Wednesday, July 16, 2008

Nothing to see here says, Flaherty

Apparently, when you're the finance minister, markets do what they are told.

Federal Finance Minister Jim Flaherty shrugged off housing worries in Canada on Wednesday, saying there is no bubble. He did, however, continue to express concern over mortgages with 40 year amortizations and very small down payments.

"There is no bubble here," he told reporters after speaking to roughly 400 people at Chamber of Commerce event in Calgary.

He reminded the audience that the government last week introduced plans to ditch government-backed mortgages with amortization periods longer than 35 years, and require that down payments total at least 5% of the purchase price.

Separately, Mr. Flaherty said he is satisfied that Canadian banks are "well capitalized and strong" as subprime mortgage woes hammer financial institutions in the United States, as well as north of the border.

Further, while he acknowledged that the economy is going through "turbulent times," it remains healthy. "Our economy is strong," he told the audience.

That will show them. Heh.
It is characterized by rapid increases in valuations of real property such as housing until they reach unsustainable levels relative to incomes and other economic elements.
Didn't happen here people. Remember. You've been told.

110 comments:

beagle said...

"Clearly, no one's got a crystal ball. So there's always a possibility that there will be a downturn, always a possibility," Paulson said. "But I don't see it. I think we have a healthy economy in the U.S.

"You know, a year ago, when the growth rates were much higher, I was concerned. I said, `Is this going to be sustainable? Now I'm looking at it and I'm seeing a situation where it looks like we're successfully making the transition.

"The consumer's strong. Exports have been greater than imports for quarters running, and they're adding to our growth," the secretary said in an interview taped Friday for "This Week" on ABC.

"We've got a very healthy labor market. ... Inflation seems to be contained. And what really makes a difference to me is the average worker is now beginning to feel the benefits. Real income is up 2.1 percent for the average American worker over the last year. So I'm feeling good about the U.S. economy."


Treasury Secretary Henry Paulson March 2007

Mr. Flaherty said while the world is seeing an economic slowdown, Canada's economy should not be written off or lumped in with the United States where a “significant recession” is under way.

He said Canada's job market remains strong, with only minor losses reported in June, auto sales are good and the housing market has not experienced the bubble that has hurt the U.S.


Federal Finance Minister Jim Flaherty July 2008


Funny thing is Canada has had just as bad GDP growth as the US lately but some how the US is in a significant recession and we are OK

kabloona said...

That's funny, the Americans are still denying they are in a recession - but Flaherty's calling it ahead of Bernanke (who recently called for minimum 1% US GDP growth in 2008, I believe)....and of course Bush just denied they were in a recession, saying instead that economic growth was slower than they would like but was "growth, nevertheless..." (I'm relating what I remember from his Press Conference re. Freddie and Fannie...the one in which he blamed the Dems for everything)
;-)

Well, good to see that Flaherty and I are on the same page about one thing....that the US is in a recession (ha-ha!)

Anonymous said...

Flaherty must have a handful of condo assignments on the gardiner expressway, eh sorry, Toronto waterfront!

roger said...

Bears might be interested in the latest slideshow. I put the GV June Condo Stats in the Victoria RE Stats Gallery.

Things don't look good for condo sellers!!

- Inventory continues to climb to a multi-year high
- Fewer sales in every month in 2008 compared to 2005
- Average and median prices peaked in January and keep falling every month
- YOY based on average price went negative to -8% in June
- Sales/Active Listings ratio is down to 14% (i.e. buyers market)

#10602

vg said...

"Mr. Flaherty acknowledged that a global economic slowdown is under way, and warned that Canada is not immune to the emerging economies of China and Brazil, the falling U.S. dollar and ongoing labour shortage.

“Canada is not an island,” he said"



hmmm, well thats an open ended comment as far as the "we're different" crowd on this island, lol. We are not in a bubble but affordability is at/near record highs but we are not immune ? Who ever says the government makes sense.

Anonymous said...

What a pic! That man's got an overabundance of ugly going on there... even for a conservative.

patriotz said...

Bernanke: There's No Housing Bubble to Go Bust (2005)

"Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve.

U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households"

victorianna said...

Well, I don't know why everyone is so confused. The New York Times says Victoria real estate, especially multi-million dollar properties in Fairfield, is still great value! The paper of record must know what it's talking about.

NYTimes-VicRE

patriotz said...

That's an advertisement, as you can see by the realtor's name and phone number at the bottom, not to mention the content.

NYT columnist Paul Krugman has been right about the housing bubble all along, and the reporting has certainly been a lot more objective than the garbage you'll find in the Asper media.

S2 said...

You know when they are denying that it is bad that it is really, really, really bad.

Mixela said...

The US isn't in a recession ...yet.

A recession is when there is a consecutive 6 month period of general economic decline - this has not happened.

There is a recession in the real estate market, sure, but there is no general recession.

A recession isn't a feeling or an opinion, it has a definition and it's not the case so far but it might be on the way.

patriotz said...

A recession is when there is a consecutive 6 month period of general economic decline - this has not happened.

"Not happened" and "not been reported yet" are not the same thing.

Travel Girl said...

True true!

roger said...

Some of you may have seen this news report this morning:

House sales seen falling this year: Royal LePage

House prices are expected to see a modest rise this year, but national sales are projected to fall from last year's levels, according to new forecast released Thursday from Royal LePage.

The realtor sees the national average house price is forecast to rise by 3.5 per cent, to $318,000 by the year's end.

However, home sales are expected to decrease by 11.5 per cent to 461,000 unit sales by the end of 2008.

"After several years characterized by a persistent shortage of listings, home buyers have felt the pressure of bidding wars and take-it-or-leave-it counter offers ease during 2008; home sellers have had to come to grips with the longer time it is taking to sell properties, but can take comfort in a market that continues to support reasonable price increases," said Phil Soper, the president and chief executive officer, Royal LePage Real Estate Services.


Now Royal LePage, like Remax, wants to keep the party going. Let's take a close look at their news release and see if their Victoria Stats are reasonable.

