Tuesday, March 18, 2008

...in most markets, renting wins.

“When the average family can no longer afford the average home, how can so many people be deluded into believing a boom will last forever?” he asks. “How could we put so much money into something we might never be able to sell, except to a greater fool?”
H/T to Roger for the link.

Discuss away.

92 comments:

roger said...

Just to get the ball rolling....

Garth Turner has some advice about Victoria Real Estate

Victoria is a bizarre market with prices that reflect its unique population – older, wealthier and remarkably insulated. The current downtown condo craze is probably already overbuilt, and the tide of new buyers needed to sustain existing prices will sadly not be washing ashore in the next five years. Meanwhile the economy is too small to consider the place anything other than a glorified small town and government hang-out.

But..... we are a "world class" city and everyone wants to move here!! Garth may not have heard that the Olympics will be in Vancouver in 2010 and this will have a big spillover effect for Victoria.

vg said...

A flatlining would be a best case scenario but highly unlikely going by historical recession numbers,the limits have been reached,only idiots,move ups with major equity or deep pockets who don't care are buying.

vg said...

Garth forgot to mention we are "quirky" here too.Victoria can flip faster than a Vancouver will as there is much more hot money floating around over there and a larger ship to slow down. I am looking forward to the March numbers,another down month and the down trend will be firmly established.

roger said...

VG

Just checked MLS. 248 listings over 1 million and 10 sold last month. 19 sold in January.

If these guys get anxious and start reducing prices quickly we may see more sales in the top end. This will increase the average and median sales price and the bulls and MSM will get excited.

However, if the smart money stays on the sidelines there will be few top end sales and the median and average will drop. TC and VREB will have a spin problem with 3 months of bad data.

The important numbers to watch in the March VREB report will be the sales and listing stats. Supply and demand will determine what happens over the next few months. I believe the volatile financial market conditions will result in more buyers staying on the sidelines.

PCS is a good way to see the market and folks should get a free account so that they can watch their area of interest.

fodder said...

I'm not going to pretend I know anything about how economics really work. I'm a naturally cheap bastard in my mid 30's who believes once everyone is on to something... The people with insight are the ones selling it to them.

The reason I'm posting is to see what other people think about a worry I have for my generation. We have no real financial concept. During the previous down turns in the market most working class families bought a house they thought they could afford and still have a little something in the bank for a rainy day. The house they bought was generally going to be the house their kids would be raised in and they would eventually die in.

Our generation seem to be buying the top end of what they can afford. Then adding a new vehicle to the bill, because what's a little more at that point. When the cycle takes a down turn I worry it could get ugly. I'd like to buy a home at a reasonable price, I don't want people homeless.

I guess I'm hoping someone with financial understanding will tell me the market will only drop 30% and people will be ok... Please.

S2 said...

The market may drop 30% and some people will be okay and some people won't. HTH :)

Anonymous said...

Fodder,

When the market hits bottom then us working class people will be the foreclosed condos out from underneath the young'uns

hhv said...

"Our generation seem to be buying the top end of what they can afford. Then adding a new vehicle to the bill, because what's a little more at that point. When the cycle takes a down turn I worry it could get ugly. I'd like to buy a home at a reasonable price, I don't want people homeless."

I'm in the same generation. I have faith. The generation that lived through The Depression came out OK. We will too. Ours may be a bit longer and deeper, but we have boomer inheritances to cushion us, no wait, those went to down payments on zero down 40 year mortgages: we're F$cked.

I hope you have a better outlook than me.

roger said...

Globe and Mail article on the Canadian economy:

Canada begins tracking U.S. into slump

From Wednesday's Globe and Mail

March 18, 2008 at 8:50 PM EDT

OTTAWA — Canada's days of bucking the U.S. economic downturn have come to an end, according to a forecast to be released today.

A projection for the Canadian economy by Toronto-Dominion Bank is expected to show that Canada's slowdown is happening at the same time and to the same extent as the downturn in the United States. It also projects that Canada will likely register a quarterly contraction before the U.S.

Anonymous said...

The rest of Canada may experience a recession but Victoria won't because we are different and everyone wants to live here.

vg said...

wild stuff roger,so much for the "we have oil" life preserver.

When TD Bank tells you the party is over then any remaining bulls best take cover,the banks want to be the last one to break the bad news to you.

beagle said...

fodder, I wouldn't worry about homelessness for your generation. A lot of nice rental housing is being built right now with granite counters and steel appliances. If there is a bad crash all the condos will convert to rentals and since your generation is badly needed as a workforce I don't see any problems having a place to live. I feel more sorry for your generation the way it is now. A terrible rental market or horrendous life long debt to buy in. Meanwhile boomers are buying with leverage investment properties and not even occupying them.

roger said...

Check out the price reductions the last few days on SFH Colwood-Langford 550-800K

For more areas covered by PCS click here and scroll to the bottom of the page

olives said...

The PCS site is kewl. Maybe you could give us a regular update Roger?

roger said...

olives said

The PCS site is kewl. Maybe you could give us a regular update Roger?

