"Vancouver is different" NOT

Anecdote: Last week I went to look at a Vancouver strata unit, and without being asked, I was told by the very genial Realtor that this unit was going to grow in value and was a very good investment. When I pointed out that every other real estate bubble that we look at globally has blown out, the Realtor responded with, "Vancouver is different.", and then went on babbling about the offshore money flowing in without end.

Give me a break. There is an end date to everything. History confirms that when credit contracts, prices that went up will come down. See California, Florida, Japan, Dubai, Greece, Ireland, Spain etal. Offshore money is not dumb. It may act like it, but when market perception changes, everyone heads to the exit. 

In Vancouver we have had a huge one month spike in Single Family Detached data. In January flippers at the high end tacked on $147,000 to the December price for a one month gain of 17%. Awesome flip dude, let's see you do it again. Cooler heads will note that Vancouver townhouse and condo prices dropped 8.5% and 7.4% M/M (Scorecard), and supply is growing. 

Summary of Housing Price Changes for Major Canadian Cities January 2012  

Vancouver single family detached prices in January 2012 rocketed up 16.6% M/M setting a new awesome price record. The last high was June 2011 and the one before that was April 2010 (Chart). Combined residential prices fell as a result of townhouse and condos plunging 8.5% and 7.4% M/M (Scorecard). You can now swap an average house in Vancouver for 3.9 houses in Montreal. An average Vancouver house increased in price by 209% (19%/year) in the last decade while earnings in BC remain trapped (-3.8%) below the national average (Earnings). As the new Demographia table shows (Q3-2011 data), it requires 10.6 times the Vancouver median income to buy a median priced house. By my calculation (Table), it now takes 4.1 average BC incomes (ménage à quartre) to qualify for an 80% mortgage on an average SFD here in Vancouver. 
 
Calgary detached house prices in January 2012 dropped another 3.3% M/M (Chart) and are down 13.3% below the peak set 54 months ago (Plunge-O-Meter) in July 2007 when the warning showed up in the Gold to Real Estate Ratio (Chart) rising in the summer of 2007 as the Smart Money got out of real estate and moved into gold and oil. 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, 19.1% above the national trend (Earnings) but ranks first as the Canadian city with the biggest losses in real estate (Plunge-O-Meter). 
 
Edmonton detached house prices in January 2012 ticked down 0.5% M/M and are 14.8% below their peak set 56 months ago (Plunge-O-Meter) in May 2007. Edmonton ranks #2 in the race to the bottom with a loss of equity of $63,102 since SFDs peaked and are trading at levels comparable to more than 4 years ago (Chart). The next leg down could be painful; in the last great sell off from May 2007 to February 2009 (21 months), average SFD prices dropped 19% and nearly $79,000.
 
Toronto detached house prices for the GTA in January 2012 ticked up 2% M/M (Chart) after a drop of over 6% M/M the month before. Note: Toronto Data on the chart are average Single Family Detached Dwelling prices in the GTA since March 2009 (when the TREB began reporting GTA SFD). Prior to March 2009, the data are average combined residential prices in the GTA PLUS 24.5% which is the average percentage difference between combined residential and SFD over 24 months from March 2009 through February 2011. Now the new MLS HPI Index is being used.
 
Ottawa 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 the CMHC, records for Ottawa inventory remain one month lagging. In January 2012 Ottawa combined residential prices zoomed 5.1% M/M (Chart) and made up for the 4.4% M/M drop in December. Prices remain 1.2% below their peak set 7 months ago last summer (Plunge-O-Meter). The Ottawa employer, the Federal Government, tinkers away on the goal of endlessly rising prices (rather than productivity); their current target (BoC) is to have CPI increase at 2%/yr. So far so good, the CPI print for December 2011 dropped another 6 beeps to 2.3% per year. The drop in CPI combined with an up tick in the treasury rates (Interest Rates Chart) means that "real" interest rates are rising. That's good for savers and bad for rate sensitive assets like real estate and the hunt for capital returns. Figure out if you are getting a return here.

 
Montreal detached house prices for January 2012 ticked up 1% M/M after dropping 3.7% M/M in December. Current prices are 4.5% below the high set in June 2011 (Chart). Combined residential inventory in Montreal is over 11% higher than last year (Scorecard) and has been in double digits for over 12 months. There is no shortage of inventory. According the the new 2011 Census, Montreal added 6.4% more dwelling units despite only adding only 5.2% more people.

"December 2011" ... mark this historic date in your calendar, the Canadian 10 Year Yield for the first time dropped below 2% to 1.96% (1.87% intraday). 

