Monday, June 9, 2008

Less for More?

Via Siobhan in comments:
...some condo stats for all areas.

broke down into two groups for comparison purposes.

Group one - Condos built in 2007 and later.

648 listed for sale with an average 46.6 sold per month for a 13.9 month supply. Number of new listings in the last 90 days is 429 of which 72 have sold for a sales to listing ratio for new condos of 0.17

Which may be compared to group 2 which are condos built in 2006 or earlier.

574 condos listed for sale with an average 57.4 sales per month for a 4.4 month supply of older condominiums. Number of older condos listed in last 90 days is 771 of which 268 have sold for a sales to listings ratio of 0.35

You can see that the demand for older condos is significantly stronger than new ones. Although neither group would be considered a stellar performer - especially for a spring market.
I find the difference between the two MOI numbers staggering. New condos aren't selling at a rate that will make developers keen to build more and re-sales aren't suffering from increased inventory, yet.

Is there anything definitive we can take from these stats? I'd say two things:
  • people aren't buying new condos because there isn't perceived value in them or they just can't afford the price per square foot, and
  • people are still buying re-sales because they can get more for less
The big question is how long can developers and speculators afford to hold assignments, because as soon as the new prices start to fall drastically, the re-sales will too. I don't think the 20% price drops we've seen in some new developments is drastic because IMHO they were priced in lalaland to begin with. What is the true premium to pay for new versus resale in the condo market?

104 comments:

Anonymous said...

"574 condos listed for sale with an average 57.4 sales per month for a 4.4 month supply of older condominiums."

Isn't that a 10 month supply...?

roger said...

I think HHV and a number of posters on this blog have been predicting a condo glut and subsequent price drops for some time. Looks like they were right.

Speaking of price drops, the PCS for Victoria and Saanich houses under 750K had more price reductions today as shown in these screenshots. Looks like the market is continuing to cool.

Anonymous said...

Ooops!

Should read average 130.6 sales per month not 57.4 for a 4.4 month supply.

The average is for the last 3 months for all areas.


Siobhan

Anonymous said...

If we're talking 60-90 days on market, would that equate to about a ten month supply with properties coming online, selling or somewhere through the middle of the process?

If that' how this calculation is done, it doesn't sound like doomsday to me.

What do you guys think of the new family starts news today or the anticiapted drop in interest rates tomorrow (assuming it comes through)? May up over April, I would have thought it would be down.

I also wonder about the condos for the future. What about all the projects in the wings ready to start. Glen-lake area 5,900 homes in one large project? I wonder if these will stall now or if the powers that be (and have the real info) still expect significant influx of homeowners. It will be an interesting 3 - 5 years.

Anonymous said...

Roger: "Speaking of price drops, the PCS for Victoria and Saanich houses under 750K had more price reductions today as shown in these screenshots. Looks like the market is continuing to cool."

We had a few realtors give us prices a few months back as we were contemplating selling. One said 575K, one said $640K and the other somewhere in the middle. We were contemplating $610. A similar home subsequently listed for $670K. What do you know, price has come down twice and now stands somwhere above $630. The home won't sell until it is back to about $610-15 (and the owner may in fact have to settle for even less as a result of this marketing efforts) where it belonged in January. That home was never going to sell at $670. I think there's a lot of inventory that has similiarly over-shot the market with people getting greedy.

Anonymous said...

anon 6:22pm

AMEN!

boomer said...

hhv-the 2 things you mention just about covers it.I dont see it as a dividing line between "new and old" but simply as a matter of perceived value (including the usual criteria-location,condition, amenities,quality of finishing).

anon 5:50 RE:"What do you guys think of the new family starts news today or the anticiapted drop in interest rates tomorrow (assuming it comes through)? May up over April, I would have thought it would be down."

Housing Starts: Thats what these guys DO. If a builder/ developer has been successfully selling a product for years, hes not going to turn off the faucet even if he thinks the market may not be that great. So you may have to break even on a few homes after making a bundle for years-the alternative could be laying off employees and giving an advantage to your competition. I think its mostly inertia and spring building fever-dont forget in the rest of Canada suitable building weather counts a lot more than it does here..

Another 1/4 or even 1/2% off a floating mortgage (or fixed,if it happens and if the banks react) next week is not going to make anyone rush out to buy a property they wouldnt buy this week

May is always the hot month for Victoria RE -no different this year -but compare to last May

RE:"It will be an interesting 3 - 5 years."
yes,but it will be even a more interesting 3-5 MONTHS in new project condo land

roger said...

anon 6:22 said:

We had a few realtors give us prices a few months back as we were contemplating selling. One said 575K, one said $640K and the other somewhere in the middle. We were contemplating $610......
I think there's a lot of inventory that has similiarly over-shot the market with people getting greedy.


Thanks for sharing your story. Anecdotes are always great to hear and are better than my dry statistics :>)


Anon 5:50 said:

I wonder if these will stall now or if the powers that be (and have the real info) still expect significant influx of homeowners.

There are no powers that be with real info that can predict any market with a degree of certainty. Most "experts" and "pundits" are self-proclaimed and are no better at predicting the future than you or me. Take interest rates for example. Last year the experts were all predicting increases due to inflation and the opposite happened. What about all the RE industry economists in the US that predicted real estate would be OK and have a soft landing. Then there were all the stock market analysts in the dot.bomb period that said Internet stocks were different and traditional business models did not apply.

I think folks are better off reading the news, listening to variety of opinions and using common sense to form their own opinions about the future.

Anonymous said...

"I think folks are better off reading the news, listening to variety of opinions and using common sense to form their own opinions about the future."

