Saturday, June 16, 2007

Much Ado About Nadda

Victoria legalizes what's always been there. Do you think this means either of these:
  1. Home prices continue to climb because now it's legal to have strangers live in your basement?
  2. Rents suddenly decrease because of a massive number of homeowners moving strangers into their basements?

I support the city doing this only because it means that (hopefully) renters living in crappy basement apartments will be more likely to complain about the crap they're living in without fear of being evicted from where they weren't legally supposed to be.

I can't imagine, in these market conditions, that there will be a sudden surge in house-lifting and suite additions. Contractors are busy. How busy? Booking 6 months to next-year-soonest busy. Old home renovations are costly, time-consuming jobs that are extremely hard to bid because you never know what you'll uncover when you start knocking out the plaster.

Most contractors I know through the family network won't touch jobs like these because they're seen as no-win. The customers want to do the job on the el cheapo and rarely agree to an open-billed arrangement that protects the contractor. Hence, the contractor picks and chooses other work; and in this market there is no shortage of safer, more lucrative work for contractors.

Sure would like to see other municipalities follow suit though. Heck, I'd like to see them amalgamate. But that's a whole other issue vaguely related to this blog.

40 comments:

Anonymous said...

I'm a first time buyer moving to Victoria this summer. Having rented my whole life at great expense in cities like Vancouver and Toronto, I'm feeling the need to jump into the housing market with my upcoming move. Can anyone out there offer advice about getting into the condo market in Victoria at this point? I'm looking at one bedroom units downtown (the Wave and the Astoria, to be exact). Is this a bad idea? I'd appreciate some advice from those of you who know the market.

hhv said...

I won't tell you what to do. Some think this market is ripe for a correction. I believe the condo market is competitive and is moving towards being a bit of a buyer's mkt. I've seen 1 bedrooms in the Wave sell for $250K; do you really want to spend $1400-$1500 in mortgage payments plus another $100-$200 in fees when you could rent the same for less than $1000/month?

There are a ton of units coming to downtown Victoria, this signals competition for the buyer and potential price reductions. Although I'm sure you'll find people who will tell you the opposite. Do your homework and don't just get your info from people who make a living selling real estate or related products. good luck

JMK said...

Hi Anon,

We basically were in the same boat as you and decided to buy.

I don't know that you'll find anything for rent in the Wave or the Astoria for $1000. (Though I admit the add for the Wave seems a little optimistic!).

If you've got 15% down, with the typical rent/price ratio of about 230, after five years you will be ahead buying over renting. That is with no assumptions about growth or declines in the housing or the equity markets, but including 1.5% tax and maintenance. After that you need to peer into a crystal ball.

There are a few new places coming online downtown. The Juliet is the cheapest, and that isn't very cheap I'm afraid. The other places seem high end - the Falls, Cherry Bank, Chelsea, Vincino...

A lot of these places are discussed extensively at vibrantvictoria.ca

As for the buildings, I think they are both well built. The Astoria has nicer finishings, whereas some of the finishings in the Wave seemed sloppy. But I think the Wave is better located - steps to the Market on Yates, London Drugs and many restaurants and bars. There seem to be some units in older buildings on the MLS that would be worth a look for price comaprison's sake, if nothing else.

JMK said...

One other quick comment. make sure you check for proposed building around both these buildings. There is a proposal to put a 14 story tower in the parking lot just west of The Wave and there is lots of building around the Astoria.

Anonymous said...

Thanks for the advice. Is the market in Victoria right now such that developers are accepting offers below asking price on new units? One bedroom condos downtown are looking awfully expensive...

I'm not interested in getting into the real estate market to make money, necessarily, but instead feel like converting my monthly rent payments into mortgage payments to build up some equity might be a good idea. My biggest concern, then, is that there will be a big drop in the value of a condo in downtown Victoria in the next few years, and when I go to sell I'll be at a loss. It's always a gamble, I guess.

Anonymous said...

Also, that add for the Wave is insane! $1850 for 600sq.ft.! I've seen something similar in the building posted for $1200 and even that seems a little steep.

JMK said...

I don't think developers like dropping their prices. OTOH, it can't hurt to try: they are developers and at least are not going to take personal offence.

I wouldn't buy if I was planning to move in less than 5 years, no matter what the market, let alone one that has been going up for five years like this one. Just the transaction fees and commisions make it really expensive. And you don't have the felxibility to wait out a downturn. We bought planning to stay where we are for 10 years, at least. It would be nice if the market kept going up and we could have the flexibility to sell anytime we wanted, but we don't anticipate that being a necessity.