You might think that this "QE" will arrest deflation but see the Japan Model Chart below; low rates do not guarantee rising prices. They might for awhile but eventually the greatest fool shows up and hits the bell with his swagger, while the rest of the buying market has already switched tactical gears ... "why buy now if tomorrow it will be cheaper?". 

Is Toronto the greatest fool? Average GTA SFD prices popped in November 2011 by 2.4% and set a new record high price at $611,364 but in December, they plunged 6.1% to $574,351. (Chart, Plunge-O-Meter and Scorecard). Two months of data does not make a trend; we shall have to see what the spring brings. But trends are evident outside of Canada. Think Europe (a monetary union without fiscal authority on the verge of dissolution); think the BRICs (the one way bet on 'emerging markets'... commodities up forever). The former is an apartment building on fire with no exits thank you William Hague, and the latter is definitely developing trend... down.

Low rates, QE and monetary policy have proved to be the famous "pushing on a string". Japan has been at it for twenty plus years and during the long deflationary march in asset prices, they employed themselves with high productivity, exporting finished goods into the world market. In Canada we dig stuff up out of the ground and let others do the production. Oh ya we assemble government subsidized cars and think up video games.

Canada's involvement in the First World War began in 1914 and Victory Bonds became quickly oversubscribed (Wikipedia). Now the war is against deflation and is fought with boot suppressed rates that reflect no risk and no return (Interest Rate Chart). As in the U.S. so too in Canada, rate fixing (price fixing) will become failed monetary policy as households, when threatened by evaporating equity will turn to paying down debt rather than suffer negative yields. In either case, we become savers, not spenders. A drop in spending leads to drops in demand and production and commodity stock piling.    

Summary of Housing Price Changes for Major Canadian Cities December 2011  

Vancouver single family detached prices in December 2011 ticked down 0.3% M/M and remain 1.6% below their peak set 6 months ago in June (Chart). Combined residential sales continue to under perform last year and are down 18% Y/Y (Scorecard). You can swap an average house in Vancouver for three in Montreal and still have money left over for a new car. An average Vancouver house increased in price by 169% (16%/year) in the last decade while earnings in BC remain trapped (-4.3%) below the national average (Earnings). As the Demographia table shows (Q3-2010 data), it requires almost 10 times the Vancouver median income to buy a median priced house. By my calculation (Table), it now takes 3.6 average BC incomes (ménage à quartre) to qualify for an 80% mortgage on an average SFD here in Vancouver. 
 
Calgary detached house prices in December 2011 dropped 3.6% M/M (Chart) and are down 10.3% below the peak set 53 months ago (Plunge-O-Meter) in July 2007 when the warning showed up in the Gold to Real Estate Ratio (Chart) rising in the summer of 2007 as the Smart Money got out of real estate and moved into gold and oil. 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, 18.5% above the national trend (Earnings) but ranks second behind Edmonton as the Canadian city with the biggest losses in real estate. 
 
Edmonton detached house prices in December 2011 ticked down 0.3% M/M and are 14.4% below their peak set 55 months ago (Plunge-O-Meter) in May 2007. Edmonton ranks #1 in the race to the bottom with a loss of equity of $61,225 since SFDs peaked and are trading at levels comparable to more than 4 years ago (Chart). The next leg down could be painful; in the last great sell off from May 2007 to February 2009 (21 months), average SFD prices dropped 19% and nearly $79,000.
 
Toronto detached house prices for the GTA in December 2011 plunged 6.1% M/M (Chart) after the greatest fool showed up last month and set a record high price for commodities molded into a hovel. Note: Toronto Data on the chart are average Single Family Detached Dwelling prices in the GTA since March 2009 (when the TREB began reporting GTA SFD). Prior to March 2009, the data are average combined residential prices in the GTA PLUS 24.5% which is the average percentage difference between combined residential and SFD over 24 months from March 2009 through February 2011.
 
Ottawa 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 the CMHC, records for Ottawa inventory remain one month lagging. In December 2011 Ottawa combined residential prices dropped 4.4% M/M (Chart) against an annual price erosion of nearly 12% slipping away from their peak set 6 months ago (Plunge-O-Meter) in June 2011. Ottawa does have an aggressive employer. In 5 years between 2006 and 2010, the Federal Government increased its workforce 9% (Source:Stats Can). Central governments love to expand on your tax payment and so they tinker away on the goal of endlessly rising prices; their current target (BoC) is to have CPI increase at 2%/yr. The total CPI print for November 2011 held steady at 2.9% per year, down from 3.7% in May 2011. The low bond yields and high CPI are producing a negative savings rate (Interest Rates Chart) and fueling the hunt for capital returns. Figure out if you are getting a return here.
 