Or just driving past the gas station on a rainy Victoria day. $1.46/9 -OUCH! It's a good thing everybody wants to live here or I would start worrying about our future;)

Anonymous said...

Soon we will be reading stories like these:

"Crushed by the Slump
The option ARM was initially a blessing and then a curse for Deborah Shaw, a 52-year-old systems analyst for Santa Cruz County, Calif. In 2004 she bought a $575,000 two-bedroom house with her boyfriend with a 40-year fixed mortgage. But when she and her boyfriend split, Shaw could no longer make the payments. She refinanced into an option ARM, which allowed for a $1,600 minimum payment (she was paying $2,300 on the fixed loan).

Shaw planned to avoid a recast by selling the house in a couple of years, but the housing slump changed everything.

Shaw now thinks her loan has already recast, which means that her monthly payment would more than double. Shaw doesn't know for sure, because she stopped answering her lender's daily phone calls and, since April, stopped making payments entirely. She says foreclosure is her only option.

"I call the house my albatross," Shaw said. "I feel a sense of relief knowing I won't have that house to deal with anymore. I'm not looking forward to moving and selling everything. But I am looking forward to not having stress about something I can't afford."

http://www.businessweek.com/
lifestyle/content/jun2008/
bw2008065_526168_page_2.htm

roger said...

I finished the condo graphs tonight and created a new new slideshow. You can see clear evidence of price decreases by looking at the smoothed median and average graph.

The City Of Victoria SFH graphs also show a rolloff in the median price in the past few months.

All the slideshows are in the Stats Gallery. Feel free to distribute or link to them - no copyright restrictions.

olives said...

Thanks for the graphs Roger

patriotz said...

She refinanced into an option ARM, which allowed for a $1,600 minimum payment (she was paying $2,300 on the fixed loan).

Complete idiot.

The original financing for mortgages in California is non-recourse, which means the lender can only take the house back and cannot go after the borrower for any deficiency.

But by refinancing she changed the terms to recourse. The lender can now go after everything she owns.

Here comes bankruptcy.

vk said...

Bank of Canada unexpectedly holds on interest rates

Interesting, looks like the stage might be getting set for a series of interest rate increases.

boomer said...

"The Bank of Canada unexpectedly kept its benchmark interest rate unchanged because energy prices may push inflation past the top of its target band later this year, saying current policy is ``appropriately accommodative.'' "

I like that phrase "Appropriately accommodative"

All 30 (bank and financial industry)economists contacted by Bloomberg were "surprised" by the BOC's (non)move. Too bad they didnt get what they and the RE industry wanted.
However, seniors on fixed incomes trying to survive on 3% GICs may appreciate the (non) move.
There was no sign that the previous cuts were in helping the general economy anyway-but were rather pretty much getting swallowed up in increased spreads for the banks to compensate themselves for self inflicted ABCP and other bad debt wounds.
Good on ya, BOC
(never thought I'd say that)

Anonymous said...

Carney should have raised rates a quarter point to remind everyone that inflation reality is starting to bite and that the party's over. Maybe in six weeks...

talus said...

One said 575K, one said $640K and the other somewhere in the middle. We were contemplating $610......

I'm starting to see this type of pricing variation in the rental market.

My target is 3 bed family homes and I keep up with the craiglist ads. Sometimes similar sized and quality units are varying by $1000 or more per month.

I chalk this up to recent buyers (at inflated prices) trying to cover their mortgage payments vs longer holders that are not under the same stress.

The rental market for SFH seems to have cooled as well. Many properties are staying longer and reducing in price and many more listing that previously. All anecdotal of course.

Interestingly here is someone who is listing their rental for $2400/mo ... "For Sale or Lease". My math shows payments of the same on a 25 year mortgage at 7% to equate to $340K.

Wonder how they would feel about that offer to purchase?

S2 said...

I must say that I was surprised that the BoC held rates and didn't drop them like everything I read said they probably would.

It would have been interesting if they had raised them a bit but I suspect they will start doing that in the fall.

roger said...

S2 said:

I must say that I was surprised that the BoC held rates and didn't drop them like everything I read said they probably would.

So much for the bank and brokerage house economists and their predictions. Maybe the BOC rate committee went to the grocery store or the gas station yesterday and saw the prices!!

victorianna said...

I think I am seeing something interesting in the $1 mil and over market segment. The segment I watch, 4 or more bd, 2800 sq. ft or more, Saanich, Oak Bay, Victoria, has had, as I mentioned in another post, only two sales in the lower end lately (last 10 days, or June so far). But what's interesting is that exactly 75% of these listings are $1 mil or higher. Last month, I was amazed that 7 or 8 listings in this upper end actually sold! But this month, so far, absolutely nothing, and I mean nothing, is moving. Now not even the lower end stuff is moving. I have been watching this segment for months, and I have never seen so many listings and such a dearth of activity. I know its a small segment but...

There are now 339 listings for more than $1 mil in Victoria. That's also the highest inventory I have seen, and it just keeps climbing. I know some of these are fishing expeditions, but some are on third listings. I saw one that knocked $250K off the asking price before coming back on as a new listing. Which is what they all do in this price range. You see very few PC's, and lots and lots of "new listings" that aren't.

S2 said...

Very interesting article from today's Van Sun

"'Record-breaking' Kelowna house sale quietly collapses"

http://www.canada.com/vancouversun/news/business/story.html?id=fe3641f5-3e1a-494b-ac58-0d8c982232ae

roger said...