Q2 2007
----
Detached Bungalows - 382K
Standard Two Storey - 414K
Standard Condominium - 260K
VREB SFH median - 492K
VREB Condo median - 268K

Q2 2008
----
Detached Bungalows - 450K (+17.8%)
Standard Two Storey - 470K (+13.5%)
Standard Condo - 295K (+13.5%)
VREB SFH median - 547K (+11.1%)
VREB Condo median - 295K (+10.1%)

Ladies and gentlemen of the HHV jury:
1. Do you find the Lepage stats for Victoria reasonable?
2. Was the market value of a detached bungalow in Victoria last year in Q2 382K and 450K last Qtr.?
3. Can you buy a standard bungalow or two storey house at the Lepage prices in Victoria?
4. Was the reported condo increase in line with VREB stats?
5. Do you think prices will go up nationally by 3.5%

hhv said...

Roger,

if "Detached Bungalows - 382K" = 800 SF wartime house in Esquimalt, maybe. But somehow I fail to see this as the "standard."

roger said...

HHV,

I really question where LePage gets these numbers. I suspect their local offices in each city provide some sort of guesstimate. Getting a proper home price index (HPI) takes a fair bit of work, access to land office sales, comparables analysis etc. Landcor is the only company I know of that does this. If VREB had this kind of stat they would publish it like they do in Vancouver.

Anonymous said...

4 million and 3 billion

BC government (high paid accountants, financial experts, officers) could estimate their surplus with 1000% error.

Then you can expect 100000000% error in a report by a group of high school graduate.

But the goal is the same: fool the public

Anonymous said...

I suspect that LePage has a problem in Victoria because of how each home in there HPI is defined.

Say there typical Home Price Index home is based on the typical 1,500 square feet 3 bedroom home.

No problem in Surrey and Vancouver in finding comparable homes. However, welcome to Victoria the retirement community of the galaxy. The first thing I noticed when I moved to Victoria is that most of these type of homes are ONLY 2 BEDROOMS !!!!

Consequently, most of the Victoria data is not used as they do not meet the 3 bedroom parameter. Hence, you get a skewed analysis. LePage is a well respected company but really they still use the same methods of 30 years ago.

Landcor, gets the majority of its data from BC Assessment and combines it with ML data. But their strength is also their weakness. Rudy (the boss), can't leave the old days selling real estate and still needs individual comparable sales to set the value.

What Victoria needs is an AACI or CRA and knows how to use SPSS. If you know what these acronyms are - then your might be that person.

swing said...

Has anyone looked at the average and median incomes in Victoria? What about sources of data for this?

I want to figure out the maximum house price that can be afforded by maxing out the new mortgage rules.

Some assumptions:
-working (or pensioning) couple
-'average' property taxes
-current interest rates
-modest strata or maintenance fees

I'm just wondering how far things will have to fall for an average person (couple) to afford an average house.

greg said...

swing, median family income is around $72,000 in victoria according to the last census, it won't have gone up much since.

Anonymous said...

Depending on variables, it looks like that starts at about $300,000People in that incoem bracket may have to start a little smaller than SFH - maybe townhouses or condos.

It would be interesting to know how many families with reported family incomes of $72,000 actually own 2-3 SFHs in Victoria. I think we might all be a little surprised.

It would also be interesting to know how many families at $72,000 make another $15,000 / year under the table or have non-taxable sources of income (ie foster parents), which I assume is not included in the calculation.

olives said...

Thanks for the drinks and the great conversation HHV!!!!

:)

roger said...

HHV,

Thanks for organizing a bear get together. It was fun meeting and discussing real estate with so many regular posters.

Roger

#32112

S2 said...

Thanks for the beer hhv.

Thanks everyone for the interesting conversation with like minded people.

What is the benchmark for our next one?

Libre Esprit said...

HHV- Thanks for the beer and get together; I promise to post more regularly since I read this blog all the time.

I was a bear before I ever found you all - its been great to know that I am not alone since a lot of people thought I was nuts 3 years ago.

Thanks for tonight everyone. Great conversation - I look forward to the next one.

Are we saying another 10%? as our benchmark

Libre Esprit said...

Swing - that would be $300,000 if the family unit at $72000 had no debt! And that is usually not true in today's market place for most families.

You can find information on incomes in the capital region at the main CRD website - broken down by municipality and area too.

http://tinyurl.com/6fwdsk

You'll note that $72000 is on the high end of median incomes but I'm not sure if all these figures are reported from the 2001 or the 2006 census.

greg said...

This link has the numbers for the CRD in 2006.

greg said...

This link has the numbers for the CRD in 2006.

Anonymous said...

"Swing - that would be $300,000 if the family unit at $72,000 had no debt! And that is usually not true in today's market place for most families."

Yes, as mentioned, it depends on variables.

But, smart guys like ourselves have the opportunity to prepare for exactly that. When we were preparing to buy we lived in about as cheap a home as our family could stand and paid debt down by the thousands. We focused on higher interest rates first and everytime a loan was paid off the payment for that moved to the next one.

If you think prices are going to fall for the next 4 years, drop this blog and go look for discussions on reducing debt and short term investing. Look at the homebuyer's program, lifelong learning program, and the new upcoming tax free savings accounts as ways of preparing to buy your first home.

The most house a family can buy should not be a benchmark - not even for determining where someone thinks prices should go to. It should be an irrelevant discussion to most on this board. NEVER buy a home with less than 20% down, CMHC will steal your down-payment.

Anonymous said...

Hope the bear/beer went down well
Next 10% drop I will join you.
I have been reading these blogs since I moved to Victoria a year and a half ago and they have supported my decision to wait.
I feel soooooo good about that decision now.
I actually put an offer, albiet low, on a condo a year ago and I am so glad it didn't work out as I think I would be reading these blogs and crying instead of smiling.
Cheers Bears,
Futura

Anonymous said...

Good advice anon 6:41

The key is to prepare for the next cycle. For the last seven years, financing has been the king of the marketplace. As we are most likely entering or in a recession cash will once more become king.