We were renting 950 sqft downtown in a much older building for $1400/m. It rented in a week after we gave notice. Still you are right, $1200 for 600 sqft seems a little steep, even if it is a brand new building.

Anonymous said...

OK, good to know. I'm hoping to be in Victoria for a while, but if for some reason I have to leave (I'm in a business that might necessitate a move in a few years) I can always rent the place out. If the unit could be rented for, say, $1200, I could cover my costs and hold onto it. I've heard that the vacancy rate is pretty low in Victoria, so it isn't too hard to rent things out. Is that true?

JMK said...

Well, just to be careful here - when I say that you come out ahead at 15% down, I meant that you pay less in interest to the bank/taxes etc than you would to a landlord. But you'll be paying more per month in mortgage payements. Just some of that goes into principal, which you presumably get back. But if you move, be prepared to pay a few hundred a month to cover your rental property. You won't be losing money, but you'd better have the cashflow!

The vacancy rate is less than 1% in Victoria right now. See cmhc.ca.

vg said...

Why don't you guys just go to vibrantvictoria.ca and carry on this conversation there ? Makes more sense then boring us with your condo buying talk when we are 99% bears here unless that is your motive cause it's sounding just like all the pumper talk on that site.
I'm sure jmk has a few threads going on there for all the units he is selling and may even cut you a deal. ;)


Do you not find it funny that the media hasn't mentioned the word "crash" or even "correction" ? It's like watching a Canucks game and Luongo hasn't let in one goal and there's a minute left and if you say the word "shutout" you'll jinx Luongo and sure enough the odds are he'll let one in. Sounds to me like a paranoid media.

Anonymous said...

There is someone on another site I'm on just now talking about selling their house (not a condo mind you) because the rent just isn't covering all of the mortgage, repairs, taxes and is taking up a lot of their time.

They are pulling $600 to $700 out of their own pockets every month. Their tenants can't afford a rent increase so raising their rent isn't an option (not that it ever really was).

Could the tenants leave and they rent it out higher to someone else? Maybe. I wouldn't want to bet my financial future on a maybe. I think they should/will sell. We will see what they do.

S2

Anonymous said...

VG - I want to hear from the bears. I haven't decided to buy a condo yet, but am just curious what's going on in Victoria and how the people on this site are feeling about buying. I know that the tone of the site leans more toward waiting for the housing market to crash before buying, which is why I'm interested in the site. I'd like to hear the skeptical views on Victoria!

vg said...

Well anon,if your taking advice from jmk the lone pumper on here then you may be on the wrong site is all I am suggesting. he bought into this market so has a bias and loves to juggle numbers to suit his angle. The bears logic here is simple, don't buy for another year to 2 years when the prices have corrected 20% at least. There are cracks showing but we are a patient lot,if you want to get sucked in by jmk's indepth knowledge of all the condo projects then your setting yourself up for alot of pain. I am sure if you have read this blog for anything longer than today you will have seen our sentiment and disgust at the overvaluation of Victoria real estate.

vg said...

The Michael Campbell show this morning was interesting,Ozzie Jurrock left no doubt that the Vancouver market is insane instead of dancing around the issue. Michael Campbell stressed how there are alot of people out there living on margin and overextended credit and how this 1 point increase in the past month and a half is gonna hurt.
Also alot of talk on the bond market and how the easy credit money will be coming to an end soon,should see the stock markets take a hit in the fall as there has been no correction in 4 years and that is unheard of. I will be ready to short the market when that time comes,may be sooner than fall too. When that happens you can bet the real estate market will take a serious hit as alot of deals are based on stock portfolios and if their margin accounts get hit big. I saw this happen several times when the dot com bubble blew up,people who were about to build or in the process of starting to had to walk.

JMK said...

Hi Anonymous,

I believe my argument can be summed up as: make your decision based on your current finances and the price of what you think you can live in for a length of period to ride out any market. I didn't base my decision on any mythical gains or losses in the markets.

olives said...

Anonymous,
I am renting a 3-bedroom house near UVic, across from a park for $1,300 per month (just rented it last summer). The house is assessed for about $550,000. The prices are totally out of whack.

I believe that condos are being seriously overbuilt in Victoria. There are many now that are complete or near-complete that remain unsold.

Anonymous said...

yeah, i've been noticing just how many condo developments there are proposed for downtown. it looks like a serious number of units for a town of victoria's size.

JMK said...

Hi Olives,

If $1300 is your rent for the whole house (i.e. no tenants below), then that is an extremely good deal that you should hang onto.

