Sunday, July 6, 2008

Strategies for a buyer's market


I'm in Vancouver this weekend and everywhere I look are news stories proclaiming the obvious: BC is now in a buyer's market.

What does this mean? Does it mean buyers outnumber the sellers? Does it mean today is a great day to buy? Should you jump into the ever-shrinking pool of people looking to get rich in real estate because you now have more choice?

I won't tell you not to buy. But I will tell you, based on my research, today is this worst day in the last eight years to buy a piece of BC real estate. It doesn't matter, in my opinion, if that piece of real estate is a SFH, a townhome, a condo, a recreational property, a float home, a mobile home, or whatever... all residential real estate is about to start posting real, year-over-year, declines in value. I'm predicting an October/November time frame for this. How low it will go is anyone's guess. But I think 25-30% is probably likely, and most definitely necessary.

So, you disagree with me, or maybe you're tired of renting, or maybe you can't fathom going to your workplace or a dinner party anymore and being the only person there who doesn't own at least two pieces of over-priced real estate. You've decided you're going to buy anyway.

What can you do in this buyer's market to protect yourself from declining prices? What strategies can you employ to take advantage of that "opportunity of a lifetime" your REALTOR may be telling you this market is?

Here's my list of helpful hints:
  1. Don't buy. (OK I deviated from what I said I won't do above). This is the best strategy. No matter what anyone tells you, the numbers don't lie. Real estate prices are not going up anymore. Look at all the price changes and sales below asking prices on PCS. Sure the YOY numbers are still up, but the 2008 trend is down. The Victoria market numbers in June are over 7% below the April 2008 price peak. Does this tell you prices are increasing? Wait. The longer you wait, and the longer people around you wait, the cheaper real estate will become. So don't buy.
  2. Take your time and look at 100 properties. Make your REALTOR (and you should use one, there is no reason not to, just be in control of your own decisions) do the work. They're hungry right now. They've had a hell of a run, but there are a hell of a lot of them now, so the competition is fierce. Use that to your advantage. Look at a lot of properties and see what the market is really like.
  3. When you've seen 100 properties (this should take a couple of months) take a weekend to review the ones you're interested that are still for sale (current sales statistics tell us most of them will be (80% plus)). Pick your top ten out of the one's remaining, then have your REALTOR search for new listings on the same block, go look at those.
  4. You've narrowed your search down to ten properties and seen a few of their neighbours, now narrow these down to the two or three that require no updating, no painting, no nothing. If you're going to pay top dollar for a piece of over-valued real estate, you shouldn't have to pay another dime to make it nice. If you can't find any immaculate houses for sale, keep looking. You should not have to pay for updates, make the current owners do this, and the only way to do this is to not put in offers on places that need updating, the market will make them fix their own problems.
  5. When you're ready to prepare an offer, look at what has happened to the market over the last few months and take that trend and extrapolate it out over the next few months. For example, between April and June 2008, the value of SFH's in Victoria dropped about 7%. So that should be the minimum below the asking value you should be willing to pay. I suggest doubling it for the first offer, that is, make your offer on that $400K home, 14%-15% below asking, or $340K. Do not be afraid of offending anyone. If your REALTOR refuses to take this offer to the vendor, get another REALTOR who will, there are plenty of them out there right now who will do this.
  6. Don't buy. I've said it again. I think I needed to, for me at least. Many realty companies also do rental or property management (Duttons and Pemberton Holmes definitely do) get one of these REALTORS to show you rental properties that are similar to what you are trying to buy. Do the math on these places and calculate the price difference between owning and renting including all the ownership related costs (monthly assessments on strata properties, taxes, maintenance etc). Buy when the ownership costs are the same (plus or minus 5%) as renting.
  7. If a low ball offer is refused, walk away. These sellers don't understand the market they are in. Rejection is the best medicine for them to get it.
  8. If a low ball offer is countered with a 1%-2% below asking price change, walk away and see point 8 above.
  9. If a low-ball offer is countered with 5%+ below, you've found a dance partner. Don't immediately jump to the halfway point between your first offer and the counter, add 1-2% to your original offer and stick to that price. No matter what. If it doesn't work on this house, it will eventually work on another, it just takes time, and the longer you wait in a buyer's market, the cheaper properties will get.
  10. If you are under any time constraints to buy, prepare yourself emotionally to lose. No one wins making rushed decisions in real estate during a buyer's market. (The reverse is true in a seller's market although the risks are still there). Find a way to be patient. Your family will thank you in the long run. And no matter what anyone tells you, there are no good opportunities to make money in declining assets. There are opportunities to prevent yourself from losing too much should something occur in the near-term before values start rising again. There are no guarantees that future values will rise above current ones should this market correct significantly. If you bank on prices increasing above current values, you are gambling with your family's future.
Now, you didn't pay for this advice. And I'm not actively out there practicing what I'm preaching (except point one above). So it really is only worth what you paid for it.