Victorianna,

Your post is encouraging for those looking for a market correction. The smart money is now heading to the sidelines. I checked last years VREB stats and there were 230 sales over 1 million in 2007 which is an average of 19 per month. In June 2007 there were 25 sales over a million.

A large contributor to the average SFH price is the over $1M sales. If this market fades the SFH average sales price will be down in June and this is what the TC and local TV media focus on every month. The effect on the median price is not that great but it pushes it somewhat lower as well.

Buyer confidence is starting to erode and once the MSM starts talking about a falling market the ball really gets rolling.

olives said...

the BoC non-move today would not have been too surprising for anyone reading their MISH lately.

VillageBC said...

As difficult as rentals are reported to be. Craigslist/UsedVictoria seem to be inundated with rental listings. Are they all going for asking price or just a season spike as students move in/out?

I'll be honest, I'd rather bite the bullet and overpay for a house w/ suite then pay $1600+ rent for an upper suite. Many of the places listed, I think I could get a mortgage for same cost as rent.

Anonymous said...

Allow me to put a different spin on the difference between MoI in new vs. old condos:

Old condos are far more likely to have been owned by someone for several years (obviously). This means that the owner remembers a time when the going price for their property was considerably less than it has recently been.

So, the owner of an older condo may be far more willing to negotiate a price lower than their asking price, because they still have the sense that they are coming out "ahead."

People who haven't owned their condos long, however, have far more invested psychologically in thos higher asking prices. Lowering the price is a loss, plain and simple.

In a buyer's market, expect those homes to sell where the owner is willing to negotiate. That means, typically, older constructions. Hence the growing difference in supply. Note that the rate of sale (not just the overall supply) is different between old and new condos.

- awum

roger said...

S2 said:

It would have been interesting if they had raised them a bit but I suspect they will start doing that in the fall.

The market already figures rates in general are going up. The 5 year benchmark bond jumped by 20 basis points (.2%) today. Corporate bonds also had a big jump in yield.

My guess is that you can expect the major banks to raise the 5 year fixed mortgage rate by .2% before the end of the week.

When inflation sets in this summer you may see the BOC raise their rate in September. This will affect variable rate mortgages. The European Central Bank and the FED are also talking about raising rates to counter inflation.

olives said...

re new condos - I wonder if buyers are worried about the higher potential for shoddy construction and future problems given the labour shortage?

It's not like the condos built in the 90's didn't have enough of their own construction problems - no doubt it will be big news in the future of these recent builds.

Beyond questioning many of the workers' and contractors' qualifications, I wonder about the overworked "professionals" rushing around from job site to job site performing the inspections on these condos. I have heard some pretty scary stories recently from someone in the industry.

Anonymous said...

Are you serious VillageBC? I'd love an example. Leave out the specuvestor dockside green vacancies which will be vacant until some fool buys them or the specuvestor goes belly up.

greg said...

Village BC

here is an example of an equivalent mortgage to your $1600 rent. Of course, when you buy there are taxes, upkeep etc, but this is a simple comparison. So in reality, a $1600 rent is more equivalent to a place with a $1400 mortgage payment.....

For example: Purchase price of $280,000 with $28,000 down, at 6% for 25 years gives a mortgage payment of $1612.

Find a house with suite for $280,000, and I'll happily get into a bidding war with you and pay 10% over asking....

Of course, zero down or 40 year amortizations could stretch this a bit, as could giant downpayments, but I doubt for this rent you will get anywhere near a house with a suite on this side of the Malahat or Jordan River.

greg said...

Village BC

here is an example of an equivalent mortgage to your $1600 rent. Of course, when you buy there are taxes, upkeep etc, but this is a simple comparison. So in reality, a $1600 rent is more equivalent to a place with a $1400 mortgage payment.....

For example: Purchase price of $280,000 with $28,000 down, at 6% for 25 years gives a mortgage payment of $1612.

Find a house with suite for $280,000, and I'll happily get into a bidding war with you and pay 10% over asking....

Of course, zero down or 40 year amortizations could stretch this a bit, as could giant downpayments, but I doubt for this rent you will get anywhere near a house with a suite on this side of the Malahat or Jordan River.

Village said...

Greg, I'm calculating it completely differently. And I would be far worse off if anything goes sour.

$450k/40yr @ 6% (7yr fixed)
$2450/mo - Rental income ($600-$800 guestimate)
$1650-$1850/mo + taxes/maintenance/insurance/empty.

Uncomfortably, I could afford(Kraft dinner for life! =)) the whole thing without the suite. Primarily, I'm starting to consider the crazy since my lease is up in September and looking at my options.

Billy TwoBaulz said...

Village, don't do it! FWIW, I had good results from Pemberton Holmes and Firm Management recently. I'm very relieved to be dealing with an agency now (all business), as opposed to a private landlord (head trips).

We're so close to a big slide a la 1981, it'd be a shame to buy a house with a suite and have to deal with all the cr4p you mention (tenants, repairs, vacancies, damages, noise, 40-yr mortgage, no $ for anything but KD...)

Billy TwoBaulz said...

I meant to mention that when renting from an agency, it's indistinguishable from owning, except your cheques go to the agency instead of the bank, and they have to repair your house at their expense, quite unlike when the bank owns the house. Oh yeah, and you miss out on all the "appreciation" of course of the house value...

BTW, I don't need any "bitter renter" characterizations, thanks, if any bitter buyers are out there ready to hack me down for espousing agency rentals over bank rentals - I owned my last house (i.e. the bank owned most of it) and I'm glad to be out of the "owning" game for a while, thank you very much.

boomer said...

village- so you are itching to do something "crazy" (YOUR word)

feel free, buy a house with a rental suite right at your maximum affordability level

ignore logic-dont worry-be happy

talus said...

