Friday, February 13, 2009

Another stinker from CREA

CREA numbers continue to deteriorate -11.3% YoY in January. Recently, CREA projected a decline of 8% for 2009. In November, I conservatively forecast a -10%. Nice to see that they are getting a little more realistic (they had a -2% back then), but remember that my number was conservative. I have to crunch some numbers, but I plan to revise that number significantly lower. At the least the flagrant cheerleading by CREA has been toned down. This will lower the comedic value of their reports. Nonetheless, there is still some spin left....

CREA states:

“there are certainly buyers and sellers in the Canadian residential
market,” says the President of the Canadian Real Estate Association, Calvin
Lindberg of Vancouver.

My thoughts: All it takes is 2 buyers and 2 sellers to make that statement factually correct.

CREA states:
The supply of homes for sale remains high, but is trending lower nationally. The
decline in new MLS® listings is trending lower in line with sales activity
in many regions. The decline in supply to meet lower demand is expected
to help stabilize the resale housing market balance and put a floor under

My thoughts: I will agree that if the supply of homes is decreasing, this is a positive.
However, it remains to be seen if this will continue. I expect that since the large layoffs began in November, there will be a large increase in foreclosures with a lag of a few months. The same applies to the stock market crash of Sept to November. Therefore, if we assume a lag of six
months, there may be a large number of new listings in April or May, due to people forced to sell due to job losses or stock market losses. Until recently, sellers were taking advantage of high prices to sell their house. The next wave of new listings may be from sellers who have no choice but to sell.

Also, the CREA assumption assumes that all of this exists in a vacuum. This floor on price means nothing if buyers can not obtain mortgages or if buyers set their price levels lower (as
they are apt to do given the fact that we are in a depression).

In theory, there is a floor on price. I suspect that it is a lot, lot lower than anyone can fathom.

Other key points:

  • 4 of the 6 NHL cities were negative with Calgary -13%, Edmonton -3%, Toronto -8% and Vancouver -9%. Ottawa and Montreal remain in la la land at +2%. Anecdotal information for Montreal tells me that the tide is turning here, and I suspect that Ottawa will turn negative soon as well.
  • 13 of 25 markets were negative. Remember how CREA used to say that only 4 of 25 markets were negative, thereby attempting to spin. Now that the majority of markets are negative, conveniently omitted from the press release. Still, 13 is not bad, considering it will be probably 25 by year end.

All in all, another bad report and I suspect that given the lags in homebuying, some real disastrous reports are waiting for the springtime. In fact, if the housing market was a hockey game, we're still in the first period. The US is probably somewhere in the second period.

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