News Archive
December 17, 2007Over the past year the market has cooled down for single-family detached dwellings, with prices increasing by around 10% as compared to 20% per year for previous years.
However, the condominium market has been strong with price increases at approximately 15% for 2007. The average price for single-family detached dwellings sold on the Vancouver Real Estate Board MLS was around $850,000 in November 2007, an increase of approximately 10% from a year earlier. There has been wide variation in this average price over the past five months from $810,000 to $860,000. Condominiums on average appear to have increased to $450,000, or roughly 15%.
However, the condominium market has been strong with price increases at approximately 15% for 2007. The average price for single-family detached dwellings sold on the Vancouver Real Estate Board MLS was around $850,000 in November 2007, an increase of approximately 10% from a year earlier. There has been wide variation in this average price over the past five months from $810,000 to $860,000. Condominiums on average appear to have increased to $450,000, or roughly 15%.
Capitalization rates for apartment buildings have continued to decline, with some apartment buildings under 3%, and many commercial buildings between 4% and 5%. In many cases the underlying land values have been very strong and on the rise, as demonstrated and influenced by the increasing average values for condominiums. Rents have also been on the rise.
Interest rates have increased by around 1% over the past year with quoted rates for 5-year mortgages increasing from around 6.45% in January 2007 to the current 7.39%. The mortgage lending difficulties in the United States has negatively affected the liquidity of the international financial markets. This has led to a decrease in the amount of funds available for lending and a tightening of lending standards. Recent half point declines in government quoted interest rates has not translated into declines in bank lending rates, but there has been announcement in the past week that five central banks will make available significant funds to credit markets, in an attempt to get lending moving again. See attached article http://www.financialpost.com/trading_desk/story.html?id=164952&p=1.
Where do we go from here? Vancouver and the Lower Mainland’s economy has been positively affected by our excellent location and mild climate, generally low interest rates, and the pre Olympic construction boom. Our service-based economy continues to grow. Our location, climate and basic economy will not change; however, the Olympic construction will be coming to an end over the next couple of years. Inflation, interest rates and the availability of credit, appear to be the main problem areas for our economy. Inflation in Canada has generally been low in the past year, at 2.39% according to the Bank of Canada. It is very difficult to forecast interest rates but it appears that in general, attempts will be made over the next six months to allow for either lower lending interest rates or more lenient lending requirements. In other words, interest rates should stay where they are now or decline.
In summary, I believe that our real estate market values will increase, but at a slowing rate in comparison to past years.
Donovan Collins
Donovan C. S. Collins
BA, RIBC, AACI
October 6, 2008
“Interesting Times”
The turmoil in the United States mortgage banking and real estate markets has led to more limited funds for lending, and has significantly contributed to a downwards trend in real estate values in most of North America. I have concluded that market values in Vancouver could loose approximately 5% over the next two months, but market activity should start to pick up.
We are certainly living in interesting times. I believe the potential for financial and social, rewards and losses, have never been greater, but to attain our goals will require rational and consistent decision-making.
The past ten months since my December 2007 newsletter has found the real estate market in Vancouver peaking in early 2008 then declining since then. Average prices for single-family detached dwellings sold on the Vancouver Real Estate Board MLS system increased from around $830,000 in late 2007 to around $900,000 in the first couple of months of 2008, then declined to currently an average of around $790,000, an approximate 12% decline. Over the past 12 months the average price has stayed approximately the same, the MLS Housing Price Index for a benchmark detached house, which represents a “typical property” in Greater Vancouver, is noted to have decreased by 1.6% to $739,160. However, sales volumes are off drastically, with the number of detached sales in Greater Vancouver declining 50.6% to 543 in September 2008 from the 1,091 in September 2007. The ratio of sales to new listings of all residential properties on the Greater Vancouver MLS has declined from around 58% in September 2007 to 26%.
The ICI real estate market has performed similar to the conventional residential market. According to RealNet data, over the past 12 months, prices in Vancouver are off marginally, but sales volumes are down between 20% in retail commercial properties and 50% for apartment buildings.