You can visit the agent site and see the updates as they are updated hourly.

For your own free PCS account (first name and email) that you can setup exactly for the area and price range you want go here. Trial account expires in 2 weeks and is available immediately (no agent contact).

If any of the readers get one they should let the group know what is happening in their area.

roger said...

Beagle

Following up on your post with this article in today's Vancouver Sun:

B.C. boomers won't head for old-age home

Will kids ever grow up and stand on their own two feet??

But just 31 per cent of B.C. respondents want a home with separate living quarters for their adult children -- the lowest level in Canada.

Fifty-six per cent of Quebec residents want homes with living quarters for adult children.

Kevin Lutz, RBC Royal Bank regional mortgage manager for B.C., said rising B.C. real estate values have put many parents in a strong position to help their children purchase their own homes.

"Rising property values in B.C. have given people a lot of equity in their homes so they can refinance and provide a very good downpayment for their kids," he said in an interview.

Fifteen per cent of Canadian baby boomers surveyed said they have adult children, aged 21 or over, living at home. Of that percentage, 41 per cent have returned home to live while 59 per cent have never left home.


And here is a boomer financial plan for retirement!

The poll also found that 22 per cent of Canadian baby boomers believe their home will be their primary source of income when they retire.

"We're seeing people more comfortable with carrying debt throughout their retirement than ever before," Lutz said. "The previous generation was more about paying off their mortgages and being debt free but this generation is more into using home equity lines of credit into retirement."

Anonymous said...

Nice retirement plan. Especially if RE prices decline.. Equity? What equity? Or did you mean earning rent from your adult kids living in the basement?

roger said...

Some of you may be wondering why the fixed 5 year mortgage rate has not dropped. One reason is that the banks have taken a beating on subprime and need to make some money somewhere. Another reason may be that they are keeping rates high to cover future foreclosures and defaults on properties with over 20% down.

Anothe reason is that there is a credit crunch and it was NOT alleviated by the FED actions in the US. The financial institutions are jittery and one measure of this is the TED Spread.

You can see in the article that the TED spread was about 1.6 five days ago. Today it has peaked to 2 as quoted by Bloomberg.

Nick said...

I am surprised nobody posted this article?

http://www.canada.com/vancouversun/news/story.html?id=bd62d237-6fea-44be-8fe7-003f765606c5

vg said...

"Seventy-eight per cent of respondents said they "wanted" to pay their mortgages off as fast as possible and one-third said they had made a lump-sum payment toward that end. "


"wanting to" and actually doing it are two entirely different events...wait til the first fix up job or major repair comes,all that optomisim goes out the window in a hurry. When only one third actually did then that shows you right there.Any one buying the last year or two can't have a hell of alot left at the end of the month if they went in with mininum down payments.


Rumours of a large European bank in major trouble,even gold tanked,now that is not a good sign.

olives said...

They had a similar story on the Globe & Mail today Nick. I assumed they were not talking about people in Victoria, Vancouver and Kelowna though, since 40 year amortizations are all the rage here.

roger said...

Follow up to my fixed rate post above. Canadian banks lowered fixed rates by a measly .1% today.

googler said...

You all might be interested in the following article from BC Business on Bob Rennie. The "journalist" seems quite cosy with Bob. No hard questions, just a nice feel-good piece about an East Vancouver boy with big aspirations. Yuck. But an amusing read.

Rennie in East Van

roger said...

Did you know that the leader of the opposition, Stéphane Dion, is supported Garth Turner and the launch of the Greater Fool book??Here is a photo of the big event and the full story is here

Comments anyone??

vg said...

well now I am waiting for the anti-Liberal posts versus the Garth bashing. Now since Victoria voted Liberal for many years this is quite the endorsement,not just some loose cannon whackjob when the Liberal leader steps up to the plate.


Dion's been here enough to know whats coming,yep, just a small town government hang out,lol.

Anonymous said...

I'm not a fan of Dion, at all. I can't help but wonder if he was thinking Garth wrote a biography on him given the title?

vg said...

More CHEK TV pump, the red hot market with multiple bidders paying overprice etc,"if you are waiting for the market to come down any time soon you can forget it",etc....man this is pathetic to listen too.

roger said...

JUst watched CHEK news @5 PM Don't watch it at 6 or 11 unless you like misleading, incompetent reporting. They selectively pull numbers out of the Credit Union report with no mention of the more moderate CREA or TD reports. No reporting of declining sales or two month drop in average price. Just a statement to forget about prices dropping and 10% increases this year and 9% next year.

What we also got was two agents literally snapping their fingers and telling us that good properties sell within a day or two and we have a multiple offer situation. Also said anything with a suite is gone right away.

vg said...

Also CHEK barely mentioned the recession coming,nor the credit crisis and how lending may be getting tight, just that low rates will keep the wheels greased and the sheep lined up.


