Wednesday, April 23, 2008

Is the market about to become ugly?

Here's a quick recap of what we're seeing:
  • record inventory
  • lowest monthly sales numbers since 2001
  • lowest prime interest rate since 2001
  • divergence between the BoC interest rate and the mortgage companies' posted rates nearing 3%
  • MSM publishing regular stories in western cities about record employment, "we're different here" etc.
With April and May the two biggest sales months historically, what will we see? If the declining sales trend continues with the increase in inventory will we get across the board price reductions?

Anecdotally, in my PCS I still see, especially with condos, high asking prices and very little price reductions ($5K or so). I'm not seeing much activity in SFH listings in the $400K range.

Looks to me like the bulls are digging in their heels in this game of tug of war.

45 comments:

vg said...

MLS# 238346 was $775,000, now$664,900 for a $111,000 hack and slash. Now thats what I call sitting ugly. ;)

vg said...

From the Globe:

Stretched buyers fuel boom in housing

Engine behind the country's housing boom has been increasingly leveraged first-time buyers


April 23, 2008 at 4:23 AM EDT

Canada may not have the sizable subprime market of the U.S., but the engine behind the country's housing boom has been increasingly leveraged first-time buyers.

Legions of first-timers are adding years of extra mortgage payments so they can buy a house, or putting little or no money into a down payment, a Re/Max survey revealed yesterday. Nearly two-thirds of buyers in major centres now favour extended amortization periods of up to 40 years, while putting little or no money down was prevalent in 38 per cent of regional markets surveyed across Canada.

The country's real estate industry has played down any similarities to the U.S. when it comes to subprime borrowers. But as new segments of the Canadian population enter the market, the findings raise questions about what's been driving soaring house prices in recent years.

"The reason we think the market has been staying hotter much longer than anyone anticipated was because of these newer amortization mortgages," said Craig Alexander at Toronto-Dominion Bank.

Mr. Alexander figures that as many as 70 per cent of first-time buyers are opting for longer amortizations. "



http://www.theglobeandmail.com/servlet/story/RTGAM.20080423.wrreal23/BNStory/GlobeSportsHockey/

victorianna said...

Ha! I just published another quotation from that Globe article over on Victoria's Truth! Regarding this: "Looks to me like the bulls are digging in their heels in this game of tug of war."

I agree. Even though I think a psychological shift has occurred already with the pool of potential buyers (hmmm, maybe Canada isn't immune, maybe I'll wait and see, maybe it's not such a great time to buy, etc. etc.), most sellers are not ready to call it quits and start pricing realistically. House across the street from me, in Rockland, was priced over a million. Sitting there for a long time. Finally reduced by about 6 percent. Still sitting..... I see this on MLS all the time. Drop the price 5 percent, then wait some more. Drop another 5. Sellers just really don't want to accept that they aren't going to get the great price their neighbour got five months or a year ago.

Also, agents aren't yet really pushing realistic pricing. I think they are also seriously in denial, and, if they start telling people to price realistically, then ooops! That was a lie that real estate never goes down! My friend is a buyers' agent, and she is constantly lamenting that she has nothing to show people, because normal people, like middle-aged incoming military, can't pay more than $5 or $600K for a house! And that's really stretching! So here we are, in no man's land, dancing on Christmas Eve. What happens when the truce is over?

vg said...

I believe I know the house you mean,my spouse loves the house/neighborhood and wants it but I said I will buy it for her in 2 years when it is at $600,000.

greg said...

hhv,

The only bit I'm not sure about is the record inventory. It's up from last year at this time, but its not jumping drastically yet.

A psychological shift to panicked trampling for the exits by small specuvestors would obviously show up in the MLS, so I don't think that is happening right now.

I also wonder how much of the inventory out there with realtors is held off the MLS, or rationed on in dribs and drabs?

Can this stuff be held in PCS for awhile before it turns up in the MLS?

If it sells in PCS, does it ever show up in the MLS?

Anyone with the answer please chip in.

hhv said...

