune 500) became the latest to report a sharp drop in earnings. It had already warned it expected to miss its earlier 2007 guidance.

Pulte Homes (Charts, Fortune 500), the No. 4 U.S. homebuilder, posted a loss late last month. No. 2 homebuilder D.R. Horton (Charts, Fortune 500) reported a 37 percent drop in the number of new homes sold in the latest quarter, citing weakness in prices and saying the typical start to the spring home buying season hasn't begun.

No. 3 Centex (Charts, Fortune 500) and New Jersey-based Hovnanian Enterprises (Charts, Fortune 500) both also reported losses in the most recent quarter.

No. 5 builder KB Home (Charts, Fortune 500) returned to an operating profit in its most recent quarter after an earlier loss, but its CEO warned in April that he expects the housing slump to get worse."


Anonymous said...

The below article is from today's Times-Colonist (this article answered my question about when are we going to see articles like the CNN one (see above) in BC. When hell freezes over it looks like).

New home sales surge in U.S.
CanWest News Service
Published: Friday, May 25, 2007

Purchases of new homes in the U.S. unexpectedly surged in April by the most in 14 years as buyers took advantage of the biggest
decline in median prices since 1970.

New-home sales rose 16 per cent to an annual rate of 981,000, the highest this year, the Commerce Department said.

In a separate report, the department said that April orders for goods meant to last several years rose 0.6 per cent, the third straight monthly increase. The two reports mean economic growth at the start of the second quarter probably picked up from the first quarter's 1.3 per cent rate, which is consistent with the Federal Reserve's forecast for a "moderate" expansion in coming quarters"


VG said...

Of course the TC has to play the high sales angle in the headline versus the reality cause their advertisers don't want us to see the dark side,in other words the reality that prices are down huge in the US.
They will be like the US media was a year ago at this time where they were still pumping housing on CNN til late June when they could not dare deny that the change of winds had occured and slowly the media's angle changed.

The "moderate growth" term is another term for flat growth.

VG said...

Check this one out in the TC, do you not sense that the top is in ? All sorts of underlying comments where things will be great if the consumer who makes up 60% of GDP keeps blowing their cash and they say "And that will continue to grow", how can they be so sure ??

Another mentions a slowdown in net migration:

"Overall population growth is forecast to average 1.2 per cent annually through 2008," Hobden said in his analysis. He noted that the region's population growth has been dampened by a long-term trend of lower fertility and the current declining levels of net in-migration from other provinces."

Even the headline of "Robust growth" is actually "fairly robust" growth in the first sentence, what is with that ? Isn't "robust" and "fairly robust" two different meanings ?? LOL.

I think HHV and PB will have a heyday with this one.

greg said...

Higher prices on flat or lower volume is a classic sign of a top.

Anonymous said...

I was talking to someone today and how they flip houses and get around Canada Revenue is by putting each house they flip in another family member's name and I guess they do this until they run out of family members.


Aleks said...

You should tip off Revenue Canada, once the market turns. I bet getting hit with a back-tax assessment at the same time his "investments" are tanking wipe the smirk off his face.

Anonymous said...

I would but I know they would figure out it was me (if anyone has any ideas of how to do this so I can't be figured out I'd appreciate the advice).

I was the only one pushing the "does Canada Revenue know?" bit.

Others were talking about flipping and everyone had misconceptions about what is involved with regards to Canada Revenue so I had to put my two cents in.

Everyone there seemed to think not telling Revenue Canada was

Sure it is, until they catch up to you.

VG said...

And when they do catch up with you,you better decide to work with the RC workers to come to a payment resolution cause if you go to court thinking you'll talk the judge some BS looking for a technicality to get off on or plead ignorance and lose the judge will nail you big time. An aquaintance of mine is a tax judge and theres nothing worse than wasting the courts and his time when it is a clear cut case,they hate that the most.

I also knew a guy once who didn't pay taxes from his business for like 10 years always claiming on the low side,he got his nuts nailed to the wall and like 4 years later is still paying them back.

