Vancouver Price Drop

Documenting Vancouver real estate price movements

Moderate Price Drop?

We’ve been hearing about the successful soft landing, the “there is no bubble to pop”, it’s a flat market or some moderate price drops from the usual suspects in the real estate industry.   The Americans just wish that they could have engineered a brilliant soft landing but unfortunately, unlike us, they are not brilliant.  Additionally, it’s different here, no more land, billions of rich asians want to buy every multi million dollar crack shack etc etc.  If only we could compare our performance to all of the American cities that went through their housing bubble so that we can have empirical evidence of our soft landing.  Well here it is:

The following chart shows 14 US cities that were shown in the Case Shiller calculations here: US HPI Data They actually profile 20 cities but I eliminated 6 that did not increase by at least 40% during the run up from 2000 on. Take Dallas which only gained 25% in value in 7 years before dropping about 10% and then pulling back close to previous highs.  Vancouver by comparison has increased by over 150% since 2000.

What I did for each of these cities is determine the peak price month according to the pricing index and then measure the index price drops in 6 month intervals. With that information we can compare against Vancouver’s stable, moderate, flat non event as described in the main stream media.

City Peak Month 6 mo 12 mo 18 mo 24 mo 30 mo 36 mo 42 mo
Miami Dec-06 -5.7% -19.7% -33.5% -43.4% -47.6% -47.2% -47.3%
Seattle Jul-07 -5.6% -8.2% -19.7% -22.3% -24.6% -23.5% -29.6%
Portland Jul-07 -4.1% -6.6% -17.5% -19.5% -21.0% -20.5% -27.2%
Tampa Jul-06 -3.9% -8.8% -20.8% -26.8% -39.0% -39.8% -42.7%
Washington May-06 -3.5% -6.2% -13.0% -21.3% -30.1% -31.0% -28.8%
Los Angeles Sep-06 -3.4% -8.9% -26.1% -34.4% -41.8% -38.5% -37.3%
Minneapolis Sep-06 -3.2% -4.0% -18.5% -20.5% -36.5% -27.1% -30.3%
Boston Sep-05 -2.9% -3.3% -7.6% -6.4% -13.0% -12.8% -19.7%
Phoenix Jun-06 -2.6% -6.6% -17.5% -32.6% -45.5% -53.9% -50.5%
Las Vegas Aug-06 -2.2% -7.6% -24.5% -35.7% -48.4% -54.9% -56.0%
San Francisco May-06 -2.1% -3.4% -13.3% -26.8% -40.4% -42.9% -37.5%
New York Jun-06 -0.9% -2.9% -6.4% -9.8% -15.0% -20.2% -20.4%
Chicago Sep-06 -0.9% -2.5% -10.8% -13.7% -27.4% -22.4% -28.6%
San Diego Nov-05 -0.5% -3.3% -7.4% -19.1% -29.9% -39.2% -41.2%

Now, where does the Vancouver West detached home sit in comparison to these numbers?  First of all, if you are a home owner like myself then you should probably sit down.  OK, ready? Our peak month according to the MLS Home Price Index was April 2012 and 6 months later we were down 8.6%, so 50% HIGHER THAN ANY AMERICAN CITY.  After 8 months we are now down 11.1% which, with 4 months to go in the period, is much higher than all US cities other than Miami.  THIS IS NOT FLAT!!! THIS IS NOT A SOFT LANDING!!!  

So where are we heading over the next months and years?  Well you never know… If I pulled up this same chart in early 2009 the conclusion would be the same and yet the market recovered very quickly and continued to its new meteoric heights.  Of course things are much different now – debt is at all time highs, mortgage rates at all time lows and poised to begin increasing, banks are tightening up their credit, “asian investors” have left the building not to mention the boomer trigger.  It was a trillion dollars of cheap credit that saved this mess in 2009 but the fun is over.  Just to get back to long term over-priced Vancouver trend lines we are in for a 40% drop although bubbles never stop at the trend line, they always overshoot it.  If you look at price/rent or price/income ratios we’re due for a 50%+ drop.  If you want to compare similar properties in Vancouver and Southern California we’ll need to drop 75% and trade our rain for sunshine.  It’s not looking good.

One thing to keep in mind is the nature of the drop over time using the US as a template. These are the periods following peak price along with the average drop in % for that 6 month period

6 Months -3.0%
12 Months -3.6%
18 Months -10.3%
24 Months -6.8%
30 Months -9.2%
36 Months -1.0%
42 Months -1.6%

We are currently entering month 9 from the peak and can probably expect similar monthly drops of over 1% per month. After 12 months of that, reality seems to set in that the bubble is popping and prices could potentially free fall.  In the US the average city price descent tripled its pace for 18 months before their “soft landing”.