The North American economy and real estate market has been significantly negatively affected by the crisis in United States mortgage lending systems. This crisis appears to have originally caused by too liberal mortgage lending policies, including risky borrowers with ballooning payments, creating a large number of foreclosures and properties being put onto the market, thus depressing prices for housing to below the value of the mortgage loans, and creating losses for the lenders. The secondary market for these mortgages, such as asset-backed commercial paper, froze just over a year ago, when the larger banks that had been buying these investments became concerned about potential losses in the loan portfolios. This appears to have lead to approximately a 30% to 40% reduction in the amount of funds available for lending, and more stringent lending conditions.
The United States Government has been helping the lenders and brokers, and primarily the agencies insuring the mortgage risk, through guarantees for their purchasers or outright purchase and taking over of their operations, which has provided some positive influence, including lowering of lending costs, according to the Mortgage Bankers Association. Over the past several weeks the US government refused to assist in the bailout of Lehman Bros., the fourth largest investment bank in the states, leading to its filing for bankruptcy, but has extended a loan of $85 billion dollars to AIG, a large insurance agency which has insurance policies for these loans. The recent final passage of a $700 billion bail out package by the US Government, proposing to buy out under performing loans from the banks, should allow for added liquidity to the financial and real estate markets.
US real estate market values, according to Standard & Poors, for 20 major cities, had lost an average of 16.3% over the past year from June 2007, and 20.3% over the past just over two years from their peak in June 2006. The one-year changes ranged from –1.8% in Charlotte to –29.9% in Las Vegas, with –8.2% in Seattle and –6.6% in Portland. California has been hard hit with losses of around 25% in San Diego, San Francisco and Los Angles. But the rate of decline during the summer had been showing signs of slowing. According to the Mortgage Bankers Association (MBA), as of July 2008, year to date sales of single-family dwellings in the US were down 16.6% and condos were down 23.6%, with 30% to 40% of these sales in foreclosure or distress. However, there were more sales in July than in June this year, or a year ago in July 2007, and the rate of quarterly decline has reduced from an average of 24.4%( annualized) to 9.0% in the second quarter. The most recent data in the last several weeks has been more pessimistic with declines in mortgage applications after a spike in early September.
The Mortgage Bankers Association National Delinquency Survey found that the delinquency rate for mortgage loans on one to four unit residential properties at the end of the second quarter of 2008 was 6.41% of all loans outstanding at the end of the quarter, 2.75% were in the foreclosure process, and 1.08% had foreclosure actions started. These numbers were up approximately 10% from the previous quarter and 100% from the previous year. Therefore, it appears that the growth of problem loans was slowing.
In order to get an indication of the extent of the mortgage loan loss potential I have estimated losses based on the above numbers. If say 3% of all the mortgages go into foreclosure and the properties are sold, with an average original loan to value ratio of 90%, and subsequent loss in market value of 30%, plus other costs of 10% of the mortgage, this results in an average loan loss of 30% of the original loan. This calculation of loan loss equals 1% of the total amount of mortgages outstanding. Based on MBA data the total amount of residential mortgages outstanding is around $15 trillion ($15,000,000,000,000), thus the total potential loss is around $150 billion ($150,000,000,000). The proposed $700 billion buy up should allow for purchase of all of the distressed mortgages and any losses based on current market values.
What happens from here on out to the end of the year for our markets? In my opinion it will take approximately two months for the economy to settle down, including getting both the American and Canadian federal elections out of the way in October and November, and the added liquidity to work its way into the banking systems. The US markets should start showing more signs of strengthening. Market values could take a further 5% decline over the next two months, but sales volumes should start rebounding with an increase in the availability of funds.
If you have any questions or comments, please contact me.
EOE
September 23, 2009
Dead Cat Bounce
Often terms such as "Bull" or "Bear" markets are used to describe financial environments, but have you ever heard of a "Dead Cat Bounce"? This phrase is used to describe a market that has plunged deeply, shown recovery and then falls flat. Generally, our real estate market appears to have recovered with some strength over the past six months. In my opinion, with the continuation of low interest rates and various other government fiscal policies, this recovery should continue. With this continued recovery, we should be able to avoid the dreaded "Dead Cat Bounce".
Recent relevant real estate & financial data echos these above sentiments:
• Total residential sales on the Vancouver MLS in August 2009 increased by 172% from a year ago, with an 11% increase in the average price per unit to $856,452. For the year (2009) to date there has only been an 11% increase in the total sales and an 8% decline in the average price per unit, because of a very slow start to this year and very strong markets in early 2008.
