Predictions

Happy holidays everyone.

2008 has proven to be a year chock-full of surprises. We've seen the average single family home lose almost $100,000 in value. We've seen listings skyrocket and sales plummet. We've seen panic from within the real estate industry. We've seen the MSM go from head cheerleader to pallbearer to cheerleader to confused. We've seen "real estate industry experts" continue to demonstrate their inability to accurately predict "what time the 3 o'clock ferry to Vancouver will leave."

And we've seen the MSM tell us the "bloggers got it right" but not before Re/Max confirmed BC bear blogger's numbers with their own admissions.

So what could possibly occur in 2009?

Dear readers, I'll give you my predictions and I'll ask for yours in comments.

Spring 2009 is the turning point. One thing will definitely happen: listing will jump drastically, hitting all time highs in March/April, probably nearing 6000 total units. I expect to see a slight rise in sales volumes in March/April, not reaching spring 2007 levels, but somewhere in the neighbourhood of 450-500 units. January and February will look like Oct/Nov 08 and see drops in prices as a result.

As far as prices go, I expect to see a leveling-off of price declines (the proverbial dead cat bounce) over the same stretch, prior to a 2008-like plunge that will see month-over-month average changes in the negative 2%-2.5%, totalling up to somewhere in the neighbourhood of 18%-24% total annual decline.

I expect to see a total drop in average sales prices from the April 2008 peak nearing 30% by the end of 2009. That will mean a house that sold for $625K in April 2008 will be selling for around $440K next December. Something to look forward to bears: those crappy, neglected, homes with suites in neighbourhoods you'd rather not live in that are currently sitting on the market for around $425K, they'll be sitting on the market at the end of 2009 for somewhere around $300K.

Remember people, my predictions are worth exactly what you paid for them.

Canada's sub-prime

Interesting analysis in the G&M today regarding low-down extended amortization products. Here's some low-lights:

In the first half of this year [2008], as the subprime mortgage crisis was exploding in the United States, a contagion of U.S.-style lending practices quietly crossed the border and infected Canada's previously prudent mortgage regime.

New mortgage borrowers signed up for an estimated $56-billion of risky 40-year mortgages, more than half of the total new mortgages approved by banks, trust companies and other lenders during that time, according to banking and insurance sources. Those sources estimated that 10 per cent of the mortgages, worth about $10-billion, were taken out with no money down.

Virtually unavailable in Canada two years ago, high-risk mortgages proliferated in 2007 and early 2008 and must now be shouldered by thousands of consumers at a time when the economy is sinking quickly and real-estate prices are swooning. Long-term mortgages – designed to help newcomers get into the housing market sooner – are the most expensive in terms of interest costs, and least flexible when mortgage-holders cannot meet their payments and need extensions.

The Bank of Canada this week warned that the perilous economy could lead to a doubling of so-called “vulnerable households” – those unable to meet their debts – and perhaps cost thousands of Canadians their homes. The central bank, which is always cautious with its words, said in a report that there is the potential for “a substantial increase in default rates on household debt.”

Banking and insurance officials were so concerned about the alarming rush to 40-year mortgages at the beginning of 2008 that one bank executive warned the Bank of Canada's chief financial stability officer, Mark Zelmer, in a meeting that “the government has got to put an end to this.”

Critics, including former Bank of Canada governor David Dodge, say the lax mortgage policies only further stoked soaring house prices.

I remember those days very clearly. I was shocked to learn we could stretch our mortgage payments out to 35 years. I was equally awed when we next learned we no longer needed a minimum 10% down. Imagine my response when we were told we could put 5% down, extend the amortization out over 40 years and even qualify for a 7% cashback option that would give us our downpayment and closing costs; it was almost as heart attack-inducing as when I learned we could skip the cashback and put nothing down, thus "saving" ourselves an interest "penalty."

I wrote about this last September. I even did a radio show on CBC last summer when this was considered a new and innovative market designed to "help" people like me. I called the 0 down 40 year products a "life sentence to the poor house." I'd like to re-name the now defunct products and their still-proliferating brothers and sisters--5% down 35 year amortizations and the cashback options--to something more indicative of what more and more experts are starting to recognize them for: "a quick trip to foreclosure."

So much for Canadian consumers being different.

A typically slow time of year

is even slower than typical. No sales in my filtered PCS in December.

The last SFH with suite potential in the Saaniches, Colwood, Langford, Esquimalt and Victoria sold on November 18. It sold for $60K under its new asking price ($665K) once the adjoining lot was added to the property (original price $415K).

The last two-bed condo in the same areas sold for $50K under asking price on November 24.

I was walking through the electronics department of the Bay the other day. The salesman said to me, "even if it doesn't have a sale sign on it, it's on sale. Every TV."

"How much I replied?"

"Oh, give or take 25%" he replied. "Depends on the model. You interested in anything specific?"

"Not yet. Your prices are competitive. I think I will wait until they are compelling."

HHV to MSM: yer turn, I think they're hearing it

H/T to Anon for graphics (please don't make me H/T anon anymore people, I like to give credit where credit is due)

Real estate forecast grim. When I started this blog, I never, and I mean never, imagined I'd read an article with a title like that in the TC. One choice tidbit:

Greater Victoria will lead the country in real estate declines next year as both average price and the number of sales tumble

Re/Max, without using the words, have stated very clearly, that Victoria real estate is the most over valued in the country.

What I find most telling about this article is that Re/Max states that despite the fact that our economic drivers are more insulated from the overall market our home prices will fall further. I question the insulated lines, but here it really is irrelevant.

Forgive me for feeling a deep sense of vindication today. Victoria real estate bloggers and regular market watchers and commentators, you've been confirmed by Re/Max today.

November numbers

Cautious Buyers Lead to Decline in November Sales

December 1, 2008

The number of property sales throughout Greater Victoria declined in November as buyers remained cautious due to concerns over the economy and direction of the market.

A total of 268 homes and other properties sold in November through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®) down from the 316 sales in October. There were 623 sales in November of last year. November’s sales were the lowest monthly sales since December, 1999. The number of properties available for sale at the end of November was 4,459. That represents a 40 per cent increase compared to November of last year but a further decline from the 4,680 properties available for sale at the end of October.

Victoria Real Estate Board President, Tony Joe, says it’s clear the uncertain economic climate is having an effect on the housing market. "More people are taking a ‘wait and see’ approach and are less inclined to buy or sell unless they have to given all the uncertainty we hear about almost every day. Despite this, so far there has only been a modest effect on prices for single family homes and townhomes." Joe noted that the average price of single family homes in Greater Victoria last month was $524,128, down from $565,741 in October; the six-month average was $562,772 though the median price in November at $500,000 was up slightly from $495,000 in October.

Condominium prices were most affected last month. The overall average price for condominiums was $273,890 last month, posting a significant decline from $323,028 in October. The average for the last six months was $308,133. The median price for condominiums in November was $258,450. The average price of all townhomes sold last month was $447,370 up from $389,731 in October due in large part to two sales, one in Victoria for over $775,000 and one in Sidney for over $950,000. The six month average was $425,086 while the median price in November was substantially lower at $372,250.

MLS® sales last month included 153 single family homes, 77 condominiums, 20 townhomes and seven manufactured homes.

Thank you Tony, your credibility went up from last month's lows, at least in my eyes. Overall, these numbers are not great for impatient bears, nor are they great for the "this time it's different crowd." More of the same from last month really.

Highlights not shared: April 2008 average SFH price was $626K, this month $524K, an approximately 17% decline.

Tony to Bob: yer turn, I think they're hearing it

Just maybe not buying it yet, me thinks...