I'm starting to consider the crazy since my lease is up in September and looking at my options.

Sounds like an intervention is needed.

Anonymous said...

Yeah, it would be just like the Moonies.

We liberate him to a hotel room on the Gorge and over several weeks de-program him.

Read him excerpts from Milton Freidman and Adam Smith, show Bernanke as the anti-christ and play Joni Mitchell music.

just jack

Anonymous said...

I own a home and if I had to pay today's prices on top of increasing property taxes, oil prices, etc, things would get very tight. I tend to agree that I would not be inclined to take that plunge. (certainly depending on your circumstances, but it sounds like you're just starting to build equity.)

We are contemplating putting in a suite, but for extra money - ie holidays or to raise an additional investment stream, not to attempt to buy something we can't currently afford. All you would need is one bad tenant, three months no rent and trying to pay for the house by yourself (by the way, most tenants are great, but there is the occasional issue.)

Waiting is as good an idea as jumping in now, maybe better. I'm not anticipating any great changes in pricing, but I am expecting interest rates to go up in a year or two.

0 down, 40 year mortgage buyers with $600K homes on average wages may / will be walking in a couple years with higher rates, not a landslide, but there will be deals to be had IMO. All of the things I love about being a homowner would come second place to all of the things I may hate if I was over-extended.

Now could prices go up? Before we bought, average homes were coming up on $250,000. I said over and over, "there's no way an average family can afford a quarter of a million, those prices could not go any higher. Those homes are now well over half a million. They couldn't possibly go any higher...?

I would be more inclined to look at aggressive preparation to be ready for any opportunity that might come along in the next few years: pay down all consumer / loan debt, save for a downpayment of at least 20%, look for a property that doesn't put you over the first time buyer's (if you're 1st time) on the property transfer tax. Being in that position will save you perhaps $20,000 directly and many more thousands as you will be a preferred customer getting great rates.

olives said...

great advice anon

If it wasn't for the change in psychology, prices could probably go higher with 1 percent interest rates and 100-year amortizations...

roger said...

Speaking about condo inventory - Central Okanagan (Kelowna, Shuswap) has a 15 month supply. Listings way up and sales way down for real estate in general.

See detailed report

Where did all those rich Albertans go? What about all the boomers?

Anonymous said...

Check out the price reduction for this condo: MLS# 239643.

Started out $375,000 on Jan 14, 2008. It's now listed at $299,000 as of June 10th.

Now that's a lowered expectation...

Billy TwoBaulz said...

Another bellwether is the former crack house on the southeast corner of Bay and Quadra. Anyone know the latest on these suites, and/or the MLS numbers? I believe one of them is sold, perhaps, leaving two. I believe they started at $350k or $400k and there's now a banner saying all 3 are $300k.

In other news, I got a flyer from Ron Neal saying that if he can't sell my house, he'll buy it. Something tells me in a couple years he will be less keen to make that pledge. The other side of the flyer was obviously written a year or three ago and is being rehashed - it says "you need a good buyer's agent team behind you in Victoria's fast-moving market".

VillageBC said...

Talus, Sounds like an intervention is needed.

It just might be. Whats the worst that can happen that bankruptcy can't fix? ;)

olives said...

Mohican's blog notes for Chilliwack and Area 40 percent drop in sales and 85 percent increase in active listings over last year!

Billy TwoBaulz said...

It will presumably take a massive sh*tstorm in Vancouver before people in Victoria take any note that it might happen here. I would imagine that the argument will run something like "sure, prices are dropping in Vancouver, but it's different here - everyone wants to live and retire in Victoria". No joke, I bet this will be the mantra. For a few months anyway, until it arrives here.

Presumably the same for up island, eh? That is, surely places like Parksville that are charmless suburbs in the middle of nowhere will drop before Vic.

roger said...

Statistics Canada issued a report today on April new home sales:

New home prices weaken in Canada

OTTAWA - Prices for new homes in Canada rose by 5.2 per cent in April from a year earlier, the slowest pace in more than two and a half years as a weakening Alberta market continued to pull down the national average, Statistics Canada said Wednesday.

April's rate was down from a 6.1 per cent year-on-year increase in March, the federal agency said. On a monthly basis, prices were unchanged in April from March.

"This was the third consecutive month in which the increase has decelerated, and the slowest rate of growth since September 2005, when year-over-year prices rose by 4.9 per cent," it said.


Are the brakes getting a little warm?

awum said...

OK. I've been reading old news from real estate in the US. Guess what -- they were reporting that older condos were selling better than new condos before evidence of price drops started to emerge.

Why? I have a theory:

People go to buy homes with a budget generally pre-determined by their financial circumstances. Often, the bank tells them their limit. In an expensive market, buyers will spend as much as those finances allow in order to buy as much home as they can.

As the market softens, average prices, even median prices, don't change much, surprisingly. Because the financial circumstances of the buyers haven't changed!

What does change, however, is how much home those buyers can bargain for. Flexibility only shows up with sellers who have owned their properties for a few years or more, and so those (older) condos are the ones that keep moving.

If the US is any example, this is an early sign of what's to come. The market is already heading down, but the numbers just haven't caught up yet.

Fence said...

A lot of you have some quite reasonable analyses of the Victoria real esate market. So I thought I'd ask you all. If you were going to calculate how much of a mortgage you could shoulder over the next 5 to 10 years, what mortgage interest rate would you use for your calculation? In other words what do you feel comfortable using as a future mortgage rate? 7%, 8%, 10%?

talus said...

