Friday, June 15, 2007

Mid Month Market Watch

Our area of interest is Oak Bay, Victoria, Saanich, View Royal, Esquimalt, and Langford.

Our criteria for houses is under $425K with a suite or suite potential. These are total numbers of listings and sales since late January.

138 total listings (9 new in June)
101 total sales (12 sales since May 30
)
sales to listings = 73% (up 4%)
14 taken off market (1 twice)

Our criteria for condos is 2 bed 1 (or more) baths under $250K. Again, total numbers since late January.

247 total listings (20 new in June)
155 total sales (11 sales in June)
sales to listings = 63% (no change)
38 taken off market

Inventory continues to decline in SFH homes in our segment while condo choice increases. The positive news is that condos are the only remaining affordable options and things look promising for dwindling prices in the near future. It will be interesting to see if mortgage rate hikes will transform the low-end SFH market anytime soon. I'm guessing that it will be 6 months to a year before any significant trends start taking shape.

22 comments:

greg said...

HHV - I am a little more optimistic on SFH prices. I was expecting a drop based on increasing inventory alone, particularly in the townhouse market, by the fall this year moving into next spring.

With the interest rate hikes, what you are seeing now is a rush of people closing before there pre-approvals run out. Stuff that is approved from here on out will start to impact what people can afford.

So maybe I will cautiously re-assess my point of view, and say I expect to see some effects by this fall across the condo, townhouse, and cheaper SFH markets.

It's fun to watch, anyway.

vg said...

Is 38 listings removed alot ? Seems like a fair amount to me in this so called hot market.

hhv said...

vg,

i think the last thing you can call the condo mkt in this town is hot. we've been getting barely 50% sales for 2 months now.

vg said...

Incase you havent seen this pathetic article. This Cameron Muir is a total self serving idiot as he tries to play down the similarities in costs versus 1981. It is so close to the same that it only makes him look so out of touch with reality. What is the difference in a few thousand income when you get to this level,none. That it is like denying it's going to rain today when the clouds are dark and the thunder is booming,might not but it's sure damn close.


http://www.straight.com/article-95216/past-prices-were-higher

http://www.straight.com/article-95216/past-prices-were-higher

JMK said...

I don't know VG, $2650 a month average carrying costs now compared to $3800 in 1981 doesn't sound that close to me. I'm curious what you object to in his "self-serving" article. I doubt Muir is an idiot - you probably need some level of education to pull in those 6 figure chief-economist salaries.

For comparison, the RBC report on affordability shows that Victoria was less affordable in 1994 (about 50%, rather than the current 45%), and that didn't lead to a crash. But I guess its different this time?

vg said...

jmk,

1. I don't buy the $3800,it's easy to toss out some numbers without the exact calculations. We both know the prices are "all time highs" with all time low interest rates which are now turning the other direction.

2. He is self serving cause it's his business,just like a car salesman,same classification in my books. He is debunking any reason to be cautious,its full steam ahead and if you get burnt too bad.

3. I know a few idiots that pull in six figure salaries cause they talk the bullshit very well.



4.Current affordability 45% ? I did not get a chance to read the whole report today but I find that hard to believe,last I saw a couple months back Victoria was in the 60% range. If it said that I do not buy those numbers,not on Victoria's average incomes.

vg said...

Based on a quick glance before I hit the sack I see a detatched bungalow in BC with an average price of $488,000 needs an income of $105,000 to service it. Victoria I believe is in the $70,000 range average income and the house price is close to Victoria average so is why I don't buy the 45% affordability number.

greg said...

jmk -

speaking of self-serving, why would a bank employee of Royal Bank ever use the crash word or even discuss such a possibility when spinning the housing market? Since in Canada there is a lack of toxic loans, we are just left with the unaffordable variable re-sets that the the banks haven't packaged up and sold off, who exactly are the bag holders in that situation do you think?

That's right, the banks. Its just TCDL spin from Royal Bank, they'll keep spinning until it's time to tell us to lock in - probably when rates hit 8-9%.

Since you were in San Diego or somewhere else in 1995, I wouldn't get too confident in your handl on the affordability or behaviour of the local market - I've lived through two crashes in Victoria - you're about to be introduced to your first.

Spin your stats when the herd changes direction it won't matter, the stampede will be unstoppable.

If you don't think a rise in interest rates of 1.5% will affect prices, then you obviously don't think prices bear any relation to interest rates.

Cause you and all those other Americans and rich Albertans all pay cash, right?

JMK said...

Hi VG,

They explain their methodology at the end of the report. 45% means that the median household would need to spend 45% of their gross salary for that bungalow.

JMK said...

Hi Greg,

Affordability was worse in 1994 and the percent rise of house prices during that runup was greater than the current one. By both measures it was a more overheated market. While it stopped rising then, there was no "stampeed".

greg said...

jmk -

well, the macro-economic situation in the world is far more unstable south of the border now than in 95, and rates are rising - which was not happening particularly in the mid 90s. I don't understand why you ares so fixated on what happened in 95, as opposed to 81-82. What happens next will almost certainly not be the same as what happened in 95.

Wages are stagnant, rates are going up and nominal prices are at an all-time high. The stats you use to show affordability is better now are almost certainly under-representing actual inflation. Hmmm, what else do I need to add?

Oh yeah, if things are so great, why has inventory been rising for more than two years?

BTW, not sure why you put stampede in quotes, but even though my posts are full of typos, "stampede" is the correct spelling.

vg said...

jmk,

so what is the median income then for Victoria ? the RBC report does not say it from my quick glance but if i get time at work today I will dig deeper. I was basing all my comments on the 10 articles or so I read on my lunch yesterday and didnt find access to that report til late last nite on mohicans blog.