BTW the stock markets had some nasty reversal signals today,be prepared for a major hit coming here,possibly a 800- 1200 one day drop. I am in alot of cash right now.

vg said...

roger, that was one of the more blatant pumps on CHEK ever,no cautionary statements to be careful buying at the high end of a cycle,no talking to financial experts who just might mention taking a wait and see approach til this gloabal crisis plays out, just the real estate shills reeling them in.

The segment did touch on the tight rental market,which it is tight to some extent but it played back to the hot market crap and the brainwashing.

Anonymous said...

CMHC apparently doesn't give a crap about holding onto whatever last shreds of credibility they have left. Did you read the homeowner survey story -- CMHC used it to conclude that homeowners are "fundamentally cautious" about their housing debt.

Huh?

The claim is utterly without basis. The study said that homeowners want to reduce their amortization periods by increasing their payments beyond the minimum. That says nothing about cautiousness. Suppose someone signs up for the 40 year mortgage product -- they may pay bi-weekly, and try to pay off in 37 years, or even 35. That's cautious?

Only CMHC could create a situation where mortgages go on forever, and say that people are being "cautious" if they think about cutting it down a little.

Duplicitous, dishonest... how do they sleep?

Anonymous said...

Ever since CUCBC got the BC Government banking business they have fallen over themselves to report rosy, happy messages for the Liberals.

I don't think they could care less about the truth as long as the Government juice keeps pouring in.

roger said...

VG,

I find this type of reporting by the MSM irresponsible. They are more concerned with the "big story" soundbite format that whips up the audience than responsible reporting.

Some folks come on this blog and say that the bears are trying to be negative by predicting a housing drop in Victoria. At least we provide stats, link to alternative point-of-view articles and urge people to use caution if they intend to buy.

The MSM and some of the REALTOR® crowd keep pumping RE and misleading the punters into purchasing overpriced homes using 40 year amortization mortgages. I feel sorry for these folks. In a year or two they could be in a negative equity situation with high monthly mortgage and tax payments. Then the MSM will rub salt in the wound with crashing market stories.

roger said...

VG said

The segment did touch on the tight rental market,which it is tight to some extent

I am not sure about the stat for the tight rental market. We live downtown and when I walk around I still see vacancy signs. Also Craigslist, Kijiji and Used Victoria Websites seem to have had more listings than usual lately.

Where do they get these vacancy stats? I seem to recall reading a few years ago that it was by counting newspaper ads and there are fewer of those now with the free ads on the Internet.

Nick said...

VG,

Re: Mortgage article. I take it that you don't give credit to those that "have" opted for weekly and bi-weekly payments. To me that is saying that they "did" take action and not just want to. The 1/3 was only referring to those that make lump sum payments.

As for the CHEK newscast. I completely agree that it was a big pump story. However, I do not believe that you need to try to listen to financial experts that have been wrong in many instances over the past years.

On another note re: mortgages terms, a good financial expert would see how you can benefit from the 40 year mortgage.

Right now you can lock into a 10 year rate at 6.25% (origingroup.ca). Let's just say you are taking a 400,000 mortgage. Let's say you can afford the 25 year term but opt for 40. You will save about 400+ dollars a month. If you put that money into an investment account that returns about 7% a year, at the end of 10 years you will have the opportunity to put an additional 5k+ towards your mortgage compared to opting for 25 year term

However, the question remains, how many people are taking 40 year terms to invest their savings vs. just scrapping by to afford it.

My comments are not saying to go buy now but I am somebody that believe you can benefit from the 40 year mortgage if you are disciplined. I am just waiting for some type of correction and hopefully it happens in a couple of years. I am heading out of country for a year or two and just sold my places in Vancouver.

vg said...

roger,
I have a friend who is on the hunt for a 2 bedroom place and is having a tough time if you are looking in some of the better areas. There is so much overpriced gouging going on Craigslist or else it is dark dingy basement suites for top buck. You have to be quick to get the good rentals.



Just saw the tail end of the Global TV comments on the BC real estate bubble and the interviewee says what happens after 2010 ? the boom is over,where will the growth come from ? and that homeowners are over extending themselves and if interest rates climb then what ? some serious unbiased reporting,what a switch from the CHEK crap.

Muriel said...

Roger said:
"I am not sure about the stat for the tight rental market...Where do they get these vacancy stats? I seem to recall reading a few years ago that it was by counting newspaper ads and there are fewer of those now with the free ads on the Internet."


I've been wondering about how those rental vacancy stats are calculated too, and I think this is a very important point. My belief has been that the stats on rental vacancy rates are based on ONLY on vacancies in purpose-built rental housing - i.e. multifamily apartment buildings.

But this may not be the case - here's a link to a press release from CMHC where they explain a bit about how they calculate the rate and what they include:

http://tinyurl.com/34cgpj

But it seems like they don't count units in buildings where there are less than three rental units - i.e. most secondary suites. Seems like they do count condo units for rent, but only in certain cities, one of which is not Victoria. It's not clear if they count whole houses for rent in their stats either.