Ok this is just plain hilarious.

I was looking for some info and I found the source of the run-up in the Victoria market.

Are you ready?

Check out this Victoria Realtors page....http://www.kiplyon.com/

"Besides being your Victoria REALTOR®, I am also trained and Certified in Advanced Hypnosis, Hypnotherapy and through our clinic, we provide Hypnosis Certification Training."

There you go... Hypnosis. That is my new theory and I'm sticking to it.

roger said...

fence said:

In other words what do you feel comfortable using as a future mortgage rate? 7%, 8%, 10%?

You could go fixed for the first five years at around 5 to 5.25% right now. At then end of five years I believe the era of cheap credit will be over. But nobody can do more than guess.

To help you make a guess take a look at this pdf file of mortgage rates for the last 50 years. In recent times banks have taken 1% off the posted rate.

If you like a pictorial view of financial conditions take a look at this Andex chart

This house price chart may also be useful when making your purchase decsion.

roger said...

Olives and S2:

I know you folks have been labelled as heretics for talking about falling home prices over on KIV.

At least two well known RE agent teams in Victoria agree with you and say the price trend is falling:
Bill Ethier & Merta Witt and Ron Neal

S2 said...

Thanks Roger.

Ah, vindicated.

Anonymous said...

One of those realtors says that Victoria is in "Canada's Banana Belt".

Now I've heard it all. Especially considering the weather we've been having!

olives said...

Roger,

I think the hostility is a good indication that the message is getting through, and the fear and anxiety level is rising by some who are finally starting to realize that a correction is indeed possible (and beginning).

There is no other reason why stating facts would cause hurt feelings.

I am surprised by the drama, but it is pretty darn entertaining and very telling.

Anonymous said...

Anyone care to tell me where this KIV is? I've searched around but nothing.

Thanks

Anonymous said...

Please? :-)

roger said...

Here are the mortgage rate increases I mentioned in an earlier post"

Mortgage rates heading up

ust one day after the Bank of Canada said it would not deliver on a widely expected interest rate cut, Canadian banks have begun to raise fixed mortgage rates.

CIBC was the first to move. Late Wednesday, it announced across-the-board rate hikes for all of its fixed mortgage terms, effective Thursday. TD Canada Trust soon followed and other banks are expected to join them.

The posted rate on a five-year closed mortgage jumps half a percentage point to 7.15 per cent at TD. The increase at CIBC is 3/10ths of a percentage point to 6.95 per cent.

Two- and three-year mortgages jump 0.85 of a percentage point to 7.00 per cent at TD, while a one-year closed mortgage rises 8/10ths of a percentage point to 6.95 per cent.

patriotz said...

First Pamela Anderson, now Trevor Linden...

He is expected to leave the game for a period to concentrate on a current real-estate project in Victoria.

Trevor Linden retires from NHL

Don't you just know it's over.

VillageBC said...

KIV = www.kidsinvictoria.com
VV = www.vibrantvictoria.ca

Common sites you'll hear mentioned here. Tend not to get along with the bubble believers. =)

Fence said...

Thanks Roger. That is good mortgage and housing information you've provided!

Anonymous said...

Anyone got a good link to a PCS provider. Mine just ran out.

olives said...

Central Bank Body Warns of Great Depression:

http://www.bankingtimes.co.uk/09062008-central-bank-body-warns-of-great-depression/

S2 said...

I posted a while back asking if the bulls were going to start getting angier and more defensive as the correction started and low and behold it happened. I would too probably if all I had was my house (and maybe an "investment" condo/house)

Trevor Linden is in real estate in Victoria?

When shoe shine boys buy real estate you know it is over.

roger said...

s2 said:

I posted a while back asking if the bulls were going to start getting angier and more defensive as the correction started and low and behold it happened.

Most bulls that have posted have said that they can afford their monthly payments and bought for the long term. So what if prices go down? They still have their home, are making the same payments and "enjoying" being owners. If they bought responsibly they are not in any danger of losing their home.

The reason they are upset is that the shoe will soon be on the other foot. The renters that they looked down on will now be buying the house next door for less money. Even if the new neighbours say nothing about their purchase price there is still a feeling of resentment. Very few people are happy to see others make a better deal than their own.

Do the posters on this board have any ill intentions towards current owners? I would say the vast majority don't want any homeowner to lose their home or have financial hardship. Speculators or investors are not viewed in the same light since they drove the prices out of reach for many. Most bears just want house prices to fall back to fundamental levels so that they can purchase with confidence in the future.

High prices do not build a thriving community for average working families and young people seeking a decent place to live.

S2 said...

Thanks for you answer roger. You always explain things and word things so well.

I think a few (more than a few?) homeowners though have bought either pre-construction condos hoping to sell before completion, who have taken the equity out of their homes to purchase a rental property or taken the equity out for home renos (or even vacations).

Does this now make them speculators/investors?

If so I can understand the anger and fear.

What does everyone think about some of the banks raising their mortgage rates today?

VillageBC said...

Besides Condo's, I would expect land to fall in value first. Wonder when/if it'll become cheaper to build then buy. Right now, the PCS I watch (SFH w/ Suite) is averaging around $200/sqft.

patriotz said...

Does this now make them speculators/investors?

Anyone who owns a property other than their personal residence is an investor, and is also a speculator if the holding costs of the property exceed the market rent.

Anyone who expects to sell their personal residence for a particular price in the future is also a speculator.

