Tuesday, July 15, 2008

Last One, Best One

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

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

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

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

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

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

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

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

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

38 comments:

Vancouveritis said...

Regarding the short discussion on appartment rental rates in Victoria in a previous post.... Is it possible that a falling real estate market will increase the supply and decrease some of the demand for rental units, and thus decrease average rent across the city? In general, I am wondering if the number of available rental units will increase.

Some specuvestors have bought condos that are sitting empty, neither rented nor lived in by the owner. In many cases, the specuvestor had no intention of renting the unit. Flipping was the goal. So what happens when they sell in a falling market?

1. When they sell their empty condo to a current renter at reduced prices, this does not change the number of available rental units, but reduces the demand for a rental unit (one less renter on the market - less demand).

2. When they sell their empty condo to a true real estate investor who then makes it available for rent, this creates a new rental unit on the market (increased supply -- it's no longer an empty condo unit).

Now the question is: how many specuvestor empty condo units are sitting?

roger said...

HHV said:

We haven’t seen YOY price drops yet, but we will.

We are very close as shown in this graph. Central Victoria leads the way as shown here.



#43020

Anonymous said...

Home prices slip for first time in nine years

http://www.reportonbusiness.com/servlet/story/RTGAM.20080715.whousing0715/BNStory/Business/home

"Of the 25 major markets included in the statistics, average home prices declined on a year-over-year basis in Calgary, Edmonton, Victoria and Windsor-Essex. The largest decline of 2.6 per cent was in Edmonton, while the smallest was in Windsor-Essex at 0.5 per cent."

roger said...

anon,

That was an interesting Globe & Mail article

These excerpts should be of interest to blog readers:

Canadian home prices fell in June for the first time since January, 1999, as the number of houses for sale remained at record levels.

The average price of an existing home fell 0.4 per cent in June to $341,096, compared with $342,615 the year before, according to statistics released Tuesday by the Canadian Real Estate Association (CREA).

Markets with the greatest year-over-year decrease in unit sales in June

-Greater Vancouver - down 42.9 per cent

-Victoria - down 24.4 per cent

Markets with greatest year-over-year price declines in June

-Edmonton - down 2.6 per cent

-Calgary - down 2 per cent

-Victoria - down 1.1 per cent

-Windsor-Essex - down 0.5 per cent


#112302

Anonymous said...

Good post.

I have been watching and adventures of a 653 sq/ft James Bay condo currently on its third MLS number, now # 245275.

It's been on the market for over 7 months now and when nobody bites on the modest price reduction it cancels the MLS number and puts it back on the market with a new MLS number.

Something weird today though that makes me wonder. Actually two weird things.

First, today this property appears at the top of the PCS condo list but with no price reduction or other obvious change in the listing. The days on market, under this MLS number, seems accurate at 74 days.

Second, the two other former mls listings for the property have disappeared from the PCS. Can they do that?

Thoughts?

It's at 407-305 Michigan currently asking $268,800, started at $289,900 I think but since the other listings were disappeared I am going by memory.

hhv said...

Windsor is loosing GM, what's Victoria's excuse? Loss of Carmanah?

Ryan said...

It never had anything?

Phil said...

Now that things are winding down, can you imagine those poor souls who have to either:

1)Spend 40 years at the corner of Bay and Quadra

or

2)Claim Bankruptcy

Ouch!!!!!!!!

hhv said...

Phil,

I don't think you'll see either. Hopefully, those "poor souls" just bought a home that they can afford and are happy with and don't care about its value, or can afford to lose some paper equity.

phil said...

hhv, do I detect a bit of sarcasm? I mean if you bought one of those places to live in you probably can't afford to lose any equity. You would have to pay the difference to the bank when you want to get away from the sirens, horns and exhaust.

Unless of course values start climbing again. :)

hhv said...

Phil,

no sarcasm intended. there was an article recently regarding one of the units being sold to a couple of empty nesters moving in from up island. hopefully they paid cash and have no mortgage or small mortgage... for them it made sense. they may or may not like it there. i hope they do and don't feel the need to move. then they don't lose anything. except maybe sleep because of the sirens (sry couldn't resist).

victorianna said...

OK, seriously, anyone who hasn't looked at Vancouver Un-Real Estate in the past couple of days needs to have a look. It's one of the funniest real estate blog posts I've ever seen. I was definitely LOL.

vg said...

"Drastic MOM price drops are not normal, even in a bear market. This one fact leads me to believe we are in for one hell of a ride down. Strap on your seatbelts, put on your helmets and keep your eyes wide open, no better learning opportunity for real estate purchasing may happen again in your lifetimes."



hhv,
as you know I have been calling for 50% for a while now,it's on it's way. Like a train wreck waiting to happen,the psychology has severely shifted at long last and it will not be back for many moons.


PS to SP, the good times( or should I say extravegant times) are over baby,hope you took lots of photos to show the grandkids. ;)

boomer said...

roger; tony joe: anybody?

duh--might be obvious but sometimes im not too bright.


howescum the jun numbers fed to us from VREB dont show the same 1.1% yoy decrease that the CREA numbers show?
the only yoy decrease showing on your charts(thanks again!) are in condos-- and thats from a record high in jun/07

Metaldwarf said...