Some "mythical" highlights, courtesy of Bob; and some debunking, courtesy of me:

• BC's housing starts hit 39,000 units in 2007, significantly higher than our 20 year average of 30,000.
  

Too bad our rate of in-migration is unchanged at just under 1% per year and that in 2008, sales plummeted to a ten-year low: must suck to be a builder with units to sell right now, especially when you are overbuilding by almost 30%.

• Home ownership in BC is high at 70%

Which means there are no first time buyers left to get into this market: must suck to be a first time owner trying to unload that crack shack/lottery ticket you thought was a "sure thing" last year.

• BC has the lowest rate of mortgages in arrears in Canada, which already has a historically low rate. This is much different than circumstances in the US.
  

But not unlike the US, the debt servicing ratio is at an all-time high in BC right now; in plain language, that means more BC'ers owe more on their homes as a percentage of both their incomes and the current market value of their homes. This is a ratio that will increase, not decrease, as the market value of BC'ers homes falls leading to a higher rate of underwater homeowners, mortgages in arrears, and inevitably defaults.

Bob, your message then turns to utter bullsh$t: can someone please tell me when prices are falling at an annualized rate of 26%, how this can lead to "More potential for increased equity in the home." Bob, do you really think BC'ers are that stupid?

Now Bob, just to be fair, I do like your use of Warren Buffet's quote. Too bad it has nothing to do with real estate markets, nor is it well-timed because Warren himself always chooses to wait until everyone is "fearful" before he starts getting "greedy." He also uses easy to understand ratios of value to pick his buying opportunities: like price to earnings, or in the the land of real estate, price to rents. Considering I can rent a luxury condo or SFH in this town for less than 60% of its ownership costs, I think Warren would advise me to put the safety back on my buying gun for the time being. Clearly, you and the people you represent, and the people who sell on your behalf, are still in the "greedy" stage--though I can smell your fear starting to get stronger.

Bob, I give you an "C+" for effort, at least you got the TC to agree to run your ad without having to clearly disclose it is an advertisement.

I've purposely left a few choice garbage bombs for reader comments... have at 'er.

Hanging ten on the boomer wave

I've been looking a lot lately at demographic stats in an effort to understand future trends. I take issue when people tell me that because real estate has "doubled every ten years" over the past while in Victoria, that it will continue to do so in the future. I ask these people why? They say, because it has. I say, you need to understand why it has in the past in order to predict what it will do in the future.

Apparently I'm not the only one subscribing to the theory that the past 30 years have been an anomoly in real estate valuation cycles. Two academics in California published a paper early this year that made some news, and created some waves.

78 million Boomers are about to enter the years when people tend to become sellers rather than buyers. And as a result, they expect "many more homes (will be) available for sale than there are buyers for them."

"The Baby Boom generation was born over a period of 18 years, and once its sell-off commences, it could dominate the housing market for up to two decades," they say.

This theory is known as an age wave in economic circles. We can't argue that this won't happen. What is up for discussion is how it will impact local real estate price trends and whether or not current immigration/migration rates will replace the demand the boomers represent and the supply boomers will create.

My own thoughts, at least at this point, are they won't. I don't see a bright, expansionary future for real estate here in Victoria. I see a return to the pre-1970s eras of logical, sustainable, inflation-equaling growth (albeit cyclical); but only after we see a correction that will at least equal the one--as far as total percentage (maybe not rate of decent)--of 1982.

To me, my house, when I buy it will be a hedge against inflation, not a retirement plan in and of itself. Which is all a house should be. If you want to get rich in real estate under those conditions, you'll have to return to cash flow positive real estate investing, which means having a downpayment and a rent that exceeds your carrying costs by at least 10%.

What do you think?

coming soon

to a homeowner near you. (H/T to S2 for the link)

Putting credibility on the line

You have to admire the attempts, really. It takes a lot of guts in a time when a growing majority of people hold a contrarian viewpoint, to put not only your personal but your professional credibility on the line. I know, when I started this blog I was confronted with the age-old bear blogger dilemma, anonymity or permanently risk personal and professional reputation?

Because I make absolutely nothing from this blog, and at the time I started it I was finishing school, seeking work in the google-age and the generally accepted belief was real estate can only go up you're crazy for thinking differently, I chose anonymity (since I have done CBC radio using my real name while referencing this blog and I'm almost positive that Tony Joe knows who I am).

Last week, we had this advertisement in the disguise of an op-ed, newspeak for opinion based editorial. It was a good attempt, and while it may give Dallas Chapple better name recognition, her factless opinions serve, in the opinion of not only HHV, but the vast majority of the commenters on the TC piece, to undermine her professional credibility. I suspect, in the longterm, this will prove not to be good for business.

This week (H/T to anonymous commentor in previous post) we have this advertisement, which despite it's professional communications release look and feel, states advertisement right on it. Perhaps the TC learned something from its experience with the comments last week and decided Tony would have to pay for his advertorial this week.

Throughout my life, I've tried to maintain composure in trying times. These are trying times. BC home sales are plummeting. Canada-wide, the real estate market is slumping faster than anytime in the past 26 years (as far back as 1982, one of the biggest housing crashes in Canadian history). I understand how hard it is for the local real estate industry players to maintain composure.

They have been drinking from the kool aid fountain so long, they actually believe the MSM is giving them an unfair shake right now. They believe this so much, they are now paying to correct the "misperceptions" the TC is "creating."

I have no doubt that Tony Joe and Dallas Chapple are ranked high amongst their peers for their ability to sell high priced homes, or volume, or both. But one's ability to sell a product does not make one a product market expert. And we are seeing evidence in their statements:

"Victoria continues to be a destination of choice with a diversified and strong economy... Given that our population is growing by thousands of people each year at a time when we have the lowest vacancy rate..."

Tony, you are right. What you fail to tell people is that these are not new factors, and had little to do with upwards price pressure to begin with. Throughout the last two decades, Victoria has had consistent population growth of just under 1% per year. This hasn't changed. The last census showed no increased rate of growth over the previous census.

The vacancy rate is a misleading statistic as it does not account for all of the new rental properties created in this past building boom as there have been few new institutional rentals added, however, I can tell you there has been an epidemic of secondary suite construction and substantial speculative buying, which led to new rental products not counted by CMHC.

Tony, you tell us that median prices haven't changed, even when you average out the the yearly growth, which is a marked difference from how you've reported VREB statistics for as long as I've been watching them. You've moved the yardsticks to hide a 8-10% downward change in median prices. Even if I accept your numbers, which are misleading, you can't hide the 3-4% decline in prices caused by inflation. If you bought a property in 2007 and find yourself in a must sell position in 2008, you will lose almost 10% of the money you tied up in the property when you account for REALTORS' fees, taxes and inflation.

Tony, your 1998 year claim of a "strong and stable market" is bunk. 1998 was not a strong and stable market, in fact, according to CBC, that period was a "crashing market," a time when construction workers were being laid off and developers weren't developing.

Tony, you talk about a ballon, it sounds like you could use a communications professional to let you know that using any kind of bubblicious word in a rapidly deflating market, completely, pardon the pun, deflates every word you wastefully paid for in your advertisement disguised as "market outlook" or whatever your group is calling it these days.

I'd love to hear REALTORS out there start speaking out (Al, you have not gone un-noticed here). In fact, if we get a Paul B type here in Victoria who starts building business from a different tune, I bet you'll have great success with the fence sitters when they start hopping back into the game in the years ahead, because it is about credibility.

Every day, more and more people are questioning the credibility of the VREB and it's spokespeople. Someone, please, jump into the credibility gap, be patient and secure a future for yourself and your family, and for the good of those of us who just want to buy a home without losing ours.

Credibility: by way of the Cappy Cap

Are we being duped?