Anyone who bought their residence for long-term use at a price they can afford, which is the only sensible reason for buying, has nothing to lose from price drops. If they have to move, their next house will be cheaper too.

Anonymous said...

GOOD NEWS:

I haven seen NONE sold on my PCS since June 1st (SFH under $650K). I have seen more listings and price change in the past few days, especially since this week.

The snow ball has been started rolling!!!!

Anonymous said...

http://www.reportonbusiness.com/servlet/story/RTGAM.20080612.wbcmortgage0612/BNStory/Business/home

This won’t help the housing market….. 7/10 in Canada have a mortgage.

S2 said...

This is an interesting article.

"Consumers, banks to feel pinch"

http://www.reportonbusiness.com/servlet/story/RTGAM.20080612.wbankofcanada0612/BNStory/Business/home

This is a line that made me go hmmm. "That's because banks in Canada are more exposed to U.S. assets than banks in any other country."

olives said...

That seems like a pretty big jump all at once. Hopefully the savings/GIC rates will increase that much too? LOL

olives said...

s2 that address doesn't work for me - what is the title of the article?

anon 2:33 - what areas are you looking at?

S2 said...

The title of the article is: Consumers, banks to feel pinch

I just tried to add the link again.

http://www.reportonbusiness.com/servlet/story/RTGAM.20080612.wbankofcanada0612/BNStory/Business/home

S2 said...

Sorry. It is from Reportonbusiness.com

http://www.reportonbusiness.com

S2 said...

Olives. I posted it over on KIV because I thought it would link up better there and it does.

Anonymous said...

Theres a major recession coming. People are going to lose their jobs and houses in large numbers! This is what we bears have been waiting for--I for one am "all cash" and just waiting for the opportunity to pick up some primo RE for 25 cents on the dollar! If some idiot has to get a haircut in the process, too bad. Stupid people get skinned; smart people pop the champagne!!

boomer said...

Justifying hefty mortgage rate increases.

"All of us have been struggling, banks and mortgage lenders, from the higher cost of funds and liquidity premiums,” said Joan Dal Bianco, vice-president of real estate secured lending at TD Canada Trust"

Sure, Joan--your 5 year cost of funds went up 50 bps because the BOC didnt DROP their OVERNIGHT rate. Poor struggling banks. More like a message to the BOC along the lines of "see what happens when you dont drop rates like you were supposed to"........ (to help us out of our bad decisions in ABCP and other self inflicted trading losses--- which have nothing to do with individual mortgages)
Whats TDCANT's 5 year GIC rate again?
Oh thats right--3.0% (interest paid annually-not monthly)
What hogwash.

Anonymous said...

Yup, the next few years will show us all what crooks the banks really are.

roger said...

boomer said:

Whats TDCANT's 5 year GIC rate again?
Oh thats right--3.0% (interest paid annually-not monthly)


That is the off the rack rate. You can do a lot better if you have a brokerage account or use a GIC broker. Or show the advisor at your bank the rate sheets shown at these links.

GIC broker

RBC investments (pdf)

The 2 year rates went up by .35% in the last few days. You can get 4.35% on TD Mortgage 2 year GICs.

boomer said...

yes roger there are better deals around.

my point is the spin and hypocrisy
(i suppose unnecessary to state)

IMHO the banking industry epitomizes the "gotcha!" business plan.

Anonymous said...

Anonymous 8:20 said...
Yup, the next few years will show us all what crooks the banks really are......

AHHHH...COME ON!!!!!That comment really hurts. ouch!!! You know my banker friends and I are going to lower rates soon so we can get more lemmings (oops) I mean 'people' to borrow more from us, just so we can please them enuogh to keep them slaves (oops)I mean happy:). I have to keep this party going so I can inflate, inflate, inflate....

Central Banker

patriotz said...

You don't have to be a bank to make mortgage loans. They are also made by credit unions, of course, and can also be made by non-banking institutions, even individuals.

If the banks were charging more for mortgages than the market justified, someone else would come in and undercut them.

The reason mortgage rates are going up is simple - they can see the RE bust coming just as well as we can, and they have to raise their risk premium. Even for CMHC-insured mortgages deliquencies and foreclosures result in overhead costs.

roger said...

CREA finally admits the obvious!!

Canada's housing market cools

The Canadian real estate market is being flooded with homes causing prices to start falling in some key markets, according to the Canadian Real Estate Association.

The average price of a home sold last month in the country's top 25 markets was $337,071, an all-time record. But that record price was only up 1.1% from May, 2007 -- the smallest year-over-year increase in seven years.

The impact on prices is being felt most keenly in Alberta. The average price of a home sold in Calgary last month was $418,881, a 2.4% drop from a year ago. Edmonton sale prices averaged out at $340,499, down 4.8% from a year ago.


Home listings flood market

A fresh flood of homes on the market sent resale listings to their second consecutive record level in May, while sales activity and price gains both cooled.

Unlike listings, year-over-year sales levels fell in 18 of the 20 markets in the study for which data were available.

“Rising food, fuel and home prices are denting consumer confidence. Increasingly cautious home buyers may keep listings on the market longer before being sold, which increases the importance of realistic pricing,” Gregory Klump, chief economist at CREA, said in a statement.

Anonymous said...

Patriotz, you are bang on!!, except for some shady individuals that my friends and I frown upon (sharks), and don't forget my friends at all levels of government, they're in this cartel also (ooops) I mean business,...they love my printing press too:)

Central Banker

vg said...

Global TV had a segment on how Vacouver forclosures are up huge and that any thoughts of what happened in the US not happening here is not reality.

patriotz said...