As far your hand picked number system goes, you may be a mathemetician but the rest of us here are realists who have lived the bubbles and there is a big difference. Keep pushing your 1995's etc, it aint the real facts of history. Don;t forget house prices started to tank well before interest rates actually hit the 19-20% level in 81/82,very important detail. Why ? cause a majority of people saw the future cost of renewal and had to bail cause of "affordability" even at 15%-16%,just like 7%-8% is today,watch and learn and don't forget to do the math on that one. ;)

Anonymous said...

I honestly think it is going to happen sooner. It was overnight in the US.

Also interesting to note : I was at a dinner last night - investors, foreign exchange people. Anyway, they were saying that the Americans have stopped coming here (we know that) but also other Canadians i.e. Albertans are buying in Costa Rica. Their clients have told them that the climate in Victoria is "really not that great", homeless problems and you can no longer get a deal on waterfront. Interesting...

JMK said...

Hi Greg and VG

I'm looking at 95 as a comparison to now because it looks more like the current rise than 80/81. 80-81 was a very quick run up (much steeper than the last two) and a very quick drop. However, if you bought in 1979 and sold in 1982, you came out ahead - way ahead.

Certainly if interest rates go up, affordability will get worse and that may put a lid on the market or even depress it. Thats one of the reasons the BOC is raising the interest rates!

For there to be a crash, there will have to be either a lot of overextended people ho go bankrupt or a lot of speculators who dump at a loss. I've not seen evidence that Victoria is rife with either.

Sorry for mispelling "stampede" - I wasn't trying to indicate your spelling was incorrect, just that I didn't think such a thing very likely.

hhv said...

The 2003 number for average household income in Victoria is just over $56K according to the City of Vic website. That was 2003. If you factor in inflation, I'm willing to conceded that average incomes are closer to $70K. We've been basing all of our analysis on $72K, not because we make that (which we don't) but because it's an easy number to breakdown individually (6K/month) and generous to the average.

Whatever Muir writes, he likely has it better than the rest of us. But he is also skewing the market numbers based on 'real' money in terms of purchase power between '94 and now. I don't care what the CPI says, shit is more expensive now, and they have been de-listing food and energy for 5-6 years now from their calculations.

If I have $6K/month and my mortgage is $450K (assuming that I have $100K down on a $550K average house, which is less than 20%) then my monthly payment is $2880, which is 48% of my gross income. If I have any other debt, like student loans, cars etc, I can't make these payments and very few banks will give me the money.

Based on what we're seeing in this market, very few people are actually in this scenario. I can't find average mortgage amounts for Victoria, but anecdotal evidence I've received suggests that many people are only on the hook for about $300K as they've built equity elsewhere. Very few 1st timers are buying houses; they're in condos, and they're not in condos that much anymore. The 1st timers aren't buying to keep up with inventory. Our RE mkt is strong primarily because of the trade-up trade-downers.

hhv said...

thanks for the commentary gang, and for keeping it civil. we really enjoy reading it.

JMK said...

Hi HHV,

I don't care what the CPI says, shit is more expensive now, and they have been de-listing food and energy for 5-6 years now from their calculations.

I think there is some confusion about this. The BOC website has some explanations about the CPI indices. First, the base CPI is an artful thing, not a precise one. It has to change over time as our ideas of "necessities" change. If no one buys cod liver oil anymore, it is silly to keep it in the CPI. Conversely, if everyone needs a PC, the price of PCs should start to be included.

However, my understanding is that the base CPI includes food and energy. However, the BOC does not base policy decisions on this CPI, but rather the CPI minus energy and volatile seasonal foods. They do this because the full CPI is too noisy for long-term banking decisions to be made on.

I do not think it is the case that the CPI has changed radically in the last 5 or 6 years so that prices that you are paying at cash registers have gone up faster than the 2 or 3% of the last few years.

hhv said...

jmk,

i've read that BoC CPI info. i don't question their expertise in the slightest. that said, can you honestly say that electronics and clothing aside, inflation hasn't made life for you, personally, more expensive in the past 2-3 years more than 2-3%?

In the past 4 years, we've experienced a 95% increase in my education costs. we've had Ms. HHV's professional designation costs go up year over year by 20% or more. our food costs have gone up this year by over 15%. don't even get me started on gas... before katrina, $1/litre was unheard of... we'll never see >$1/litre because of the psychology of that mark again.

My point is that the factors that BoC uses for calculating CPI and basing their economic policy on are so macro, that they 'forget' our micro experiences... but we make our purchasing decisions on the micro level... when we do up the math on a house purchase, factor that into our current budget, and see what we have to give up (like our 10% pay-yourself-first RRSP, 10% savings on top of that, our other lifestyle-based purchases) it makes life as a homeowner in this market unattractive to us.

hhv said...

I should also mention that our rent has gone up 35% in the past 4 years too.

greg said...

jmk -

how can you honestly say prices are only going up 2-3% a year? That is nonsense.

JMK said...

Hi HHV,

Sorry, I can't comment on inflation in Victoria - I was living in San Diego a year ago. Cost of living seems much cheaper here, even w/o considering the dollar. Well, except for beer and wine. The same bottle of wine that sells for $22 here would be $6 in Trader Joes. $7.50 for a six pack of premium beer. Darn sin taxes...

OTOH, my family has been in Victoria since 1986. So I'm not completely out of touch with the town. Didn't see the 81 crash though.

Anonymous said...

Greg, your post at 11:07pm brought a tear to my eye it was so wonderfully written.

S2