If that's the case, I don't see how this stat can be taken as accurate. It would be interesting to know how what percentage of the available rental housing in Victoria is made up of purpose-built multi-family rental units vs. secondary suites, and condos rented out by owners, etc. I bet it's changed dramatically over the last 20 years, and so the rental vacancy rate is probably not counting the same thing over the years.

I'm in no way wanting to downplay the fact that we do have an affordable housing crisis in Victoria. As a renter I know that all too well. But I also think that inaccurate info about the rental vacancy rate can be and is used as a scare tactic in some cases.

vg said...

agreed, it looks to me like something they used to call a 5% vacancy rate or thereabouts, but a 0.4% rate ? you would think there would be a massive tent cities all over town like in Calgary at their peak last summer if this was really the case.

Muriel said...

I can't say I have CMHC's methodology figured out, but they do say this in their 2007 Rental Market Report:

METHODOLOGY FOR RENTAL MARKET SURVEY
Canada Mortgage and Housing Corporation (CMHC) conducts the Rental Market Survey (RMS)every year in April and October to estimate the relative strengths in the rental market. The survey is conducted on a sample basis in all urban areas with populations of 10,000 and more. The survey targets only privately initiated structures with at least three rental units, which have been on the market for at least three months. The survey collects market rent, available and vacant unit data for all sampled structures. Most RMS data contained in this publication refer to privately initiated apartment structures. The survey is conducted by a combination of telephone interviews and site visits, and information is obtained from the owner, manager, or building superintendent. The survey is conducted during the first two weeks of April/October, and the results reflect market conditions at that time. CMHC’s Rental Market Survey provides a snapshot of vacancy and availability rates, and average rents in both new and existing structures.


You can download this report for free. Seems like they count vacancy rates for different categories of rental housing separately...?
They have "Privately Initiated Rental Apartment Structures of Three Units and Over" and "Privately Initiated Rental Row and Apartment Structures of Three Units and Over."

Happy Owner said...

You guys should thank me for instilling some energy here. We almost hit 200 comments in the last post. All in all, great commentary guys. You all have almost turned me bear...well not quite yet!

Anonymous said...

the rental problem is in QUALITY, not quantity. Like the entire city, the rental market is for old, run-down smaller boxes with a need for either reno or removal. Rarely do either happen in rental properties.

sourgrapes said...

Another worrisome thing to consider: What'll happen to all those folks who used the equity in their own homes to help their kids buy houses?

In the upcoming correction, I hope it doesn't turn into a domino-style calamity if one owner needs to sell for less than they paid, then the debt has to be paid off by the 'parent' whose house has also decreased in value.....

Anonymous said...

"Another worrisome thing to consider: What'll happen to all those folks who used the equity in their own homes to help their kids buy houses?"


my better half were just discussing this,if these parents help the young couple out and co-sign against the new place then prices tank or recession problems surface and the youngsters are forced to sell then mom and dad will be on the hook for any losses. A house of cards indeed.

Anonymous said...

If they're that stupid I have no sympathy for them. A fool and his money are soon parted.

roger said...

sourgrapes said

Another worrisome thing to consider: What'll happen to all those folks who used the equity in their own homes to help their kids buy houses?


Nothing will happen to them. When they gave the kids the money it was gone forever. Did you think the kids would ever pay it back? Not a chance. How could they? They didn't have enough money to buy the house in the first place.

Anonymous said...

This "economist" at the CUCBB, Helmut Pastrick, (604) 737-5026

http://www.cucbc.com/
displayjob.php?sp=35&type=SB&jid=0

will the laughing stock of BC. On the National tonight they were talking about a DEPRESSION, never mind a recession. All markets were severely down today. RE prices in this overinflated Victoria (where the majority of people are poor and drive polluting 30+ year cars) will fall not 20% but 50, even 60%.

Just last week, another "expert" Cramer on CNBC was pumping Bear Stearns as a good buy.. and we know where that's at. My stockbroker in 1998 was telling mr that at $35 (and this long before the reverse-split) Nortel will never be this low again and it was the best buy he saw in the century (Nortel ended up trading at 50 cents). Anyone can be an "analyst" or "expert", any dumb monkey that is.

Who is going to take these clowns to task after the fall? They should be accountable for their propaganda as they may influence vulnerable, naive, gullible minds. Then again, that is a sign of immaturity, and perhaps when people who influenced by these clowns end up saddled with a mortgage that is much greater than the market value of their house, that will a great lesson for them never to forget.

JasonR said...

The PCS site you listed is great Roger - thanks for the tip! After it expires do you know if there is a way to renew it, or do you just sign up again?

beagle said...

Is U.S.-style housing crash a foreshadowing of Canada's future?
I find this article fairly balanced. Amazing that Chek can't read the Canadian Press Wires. I noticed though that the US media has done a 180 on reporting the economy. CNN use to never say anything and constantly talk war, politics and celebrity crap, but now the economy is "Issue #1" and half the programming is talking about how bad it is. News is not news it's what ever garners eyeballs I guess.

Anonymous said...

