Rudy Nielsen, Canadian Real Estate, November-December, 2008

The numbers are in, and after seven years of sold, often double-digit growth, the residential real estate market throughout BC has slowed, according to the recent Q2 2008 Residential Sales Summary by Landcor Data Corp., Vancouver.

What are the numbers telling us? The two key market messages are lower sales and slower price growth. The question we need to consider is: does this mean investors should start looking for bargains, or watching properties to see if prices will come down?

Let’s take a look.

Sales Slowdown

In the second quarter of 2008, province-wide, the number of residential sales dropped 19.5% to 36,612 sales from 45, 459 sales during the second quarter of 2007.

While this sales slowdown occurred across all property types, vacant land and detached units saw the greatest decrease. Vacant land sales dropped a whopping 23.7% to 4,158 units from 5,456 units, while sales of detached units dropped 23.5% to 15,359 units, compared to 20,082 units in the second quarter of 2007.

Sales of attached units – also known as townhouses – dropped 19.9% to 4,085 units from 5,103 units in Q2 2007, and condominium apartments dropped 12.2% to 10,277 units from 11,707 units.
Of all the province, the Kootenay area as hardest hit. Sales fell by close to one-third, or 28.5%, dropping to 1,691 from 2,367 units during the Q2 of 2007.

In the Okanagan area, sales fell 26.4% to 5,663 from 7,698 units in the second quarter of 2007. BC northern and northwest sales fell by 25.1% to 2,864 units, and Vancouver Island sales declined by 19% to 6,477 units from 7,993 units.

Sales in metro Vancouver dropped 15.9% to 15,431 units from 18,344 units and were down 21% from a high of 19,451 units in 2005. In the Fraser Valley, sales fell by 14.3% to 4,486 units from 5,245 units.

What’s it worth?

In Q2 2007, we recorded the highest total dollar value for BC residential property transactions. Values increased in every region. Metro Vancouver led the way with an almost $1 billion increase to $9.5 billion from $8.6 billion. Total dollar value increased in the Okanagan area to $2.3 billion from $1.7 billion in 2006, while Vancouver Island rose to $2.78 billion from $2.33 billion in 2006.

This changed dramatically in Q2 2008, when every region in BC posted a decrease in total dollar value for residential sales. Metro Vancouver dropped by more than $1 billion to $8.4 billion from $9.5 billion. Both the Okanagan area and Vancouver Island dropped by more than $330 million, the Fraser Valley by $150 million, BC Northern and Northwest by $97 million, and the Kootenays by $58 million.

Is the price right?

In Q2 2008, median prices throughout BC stalled overall – with small increases and small decreases. But the good news is that we haven’t seen a big drop in prices.

Province-wide, the median sales price reached $417,780, an increase of less than $3,000 or 1% compared to the first quarter of 208 and the smallest quarterly increase since 2004.

Looking back at Q2 2007, the median residential price province-wide increased $26,000 or 7.2% to $380,018 from $354,421. In 2006, the median price increased $23,000, again a rise of 7.2% to $335,887 from $313,237. In 2005, the price increased 2.9% or $8,000 to $286,697 from $278,562, and in 2004, the price remained flat, decreasing $76.

Overall, around the province, prices were a mixed bag in Q2 2008.

Some areas did better than others and some types of units appreciated more than others.

BC northern/northwest led the way in price appreciation in condominium apartments, which rose 15.6% to $117,900. Attached units rose 8.7% to $165,000 and detached units 1.2% to $212,400.

In the Okanagan, the median price of a condominium apartment rose 8.7% to $280,050, while detached units increased 1.9% to $412,000 and townhomes fell 1.9% or $6,300 to $320,450.

In the Kootenays, prices increased across all types of units, led by attached units which increased 7% to $252,000. Condominium apartments increased 4.8% to $263,113, while detached units increased 1.1%, or $3,000 to $286,000.

On Vancouver Island, detached units led the way, rising in price by 3.8% or $16,000 to $415,000. Attached units rose 0.3% to $322,000 and condominium apartment prices fell 3.5% or by 10,000 to $275,000 from $285,000.

In metro Vancouver, townhomes increased the most in value at 3.4% or by $13,430 to $408,580, followed by detached units which increased 3.23% to $655,000 and condominium apartments which decreased in value by $550, or 0.2% to $336,000.

In the Fraser Valley, the median price for a detached unit increased 1.1% or $5,000 to $450,000, while attached units saw no change at $319,000 and condominium apartments dropped 3.8% or $9,000 to $226,000.

Why the stall?

There’s no question that buyers, sellers and investors are sitting on the sidelines, wondering what to do.

Some are hesitant because of the collapse in the US housing market and the turmoil in both the US and Canadian stock markets. Others are unsure about the Canadian economy and job security.

In June, the Conference Board of Canada reported that consumer confidence was at its lowest level in seven years, largely because of high oil, gas and food prices, and this has translated into fewer big ticket purchases for British Columbians.

Out-of province buyers are also becoming cautious, and their numbers decreased by 24.1% to 1,570 buyers from 2,069 buyers in the second quarter of 2007.

The largest decline is in the number of American buyers, which decreased 40.5% to 127 from 213 buyers.

Albertans, typically the largest group of out-of-province buyers, bought 21.5% fewer properties – or 1.320 properties, compared to 1,682 properties in the second quarter of 2008.

Dip or disaster?

The big question is whether this is a cyclical dip in the real estate market or the beginning of a US-style housing collapse.

I’ve been in the real estate business for 44 years, and I’ve weathered dips and collapses, including the painful disaster of the early 1980’s when interest rates climbed to 21.75% and unemployment to 12.5%. Fortunes were lost – including my own. I’ve also weathered downturns in 1994 and 2001.

The situation today is different. BC’s economy is still growing, although at a slow pace. We’re still seeing new job creation and new immigrants coming to the province, and we have stable mortgage rates.

Still, buyers are hesitant to take out their cheque books. Instead, many are waiting to see if prices drop. And as properties sit on the market, sellers are weighing their options and beginning to decrease their prices – although not by much. Overall, no-one is losing equity given the huge price gains over the past few years.

Real estate has always been an interesting market, since it’s about more than prices. There is a psychological aspect to property investment, whether we want to admit it or not. When prices drop, instead of jumping off the fence, buyers wait, trying to gauge the bottom of the market. Then, as soon as prices head upward, fence sitters flood the market. And when they see the property they’ll buy, they know in their gut which one it is.

The bottom line

So, should we panic? Market adjustments are inevitable. How property buyers, owners and investors react is what counts. Over time, real estate prices – with the exception of a few major dips- have consistently trended upward.

The market will come back, so maybe start looking for those bargains.

Rudy Nielsen is president of Landcor Data Corp., Vancouver (www.landcor.com) which provides real estate data and analysis to investors world-wide.