Reduce debts, build up a bank roll and wait for your opportunity, whether it be in equities or housing.

As for CMHC, your dancing with the devil and its the devil who calls the tune and tells you how long you can dance.

just jack

B2B said...

"If you think prices are going to fall for the next 4 years, drop this blog and go look for discussions on reducing debt and short term investing. Look at the homebuyer's program, lifelong learning program, and the new upcoming tax free savings accounts as ways of preparing to buy your first home. "

Uhhhh...reasonable advice, to a young first-time buyer, but if you'd read this blog you would know that the majority of people on it are pretty savvy financially. Unfortunately your post reads like a number of others on here that assume a position of authority as someone who currently owns their house, and patronisingly advises these folks to "pay down debt" and "save your pennies".

Dude, most of us have no debt. We've consciously made the choice to sell and rent based on common financial sense and investment logic. Many regular posters on here are professionals that has owned at least one property in the past, have no debt, and a war chest of cash and investments that grows each month due to their renting.

We use this blog to track the ongoing real estate collapse. We don't need to "drop this blog" and go read some elementary texts on how to reduce debt, or what half-assed government schemes there are out there.

Sorry if this sounded a bit short, but I just wanted to bring you up to speed on what this blog is all about.

Anonymous said...

Good post b2b.

We just met with our banker yesterday to go over our investment plan. We are on track and still sticking with our goal.

It was so cool to hear that we are doing the opposite of what the majority of people are doing.

Thanks hubby.

S2 (for some reason it won't let be log in)

olives said...

"It was so cool to hear that we are doing the opposite of what the majority of people are doing."

What did he/she say the majority are doing? taking equity out of their homes to load up on mutual funds?

roger said...

It is always interesting to read REALTOR® ads. Sometimes they seemed to state the obvious as though it is something special. In other cases they suggest that they are doing the buyer a favour. Here are some of my favourites:

- Owner says bring your offers
- Owner is motivated
- My seller would like an offer
- Priced right for quick sale
- Proudly offered at xxxK
- Sharply priced
- Owner says "sell now"

What are your favourites?

Metaldwarf said...

I just wanted to say thank you to everyone that showed up yesterday. It was very nice to meet you all.

I have an idea for when we should next meet.

We should keep an eye out for one of those Open House Tours where you can go and view a number of houses in quick succession. I'm sure hilarity would ensue when the only people showing up to such an event are a pack of bears laughing at and critiquing each property.

Then again maybe I just have a sick sense of humor.

Rob

Village said...

I enjoyed meeting everyone, and the beer. Free was even better, thanks HHV!

This fall/winter and next spring will be the most interesting time. Psychology of the RE always goes up mantra is just beginning to be pierced.

roger said...

Garth had an interesting comment on his site today:

As I’ve said for many months, sales volumes have to crash first, then prices will trickle down afterwards. Right now, resales in Canada are off 18%, but prices are down only 2-3% on average, and as much as 10% in certain markets, like Edmonton. We are in the early stages of this correction, and price reductions will be much more dramatic by October. Year-over-year, I am sticking with my prediction of a 15% national dive by this time next year, with some markets off twice that amount. If you want to move up, sell now with a long close, then hold off a buying decision until at least the end of the year

So what will happen with sales in Victoria? We can look at what has happened in the past to see what is in store for the balance of 2008. Here is a graph of sales by month for the past four years. We have passed the peak spring season and there will be fewer sales as each month goes by for the rest of the year.

What about inventory? Active MLS listings should continue to increase until the fall. In 2007 the peak occured in the summer but that was a record year for sales.

Fewer sales, more inventory will result in more downward pressure on prices as the months roll by.

Anonymous said...

Olives said "What did he/she say the majority are doing? taking equity out of their homes to load up on mutual funds?"

We were loading up on stocks while most everyone else was loading up on houses.

"Taking the equity out of their homes to load up on mutual funds?"

No, why would they when their houses ARE their retirement funds.

Metaldwarf, I'm in for the tour but I will try not to giggle until after we finish the tour. I have a warped sense of humour too.

S2

olives said...

"No, why would they when their houses ARE their retirement funds."

I know some of these people - no savings or investments whatsoever and in their forties.

roger said...

Olives,

BMO did a survey of boomers (born after 1946) and the results are inline with your comments: Boomer study

Excerpts:

Yet, while taking care of others is a big part of their lives, boomers are becoming increasingly concerned about their own future. Only 28 per cent of respondents are very confident that they will be financially secure in old age compared to 41 per cent of those under 40 years of age and 47 per cent 60 years and older. A third of boomers (32%) believe their standard of living is likely to drop in retirement, compared to 16 per cent of younger generation Canadians.

According to the study, many baby boomers are having challenges balancing the books, with most still with debt (73%). Only 28 per cent of boomers say they have savings and investments of $100,000 or more. Almost one-in-five boomers who have not yet retired (19%), say they have no savings.

Pre-boomers (i.e. seniors) report a sense of confidence in their financial futures, with half (47%) very confident in their financial security. This may be because their finances tend to be in order.
- 82% have paid off their mortgages
- 85% have prepared a will
- Almost half (45%) have no debt, and those with debt have less than $25,000 worth (35%).

Libre Esprit said...

Conference Board of Canada report out today - "Why there's no need to panic about the Canadian economy"

http://tinyurl.com/6ohfaa

(One of these days I will learn html!)

Some thoughts? Do we believe that the Canadian economy is in great shape? What about in BC after the Olympics?

olives said...

Interesting Roger. I wonder if that has more to do with how close someone is to retirement, ie boomers getting close and nervous about retirement funding, and young people confident because it's so far in the future.

OR, is this perspective based on, at least in part, the economic environment in which one grew up in.

I wonder if my group - gen-x, tends to be more cautious and/or pessimistic (in an economic sense) because we came of age in the late 1970's to late 1980's or so - just like today's seniors who lived through at least part of the depression (or were well aware of it), were better planners/savers than boomers. Is it more nature or nurture?