"House prices decline for first time in nine years in June: MLS data"

by way of finance.google.ca front page

http://tinyurl.com/6pdz2z

Anonymous said...

I wanted to try to quantify the level of speculating going on in Victoria. So, I looked at the last 100 condominium listings (excluding new units)for the urban core to see when each last sold. This is not a scientific study, I just did it for kicks.

Last sold percentage of total
2007 11
2006 20
2005 7
2004 12
2003 6
2002 7
2001 2
2000 1
1999 3
1998 3
after 1997 28


Total 100

So, when I look at the distribution I would put speculators as being anyone reselling their property after 2 years or less of ownership. This would make the level of condominium speculators in the urban core of Victoria at 31%.

Which is similar to the amount of the recent drop in sales. Now, going out on a limb here, I would speculate that the recent drop in sales activity is due to the specu-investor leaving the marketplace.

Since, first time buyers are maxed out and the specu-investor has left the marketplace this would only leave the "move up" market, "let's buy a place for the kids" market and "I don't have a TV and can't read" market.


Its a slow day at work
Just Jack

olives said...

"I don't have a TV and can't read" market."


LOL!

roger said...

boomer said:

howescum the jun numbers fed to us from VREB dont show the same 1.1% yoy decrease that the CREA numbers show?

It is my understanding that CREA uses a residential average that is based on combined condo, townhouse and house sales. They also use seasonal adjustment factors in some calculations. The actual CREA press release is here

#6012

Anonymous said...

Sure glad the chanting came to an end. What exactly is all the hub bub.. bub? Nothing of significance has changed.

As for the Quadra property, isn't it about time it's left alone - now that there are individual owners? I'm sure they would be real happy to find out about this bloggin BS. This discussion is as bad as any personal comments I've read on here.

I'm much more concerned about the state of the stock markets than real estate in Victoria - I know of a few people that lost many thousands over the last two days alone.

Anonymous said...

anon 8:31 said: "I'm much more concerned about the state of the stock markets than real estate in Victoria - I know of a few people that lost many thousands over the last two days alone."

Actually they have a lot in common. The smart money got out of both a while back.

Anonymous said...

Anon at 8:31 - Realtor alert!

Anonymous said...

Definitely not a realtor nor a "concerned" homeowner (I bought years ago.) No agenda actually, it just appears a little cruel and somewhat disappointing to see people wallowing in this kind of BS - real or imagined.

olives said...

I don't get it - what chanting? Who was cruel and what did they say? what is the B.S.? Did I miss something?

Anonymous said...

Here's an example of chanting:

"uh-oh the boom is over!

Rents - they obviously jumped up quite a bit a couple years ago, but from looking at the ads in the past year they seem to have levelled off and don't seem to be increasing anymore (hey just like real estate prices)"

You see, starts with the "same old same old", makes a relatively benign comment and then again ends with the "same old same old." IMO

I'm just as impressed with unproductive weak attempt at ridicule. It seems like an aweful waste of time.

olives said...

I'm not sure I get you anon - chanting usually refers to something melodic and musical - are you sure you are using the correct word?

Are you not agreeing that the rental prices in the Usedvic ads appear to have levelled off? If not, what do you see? I'm not sure I have seen someone refer to that specific comment before ("same old, same old") but maybe they have and I missed it. What a faux pas!

I'm really crushed that you don't think I'm funny (that's sarcasm by the way - as weak an attempt as it may be). Hey, at least I can spell. :)

Hope to see you on Thursday!

roger said...

The CMHC single family dwelling (SFD) slideshow for June is now available in the Victoria Stats Gallery. Use the controls at the top of the screen to pause and single-step the slides.

You will note the following:
- SFD listings at multi-year high
- June SFD sales lowest in 4 years
- Active listings in June are the highest in 4 years
- Average and median prices have dropped in May and June
- YOY has been dropping since December and is now @ 5%
- Sales/Active Listings ratio since February at lowest level in four years


In summary - Uh-oh the boom is over.

#12033

Anonymous said...

Now that is disappointing.

roger said...

It's hard being a spinmeister these days. Cameron Muir, BCREA's "economist" can't seem to keep his story straight.

B.C. housing sales slow

Published: Monday, June 16, 2008

Muir said property prices for the first five months of the year are still, on average, up 11 per cent from 2007 levels. He expects that to ease back to nine per cent by the end of the year.

"It's a gradual easing of prices, and that easing may occur a little bit sooner because of the number of listings that have come on in the spring market," Muir said.


Home buyers finally get upper hand in Vancouver

Fri Jul. 04 2008 15:23:17

For the balance of this year and next year, Muir is predicting that home prices will track the rate of inflation.

"Maybe a little more on average. Still a solid investment but not reaching those 10 [per cent] to 15 [per cent], year over year gains we've become accustomed to over the last years."


The resale market has its challenges, but prices still rise

Published: Saturday, July 12, 2008

But Cameron Muir, the respected chief economist for the B.C. Real Estate Association, said: "There is no evidence of any kind of substantial decline in prices."


