Overbuilt?

According to census data, just over 21,000 people moved to the CRD between 2001 and 2006.

According to BC Stats, just 11,776 new units of housing were created.

21,000 at 2.3/household would need about 9130 units of construction.

Two things we can assume then:

1. 23 percent of new unit construction is aimed at owners that don't live here OR
   
2. that 23 percent can be explained by the copious amount of single owner occupier units there are in this town

We know that approximately 40% of Victorians don't own the homes they live in, so is it fair to assume that the new unit construction would break down roughly the same?
.
Seems to me there are too many units, and too few owners, and too few immigrants, and two few... you get my meaning.

Are we overbuilt? If so, by how much? I see stats that say we have 7-9 months of inventory right now. Usually that's a buyers market. Is this a buyer's market? Sellers?

Update: H/T to Nick in comments for corrected math.

A new day: Y2ThisTimeIt'sDifferent

VREB numbers are out. I'm not going to do much analysis other than to repeat what VG has already said (with an edit): "sales are down considerably from August (25%) and prices are basically flat for the median SFH." Condo median prices jumped almost $15,000, though I don't give much weight to this number because the number of condos sold is so relatively small that blips like this are common.

Anyway, enough about that, you'll get far superior analysis from PB at VT. So go there, then come back and buy some books from Amazon through this site so I can quit my day job and live the dot.com dream ;-)

On with the real show now...

I peruse statistics at work in my own research fairly often. I came across this dandy gem today:

CMHC is forecasting that housing starts in BC will total 14,100 this year, down 13.5% from the 1999 level. A surge in demand for high-end homes (those costing $500,000 or more) is not expected to be strong enough to offset the effect that higher interest rates and construction and land costs have had on the market for entry-level home buyers.

The cost of new housing in BC’s two biggest urban centres continued to fall in August. The new housing price index (NHPI) in Victoria was down 4.4% from a year earlier, while Vancouver’s NHPI slipped 1.0%. Elsewhere in Canada, only two urban areas–Saint John-Moncton-Fredericton (-0.4%) and Sudbury/Thunder Bay (-1.3%)–saw the cost of new housing decline. Prices are rising in other cities, at rates ranging from +0.9% in Windsor to +7.2% in Ottawa/Hull. Overall, new housing prices were up 2.4% from August 1999.

Since 1992, the cost of new housing in Victoria has fallen 28%, while average prices for new housing in the Vancouver area have dropped 17%. Prices for new housing in the province have been declining steadily since the mid-1990s. In Vancouver, the rate of decline is slowing but this has not yet occurred in Victoria. Land prices are beginning to stabilize, but the cost of homes built in the city has continued to drop. New housing prices are affected by a combination of factors, including the state of the housing market, the availability of land on which to build, and the type and size of housing that is being constructed. The long-run decline in the NHPI is a reflection of falling prices for both the land and housing components of the index. (emphasis mine)

When was this from? October 13, 2000. And they say Victoria is different. What was happening back then? Stock market was uber-bullish, the NDP government of BC was on the way out, and developers were ready for a pro-business change. Even then they claimed no one could afford the product on offer. So what does this mean? Just more confusion for yours truly unfortunately. My best guess: the markets change, but the rhetoric doesn't. Man, do times ever change fast in the RE market. That was 7 years ago, almost to the day. Someone. Please. Help. Us.

Market Cycles

A regular reader sent me a fantastic article from the early 1990s written by economist Patrick Foley of Lloyd's Bank of London. The article, A market like no other is unavailable online these days, and out of respect for its source, I won't post it here, for reasons of identification. But I'll give you a synopsis of his arguments for your debate/commentary.

Foley's argument is based on the RE market in England back in 1990. At that time, prices were stable, but sales were stagnant. How can this be? As Foley suggests should be the case "the seller would simply reduce the price until buyers were attracted." The RE market is different though, "many sellers would prefer to take their house off the market rather than lower the price."

Maybe we bears should pay closer attention to the number of expired listings happening lately? If we see more listings removed prior to sale, then we know what is happening is similar to what Foley describes. What about the other's though, the ones who must sell? Foley says those indicate the next shift in the cycle.

When that happens, we see a reduction in prices. Who are forced to sell? There are plenty of reasons why someone might be forced to sell, but perhaps the first indicator would be broad reductions in new home prices, especially in completed condo developments with unsold units.

The first sign we'll see is a reduced number of sales. And the number we need to focus on is year-over-year sales, not month-to-month because the market is so seasonal. When the number of sales is reduced, so is the corresponding sales prices, so we must be careful that the weakness in the market isn't over-stated--the same factor exists on the upside, and we see it every time a high priced home sells in Victoria.

What part of the cycle is Victoria in according to Foley? Foley says prices are slower to react. In fact, when volume falls, sometimes prices spike before they begin a decline. But we witness a sharp decline in price inflation. (Considering that inflation is roughly half of what it's been over the past 2-3 years, I'd bet we fit somewhere in this part of the cycle).

What has been the trigger for cycles to end according to Foley? "...the end of the boom for all three of the most recent cycles coincides with a tightening of macroeconomic policy by the government of the day."

Foley's study period had governments raising rates due to exchange rate weakness, rather than domestic demand. Today we see the opposite: the BoC is concerned about domestic inflation, not exchange rate weakness. Foley felt that the previous economic policy would contribute to a deeper than normal trough.

Today's situation is not so black and white. In the US, it's expected that the Fed will reduce rates due to weak economic fundamentals, while their currency takes a hammering on the world market. But in Canada, it's expected that the BoC will have to reign in inflation and potentially drive the $CDN to parity. Both of these could have considerable economic constraining effects.

Based on Foley's example, it isn't clear where this Victoria market sits.