Let's remember that in a rising market there should be no foreclosures at all, because the owner can just sell at a profit if he can't make the payments for some reason.

Exhibit A.

vk said...

Vancouver foreclosures double as market cools - GlobalTV

vg said...

here's the video link, what an eye opener for all those sitting pretty fools who think massive debt and high prices forever is just the way it is. Even this foreclosure expert was a non believer last fall. Look out below.


http://www.canada.com/globaltv/bc/index.html

vg said...

vk,

now stop that ! same time and with the links I can never seem to be able figure out how to post, lol.

roger said...

vg said:

now stop that ! same time and with the links I can never seem to be able figure out how to post, lol.

Here is How to make a clickable link

roger said...

Now the CBC is jumping on the bandwagon with this article: Canadian real estate boom over Check out the comments at the end of the article. Yesterday I posted links to G&M and Financial Post articles on the CREA report. Nothing in the TC yesterday or today. Don't want to upset the advertisers!!

One begins to wonder if the buyers are catching on here in Victoria. Well if you look at this price reduction slideshow you come to this conclusion - buyers won't pay inflated prices. Pretty soon they will start lowballing.

Sellers are in denial and it will take a while for things to really get rolling. The builders will lead the charge because they have to sell. For example, I see Richmond Gate townhouses are advertised at 50K off in today's paper.

vicrealstats said...

But that record price was only up 1.1% from May, 2007 -- the smallest year-over-year increase in seven years.

The impact on prices is being felt most keenly in Alberta. The average price of a home sold in Calgary last month was $418,881, a 2.4% drop from a year ago. Edmonton sale prices averaged out at $340,499, down 4.8% from a year ago.


After inflation is figured even the gain of 1.1% is a loss.

bombastic said...

Roger said
Most bulls that have posted have said that they can afford their monthly payments and bought for the long term. So what if prices go down? They still have their home, are making the same payments and "enjoying" being owners. If they bought responsibly they are not in any danger of losing their home. The reason they are upset is that the shoe will soon be on the other foot. The renters that they looked down on will now be buying the house next door for less money. Even if the new neighbours say nothing about their purchase price there is still a feeling of resentment. Very few people are happy to see others make a better deal than their own.>

I can only speak for myself, but I am not sure I agree with this. I am a homeowner, but totally believe a correction is coming, and think it is the only way to ensure a sustainable community. I do not "look down" at renters... what a silly comment. Does that mean that prior to buying a home I believed I was lower class, and then suddenly improved my caste after signing the papers? I would bear no ill will to my future neighbours should they buy for less than I did (although it is more likely they will pay closer to equal to what I did, but that is beside the point). They didnt have the same set of circumstances I did (baby on the way, rental at the time wasnt going to cut it any longer), and we have enjoyed our home tremendously over the last few years. I am happy with my purchase, and would be pleased for my friends who arent yet homeowners to have that same experience.

I have been reading this blog for quite some time, although usually reading as opposed to posting. I am also a regular poster on KIV, and believe that most people feel the same as I do. Of course, not all.

I believe the "anger and resentment" that some people have referenced comes from the malicious comments made by many on this, and other forums. In fact, I think there is one such comment from this post here that describes it precisely. There is nothing that will get people throwing stones quicker than having to defend themselves from stones being thrown.


Anyways, now you can probably tell why I dont post very often. My thoughts are long and often rambling :)

roger said...

bombastic said:

I can only speak for myself, but I am not sure I agree with this. I am a homeowner, but totally believe a correction is coming, and think it is the only way to ensure a sustainable community. I do not "look down" at renters... what a silly comment.

If you read my post carefully you will see that I said: Most bulls that have posted have said that they can afford their monthly payments and bought for the long term.

I did not say homeowner in my entire post. I was referring to bulls. There is a distinct difference and my comments were referring to real estate bulls. The definition of a real estate bull is someone who believes that real estate will continue to go up. Bears believe exactly the opposite and are expecting a downturn. A homeowner can be a bear or a bull. You believe a correction is coming so you are not a bull and my comments were not directed at you or other homeowners that have this opinion of the market.

Regarding your silly comment remark: There have been numerous posts on this forum telling bears to go back to their basement apartments. Other insults like you will be left behind and be a renter for life have also been made. I have lurked (never posted) on KIV and have seen similar pejorative remarks made about real estate bears on that forum as well.

I believe the "anger and resentment" that some people have referenced comes from the malicious comments made by many on this, and other forums. In fact, I think there is one such comment from this post here that describes it precisely. There is nothing that will get people throwing stones quicker than having to defend themselves from stones being thrown

People get upset when they hear a point of view that they find disturbing. They can either debate it using reasoned argument or just respond with negative feedback like what a silly comment. The latter usually just gets an argument rolling and leads to unpleasantry. I prefer reasoned argument, statistics and references to articles written by those more knowledgeable than me.

Thanks for taking the time to post your point of view.

Roger

roger said...

I dropped by Mohican's site today and read his latest post on Past price Declines in Vancouver. A picture often tells the story and this chart of real vs. nominal prices makes a compelling argument for a real estate downturn.

I prepared a couple of charts for Victoria that readers might find interesting:

Victoria Annual Prices

Victoria Inflation Adjusted Prices

Any comments??

Anonymous said...

I am a homeowner myself and I would like it that real estate prices come down. I have owned the same home in Victoria since 1975. My children who are in their early 30's cannot afford to live here, or at least own homes and raise a family. One has already left, and I'm afraid my second will also leave soon. It is very sad that so many children are leaving. I see having to live my old age alone without my children.

olives said...