Greg,

I don't think that any of the properties I've seen in PCS don't have an MLS listing number. That said, I know that many of those never show up on the MLS website.

boomer said...

Re:"Looks to me like the bulls are digging in their heels in this game of tug of war."
and "I'm not sure about is the record inventory. It's up from last year at this time, but its not jumping drastically yet."

Well,lets be a little realistic.As the industry keeps telling us prices are still way up YOY, the economy is good, and the market is "balanced".
As a SELLER,would you be anxious to drop your price drastically in a vacuum or list at a much lower price than comparables unless you absolutely had to sell?
Also,this time of year many of the listings are "fishing expeditions" and those asking prices are not going to come down very much.
It took a "sub prime" mortgage crisis in the USA to really "crowd the exits" there. The Real estate market is not a liquid market like stocks or bonds,where there is always a bid and ask price ,so price trends take longer to develop.
Relax Guys,its happening.

Anonymous said...

Anecdotally, there seems to be some support still in the lower end - "realistically" priced townhouses are still going quickly. We can't get viewings on a lot of them in the 300-350k range because they have offers on them in the first week on market. :(

Gotta say though... the prices are definitely lower than six months ago. Lots of 10k reductions on townhouses in PCS, and it's more common to see $389 than $409 now. Hopefully just a couple more months!

Anonymous said...

This house MLS # 243521 (backing onto busy Cadboro Rd) according to BC Assessment sold last May for $930K. It is listed now for $1,295K. Nothing was done to it, no renovations, just the way it was last year. Trying to get close to $400k for doing nothing. What a PoS speculator. There should be laws against this.

Anonymous said...

To anonymous at 10:39 above^

Your socialist ass would only be too happy to be in their shoes... your jealousy of other people making money is rather childish.

Should the government also step in when the butcher marks up his goods to make a profit? when the shoe store sells "made in china for $5" shoes for $50? For restaurants who charge god forbid $40 for a $15 dollar of wine at the store?
Communism does'nt work buddy so go ahead, quit being jealous and make money at the expense of others, that's what makes the world go round...

beagle said...

Heh, Both the meat and restaurant industries are pretty heavily regulated. Sometimes a little regulation can be a good thing. We see what happened when the US decided mortgage loan regulation didn't need to be too tightly regulated.

speculatorskillfamilies said...

To anonymous 12:57 PM - Shut your speculator mouth you fruitcake. A house is a place to live you piece of shit asshole. You are a pshyco depriving honest Canadians from owning a place to live. You are a disease that should be eradicated.

Anonymous said...

to anonymous 12:57,
you sound like a frustrated bitch. What's your problem? People can express an opinion without being harassed by a bully like yourself. You must have been picked on at school being so frustration. Maybe you have mental issues. You must be also pretty fat, ugly and short to have resort to insulting others. Go lose some weight, you piece of lard. Maybe you'll be less frustrated.

Anonymous said...

housing is a basic need. anti-capitalistic or not, it is being monopolized. surely you would object if you were being gouged for water or air.

but yes, i understand we live in a capitalistic world. but just because i have a general care/concern for society doesn't make me a socialist. but that doesn't sound so bad against our work-obsessed ($) lives.

bottom line, speculators aren't getting my sympathy

crashiscoming said...

Re: MLS # 243521 above. This is the type of old Uplands house built in the 50's. Three or four years ago, you could buy this property for $500,000 or so. I predict based on past corrections (81' and 95') and Shiller's graph of housing prices for the last century, that this property will probably be on the market for $600,000 before year-end. By the middle of next year it will probably not be worth more than $400,000.

Look at Sacremento, nice warm dry climate there. Look at the 1st house which sold Aug 2006 for $1.6 million and now $769,000.

http://flippersintrouble.blogspot.com/

This will happen here. Very soon. Market naturally evolve, and in our case, a major correction is due (on account of the bubble created by speculators) to align back with market fundamentals.

Anonymous said...

