Bruce McCoubrey’s Market Insight

This week I will be at Inman News Real Estate Connect Conference in New York (Jan 7th-Jan 9th)This is Inman News 7th annual gathering in New York City, where global leaders in real estate, finance and technology come to promote change and innovation within the industry. There are some fantastic big name speakers, topic-driven panels and practical workshops - all geared at encouraging and showcasing industry innovation and trends. I know, you’re thinking that’s just a fine excuse to have a laugh in NYC. You’re not wrong. Plus, I’ve been dying to get to the Metropolitan Museum of Art (to see their mindblowing new Greek and Roman Sculpture display). 

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To continue from the previous post, following extensive consultations with economists more than a decade ago, the Board identified benchmark prices, produced by the HPI, as the most accurate measurement of home property values over time.

Similar to the Consumer Price Index that tracks inflation and measures the rate of price change for a basket of goods and services including food, clothing, shelter, and transportation, the HPI measures the change in the price of housing features such as lot size, age of the home and neighbourhood etc.These features become the composite of the ‘typical house’ in a given area.

Average prices are calculated by dividing the total dollar volume generated from home sales by the number of sales in a given period. Averages, however, can be misleading since the quantity and quality of properties sold in a given area change over time.As a result, average prices can fluctuate considerably, making the housing market appear unstable.

The HPI solves this problem by pricing a constant quality and typical property over time.

I often analyse quarterly median prices in areas where there is a sufficient number of sales. This is obviously not a superior method, but one that I use frequently, because it’s fairly quick.

Insight:While price indices differ, obviously the overall price trends over an extended period tend to agree in broad outline. When the overall trend is clear, stay focused on the ‘local’ numbers, trends and issues. 

More importantly what matters next is the deal you cut for yourself. To do that you need, good data, good interpretation of the numbers and trends (and little bit of luck, of course) and a genuine purchasing strategy

Remember that October 08 to November 08, signalled a wholesale collapse in demand in the Greater Vancouver Market. Literally, prices were (still are) being slashed and yet demand reamains muted, to say the least.

This in my opinion, was a signal that the market will start to deliver deals in type and number not seen for the last several years.

One sub-penthouse in North False Creek has been reduced in price by about $2 million since the summer. It’s still for sale. That’s not a typo.

I am now tracking over 78 properties in my market area that are valued below market value

And if I or a client likes one of these potential deals, I’ll do a number of things:  I calculate the market value; check the assessed value; check my interpretations against some standard appraisal values for certain features;  and perhaps calculate what sort of rents it might return. I then look at the valuation in context of ‘inside info’ I might have on the building, the area, the unit condition and some other variables.

All this knowledge get funnelled into your negotiation with the sole aim of transferring cold hard cash from the market into your pocket.

Good luck and have fun in 2009 !

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Understanding housing prices and house price indices can be confusing. Often house price indices actually conflict or contradict each other. Because this year will see the inevitable discussion of falling house price intensify in the media. Here’s what the Real Estate Board of Greater Vancouver tells us about various house price measures:

• At the end of 2008, The BCREA Fall Housing Forecast recently reported that average home prices for residential properties, meaning detached, townhome and condo units, in Greater Vancouver are expected to increase three per cent in (2008) compared to 2007

• On the heels of this release, the Canada Mortgage and Housing Corporation (CMHC) similarly projected that residential housing prices across Greater Vancouver will increase three per cent by the end of 2008 compared to the previous year.These numbers seemingly conflict with the figures the Real Estate Board of Greater Vancouver (REBGV) has released in recent months

•  According to the REBGV statistics release for October, residential home prices, as calculated by the Housing Price Index (HPI), have declined 8.8 per cent between May and October 2008, eliminating price gains witnessed in the first quarter of 2008.

So what accounts for the discrepancy?The prices in the aforementioned BCREA and CMHC forecasts cite averages, perhaps the most commonly referenced housing price measurement.In contrast, the Board uses benchmarks prices (see definitions below) as its primary indicator of home values.Greater Vancouver has experienced unprecedented growth in home values the last five years. Both benchmark and average price data tells this story, though the numbers differ. 

• Between December 2003 and February 2008, the benchmark price of a detached home in Greater Vancouver increased 69 per cent from to $761,342 from $449,190. 
• The average price of detached homes over the same period registered a 94 per cent increase to $920,644 from $475,087. 
• For condominiums, benchmark prices increased 82 per cent to $387,032 from $213,140, while the average price increased 81 per cent throughout this five-year span to $424,839 from $233,733.

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As e reported earlier, the six largest banks decided Tuesday to lower their prime rate by 50 basis points, to 3.5%, after the Bank of Canada cut its key rate by three-quarters of a percentage point. In October the central bank cut its rate by half a percentage point but again the banks only reduced prime by a quarter point. This seems to be an ongoing trend as banks struggle to recapitalize in tough times. But the overall general rate trend is clear- rates are staying low or may head lower still in 2009.

Could this and further rate cuts stimulate buyer activity in 2009 ? 

• There are only 837 sales in the Vancouver market area in November, an astonishingly poor number and a third the number of sales in the same month last year (2,882)

• More remarkable is the huge drop in sales from October 08 to November 08-a drop of almost 36%. By contrast, the same period last year sales dropped only 4.5% month to month.

• Interest rate cuts, and cheaper variable rate mortgages, may be increase buyer interest and activity ‘at the margins’ but the number of actual sales in 1st Quarter early 2009 are likely to look like last Quarter 2008. 

Insight: The number of new homes coming onto the market climbed in September but has decreased gradually since then. However, prices must inevitably continue to fall until the total inventory of unsold homes reduces significantly-at the end of November it stood at a whopping of 21,000 homes on the market. Prices: November of ‘07 the benchmark price is down 8.6% for detached properties, 6.4% for attached properties, and 8.6% for apartments properties. Last year’s bullish price forecasts by the likes of CMHC and the Central Credit Union, are little more than a bad memory.

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In January 2009, when home owners receive their Property Assessment Notice, they will be able to select one of two

values as the basis for their 2009 property assessment. The two options are:

•  the value as of July 1, 2007; or

•  the value as of July 1, 2008

Premier Gordon Campbell had originally announced on November 1, 2008 that he would freeze property assessment

values for all properties at 2007 levels to help property owners and businesses weather the economic downturn.

However, the Premier has reconsidered based on new information. Assessments are based on prices as of July 1 each year.

Assessed values may have been lower in 2007 (unlikely) or 2008 (very likely).

Property owners with a new home (built since July 1,2007) or substantial renovations or improvements will have the option to choose

the lowest assessed value for either 2007 or 2008. It is important to note that only your property assessment is frozen, not your taxes

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