Nick said:
My comments are not saying to go buy now but I am somebody that believe you can benefit from the 40 year mortgage if you are disciplined.

Nick, look at the timing for the onset of 40 year mortgages, the current state of house prices vs. income, and the subset of the population who are first-time buyers using the 40 year option. There is no doubt whatsoever that the vast majority (of first-time buyers at least) are stretching the amortization period for one reason only -- to buy more house than they could afford with a regular 25 year mortgage.

Do you honestly think many of these folks are really holding money aside to invest in something they hope to get 7% per year in? At these prices? With the confidence people have in other investments right now?

So, fine, a 40 year mortgage may be a useful tool for some folks. Frankly, those folks who can benefit either already have a house or decent net worth already. First time buyers using 40 year mortgages are the ones putting the last fumes into the gas tank fueling the real estate boom -- they're the ones to watch, and they have the most potential to lose.

Nick said...

Anon,

The problem is we do not know the percentage of first time buyers purchasing RE. We also do not know the income of current purchasers.

Even though we have factual evidence about how unaffordable it is for the average is the average even buying? If they aren't the question is how many not so average will keep purchasing and how long will it last for?

This board, including me, tend to identify traits of potential housing crash but we do not produce any stats re: current purchaser. With that said, it is hard to find out information on current purchasers.

Increased listings and decreased sales are a good measurment. However, how many people are just listing a high price to see what happens? A crash will occur when people need to sell, therefore reducing their prices. Inventory needs to be sustained at high levels to induce this behavior as it will give buyers more opportunities and people will have to be competitive to get them to look at their place.

I think the best gauge is going to be the next three months. I know something could happen after but if the best time for RE doesn't increase in price and decreases in sales you will see the MSM either stop reporting or jump ship. If the next three months are good they have more off season talk to control the masses.

roger said...

There were several housing deals under 350K in today's Times Colonist

roger said...

Last night on CHEK news the realtors were telling us about all the houses that were selling quickly and the multiple offers.

Take a look at all the price reductions in the last three days in Colwood-Langford in the 550-800K range of Single Family Homes.

PCS is a great way to see what is really happening!!

greg said...

Respectfully Nick, this is baloney:

This board, including me, tend to identify traits of potential housing crash but we do not produce any stats re: current purchaser. With that said, it is hard to find out information on current purchasers.

Increased listings and decreased sales are a good measurment. However, how many people are just listing a high price to see what happens? A crash will occur when people need to sell, therefore reducing their prices.


I have been tracking the divergence in the market in terms of inventory of over and under median properties, and clearly above the median it is now a buyer's market.

Price reductions should start after properties have been on the market 3 months plus around May or June they will begin in earnest.

The only thing that will change that is a reduction of inventory. I have been tracking the numbers and so far they are not declining.

Read this to see my point.

vg said...

too funny roger..... and they're going up another 10% this year too ! lol

beagle said...

haha, that's a great cartoon roger. I wonder what a van down by the river would go for, hehe

hhv said...

"However, how many people are just listing a high price to see what happens? A crash will occur when people need to sell, therefore reducing their prices."

Respectfully Nick, I disagree. A crash will occur when people no longer see their home as a good investment and seek to cash out before it gets really ugly.

There are always people in any market who have to sell. People lose money in RE all the time because of this. It's not NEWS. What is news is the escalating price of RE. It's all over the MSM.

When the MSM changes their tune to "sell now before the crash happens." All those boomers who have too much money tied up in RE, who are counting on the escalating prices to fund their retirements will race to get out before the real crash happens. And like those on the upside, there are always latecomers to the party. Psychology is EVERYTHING in the marketplace. People will sell when they see the writing on the way, clearly; right now there is much graffiti, but it will take the MSM to cleanly put it out there that your retirement fund is losing value. Get out before it's too late.

talus said...

PCS is an excellent source - great tip Rodger.

With enough collected information we could have a blog similar to Sacramento Area Flippers In Trouble

http://flippersintrouble.blogspot.com/

roger said...

talus

Thanks for the link. I went to the Sacramento Area Flippers In Trouble Website.

What a sobering experience. Talk about haircuts. No wonder my old friend Ken Lowball is only bidding on US properties right now.

If there any REALTORS® viewing this blog I suggest they visit the site. Sacramento is also a capital city with nice weather.

Anonymous said...

For those of you trying to understand the financial market's alphabet soup (CDOs, ABCPs, derivatives, CDS's, etc) I have some good news and some bad news...

The good news is that I have found some excellent youtube videos that explain each of these about as clearly as you could ask for. You can watch them here.

The bad news is that you're going to have to watch each one of those videos 3 or 4 times before it kind of sinks in. Can you imagine the lawyer lingo that must come along with the writting of one of these contracts? Good lord!

Anonymous said...

You've all heard, perhaps even tried Cap'n Crunch cereal... but have you ever tasted the Credit Crunch version?

I nearly fell off my chair laughing when I saw this today! Bahaha

roger said...

The Globa and Mail had an interesting article yesterday.