Libre Esprit said...

and over here

"Central bank issues economic warning"

http://tinyurl.com/5wvbcn

Just tripping over themselves aren't they!

Would be enough to confuse anyone.

Nick said...

Hi, I've been lurking for a bit, thought I would join in the action. I'm a first-time buyer looking at the market with some optimism. It's nice to see properties sitting for the first time in several years, a price drop would be welcome news for me.

I was wondering what you folks thought about assessed values in Victoria. I like to compare list prices to assessed value when scanning the properties available on the market. Do you think that the assessed values are reasonable, or are they somewhat overvalued as well? I'm always amazed when a house is assessed at 330k, but listed at 450k...

Anonymous said...

"Boomers are willing, but reluctant to sell their houses to fund retirement

Two-thirds of boomers (65%) are at least somewhat willing to sell their assets to fund retirement, although only a third (30%) are intending to use this strategy.

The vast majority of boomers own homes (80%) and one-in-five (19%) own a second house."


----
One-in-five own a second home!
When things get tight what do you think these boomers are going to do? And by the way as at 2005 there were 113,500 homes in Greater Victoria and currently only 4 percent of homes in greater Victoria are listed for sale annually. Imagine the number of listings going up 5 times or more.

Think of your friends and relatives and ask yourselve -how many homes do they own? If we all were to do this you might find that in Victoria and Vancouver the number of people owning a second home is higher than the national 20percent number.

If you compare our census household size from today to that of the previous census years you will see a dramatic drop in that figure. A drop of this size is only explaned by a significant increase in the number of homes owned per household.

Furthermore, the percentage of Canadians that own their homes is at the highest level in history.

In summary, there is a high possibility of a massive amount of listings if the Boomers get spooked about a loss in home value.
Coupled with a less demand for housing as most Canadians have already bought.

Is it any wonder that the politicians are saying that there is no bubble and everything is fine!


Just Jack
(reporting from behind the grassy knoll)

roger said...

Nick,

Welcome to the blog.

Assessments are supposed to represent what a willing buyer would pay a willing seller on July 1st of the previous year. They can be way off (+ and -) on older houses but in the ballpark for recent subdivisions where the style, sq. footage, lot size are comparable.

Just Jack has access to GV stats and may have some insight on this topic.

swing said...

Calculator link for calculating
"is it better to buy or rent"

http://tinyurl.com/2gwgms

thanks to vic housing blog.

Anonymous said...

Assessment to Market Value Ratio

BC Assessments mandate is to estimate an actual value (as defined by legislature and for the most part equivalent to market value) as at a July 1 of each year.

A daunting challenge when you consider the number of properties, inclusive of railroad lines, water lots, naval bases etc. in BC.

It is impossible for BC Assessment to inspect every property every year. An assessor may not have viewed the home you live in for 15 years or more and in the case of a condominium, never.

Instead they have an expensive computer system that evaluates properties based on their physical composition gathered by the assessor and economic conditions as at the effective date of the tax roll.

Very basically the system is taking the purchase price of a property that sold in say 1990 and updating to today's date by reviewing sales data.

The problem is that these pesky home owners are alway changing things about their homes and thus ruining a very nice software program. Also, the more sales data the computer has, the more accurate the value (garbage in - garbage out GIGO). So the assessment on a house with water front can (and generally is) significantly different that what it sells for. But a home in a large subdivision of similar homes will be reasonably accurate as at July 1. The trouble is, that its not July 1 of the previous year, so that data and value is one year behind.

So, what your trying to do is update that assessment by determining a ratio based on the July 1 assessed value to today's prices and then use that ratio to assist you in your buying decisions.

Frankly, I have never been able to derive a consistently accurate assessment to value ratio that
can be used to determine a probable sale price. There are too many variables. I see properties that sell below assessed value and properties that sell above the assessment. A house with a new kitchen and bathroom will not have a similar ratio to a home that has been neglected, etc. And when it comes to properties in the aggricultural land reserve the assessments are useless for estimating market value.

My thoughts are that you use the assessments as a base line, but it is far better for you to rely on YOUR judgement than a software program designed for taxation purposes. When your looking at a property have your agent provide you with recent sales of similar homes.

A good way of looking at these sales is on a price per square foot of finished floor area. So a 1,000 sft. rancher sold for $425/sft. A 1,200 sft rancher sold for $400/sft. Your looking at a 1,100 sft rancher, so the value would most likely fall within $400 to $425 per sft or $440,000 to $467,500. Practice makes perfect, the more you use the square foot rate, the better you will get at using it. Try it on a couple of properties and read up on the economic principle of diminishing returns.

You might also want to talk to an appraiser. A what? An appraiser, they typidally work for lending institutions to estimate values. Generally, they are talkative people and if your straying off in your analysis they will try to put you back on track. ie what the heck is "diminishing returns"


just jack

B2B said...

Do you think that the assessed values are reasonable, or are they somewhat overvalued as well?

Most of the people on here opine that assessed values themselves are at least 30% overvalued (relative to incomes and rents, the only sane metrics in existence). I happen to agree!

Nick said...

Thanks for the info. I find it interesting to see how many houses were selling for significantly more for the assessed value when even the assessed value seemed rather high, I'm glad it's not just me that thinks that way. Yeesh, this town needs a first-time buyers support group...

Metaldwarf said...

Warning long post is long.

There are undoubtedly more boomers who are not prepared for retirement then those who are. You would be amazed by the number of people who think the government will take care of them.

Government Benefits are not nearly enough to provide a decent retirement income. CPP in 2008 provides a maximum of $10,614 of income (indexed with CPI), and that is only if you have maxed out your contributions (assumed retirement at 65). The average payment in 2007 from CPP was a measly $5,777.52. What is even worse is that this amount is taxable as income.

Old Age Security (OAS) has a max in 2008 of $6,069.96 again indexed with CPI. The Average CPI payment in March 2008 was $476.05 or $5,712.6 per year. Also taxable. OAS also gets clawed back once your gross income exceeds about $62,000 per year, and is eliminated at just over $100,000 a year.