Montreal detached house prices for December 2011 dropped 3.7% M/M with sales running at 7% more than last year. Current prices are 5.5% below the high in June 2011 (Chart) and similar to Ottawa are falling at a rate of +/- 11% per year  (Plunge-O-Meter). Combined residential inventory in Montreal is over 13% higher than last year (Scorecard) and has been in the double digits all year long. 

It's a bifurcated market. Toronto SFD prices zoom to a new peak, while Vancouver builds a 5 month rolling top.
 
Year end emotions are running high in Toronto as a few buyers bid up the premium SFD locations to new record prices (Canada Chart). The 'gotta have it' urgency is happening against SFD sales dropping 9.6% M/M (Scorecard).  

In Vancouver SFD prices are forming an extended price resistance (Vancouver Chart) while strata unit prices continue to slip further away from their summer highs.
Canadian provincial earnings (Earnings Chart) have hit a near term ceiling while Ontario earnings have been flat and declining for over a year. Without a continuation or expectation of rising incomes, hope for a continuation of rising house prices diminishes.

As can be seen on the momentum chart to the left (Price Change Chart) we are at another cusp point similar to November 2007 when the cash markets (TSX Real Estate Index) dropped into 'extreme fear' on their way to 'get me out' pulling the physical housing market prices with them.

What was going on in the fall of 2007? It was the blowout of every part of the U.S. financial sector connected to their housing bubble exploding. As you can see by the Case-Shiller U.S. House price chart set against the unemployment rate below, when the trend breaks, the resulting correction is violent. The subsequent 'QE' of central bank fiddlers has slowed but not stopped the decline. Canada experienced a parallel plunge in 2008 into the pit of despair (spring of 2009) as it became apparent that we are not an isolated economy. Next up... "the burning apartment building with no exits that is the Euro" (quote thanks to William Hague).

Summary of Housing Price Changes for Major Canadian Cities November 2011
 
Vancouver single family detached prices in November 2011 ticked up 0.6% M/M but remain 1.3% below their peak set 5 months ago in June (Chart). Combined residential sales continue to under perform last year and are down 5.9% Y/Y (Scorecard). You can swap an average house in Vancouver for three in Montreal and still have money left over for a new car. An average Vancouver house increased in price by 169% (16%/year) in the last decade while earnings in BC remain trapped (-3.4%) below the national average (Earnings). As the Demographia table shows (Q3-2010 data), it requires almost 10 times the Vancouver median income to buy a median priced house. By my calculation (Table), it now takes 3.6 average BC incomes (ménage à quartre) to qualify for an 80% mortgage on an average SFD here in Vancouver. 
 
Calgary detached house prices in November 2011 rallied 3.4% M/M (Chart) but remain 7% below the peak set 52 months ago (Plunge-O-Meter) when the warning showed up in the Gold to Real Estate Ratio (Chart) rising in the summer of 2007 as the Smart Money got out of real estate and moved into gold and oil. 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) but ranks second behind Edmonton as the Canadian city with the biggest losses in real estate. 
 
Edmonton detached house prices in November 2011 ticked up 0.8% M/M and are 14.2% below their peak set 54 months ago (Plunge-O-Meter). Edmonton ranks #1 in the race to the bottom with a loss of equity of $60,294 since SFDs peaked and are trading at levels comparable to more than 4 years ago (Chart). The next leg down could be painful; in the last great sell off from May 2007 to February 2009 (21 months), average SFD prices dropped 19% and nearly $79,000.
 
Toronto detached house prices for the GTA in November 2011 zoomed 2.4% M/M (Chart) despite sales dropping 9.6% M/M. Note: Toronto Data on the chart are average Single Family Detached Dwelling prices in the GTA since March 2009 (when the TREB began reporting GTA SFD). Prior to March 2009, the data are average combined residential prices in the GTA PLUS 24.5% which is the average percentage difference between combined residential and SFD over 24 months from March 2009 through February 2011.
 
Ottawa 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 the CMHC, records for Ottawa inventory remain one month lagging. In November 2011 Ottawa combined residential prices rallied 3% M/M (Chart) against an annual price erosion of nearly 4% slipping away from their peak set 5 months ago (Plunge-O-Meter). Ottawa does have an aggressive employer. In 5 years between 2006 and 2010, the Federal Government increased its workforce 9% (Source:Stats Can). Central governments love to expand on your tax payment and so they tinker away on the goal of endlessly rising prices; their current target (BoC) is to have CPI increase at 2%/yr. The total CPI print for October 2011 was 2.9% per year, down from 3.7% in May 2011. The low bond yields are producing a negative savings rate and fueling the hunt for capital returns. Figure out if you are getting a return here.
 