The first time the Department of Finance decided to put up $25B to buy asset backed debt, I was skeptical, but did some balanced reading and decided that hey, if they're already guaranteeing mortgages through CMHC, and they hold some risk, perhaps owning those same insurance backed assets and collecting some interest payments may actually work to help out the taxpayer, if not the banks that make up a large proportion of retirement income for many Canadians.

But then I read this. Now, I do recognize the source, but considering this is a conservative writer taking a conservative finance department to task over what could be viewed as non-conservative financial dealings, I'm left scratching my head. Take this key piece of information for example:

"In a piece in yesterday’s National Post, TD Securities economist Eric Lascelles noted that there are no signs that credit has been withdrawn in Canada or the U.S. — in fact, mortgage lending has grown at 7.7% this year and personal loans are up 15.3% in this country."

That really is mindboggling. Mortgage lending grew. Personal loans are up 15.3%. And yet banks are telling Ottawa they have no cash to lend: to business. "We have to get some of these debts off our books if you want us to lend to businesses who need money," say the banks. "After all it's your government's capitalization policies that prevent us from just throwing money at them." Or at least that's what they want us to believe.

So businesses are seen as risky lending ventures right now, but lending to the people who depend on them for their income, not so much. Disconnect? Me thinks there may be.

But what is the government to do when every other capitalist nation is spending like a drunken sailor from Havanna with a no-limit credit card? Acknowledgingly, I don't have too much exposed in this game right now. But in Canada, it really doesn't matter if I have cash in the markets, or cash in my mattress, because the DoF has the ability to grab whatever it needs of whatever I do have, whenever it needs to. So I care. And I think you should to.

I'm all for universal healthcare. I'm all for universal education. But I'm not for corporate welfare for businesses that sell products that people neither want nor can afford. Nor am I for businesses holding the taxpayer hostage crying foul because their cousins in the south and east have been given the tax-slavery proceeds of a nation wrapt in fear of losing their jobs and homes.

I don't want to see people lose their homes or jobs, which is exactly why I say to my government that today is the day that will deliver the least amount of pain. Throwing more money at the same problem doesn't solve it, it delays it and makes it worse. Why should the whole street have to pay for the bad purchasing choices of a few houses? Let those houses fall, and let smart, sensible, competent houses replace them.

For all of us, I hope I am wrong and the policy wonks at the DoF are right.

As an aside, for those of you reading this who want to attack the current government because of their ideology-driven policies, I feel it necessary to remind you that policies like what we have seen today are not dreamt up in some cabinet meeting by politicians, but emerge from the inner workings of departmental policy analysts and financial professionals--they present the government with choices, and you'd be amazed at how much influence the technocrats have with government in Canada, especially with the inexperienced ones.

More good thoughts, IMHO here.

VREB release: you provide the analysis

The number of property sales throughout Greater Victoria declined in October while prices remained stable.

A total of 316 homes and other properties sold in October through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®) down from the 512 sales in September. There were 708 sales in October of last year. The number of properties available for sale at the end of October was 4,680. That represents a 41 per cent increase compared to October of last year but a slight decline from the 4,754 properties available for sale at the end of September.

Victoria Real Estate Board President, Tony Joe, says despite the decline in the number of sales, it is important to keep the market activity in context. "The last six years have seen extraordinary growth. Last year in particular was truly exceptional both in terms of sales and prices so comparisons must be made with care. A more realistic comparison would be with 1998 -- a year in which sales and inventory levels were comparable to today and a time when the market was considered to be strong and stable." Joe noted there has been a total of 6,012 sales in the first ten months of this year compared to 4,571 in the corresponding period in 1998. There were 4,057 active listings at the end of October, 1998.

The average price of single family homes in Greater Victoria last month was $565,741, up from $549,284 in September; the six-month average was $574,848 though the median price in October was considerably lower at $495,000. There were seven single family homes that sold for over $1 million in October, including two in Oak Bay, one of which sold for between $2 million and $3 million.

The average price of all townhomes sold last month was $389,731, down from $405,287 in September; the six month average was $425,866. The median price in October was $369,500. The overall average price for condominiums at $323,028 last month was up from $319,562 in September. The average for the last six months was $316,644. The median price for condominiums in October was $280,000.

MLS® sales last month included 184 single family homes, 76 condominiums, 26 townhomes and eight manufactured homes.

H/T to Billy Corgan at VV for the link.

Steady hand on the tiller

With all the doom and gloom these days, what's a bear to do? Besides strap on the crash helmut (sorry can't leave that poor guy alone).

As much as I hate using the old washed up political cliche, I can't think of a more appropriate way to summarize what the HHV households are up to: steady as she goes.

Here's my top five must do and do not things in an economic environment like that which we find ourselves in today:

1. Pay down debt. Let's be honest. Investments are not performing. GICs are not performing and interest rates on pretty much any debt eat the difference from anything remotely "safe" that you and I have access to. So the best thing to do is get rid of any and all debt. If you're out of debt, save up a minimum of 3 months worth of expenses, 6 months is ideal. Take confidence in knowing you can weather whatever waves get thrown your way in this storm.
   
2. Don't spend any money on unnecessary things. That new Wii so you can play Rockband? Actually, you may want to get that, it could potentially keep you entertained for many a night with the whole family and prevent you from spending other money on unnecessary things. So, Rockband and Wii, cool. New big screen TV to watch yourself rock out, not cool right now. Patience, it will only get cheaper.
   
3. Take advantage of every opportunity to learn something new. Instead of spending money going out, read all this great stuff we get for "free" online. We are looking at an unprecedented economic learning opportunity. Drink it in. Disect it. Discuss it. Learn from it. Learn how to make money from it. Learn how to see it coming in the future and protect yourself.
   
4. Don't quit your job. I nearly did. I was set to start my own business 2 months ago. I'm delaying that for the near future. Job security is paramount in these times. Remember the pecking order in the downtimes: consultants go first, newly hired next, retirees are offered "early retirement" incentives, and then people plain old lose their jobs. Do everything in your power to be the best employee, contractor/consultant or whatever you are.
   
5. Do not make a major purchase. Cars are about to get really cheap. Hyundai is already offering "don't pay till 2010" incentives. But most importantly, no matter how bad your current rental is, do not fall for the "same price as rent" and "time in the market is better than timing the market" advertising going on right now. Need to be convinced your safe not buying? Check out the chart from Roger below. It uses an assumed 5% loss YOY for the next two years. And unless things change, we'll be into double digit negative YOY declines next spring already.
   

The key number that convinced me here was in the Total Interest row. Saving $44K in interest payments alone using such a conservative correction as a baseline is worth it to me. The savings only get better when you consider the next jump up:

When I see work like this, I realize why I kept blogging everytime I felt fatigued. Thank you Roger, your contributions to my real estate education have been immense.

Grab yer Helmut, crash ahead

March 17, 2008:

B.C.’s unprecedented housing market expansion will continue into 2009, as economic fundamentals and market conditions remain conducive to high sales volumes and rising prices

October 23, 2008:

Housing prices will continue falling from their March 2008 high into next year, bringing the provincial median sales price down 13 per cent to $310,000 in 2009 and by a further five per cent in 2010.

Oh Helmut, it is hard being a dismal scientist. I wonder when the Sun plans to revise this piece for accuracy.

26 years ago

Consumer confidence was at the same level as it is today.

Interest rates were at 15%.

House prices dropped 18% YOY.

In 2008, if the trend continues, single family house prices may drop up to 18% from April 2008 average prices. Yep, the more things change, the more they stay the same.

Of course we're insulated on our island

Remember, we are nothing like the lower mainland here in Victoria.

