New home prices fall more than expected

An article last week by Garry Marr in the Financial Post published on Wednesday, March 11, 2009 had the headline as given above this blog.



The problem I have with the article is that it doesn't say higher than whose expectations. From all the negativity in the news lately about housing, particularly in the Metro Vancouver area my own expectations were that housing starts would be down substantially and new house prices even more so. In the last few months everyone has become aware of the sale going on in presale properties finally reaching completion and occupancy. The impression all these stories have given is that prices would be down anywhere up to 25% to 30% for product now coming into the market.



It turns out that prices are down, but a small fraction of that amount. In fact new housing prices are down .8% year over year from last year. Significant in that it is the first time since 1997 that this number is actually lower than the previous year, but hardly large enough to justify the headline. .8% is a whole lot smaller than 25%.



The news media keeps trying to find evidence that Canada is following the US example in housing declines, only with a delay of maybe eighteen months. There is no evidence to support this but all the negative reporting is driving an atmosphere of anxiety unsupported by hard facts.



Investors need to be cautious about declining markets, indeed hopeful about them, as revenue properties could become cost effective if price decline enough. But in a market where rental vacancy rates are under 2% of the market, and there is less than six months of inventory of new home product based on demographicly demanded housing, investors should also be cautious about missing out on opportunities to make investments in the current market place.



House prices generally are lower than a year ago, whether 10% or higher, they are lower. Lenders need to be sure that any appraisals used are current, which in today's environment probably means within 45 days of the loan advance date. But the bottom has not fallen out of the market, at least, not yet.



Demand is lower than previously, which basically means that you might have to wait for a while to find a buyer. Instead of being able to get your price in three months it might take six months, and in rural markets even longer.