Saturday, March 31, 2007

Saturday Open Thread

I have nothing to say today. So this post is all yours. Feel free to post on anything related to the market, house hunting, real estate... and so on. Feel free to rant, vent etc too.

I've really enjoyed the comments on this site and over at Victoria's Truth. We're really liking the March predictions going on.

Over to you...

A suggestion: this blog is all about anonymity. Feel free to post as anonymous. But may we suggest that you create a pseudonym and use it consistently? Just choose other in the comments and give yourself a random name, that way everyone will know which anon is which and conversations will flow better. Cheers.

22 comments:

Vicguy said...

You got to read this one from Mish's blog in the USA. Thanks to Greg at CheapRealty.net.
Things in Florida are getting very very ugly. And with those comments from David Dodge this week that he is worried about the effect of the sub prime market on Canada then how can we not be immune from what is happening down there ? It's a ticking time bomb in my humble opinion.


"I have it on great authority that there will not be a hard landing in real estate.
Who told me that? It was none other than Mike Morgan at MorganFlorida. Please listen in to what Morgan has to say.

Mike Morgan:

Will there be a hard landing? No!
Will there be a crash landing? Absolutely!

But that’s not even the heart of the current problems. For the last two weeks I’ve been receiving daily calls from desperate mortgage brokers, real estate attorneys, insurance brokers, title companies and subcontractors looking for deals and work. This week I spoke with a real estate attorney closing his office and returning to the corporate world. And several of the smaller builders have called me offering triple commissions to entice sales of their inventory. It doesn’t end there."


"And just like we saw a tech crash with everyone rushing to sell, we’re now just starting to see flippers dump properties for 200-400% losses on their deposits. Add to the woes, the fact that interest rates are up and most flippers bought using creative financing and low rate ARMs."



"But this is all old news for us. The other shoe is dropping now. Loss of hundreds of thousands of jobs created from housing will act like a virus and spread throughout our economy. As real estate agents, attorneys and mortgage brokers reign in their spending, it will effect restaurants, car dealers, advertising companies, jewelers, remodeling contractors, furniture manufacturers, bank profits, electronic retailers, clothing and the list goes on and on and on."

Can't happen here in BC,cause we're different.


http://globaleconomicanalysis.blogspot.com/2006/09/no-hard-landing.html

Vicguy said...

Victoria in the next year ? Nahh, can't happen here,we're different.


http://flippersintrouble.blogspot.com/

Roger said...

I have updated the Greater Victoria stats on my website

I now have 3, 6 and 12 month rolling averages of median and average sale prices. The pdf file contains several graphs which I think you will find very interesting.

I will not make any comments in this post. I want to hear what the readers think before I give my analysis of the data.

greg said...

Roger,

I like your stats, but from what I can see, this is not the year of a hard landing in Victoria real estate.

Maybe next year? Are things going to level off like 1995 or crash like 1982?

My take: Unless inventory jumps significantly between now and the summer, I foresee more trundling along with similar prices and mediocre sales, nothing like the activity in 2004-2005.

On the other hand, its kind of like the death by a thousand cuts - the market is bleeding all over the place in small amounts, and it will take awhile for the damage to show.

That would be when the inventory finally overwhelms the sales activity.

A few years of higher rates, higher prices and fewer first time buyers capable of entering the market will eventually take a toll.

I just don't think we will start to see a big effect here until next year, when the US is well into a cycle of being hammered on housing.

The latest brouhaha with China can only mean bad news in the long run for the US dollar and US rates - and that will also spill over here.

So, back to the point, when I look at your chart, I see activity similar to last year, with a further increase in listings and decrease in sales.

I just don't think the tipping point will be reached until the autumn, when some over-leveraged interest only investors start to panic!

Vicguy said...

There is no way you can write off the chance of a downturn, we are just starting the high point of the year. If the buyers balk this baby is goin down,speculators will not be able to hold on knowing there is more product coming on to compete with them.
Looking at roger's charts it's easy to summize that but wait til May/June,that is the tell tale month cause all the new listings in March that haven't sold that HAVE to sell will be reducing by 15 -20 %. If we are seeing 10% reductions now then this is a given we will see deeper hits.

Looking at the charts if I was a buyer the last year hoping to flip and make some fast money I am shit outta luck.The agent fees will take any profit and will most likely leave me in the negative. If I dumped in $20,000 plus to renovate then I am crapping myself even more if my place does not sell by the end of June cause then the summer doldrums kick in and the low ballers come out of the closet.
Trying to call this year a flat one is like calling who plays in the world series when we are still just finishing spring training.This one has a long ways to go and remember there was no threat of recession and inflation around a year ago like there is now.

Vicguy said...

roger,

I am like looking at the 3 month median chart to indicate to me that a trend is developing in either direction. I use the 3 month on stocks and this RE market to me is being played like a stock that has been overbought, now all we need to see is the buyers volume slow down and then down we go down. I know this is an over used analogy but this like Nortel at the top,now where to go but down.