Three all-too-common viewpoints, me thinks:

1. The “Phew, got out just in time” seller:

"We looked at it as a shame we hadn't been selling a year ago," Dinsdale said, "but we're happy we were selling now as opposed to six months from now."

2. The “We can’t believe how fast the tide did turn” sellers:

"It was amazing how fast everything around us came down," he added."Even swimming downstream is tough."

3. The “We’re trying to convince ourselves it was a good decision but still really scared it wasn’t” buyers:

"I think if I might have waited, I might have got a better deal," Ray Keyland said, referring to the three-bedroom, 1,779-square foot house they picked up for $399,000.However, Keyland added that he also worried they might run into higher interest rates. Now that they're in the house, "we're in it for the long haul."

For them, I hope that one per cent hike in interest rates isn’t the difference between “long haul” and “Oh, sh$t.”

Two thoughts

One from someone with no financial interest in the market:

It appears that Canada has been caught up with home buying fever just as the United States and other countries around the world, said Shiller, co-founder of the S&P Case/Shiller Home Price Index.

Asked whether that meant Canada could face a similar bust, he said: "Yes, especially in places that went up a lot like Vancouver and Calgary..."

And another with an invested interest in keeping up the "morale":

Tony Joe, Victoria Real Estate Board president, responded by saying that there are pockets in the U.S. where the housing market is healthy.

If there is a bust in Canada, "There's going to be insulated places in the country and with all the attributes that Victoria has, of all the places in the country, we are probably best-insulated," Joe said yesterday.

Tony's right. There will be insulated places, just like in the US. These places didn't rise too far, too fast and create the conditions for a bubble in the first place. I'm thinking places like Charlottetown and Shediak fit. Does this sound like Victoria to you? Read more at the TC.

What Price to Rent can I buy at today?

H/T to Captain Capitalism via Smalldeadanimals for the graphic.

A while back, the media went gaga over a recent UBC/Sommerville study that contradicted a slightly less recent Merryl Lynch study regarding fundamental value in the national and local real estate markets. ML came up with 35% as their benchmark for targeted balance between what a house is worth based on what rents are. UBC came up with 11%. UBC used that bastion of accurate statistics, Craigslist, to determine what market rent in Vancouver is. ML, they used CMHC and StatsCan numbers (I believe, but may be mistaken here).

Things are changing fast and furious on the employment front for myself and the Mrs these days and we may be looking for a new place again. I started looking this weekend, not physically, but just online. I went and re-read the post over at Langley Financial Planning about how Mohican buys a house, and I completely agree with both his rationale and math. Is it possible to find a deal like this in Victoria today?

So here's a bit of a challenge to all the readers of this blog. Find me a condo, townhouse or a SFH with a suite, that I can realistically buy today (not necessarily asking price here, think lowball offers that may get accepted, target Tuscany Village, Reflections etc... places we know are struggling with sales and economics and can realistically throw low offers to). Benchmark these places against Craigslist's dreamland of market rents and lets make a deal. Keep 10-15% down, 25 year mortgage, price under $425K parameters in mind. I'll keep looking too and do up the math on your suggestions and grow this post over the next week or so.

UNIT COMPARISON #1

Here's the first one. It's a 2-bed 2-bath unit on the Gorge. I have no way of knowing if it is the same unit for sale as for rent, so this isn't exactly accurate science here folks, but close enough for a comparison non?

Craigslist ad: rent at $1295 plus hydro.

MLS # 247947: currently for sale at $245K after 107 DOM (original price $264,500) incidentally, it's neighbour is also for sale at $259,900 after 119 DOM and original price of $279K.

Here are the numbers: Rent = $1295 per month. Ownership costs = (10% down mortgage, 5.25% over 25 years = $1315 per month) + $173 strata fees + $95 property taxes = $1583 per month.

Price to rent ratio is 189 (funny how it mirrors the graph above eh?). Monthly payment difference is 19%.

Can we make it smaller? This seller, according to my PCS account, is "motivated". That means make an offer. So I go in and offer a whopping 15% off the price, which is about $210K. We agree on $215K. I redo the numbers as: $1135 mortgage + other expenses = $1403/month for

Price to rent of 166, and monthly payment difference of 8%.

There are two problems with this scenario: 1. I think $1295/month for a Gorge Rd condo at Tillicum is inflated compared to market rent, probably by as much as 15%/month; and 2. I don't think that a seller that isn't in distress, and is just "motivated" at this stage would be willing to consider an offer that is almost 20% lower than their original asking price. I could be wrong, but even if I am, I'm still overpaying for this property.

When I do up numbers like this, it really hits home for me just how far out of whack this market has gotten, and how far it needs to fall to return to a balanced state. So when you read the local real estate pumpers punditry that this market has returned to "balanced", remember they aren't speaking of market fundamentals, they're speaking of buyers vs sellers, and they're wrong anyway, because clearly, it's a definite buyer's market.

Are Victoria Prices Falling?

Courtesy of, and a big tip of the hat to, Roger, for such great statistical analysis of the Victoria and Island real estate markets. He's hit another one out of the park with his latest slideshow: Are Victoria prices falling?

It neeeds to be pointed out that Roger uses VREB published data to produce his excellent graphs and tables. There is no spin. There is no "funky" numbers. Just straight as VREB wants us to have them, laid out in a way they likely wouldn't want you to see them. Cheers, Roger. (Click for larger view.)

Avg & Median Sale Prices

Why 2008 is different

Avg & 6-month rolling Avg

Median & 6-month rolling Avg

YOY percent change - no averaging

Percent change YOY of 3-month Avg

Just the prices - Avg & median

Roger has even given us a PDF version so you can print it out and have it handy to take with you whenever you're talking real estate. (edited)

Journalistic Integrity

I've made much over the spin job we see the MSM (particularly the VanSun and the TC) doing when it comes to how market information is portrayed in the local media.

Is it the responsibility of journalists and editors to delve into the information and fact check it, when the local real estate boards release their market information related to the MLS system?

A quick wiki of journalistic integrity gives us this:

the principles of — truthfulness, accuracy, objectivity, impartiality, fairness and public accountability — as these apply to the acquisition of newsworthy information and its subsequent dissemination to the public.

Let's take a look at the most recent news piece on the Victoria August numbers. Tony Joe, president of the VREB, is quoted as an expert. As is the developer behind Chelsea.

These are two individuals who make a living selling real estate and have a much better grasp of the current state of the market than you or I, but it serves them no purpose to state the obvious truths. The developer's job is to impart confidence in his business. Tony's?, he's elected by the local group of REALTORs to impart confidence in them. I don't believe Tony is attempting to pull the wool over anyones eyes; here is his key message:

well-priced properties can still move quickly

This statement is fundamentally true. Well-priced properties can, and do, move quickly. He's told us a few things this month: the market dropped by 5%, if you want to sell your place next month, drop your price, and if you're looking at buying, low-ball. He's also telling us REALTORs are the only ones with the ability to well-price your home. His job is to increase sales volume, not necessarily price, and that is what I see is his focus; he's a confidence cheerleader.

His explanations of why sales are down "vacation-caused" are weak. We know they are weak. Roger has proven them patently false, using VREB's own data. Does Tony have a responsibility to prove his assertions? I think such a small statement can get passed off, and should be, by anyone looking at buying or selling a house in Victoria. Look, if you're buying or selling, that one sentence in one article on one day should not be the deciding factor in your decision.

The bigger question is, should Carla have called him on it? Does she, or her editors, have a responsibility to fact check a quote? Probably not. She is publishing someone else's statement, not her own, and not trying to take credit for it. She should make sure she quoted him correctly, and if she did, Tony ends up wearing the egg on his face.