It will probably take a 50 -60 % drop for the correction to meet market fundamentals given our local economy does have any good paying jobs. In fact, RE prices should be lower here than in Ottawa or Halifax, where the median household incomes are much higher. That is what is happening in Florida. The RE market was flooded by speculators not only from the US, but from around the world. Now that they are leaving, prices will be dropping until the locals can afford them again.

Anonymous said...

Great article on Housing Bubble Blog, on California market: "The Pig Going Through The Snake In California"

phil said...

I too believe in the free market and believe we should be very carefull in regulating something like home ownership. That works both ways of course - if our government tries to formulate some kind of bailout (like we are seeing in the US) when this party ends I will be pissed.

They let it go up on its own, they better let it fall on its own!

Anonymous said...

I've been watching the Victoria market closely, especially the Langford/Colwood area. Over 100K in price drops!! But the uninformed buyer won't see this. The PCS account speaks for itself if you take the time to sort the listings and see the deceiving practices of RE agents. Relisting properties at substantially discounted prices as "new listings" totally distorts the stats and the buyer, but it's being done over and over again.
For instance, a house was listed at 588K, sat for 100 days, then relisted as new at 470K and sells at 480K. So is it a 108K loss or a 10K over bid on asking price? The stats and the RE agents will boast the 10K over and nobody knows what really transpired.

Anonymous said...

I said this on the other Victoria blog but I have the private client listing service and I have never seen so many homes over $1 million for sale. It is unbelievable.

I wonder if all the so-called rich foreigners are leaving?

Anonymous said...

In response to the post of 50-60% price drop. This is nowhere in the realm of possiblity. Properties have doubled since 2000.RE doubles about every 20 years. That's normal, however we have exceeded this trend by approx. 30%. So a 30% correction will likely materialize. A reliable measure is to look at rents vs costs for landlords. When landlords have to subsidize their investment (via paying the mortgage not covered by rental income) is when the reality of correction kicks in as these landlords now see their capital gains speculations going down the toilet. And this is what is happening right now. It's no surprise that Craiglist and UsedX are flooded with renters looking for a place as their landlord just sold the house. The landlord is willing to subsidize only in anticipation of property gains, especially when they leveraged heavily for a windfall. The boom is over. It's all damage control now for recent 2nd property owners subsidizing the mortgage.

Anonymous said...

As this link suggests:

http://www.oftwominds.com/blogapr08/RE-bottom4-08.html

7 x gross annual rent = realistic value of property

So, if a house rents say for $2000. 12x2000x7 = $164K business value

Another reason why I think RE prices will have to fall 50-60%

Anonymous said...

Yes the foreigners must be leaving. Good riddance. Let them plough their money in Arizona or wherever they think RE is a bargain now.

Anonymous said...

Yes the foreigners must be leaving. Good riddance. Let them plough their money in Arizona or wherever they think RE is a bargain now.

roger said...

We only have a week to go before the VREB report. I have seen a number of sales on PCS but some take a price reduction in order to get a sale. If the place is a "creampuff" and priced realistically it has a chance of getting multiple offers (seen those too).

Here are some screenshots of a PCS account for homes in Saanich & Victoria under 750K. Look at all the price reductions!!

I am very curious to see the VIREB report for north of the Malahat. If you think we have high inventory you should see Parksville-Qualicum (PQ) and the Comox Valley. Sales are down from previous years and prices in most areas have been dropping as well. Details here PQ now has over 500 single family detached homes for sale and there were 42 sales last month!

I believe the RE market north of the Malahat and the condo market in Victoria will be the first to have a serious correction and that will be reported in the MSM (TC doesn't have many RE advertisers up island). Once some areas of local real estate fall the myth that RE only goes up dies. Owners and sellers will get a reality check. Then the Victoria SFD will start the downward slide.

Patience is needed however. When the 2008 spring sales season flops across the country a bear market will gain traction. Around June those early May listings will be getting pretty shopworn.

BTW what do you think will happen to the local tourist industry with the US entering recession, ferry rate increases, airline fuel surcharges and gas prices going up. ($1.30 litre today).