Homebuyers get a break as B.C. house prices flatten

Published: Tuesday, July 15, 2008

"We don't expect to see a substantial price correction," said Muir. "It is perfectly reasonable to expect home prices will stay fairly flat or even decline a couple of per cent a year until affordability picks up."


#123012

Anonymous said...

I think that's the point Roger, the boom is over, I think we're pretty clear on that. All of the big money that was to be made has been for a while. However, nothing material has occured in terms of down-turns. And while I apreciate your efforts, I'm afraid stats in this market do not sway me much. They are much too easily skewed, and very difficult to apply in any meaningful way to this diverse market.

I do pay attention to general moods and I'm not seeing people running away. Quite the contrary actually, I'm seeing many sold signs everywhere I drive.

The houses in a couple of the areas that I'm interested in selling for the same today as they were last fall - actually selling that is.

If we keep saying the same thing over and over for months on-end in this cyclical market I guess we'll eventually be correct, and then wrong again.

Anonymous said...

"Are you not agreeing that the rental prices in the Usedvic ads appear to have levelled off? If not, what do you see?"

I see about as many "housing wanted" adds in all rental categories of SFHs as I do "for rent" signs. This tells me the rental market remains very tight and will for the foreseeable future.

What I would avoid doing is taking 1 (or 20) adds from there and attempt to suggest a price trend. There really is way too much variety in location and condition.

I can state from personal experience that my rents are up perhaps 30% over about 4 years ago and will continue to go up by the statutory amounts for the next few years (which will mostly cover off increasing property taxes,water, etc.)

olives said...

Anon, so you're not impressed by either stats or anecdotal evidence/opinion (Out of curiosity I look at these ads almost daily for the past couple years by the way, not just looking at 1 or 20 ads and in my opinion the trend in rent pricing has changed - there seem to be many more reasonable rents that offer to take pets).

I disagree about the general mood, however - I think there is a huge change from, say a year ago. Even the people around me who were the most bullish are now, at best, cautiously optimistic that any correction and recession will be minor.

Anonymous said...

"I think there is a huge change from, say a year ago. Even the people around me who were the most bullish are now, at best, cautiously optimistic that any correction and recession will be minor."

Exactly, that is a good take on the mood IMO.

roger said...

anon 11:30 said:

I think that's the point Roger, the boom is over, I think we're pretty clear on that. All of the big money that was to be made has been for a while. However, nothing material has occured in terms of down-turns.

It appears we agree on a few things. The downturn is not going to happen overnight even though some bears want big changes now. Just like the previous cycles prices will drop over a period of several years, plateau and then rise again in the distant future.

I'm afraid stats in this market do not sway me much. They are much too easily skewed, and very difficult to apply in any meaningful way to this diverse market.

I maintain the Victoria RE Stats Gallery so that readers can easily see trends not evident in the format produced by VREB and CMHC. However all the data is from these sources. I prefer to predict the future based on facts, not "arm waving" and anecdotes, but you may prefer the latter approach and are entitled to your opinion.

I do pay attention to general moods and I'm not seeing people running away. Quite the contrary actually, I'm seeing many sold signs everywhere I drive.

There will always be sales in any market. However the ratio of sales to active listings determines the state of the market. I provide these stats, by month and year, in the gallery for condos, townhouses and houses. Buyers are turning away; that is why sales are way down compared to previous years. I disagree with you about the mood of consumers. Consumer confidence at lowest level in five years.

The houses in a couple of the areas that I'm interested in selling for the same today as they were last fall - actually selling that is.

Sellers do not determine the selling price only the asking price. Buyers will only pay what they think the property is worth to them. Collectively the buyers establish market value. And buyers now realize that the boom is over and are taking their time, offering less than asking and sitting on the sidelines. That is why you see price reductions like this every day now.

If we keep saying the same thing over and over for months on-end in this cyclical market I guess we'll eventually be correct, and then wrong again.

At least we agree that it is a cyclical market. We peaked a few months ago (ask Helmut Pastriuk) and we are now heading down. How far depends on the Canadian and world economy, financial markets, interest rates, unemployment, consumer confidence and other factors. Take a look at this graph and see what history tells us.


#331011

S2 said...

Not sure if this has been posted yet. BCREA news release of July 16

I love this line "Despite a dip in homes sales, inventories could soon edge lower as home sellers adjust their asking prices to reflect market conditions".

http://www.bcrea.bc.ca/news_room/2008-06.pdf

womp said...

:O

South Okanagan sales down 53%... Okanagan mainline down 42%!

Time to start saving for my vacation property!

Anonymous said...

Roger:
Thanks for a balanced response. I'm certainly not bullish on this market but nor am i overly bearish either. The moods tell me a relatively soft decline followed as you say at some point in the future by further increases.

For those that have been watching the market for the past 3-4 years and predicting a return to prices prior to that period, well... it's all been said

Art Vandelay said...

Soft period followed by further increases??
My gawd, where's the evidence of that?
Somebody dropped a bomb that kills only buyers. That's how quiet it is right now.

Anonymous said...

Just hang around a while - maybe 3 years.