The trouble is, it spits in the face of those of us who wrongly assume that the MSM has journalistic integrity in today's market place. Are we wrong to expect it? The internet has changed everything. It has democratized information. You and I, we both have the same access to information as the average journalist these days. We can decipher the spin, we can analyse the stats, we can even publish our opinions and facts that we find. If I spouted off on this blog more often, you wouldn't read it. Many people don't.

But when the MSM drops their integrity, they sell less papers and there is a cause and effect reaction in the market that punishes them greatly. They've already dropped the ball on classifieds. They're dropping the ball on advertising. They're dropping the ball on reporting. The TC especially is dropping the ball on what people have come to expect of the the internet (a voice of their own) and don't even allow comments, moderated or not. I'll leave you with this to end my editorial:

Every news organization has only its credibility and reputation to rely on.

-Tony Burman, editor-in-chief of CBC News

The MSM has been slow to adapt to the internet reality, as have the players that rely on them to get their messages out. In effect, these gang of change-fearing "presstitutes" are committing a slow suicide. Check out their stock valuations, they're not making money and they're getting hammered by investors.

Their credibility is crumbling and their reputation is diminishing. And the consequence of this is that people seek information elsewhere and advertisers follow. I fully expect to see further consolidation of media outlets (National Post is probably done in the very near future) and further entrenchment of the old ways of doing business. Because they really just don't get it. Nor do I, but I think I may be onto something...

Property sales and prices soften in August

No need for spin: straight from the horses mouth (VREB)

Sales of homes and other properties in the Greater Victoria area followed the expected trend and softened last month as many people enjoyed vacation time. Prices also moderated slightly. A total of 517 homes and other properties sold in August through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®) compared to the 616 sales in July. There were 846 sales in August of last year.

Victoria Real Estate Board President, Tony Joe, notes that today’s buyers now have more properties from which to choose than at any time since 1996. "The number of properties available for sale is now at the highest level in over 12 years, increasing in August to 4,657. That represents a 39 per cent increase compared to August of last year." Joe notes that prices moderated last month with nearly 46 per cent of single family homes selling for under $500,000. "The average price of single family homes in Greater Victoria last month was $549,914, down from over $578,000 in July; the six-month average was $592,582 though the median price in August was considerably lower at $512,000." Joe noted that eleven single family homes sold for over $1 million in August, including two sales on the Gulf Islands.

The average price of all townhomes sold last month was $413,994, down from nearly $455,000 in July; the six month average was $435,309. The median price in August was $382,000. Joe noted that the overall average price for condominiums at $302,200 last month was virtually unchanged from July. The average for the last six months was $319,825. The median price for condominiums in August was $280,000.

MLS® sales last month included 269 single family homes, 160 condominiums, 53 townhomes and eight manufactured homes.

Roger has a good analysis (from comments in last thread):

August 2008 Statistics - Monthly Analysis

July 2008 shown in ()

MLS Sales - 517 (616)
MLS listings - 4657 (4557)

SFH Average - 549.9K (578.2K)
SFH 6 mo. Avg. - 592.6K (596.7K)
SFH Median - 512K (529.9K)
All SFH Sales - 269 (359)

Condo Average - 302.2K (302.5)
Condo Median - 280K (285K)
All Condo Sales - 160 (168)

Town Average - 414K (454.9K)
Town Median - 382K (417.5K)
All Town Sales - 53 (52)

Year-over-Year Analysis

GV - Greater Victoria
August 2007 shown in ()

MLS Sales - 517 (846) - Down 39%
MLS listings - 4657 (3352) - Up 39%

GV SFH Average - 549,914 (576,632) - Down 4.6%
GV SFH Median - 512,000 (515,000) - Down 0.6%
GV SFH Sales - 244 (399) - Down 39%

GV Condo Average - 302,200 (298,478) - Up 1.3%
GV Condo Median - 280,000 (275,000) - Up 1.8%
GV Condo Sales - 160 (217) - Down 26%

GV Townhouse Average - 415,327 (396,129) - Up 4.8%
GV Townhouse Median - 382,000 (378,950) - Up 0.8%
Townhouse Sales - 51 (95) Down 46%

I'm assuming he'll have updated graphs in the next few days...

Comment away. H/T Roger (apparently the TC already is)

Kyle would never buy another pre-sale

If he had to do it all over again, Kyle Lake would never buy another pre-sale home. But, if some real estate experts are right, buyers are not likely to see the trend again for another seven to 10 years.

Lake and his partner, Ashley Hughes, are among the tens of thousands of British Columbia families and individuals caught in a hot real estate market in the last few years. To get into the market, they chose to buy a condo that had not yet been built, commonly referred to as a pre-sale.

A pre-sale is a contract for the purchase of a home, usually a unit in a condominium, made prior to its completion. In some projects, sales have been made before construction has even started.

Purchasers and developers enter into a contract that provides for units to be built within a period of time for an agreed price. Real estate agents or lawyers for the developer usually hold deposits in trust as part of the agreement.

In Lake and Hughes's case it took 15 months before they moved into their Langford two-bedroom-plus-den condo.

When the young couple put their deposit down last April, the target date for completion was March 2008. A series of delays resulted in them finally moving in in late July.

"If I had known it would take this long I would have looked for something else," says Lake, 23.

He says the real estate market at that time was characterized by a lack of new condos to choose from, a low inventory of existing resale condos and real estate values that seemed to rise steadily.

"Back then, there was this mentality to buy what you can and get into the market before they sold out."

While he estimates his new condo is worth more than the $299,000 he paid, the delays surrounding possession and repairs on deficiencies in the unit have soured the experience for him.

A recent cooling in the real estate market and an increase in the number of units for sale could signal the end to the trend.

At the height of the boom, real estate agent Guy Crozier estimates, pre-sale contracts accounted for 65 per cent of his sales. It is a cycle he has seen repeat itself every seven to 10 years. With a rising real estate market, many purchasers buy units on the assumption that property values will be higher by the time the building is finished.

Driven by high demand and low inventory of resale properties, pre-sales were a popular way for individuals and families to shield themselves from escalating prices.

"In pre-sales, clients were shown a hole in the ground and asked to buy a piece of air," says Crozier, one half of the Crozier and Marchant team based out of Re/Max Camosun. He points to an overheated market where many investors entered the market looking for equity appreciation. They bought condos like stocks.

The investors had no intention of occupying the suites, and usually sold them as the completion date approached. But their involvement in the market contributed to a shortage in supply, further driving up prices.

With a downturn, more units are available for immediate sale, so there is almost no demand for pre-sales.

"I haven't done a pre-sale in two months," Crozier says. "Condo listings are up 50 per cent."

The numbers might be down for now, but developers say there will always be a place for pre-sales in the construction industry. Developers looking for financing for multi-unit projects are used to financial institutions demanding proof of a certain number of pre-sales before they commit to financing.

"The more pre-sales you can bring to the table, the more confident the bank will be that the project will succeed," says Bob Gill, president of Parkway Alliance Developments. His Reflections development in Langford is 70 per cent pre-sold ahead of the project's September target completion date.

While he says pre-sales aren't suitable for individuals who cannot wait to buy, pre-sale pricing -- which is generally lower than what the units will ultimately list for -- can be a good deal for buyers.

But Gill cautions that pre-sale purchasers should do their homework and read the fine print on the disclosure agreements, as every developer has different wording in contracts. The contract is a legally binding agreement and buyers need to seek legal advice.

He says deposits, which range from 10 to 15 per cent of the purchase price, are generally not refundable. Buyers who change their minds and try to get out of the contract can forfeit their deposit and can be sued by the developer for damages. Pre-sale buyers who try to sell their contracts might also find certain restrictions and fees for doing so.

Even with a market slowdown, Gill is confident he will be able to sell the remaining units of his development.

