Wednesday, January 30, 2008


There's been a lot of media commentary lately extolling that the global economy has decoupled from the US, or not. I kind of think it hasn't, it made a good attempt to, but when push came to shove, the real pain has actually been felt in far east markets more so than North American. But I digress.

The real reason for this post is to ask the simple question: has the Victoria real estate market experienced its own internal decoupling? I ask a simple question. There can be no doubt that in the new condo offerings at minimum, it is a serious buyer's market. I think there is argument for and against a balanced market in SFH above $600K. I think there is a frothy effect in SFH homes priced between $500K-$600K, where quality of product trumps quantity of offerings. And I think that SFH below $500K and resale condos below $300K continue to be a warm seller's market, though clearly becoming more luke and less warm as each week takes us deeper into 2008.

Will the so-called selling season of March-June change this perspective?

Can the resale condo market continue to be unaffected by new condo lack-of-sales?

Can the condo market (traditionally more volatile) continue its course without affecting SFH sales?

What do you see happening out there?


talus said...

Directly from

"Our favourite condo development gone bad, Tuscany Village, had a couple of interesting sales last year.

According to BC Assessments, unit 418 - 1620 McKenzie Ave is assessed at $476000 and sold for $339900 on October 5.

Unit 419 - 1620 McKenzie is assessed at $461000 and sold for $346625 on October 9.

How would you like to be the person who bought unit 411 - 1620 McKenzie Ave, assessed for $449000, but you paid $500000 (June 27)!!!

- Another Tuscany note, unit 413 - 1620 McKenzie had an asking price of $510195 in May. Today, it is $419900 (MLS#237359).

I thought real estate always went up! If you're in the market for a condo, this is the place to make a low ball offer."

I think that pretty much says it all.

BTW - you have until tomorrow night (31 Jan) to check out what your BC neighbors paid for their new house...

olives said...

I find the decoupling argument (that Canada can decouple from the U.S.) bizarre. Our main industries in B.C. are directly tied to American consumers. What do we have in Victoria - government and tourism. If there is a recession in B.C. I would think there will be some cutbacks and layoffs, and I don't imagine tourism will be up either.

Billy TwoBaulz said...

You forgot the high-tech sector. However, I work in pharma and I know a lot of the players in "Victoria's high-tech sector". Suffice to say it is laughable by world standards, or even North American standards (though there;s some very nice and bright people). There is quite simply no way in h3ll that this sector will do anything to protect Victoria's economy against the economic tide. In fact, it's so frail it's likely to blow away first, long before tourism or gov't jobs bottom.

Perhaps the most glaring example of this is Aspreva. A couple years ago this was the darling of the VI tech park due to its record-setting first round of finance raising. Now, it's been bought out by Galenica, a Swiss generics giant, who have their own headquarters in Switzerland and certainly don't need a funny little HQ in Victoria, Canada.

Anonymous said...

Blogs are great for generating hot air. Wow, you know some people in high tech, and you work in pharma? You must be right then - we're laughable by world standards.

Don't you think that the "glaring example" that you gave is a direct reflection of their success? How is that proving that our tech sector is crap? What about Power Measurement - they must have been complete crap to be bought out by Schneider.

15,000 in Victoria are employed in high-tech, and generated over $1.5 billion in revenue last year, outperforming the tourism sector by 400 million.

Maybe you meant that tourism is frail, and will dry up and blow away at the first sign of dollar parity? I'll just assume that. Since you work in pharma and all.

You should trade one of your baulz for a brain.

roger said...

anon 1:21

Here is a quote from the article you referenced:

IT is rocking this town right now and the ceiling is still too high to perceive. Further growth is going to happen but optimal growth might be difficult to achieve. The greatest challenge facing the south-island tech sector today is a serious skills shortage. With a low 3.5% unemployment rate, Victoria is desperate for workers. We have more than enough work to go around but not nearly enough people to take the jobs. This issue is acutely felt in the tech sector where advanced skills and knowledge are prerequisites for most positions.

I have been in high tech management in Victoria for several years and can tell you that recruiting skilled talent is tough. There are two big reasons why:

High tech companies in Victoria are stingy as far as salaries go. HR managers will tell you that salaries are about 18% less in Victoria than Vancouver. Local companies call it a "sunshine tax". Why not pay more? Because the businees model of many of these companies is based on these low labour costs.

The second problem is the high cost of housing. In Ontario and Alberta a high tech professional can afford to buy a house near work for their family. Here they are lucky to be able to buy in Sooke or Sidney. The weather is not enough of an attraction for out-of-province workers to offset the housing disadvantage.

