in denial

Are We In Denial?

Steve Saretsky -

No Trickle Effect, Slumping Sales Dismissed

As i’ve highlighted in every recent monthly report, sales are slumping. As of December, 2016 detached sales in Vancouver are down 50%, townhouses down 31% and condos down 25%. Now don’t get me wrong, 2016 was a record year, but even then, sales are still below 10 year averages.

Recently, there seems to be some sort of denial around the slumping sales numbers. Look I don’t know where the market is going, neither does the next guy. However, some are choosing to downplay sales even though we all emphasized sales only a short year ago. The latest excuse is that slumping sales are due to low inventory levels. This seems logical since little inventory means fewer homes for buyers to choose their “dream home.” But how quickly forget we set record sales last year despite record low inventory.

As an example, the peak of the market was in March 2016. Despite (at the time) record low inventories, we set a record number of sales. Just see the charts below.

condo sales in Vancouer
Record condo sales set in March 2016.
record low condo inventory
March 2016, lowest inventory levels on record for any March.

These charts show that despite record low inventory that didn’t stop sales from hitting record highs. To say sales are low due to low inventory levels is incorrect.

Surge of New Listings Needed

A surge of new listings are needed to put downwards pressure on prices. The detached market shows this is also incorrect. Below we see new listings for Vancouver detached are down 24% year over year, second fewest new listings on record.

New listings Vancouver detached
New listings fall 24% year over year.

Despite this, inventory levels climbed to their second highest levels on record and surged 43% year over year.

Vancouver detached inventory December
History of Vancouver December Detached inventory levels.

As listings stagnate and sales plummet prices start to fall. Vancouver detached sales fell 50% year over year in December and were 30% below 10 year averages.

December detached sales
December detached sales 30% below 10 year average.

There will be no trickle effect

When prices went up everyone was talking about the trickle effect. Detached prices soared, sale prices and equity gains were passed down to the kids to help them enter the market. A survey shows 72% of first time buyers got help from Mom & Dad. As prices fall (currently 15-20%) in the detached market, credit starts to tighten. One would think Mom & Dads pockets might not be as deep as before, or perhaps the banks aren’t so confident in lending as much money in a correcting market. Perhaps all speculation, but such is typically the case.

While I don’t know where prices are going there already seems to be a little bit of a trickle down. Again, i’m not saying condo or townhouses will trickle down and correct the same as detached, but to deny there won’t be any trickle seems unlikely at best.

Average Sale price of a Vancouver Townhouse

Vancouver townhouse price
Average sale prices of a Vancouver townhouse

Average sale price of a Vancouver condo

Vancouver condos
Average sales price Vancouver condos

Don’t get me wrong, inventory levels are still painfully low in the attached market. If prices do come down further it certainly won’t be happening overnight. However, that being said, as the stats show, it doesn’t need a surge of new listings to do so. Who knows what happens next, but one things for sure, the truth will set you free.

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