S2 said...

Tourists will still flock here in droves.

We are the best place on earth don't ya know?

The Olympics are coming. We are isolated here in Victoria from the US recession. Blahbitty blah blah blah.

Oh, and they will come for a visit but love it so much they will uproot themselves leaving family and friends and move here. Blahbitty blah blah blah.

Anonymous said...

Gas Prices - tourism? Not to mention the world food prices. Here's a strange summary I heard today. That the new BioFuel companies are bidding more for the farm produced oil (eg corn) so now our food is competing against fuel.

Maybe we don't need crude oil afterall?

World demand for oil is DOWN currently; so why the price increases?? This doesn't represent supply/demand economics.

The mystery behind this is unknown to me.

Maybe a big bust in the fuel bubble? Who knows. Surely the fact that we can drive our cars on McDonald's french fry oil is a scary phenomenon to the crude oil industry and they are selling while they can.

boomer said...

Waiting for lower mortgage rates to bail out the RE market?

BOC says this.

"In its latest assessment of the economy, the central bank warned that even if it continues to lower its benchmark rate, rates lenders charge on mortgages and loans may rise."

Which begs the question:
Who exactly are the lower administered rates supposed to benefit? The banks?- by increasing their spreads, to help them through their self created ABCP messes?
At least in the USA there are some senior politicians objecting to the Wall (Bay) Street bailouts.
Here we get nothing but small minded political scandals.

roger said...

Boomer said

"In its latest assessment of the economy, the central bank warned that even if it continues to lower its benchmark rate, rates lenders charge on mortgages and loans may rise."

Which begs the question:
Who exactly are the lower administered rates supposed to benefit?


The BOC rate (3%)is a short term interest rate which the banks have historically used to set their prime rate. The differential is around 1.75% so bank prime is now 4.75%. Consumers with variable rate loans (mortgages, lines of credit) and businesses have loans at these rates and therefore benefit whenever there is a reduction by the BOC. The hope is that these lower rate loans will encourage businesses and individuals to spend more and stimulate the economy.

Longer term rates are not set by the BOC but by the financial markets. With the recent credit crisis there is a lot of caution so rates are high in order to offset risk. Even regular folks like me are cautious when they buy a GIC or corporate bond and so an attractive rate has to be offered in order to attract capital. Therefore the banks have been forced to keep their fixed, long term mortgage rates high due to their interest costs on capital they are borrowing. They are also charging more to cover their losses in ABCP.

What about credit card interest and the BOC rate? No linkage here at all. ABCP and other high rate instruments are used to finance credit card loans. The default rate on credit cards is rising. In March Target stores had to writeoff 8.1% of their outstanding loans due to default.

What does the future hold? The credit crisis is not over and if it gets worse due to collapse of monoline insurers, derivatives and other leveraged instruments rates greater than 90 days will rise from current levels.

vg said...

According to an investment letter I receive, the US will be lowering interest rates for the last time and the next move after that will be upward. The bond market tells the tale :

"Interest rates have been rising sharply the past few days and continued to do so overnight on growing expectations that the US monetary easing cycle is coming to an end. The market is now pricing in a 74% chance of a 25-basis point Fed Funds rate cut next week, and that is expected to be the last cut for the foreseeable future. The market, not one to wait and see, but always looking ahead, has pushed short-term rates higher, pretty much signaling to the Fed that it is has taken interest rates low enough. The key 2-year US Treasury Bond is now yielding 2.46%, well above the Fed Funds rate of 2.25%. The 2-year US bond yield touched a low of 1.33% on March 17th, so although 2.46% is low compared to where rates were a year ago (5.10%), the important thing is that rates have bottomed and are already rising ahead of the Fed. "

Roger said...

It doesn't matter whether you are a bull or a bear you have to admit there have been a lot of "cooling RE market articles" in the national MSM and by the CREA/BCREA.