Last but not least is the Guaranteed Income Supplement
If your annual income is less then about $15,000 you can qualify for GIS which pays a max of $7,661 in 2008. The government is slightly more forgiving and GIS is non-taxable.

So with no other savings or pension but a fully paid off mortgage a retiree has a maximum of CPP + OAS + GIS to live off of. Let’s put that to an affordability test.

Average CPP payment $5777
Average OAS payment $5712
Max GIS payment $7661
Total Gross Income: $19,150
Tax rate: 20.24%
Net After Tax Income: $16,825.42

So the best the average person with no savings has to expect is just under $17,000 in income, knock off a few thousand in property taxes, heating costs, car payments and cat food for dinner and you are living off about $1000 a month. Throw in a medical condition or family emergency and there is going to be a lot less.

Using the numbers Roger provided from BMO that 73% of boomers are still in debt (mortgage most likely), and only 28% have savings exceeding $100,000. (aside: interesting that those two numbers are nearly inverse isn’t it) The next 10 years is when most boomers will be retiring, I don’t think these proportions will change very much in that time.

73% of boomers will be downsizing, they have no other choice financially speaking. They will have to sell to feed themselves. The boomers are all going to want to get out of the market at the top, they will want to sell their median SFH worth ($550,000) and buy that median condo ($300,000) or townhouse ($400,000) for and bank the other $150K-250K. The problem I see is that who is going to buy the homes, the easy answer is the baby boomer echo generation. As their parents move down the children will move up. The insanity is that the boomers have put the vast majority of their lives energy and savings into their homes, the prices are sky high and it took a lifetime for them to get there. How is a young family just starting out supposed to generate the same purchasing power in a few years as their parents managed over their entire working life? There were be fewer buyers, and SFH prices will fall. Strangely enough with condos being the only affordable option for the Echo generation, and with boomers wanting to downsize into condos as well there could very well be an unexpected condo price boom as there is more competition in that sector.

Anonymous said...

Are prices inflated in relation to incomes and rents?

Yup, I think so. If you don't have a large down payment you should try to only pay between 3 and 4 times your gross income for a home. Regretably, for the median income of $72,000 there is very little to choose from.

So, what do you do? According to most on this blog, you wait until prices come down. Which is very sound and thoughtful advice. Unfortuneatly, were human, and each of us has different needs. If we are purely rational humans we wait, but the reality is that we make choices on our perceived needs, ie recently married, new baby, mother in-law moving in with us (scratch that one).

Or in anticipation of future events. Perhaps your on track to be a senior partner in your firm in two years. Will you still wait? Perhaps you recieved an inheritance that would form a larger down payment. Would you still wait? Perhaps you have just sold two condominiums that you owned for the last few years? Would you still wait?

I say like hell you will wait, its found money, your going to spend it!

A lot of people have made winfall profits during the last half dozen years. And they are acting, how humans act - they are trying to increase their lot in life. So, they're moving on up the property ladder and even when property values fall they still made a decision that was right for them at that time.

So, five years ago, they were just middle income. Today they are middle income millonairs. And tomorrow they will be just middle income again.

The only people who get screwed in the end are the ones that came late to the party and do not have a large down payment of found money. For the most part, everyone else is going to be fine. It wont go down as the smartest thing that they did, but at least the mother-in-law isn't living in the basement. Or is she?


just jack

Anonymous said...

Wow, these are some quality and informative posts. Thanks guys.

roger said...

Here is a follow-up on my earlier post about sales dropping first followed by prices. Here is a graph of sales of single family homes in Greater Victoria over the last three years. As you can see sales peak in May-June and keep declining until December. If we look at a monthly comparison we get this chart. You will note that 2008 sales are much worse than 2007.

Now many REALTORS® are saying that 2007 was an exceptional year and 2008 is OK compared to years past. So I calculated the monthly sales average for the last six years and prepared this chart. SFD Sales in 2008 are well under the 6 year average. Another REALTOR® myth bites the dust.

S2 said...

This town does have a first time buyers support group. Actually, there are a few. They are called real estate blogs and thank heavens for them.

patriotz said...

Most of the people on here opine that assessed values themselves are at least 30% overvalued (relative to incomes and rents, the only sane metrics in existence). I happen to agree!

Yes but assessments are supposed to track market price, i.e. what the latest greatest fool is willing to pay, not fundamental value, which is what you are talking about.

As to what you should pay for a house, just find out what it would rent for (roughly), and if the total costs of ownership exceed this by any significant amount, it's overpriced. RE bear markets always fall to rent equivalence, or to put it another way adjust to fundamental value.

Anonymous said...

B2B said: "Dude, most of us have no debt. We've consciously made the choice to sell and rent based on common financial sense and investment logic.

Sorry if this sounded a bit short, but I just wanted to bring you up to speed on what this blog is all about."

Sorry B2B, I'm not buying that any more than you're buying a house in the next 6 months.

I've watched the posts on here over the last few months and clearly everybody has a little to learn - even the most prominent posters, even you. What may sound simple to you might be good advise to another.

You're right it was a little short, perhaps even rude. Look in the title of this blog "First-time buyers comment on the Victoria housing market insanity." Sorry if I presumed there could actually be first time buyers on here.

It's interesting how insulted and offensive some get when a homeowner particates in this blog.

patriotz said...

clearly everybody has a little to learn - even the most prominent posters, even you.

Well than how about filling us in on what we need to learn, rather than being snide about it. That's what this blog is for.

And we don't have anything against homeowners (many of us are or were homeowners).

What we have a problem with are people who

(a) think that just because they bought 5 years ago when prices made sense they are some kind of George Soros.

(b) expect other people to buy their houses for today's ridiculous prices so they can retire.

Sorry Charlie, find some other sucker to buy your POS. And act fast, because there aren't many of them left.

Anonymous said...

I was directly responding to B2B's post.

You come across as very bitter Patriots.

roger said...

metaldwarf,

Very thorough and informative post. Thanks for the taking the time to put it all together

S2 said...

I would love to hear any tips on buying a home that anyone whether home owner or not wishes to share.