Another great graph Roger. If real estate historically follows inflation then there is a mighty big adjustment coming (like I don't think that already!)

hhv said...

Roger et al...

Thanks for the reasoned commentary of late.

I peg VRE at inflation plus 1%-2% normally. Given a 7-year run of 3%-4% over inflation, I suspect a decline of no less than 20%. But given that many new condo developments have already reduced their prices by that amount I suspect I am being generous.

So maybe the average GH SFH home may decline by only 20% in the correction that is upon us, many placess will exceed this greatly.

That link to the global piece on foreclosures is the single most significant event that has happened since I began blogging about Victoria RE insanity 16 months ago. Considering that we are seeing pieces about RE downturns quicker than down in the US (in terms of time lag) do you think we could potentially fall further because of psychology?

bombastic said...

Roger said

If you read my post carefully you will see that I said: Most bulls that have posted have said that they can afford their monthly payments and bought for the long term. A homeowner can be a bear or a bull.

Fair enough. My mistake. I guess I made the presumption that most of the posters are on this site are renters. But I try to admit when I am wrong. I jumped to a conclusion here.

You believe a correction is coming so you are not a bull and my comments were not directed at you or other homeowners that have this opinion of the market.

I wasn't ever taking anything as being personally directed at me. As I said, I read this, and other blogs frequently and quite enjoy them, usually.


People get upset when they hear a point of view that they find disturbing. They can either debate it using reasoned argument or just respond with negative feedback like what a silly comment.

You know what, I should not have called your comment silly. But the whole concept just seemed silly. So, let me rephrase. What a silly concept. What a silly concept to think lower of renters. Do people really do that? And do renters really buy into this?(both rhetorical questions, no need to answer)

However, I do think I was using reasoned argument. I am the first to admit that I am not an expert in global finances and real estate; I have other areas of expertise. Even though I was not using stats and so on, though, I do still think that my opinion is valid and reasoned.

The written word can be so easily misconstrued, as each person reads it a different way. I was just trying to create a bit more dialogue that got away from the "us and them" mentality that seems woven into this topic. Roger, I havent any of your posts to fall in this negative category. It doesnt have to be "us and them", whoever us and them are in each persons mind.

So, I will keep reading and learning. Carry on :)

patriotz said...

A picture often tells the story and this chart of real vs. nominal prices makes a compelling argument for a real estate downturn.

Take a look at the real price curve (blue colour). Note how it takes off past the previous real price peaks around 2005, without any increase in real incomes. This is pure bubble, and I'm sure as one can be that this increase will be taken back.

If we get a prolonged recession south of the border (looking more likely all the time), it could go back as far as 2002 real. That's a 50% real decline.

olives said...

HHV, I thought that prices had only been rising above inflation since the 1970's, when the boomers began purchasing (an increase in demand), but historically prices were right on inflation. Therefore it would seem reasonable that we will return to that trend as boomers die off, downsize to condos, retirement homes, etc.

Also, what does a bout of deflation due to that trend line?

olives said...

Shiller's benchmark chart shows an increase in the benchmark price beginning in the 1960s (boomer influence maybe?) and also shows pretty clearly the effects of a deflationary period on the benchmark.

http://www.nytimes.com/imagepages/2005/08/21/business/21real.graphic.html

roger said...

Bombastic,

Thank you for replying to my post. I appreciated your comments. I would like to respond to one of your points:

What a silly concept to think lower of renters. Do people really do that? And do renters really buy into this?

From personal experience, I have observed that years can go by without any discussion of real estate ownership with co-workers, acquaintances, relatives or on the Internet. However during the boom periods the subject often comes up and the following types of comments are made by those bullish on real estate to renters.

1. You are just throwing your money away on rent.
2. Real estate always goes up. Soon you will be priced out of the market.
3. My house is worth xx thousand more than I paid for it last year. I am glad I bought when I did.

Many renters will view these comments as a putdown of their financial decisions and lifestyle choice especially if the one giving the "advice" uses a superior tone when making them or keeps pushing their homeownership decision.

Posters on this blog have debated the merits of all of these points extensively. While the RE market was still going up there was little acrimony because the bulls did not bother to drop by this bear blog. However, now that the market has started to turn we have had a number of bulls looking for information on the future direction of the real estate market. They drop by here and some quickly take offence to what we are saying.

Bombastic your comments were thoughtful and well presented. You are right about words on a blog being easily misconstrued. My reply is only meant to clarify what I meant in my earlier posts.

Roger

roger said...

patriotz said:

Take a look at the real price curve (blue colour). Note how it takes off past the previous real price peaks around 2005, without any increase in real incomes. This is pure bubble, and I'm sure as one can be that this increase will be taken back.

Here is another graph of nominal and real prices using 2007 and 1978 dollars.

Real prices were flat until 2001 and then the boom started. In 2003 a new inflation-adjusted peak was reached and by 2005, as you correctly stated, a speculative bubble was forming. This can be seen in this graph of nominal prices since 2005. Median prices have increased at 12% since 2005 which is far greater than the typical inflation + 2% shown here

A house in Victoria now has a market value double what it was in 2000 after taking inflation into account. If anyone can explain why this is not a speculative bubble I, for one, would be interested to hear their reasons.

Anonymous said...

As I recollect there was a stall in the market around November of 2005. This could have been a "bull trap" as some of the buyers had thought this was the top of the market and pulled back from purchasing properties. But, the price appreciation momentum was there to carry prices still higher.

Perhaps, the corresponding "bear trap" or dead cat bounce will also occur at or near this November 2005price level as prices decline.


Siobhan