Monday, April 6, 2009

The Bear has a snooze...

Things are definitely looking a little brighter- in the financial markets and in housing.

The question bears have to ask themselves is whether this is just a bull trap and we continue the down-trend, stablise or even whether we will blast off from here and hit new highs.

Either are possible scenarios. However the graph in my previous post below, has defined the bubble psychology and prices, pretty accurately so far, and a blip up would be expected right about now- before resuming the down-trend.

Why do we get a blip up after the first big drop down? Due to those who have been left out for the last few years, and have been kicking themselves. They were smart enough to avoid buying on the final run up, but are still anxious that they could miss out if they don't get in on this drop.

To add to the fire, interest rates have come down significantly and we have seasonal strength. The result is a self-fulfilling bounce, which causes folks who are anxious to finally take the plunge. I suspect some sellers are thanking their lucky stars to be able to unload at what are still very good prices.

Anyone who bought before 2006 is probably still sitting on a profit. However as I have noted before, things usually go down a lot faster than they went up in a bubble. We have erased over two years of gains in less than a year.

Where to from here?

Now it gets interesting. If we did indeed pass THE top last year, then this blip may last another month or two. The normal seasonal pop comes in Feb- May and then we could resume the down turn, with MOI and over 90 day listings increasing rapidly.

If this bubble is the first one in history not to drop dramatically after topping out, then we can expect a gradually stabilising market, with sellers holding out until inflation and a stronger economy supports their prices.

Which will happen? You know which side of the fence I'm on. However my opinion and a loonie wont even get you a coffee. The critical factors will be jobs and the worldwide economy.

If jobs continue weak then domestic demand weakens. If the worldwide economy deesn't fix itself soon, then the overseas demand drops.

I suspect the bears will continue to be tested for next two months. Of course they have been tested for the last 4-5 years, so what's another two months!

June will be the important month.


  1. Fish what level of MOI do you regard as balanced, buyer's and seller's market?

  2. Great blog...

    Agreed on everything. I have resolved that the stock markets may continue to push higher...for a while, but eventually the crappy first quarter earnings and massive continued job loss is going to prick this moment of optimism.

    Throw in the coming commercial real estate collapse...and "back to normal" in 2010 seems really far-fetched.

    The minor uptick in real estate activity can hardly be called a comeback. Prices are still going down...certainly more than the REBV numbers suggest.

    Like you said...whats 2 months!


  3. Anon- good question.

    I would say 5.5 months is pretty balanced and moving either side of that heads into buyer's and seller's territory.

    Amarulaman - Tx. They are indeed still headed down YOY, though flat MOM.

    Down -9% for West Van and down -19% for Port Moody over the past three years!! shows you how out of control the latter stages of this bubble was.

  4. I don't believe the REBGV numbers, but they are all we have. They get to pick the "benchmark" properties so I have a feeling they are picked to emphasize or minimize market movements.

    Call me a skeptic. I think the market is falling faster than recorded, at least that is what I am seening in certain markets (I work as a Property Valuation Consultant (Appraiser)in the Lower Mainland (no occupational jokes please). summer/fall is going to be UGLY.

    I will report from the trenches...

  5. Amarulaman- That would be great. Nothing better than first hand tales from the front lines.

    I suspect you are right re summer/fall being very difficult. I think the current stock-market rally will have ended by then and we be faced again with the reality of the worst economic crisis in 80 years.

  6. Anon 3.26 here again. When is the best time of the year to buy? Spring when there is more choice or fall when sellers maybe more desperate?

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  8. Anon- that is a difficult question to answer.

    As you have noted a lot of inventory (usually) comes on in Spring.

    However the buyers are getting themselves all lathered up about moving in Spring or Summer when the weather is better and to start the new school year in a new school district.

    So there is more competition for properties. Houses also look good in the sun with a few flowers around them, rather than on a cold rainy day with greying grass.

    On the hand sellers who haven't sold all through Spring and Summer are probably getting a little desperate by September. Especially if they 'have to' sell for whatever reason. These sellers may be most amenable to negotiating, since their price has been 'rejected' by the market.

    A smart seller, would list in Spring and price it sharp, and may even get a bit of a bidding war. An unwise one, will over-price, wait all Spring and slowly bleed the price down, and finally sell for much less in Fall as the pool of buyers dries up.

    However there are many other variables. Where will interest rates be in 6 months? What will have happened to taxes.

    As a pricinple, if there is a bidding war, I walk. So I am most comfortable buying when the buyers have left the field. Late Summer and Fall may bring us double digit MOI again like we had last year.