Anonymous said...

So I was thinking today that if Victoria is where everyone wants to live and that is why our prices have gone through the roof wouldn't there be somewhere in Canada that was practically empty or at least having really falling prices if everyone was leaving there to come here?


House Frau said...

Please Read This ....

Existing Home Sales Fall in April
Friday May 25, 6:18 pm ET
By Martin Crutsinger, AP Economics Writer
Sales of Existing Homes Fall to Slowest Pace in Nearly 4 Years As Prices Slide for Ninth Month

WASHINGTON (AP) -- Sales of existing homes fell more than expected in April while prices slid for a record ninth consecutive month, indicating further troubles ahead for the housing market.
The National Association of Realtors reported Friday that sales of existing homes dropped by 2.6 percent last month to a seasonally adjusted annual rate of 5.99 million units, the slowest sales pace in nearly four years.

The median price of a home fell to $220,900, an 0.8 percent decline from the median price a year ago. The median is the point where half the homes sold for more and half for less.

The slide in existing home sales came after a report Thursday that showed a big 16.2 percent surge in sales of new homes in April that occurred as the median price of a new home fell by a record 11.1 percent from the previous month.

Analysts said the disparity in sales of new and existing homes for April reflected in part the decision by builders to aggressively cut prices to unload inventory while homeowners are still reluctant to lower their asking prices.

"It is only a matter of time before homeowners realize that the dream is over and that price cuts are now necessary to sell their homes," said Peter Schiff, president of Euro Pacific Capital, a Darien, Conn., investment firm.

The supply of existing homes for sale shot up to a record total of 4.2 million in April, an increase of 394,000 from the March supply. Analysts predicted that this big inventory surge would act to further depress prices.

"We're swimming in supply," said Mike Larson, a real estate analyst with Weiss Research, who cited a number of factors for the unsold homes.

"Unrealistic sellers, stuck flippers, stretched borrowers, foreclosures. They're all contributing to a surge in homes on the market," he said. Flippers are investors who bought homes during the boom hoping to resell them for a quick profit only to be caught as the market softened.

On Wall Street, the Dow Jones industrial average rose 66.15 points to close at 13,507.28 in a quiet trading session ahead of the long Memorial Day weekend. The Dow had fallen in the previous four sessions.

Housing enjoyed an extended surge in which sales of both new and existing homes set records for five straight years until 2006. The Realtors are forecasting that existing home prices could decline by around 2 percent this year, which would be the first setback for an entire year on records that go back four decades.

But Lawrence Yun, senior economist for the Realtors, noted that the expected price decline would still be modest in comparison to the 50 percent appreciation in home prices that occurred during the boom period.

It had appeared that housing sales might be hitting a bottom at the end of last year. However, since that time, the troubles in the mortgage market, which has seen many subprime lenders forced to stop operations, has worsened the housing downturn. Subprime mortgages were made available to borrowers with weak credit histories.

"We've been anticipating slower home sales because many subprime loan products are no longer available," Yun said. "Fortunately, a wide availability of conventional mortgage products ... will help stabilize the market going forward."

Yun said the big rise in unsold homes on the market could be an indication that sellers are testing the market in the early spring in hopes of selling their homes and moving up to larger units, which he said would be a positive sign of a rebound in housing.

But other analysts were not as optimistic, expressing concerns that housing could remain under downward pressure for the rest of this year and stage only a modest recovery in 2008.

"The continued decline in existing home sales and the huge rise in inventories put in doubt the hopes that the housing market is stabilizing," said Joel Naroff, chief economist at Naroff Economic Advisors.

The troubles in housing have acted to depress overall economic activity which slowed to a growth rate of just 1.3 percent in the first three months of this year, the slowest economic growth rate in four years.

For April, sales of existing homes were weak in all parts of the country. The Northeast experienced the biggest decline, a fall of 8.8 percent in April from the March sales pace. Sales were down 1.7 percent in the West, 1.2 percent in the South and 0.7 percent in the Midwest.

