The Canadian Real Estate Association Recently provided updated statistics for the average MLS price in Vancouver, showing selling prices decreased from an average of $778,000 to $725,000 from August of 2011 to August 0f 2012. There is a general feeling that has been around that this is doom and gloom time and that there is a housing bubble that is bursting and soon there will be mass foreclosures and horror will spread across the land. The feeling that its a bad time to sell your house from people who own one, and for those who are considering buying, the feeling is fear of buying because prices might go down even more.
With the mortgage rule changes that came into effect last July, quite a few prospective homebuyers were taken out of the market for a home that they would otherwise be looking to get, and decided not to take action or re-adjusted their expectations. However, it is inevitable that when you make it harder for people to buy homes, that listings for sale will be more difficult to sell, and those who can buy will have more choices and be in a stronger negotiating position. I have stated this on my website in previous articles, and nothing is new here. I have also stated that home purchases are also seasonal, with summers and Christmas being quieter and the autumn and spring being busier, generally speaking. The mortgage lending rule changes came into effect in July, right as we were already heading into a quieter period of the year. Given that fact, is it any surprise that the summer real estate market was very slow and that prices were dropping?
I also think taking a metric like average MLS price is a bit inaccurate to gauge the real estate market. Housing starts in Vancouver from August of last year to this August were actually up. We are also being given data for this month for what happened 2 MONTHS AGO. How interesting is it to read a newspaper that is 1 month old? Looking at old data is much the same…relatively speaking, its boring and irrelevant. Stock traders analyse data that they receive updates within fractions of a second on. (although they may take into consideration months old data for a longer term picture)
The other thing is the metric of the market itself is in itself inaccurate. It presupposes the same set of houses is available every month, whereas in reality maybe more detached houses are for sale on a given month, or more condos in another month, skewing the data. For example, July 2012 average MLS price was $667,000, much less than the August 2012 price of $725,000. Does this mean the market bounced back suddenly? Even more telling was that last years market was a pretty balanced market, with good demand for housing purchases. However, from May 2011 to June 2011, the average MLS price went from $831,000 down to $761,000. Did the market freeze last year and improve significantly from June to July of this year? I don’t think either one happened.
Given all of the above, what is it in my opinion that is the greatest gauge of how the real estate market is right now? The only real factor that dictates value in real estate is supply and demand, and a house is no less or more valuable now or at any other time, and it is strictly the perception of value that dictates prices. The house likely didn’t change much over the month that it went down in price by $50,000 theoretically. Its nice to think about if you own a house that while you sleep you have become wealthier, but it only matters when you sell.
As it is only supply and demand and the perception of value that matters when it comes to prices, I must say that in my 5 years as a mortgage broker, I don’t think there were many more periods where my lenders were busier than they were in the month of September. It was a difficult time to get any timely responses as every lender I contacted was overloaded with mortgage applications. This is in-line with seasonal patterns of real estate, and likely you will see it quieter in Christmas again. Does that mean that your home is worth much less from September to December? In my opinion, it is not, it is just people’s perception at the given time, and that will change to your benefit in February again if you sell at that time.
For buyers of homes, instead of being afraid to buy as it might not have completely bottomed out yet, I would be excited at the opportunity to have greater choice of places with less competition for them, and enjoy my strong negotiating position before everyone else’s perception changes back to being excited about buying. Buy in the Christmas season, or buy in the summer. Buy in the spring or autumn if you like also but just expect a lot more competition for a place you like. Most importantly, buy something you are happy with and just get it for the best price you can at the time. Its a long term investment (for most people) so its best to perceive it that way.