Global capitalism teeters on the brink -
We've moved from a world of risk to a world of uncertainty


Excerpts:

What's going on? Are we simply in the midst of another gut-churning fluctuation of a world economy that's prone to intermittent volatility but that always seems to find its footing? Or are we glimpsing a deeper emergency, one that goes to the heart of modern global capitalism?

The U.S. Federal Reserve's latest efforts may stabilize markets for the time being; stock markets were sharply higher yesterday. But there's reason to believe the crisis is the product of systemic problems in the world's economy

So the rules of the game have now changed. Our global financial system has become so complex and opaque that we've moved from a world of risk to a world of uncertainty.

We do know, however, that we're not dealing with a liquidity problem. We face a massive solvency problem: Banks and investment firms aren't so much worried about financing their next investment; instead, they fear for their survival, because core assets - particularly loans on their books - have been suddenly and dramatically devalued.

vg said...

great article roger, this part is exceptional :

In a world of risk, we can judge dangers and opportunities by using the best evidence at hand to estimate the probability of a particular outcome. But in a world of uncertainty, we can't estimate probabilities, because we don't have any clear basis for making such a judgment. In fact, we might not even know what the possible outcomes are. Surprises keep coming out of the blue, because we're fundamentally ignorant of our own ignorance. We're surrounded by unknown unknowns.

Anonymous said...

I was just reading on one of the Vancouver blogs that in an article about prices going up 10 % in the next 2 years a Victoria RE agent said someone from Calgary just bought a $3 million lot and as he was speaking his pager was going off with someone else from Calgary wanting to overspend on property here.

I thought Calgary dried up. I wonder how many people actually bought here from Calgary. Is Victoria going to become a playground for 50 something Calgarians and we will be the "poor" locals serving their needs?

Comments people!

Anonymous said...

Oh Yeah! A friend who works for a well known builder here said the Calgarians have become the new Rock Stars. people are falling over backwards for them.

This is making me sick and adding another reason for leaving.

roger said...

anon said

I thought Calgary dried up. I wonder how many people actually bought here from Calgary

VREB released the stats on Victoria buyers on January 9, 2008.

Nearly three quarters of all local home buyers last year were from the Greater Victoria area. The analysis of buyer origins using Multiple Listing Service® (MLS®) data provided by Victoria area REALTORS® also shows that nearly seven per cent of buyers were from Alberta and less than one percent of buyers originated from the United States.

"Over 74 per cent of all home buyers were from the Greater Victoria area last year - up less than one per cent compared to 2006 and down slightly from the 76 per cent in 2005."

Victoria Real Estate Board President Tony Joe says the pattern of buyer origins has remained very consistent over the past few years. "Over 74 per cent of all home buyers were from the Greater Victoria area last year - up less than one per cent compared to 2006 and down slightly from the 76 per cent in 2005." Joe added that 14 per cent of all buyers were from elsewhere in British Columbia including 2.4 per cent from the Southern Gulf Islands; less than one per cent from the Malahat and Area; just under three per cent from the rest of Vancouver Island; just under six per cent from the Lower Mainland and two per cent from the rest of the province.

Joe noted that beyond BC and Alberta, three per cent of buyers originated from elsewhere in Canada; buyers from overseas represented less than two per cent of all buyers.

Summary
-------
74% Local
6% Vancouver Island
8% Elsewhere in BC
7% Alberta
3% Other provinces except Alberta
2% Overseas

So 7% of the buyers are coming from Alberta, and there is a housing slump in Calgary and Edmonton. Also media reports have stated many are going to Arizona to buy second properties. Do you think this has an effect on their appetite for Victoria real estate?

My suspicion is that a lot of these buyers bought condos as an investment or second property. Not many people want to have a second SFH sitting vacant for weeks at a time. Not only is it an insurance and maintenance problem but there is the vandalism and theft concern.

The fact that there were 7% of the sales attributable to Albertans last year is good news for bears. For the reasons I noted above they are probably not as active here this year and this results in a smaller buyer pool.

Anonymous said...

Thank you Roger. I love your comments. You are a smart cookie.

beagle said...

I've been watching is house MLS®: 241447 because it's in my sisters neighbourhood and I have walked by it many times. According to BC assessments it sold in Fall 2007 for 385,000. It's been totally fixed up and looks like know one lives there. It was listed Feb18/08 for 493,000, then Feb29/08 went to 469,000 then Mar.08/08 it was lowered to the current 449,000. Anything in this neighbourhood was selling within days last year. Things are changing.

snaptee said...

I use 515 Burnside as the litmus test (MLS #235126, 240040). If that shitbox sells before a correction, the irrational market will not come back to its senses anytime soon and it's probably best to move on.

roger said...

Associated Press put this article across the wire a few hours ago.

Financial Market Turmoil Raises Worries

No less an authority than former Federal Reserve Chairman Alan Greenspan wrote this week that "the current financial crisis in the U.S. is likely to be judged as the most wrenching" since the end of World War II.