Roger said...

Folks I want to prepare you for the VREB numbers to be released later this week. Last month the average price went up to 568K from 542K and the median price stayed flat at 489K. Lots of readers on this blog were discouraged with the average price jump and discounted the flat median price. You need to look at price trends to see what is going to happen.

When the May numbers are released I believe the average price will be slightly lower at 560K and the median will remain around 489K. This is significant for patient trend watchers.

If you have been following the stats on Needs Analysis you will have seen a sharp increase in the 3 month rolling average of Greater Vitoria average and median prices. The 6 month averages have been much more gradual. If my May predictions are correct you will see a drop in the 3 month rolling average and a flattening of the 6 month averages. We will be at the market peak and heading into the summer sales season with rising inventory and fewer sales (see extrapolated graphs for details).

I know many people want a crash now but it won't happen until the media wakes up and smells the coffee. Many agents are already awake, sipping coffee and recommending price reductions.

By the fall our old friend Ken Lowball will be back in town.

greg said...


your site is great, I think the most important thing to look at in conjunction with the price trends is the inventory.

As shown by this chart from VREB which I posted on my blog, inventory has been increasing out of proportion to sales for more than two years.

This can't continue indefinitely, and if your stats are showing a reversal of the trends, the increased inventory is the catalyst - but it still needs to go higher for a price crash to happen soon.

Right now, inventory is doing the same thing it has been doing for a couple years, increasing steadily, but not spectacularly.

My own snapshots of the market show the following as of today:

1156 single family homes listed, all prices;

825 condos, all prices;

244 townhouses, all prices.

Of these three categories, considering that May is usually the biggest selling month of the year, the townhouses and condos are listed in similar quantities to last month, while the inventory of single family homes continues to increase.

I expect to see similar sales numbers for May as in April, with very positive spin, but in fact, if you look at it, volume is still off from 2006, and especially 2005 and 2004.

At present there is between 3-4 months of inventory in all categories - even if prices haven't started going down, with all the new inventory grabbing a share of the market, I expect to see some desperate re-sellers by next spring. Anything over three months of inventory starts to be considered a buyer's market in terms of choice, even if prices have not been affected.

The real carnage should happen in 2009 - the exact opposite of all this popular spouting about the effect of the Olympics. Cheers.

Roger said...

Greg said
As shown by this chart from VREB which I posted on my blog, inventory has been increasing out of proportion to sales for more than two years.

And it is going to get worse. I have extrapolated the data on my site: Extrapolated
sales and active listings data

A number of factors to consider: flattening market; traditional sales slowdown for rest of the year; housing inventory rising to higher levels than last few years; looming Bank of Canada rate increases; rising Canadian dollar (fewer American buyers); reduction in eleigible pool of FTBs; and affordability index of 8-9. Looks like storm clouds on the horizon to me.

But then again I may be try to understand insanity. After all everyone wants to move here and Victoria is different than normal markets!!

Roger said...

Ooops - bad link. Should be
Extrapolated sales and active listings data

VG said...

roger and greg,

Would like to say I like both your sites as well,great charts roger, and greg, your topics always catch my interest.

I know someone else mentioned it somewhere that maybe we need to see the Seattle market start to take a hit to effect Vancouver. I did read one article in their online paper today that dropped the hint that things are starting to cool and they are telling people to not expect past gains. One case of someone selling a nice place,turned down the offer on the first looker and hasn't had a bite in over six weeks with little traffic where a year ago the place would have been gone quick.

As well the Vancouver Sun was super heavy on the condo promo in their Westcoast Homes section today. Like 20 pages of massive ads with the whole glamour/elegance lifestyle bullshit only showing the view from the massive penthouse suite of course. I sense a huge inventory coming on line there now. The stars are slowly coming into alignment here but we may need a couple more months til the wells of buyers finally run dry.