Hre is something else to watch for in the next few months. Most of the Victoria high tech companies sell their product in US dollars. The public companies will start reporting 4th Qtr. 2007 results at the end of Feb. and in early March. The high flying loonie is killing their bottom line. Some will resort to cost cutting measures and we all know what that means.

Billy TwoBaulz said...

hey anon 1:21 - lighten up a little. Like I said, good and intelligent people in Victoria's high tech industry. But let's not kid ourselves - it's a pretty small sector in a big bad world.

Sure, Aspreva got bought out because they did reasonably well. But any company from around here that "makes it" is likely to be bought up and parceled away to the big leagues in similar fashion.

As far as $1.5 billion in revenue: (a) this is not very much money in terms of global industry and (b) this tells you nothing about profits.

Don't get me wrong - best of luck to everyone here in tech. But it's a small town. It is the tail wagged by the dog, not vice versa. My point was just that it will not protect the island's economy from a North American, US-led recession.

Look me up when Microsoft, Google, Boeing or Intel open offices on the island, and I'll be glad you proved me wrong - the Victoria tech sector will then be a veritable powerhouse that punches way above its weight for a small city.

Aleks said...

The tech sector is largely dependent on the US economy, except for professional services companies that sell to the government. Therefor while it may not be directly linked to the tourism industry it's still going to mirror it because the same things hurt both sectors. When the dollar is strong it hurts our bottom line and when the US stops spending there are layoffs.

It's also nowhere near big enough to support the local economy (or even have much impact on it) and is fairly isolated from other industries. You can't move into programming when you get laid off from a construction job. You probably can't even get into tech support.

Aleks said...

"Look me up when Microsoft, Google, Boeing or Intel open offices on the island, and I'll be glad you proved me wrong - the Victoria tech sector will then be a veritable powerhouse that punches way above its weight for a small city."

First of all, Boeing? One of those things is not like the others.

Secondly, would you include IBM in that class? Because IBM has an office here.

Anonymous said...

Those techie types don't mind living here because they have no kids (saves money for mortgage), they don't buy orange juice or milk, rent their place when they're on business trips to "strit ladies", and then they steal their tenants'food. BTW, they sleep in the crawl space so that they can rent all their bedrooms. Finally, they all drive these old rust buckets (maybe it is for some twisted tax write-off?).

boomer said...

uh Guys--the poster said:
"The real reason for this post is to ask the simple question: has the Victoria real estate market experienced its own internal decoupling?"
He's talking about the effect(or not) of a glut of ridiculously priced (many approaching $1000 sf) "new exclusive" condos for sale on the prices on older resale units (generally, but not always more reasonably priced).
Of course,there is,or soon will be some effect. Its called supply and demand. In Vancouver and Toronto (and even one Nanaimo development!~)during the last condo glut in the '90s,several developers went to the "auction" alternative to bail out of their unsold units. The first ones to do this actually fared quite well,as much of the bidding ended up being somewhat close to previous asking prices. It took a while for the auctions to run out of aggressive bidders and thats when the "deals" showed up.It will be interesting to see if any one tries it in Victoria as the spring "selling season" gets underway in earnest.

Anonymous said...

Roger & Aleks:

WHERE are those IT jobs advertised? I'm curious, as I know a Cdn who is eager to return to Victoria to work in IT, but nobody can match her 6-figure salary, never mind having to step down from owning a very nice home in the US, to living in an old box for a pile of money here.

Anonymous said...

In Victoria, the IT jobs command 4 figure salaries (complemented by a houeful of tenant's rents).

toofatforme said...

techies are worrying too much about the condo investments to have time to build the industry locally

roger said...


I am not sure that decoupling is a correct characterization of the current market. When a RE market picks up steam or starts to cool off different segments will have higher activity.

The condo market will undoubtedly fracture first. The typical new development has less living space than the older condos. Investors don't seem to care because they view these as poker chips in the RE investment game. Those who want a home are usually not seeking a 2BR 900 sq. ft.(or less) shoebox. The serious investor will buy low and sell high; not buy high and try to sell higher. Most have realized that the game is over and will soon start unloading to the johnny come lately fools. I expect a lot of folks will be walking away from their deposits as new condo units come onstream. I see one unit in the Juliet has dropped the price from 459K to 409K.

The SFH market will still truck along as FTBs continue to swallow the get in while you can mantra from their friends and family. However the 600K-1M SFH market will start to stall as move-up and out-of-town buyers get nervous or refuse to pay for what they perceive as overvalued properties. The 1M+ homes will have significant price reductions and some will sell to the affluent.