The first thing on Craigslist that I could find that was even barely comparable was a 3BR townhouse for $1550: http://victoria.craigslist.org/apa/352748576.html The only SFHs I saw in the first 300 postings were well over $2000.

hhv said...

anon, can i suggest you give yourself a pseudonym, just to keep yourself straight if you plan on commenting here anything approximating frequently? helps us to keep who's who...

anyway, rent or buy really is about affordability and risk. If you can afford it and are willing to take a risk, go for it. If not, do your homework. It is cheaper to rent than buy a condo in this town by at least 30%. There are no condo developments with line-ups for sales.

Check out the archives for our experience at Tuscany Village: a 91 unit complex with just over 50 units sold, close to the university. Also for more market details check out Victoria's Truth in the blogroll, he's got great info.

We're not buying, and it isn't because we can't, it purely is because we believe we are close to the top of a significant run-up (we call it a bubble) that is due for a correction to bring it in line.

JMK has posted in comments that he believes we are 13% above historical norms. We think it's closer to 40%. We expect a 20% correction at minimum, but likely more towards 30% in the next 2-3 years (we hope anyway).

House Frau said...

My husband (he is the ex Bay Street analyst) thinks the correction will be sooner than 2-3 years. I am going to get him on this blog. He is probably more interesting than me.

vg said...

An article in the Province shows examples of people with 3 year mortgages who have to renew and it is a $350 difference. Tell me that is not a major blow to anyone making average wages.


If you have a $300,000 mortgage that's just expiring, expect a shock.

A three-year term available for 5.25 per cent in 2004 now has a posted rate of around 7.30, meaning the monthly principal and interest would jump from about $1,787 to $2,157 -- or more than $350.

"Still, the mortgage sky is not falling, according to B.C. Central Credit Union chief economist Helmut Pastrick.

"It's not a catastrophe, not a crisis," said Pastrick. "It may mean tightening the belt for some that are refinancing.

"For those entering the market, they may have to hold off or postpone that decision," he said."


Sure Helmut,imagine all those people who were just about to buy or were on the hunt and didn't get pre-approved. If you knock out say 30% of possible buyers then that will have a huge effect on sales and is just the amount you would need to start price reductions.



http://www.canada.com/theprovince/news/story.html?id=e18d9bff-2e84-485d-b333-17464b406bd1&k=21320

hhv said...

what is really telling is even with these rate hikes, we're still below the historical average of mortgage interest rates. If people are finding themselves either priced out, in the case of FTBs, or having to "tighten the belt" in case of those renewing, someone tell me how a substantial correction is not going to happen? I can't see it.

vg said...

hhv,
This is exactly what happened in 81. As the rates started climbing to 14% ,then 15% and prices were hitting the peak then reality set in and the inevitable happened and people aren't stupid,when they see the bus coming they get out of the way.

I have always said here that when this moment came,how many paper profit kings will sit there and say " I'm in it for the long run",not as many as the media/RE bizz wants you to think.

Will it happen at the same speed as 81 ? we shall see,but the wheels are in a similar motion and the reality of paying a major chunk out of your paycheck equivalent to your car payment on that nice lease car is a major wakeup call.

Imagine 1 % more by early 2008 as predicted as a given by RBC and we have some serious problems for those living on the edge. The media is just starting to ramp up the coverage,wait til the next hike and some signs the Vancouver market is seeing price reductions.Psychology 101.

vg said...

BTW, Happy Fathers Day to all you dads out there !

mac said...

(I'm formerly "Anonymous," the one who has the first post on this thread)

Are there a lot of people moving to Victoria these days? Who is buying all of these new condo developments that seem to be popping up everywhere? I was in Victoria last week and noticed that Esquimalt alone seems to have a ton of them. There also seems to be an insane amount of new developments proposed that haven't even broken ground yet. In this market, a condo is really all most FTBs can afford, but how many FTBs are there? If there is a crash (which I'm beginning to see is far more likely than not), what will happen to all of these units?

I know people in the BC interior, and the RE market there has been going nuts there too, though not to the extent of Van/Vic. That at least seems to make a little more sense because those cities (Kelowna, Vernon, Kamloops,...) are growing.

olives said...

Mac - there WERE a lot of American investors buying condos, but apparently that has really dropped off.

JMK,

Yes $1,300 is for the entire house. The landlord renovated the interior before we moved in. He owns numerous houses in town and they are all rented for reasonable prices.

We were previously renting a house near Hillside, a small 2-bedroom for $1,200.00, but in pretty good condition and on a quiet street.

Friends of mine rent a 2-bedroom with full basement in Esquimalt for $1,100.00. It is on a busy street, but its a pretty good house.