Montreal detached house prices for November 2011 ticked up 0.7% M/M with sales running at the same levels as last year. Current prices are running 1.8% below the high in price set in June 2011 (Chart) similar to Ottawa. Combined residential inventory in Montreal remains at over 27% higher than last year (Scorecard) and has been in the double digits all year long.

Western Canadian Real Estate Slumps; Toronto puts on a vigorous rally.

Too bad real estate wasn't more liquid. In Vancouver (Vancouver Chart) prices slumped as sales perked up but in Toronto (Canada Chart), prices jumped on declining sales... there must be a way of trading the spread. Well I guess there is; it's the cash market as represented by the TSX Real Estate Index and judging by the crash in momentum (Price Change Chart) since June, it looks like the smart money is shorting the sector. Next stop is extreme fear followed by GET ME OUT!

In Edmonton (Canada Chart) prices for an average house are down $63,131 or 14.8% from the peak (Plunge-O-Meter). In Montreal you can still buy 3.3 median priced houses for the same price as an average one in Vancouver. That's a nice spread.

Canadian earnings (Earnings Chart) may have hit a near term ceiling; Ontario earnings have been flat and declining for over a year. Mortgage rates (Interest Rate Chart) ticked up off the floor set last December. Overheard on the Chicago bond trading floor via Rick Santelli, the Italian 10 year bond is the "pissing post". Will bond traders ever take a leak in the Canadian mortgage market?

Summary of Housing Price Changes for Major Canadian Cities October 2011

Vancouver single family detached prices in October 2011 slumped 1.3% M/M and are now 1.9% below their peak set four months ago in June (Chart). Combined residential sales were up 3% M/M but are down 1.2% from last year (Scorecard). You can swap an average house in Vancouver for three in Montreal and still have money left over for a new car. An average Vancouver house increased in price by 169% (16%/year) in the last decade while earnings in BC remain trapped (-3.6%) below the national average (Chart). As the Demographia table shows (Q3-2010 data), it requires almost 10 times the Vancouver median income to buy a median priced house. By my calculation (Table), it now takes 3.5 average BC incomes (ménage à quartre) to qualify for an 80% mortgage on an average SFD here in Vancouver.

Calgary detached house prices in October 2011 slumped 2.3% M/M (Chart) and are now 10% ($50,521) below the peak set 51 months ago (Plunge-O-Meter) when the warning showed up in the Gold to Real Estate Ratio (Chart) rising in the summer of 2007 as the Smart Money got out of real estate and moved into gold and oil. 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 (Chart) in Canada but ranks second behind Edmonton as the Canadian city with the biggest losses in real estate.


Edmonton detached house prices in October 2011 lost another 3.4% M/M and are 14.8% below their peak set 53 months ago (Plunge-O-Meter). Edmonton ranks #1 in the race to the bottom with a loss of equity of $63,131 since SFDs peaked and are trading at levels comparable to more than 4 years ago (Chart). The next leg down could be painful; in the last great sell off from May 2007 to February 2009 (21 months), average SFD prices dropped 19% and nearly $79,000.

Toronto detached house prices for the GTA in October 2011 jumped 2.8% M/M (Chart) despite sales dropping 2.6% M/M. Note: Toronto Data on the chart are average Single Family Detached Dwelling prices in the GTA since March 2009 (when the TREB began reporting GTA SFD). Prior to March 2009, data are average combined residential prices in the GTA PLUS 24.5% which is the average percentage difference between combined residential and SFD over 24 months from March 2009 through February 2011.

Ottawa 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 the CMHC, records for Ottawa inventory remain one month lagging. In October 2011 Ottawa combined residential prices ticked up 0.6% M/M (Chart) but are falling at over 13% per year from their peak set 4 months ago (Plunge-O-Meter). Ottawa does have an aggressive employer. In 5 years between 2006 and 2010, the Federal Government increased its workforce 9% (Source: Stats Can). Central governments love to expand on your tax payment and so they tinker away on the goal of endlessly rising prices; their current target (BoC) is to have CPI increase at 2%/yr. The total CPI print for Sept 2011 was 3.2% per year, down from 3.7% in May 2011.

Montreal detached house prices for October 2011 ticked up 0.5% M/M with sales jumping almost 10% M/M. The high in price was set in June 2011 (Chart). Strong residential sales are happening with combined residential inventory at over 15% higher than last year (Scorecard).