I can get hotheaded at times myself but I'm open to learning from everyone on this blog.

Anonymous said...

"Sorry Charlie, find some other sucker to buy your POS. And act fast, because there aren't many of them left."

And I'm not sure what that's all about. I don't recall offering anything for sale. This would be an example of the offensive responses that I was referring to.

How can you have any meaningful blogging if you're so quick to shut down any potentially differing opinions? Or is this blog only about trying to sell bear BS?

patriotz said...

I'm not the slightest bit bitter. I have no need or intention to buy until around 2012 and believe me I and other buyers like me are going to be calling the shots.

How about this "bear BS"?

Notice how "below assessment" and "motivated seller" are popping up all over the MLS now?

But I thought prices couldn't go down in Oak Bay

Yes, act now and you can lose 1.5K a month compared to renting and lose property value too!

roger said...

anon 9:40 said:

I've watched the posts on here over the last few months and clearly everybody has a little to learn - even the most prominent posters, even you. What may sound simple to you might be good advise to another.

I agree with you. I have learned a lot on this blog in the last year and a half. I appreciate it when people take the time to clearly express their opinion and share their knowledge.

One of the difficulties with this medium is that the tone of a post often comes across in a way that was not intended by the poster. I guess that is one of the pitfalls of using the written word to convey ideas among strangers. Hopefully we can all make an effort to get along and share ideas.

roger said...
This comment has been removed by the author.
roger said...

patriotz,

I see you found 2179 Cranleigh - MLS®: 248458. Assessed @542K

Interesting history. Started off as MLS# 240447 on Jan 27th for 547K. Dropped to 537.9K on May 31st and cancelled on Jun 1st. Relisted on Jun 21st fir 542K and reduced July 14th @ 535.9.

So after 6 months on the market the price has been reduced by 11.1K. and is now 6K under assessment. This really looks like a motivated seller - NOT.

Anonymous said...

Patriotz said, "I'm not the slightest bit bitter. I have no need or intention to buy until around 2012 and believe me I and other buyers like me are going to be calling the shots."

I hope so, because although I'm a homeowner, and own other real estate, I hope to buy more in the future as well. Bring on those price drops.

Have a good weekend.

Village said...

Optional: Take over a mortgage of 5.1 % fixed rate until Jun 2011!!!

Last time I recall seeing these type of offers was during the doldrums of the 90's.

Anonymous said...

We are in the Okanagan staying at a resort. This is the type of place whereby the sell condos and you can put them in a rental pool. We actually looked at this last year. Well there were 3 for sale last summer. This year there are 20. (only about 80 or less in the complex).

The parking lot is dead.

roger said...

In the spring I had a slideshow that showed some sales in Victoria with big price reductions. I decided to update it and found lots of candidates.

In order to see the prices clearly you need to run the slideshow full screen by clicking the big X in the upper right hand corner. There are also controls to Pause, Forward and Reverse the slides.

Let me know what you think and if you want to me to keep this slideshow updated.

Real Estate Haircuts starts with light trims and ends with brushcuts.

patriotz said...

This year there are 20. (only about 80 or less in the complex).

The parking lot is dead.


US tourism and RE. Now there's a sustainable foundation for the local economy.

Maybe they can get back into rotgut wine ala Calona Royal Red. I think there's a lot of market potential for that in the coming years.

Anonymous said...

Patriotz,

Actually there are 25 units for sale. I remember last year the sales office told me if we don't buy now there will not be any left by next year.

One lady remarked the parking lot was fully of US license plates last summer and these year we have not seen on.e

Anonymous said...

o.k. bears, have fun with this one at www.housingdoom.com: http://housingdoom.com/2008/07/19/canada-a-sign-of-things-to-come/#comments

"Canada: A Sign Of Things To Come
By twist

Canadian real estate reporters have it easy these days. All they need to do is Google the "we won’t bust here" stories from the U.S., then insert their favorite northern city.

A few weeks ago we noted that the Vancouver Sun was recycling spin from south of the border. Today it is coming out of Toronto:"

Sorry I couldn't make it to the gathering - was out of town...

Dumb Canuck

Libre Esprit said...

Roger - in reply to your "Real Estate Haircuts" how about this listing. My PCS is set up for 2 bedroom condos below $250,000 in the downtown core.

The audacity - boosting the price by $23,000 and then telling prospective buyers that the sellers will pay $23,000 worth of remediation costs.

Currently there are at least 3 other listings in this building so I presume remediation costs would apply to them too.

This is also a relisting on an expired listing.

203-2757 QUADRA MLS# 246290
Year Built 1984
Days On Market 64
Date Listed May 16/08
Price Original$209,000
Jun 5/08 $207,000
Jul 19/08 $230,000
Excellent price for this well kept 2 bedroom suite in a great central location close to downtown, buses and shopping. Seller's are willing to pay remediation assessment of almost $23K when it is due. Vacant.

roger said...

libre esprit,

Hmmm... remediation is always a difficult sale. If I bought a condo requiring remediation I would be uncomfortable having an ex-owner responsible for paying the assessment at a later date. What if he/she skips town? On the other hand a 5% buyer would not have the cash to pay the assessment down the road and would rather pay more and be able to mortgage the whole amount.

In the current buyers market for condos these remediation specials are going to be highly discounted IMHO. There are just too many properties around to go through the remediation hassle unless it is worthwhile. What do you think??

I added another haircut slideshow today called Oak Bay Trend Setters. Even the higher end properties are dropping in price.

Anonymous said...

thanks for the examples of 'haircuts', curtesy of Roger. For even better examples, get your PCS price limit set higher - ours goes to 1.8M and there are now lots of drops in the $2-300k range (still not sold so could go lower). I figure the drops of these pricier properties will put increasing pressure on the 'lower' (ha) end.

