Wednesday, September 5, 2007

We owe all bears an appology

No we didn't break down and buy a place. It's much worse than that. Apparently it is the complete and utter fault of Ms. HHV and I that this market is now balanced and has returned to historic price-to-income fundamentals.

We've heard a lot in our house hunt journey, but I think we can officially say we've now heard it all. You see with entry level homes at around $400K and our annual income approaching close to 25% of that (believe me, there's no "hey look at how great we are" in that statement) we can now buy an entry level home at the historical norm of 4 times annual earnings. And if we can do it, anyone can. No sh&t! That's what I was told. No correction looming because you FTBs can buy again with confidence that your "investment" has no where to go but up.

What a crock. This nameless/shameless person went to great lengths to "explain" how wrong we are to hold firm to our belief that this market is beginning to correct even as I write this.

"Don't say I didn't warn you, but you'll be sorry you didn't buy now while you could, because pretty soon you'll be priced out forever."

I'm getting pretty good at not getting baited into the trap anymore. After this individual finished berating me for my "silliness" I simply walked over to his laptop and showed him this graph. (H/T Mohican) Then I said:

"We don't make an average income. We make an above average income. We won't buy an average house. Because we can't. But we can buy a neglected dump "with good bones" and with a dumpy "mortgage helper." For too much. But we won't. Because, well, how can I say this politely? We won't pay too much for a crap house in a crap neighbourhood because history has always shown that people who do buy at the market peak, end up needing to live there longer than they ever wanted to while waiting to just break even again."

The rest of the conversation went like this:
"it's not the peak."
"yes it is."
"no, it's not"
"is so"
"uh uh"


greg said...

Thanks for the laugh, hhv -

I had a somewhat similar conversation with a friend on the weekend, but it was much more good natured.

It was easy for him to advise me to buy - his house has appreciated 100% in the four years since he took the plunge. Arguments about the local market reaching a peak were rebuffed with the standard, well, this is a prime area a lot of people will be moving here argument.

His advice: get in the market and buy a townhouse while you can.

I scrawled down the url for my site and handed it to him - hopefully he will click some of the links and take a look at your site and a few others - Mohican's would be especially appropriate, seeing as he is located out in the Fraser Valley.

Anyway, personally I suspect all the bears will be feeling a lot better when the fall sales numbers fall off a cliff.

All those pre-approvals got used up, you know.


vg said...

You gotta lay off on that house hunting HHV,lol. I can't stand being within 20 feet of an agent walking by the mall kiosks. I'm almost afraid of what I may say if I am approached by one so I don't even stop to look. :)

4 times earnings of course is doable, just like 19 percent mortgages was doable in 1981 too but both are/were a real stretch if you want to have a life as in save for investing,have a decent car and be able to actually fix it the house or reno it. It's doable but its not reality,thats what these "new age" RE agents don't get or don't want to admit,I figger the latter.

As Michael Levy said in that article,no area of the Canadian real estate market will escape unscathed and the fastest rising areas will suffer first.

Anonymous said...

Great laugh hhv.

At 4 times the earnings you may be able to afford children now.

Better buy that house now so you can give it to them later as an investment property which will secure their financial future.

That is the crock that I'm hearing.

Please tell me again that this is the start of the correction. That September numbers will fall off the chart. I really need to hear this again right now. Thanks :)



vg said...

on second thought are you sure you weren't having lunch with JMK ? ;)

hhv said...

Not jmk, and not a realtor either...

vg said...

Mortgages are great

Home ownership is a wonderful thing and all, but sometimes it makes sense just to rent.

A lot of what's gone on in the mortgage market in recent years has been about helping people buy homes in a market where prices have soared. The underlying assumption is that there's always a way to make homes attainable, when in fact this just isn't true.

If you find that discouraging, just look to the U.S. housing market. Sales there are falling, and you know what that does to prices and affordability.

Village said...

Sales falling is good for both prices and afford ability. Less you pay on housing, the more you can dedicate to eating out, fancy cars and other consumption habits. Or so you would think. Psychology tends to lock peoples wallets shut as they perceive a loss of money.

As you move up the income scale, buy at X times income doesn't properly scale. You basic costs food/energy/cable is more or less the same no matter what you make. Not that it isn't a good rule of thumb to start with.

Buy at 5x income and a 40yr mortgage. ;)

Anyone know if there's a nice easy place online to find foreclosed properties in Victoria? Or is it still hot enough there aren't any.

olives said...

Whether prices decline this month or next year I refuse to own and live in a crappy dump with a "mortgage helper".

Anonymous said...

I hear ya sister. :)

If I HAVE to have tenants and be a landlord to live in a house than I can't afford the house period.


vg said...

Here's a good quote today to be saved for the Crash Files:

"Too many homes and not enough buyers is basically what's
happening right now. There may be buyers out there, but they can't obtain a mortgage.

- David Lereah, ex-chief economist of the NAR finally admits the housing boom is over

vg said...

House prices plunge $20,000
Red-hot market chills in August

Published: Thursday, September 06, 2007

Calgary's resale housing market, which has set a scorching pace for the past two years, has dramatically cooled, with the average price for single-family homes plunging by about $20,000 in August, according to a local realtor.