He says, "Ultimately, people like to touch and feel what they are going to buy."

Emphasis mine. Kind of speaks for itself, don't it? Long story short: young guy and his girlfriend buy condo before built; young guy and girlfriend have less than positive experience with developer; young guy still confident that "my place is immune to downturn"; REALTOR confirms massive speculative buying drove prices upwards unsustainably and market is now very slow with rising inventory and falling sales, then says "sharpen yer pencil young fella"; Developer says: "I sell it all"; Developer doesn't say: "I dropped prices $20K" (he did, and will again); Market says: "Yawn, see you in 7-10 years".

There you have it folks... Buyer turned homeowner, CondoKing and Langford Beautifier all agree, this market has boiled out.

The G&M has an interesting story that, I think, while not only telling the present, also tells the future.


There are few economists working for the big dogs--the banks, the real estate associations and just about any others that have their hands in the real estate pockets of Canada--that I trust to truly tell it like it is when it comes to market predictions. I think their mandate is to report the numbers as they currently are and have recently been, then look forward and seek language in their press releases and interviews that serve to soften the blow or the hype, in the name of the economy and their major shareholders. Armed with a critical mind, and a constructive attitude though, anyone is able to figure out what they need to from the numbers and subtle suggestions these financial wizards cast, to protect themselves from the spells of the bubble(s).

The slowing economy is taking its toll on household finances, driving up debt at a faster pace than incomes and assets, new analysis from CIBC World Markets shows.

In the first quarter of 2008, household debt in Canada rose almost 3 per cent but personal disposable income rose just 2 per cent, pushing the debt-to-income ratio up to 130 per cent from 122 per cent a year earlier.

At the same time, the level of assets hardly changed during the first quarter of 2008, since the stock market was correcting and house prices were levelling off.

“Canadians are seeing their net wealth position shrinking,”

Rising net worth has been an important driver of consumer activity in the past few years

“The wealth effect should not be underestimated.”

I bring this last point to your attention because it want to contrast it to what Mr. Muir says about the factors leading to, what he calls, "slow[ing] to a level not seen since the beginning of the decade... BC households are now cautious about making major purchases in light of uncertainty around fuel prices and other inflationary pressures."

I would like it very much if someone, anyone, anyone, Bueller, Bueller, would write it down (oh wait, Merrill Lynch did): Western Canada is very much like every other housing market that has peaked and is now heading down: we are over-valued, over-building and under-selling expectations to margins not unlike other nations that experienced the same trends.

In the last post below, the old "Victoria is different, don't you know, every boomer and their immigration cousins are moving here en masse and everyone else just got 40% raises" myths crept back in to the housing correction denier's talking points.

The way I see it, is even if, and I use if here very strongly, because statistics from BCStats and StansCan do not support the claims, it wouldn't matter, because very few will want to buy RE when they know they can get it cheaper next month or next year--and the decline in sales is evidence enough for this theorist. And guess what? According to those experts with their hands in your pockets, the people, regardless of where they come from or how much they make, have started to figure it out. And now they are waiting to see what happens in the next 6 months or longer. Like us.

TC shifts focus

I guess now that the writing is clearly written on the wall (but not in their paper) for buying a local property, the TC, in tribute to its obsession with hyping local RE, came up with this gem over the weekend. Here's the hype (emphasis mine).

They're facing the realities of a landlord's market

With the vacancy rate in Victoria 0.3 per cent, there's limited affordable housing available. (They are actually 0.5% which is a whopping 0.2% or 60% difference than what's stated... and they aren't reflective of the secondary market, which is where the majority of students find rentals).

The average rent for a room in a house is around $400, while a one-bedroom apartment is around $750. However, many listings have rooms starting at $700, or one-bedroom apartments higher than $1,000.

...the eviction of 13 students from a 4,000-square-foot, nine-bedroom house because of a Saanich bylaw which prohibits more than four unrelated residents to share a dwelling.

The three had a hard time finding a place, but rented a house for $2,800 a month.

Year-long leases are a problem for students, unless they are intending to stay in town over the summer or rent a place for more than a year.

To be fair, the piece is newsworthy, students do have a hard time finding a place to live in Victoria every September. That's why the smart ones look in May and get jobs in the ultra-low unemployment area that is Victoria.

It seems to me there are two things happening in the Victoria rental market:

1. Long-term landlords are enjoying consistent return on their long-paid off properties and are being picky about tenants, which is their right; and,
2. Short term landlords and recent Uvic/Camosun grads with huge mortgage payments believe that rents should pay at least 50% of their mortgage, so they ask for $1500 for a dumpy two-bed suite.

Because of the way CMHC calculates average rents and decides what constitutes a "rental," vacancy rates, much like inflation numbers, are notoriously low. If a property, or property manager/landlord, doesn't have three "units, " it's not counted. So every new basement suite in GH and Langford isn't counted. And students have a hard time getting rentals because they generally tend to party, move 13 kids into a house for a year (which isn't living, it's partying), move frequently, don't look after stuff, cause problems for landlords with their neighbours, run out of money etc. Their main problem is not that Victoria has low vacancy, it's that they are students with student lifestyles.

I feel for people looking for rentals. It is difficult to be picky. I have been lucky in this market because of two things: a really good network, no pets and never putting myself in a position to have to make a rushed decision. My only tip for would be renters in Victoria? Do the same. Establish a network, don't do things/have things that make you an undesirable tenant, and never, ever, ever, put yourself in a position to have to make a quick decision, like say, decide to move in September.

What are others seeing in the rental market right now?

A quiter revolution

I'm a political science grad. My interest lied mainly in Canadian politics. No single event did more to shape current politics than Quebec's quiet revolution during the 1960s. From a political economy perspective however, perhaps today's quieter revolution will end up shaping our political and economic landscape to a degree unforeseen by any political or economic scientists.

Who would have thunk it? It turns out, according to BMO, that Canadians are indeed, wait for it, uncomfortable with talking about money:

Canadians are more uncomfortable talking about money than religion, says a Bank of Montreal survey out Wednesday showing we are losing sleep over personal finances and our biggest fear is not having enough to retire.

I thought we had gotten over this Conservative dilemma. Apparently not:

"Families are very worried... they may be over-spending and they don't really understand how they can plan for the future," said Sherry Cooper, chief economist at BMO Financial Group.

Just under half (46%) of survey respondents said they were least comfortable talking about money, compared with 34% being least comfortable talking about religion. But the survey revealed that six in 10 Canadians will talk openly about their love life and more than three-quarters (78%) would say who they voted for in the last election. (I'm guessing they didn't vote Conservative, just a hunch though).

Around 35% of respondents with household incomes greater than $100,000 said they have lost sleep worrying about money matters.

90% of respondents knew how much their partner earned and 89% discussed personal purchases with each other. (I genuinely hope these people are renting)

"Most people are anxious but they're not taking action... they're being reactive and that's too late." said Cooper. "There is no one-size-fits-all solution . . .You have to plan in advance and financial planning is part of the whole process of lifestyle planning.

Can we extrapolate this out into the housing market? Sure. Because the same people have been buying houses, wondering how they can pay for them. When the house doesn't look to be as good a buy as it did in 2006 and 2007, what will these un-financially savvy homeowners do? Probably the same thing as they did when they bought.

What's that you ask? The exact same thing as the rest of the herd, er, I mean neighbourhood, does. My guess is sell. And like on the way up, price won't matter, fitting in at the dinner table will.

A picture of decline

Best graphic on the housing implosion down south I've seen yet. (Funny how people I know keep telling me the Pacific Northwest is immune to the slump, I guess not?) Will we see something like this up here next year?

