Saturday, July 28, 2007

Thanks Jack! for telling it like it is

After a story about the most expensive home in town, comes an article about the cheapest house in Victoria. Do you think the editors at the TC came across my little rant from two days ago? Not likely, but never-the-less, good ol' Jack Knox wrote a reasoned article about the perils of astronomical housing prices in Victoria. We say, good on ya Jack.

Here's some notable highlights:

Here it is: Two bedrooms. One bathroom. Built in 1931. Just 836 square feet. Railway tracks out back. At $325,000, the Esquimalt rancher is the cheapest single-family house listed on MLS in Greater Victoria.

"It's a cute house, but it's very small," says real estate agent Deanna Noyce of the property at 1255 Colville Rd. "It's perfect for a first-time buyer." Yikes! Imagine being a first-time buyer in today's climate... $325,000 to get your foot in the door? That's more like a nightmare. How, when you compare Victoria house prices to incomes, is this sustainable?

People back home in Ontario thought she and her partner were nuts to pay $200,000 for it three years ago, but from a Victoria perspective it was a bargain, particularly when compared to what was then the lowest-priced house, a bug-infested $196,000 fixer-upper with no plumbing and a caved-in roof held up by sticks.

In 1985, the average price of a single-family Victoria home was $93,865, or less than twice the average Victoria family income of $51,000.

By 1995, the average home had risen to $242,012, or five times the average family income, which had dipped to $47,600, according to Statistics Canada.

By 2005, the same house cost $463,399, more than seven times the $64,100 earned by the same family.

In June of this year, that house sold for $573,415. The income stats aren't yet available, but assuming a five per cent salary increase in the past two years, the house-to-income ratio would be 81/2 to one.

Thanks Jack! for making people read about the fundamentals again. Emphasis is mine. I can't think of a better way to thank Jack, apart from a letter to the editor, than a donation to his fundraising effort for Cops for Cancer Tour de Rock.

23 comments:

JMK said...

Unfortunately it appears that Jack has screwed up and reported income in real (inflation adjusted) dollars and house prices in nominal dollars.

hhv said...

Does it really matter? Do the math and show us how adjusted for inflation, the numbers come out significantly different.

JMK said...

Sure - if the $51k in 1985 was adjusted to 2007 dollars, then the nominal income was $28k, and an SFH cost more than three times earnings. This was the lowest real house prices in the last 30 years.

In 1995, the last market (nominal) low, the ratio was 5 times earnings.

So, yes, houses are getting more expensive. But its a long-term trend. Thats why more folks are moving into condos and townhomes.

hhv said...

This is where I think that your analysis is lacking: I don't think you can adjust numbers backwards, you have to adjust them forwards.

In other words, we know that the real value of homes is market value today. So let's agree that the home value numbers don't need to be adjusted at all; they are what they are.

Incomes though do need to be adjusted: say $51K in 1985 is like $28K in today's dollars in terms of what you can buy with them. If that's the case then isn't the picture even worse, and not better?

I'm not an economist by any stretch of the imagination. But I've only read adjusted numbers going forwards, not backwards. As always, I'm open to being corrected.

JMK said...

Sorry, I wasn't very clear. When Jack reports $51k for the median income in 1985, he is reporting that in 2007 dollars. Which means that in 1985 dollars the median income was $28k.

I'm not sure what you mean about adjusting numbers forward or backwards. You can adjust in either direction.

hhv said...

jmk,

"Sorry, I wasn't very clear. When Jack reports $51k for the median income in 1985, he is reporting that in 2007 dollars. Which means that in 1985 dollars the median income was $28k."

How can you say this? Where is it confirmed that Jack is reporting 1985 figures in 2007 dollars? Does stats can automatically report historical income in terms of today's dollars?

JMK said...

HHV,

Common sense tells me that he is. There is no way that the purchasing power of families in Victoria has dropped by 45% in the last 22 years, which is how much the CPI has increased since 1985.

hhv said...

jmk,

It may not be 45%... but it is considerable. It wasn't abnormal to have stay at home parents in the 80s. It is very abnormal for a family to afford that now beyond the one-year you get with EI maternity.

I doubt very much if your common sense assumption is correct.

JMK said...

From CanSim, table 202-0401

Distribution of total income, by economic family type, 2005 constant dollars, annual, 1980 to 2005:

Victoria, British Columbia [59935] Economic families, two persons or more Median income (dollars)

1980 63300
1985 55700
1990 63400
1995 60800
2000 62600
2005 65700

The median family income has only fluctuated by a few percent in real dollars. Just for reference, $63,300 in 2005 dollars = $23,569 in 1980 dollars.

Anonymous said...

We moved here 5 years ago. Fed up with Toronto, everyone always talking about money, money, money. House prices soaring. Private school fees soaring. etc. etc. We thought Victoria would be a great place to bring up a family. My husband's team in New York was killed in 9/11 and Bay Street just depressed him.

Well, we need a larger house - can't find one that we can afford (and we have a great budget). School fees keep going up and up and up. The cars on the school parking lot have changed in 5 years. Now we see porches, hummers etc. The people are different. Many don't need to work. The head of the school has a vision and many of the families have to take their kids out.

