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A Look at the Oversupply Problem in Vancouver

2 October 2012

Continuing on from yesterday’s look at the oversupply problem in Canada, today we’ll focus on the one currently happening in Vancouver. The stats and charts within the content were all taken directly from Macleans.

We all know that the housing market in Vancouver right now is not good. The market that was once booming and seemed to be far outpacing the rest of the nation’s housing market for so long has been dragging its heels for almost the entire year.

Macleans actually points out that the situation here could be even worse than people think. August resale figures showed that sales had fallen to their second-lowest level since 1998. This was bad enough, with sales falling 30 percent from August of 2011, and 40 per cent lower than they had been in the past 10 years – that’s almost 50% of a person’s home value if they purchased a decade ago!

This data is going by the fact August 2008, the height of the Great Recession, was the worst month in the past 15 years. But, it also needs to be noted that this month had two fewer weekdays in it than this past August did, meaning that business probably wasn’t done on those days in 2008, while it most likely was in 2012. If you take that into consideration, this past August did see the lowest amount of sales in the past 15 years. This is indicated in the chart below.

So home sales are dropping and yes, that has an obvious impact on the oversupply problem. It means that owners can’t sell, which leaves their home on the market and part of the oversupply. But, what about all those other homes on the market, too?

This can be deduced by looking at the total months of inventory. This is a measuring tactic that accounts for the length of time it would take all the homes currently on the market to sell. It’s based on the number of sales in the previous month and provides a quick look at supply and demand in the city. Or rather, how many homes are on the market compared to how many people want them. What you’re looking for here are low numbers; and what you can see happening in Vancouver right now is that they keep inching higher.

So all of this must mean that the building in Vancouver has stopped, right? Or at least slowed considerably? You would hope so but unfortunately, that doesn’t seem to be the case. Builders and developers are still going strong and in fact, the number of starts on both single-family homes and multi-unit complexes has been growing for the past three years. One can only wonder how much longer this pace of construction can continue.

So what does all of this mean about the oversupply problem in Vancouver. Summed up nicely, you can see the results in the chart below.

Yes, there’s a problem here – and a big one. If the pace of homes on the market continues to so greatly exceed the number of interested buyers on the market, it’s going to send prices plummeting and Vancouver could be on a very real edge of collapse.

Now that we’ve looked at the two Canadian cities that have gotten the most attention from their oversupply problem, come back tomorrow when we’ll look at one that also has a problem, but hasn’t had nearly the attention Toronto and Vancouver have. That city is Montreal, and the results here may shock you.

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