This is not a soft landing.

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32 responses to “Moderate Price Drop?

  1. rp1 January 6, 2013 at 1:07 am

    It seems to me, people confuse the landing with the fall 🙂

    • bullwhip29 January 7, 2013 at 10:18 am

      It seems to me that most people are either unaware or in complete denial that the MLS HPI in many key neighborhoods has dropped this much so quickly.

      an observer, this is an excellent post. keep up the good work.

  2. JR January 6, 2013 at 1:23 am

    Incredibly nice work. Thanks for doing this.

    The condo data is interesting too. It’s not as complete, only comprising 5 cities, LA, SF, Chicago, NY, and Boston. The last two are kind of different beasts real estate wise, but if you look at the first three they correct almost 50 of their runup from their peak in 32 months and linear fall of 18 months in LA’s case. It’s amazing to see LA go up 300% in 6 years. Sounds familiar, eh?

  3. Yellow Helicopter January 6, 2013 at 1:31 am

    Truly amazing (!!) info, thanks Observer! Thanks for the stats and your time on this post. Going to be so interesting to see what the next 6 months bring.

  4. LV1 January 6, 2013 at 7:45 am

    I think it took 60 months for the market to completely deflate in many markets in the US esp. CA and Nevada. Zillow has the data.

  5. Alexcanuck January 6, 2013 at 8:20 am

    Considering that the the Federal government (USA) essentially IS the mortgage market, some 95% of all mortgage lending is backed by the government, and all the other efforts to put a floor under the housing market, and the way the the economy is stubbornly not recovering… Well, put that all together and it can well be argued that there is still another act to play in the US housing market.

    • an observer January 6, 2013 at 8:24 am

      This very well could be true – they are not in the clear now by any means. One thing they have going for them is that right now it is a lot cheaper to own than to rent in most areas. That makes me think that there isn’t too much further to go

      • Real Estate Tsunami January 6, 2013 at 10:18 am

        Good point. In a healthy market rents and ownership costs should be in equilibrium.

      • Signs of the end January 6, 2013 at 4:30 pm

        Except many of the renters are not ‘Qualified’ buyers. The buyer pool in the US is probably a lot smaller than the available inventory, so this will yet take a few years to achieve equilibrium.

      • Alexcanuck January 6, 2013 at 8:00 pm

        They still have fog-a-mirror, zerodown loans, rock-bottom interest rates, all fully backed by the government. No teaser loans, of course, not that they are needed when you can lock in 30 years under 4%. Unlike Canada with all the sub-4% loans due to reset in a few years, that’s pretty much a teaser rate isn’t it? Speaking of which I see more ads for a subsidy program here, where the developer pays strata fees for a year or two, and/or part of your mortgage payment. That is precisely what a teaser rate looks like, 100% guaranteed to dramatically increase after a set period.
        Many desirable areas likely have bottomed, but there is still a lot of loss-realization to happen on properties that should never have been built in the first place. McMansions in the desert, leaky rotting condos in Miami, anything in Scottsdale or Sacramento… I’ve seen credible estimates of 20 million empty properties, another 20 million that would be empty if not for the “owner” living there rent/mortgage free because the bank knows that if they foreclose the house will be empty and looted, and they will have to book the loss. At least this way the house is getting security and minimal maintenance, and the bank can pretend that somehow the mortgage will get caught up and current, or the house will sell for the amount owing.

    • bullwhip29 January 7, 2013 at 9:54 am

      I would argue that all these measures were (and still are) being taken primarily to keep the banks and the rest of Wall St from imploding. TPTB will not stop in their efforts to keep the house of cards intact (ie. consider new Basel requirements just announced).

      In Cda, the only thing that can be done is (1) increase CMHC’s loan limit, (2) relax mortgage rules if things get really ugly, (3) do whatever is humanly possible to engineer that so called soft landing and (4) pray the big boys in the US, Europe and Asia do not get another bout of the flu. I believe it is a certainty that we’re gonna wind up at the same destination regardless of how we go about things and the taxpayer will end up footing the whole bill (and the big 5 get off scott free). The only question that remains is when we’ll have to pay the piper. While it appears that such an event may be imminent, I still have this nagging feeling that the folks pulling the strings have one or two more cards to play in an effort to drag things out for a while longer.