This is like a slow motion train wreck. It will take 6 months or so until the MSM and general public will start to talk about it. Patience is required but will be rewarded.

roger said...

anon 4:31 said

WHERE are those IT jobs advertised?

The high-tech industry here is pretty tight with their advertising dollars. Very seldom do they advertise nationally. In fact they rarely use the local Times-Colonist newspaper.

The vast majority of the jobs are advertised on the ViaTec job board; INfoTech VI and TechJobs sites.

Tell your friend to forget it if the salary requirement is over 90K unless he/she is interested in management or sales. Tech worker bees don't get paid that well in Victoria (sad but true)

Anonymous said...

I say f**k the IT jobs. Keep them out of here. RE agents will use that as another excuse to pump the bs about DEMAND is high.. oh, we are the high tech capital of Canada, we are Silicon Valley North, that kind of bull, just like the Winter Olympics and all our wonderful winter climate here with all the great winter sports (downhill skiing, snowshoeing,etc, etc)

Aleks said...

What Rogers said, it's all websites. It's also probably not a bad idea to go to the Viatech site, look up companies and then visit the company's website to look for jobs.

I disagree about the $90,000 cap though. Senior developers and product architects pull six figures.

Anonymous, why the hate? Realtors are going to keep pumping no matter what, but once the crash comes it won't matter what they say. So why wouldn't we want jobs that pay more than retail or riding a kabuki cab?

Anonymous said...

Besides IT, tourism and government, our other industry (if we don't count condo construction)is the geriatrics industry.. I wonder how many billions it generates? You know assisted living, senior homes, live in maids, etc. Are they 6 figure salaries?

Toofatforme said...

But wait, we are also the financial capital of Canada. Island Savings is headquatered here. And I believe Capital Boast?

Anonymous said...

All those bankers, stock and bonds brokers in our financial capital are drying demand for RE here.

hhv said...

Roger said:
"The SFH market will still truck along as FTBs continue to swallow the get in while you can mantra from their friends and family. However the 600K-1M SFH market will start to stall as move-up and out-of-town buyers get nervous or refuse to pay for what they perceive as overvalued properties. The 1M+ homes will have significant price reductions and some will sell to the affluent."

Roger, about a year ago when I started blogging we'd see 2-3 SFH get listed almost daily... maybe 10/week or so minimum, between $300K-$425K, all suitable. I'm seeing 2-3 listings per week in this segment over the past 3 months or so. I know that we're in the slow season, but I was saying things like affordability had already pushed people out of these places back then... if we couldn't do it with our resources, then no one else could either. Obviously rather naive of me.

My fear is it is not the FTB that is buying these suites but the RE "double dippers" I'll call them. These are people who should no better, but see a trend that is too exciting and have to get in on it. They recognize condos make terrible investment properties, but they see a home with two or more revenue streams as too good a place to park their money. They pay significant down payments, have smaller mortgages (say 40-60% of purchase price) which rents almost cover and then the write down the monthly costs as a tax write off of their "investment."

I know of a few parents in the friend circle that fit into this category (mine included). It's that pressure, and the club mentality that ensues, that leads me to believe that this segment and the condo segment are very different. Hence my question that the two markets have decoupled? I'm not arguing for or against this hypothesis, just putting it out for discussion.

roger said...


Real estate booms are driven by the perception that it is a great investment; cheap credit; rising prices; fear of being shut out and a herd mentality. What happens when things slow down, YOY changes are modest (4 or 5%) or heaven forbid prices drop!!

If prices drop will your friends parents hang in there month after month as prices keep falling? If the answer is yes then they will join the other owners selling because their dream home has lost some of it's lustre.

If condos start dropping in price and the MSM starts reporting that this might be the beginning of a real estate correction will they hang in there?

Anonymous said...

Who needs Microsoft or Google when we have already have ReMax and Century 21. These US firms have long been established here. You can get a nice job as a receptionist there or a 6 or 7 figure job if you are a good liar.

JAS2 said...

I'm a programmer here in Victoria, and from what I've observed, the main client of our industry is the government. So if the government decides to drastically cut back on spending for software, then it would affect our industry.

The only people I know in this industry that earn 6 digits are those that work on contract. Normally, the full-time employees start out 5 digits a year, then get just small increases per annum.

greg said...

They pay significant down payments, have smaller mortgages (say 40-60% of purchase price) which rents almost cover and then the write down the monthly costs as a tax write off of their "investment.


I wonder how many of those sizeable down payments are drawn against the equity in principal residences?

My uneducated guess would be: most!

So I don't think the game will continue at all once values start tanking - that equity lifeline will get cut off soon enough.

snaptee said...

I think people are confusing the high tech industry with the IT industry in this town. The two are very different.