"We can't afford to stagger from one day to the next without knowing what large financial institution might be the next to go down the tubes because of a lack of liquidity. That is way too dangerous a game," said Lyle Gramley, a former Fed board member who is now an economist with the Stanford Financial Group. "It is possible that we could be entering the worst recession of the post World War II period. The threat is certainly there."

roger said...

Another Sun article today on the Toronto Real Estate market.

Sales at home on downward slope

Canada's Finance Minister Jim Flaherty may be right. Ontario's economy is sinking like a stone.

A sure-fire sign of how our economy is doing is our all-important real estate sector, and here we go with sales continuing their slump into the first half of March.

Yesterday, the Toronto Real Estate Board revealed that sales in the City of Toronto, fell by 18% in the first half of March, following a 14% plunge in February. For the GTA, after sales fell by 9% in February, they slid by another 14% in the first half of March.

And now we have the usual spin fom the RE industry.

TREB president Maureen O'Neill says bad weather is a big factor.

"The storm that pounded the GTA during the second weekend of March likely had more people focused on shovelling sidewalks than house hunting," she said.


The old YOY price increase line is also used to pump a deflating bubble.

Despite the sales slump, average prices headed even higher with city prices now at $409,116, up 5% from a year ago, and GTA prices averaging $385,405, up 5%.

Wow a 5% YOY increase!! With Toronto's new land transfer tax an investor would have done better buying a GIC.

roger said...

Victoria residents like to say that everyone wants to move here. Well things are changing!!

FOX News had an 8 minute news report today on the Canadian Invasion. You can watch the 2-part video Canadians Scoop Up U.S. Real Estate on your PC. Just click the photos to load the video.

Excerpt:

Did you know that Canadians account for more than HALF of all new home purchases in California, Texas and Florida? Yes, that’s right, it’s true! The strong Canadian dollar, (the looney) a declining U.S. dollar and weak housing prices due to the subprime mortgage mess have increased the appetite for Canadians to cross the border and buy real estate.

What will happen to all those condos, homes and new developments that we are building for the folks in Alberta and Ontario?

Anonymous said...

Ok, check out Victoria Area Flippers In Trouble.

It's my version of Sacramento Area Flippers In Trouble using Victoria BC content from PCS.

I plagiarized the style for continuity.

Comment there under the intro post.

Anonymous said...

^^^Great site! That one will be fun to watch, thanks for putting in the effort.

olives said...

Love the Victoria Area Flippers in Trouble - (for some reason I was not able to post a comment).

The 515 Burnside listing Snaptee mentioned above could be on there - it's been listed for quite some time now and I believe it started at $419,000? It's "down" (if you can call it that) to $353,000

vg said...

great site ! about time reality showed up.


beagle, I can't understand why that house hasn't sold. According to the RE agent on CHEK the other night, anything in nice shape in the $400-500,000 range is gone by the next morning with multiple bidders.

Guess the RE agents are being told to lay on the BS like never before if you want to keep you job.

snaptee said...

Ya good job with the new site, should be fun to follow. I've been watching 515 Burnside since late last year, I picked it up when it was listed at the beginning of September for 406k. Like Olives said it's down to 353k for a 15% drop.

Anonymous said...

Oops - newb Bogger.

I've now set the comments to "Registered Users - includes OpenID"

Comments are open in the "Intro" and "Requests"

-vicrealstats

olives said...

Hey, S2 has a new real estate topic post on KIV and there's a real estate agent on there describing how her sales are increasing, and at full price! Maybe someone here wants to join the discussion?

Anonymous said...

The Victoria Flippers web site is BS. Changes in listing price don't represent gains or losses. That happens when proerty sells. Without prior sale data, the site is nothing more than gleeful fantasy.

Anonymous said...

re victoria flippers...perhaps a change to the format wording showing "price increase/reduction percentage" might be more apropriate than "loss" or "gain"

as the previous poster points out there aint no loss or gain until the place sells

phil said...

"The Victoria Flippers web site is BS. Without prior sale data, the site is nothing more than gleeful fantasy."

You have a point, but numerous price reductions ARE interesting as we certainly weren't seeing that a year ago. I have a feeling that in another couple of years that site will become just as profound as the one in California. Oh wait, I forgot... It's different this time and everyone wants to live here.

vk said...

Asset Backed Commercial Paper (mortgage) + BC Realtors


" Yulan Wong is a 60-year-old retired realtor in Vancouver who had cashed out her securities in anticipation of her retirement. With her experience in the real estate market, and knowing assets like houses can go up and down, Wong said she would never have knowingly invested in ABCPs"

"I don't like risky stuff," Wong said."

http://tinyurl.com/2vok4u

"Baumel is in real estate, so he has enough risky investments. That's why he wanted his savings to be in something 100-per-cent safe."
"Baumel had never heard of commercial paper, but if he had been told he was in asset-backed or mortgage-backed investments, he says he would have turned it down. He already had enough exposure to that risk with his real estate investments, Baumel said."

http://tinyurl.com/3794ea

S2 said...