Regarding the BC assessment comments...... with Victoria a city with so much older (i.e. need of $$$$$ spent) housing inventory these last few years have 'allowed' the seller to market at assessed value, in spite of the huge amount of reno required by the purchaser. I look forward to the day of deducting reno costs from the assessed/asking prices. In addition, I think that when a listing reads " below assessment" that the realtor is refering to the bank assessment, or appraisal, and not the BC assessed value. Usually the bank appraisal is significantly higher than the BC assessment.

By the way, if you are keen on a property, get the realtor to provide you with the last few years worth of BC assessments - they can do it in no time! A real eye opener!

Anonymous said...

Roger - thanks for those Oak Bay trendsetters! Just to let you all know, the listings on Monterey and Transit were open houses I viewed over a year ago - when both were priced at over $1M and did not sell. Waiting another year did them alot of good - NOT!

The Midland house was purchased this spring (March ??) for just over $1M. Redone (new kitchen, flooring etc to flip. Factor in all the reno costs and land transfer, realtor fees etc. Great profit??? - NOT

Wessex house - I pitty that purchaser, even at the discount. Walked thru an open house, and in the back kitchen/family room the realtor had the TV on full blast. At first I was annoyed at the noise, and then I realized that Foul Bay road was just a few feet outside the windows. Guess that method worked on some fool

roger said...

anon 7:28 & 7:42,

Thanks for the comments and info. I only put properties that actually sold in the "Haircut" and "Trend Setter" shows.

You are right about Oak Bay properties. I have been in a number of them as well amd it is amazing how many of them have had little updating in years. Now that the market has turned sales have slowed down and I have heard that buyers are walking away from houses needing lots of work.

BTW - Here is a slideshow on Oak Bay Stats. I think July will be a poor month for this area.

Anonymous said...

Wow, Roger, THANKS!!! More than $100,000 haircuts on many properties just in Oak Bay, and NO TAKERS!!!

(Roller Coaster Scream)

Anonymous said...

Another recent sale with a dramatic price reduction is on Sylvan Lane (Gonzales area). It started quite some time ago at @ $2.1M, eventually dropped to $1.8M, and sold for $1.25M !!! It's assessment was at $1.9M. My realtor told me about that one (it is not in my PCS parameters)

Libre Esprit said...

roger - re: remediation costs and building still to be remediated.

Given comments in the Vancouver Sun last week about the number of condo units that have not yet been remediated:

"Leaky condo crisis far from over"

which states that "at least 45 per cent and possibly as many as 68 per cent of leaky buildings have not been repaired yet" (see full article here)

http://tinyurl.com/5smsp6

I would say we will see older condos (pre 1982) holding their value and newer ones not yet remediated losing theirs.

patriotz said...

In addition, I think that when a listing reads " below assessment" that the realtor is refering to the bank assessment, or appraisal, and not the BC assessed value.

I don't think so. Take a look at the "below assessment" listings and compare to BC Assessment website.

Bank appraisals are done when the buyer applies for a mortgage. They are not done at the request of the seller.

Realtors do estimates for the seller, which again is something different.

roger said...

There was an article in the National Post that shows how desperate the Toronto Real Estate Board is getting these days:
Experts optimistic despite cooling Toronto real estate market

The Canadian Real Estate Association announced this week the first drop in housing prices nationally in almost a decade, but characterized it as a one month blip that is not likely a sign of things to come.

That news was followed by the Toronto Real Estate Board’s (TREB) latest figures, which showed that the average price of a home in the GTA during the first half of July was $379,072, which is a 1% increase from the $374,254 recorded in the first two weeks of July 2007 and a 9% increase from $346,267 recorded during the same period in July 2006.

The board has emphasized comparisons to 2006 in order to “present a more accurate perspective” of this year’s resale housing market, since 2007 was an overheated year.


So now there is a new metric for gauging the market: YO2Y (Year over 2 Years)

No wonder the spin machine is in high alert. In Toronto the recent SFH averages reported by the RE board were as follows:

April - 398,687 up 5% YOY
May - 398,418 up 4% YOY
June - 395,866 up 4% YOY
Mid July - 379,072 up 1% YOY

I suspect it won't be long before YO2Y comes to Victoria. I wonder if Tony will use it in the next VREB release.

Anonymous said...

libre esprit, unfortunately you're dreaming.

What will happen is that condos prior to 1982 will lose 50% of their value like everything else here,
and unremediated condos will be losing 75% PLUS. You won't be able to give them away.

Eventually, they'll all be torn down just like "the projects", the hi-rise inner city disasters built throughout the US , and for the same exact reasons; dilapidation, crime, drugs, crack squatters, no demand, a blight on the infrastructure.

Some Victorians really have NO idea what's ahead. If you have one of these things, and you can, SELL NOW. It's only going to get worse; FAR worse.

roger said...

This weekend I was looking at PCS and 3 new price reductions came in with price drops described as a selling feature by the RE agents:

We need to sell now

Will we see more like this in the near future??

vg said...

Those are quite the haircuts roger,even for rentals and still no one leaping in to play Flip this Shack. Anyone buying will be asking another $25-50,000 less,take away agent fees on top and those will be major ouches.

patriotz said...

If I bought a condo requiring remediation I would be uncomfortable having an ex-owner responsible for paying the assessment at a later date

You would be uncomfortable? What about the bank? They would take that future assessment right off the sale price of the property when determining maximum financing, regardless of what the seller promised.

Nick said...

Speaking of remediation, I had to laugh when I saw the recent listing in PCS for the house at 4304 Majestic. The description reads: "PLEASE NOTE: This property is being sold on an "AS IS" basis! The house has not been properly maintained over the years and this is reflected in the list price!"

No interior photos, so I can only imagine what the interior looks like. List price is 374,900 for what is apparently a crack shack...

Anonymous said...

If the building requires substantial remediation work for water or structural problems you don't have to worry about bank financing.

You won't be getting it.

just jack

Anonymous said...

Question: why there are more cracking houses for sale?

My guess: it has been hold by the owner or investor. They think now it is the good time to sell: too costly to upgrade, too late to sell if wait. Just like my neighbor, an old gentleman, hasn’t live in it for few years and sold the house few months ago. The older, the smarter.

S2 said...

I found this article from today's Financial Post interesting.

