Have Kelowna home values dropped 41%?

[rekabis]

It appears that our REALTOR® buddy Devil’s Advocate may have inadvertently confirmed that a massive plunge in home values for Kelowna has been occurring over the last four years.

On the Greater Fool blog written by Garth Turner, Devil’s Advocate posted that the average home value since the beginning of the year until now (2012-01-01 to 2012-02-23) has been $353,903

The average home in April of 2008, according to OMREB, was $552,831 (p5 in the PDF).

If we have a look at this, and do the math, we get to a drop in value of 36%:

Code: Select all

(552,831 - 353,903) ÷ 552,831 = 0.3598

However, what is more shocking is if we adjust for the effects of inflation. Using the Bank of Canada inflation calculator, we come to the inescapable conclusion that $552,831 in 2008 dollars is really $596,840 in 2012 dollars!

If we do the math again, we get to a much worse number, a drop of 41%:

Code: Select all

(596,840 - 353,903) ÷ 596,840 = 0.4070

I find this all very, very amusing. More so because of the epic thread I started in 2007. Before it became locked, it racked up an impressive 5,665 replies across 378 pages; probably one of *the* largest non-trivial threads in Castanet history. And most of those pages were taken up by bubble deniers that either flatly refused that prices would ever go down (dirtrider, et. al) or people who though that prices would moderate and *maybe* dip a bit (scadam, et. al), but that anything more than 10-15% down was ridiculous.

And to think that since that thread I have been predicting that prices will fall at least 60% if not more.

Take inflation into account and we’re already ⅔ of the way there!!

I am now compiling OMREB data into a series of graphs to show the pattern that has been going on since 2002. I hope to have those up ASAP. And the graphs will not be limited to only the average price… I intend to show all major variables no matter what the resulting pattern.

[Deacon]

Wow...those are awesome numbers if you are correct. Just think, the young folks and not so young may be able to purchase a home once again. Look forward to the rest of your results. And yes I've owned my home for 30 years.

[grammafreddy]

On page 10 of your epic thread, I agreed with you and said in response to another poster ...

I get the impression from reading these posts that the people predicting that the bubble will burst are those who are having difficulty getting into the housing market themselves. Thus they are hoping for this doomsday scenario in the housing market.

Prices may not continue to sky rocket the way they have in recent years, but they will not go down significantly either.

People can spin things whatever way they want, it doesn't make it reality.

Jan 4th, 2008, 10:26 am
Noooo, the reality is that the US subprime disaster will have an effect on the Canadian housing market - it will just take a little longer to happen here.

The reality is that fewer single family homes are being built in Kelowna, in favour of multiple family homes - because of the greatly inflated land prices. Developers (the ones who have the clout to buy the land) are having to maximize their return against the cost of development.

Another reality is that not everyone wants to raise their family in an apartment on the 10th floor, so these people will not be buying into the current market, and in fact, will not be choosing to stay in the valley at all (which creates its own huge problems for the local economy).

Here's another reality ... the US subprime fiasco will have an impact for years to come - in the way of Canadian pensions. Baby boomers who have invested in mutual funds may see their hoped-for pension income is not as much as what they anticipated - because the sleezy under-cover-of-darkness subprime investments were bundled in investment packages in the overnight lending business the Canadian big banks and investment companies are so fond of. Canadian mutual fund packages contained these subprime disasters and they will take a hit on them.

The realtors will tell you otherwise, but a wise person would not invest in any new real estate deals right now. What has happened here in the Okanagan is NOT sustainable.

I suspect the bubble will burst right after the Olympics ...

So, I was out a year or two. Ooops.

[GrooveTunes]

If you read DA answer you will see that it isn't that cut and dry. Not denying that prices have come down but it's not that much. Will be though, no doubt in my mind. Glad I got out when I did.

[Thinktank]

AMAZING!!!!!



how do you make the 2/3 thing in original post?



.

[Scadam]

I hate to interrupt your preening rekabis, but as usual you're trying to chicken little the numbers. You might want to try comparing apples to apples. You're basing your whole grand conclusion on the OMREB numbers for 2008 compared to an un-sourced dollar amount from a random and unrelated slice of time, which I assume you chose for dramatic effect. Here is the 2008 number, which you did correctly copy and paste:

The average home in April of 2008, according to OMREB, was $552,831 (p5 in the PDF).