Victoria can go 2 ways. It can go back to what it was. A nice place to live. Lets forget paradise etc. it is what it is and was a "nice place to live". You had students, young people, retirees and families.

or it can continue the way it is going (this is what my RE agent is hoping will happen). It will turn into a rich retirement city. Families will leave, young people will leave. The people left will work for tourism, government and cater to the wealthy. Coffee shops will be filled with wealthy baby boomers passing their days away (already starting). More and more condos will be built and younger or less affluent people will be forced out of Victoria.

It will become a Canadian Monte Carlo without the weather and tax breaks.

I loved the hippies in Salt Spring (we lived there for 2 months 5 years ago). They are all gone now. It is very different.

Anonymous said...

We have a good budget. Over a million. (we are not a young couple we are in our 40s, have young children, been in the market 20 years. My parents died a few years ago, I am an only child and I inherited money. ( I would rather be 30 again and have my parents )

We cannot find a nice house for our large family. We saw one house 1.3 million (rat sht in the basement) at least 500,000 worth of work. Saw another house in the Uplands - faux wood wall paper, not touched in early 70s, bad smell, small, crappy lot. $1.1 million. House had to be totaled.

$1 million Fairfield. Neat House. No backyard (where do the kids play) No driveway. No front yard. Busy street.

We just can't find a house in Victoria. This is not normal.

hhv said...

Thanks for the references jmk, I'll accept that point then as truth... cheers.

JMK said...

Victoria can go 2 ways. It can go back to what it was. A nice place to live. Lets forget paradise etc. it is what it is and was a "nice place to live". You had students, young people, retirees and families.

or it can continue the way it is going (this is what my RE agent is hoping will happen). It will turn into a rich retirement city. Families will leave, young people will leave.


I think it can go a third way - it can densify. Families can learn to live w/o their large yards as they do in larger cities. Of course the rich will still be able to afford large home and yards for a while yet, but the rest of us will move more and more into multi-family dwellings. Which I don't see as a bad thing at all...

HouseHuntVictoria said...

jmk,

i agree that multi-family structures, which i see as townhomes, not necessarily condos, are a good thing... too bad nothing like that is being built for families here. Any new townhouses i see are pitched as luxury and geared towards people willing to spend $600K plus on them... as long as you can get a shoe box in langford witha suite for $425K new, this town will continue to build out and maintain the myth of SFH... 5 feet seperating lots, I say connect the damn things and get on with it.

HouseHuntVictoria said...

jmk,

ok, I'm trying to rack my head around this: i'd like to do up some revised calculations using the numbers you're providing against those of Jack! and post them for further discussion.

How does "if the $51k in 1985 was adjusted to 2007 dollars, then the nominal income was $28k"
get calculated? What are you averaging out inflation to? That 45% you referenced earlier?

You can see my grade 9 math skills aren't so sharp anymore...

JMK said...

Hi HHV,

Something that cost $1 today cost $1/(1+CPI) last year. So if the CPI was 2%, then last year the article cost 1/(1.02)=0.980. You need to do this for each year back you go. i.e. if the 2005 CPI was 1.5% then something that costs $1 today cost 1/(1.02)/1.015=0.966.

I had the CPI going back to 1978 so I calculated the difference as above and then figured out the percent change (28k is 45% less than 51k: 28 = 51*(1-0.45) ).

Anonymous said...

Still 1.3 million should get you a decent house. Not expecting a mansion. A nice house without rodent droppings.

House Frau said...

Victoria is not a large city. It is a small city. That is why people move here. It is easy to get from a to b. They want to breath. They don't want traffic.

In downtown Toronto you can get a yard - not huge but enough for kids to play, have friends over etc. You of course of gridlock etc. but you still get some space - and this is central Toronto.

Victoria will probably loose its character and appeal if everyone starts living on top of each other or squished beside each other. Look at the traffic outside of Victoria now.

It is not fun.

Anonymous said...

There is a good article in the Economist July 14th issue on the global credit bubble.

The lst liine, Richard Bernstein, a Merrill Lynch strategist says excessive lending has been fueling growth in the financial markets in recen years. But he fears that now liquidity is drying up. That means no cushion when the punch lands.

Anonymous said...

Did anyone else see Jock Finlayson (BC Business Council) on Voice of BC ? He suggested that one of the major problems facing the provincial government's massive recruitment campaign is that "young recruits" don't want to live in Victoria. His solution (and lest we forget that Campbell is ignores the business council at his peril): start shipping the policy jobs over to Vancouver.

Imagine what would happen. The "good" government jobs (in the $45,000 to $58,000 range) pack up and leave, not to mention the managerial positions. All of a sudden, Victoria will lose the newlywed part of the equation!

Aleks said...

"Still 1.3 million should get you a decent house. Not expecting a mansion. A nice house without rodent droppings."

I don't know what you're looking at, you can get a nice house without rodent droppings for a lot less than a million. Hell, I looked at a renovated waterfront house on Portage Inlet that was asking less than $900,000. Still ridiculously expensive and a stupid time to buy, but if you really want to spend a million dollars on a nice house to raise a family, there are dozens out there, maybe even hundreds.

Anonymous said...

I agree with jmk, things have changed. Not everyone is going to have a private yard and a SFH. Look at the rest of the world, no matter what, we have it very, very well here.
When I'm looking at property, I try to imagine what I'd think of it if I was in Hong Kong, Manhatten......it makes me feel fine about it...LOL

greg said...

jmk=vv