Do the words “special report” have a special meaning to you?
I hear “special report,” and I have flashbacks to the 1980’s, with my after-school G.I. Joe cartoons being followed by news out of Buffalo; usually some local story about the high school football team’s bake-sale helping to fund-raise for much needed new uniforms!
In any event, National Bank released their “special report” on Friday, and it’s starting to make the rounds.
A 20% drop in Vancouver home prices is just the appetizer in this one…
Special Report, eh?
Well, it’s probably not that special when you consider that just about every lender out there is putting something similar together.
But the media has picked up on certain headlines and notes in the report, so let’s discuss a few of the bigger-ticket items today.
First, find the link HERE.
For those of you who don’t have the time, or the wherewithal to read the report, or even click on the link, let’s just look at the first half of the first page, for starters:
What stands out at you?
Maybe the ALL RED CAPS FONT?
“Imminent pullback for Vancouver and Toronto home prices,” all in red, can’t miss it.
That’s a headline, ain’t it?
Now I think it’s fair to say that the laymen and the masses are not reading this special report, when many of them don’t even read the newspaper, so I would think it’s also fair to say that not everybody reading this report takes the content as gospel, fact, and/or with certainty.
I mean, in 2012, we had “experts” predicting the Canadian real estate market would drop by ninety-percent! Remember this loon?
So let me go through the points of this report that I find the most interesting.
1) Vancouver sales began to decline back in March.
This is something that a lot of keen observers have been noting, and yet the media, and other parties with vested interests, have been directly attributing Vancouver’s “decline” to the 15% foreign buyer’s tax.
From the report:
A downtrend has indeed begun. But it began in March, well before the new tax was announced. Data from the Real Estate Board of Greater Vancouver (REBGV), seasonally adjusted by us, show a decline beginning first in single-family dwellings, which incidentally are Vancouver’s most expensive category of homes and the category most subject to purchase by non-residents. In July, the decline spread to multiple-unit housing (attached and apartments).
There are several plausible explanations for this trend. The Teranet–National Bank House Price IndexTM reports that Vancouver-area home prices – already the highest in the country – took off in February, rising an average 2.5% monthly through August (chart 3). That could have put prices out of reach for some potential buyers. Also in February, the minimum down payment for new insured mortgage loans was raised to 10% from 5% for the portion of the price exceeding $500,000, a threshold often exceeded in Vancouver. Again in February, the B.C. government introduced a 3% tax on the value of homes sold for more than $2 million. And finally, China’s anti-corruption campaign is suspected of crimping the flow of capital from that country.
2) Toronto prices are insane
Here’s a fun stat that the report gives us:
Over the last four months, as chart 3 illustrates, Toronto home prices have risen an average 2.9% monthly. The Toronto market is now red hot.
That’s right – monthly!
Prices are up 2.9%……..monthly!
That’s, per month, for those of you that didn’t know.
3) And yet prices will drop?
Here’s something that completely contradicts the above:
Prices are likely to drop less than in Vancouver. We expect a 3% decline in 2017.
4) And yet it could always be worse…
The report also gives us:
We think Vancouver home prices will soon start correcting. We expect a decline over 12 months of 10% overall and 20% for detached homes.
A decline of 20% for detached homes…….in one year?!
That’s a bold prediction.
But maybe it’s not quite as bold as we think.
What goes up, must come down. Right?
So if the average price of a home can increase 20% in a year – or closer to 30%, as is the case with some segments of the Vancouver market, then perhaps a 20% drop is possible?
Theoretically, yes. But in practice, I think the prediction is nuts.
Not quite as nuts as Hillard MacBeth’s 2014 prediction of a 40-50% drop, however…
5) Condos are better than houses
Right after the report offers a prediction of a 20% drop in value for Vancouver detached homes, it predicts that condos will decline 5%.
Wait…..is it backwards day?
Are my pants facing the right way?
I feel like it’s 1991, and I’m buying a cassette tape from Edward’s Record World…
Look, this should come as no surprise to the hundreds of people I have sold condos to – but detached houses are, and always will, be a better product than condos. I have said this time and time again, and I start many conversations with first-time buyers by saying, “If you can afford a house, and you’re not working 80-hours a week downtown and married to the condo lifestyle, then buy a house.”
So to see this report predict that houses, and not just houses, but detached houses, which are the holy grail of houses, will drop in value four times over the drop in condominium units, well, I just think that’s wiggity-wiggity-whack, and it makes me wanna jump, jump.
Big news coming from CMHC at 12:00pm on Wednesday.
My prediction: they’re going to announce that they will no longer bulk-insure conventional mortgages.