Her is today's version in the Globe & Mail Some pockets still aglow as market cools

This one mainly fosuses on Toronto where the 1st qtr. weather excuses are no longer valid.

Some excerpts"

Across the Greater Toronto Area, the average price increased 4.5 per cent to $379,006 in the first quarter, compared with the same period last year, according to data from the Toronto Real Estate Board.

So the rear view mirror YOY is only 4.5% compared to last year. I don't think this will prompt a buying frenzy.

The number of single-family homes that changed hands dipped to 17,521 in the first three months of 2008, compared with 20,463 transactions in the same period last year.

Uh oh sales are dropping off YOY

Meanwhile, the chill that permeated the market in the opening months of 2008 appears to have continued into the spring: The GTA resale housing market saw 3,955 homes change hands in the first half of April, down 5 per cent from the same period last year, TREB reported.

Must be the nice weather this month in Ontario

And across Canada, the resale market is "sound but cooling," says Cal Lindberg, president of the Ottawa-based Canadian Real Estate Association.

Didn't the realtor association in the US (NRA) use the same spin before the slide down there?

Prices can't rise forever.
He recommends that sellers list their houses with the lowest asking price they would be willing to accept. "If we see more than that, it's a bonus."

Mr. Veinot says he's glad to see an end to the dizzying bidding wars of the past. "They couldn't keep going up the way they were — that was just out of control. One hundred thousand over asking — where is that coming from?" he says of some of the more extreme contests.

Still, he sees lots of prospective buyers out there who are eager to own real estate.

"It's a very interesting market for everybody because nobody can really put their finger on what is going on."


Bears can!! The party is over.

beagle said...

Oh ya , the realtor Venoit is glad to see an end to bidding wars. hahaha
I bet all that extra money in commissions was just getting so frustrating!

sitting pretty said...

Getting ugly? My hubby says no way!

sitting ugly said...

'...sitting pretty said...
Getting ugly? My hubby says no way!

April 25, 2008 7:56 PM....'


You are so right. I'm glad you decided not to add to the panic by trying to sell your house now. Please hang onto your confidence, as it won't look nice if you join the capitulation process after being so defensive and loyal all along.

hhv said...

it's a very good sign when "it's different here" goes from "Victoria" to "Oak Bay" in both the MSM and Bull trolls on this blog. We've definitely turned a corner.

roger said...

Canadian Mortgage Trends has an interesting post called Bond Yields March Higher

roger said...

There is some interesting news and comments about the Silkwind & Radius condo projects over on Vibrant Victoria

Excerpt:

The increasing number of stalled large-scale projects in the region is becoming a case of the Emperor's new clothes. Everyone can see there is a problem, but no one is willing to speak of it, lest they be the one to expose the naked monarch

Then the blog admin follows this up with the usual RE pumper spin.

Tony Danza said...

Anonymous April 24, 2008 8:06 PM

If it's possible for the market to overshoot on the way up (100% since 2000 whereas historically it takes 20 years according to you) why is it not in the "realm of possibility" for the market to overshoot on the way down? In fact people are much more likely to become irrational on the way down as often their financial lives depend on the sale of a house with steadily decreasing value.

Also when a landlord sells his house he has to sell it to someone so I don't see how this affects the rental pool as a whole. For every house that sells you need a buyer, that buyer needs someone to buy or rent their current home, this works itself all the way back to the first time buyer, it's zero sum. When you start running out of first time buyers and speculators, inventory starts building and that is what we're seeing now.

Tony Danza said...

From Shitting Pretty's article:

“It’s more of an elitist or gentrified population and you’ll find an awful lot of interesting people with funky homes there,” he said.

Wow, that really makes me want to move to Oak Bay! Elitist neighbours? "Funky" homes? Sounds great!

Too bad there aren't any interesting people living in my lower caste neighbourhood...

awum said...

Here's what puts a limit on how far the Real Estate market fall: As prices fall, so does the gap between renting costs and owning costs for those who must choose between renting or buying with a low downpayment. It starts to make sense for buyers to get back in the market when ownership is within closer reach from renting. That is, assuming banks are still willing to loan out money. If they aren't, prices can actually "undershoot."