Another friend rents a 2-bedroom house in Strawberry Vale area for $950.00, about 1,000 square feet.

My point is that people asking $1,500 for suites in houses are being ridiculous - but I assume these are people who have purchased recently, have overpaid for properties. There are reasonably-priced rentals out there too.

hhv said...

mac,

the condo developments under construction in town are not targetted to FTBs. They're pitched to "downsizing boomers" who want luxury and don't mind paying $400K plus for units.

the only units that i think are targeted towards FTBs and "young, active professionals" are out in langford: a 20 minute drive on a good day, or 40 minutes plus in traffic.

vg said...

"the only units that i think are targeted towards FTBs and "young, active professionals" are out in langford: a 20 minute drive on a good day, or 40 minutes plus in traffic. "

And throw in one fender bender car accident at rush hour in Colwood and the traffic is backed up all the way half way down Burnside to Harriet and it's almost an hour and a half or more.Been caught in it twice the past few months trying go cross town to Interurban,what a gong show.

mac said...

I guess I'm just not willing to have to commute long distances in Victoria. Coming from living (and renting) in central Toronto for the last 7 years, I don't want to move somewhere smaller only to up my commuting time.

Houses in good neighbourhoods in Toronto, though on the expensive side, are actually affordable.

greg said...

Real estate in Toronto used to be more expensive than in Victoria - I knew some people who sold there and bought in Oak Bay - not happening now, I'm sure...

mac said...

Nope. I can find a nice semi-attached house in an area that I'd like to live in in Toronto for $350,000. That seems impossible in Victoria. Condos in Toronto are far more affordable, too. This seems odd when Toronto is obviously a much bigger city with many more employment/entertainment opportunities.

The flip side of that, though, is that I'd rather be living in Victoria. I might just be renting, but that's OK.

mac said...

Meant to write $300,000 there, not $350,000.

Po Boy said...

Small funny world!
Your comment on renos hit home as did the legalization move on suites.
I was just in Sidney at an open house and the realtor was saying the town of Sidney had moved to allow suites in all areas as long as off street parking could be provided. Also interesting was a comment on how much the market had changed since May ( to a buyers market).
As for the renos being a costly unpredictable affair, I have been working the last 6 months on renos in Oak Bay and Sidney and from what I have seen there must be hundreds of millions $$$ in deferred home repairs and trying to cobble together old and new is significantly more complicated than new construction.

Anonymous said...

Off topic.

hhv, could you do a post about why are there so many empty properties on the MLS?

I can't believe how many I look at that are empty or are staged to look not empty but very obviously are.

S2

vg said...

S2,

I noticed that too, seems like 30% are empty,if this relates to that much speculation we are in for a healthy correction.
I briefly saw an article somewhere yesterday about the high speculator factor in Florida and how it was a major factor in the down swing there, as we well know. Bascially said it was the big money that speculates most of the time and when they get out they get out fast to cut their losses,they won't hang on like the amatuer speculator. Will try to hunt for this one.

Aleks said...

"I'm not interested in getting into the real estate market to make money, necessarily, but instead feel like converting my monthly rent payments into mortgage payments to build up some equity might be a good idea."

I'm not looking to invest either, in the sense of becoming a landlord, but I do want to make a sound financial decision. Right now buying just doesn't make sense. If you fill in the numbers on a buy vs rent calculator for some of these places, you're looking at having to live there for 10 years before coming out ahead. And that assumes the house appreciates at a moderate rate. If there's a correction, you may never come out ahead.

The only gotcha with that is that you only come out ahead renting if you keep the money you're saving. If you just spend the $500-1000 difference between rent and your potential mortgage payment, you're not really saving at all.

greg said...

Of course, if you don't have the difference, then renting versus buying is academic.

In the case of many potential first time buyers, given the median incomes in the area, that has got to be the case.....

Anonymous said...

I swear if I have to listen to one more person say how well they are doing in real estate and how much money they have made and how not owning is just burning money I will smack my forehead again and I'm afraid if I keep doing that it will start bleeding.

S2

olives said...

S2 (aka Har-monee)

I get a kick out of the realtor who suggests to people that if they can't afford a house here they can by one in Port Alberni or in Lake Cowichan. How is that helpful???????

Aleks said...

"Of course, if you don't have the difference, then renting versus buying is academic."

Yeah, that's the flip side. A lot of first time buyers I know cram themselves into a tiny condo because "that's all they can afford." But it's only what they can afford to buy, for the same amount (including strata and property tax) they could probably rent a whole house.