Sunday, December 30, 2012

Vancouver Real Estate to collapse in 2013

Now when I say collapse what I really mean is a gradual decline of prices over 2013 and 2014 of roughly 25%.

Home and condo prices / sale records in Vancouver have taken a dive in 2012. Prices for single-family homes, condos and townhouses are down 4.5% and sales are down approx. 25%.

Normally the Vancouver housing market sells 88,000 homes per year. That is the average sold from the 2002 to 2011. The average typically doesn't fluctuate more than 5 to 10% above or below.

In 2012 sales dropped to 64,000 as of December 28th 2012. With only a couple days to go before the end of 2012 we really don't expect Vancouver's home sales to get above 68,000.

Especially when buyers aren't that interested in buying right now, due to combination of new mortgage changes, interests rates and the fact that almost everyone in the Vancouver real estate industry is predicting a collapse in 2013.

So here is the thing... Lets do some math. Lets say they did manage to sell 66,000 before the end of 2012. That means Vancouver's home sales are down by 25%. That is a huge drop!

To be fair the Vancouver real estate market, especially the condo market, has been in a slump since 2009. They've been kind of waiting around, half expecting a crash, but nothing really happening that would become the tipping point.

Something like a recession, to push the real estate market over the cliff. Instead its just been stagnated and in 2012 its even been in a slow decline as buyers have stopped buying.

To have a huge rapid decline, like a drop of 25 to 50% in the space of a year or two, you would need something bad to happen that would hurt the local economy. A fiscal cliff.

But it just isn't happening, which is why I am currently predicting Vancouver will continue to see a gradual decline well into 2014. I don't think we will see a huge decline in the Spring of 2013. I think we might see a sharper decline in the Autumn of 2013...

But I think Vancouver's home prices will overall drop about 20 to 25% by the beginning of 2015, and I think it will then suddenly drop an extra 15% in 2015 as Canada is hit by a recession.

Now you might say this is a pretty radical and detailed prediction for the future of real estate in Vancouver. And you are certainly free to think and say it.

But my predictions are based on pattern observation. I see a pattern developing in Vancouver, and I think that pattern shows a gradual decline until a recession in 2015.

To confirm, here is my precise predictions:

Spring 2013 - Sales slump. Normally Spring is the best time of year for real estate sales, but in 2013 it will be down on sheer volume and prices will drop about 3 to 6% compared to an all time high.

Autumn 2013 - Sales worsen. Inventory of unsold homes becomes worse. Prices drop an additional 4 to 7% by the end of the year, making the total for the year down 7 to 13%.

Spring 2014 - Pre Recession Slump. People keep expecting prices to level out and reach bottom, but prices continue to drop another 4 to 8%.

Autumn 2014 - Sales slow to a crawl. Starts to bottom out when prices hit approx. 24 to 29% below the May 2012 average price.

2015 - The recession hits Canada full throttle and prices plummet an extra 10 to 15% in 2015.

Now you might think this seems a bit extreme. But I should tell you that Vancouver's index price for single-family homes, condos and townhouses stood at $596,900 in November of 2012 – a drop of 4.5 per cent since hitting $625,100 in May of 2012 (the highest point).

All it needs to is for the average price for that index to drop another 4% to $575,000 by May of 2013. Or worse, to an average of $556,000.

And by the following year, May 2014 to drop to somewhere between $531,000 and $469,000.

I predict Vancouver's condo market will be the most effected and see the deepest slide in prices during the next 3 years. New condo builds will crawl to a stop by 2014.

How accurate my estimates are a matter of debate, but it will be interesting to wait and see if I am right.

Additional note, I am expecting one of two things in 2016.

Either prices will stay slumped, with only marginal 1% gains in 2017... Or a swift rebound of 4 to 8% in prices. But that will depend on how deep the recession is during 2015 - 2016.

I am expecting a similar slide in Toronto, but I don't expect it to dramatically effect prices in Toronto until 2014, and I am predicting the price changes in Toronto to be much more delayed and sudden. Gradual decline in Vancouver, sudden impact in Toronto.

Various other markets across Canada will also see varying degrees of gradual decline and sudden impact. I am predicting more gradual declines in Western Canada and these changes will spread eastward. When it reaches Toronto and Montreal the effect will be like an iceberg hitting the Titanic.

2015 is also when a huge surplus of condos will go on the market in Toronto due to new buildings that will be finished by that year. The surplus will be dumped on the market in 2015 and people expecting a crash in 2014 will have decided to wait a year, causing prices in 2014 to slump. When the Toronto condo market bursts in 2015 it will be sudden and dramatic, but not unexpected.

I predict condo prices in Toronto to drop 40% during the 2015 and 2016 time period and house prices to drop 20%. There will be a marginal (1 to 2%) rebound of prices by 2017.

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