Anonymous said...

News alert: The TSE is moving to Victoria on account of the "sunshine tax". Employees will be subjected to a 25% salary rollback.

osiris Vic said...

I have to agree with Jas2 on ITs true employer. Though there are a number of smaller shops around town creating there own products, the big boys like CGI, EDS, IBM, and Fujitsu are all here for government contracts. As far as wage goes, I have looked at moving back east a number of times due to the increase in pay as well as the housing affordability. Getting a 20% wage increase on top of a house for 60-70% % of the price here is pretty tempting.

roger said...

osiris vic

Getting a 20% wage increase on top of a house for 60-70% % of the price here is pretty tempting.

Not only will you have more disposable income and a better house but you will actually be able to contribute to an RRSP for the future. With the price of housing here being what it is you are giving the bank lots of your after tax dollars in interest every month. That money is gone forever.

Aleks said...

When I said IBM has an office here, I was talking about the Victoria Software Lab (which used to be PureEdge Solutions) not the services group that sells to the government. There are a number of tech companies in town that don't sell to the government, the biggest being IBM, ACD and Schneider Electric (formerly Power Measurement). I also know a number of people who've gone from a tech company to Columnbia Fuels, which seems like an odd move but I guess they're hiring all sorts of people. My brother said Money Mart was at a recent .Net conference recruiting developers.

We're nowhere near as big as Vancouver or Ottawa, but there's a lot more to the tech industry in Victoria than just writing custom PL/SQL hacks on government servers.

S2 said...

From Victoria Real Estate Board's website for February 1, 2008

roger said...

Victoria Stats for January Released

December SFH sales in Greater Victoria - 187
January SFH sales in Greater Victoria - 228

December Average Price GV - 624K
January Average Price GV - 606K DOWN

December Median Price GV - 536K
January Median Price GV - 530K DOWN

VREB comments:
Victoria Real Estate Board President, Tony Joe, says the market remains very healthy and the strong sales and increase in inventory represent good news for sellers and buyers. "There continues to be strong demand for homes that are realistically priced and the increase in the number of properties available for sale means more choice for buyers," said Joe.

VicREBear said...

Realistically priced? That would be $300,000 for a median priced house.

Get realistic, Tony.

Aleks said...

I always get a chuckle when they say "it's a great time to buy or sell". Don't forget to tip your waitress, the realtors are here all week.

Bubble 'n Fizz(le) said...

Check out Stupid price of the month to see how decoupled this homeowner is from reality.

Holgs said...

Just gotta say that I second the opinion that Victoria's high tech industry is laughable... Not to say I'm an expert by any means, but I did work in Silicon Valley during the tech boom and have a ton of friends who work at Schneider, which happens to be pretty much the only real game in town. One of my friends was working half time for the old California company and full time at Schneider and STILL pulled in more per month from the part time gig in Cali than the full time Schneider gig.

BTW, I now find myself in Göteborg, Sweden, which has a slightly larger population but boasts a couple of - lets just say - quite well known company headquarters... Both Volvo Trucks and Volvo Cars are headquartered here, and Saab is just a bit north. Plus all of the other spin-offs that come from the good schools (Chalmers). I just noticed an Alpine car stereo R&D office across the street from where I work now, and I'm thinking about dropping off a CV... :)

Victoria is a great city, but it's too pumped up on its own ego right now.

Another rant - talking to a friend the other day in Victoria trying to convince him to sell his condo FIRST, before buying a house, and he condescendingly informed me that I need to realize how desirable Victoria is and that it is an anomaly in the world, and everyone wants to live there, and the condo market is so hot right now so they'll sell the condo in days, no matter what the price, preventing the absolute worst case scenario: selling the condo without buying a place and having to move in with the parents for a couple months. *sigh*

I hope he's right! One day we'll be back though, and I expect lower prices, so I also hope he's wrong! :)

steve said...

Guys, I don't know if prices will ever drop enough for you to buy in.Quick, run into the bathroom and look in to the mirror and chant,"I missed the boat I missed the boat I missed......" I don't mean to poke you bears with a stick but really, if your waiting for that $190,000 condo with water and mountain view to show up, your completely out of luck. I agree there will be a correction in condo units but there is not going to be a collapse.SFH prices will stall but not drop significantly ( 10% tops ) and then things will just move on from there. I own a house so I don't care much about the condo market, but the average SFH price increase 5%. If you do the math over a 15 to 20 year period, the prices are about right.High end property is about 1/2 the price of comparable vancouver listings and ( I know you hate to hear it ) Victoria IS a desireable place to call home. Like WHY do you guys live here?
Just my 2 cents.