Resale house prices gone parabolic in York Region – view from G0

I have seen 3 houses in the last 2 weeks and every single one went over asking… this is in Markham/Richmond Hill area.

#	List	Sale Price
1	699900	705000
2	699900	725000
3	745000	758000

Couple Observations:

1. Similar houses in the area sold for under 635k just 6 months ago… that is more than 10% increase in less than 6 months!… If the trend continues, resale house prices will be up more than 20% in 2011!

2. Every single house had more than 3 offers clean offers – no financing, no inspection!

3. And all of them sold in less than 3 days of listing…

3 houses is nowhere near a constituent sample even if they are all in a small city block BUT this is the trend… I have spoken to a few realtors over the last month and that is what they say…

In contrast New Home prices have increased close to the inflation rate… around 2-3%

If you are in real-estate… or not… what are you seeing on ground zero?

Hysteria…Mania? Herding like donkeys? Sensible investors? Speculators? Pent-up demand? No Supply?…

Canadian house prices down 5% in 2 months

… whats new? Not much really… here is a tabular summary of relevant stats which is never mentioned in the news release…

	July 2010	June 2010	May 2010
Average Price	$330351	$336690	$346881
Year-over-Year Change	1.0%	4.5%	8.5%
Month-over-Month Change	-1.9%	-2.9%	-0.5%
Sales over prior month	-6.6%	-8.8%	-10.6%
New Listings	-6.5%	-6.4%	-4.4%

House prices peaked in May 2010 and have been trending down since… The 3-month trend in average house prices is clearly down – from

Canada – New House vs Resale Housing Divergence

Global Housing report from Scotia Capital (Source):

The slowdown has been most dramatic in Canada. Average home prices in Q2 were up just 6.8% y/y, compared with 16.6% y/y in Q1. Sales, while still at a high level, have trended steadily lower alongside reduced affordability and exhausted pent-up demand. Meanwhile, increased listings are tilting overall market conditions back in favour of buyers. We expect demand to remain at a lower ebb into next year, and prices on average to be roughly flat. 

It doesn’t look like Scotia Capital has seen the recent house price data… which as I pointed here & here is towards declining prices not flat

I find this chart very interesting…resale house prices increase ~130% where as new house prices rise only 50% in the last 2 decades… I wonder if this divergence was driven by speculative investment of buying a new house (planned but not built) and flipping it when it is actually built?

Source: Scotia Capital

…Traditionally, the demand and pricing for new homes mirror, but with a lag, trends in the resale market…

The report points there might be several factors for this divergence in new house prices… here are some factors sighted in the report:

• Tight Supply of resale homes
• Value added from Renovations to resale home (I agree with this one – the quality of new homes in general is not the same even with top of the line upgrades)
• Increased land values in urban centers (new construction tends to be in large suburban lands) because of:
  • lifestyle choice
  • traffic congestion
  • established neighbourhoods

Some more subjective factors I think should be included:

• Resale homes are generally built on bigger lots
• Resale homes older than 10 years are built on wider & less congested streets
• Fewer chances of voyeurism – more space between neighbouring homes

Some other facts:

• Land value accounts for 50% of residential properties.
• Land value has increase by two and a half fold (150%) in the last decade
• The Chart below shows the construction cost of residential building materials 

Source: Statistics Canada, Reed Construction Data

Most asked housing related question…

Surprise…Where are house prices going from here?!?!houses should drop unless builders adjust their prices down to reflect the savings they incur

My take - Demand vs Supply 

Houses are selling below list price a.k.a. no bidding wars 

I have been talking to realtors at open houses for the past couple months and their unanimous verdict… market is slowing 

Price Increase is slowing…demand is easing
The month-over-month increase in prices is trending down… which goes against seasonality… spring/summer is the busiest time for housing activity 

http://creastats.crea.ca/natl/

 

More houses to choose from…& Fewer Sales 

Sales to Listings Ratio is trending down i.e. there are more houses for Sale and of those, fewer houses are selling… see the red-line trending down in this chart 

http://creastats.crea.ca/natl/

 

HST Kicked-in…demand slowing
Most economists predicted demand pull in the first half of 2010 due to HST… if this were to hold true, demand for new houses should drop until builders adjust new home prices (downward) to reflect effects of HST… 

In Part II I will try to focus on housing affordability 

Update: Don’t forget to read a summary of the mid-year forecasts from CREA & CMHC http://takloo.wordpress.com/2010/07/30/a-tale-of-two-housing-forecasts-cmhc-vs-crea/ 

Chart Source: CREA

http://creastats.crea.ca/natl/

House Price Rise May 2010 – New vs Resales

In May 2010, the Year-on-Year %:

New Homes 2.9% (StatCan)
Resale Homes 8.51% (CREA)

May 2009 – May 2010 – 2.2%

Most of the increase in prices has happened in the first quarter of this year…

Source: Statistics Canada

The following chart shows the year-over-year increase in May 2010 in new house prices by major cities