The one question you have to ask yourself is if house prices go up another 10% , then who is going to qualify to buy as a FTB ? 10% more takes out at least half, if not more than half of the first time buyers then the food chain stops in its tracks.

Vicguy said...

roger,
Thanks for posting that article on your web page on David Dodges comments. I had missed it and only read others snippets on it. His statements were, as he reffered to, "huge".


NEW YORK (CP) - The troubles in the U.S. housing sector triggered by a plunge in the market for so-called subprime loans could delay recovery and have "huge consequences" for Canada's economy, says Bank of Canada governor David Dodge.

"Everybody else in the world looks at housing and says that doesn't have much consequence for demand for us. But of course for Canada it's exactly the opposite - it has huge consequences," the central bank governor said Thursday after a speech to the Americas Society and the Council of Americas.

"Those industries are located all across the country, but we have quite a concentration of those industries in Quebec and Ontario, selling into the Northeast and Midwest, although it's not limited to that, right across the prairies and B.C. as well. The volumes are quite large."




http://www.cbc.ca/cp/business/070329/b032981A.html

Roger said...

vicguy

Thank you for your comments. I have been doing a lot of updates to the site in the past few days. I just uploaded some new charts showing how YOY is useless for showing market trends.

You have come to the same conclusions that I have. Technical analysis of the stock market uses moving averages(MA)as a basic tool. As you correctly observed the six month MA has gone flat but the 3 month MA shows a downtrend. Listings are really piling on now and my predictor graphs (based on 2005 & 2006) show that inventory will start building rapidly.

If sales slow down this spring (and I expect they will) the listing agents will start recommending price reductions and the buying agents will recommend knocking 6% or more off the asking price in their opening bid. Sellers will see it taking longer to sell and become nervous. Put this all in a bag and shake it and we are on the way down. Then the MSM junps in with downturn news and adds gasoline to the fire.

Business will be brisk at the Homesellers Barber Shop

Roger said...

hhv

Here is a topic for you.

What is happening at open houses??

- Are you seeing more open houses than last year?
- What is the mood of the agent? (keen to talk to you, sees brisk market, expects a downturn, prices are flat, make an offer before it's gone)
- Are there many people attending?
- What is the mood of the people at the open houses? (Gotta buy soon, too expensive, waiting for crash, just looking, this place is overpriced, oh what a creampuff, lets make an offer)

Roger said...

Food for thought on a Sunday morning.

U.S. Housing Prices Since 1890

Vicguy said...

Great chart roger, I was looking for that one the other day. That one speaks the loudest of all the charts. Every stock I have seen with a chart like that rarely ever stays up there unless there is some sort of solid company changing fundemental to warrant it.

We know the RE fundementals do not support it,it's purely a psychological effect and sooner or later the psychology changes when people start to see other people losing money and/or struggling to make payments,then the bells finally go off. In stock terms,it's the dumb money buying and the smart money is getting out.

Roger said...

vicguy said
Great chart roger, I was looking for that one the other day.

Glad to hear that you found it interesting. The supporting data is on my Web site.

I will be away on business until Friday and will not have access to the Internet. I plan on updating all charts with the March VREB data When I get back

JMK said...

Hi Roger,

I thought it was very interesting too. Curiously, I looked up the Standard and Poor Case and Shiller index, and it looks different from the plot. The link is here to that data set. So I'm not sure what the data on Shiller's site represents.

It would be fun to compare this index to Victoria's market. My impression is that the Victoria boom has not been as "exuberant" the US one, but I could be incorrect.

greg said...

jnk,

The Victoria boom doesn't need to be as exuberant as the one in California to still obey the same laws of economic physics Shiller is referencing.

Take a look at this graph, it looks like a very unusual, unsustainable run-up to me...

JMK said...

Hi Greg,

Take a look at this graph, it looks like a very unusual, unsustainable run-up to me..

It looks almost exactly like the last run-up, and is only slightly more than half as large a % change as 85-95 (100% total increase vs a 170% total increase) Here is a graph comparing the last three run-ups in Victoria.

I do, however, agree that it is unsustainable, and will correct. The question is when and how quickly, which are pretty important questions if you are paying rent.

(Isn't "economic physics" is an oxymoron? ;-) )

greg said...

jmk -

I looked at your graphs and I think you are missing the point. Also, it looks like you are arbitrarily measuring from trough to trough instead of trough to peak.

My data doesn't start early enough, but try redoing your graphs to show the percent change for these time periods: 1978 to 1981-82, 1985 to 1995 and 2001 to 2006.

If you do so, you will quickly see that the recent run-up is quite out of whack with previous run-ups.

Also, if you look at your plot of the CPI, a massaged and manipulated statistic if ever there was one, you would be assured prices in Victoria now should be less than $200,000 for a single family home......

So the CPI is completely irrelevant when trying to get a handle on what is happening currently.

