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Tick Tock… Spring is almost here. Vancouver Housing Prices on the Edge.

February 27th, 2013 Posted in Real Estate

“Our econometric findings suggest that house prices are higher than the levels consistent with current fundamentals in a number of Canadian provinces and that a correction in house prices would have measurable effects on consumption and output through wealth effects.”

How bad is it...

Vancouver, the city that leads the decline, is weeks away from the traditional spring buying frenzy. Asking prices are already 20-30% below appraisal.

We’ve had a raft of tricks uncovered to try to keep the market prices up, but it looks like the bomb is ready to go off.

The media is finally starting to release some of the surprises ahead:

The IMF released the scary reality…

Summary of key points from the report on Canadian Housing:

  • Price-to-rent ratio is 60% above Canada’s historic average.
  • Price-to-income ratio is 40% above historic average.
  • IMF believes that housing prices are 10% to 15% above what is supported by fundamentals
  • There is evidence of over building, for instance IMF notes that residential investment just reached a two-decade high of 7% of GDP.
  • Most of excess housing supply is concentrated in Ontario and Quebec.
  • Mortgage rates will begin to increase in the end of 2013.
  • Home equity extraction to fall by half.
  • Housing starts to fall to around 165,000 units per year over next three years.
  • Worst case scenario is price declines of 18% nationally by 2017 if employment levels remains at 2012 level.

I can’t see how Vancouver can avoid a 30% price drop over the next 3-4 months as buyers have left the table… as have the Chinese. Toronto will follow, and then we have all the makings of an American housing collapse. But without the ability to print a trillion or so to try to stave off the pain.

The good news is my house in Florida is back to where I started in 2004 now.

It only took 5 years. Be warned.

 

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