According to this article, we may be well on our way. Here are the highlights:

Construction activity dropped for a third month in a row in May in Canada while
output from real estate agents plunged 16.8% in the month over the year before.

Together, activity in the two housing-related sectors fell 4.9% in May from May 2007 -- the biggest slide in a decade of available data.

Amid the blizzard of numbers, Canadian GDP unexpectedly contracted 0.1% in May, the fourth drop in six months (Do I need to point out this is flirting with recession?) emphasis mine

These are interesting financial times we live in. Batton down the hatches, this squall could turn into a long storm.

Here's my predictions for July numbers:

• Listings up 5-10% over last month reported as 20-25% YOY
• Sales down over last month and last year 5% and 20% respectively
• Avg prices down over last month 2-3% and flirting with zero growth YOY (1-2%) for SFH
• Median prices down over last month and up YOY by only 5%--a drop of about 5% from April high for SFH

Yours in comments. VREB stats are up: Great news for bears!

The bear days of summer

You know the boom is really over when the MSM starts making sense of the spin:

First it was Canada's top 25 markets that were feeling that pain from a slowdown in housing, now it's clear the malaise has hit the entire country.

Two weeks ago statistics from the Canadian Real Estate Association showed the average sale price of a house in the country's 25 largest markets was down 0.4% last month from a year ago.

New statistics released Monday show housing across the country is now losing out to inflation. The average sale price of a home in Canada last month was $314,028, a tiny $35 increase from a year ago. For the first six months of the year, prices were up 3.6% from a year ago.

"In essence, Canada's housing market has pulled back from the record-setting pace set in 2007, but in most provinces it continues at or near sales levels set in the years before that," says Calvin Lindberg, president of CREA. "The increase in housing prices is also pulling back from the record-setting pace of last year, but we have yet to see any of the price contractions that have impacted the housing market in the United States."

CREA said there is plenty of good news in the numbers. For the fifth straight year, more than a quarter of a million units were sold in Canada. However, sales over the first six months of the year are down 13.1% from a year ago.

"Resale housing activity is cooling evenly in rural, suburban and urban markets," said Greg Klump, chief economist with CREA. He said rising fuel prices have not impacted the housing market. "There is no statistical evidence to date that shows increases in energy prices are prompting Canadians to relocate. Lifestyle factors remain the prevalent influence on homebuyer preferences." emphasis mine

If they keep this up folks, I may be written out of usefulness. I love the Klumpsters choice of spin: outside economics don't impact people's home buying habits. Sure. A decrease in sales volume is not good for homeowners the same as it's not good for Walmart. When prices aren't keeping up with inflation you are losing money in your home. Not such a good investment anymore for the short-termers eh? There goes 30% of sales across Canada. I'd wager that is a much bigger part of the local market.

UPDATE: please use html codes for creating links in comments and please don't cut and paste long articles etc.

Caviar Dreams, Champagne Wishes

and the median family income (sorry, couldn't resist).

When I was teenager (17) and moving out the summer after high school graduation, the search for my first apartment was an eye-opener. I had these dreams of finding a great place I could call my own (and use to impress the ladies) but no idea of the cost. Back then, I did what every other house hunter did and scoured the newspaper (the internet was not yet even local back then) and check out the offerings.

I must have toured a dozen places before settling on my first bachelor pad. Most of the places I looked at were shared accomodations for around $350 a month. I got my first basement, wood panelling and all, two-room bachelor suite for $425 inclusive (and not something I'd even invite the ladies into for that matter). The only bill I paid was my phone. It was on Shelbourne, a few blocks from Mt. Doug and not too far from where I live now. Fifteen years later, I have a one-year old suite, about three times the size of my first place, I pay $750 per month and my bills run just under a hundred, let's call it $850 even. Neither of these places qualify as the perfect apartment, but I'm not ashamed of where I live at all.

Tonight I had a visit with some friends who just moved into a Fairfield character suite. I don't know how much they pay, and really it's irrelevant. I know they don't own it and they don't care to. And I also know they searched for several months looking for their perfect apartment. It was like being in an episode of Friends and we lived in New York listening to the way they were talking. It's a fantastic place: big, bright, airy, quiet. I can't say anything negative about the place. Nor would I want to; I'm genuinely thrilled for them.

But it got me thinking: "Can you buy the perfect apartment?"

I don't think you can in Victoria. Sure there are lots of nice places in town. You can even pick up some condo conversions in old Maclure Mansions in the Rockland area. You can buy a great new flat in Shoal Point or at Bayview if you're a downsizing ex-executive boomer (though I question how great anything made in this boom will turn out to be). You can head out to the Metchosin sand pit and buy a McMansion that looks oh so similar to its neighbour not ten feet to the right, and left for that matter, if you're a non-ex-executive boomer. You can buy property out on Land's End Road, then tear it down and build the home of your dreams--if you win the lottery first, and even then, not likely at today's prices and today's jackpots.

The real estate myth that is "The Perfect Apartment" is a renter's dream; I wonder how long until we start hearing our friends talking about that regularly, instead of the condo they just bought in Sooke that they will trade in for the Gordon Head home next year? For me, it started tonight. Sign of the times I guess.

Nothing to see here says, Flaherty

Apparently, when you're the finance minister, markets do what they are told.

Federal Finance Minister Jim Flaherty shrugged off housing worries in Canada on Wednesday, saying there is no bubble. He did, however, continue to express concern over mortgages with 40 year amortizations and very small down payments.

"There is no bubble here," he told reporters after speaking to roughly 400 people at Chamber of Commerce event in Calgary.

He reminded the audience that the government last week introduced plans to ditch government-backed mortgages with amortization periods longer than 35 years, and require that down payments total at least 5% of the purchase price.

Separately, Mr. Flaherty said he is satisfied that Canadian banks are "well capitalized and strong" as subprime mortgage woes hammer financial institutions in the United States, as well as north of the border.

Further, while he acknowledged that the economy is going through "turbulent times," it remains healthy. "Our economy is strong," he told the audience.

That will show them. Heh.

It is characterized by rapid increases in valuations of real property such as housing until they reach unsustainable levels relative to incomes and other economic elements.

Didn't happen here people. Remember. You've been told.

Last One, Best One

I drove past my favourite target this morning for the first time in over a week. I wasn’t surprised to see another price reduction, but I was surprised to read “Last one, Best one” on the sign.

For me, this crack shack became condo exemplifies all that is going wrong with Victoria real estate. Now please don’t misunderstand me. I’m glad the Larges went in, bought the place for a song, spent the better part of two or three years fixing it up while the market went insane and then attempted to sell them for a ridiculous price. In the end, the corner of Bay and Quadra has at least one less problem home.

The REALTOR who they hired to market this place hasn’t impressed me. First he dared to tell us Bay and Quadra (or maybe he meant Central Park) is Victoria’s Yaletown. Then he advertised it as a BIG PRICE REDUCTION and told us property only goes up in value in Victoria, all in the same MLS listing. Now after over 7 months on the market, he has told the two buyers of the units already sold that they paid more for less, but they should be “proud of their home.”

The real estate industry loves to tell us stories about how people like you and me are doing similar things all over town. After all, we’ve all bought run down properties and fixed them up haven’t we? It’s called gentrification, or urban density, or green living or whatever buzzword they tell us is in vogue. There’s just one problem: only 3-4% of Victoria’s properties change hands every year; which means that in the last boom, we’ve seen at most 32% of Victoria’s properties bought and sold. And this also means that neighbourhoods aren't changing fast enough for you and me to notice the difference within the time frames we will live in them.

That number may appear high at first glance, but remember there was also a lot of new construction and a lot of home flipping happening in the last eight years too. But people bought the hype. And they bought the run down properties with the intention of holding for a year and cashing out, moving up or whatever they were thinking.