Cheers,

greg

greg said...

jmk

- also, 100% in 11 years is a lot different than 100% in around 6 years, as should be obvious.

greg

JMK said...

Hi Greg,

I looked at your graphs and I think you are missing the point. Also, it looks like you are arbitrarily measuring from trough to trough instead of trough to peak.

My data doesn't start early enough, but try redoing your graphs to show the percent change for these time periods: 1978 to 1981-82, 1985 to 1995 and 2001 to 2006.

If you do so, you will quickly see that the recent run-up is quite out of whack with previous run-ups.


This is exactly what I am plotting, so I think you are misunderstanding the plot. It is plotting the value of a $100k house if it underwent the percent change observed during each year of each cycle. i.e. the percent change from 2001 to 2002 was +7% (about), so I plot $100k, and $107k for those two years. 2002 until 2003 was 18% (about) so I plot 107*1.18 = $127k for 2003. There is nothing arbitrary about any of this (except I suppose to start at $100k). If you want percent change from start to finish, just subtract 100.

If you need the data, it is posted over on Victoria's truth.

- also, 100% in 11 years is a lot different than 100% in around 6 years, as should be obvious.

That would be obvious if it were true. Twice the 1985 price (93,865*2=187,730) was exceded in 1991 (191,774) which is only 6 years.

Also, if you look at your plot of the CPI, a massaged and manipulated statistic if ever there was one, you would be assured prices in Victoria now should be less than $200,000 for a single family home......

I really don't understand what you are trying to say here. That plot is of prices adjusted to be 1978 dollars according to the CPI published by stats Canada. Victoria prices have outpaces the CPI by 2% on average for the last 30 years. Some folks claimed they wanted to see the CPI-adjusted numbers, so I plotted them.

JMK said...

There is nothing arbitrary about any of this (except I suppose to start at $100k).

Actually, I'm sorry - when I restart each cycle is, of course, arbitrary. My bad. However, the years chosen are the deepest trough before each cycle. You could quibble over choosing 2000 versus 2001, but that makes the present cycle look weaker, not stronger.

The point is, I think I have done this fairly, and the data is all there for you to do whatever you think should be done to it if you disagree with me. The fact remains that price 1985-1995 increased by 158%. The current run up fron 2000-2006 is still "only" 107%.

greg said...

jmk -

the current run up is not somehow more reasonable than 1981-82 (followed by a serious crash), or 95 (a minor crash followed by 7 years of stagnation).

In 1995 and afterwards, local incomes were far more capable of supporting the peak prices - even after the run-up - but they didn't.

Why? Obviosuly a big part of the equation in the crash in 1982 was an increase in interest rates which made mortgages unaffordable.

What happened in 1995? The local market ran out of buyers.

The obvious and easiest measure of current prices is to look at them as multiples of incomes.

Even at the peak of the 1995 run up, prices were only around 4-5 X median family incomes in the local area. In the last few years, incomes in Victoria have actually regressed, if you want to take the CPI into account, yet prices have risen to almost 9 X family incomes.

Affordability is a problem, which I argue does make the present run-up even less sustainable - after all, it was made posible by very low interest rates and a hysterical mania - and interest rates have now reversed course and have now risen for 2 years without any retracing - and are unlikely to do so anytime soon.

Something is out of whack across the country - maybe it is oil dollars or something, but it is not sustainable.

If incomes have not kept pace with the rise in housing even as estimated based on an average of the CPI (they haven't), using CPI to show somehow prices have only increased 107% is a bit inaccurate - after all, you have not accounted for the stagnation and drop in incomes in at least the last 10 years relative to your model...

JMK said...

using CPI to show somehow prices have only increased 107% is a bit inaccurate - after all, you have not accounted for the stagnation and drop in incomes in at least the last 10 years relative to your model...

Hi Greg,

I haven't used a model in the plot comparing the runups, nor have I used CPI. I've used the actual prices. The 107% = 100*(521.5-251.4)/251.4; the average prices of homes in 2000 compared to 2006.

The affordability is a problem, I agree, and is no doubt responsible for the current slowdown as more people sit it out and rent. Will it result in a huge correction? I don't know. Depends on how many people are overleveraged and can't hang on. The 0.5% rental vacancy rate makes me optimistic most investors can find renters if they need to.

greg said...

jmk -

current market rents in Victoria won't even come close to covering the mortgages and taxes on any properties held by specuvestors. If they have to rent the property and can find a tenant, it will staunch the bleeding a bit, but what tenant would rent without a lease from someone like that? And which specuvestor in that situation would sign a long term lease for less than their mortgage amount?

To illustrate this problem, here is a link to a typical property. Will it rent out for around $2750 per month ($450,000 mortgage, 5.5%, 10% down)? I don't think so.

Don't forget to add the property taxes!

Homes with greater equity in them from the sale of other homes probably are owner occupied and not part of your scenario regarding renters.

I don't think renters are going to bail out anybody in the coming slowdown.