Chartists who track price series love to use the elegance of the Eiffel Tower as a metaphor for the rare instances when the data series goes exponential and well above long term trend lines.
The left side of the tower is exciting and for those who can time the ultimate exhaustion and exit point. They are rewarded... well exponentially.
But the right side of the tower is where exponential decay occurs and the trip down often has the right leg breaking well below the trend that was in place prior to the exponential move up.
When it comes to real estate (a slow asset), the right leg can stretch out much further over time as evidenced by the Japanese experience.
As the downside trip gathers momentum, the market participants lower their expectations. We already hear real estate agents advising their client sellers to list their properties for sale below the last recorded comparable sale price to insure action and increase the probability of a successful transaction.
The fear of missing out in Vancouver is being replaced with the fear of getting stuck.
Note: I have added a new polling page to see if we can project where prices are headed. Vote Every Month
Vancouver Eiffelizes while Calgary Zooms
Bifurcation and Divergence are spotted all over the place.
Vancouver average single family detached prices in October 2012 dropped again for a six month plunge of 12.9% and a loss of of $137,300 which is greater by 12% than the 2007-09 crash amount and the current plunge is a 77% retracement of the $177,329 gain since the beginning of the year (Vancouver Chart). At the "low end" Townhouse prices dropped another 0.2% M/M and are 12.8% below their peak while Condos slipped 0.1% M/M and are down 9.9% below their peak (Scorecard). Vancouver strata units are trading at 4Q 2007 price levels and the Plunge-O-Meter predicts 2005 price levels will be seen again.
Earnings in BC turned down (Earnings) with the latest (August) data point now being 4% below Canada, 5% below Ontario and 20% below Alberta. BC earnings failed to follow Alberta's big move up in early 2010 and has lagged average Canadian earnings since then by 3-4%. BC residents are advised to move to Newfoundland if they want to earn 8% more and pay 69% less for housing. SOURCE CMHC: The average MLS® residential price in the St. John’s CMA was $287,829 in 3Q 2012 vs Vancouver
You can swap an average house in Vancouver for 3 similar houses in Montreal (or St. John's NL) and have cash left over. An average Vancouver house increased in price by 218% (19%/year) to the April 2012 peak since December 2000. As the Demographia table shows (Q3-2011 data), it requires 10.6 times the Vancouver median income to buy a median priced house. By my calculation (Affordability Table), it still takes 3.6 average BC incomes (ménage à quatre) to qualify for an 80% mortgage on an average SFD here in Vancouver.
Where do you think Vancouver SFD prices are headed? Vote Here.
Calgary average detached house prices in October 2012 zoomed 5.2% M/M (Canada Chart) and are now only 2.6% below the peak set over five years ago in July 2007 (Plunge-O-Meter). This sudden jump in SFD prices was propelled by a 3.7% M/M sales increase and a 10.7% M/M drop in listings but it did not bull the townhouse sector which dropped in average price by 2.4% M/M on an increase in sales by 4.8% M/M. Condos got marked up only 1.2% M/M in price against a 1.4% M/M drop in sales (Scorecard). This divergence between price and sales momentum could be short lived as market participants digest all the global influences streaming in that will affect the oil patch. "U.S. oil production is on the rise, according to the U.S. Energy Information Administration, and imports have fallen below 45 percent for the first time in more than 30 years." SOURCE David Biello November 7, 2012 ScientificAmerican.com and "Beijing has finally become serious about rebalancing China’s economy, and rebalancing means shifting Chinese growth away from being disproportionately commodity intensive." See Michael Pettis' essay: "By 2015 hard commodity prices will have collapsed."
In the last precipitous decline that started in the fall of 2007 and bottomed in the early spring of 2009, Calgary shed $92,499 of equity from an average SFD in just 18 months; a boom to bust decline of 18.3%. Alberta has the highest earnings in Canada, 20% above the national trend (Earnings) and 25% above BC earnings and yet an average SFD in Calgary is priced at half of one in Vancouver.
Where do you think Calgary SFD prices are headed? Vote Here.
Edmonton average detached house prices in October 2012 dropped another 1.2% M/M even with a surge in M/M sales (Scorecard). Edmonton ranks second behind Vancouver in dollar and percentage loss of equity as average SFD Prices remain 12.7% and $53,967 below their peak set 65 months ago in May 2007 (Plunge-O-Meter). Detached houses are trading at levels comparable to 5 years ago (Canada Chart) and the next move down could be painful. In the last great sell off from May 2007 to February 2009 (21 months), average SFD prices in Edmonton dropped 19% and nearly $79,000.
Toronto average detached house prices for the GTA in October 2012 ticked up 0.6% M/M on a divergent surge of 16.9% M/M sales increase while average condo prices in the GTA slumped 3% M/M on an 18% M/M sales boom (Toronto Housing Chart). Only townhouse prices matched the sales enthusiasm with prices up 3.5% M/M and sales up 15.3% M/M (Scorecard). The energetic rally in price is put in perspective with this new single chart comparison to the titan of price that is Vancouver.
Where do you think Toronto SFD prices are headed? Vote Here.
Ottawa average detached house prices are not available, instead the chart on this site reflects Ottawa's average combined residential prices. OREB's report is sparse and opaque and the CMHC, records for Ottawa inventory remain one month lagging. In October 2012 Ottawa combined residential prices sold off 1.4% M/M on buoyant sales up 8.1% M/M but fading against sales rising only 1% Y/Y (Scorecard). It's been 6 months since prices peaked and Ottawa's real estate is currently deflating at 9.6% per year (Plunge-O-Meter).
Montreal median (not average) detached house prices in October 2012 dropped 1.8% M/M (for the second time in 4 months) off their all time high price originally set in June 2012 (Canada Chart). The data points have been June $280,000, July $275,000, August $280,000, September $280,000 and October $275,000. Really Montreal? Is your housing market so controlled that sales data always ends in nice round numbers? Will the recent duet of Mayoral resignations (Montreal and Laval) over allegations of corrupt relationships and broken fiduciaries in the construction industry lead to better data reporting? Whatever. Prices dropped on high M/M sales (Scorecard) as they did in Ottawa and Vancouver, so we will take the data as it comes. In the 2011 Census, Montreal added 6.4% more dwelling units while only adding 5.2% more people. There is no shortage of housing, but there is a shortage of earnings; the Province of Quebec ranks 7th in Canada's 10 provinces for earnings.