The link you provided is this

http://www.omreb.com/files/04%20-%20CO% ... 202008.pdf

Now the tricky part, go ahead and change that URL from April 2008 to April 2011 thus:

http://www.omreb.com/files/04%20-%20CO% ... 202011.pdf

The 2011 number in an apples to apples comparison is actually $477,652

I'll save you the suspense and do the math for you. It's 15.7 percent (I didn't bother garnishing with inflation). This number is in line with what I've seen on my own appraisals. Better luck next time.

[amourus]

More proof of the bu77sh!t power of statistics. Take the month with the highest number of homes sales, April 2008, and compare it with the month with the lowest number of home sales, January, throw in a measure of Stats Canada mumbo jumbo for credibility, and voila - you magically have a 41% drop in home prices. Except it didn't happen.

If you want a better reflection of what the average value of a given type of home really is you should use a benchmark home price. The Vancouver Real Estate Board uses that type of formula. It eliminates the wild swings, like this, that occur. In April 2008 there were 459 sales in the Central Okanagan, 16 of which were over $1 million (incl. a $4.5 million sale). In January of 2012 there were 202 sales and only 1 that sold over $1 Million.

Those sales (April 2008 & January 2012) are hardly representative of the current market. Averages need to be based on an appropriate sample and your cherry picked stats do not portray a true picture of the market. If you want to make the case that Real Estate is a non-liquid asset, then fine. If you want to make the case the "too many" people bought or built more house than they seem to want now, sure you may be right. But if you want to suggest that because there are only 1/16th as many $Million+ homes selling today, compared to 2008, that every person who owns a home and doesn't have a for sale sign on their lawn has taken a 41% hit to their value...Get real. The fact that hundreds of homes sit on the market until the sellers either get their price or take it off the market proves how "desperate" they are to sell - not so much.

[tsayta]

well done scadam

[36Drew]

I'll save you the suspense and do the math for you. It's 15.7 percent (I didn't bother garnishing with inflation). This number is in line with what I've seen on my own appraisals. Better luck next time.

Okay - January 2008 to January 2012 then.



Jan-2008 Average: $483,784.71
Jan-2012 Average: $354,678.00

That's a 27% drop. Apples to Apples, current season.

[36Drew]

If you want a better reflection of what the average value of a given type of home really is you should use a benchmark home price.

Benchmark home price? Is that like "seasonally-adjusted labor market stats"?

Psssht. Gimme the raw numbers - I can do my own math, thank you.

[johnhenry]

.

[Bsuds]

So the "average" price of homes that sold has dropped. That also could indicate the the lower priced homes are selling and not the high priced ones which would bring down the average. 41% I doubt it very much!

[rekabis]

I'll save you the suspense and do the math for you. It's 15.7 percent (I didn't bother garnishing with inflation). This number is in line with what I've seen on my own appraisals. Better luck next time.

Okay - January 2008 to January 2012 then.



Jan-2008 Average: $483,784.71
Jan-2012 Average: $354,678.00

That's a 27% drop. Apples to Apples, current season.

You forgot to factor inflation into the equation. $483,784 in 2008 dollars is $522,296 in 2012 dollars. So a true, after-inflation comparison of apples to apples would end up showing a 32% drop in value.

Even comparing apples to apples, as you have done 36Drew, a 32% after-inflation drop in values still represents a massive drop. The largest ever previous drop in home prices was 16% in the early 80s, and represents about half of what we have seen to date with our current bubble.

Simply put, the collapse in home values since January of 2008 is, once adjusted for inflation, about twice as large as any previous housing collapse in Kelowna to date.

And I would bet my left butt-cheek that we are still in the early innings of this downturn. Things are about to get a *LOT* worse.

[LoneWolf_53]

One thing that affects sales figures for us here in Canada is that many Canadians have taken advantage of the rock bottom prices of homes in warmer climates such as Arizona and purchased places there.

[normaM]

I'll take that butt cheek