Hey Olives.

I love the realtor's line about there being very few listings and slim pickings out there.

When I told my husband what this realtor said about very few listings he looked very puzzled and doesn't know where this realtor's numbers are coming from.

Again, I think March numbers will tell us a lot. If they are in the bears favour you can bet I'll be posting them to KIV. I'm hope you'll join in :)

olives said...

You couldn't keep me away s2!

S2 said...

:)

Anonymous said...

Rental Unit in "The Pearl" on Hillside:

(TC (03/21/08)
HILLSIDE "The Pearl " New! 2Br, 2ba lux condos. 1000sf+, NS, $1500. Apr1. 514-8287 454037

Happy Owner said...

WOW,

Burnside properties (Lets use sh*tholes in sh*tville to guage the market), flippers websites (Now there's reality). I'm amazed the WEEGEE board hasn't come out yet. The BEARS are frothing at the mouth. Victoria is the biggest "hick" town in B.C. The economy is dominated by government, food stores and fast food restaurants. What would RE prices be like if this town actually had a "REAL" economy. Because the average person can't buy in this market doesn't mean that prices are too high. It just means there's an outside influence to the price structure here. Victoria is too far off the beaten path to be a "glamour city". Anonymous world money is here. Has been for a while and it's still coming. Jimmy Pattison was buying forest company stock 5-6 years ago (nobody could figure out why?) and then a former British Prime minister, among other high rollers, were on his floating mansion checking out this area. Lo and behold, we now have property going for 1 million/an/acre in Jordan River. Using average income to predict average house prices won't work here anymore. Market crashes, tightening of money supply, etc. might have an effect on the average folk but there is something far greater happening here on the island that most of us can't see. No doubt there is a need for a market pause and perhaps a small drop. Long term looks rosy to me.

jas2 said...

* I'm amazed the WEEGEE board hasn't come out yet

- People here are using facts to support their beliefs. I think you're way off in using the WEEGEE board as a comparison.


* Because the average person can't buy in this market doesn't mean that prices are too high. It just means there's an outside influence to the price structure here.

- That's just one possible explanation. Another possibility is that speculation and flexible loans (e.g. 40 yr. mortgages) could be driving the prices upward, even
if the prices are not sustainable.


* Using average income to predict average house prices won't work here anymore. Market crashes, tightening of money supply, etc. might have an effect on the average folk but there is something far greater happening here on the island that most of us can't see.

- The ability of average income to affect house prices is valid if we're in a housing bubble (just like what happened in the States). The posters here presented facts and statistics to prove that the bubble exists. Would you give specific proofs to support your conclusions? I remember someone
here show figures that show buyers from outside Victoria are just a minority and that most home buyers come from Victoria.

Happy Owner said...

The consistant comparison to the U.S Bubble is a constant theme here. Seemingly 50% of posts point to the U.S. RE situatuion to predict the same outcome here. The bubble in the U.S. was produced almost entirely from an under regulated banking industry loaning money to people that should NEVER have had the opportunity to purchase in the first place. Overall, the lending environment here in Canada is nowhere near as "wild west" as in the states. Although not exactly air tight, banks will only loan money to those they feel can actually "afford" it. This is what makes me feel much better about the RE environmet here because, despite possible price drops, walk-away owners will be far fewer (if any) which would keep prices bouyant. This speaks only to the "average" owner new to the market or the investor out on a limb. If the majority of homes are owner occupied, or investor purchased years ago, then price drops don't mean anything. A price drop doesn't mean a rush to the exits as many here would like to think.

Anonymous said...

Victoria is a small pond with low sales volume in relation to its population. The real estate game over the past few years has exluded those who have tried to save up a modest down payment for a home. The marketplace is mostly made up of parents refinancing their home to provide a down payment for their children. Those who have built up "bubble bucks" in order to move up the property ladder. And speculators buying multiple properties.

Victorian's are characterized as "house rich and income poor".

When the market slows, then all of the ills of the marketplace will start to show up - like those in the USA. We have a low level of Judicial Sales (ie foreclosures) because home owners can finance the problem away. Home owners pay off credit card debt by re-financing the home. You say that we don't have sub prime here in Victoria. Ask the brokers how many people they don't get mortgages for - nearly zip. You breath - you get a mortgage. You say that you can't get a mortgage because your unemployed - not a problem you can get financing through an "Equity Lender" who does not care if you have an income, just that you have equity in your home.

This is Victoria's marketplace, one that is built on recycling debt over and over again.

Siobhan

Billy TwoBaulz said...

There's an ad up in Coast Capital branches that says "Did you just read this ad? APPROVED" and the byline reads "we approve just about anyone". 'Nuff said.

S2 said...

It was the Victoria Real Estate Board president Tony Joe that said that 74 per cent of buyers in 2007 were local.

http://www.vreb.org/vreb/news/2008/NR_MostHomeBuyersLocal_20080109.html

Yep, it is outside forces that are causing all of this? Ummm...not.