Note however, that in the US, some markets are reporting that the emptying of houses facing foreclosure is placing upward pressure on rents.

How far can we fall? Using a standard mortgage calculator and an estimate of how much it would cost to buy the place I'm renting, I figure the market can drop over 40% before rental costs backstop a downward slide.

hhv said...

Like all things market based, I'd be surprised if there wasn't at least a short period (up to a year or so) where renting certain properties, namely condos in less-desirable neighbourhoods, is actually cheaper than owning.

It was like that here for quite a while in the late 90s up to even 2001 where renting a two bed condo was more expensive than owning. No one wanted a leaky condo and the market was only going down slightly or sideways at best.

olives said...

Even when it does eventually make economic sense to buy, credit may not be available for anyone except the very best risks. Perhaps 25 percent downpayments will be required. Or maybe the many will simply be to fearful to buy.

talus said...

Ah yes the old "but it is Oak Bay" motto.

Actually that is EXACTLY what the new home owners (our current landlords) said to me when I question the price of Oak Bay property... "but it is Oak Bay" dear.

Let see what kind of "funky"house you get for that.

How about one that:

- is 80 years old!

- had it's last reno when "hunter green" counter tops were in vogue;

- enjoys "natural air exchange" and "no mold" due to ZERO insulation in the walls;

- make you kids ask "why can we here you and Mom talking in the living room when we are outside" (that is the "funky" single pane widows and 1/4" plywood doors dear);

- makes you remind your kids to "run the water before you brush your teeth" to get rid of the the rust in the pipes;

- makes you wonder when you hear that "scratching in the attic" at night. Only to have your neighbour tell you about the RATS in Oak Bay --- NO I'M SERIOUS THERE ARE BIG ASS RATS IN OAK BAY!!

- makes you "damp proof" all your belonging in the basement including your washer and dryer (read on you'll find out why);

- and makes you wonder who refits knob and tube wiring with only a 100 amp service (the FORMER homeowners to save money of course).

All this for the low, low, low, price of just $740,000+ but HEY... "but it is Oak Bay" after all.

talus said...

We get to rent the above for less than $2000 a month which, in my view, is pretty good for the convenient location -- close to work, schools, and groceries. Even if it still takes forever to get downtown because all the old people drive 30km/h in the 40km/h zones.

And the 2200 sq/ft of space is nice.

Unfortunately, the fuel I save getting to work is going straight into heating those 2200 sq/ft... and straight out the walls, doors, and windows.

I am pretty sure that I am personally responsible for localized global warming in parts of Oak Bay.... just ask the RATS (technically I think they are called Roof Rats).

Besides all the above "negativity" here is a valuable tip you can take to the bank with you.

If you simply ASK your insurance agent if your proposed rental house has had any past insurance claims against it --- they will gladly tell you the claims history (this is great to know when you go to buy after the upcoming 40% + haircut).

It was news to the owner when I pointed out the effervescing concrete in the basement and the past owners insurance claims for water damage were probably connected (Duh).

My guess is that waiving that house inspection condition, because "it is Oak Bay", won't seem like it was worth it after they get the bill for digging up the entire foundation and installing new drain tile -- that's going to hurt.

Oh well, the bill for the plumbing, insulating, roofing, glazing, and RAT control is going to suck for them too.

Oh, and digging up that old oil tank and disposing it is going to be a real bummer.... I wonder if natural gas will be cheaper.

But HEY... "it is Oak Bay".

PS - my neighbor swears they are Norway Rats but I'm not so sure.

Vancouver realtor said...

I really hoped that the real estate market will rebound at the beginning of the spring like every year. But working as a Vancouver realtor
I have recorded even higher decline than during past three months. Even lowering of overnight rates by Bank of Canada did not change bad expectations and Banks and brokers are staying reluctant to change their interest rates. It looks like all the numbers are in contradiction to my business results.