"Crunch's next round nears
Ottawa's perfectly bad timing will only make things worse"

http://www.financialpost.com/reports/credit-crunch/story.html?id=668484

Mr.4AM said...

The thing you should be aware of when a realtor uses the word "AS IS" in the description is that the price of the house already takes into consideration the shape that it's in. In other words, don't expect to be able to send an inspector there, and after he tells you that the house needs a good 30-50K in repairs that you can get the seller to reduce this from the asking price. If that's your expectation, expect to say good bye to your $300 or whatever the inspection cost you.

patriotz said...

Asking prices are just that. If you offer 50K less than the asking price and nobody else offers more, the seller has two choices - take it or leave it.

All houses are "as is". It's up to the buyer to decide how much the house is worth to him and up to the seller to decide whether to accept the highest offer.

Muriel said...

Just came back from holiday in San Francisco and area (or I would have liked to come for drinks too) - last Friday the frontpage headline on the SF Chronicle read:

"Bay area prices fall 27%"

Was great to see that in the newspaper boxes all over town - if it can happen in the Bay area, with all that it's got going for it, it can sure happen here!

vg said...

Looks like the next round of bad news is coming when the credit card payments can't be paid. Apple down big in after hours too.




American Express Profit Falls on Higher Defaults


July 21 (Bloomberg) -- American Express Co., the biggest U.S. credit-card company by purchases, withdrew its 2008 earnings forecast after second-quarter profit fell 37 percent on worse-than-expected consumer defaults. The shares slumped 11 percent in extended trading.

Anonymous said...

"Asking prices are just that. If you offer 50K less than the asking price and nobody else offers more, the seller has two choices - take it or leave it."

Absolutely right Patriotz. A buyer can also offer $100,000 under "as is" price, or for that matter they could offer $1.

The buyer also has the choice of paying "market price" or renting for another 15 years. Life is full of choices.

Anonymous said...

Roger,

Great finds - are these houses where the owner shot for the moon with their first price and now are trying to offload it for something reasonable, or speculators in trouble? There's a couple of speculator houses on Government Street that I wouldn't mind following a bit.

Could be that the implosion is finally on?

btw - who gets to make the call on the implosion? Is it when Tony Joe uses the 'buy now before prices go up?' line?

Dumb Canuck

Anonymous said...

Here are the ones on Government that I'll keep an eye on - the first and second (a true pair - the same house) is clearly flipper territory, the third I looked at renting 3 years ago, was an out of town 'investor'...

MLS: 246846
MLS: 248074
MLS: 249901 (249 government, MLS search doesn't work..., has been re-listed at least 3 times)

Dumb Canuck

Nick said...

I just finished reading Garth Turner's "Greater Fool." A pretty interesting book, some of the stories really resonated with me. I'm in my late 20s, between my wife and I, we make a fair bit over the median income in Victoria and the nation as a whole. We also have a large downpayment saved up and have no debt. When an average home is out of our reach, there are some serious problems in the market. I can't wait to buy a property from one of the unwise when the prices tank.

roger said...

Dumb Canuck said:

Great finds - are these houses where the owner shot for the moon with their first price and now are trying to offload it for something reasonable, or speculators in trouble?

I don't know but every day I see lots of price reduction and haircuts as shown in today's updated slideshows. All of these sellers started off with high expectations and kept knocking down the price. And what I have in my slideshows is only a fraction of the price reductions and sales in the Victoria market over the last month.

Anonymous said...

FYI, don't waste your time offering me $50K under asking, it's priced to sell..., or is that "seller motivated," - Oh, I can't remember, just buy the freakin house already :-)

womp said...

Nick: ditto.

patriotz said...

The buyer also has the choice of paying "market price" or renting for another 15 years.

My choice is renting until the market bottom.

See you in four years or so. You language is already sounding pretty lame and is going to sound a awful lot lamer by then.

Anonymous said...

I'm not sure I'd be buying into this market right now either, but if you're buying in 4 years, you'll be paying today's prices give or take 5%, IMO and as lame as it may sound :-)

Anonymous said...

It doesn't sound lame, anon... it sounds insane.

And you know what... it is.

Better yet; NO ONE believes it, least of all YOU.

B2B said...


I'm not sure I'd be buying into this market right now either, but if you're buying in 4 years, you'll be paying today's prices give or take 5%, IMO and as lame as it may sound :-)


You might be interested in this insight from Calculated Risk:

"
From the San Francisco Chronicle: Bay Area home prices plunge 27% in last year (hat tip Vijay)

Affluent areas such as Marin County and San Francisco, which until now had resisted most price erosion, saw existing single-family home median prices fall by about 11 percent.
...
"This is pretty grim; double digits across the board," said Christopher Thornberg, principal at Los Angeles' Beacon Economics. "It was eminently predictable if you had a realistic view of the world. I heard a lot of people say the Bay Area was never going to see prices fall, San Francisco was untouchable; in San Mateo, it was impossible; San Jose, not with all the tech money, blah, blah, blah. But prices at the peak relative to people's incomes never made any sense."

This seems to be common misperception: "Prices won't fall in our neighborhood."
"

vg said...

I think one has to really look ahead here by at least 2 years. Do you all realize that after the Olympics have all packed up and left town that we will be in the midst of the largest labor showdown in this province's history ?

All those union contracts expiring all within a short period of time in a post boom era is going to kill the consumer confidence level in spades.

You think they will be handing out the 4% plus demands in a high inflation enviroment ? there will be many a labor strike going on in this town that we have never seen since the Billy Bennett Solidarity days and most likely worse. For that reason alone I am in no hurry to buy for at least 2 years.

Anonymous said...

completely off this topic, but I thought this comic was hilarious and appropriate to the housing market in general:

http://wondermark.com/comics/427.gif

Anonymous said...

"Better yet; NO ONE believes it, least of all YOU."

Pretty much everyone I talk to believes it, and in fact the ONLY place I'm hearing talk of a huge bust is here. With that said, I think I'll go look elsewhere before I start catching the disease.