• The commercial real estate markets are showing a slow recovery after declining throughout 2008 and early 2009. Multi-family values have been flat, with increasing rental rates along with increasing overall capitalization rates resulting in no changes in market values. Commercial mortgage underwriting appears to have been stringent requiring low loan to value ratios of under 75%.
• Interest rates are at 40 year lows, with mortgages of five year terms at 5% and less. The Bank of Canada is keeping its overnight lending rate at a record low of .25%, which is expected to stay for the next nine months.
• The Bank of Canada has stated:
“Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are supporting domestic demand growth in Canada. Combined with recent information on inventory adjustments and automotive production, this suggests that GDP growth in the second half of 2009 could be stronger than the Bank projected in July. Total CPI inflation is still expected to trough in the current quarter before returning to the 2 per cent target in the second quarter of 2011 as aggregate supply and demand return to balance.”
A "Dead Cat Bounce" is not likely but there is always a level of volitility in our markets; making sure you are secure in understanding your property values is essential.
Please feel free to contact me with any comments or for assistance.
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Do you remember Expo ‘86?
February 1, 2010
Greetings,
Do you remember Expo ‘86? I do. I also remember the great wave of development post-Expo, and the tremendous growth of Metro Vancouver over the next twenty plus years. Average market values increased by 10 percent, then 20 percent, and then 30 percent from 1986 through to 1989 and sales volumes increased approximately 50 percent annually through the same period. On the other hand, interest rates hovered between 11 and 12 percent in the late 1980s.
In less than one month, the 2010 Olympic & Paralympic Games arrive to Metro Vancouver and the region will again be on display to the entire world; what could be the impact of such an event on the real estate market this time around? In my opinion, with interest rates and inflation remaining relatively low, more funds available for credit, and the Asian markets poised for growth, we may be on the verge of a similar increase in price and sales volume as the post Expo ’86 era.
Just over one year ago in December 2008, the average sales price for detached dwellings on the Greater Vancouver MLS had dropped to $829,000. One year later, the current value of the same house would be 15 per cent greater, with an average sales price of $953,000. Sales volume totals for 2009 were also up 40 per cent from 2008, nearing the 2007 volumes (a very strong year for residential market). For more detailed quantitative data illustrating the market conditions, two charts are linked here and here.
February 1, 2010
Greetings,
Do you remember Expo ‘86? I do. I also remember the great wave of development post-Expo, and the tremendous growth of Metro Vancouver over the next twenty plus years. Average market values increased by 10 percent, then 20 percent, and then 30 percent from 1986 through to 1989 and sales volumes increased approximately 50 percent annually through the same period. On the other hand, interest rates hovered between 11 and 12 percent in the late 1980s.
In less than one month, the 2010 Olympic & Paralympic Games arrive to Metro Vancouver and the region will again be on display to the entire world; what could be the impact of such an event on the real estate market this time around? In my opinion, with interest rates and inflation remaining relatively low, more funds available for credit, and the Asian markets poised for growth, we may be on the verge of a similar increase in price and sales volume as the post Expo ’86 era.
Just over one year ago in December 2008, the average sales price for detached dwellings on the Greater Vancouver MLS had dropped to $829,000. One year later, the current value of the same house would be 15 per cent greater, with an average sales price of $953,000. Sales volume totals for 2009 were also up 40 per cent from 2008, nearing the 2007 volumes (a very strong year for residential market). For more detailed quantitative data illustrating the market conditions, two charts are linked here and here.
As region evolves and advances, so too does Donovan Collins Appraisals & Consulting. I broadened my knowledge through the completion of professional development studies in sustainable or “green” building evaluation. I also became involved with the Lighthouse Sustainable Building Centre in Vancouver and I am now listed as a Residential Service Provider. The online presence of Donovan Collins Appraisals & Consulting also increased over the past six months, with a Facebook page, Google listing and a fledgling Twitter page. Finally, I improved product development and delivery through the use of more comprehensive databases and fully digitalized reports.
Whether it be the changing winds of the market, or perhaps personal matters that prompt a requirement for the services of Donovan Collins Appraisal and Consulting, we greatly appreciate your past patronage and look forward to providing future assistance.
Sincerely,
Donovan Collins