The average sale price dropped primarily because of a decline in the sales of luxury homes, those over a million dollars.

According to preliminary figures from Calgary realtor Bob Truman, of First Place Realty, the average sale price of a single-family home in August was $485,566 -- down from the record high of $505,920 set in July.

House for sale
Herald Archive

Email to a friend

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Font: ****The median price dropped in August to $430,000 from $435,000 in July. It was $439,000 in June.

Truman said Wednesday that the average sale price in August was affected by the number of sales in the million-dollar-plus category.

Anonymous said...

Do have a question? People have said the market peaked three years ago...

So when the realtor said no it isn't at that time or for the last three years who was right and who was wrong?

Anonymous said...

Thats not quite fair, it's a given that a realtor will always say "no" to the peak question - what else are they going to say? That the market is going to fall and the house you are looking at will be worth 20% less in a year or two? At best you might get a "it's temporarily leveling off" out of an agent but nothing more.

It's much harder to predict the decline, but don't worry it's coming - the laws of economics can not be broken.

Anonymous said...

I think one of the key points you make, hhv, is that too many people have succumbed to buying in neighbourhoods/situations (too much money or require a mortgage helper or not enough room) that they will not like down the road.

Perhaps it's tolerable when you think it's temporary cos' you're just going to trade up, but it certainly won't be when the options run out.

My feeling is that in Vancouver and Victoria there is going to be a huge hangover effect of this bubble, namely, happiness and quality of living depreciation.

hhv said...

One of the most ignorant things we hear in our hunt is that dirty neighbourhoods will somehow get clean when people buy in and fix up the homes. Funny how that hasn't happened on Chatham, Swift, Fort, Pandora, Johnson, Dallas etc...

vg said...

Look at Fernwood as an example as well,they have been trying to clean up the neighborhoods and image there for more than 20 years without a whole lot of success.
As much as many of houses have been updated and some quite nicely, it is still not an area of town I would buy in. Still has that bad vibe/edge to it that doesnt give us a warm fuzzy feeling when we go for walks in the area.

Anonymous said...

Unfortunately for most young renters in Victoria there are always the problems of identifying and estimating the number of potential consumers and timing. As a resident of Alberta, I continue to be surprised by the number of people I encounter who have bought or plan to buy in the Victoria area, and the number who have bought or plan to buy in Comox--and my circle is not that large.. There is a lot of money here and a lot of it is not directly driven by the energy boom: professionals, small business owners, dinks, academics, and in general those who chose(?) their parents or spouses wisely. Most of these are boomers who will retire over the next few years.

It is extremely difficult to accurately estimate how many will actually move to Victoria. Consequently, given the land constraints in Victoria, it is not inconceivable that upward pressures on real estate values might continue over the next several years. It is even arguable that if prices start to level off--which I think they have--that some buyers may enter believing--wrongly-- that this is their last chance. I know this is not a welcomed scenario, but it is one that should not be totally discounted.

The problem with looking to earlier periods for guidance is that we have not had this large buldge of retiring boomers or a group with the likely inheritances that these boomers as a group seem to look forward too.

There are at least three possible brakes I can envision on this process: one, much of home equity in Alberta may be eroded by a collapse of the energy industry which could occur for number of reasons; two, the health care system may become so overloaded in BC due to the aging population that it will become less attractive than Alberta to the soon be in bed and/or dead; three, the growth of Calgary and its more cosmopolitan nature--believe it or not--as well as its increasingly temperate winters--note daily temperatures in winter are regularly 6 to 8 degrees centigrade above Edmonton.

I have never been able to find reliable data on the percentage of housebuyers in Victoria who are from BC versus the rest of Canada or elsewhere.

greg said...

anon at 11:27:


nice pump job.

hhv said...

"I have never been able to find reliable data on the percentage of housebuyers in Victoria who are from BC versus the rest of Canada or elsewhere."

Nor are you likely to. The whole people from out of town are driving up local prices thing is a myth. The actual percentage of people coming here and buying is very low. That is why you don't see it anywhere. VREB knows it and don't pump it. That says everything.

Anonymous said...

For the Capital area (excluding the Saanich Penisula and Western Communities):

For the 90 day period ending July 31, 2007.

936 homes were listed for sale.
of those 936 homes, 674 of these homes sold in that same period. For a sales to listing ratio of .72 which is indicative of a strong sellers market.

Of those 674 sales; 546 sold to people from Victoria (85.5%)

620 sold to people from BC (92%)

26 sold to Albertans (3.9%)

You can guess my source and I'm posting anonymously as I don't want to get ratted out.

Anonymous said...

Thanks--A couple days late--These numbers are consistent with views expressed to me a couple years ago--but not verified. I did not believe them then, but I will take your word for it now. This really leaves me mystified by the price inflation in Victoria. There must be an awful lot of people over their eyeballs in debt, renting every room in the house, purely speculating, and/or drawing heavily at the Bank of Mom and Pop. ps: I am just an Albertan thinking of joining the 3%. anon at 11:27