  6. djindustry January 6, 2013 at 8:59 am

    observer: the work you are doing reminds me somewhat of the work NAte Silver started with 538 here in the USA. He was blogging about political polling and used hard data to make a very educated and intelligent analysis. He was proven very accurate, and eventually made his way to syndication with the New York Times I think. During the last election he kept predicting that Obama had an 80% chance of re-election, and the conservative media attacked him constantly as being inaccuate and biased–they were so far inside their ‘bubble’ they could only believe in a ‘reality’ that was total fantasy (a Romney victory). In the end 538 was correct with his predictions (2nd most accurate), all based, as I said, on hard data. This is exactly what you are doing–countering the bubble of an alternate reality with a skilled analysis of the numbers–how can one argue with what you show us?
    p.s. i like how you used all caps in your post, ironically like those realtors that so irritate you…

  7. Real Estate Tsunami January 6, 2013 at 10:20 am

    But it’s different here…

  8. jay January 6, 2013 at 10:27 am

    Great work! Thank you for you time. Data do not lie.

    • Anymouse January 6, 2013 at 11:43 am

      I agree with you Jay that this is good work but data does lie. Data can be manipulated… take a look at how we measure the inflation rates in the US and Canada!

      • bullwhip29 January 7, 2013 at 10:03 am

        Very true. Data can also be cherry picked and/or omitted whenever convenient. To the best of my knowledge, no one from the MSM has mentioned the >10% drop in the MLS HPI or the severe drop in asking prices. In fact, according to the usual cast of characters, home prices were more or less unchanged, the market is now balanced and things will pickup in the spring (as they always do, right?).

  9. bopeep January 6, 2013 at 11:42 am

    I am wondering if anyone would have data pertaining to the lottery winners gains. Lottery winners are those who sold their crack shacks for millions to the asian invasion.
    Did they:
    1. spend it all into the economy
    2. buy another property
    3. gift it to their children
    4. read vancouverpricedrop hoping for a real estate crash so they can vultch now that they sold

    • Capitalist Pig January 6, 2013 at 3:59 pm

      I bought my house in Kits at 18th and Highbury in 1995, sold it in late May for almost four times what I paid. I put a lot of work and money into updating and maintaining the house. I knew my home was not worth what the morons here thought it was worth and I neve intended to sell it but the market value was too difficult to resist and what kind of fool would I be to not sell?
      I am renting and will do so until my house comes back on the market for half of what I sold it for and then buy it back maybe or something comparable. I am currently looking at homes in the 2-4 million dollar range and expect to buy one in 18-24 months at half the price. 100%

      • Long-time Kitsie January 7, 2013 at 11:34 am

        No one who has lived in Vancouver would ever call 18th & Highbury Kits – are you sure of where you lived?

  10. Chad in Burnaby January 6, 2013 at 5:38 pm

    Great work! Thank you for your excellent posts. I read them regularly but don’t usually comment. Today I could not resist. SUPER!!!

    “[A]sian investors” have left the building: you may want to add that if any of them are coming back they have the US to choose from too. What would they rather do? Invest in a market at near-peak and deflating, or one that has already deflated (to a large extent anyway.)

  11. 604x January 6, 2013 at 11:33 pm

    Great analysis.

    Since price is basically a trailing indicator of activity, do you have any stats on listings volume, sales and perhaps most importantly MOI for those US cities? Did Case-Shiller track that? It must be somewhere. That would provide some good leading indicator flags for us to apply to Vancouver’s market – we’d see the triggers in action.

  12. kansai92 January 7, 2013 at 1:05 am

    A soft landing is like the Sasquatch.
    People talk about it, people believe in it.
    But no one’s seen a real one.

  13. jimmy baby January 7, 2013 at 1:06 pm

    Looks like prices will continue to drop at current pace for the next month or two, but pick up steam in the spring when it becomes obvious that the insanity of the last decade is over.
    Also hearng more talk of higher int rates. Even if mortgage rates only go up a fraction, the fear that they will continue to climb could absolutely destroy this market.

  14. Pingback: Real Estate: Vancouver Price Drop |

  15. zen January 7, 2013 at 7:45 pm

    Thanks for the post – keep up the excellent work! Really appreciate your insights.

  16. Westcoaster January 7, 2013 at 9:24 pm

    As always, thanks for the analysis. The other thing is that demographics will ensure that prices won’t bounce back for the foreseeable future, given all those aging Baby Boomers who’ll be forced to sell their homes because they don’t have pensions or savings.

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