Buying a home, whether a house or a condo, in this town, at this time may prove to be the single biggest purchase any of us will ever make. When you go to buy a car, do you see the sales person as friend or foe? Do you see the business manager as honestly trying to help you get into the car of your dreams? Or do you view the whole process as a necessary evil to living a convenient lifestyle? A healthy bit of skepticism of the advice being doled out to you by the industry "experts" is a good thing, IMHO.

This post isn’t about attacking the real estate industry. It’s about dissecting the hype. Many Victorians have, and continue to buy into, the “real estate always goes up mantra.” It doesn’t. It isn’t right now. In fact, all over town, property values are dropping. We haven’t seen YOY price drops yet, but we will. We have seen drastic price drops in the past two months. (H/T Roger)Drastic MOM price drops are not normal, even in a bear market. This one fact leads me to believe we are in for one hell of a ride down. Strap on your seatbelts, put on your helmets and keep your eyes wide open, no better learning opportunity for real estate purchasing may happen again in your lifetimes.

Aside: I’ve had good response in e-mails, Thursday is definitely on. I will send out an e-mail with details Tuesday evening.

Update: e-mail was just sent (5:50pm), if you didn't get it (or have yet to e-mail me in the first place, not too late) send me an e-mail and I'll give you the super-secret details.

Cheers are in order

A promised pint is a promise kept... Thursday, July 17, 5-6pm NOT at the Bengal, so e-mail me for details.

Ya Think?

Brilliant. They are finally starting to tell it like it is: (H/T s2)

the market here could turn ugly too as more houses are being built than are needed, says an analysis released Thursday by Peter Hall, chief economist at Export Development Canada.

That holds true even in B.C., where the number of housing starts has begun to fall but is still outstripping demand, said Canada Mortgage and Housing Corp. regional economist Carol Frketich.

the feds are right to pull the plug by withholding guarantees on 40-year, no-down-payment mortgages.

Because, while buying a home may be the best investment many of us will ever make, it is never a sure thing. And there are times when people are better off not owning a home.

You don't need money in your pocket to buy. And the payments will be as low as they can possibly be - though the need to keep making them goes on, and on, and on.

So you'll love it if you're a speculator who wants the most-possible property for the least-possible cash outlay in the expectation that prices will continue to rise. Who cares about paying down principal in order to build equity if you're counting on ever-higher prices to do that for you?

A better option, I think, is for people to wait until they can afford to buy. And, in an odd way, this policy change will help them.

One of many factors that drive Metro Vancouver (and Victoria) home prices is the number of buyers. And it's an artificially high number as long as people are enticed into the market with no down payment and lowest-possible repayment schedules. If those kinds of would-be buyers no longer qualified to borrow, there'd be a little less pressure on prices.

Emphasis in quotes is mine. Yours in comments.

Strategies for a buyer's market

I'm in Vancouver this weekend and everywhere I look are news stories proclaiming the obvious: BC is now in a buyer's market.

What does this mean? Does it mean buyers outnumber the sellers? Does it mean today is a great day to buy? Should you jump into the ever-shrinking pool of people looking to get rich in real estate because you now have more choice?

I won't tell you not to buy. But I will tell you, based on my research, today is this worst day in the last eight years to buy a piece of BC real estate. It doesn't matter, in my opinion, if that piece of real estate is a SFH, a townhome, a condo, a recreational property, a float home, a mobile home, or whatever... all residential real estate is about to start posting real, year-over-year, declines in value. I'm predicting an October/November time frame for this. How low it will go is anyone's guess. But I think 25-30% is probably likely, and most definitely necessary.

So, you disagree with me, or maybe you're tired of renting, or maybe you can't fathom going to your workplace or a dinner party anymore and being the only person there who doesn't own at least two pieces of over-priced real estate. You've decided you're going to buy anyway.

What can you do in this buyer's market to protect yourself from declining prices? What strategies can you employ to take advantage of that "opportunity of a lifetime" your REALTOR may be telling you this market is?

Here's my list of helpful hints:

1. Don't buy. (OK I deviated from what I said I won't do above). This is the best strategy. No matter what anyone tells you, the numbers don't lie. Real estate prices are not going up anymore. Look at all the price changes and sales below asking prices on PCS. Sure the YOY numbers are still up, but the 2008 trend is down. The Victoria market numbers in June are over 7% below the April 2008 price peak. Does this tell you prices are increasing? Wait. The longer you wait, and the longer people around you wait, the cheaper real estate will become. So don't buy.
2. Take your time and look at 100 properties. Make your REALTOR (and you should use one, there is no reason not to, just be in control of your own decisions) do the work. They're hungry right now. They've had a hell of a run, but there are a hell of a lot of them now, so the competition is fierce. Use that to your advantage. Look at a lot of properties and see what the market is really like.
3. When you've seen 100 properties (this should take a couple of months) take a weekend to review the ones you're interested that are still for sale (current sales statistics tell us most of them will be (80% plus)). Pick your top ten out of the one's remaining, then have your REALTOR search for new listings on the same block, go look at those.
   
4. You've narrowed your search down to ten properties and seen a few of their neighbours, now narrow these down to the two or three that require no updating, no painting, no nothing. If you're going to pay top dollar for a piece of over-valued real estate, you shouldn't have to pay another dime to make it nice. If you can't find any immaculate houses for sale, keep looking. You should not have to pay for updates, make the current owners do this, and the only way to do this is to not put in offers on places that need updating, the market will make them fix their own problems.
   
5. When you're ready to prepare an offer, look at what has happened to the market over the last few months and take that trend and extrapolate it out over the next few months. For example, between April and June 2008, the value of SFH's in Victoria dropped about 7%. So that should be the minimum below the asking value you should be willing to pay. I suggest doubling it for the first offer, that is, make your offer on that $400K home, 14%-15% below asking, or $340K. Do not be afraid of offending anyone. If your REALTOR refuses to take this offer to the vendor, get another REALTOR who will, there are plenty of them out there right now who will do this.
6. Don't buy. I've said it again. I think I needed to, for me at least. Many realty companies also do rental or property management (Duttons and Pemberton Holmes definitely do) get one of these REALTORS to show you rental properties that are similar to what you are trying to buy. Do the math on these places and calculate the price difference between owning and renting including all the ownership related costs (monthly assessments on strata properties, taxes, maintenance etc). Buy when the ownership costs are the same (plus or minus 5%) as renting.
   
7. If a low ball offer is refused, walk away. These sellers don't understand the market they are in. Rejection is the best medicine for them to get it.
8. If a low ball offer is countered with a 1%-2% below asking price change, walk away and see point 8 above.
9. If a low-ball offer is countered with 5%+ below, you've found a dance partner. Don't immediately jump to the halfway point between your first offer and the counter, add 1-2% to your original offer and stick to that price. No matter what. If it doesn't work on this house, it will eventually work on another, it just takes time, and the longer you wait in a buyer's market, the cheaper properties will get.
   
10. If you are under any time constraints to buy, prepare yourself emotionally to lose. No one wins making rushed decisions in real estate during a buyer's market. (The reverse is true in a seller's market although the risks are still there). Find a way to be patient. Your family will thank you in the long run. And no matter what anyone tells you, there are no good opportunities to make money in declining assets. There are opportunities to prevent yourself from losing too much should something occur in the near-term before values start rising again. There are no guarantees that future values will rise above current ones should this market correct significantly. If you bank on prices increasing above current values, you are gambling with your family's future.
    

Now, you didn't pay for this advice. And I'm not actively out there practicing what I'm preaching (except point one above). So it really is only worth what you paid for it.

Your tips and strategies for FTBer's in comments.