Your tips and strategies for FTBer's in comments.

95 comments:

Anonymous said...

My tip for FTB (like me) is not to buy.

I moved here a year and a half ago and am so glad I did a little research before I almost bought. Thanks for this site.

I signed a year long rental lease on a nice two bedroom apartment with a niece view of both the mountains and the declining real estate market.

Futura

Anonymous said...

Prices in Victoria continue to rise although not as fast as in previous years. The summer months typically see rising inventory and lower sales but by winter things pick up. It's different here because of the beautiful weather.

Anonymous said...

Prices in Victoria continue to rise although not as fast as in previous years. The summer months typically see rising inventory and lower sales but by winter things pick up. It's different here because of the beautiful weather.

HHV said...

It seems to me like some industry insider has a spam-o-lot 9000 working overtime putting up cliche posts on real estate blogs.

I've always maintained a no comment censorship policy. I'm actually considering changing this after some of the comments directed at Roger. Roger, if you're reading this, please e-mail me at the link on the main page. I'd love to know if you've stopped posting here because of some of the comments, or if you're just taking a break. Your insights are greatly valued and I welcome your contributions and statistical analysis. Can I do anything to help convince you to contribute again?

For the rest of you, please keep comments focused and free from personal jabs. Cheers.

Fodder said...

It's an odd state we are in now. 6 months ago my logical mind was telling me that everything was out of whack, but my gut was tight over the future. I have been a steady reader here for my sanity. When I would start to doubt it was nice to find others with the same take on the market.

Things have changed though. The knot of uncertainty is gone. Now the only issue is patience vs. life. We are two people in a great 1 bedroom apartment for around $700 a month. More room would be very nice, but the cost of 1 more bedroom is silly now. Do we stay here for 2 years and save a lot, or pony up the $1100 and rent a long term place and save a medium amount?

The good thing is that there is no doubt what so ever that either option is better than buying right now.

womp said...

HHV,

Your top ten list/plan reads exactly like my family's plan for getting back in! And, to give credit where credit is due - I owe a lot to you and the rest of the Victoria RE Bear blog ring. You guys have been a huge factor in my research into real estate in the last year. Even when the market hadn't turned yet, you were always on top of the news and helping put the pieces together.

Here's another anecdote, which we all love so much. Was at a wedding yesterday, and an acquaintance was telling me he inherited a condo in Port Coquitlam. He was peripherally aware that the market was changing simply because he hadn't been able to sell the condo in the last few months. He said he was "considering lowering the price". I broke the latest stats to him as gently as I could. He really didn't know how bad it's getting.

olives said...

My advice while waiting out the market is to be in a great rental, somewhere that you are really happy to live, even if it means saving a wee bit less every month.

I hate that Roger is not posting recently, especially since I consider him by far the most valuable poster on here. Roger please come back!

Yve said...

Thanks HHV for encouraging folk such as Roger to continue posting. If informative and civil posters like him are driven away by the trolls, then the trolls have won. The rest of us who use this forum to gather non-MSM biased analysis are the ultimate victims. I can certainly understand losing interest when being bomabarded with incessant infantile off-topic rubbish, but please Roger, come back! Like you say, ignore the trolls :). Any remarks from either side of the debate that resort to ad hominem attacks are not useful.
Although, I have noticed that since the market has started to turn, the vitriol from "the other side" has ramped up markedly. It used to be smug & now it's angry. That should tell us all something.

Anonymous said...

May I please add my thanks as well for taking the time to have this blog and for the great information and help.

My husband and I moved here almost 3 years ago; we've been renting as we've believed that the market was absolutely silly. The incredible pressure that people were putting on us to buy was, at times, a bit over the top; however, your site and other like-minded "bears" have been a steady rudder in these tempestuous waters!!

I must say - we've seen the beginning of vindication of those of us who have decided not to get sucked-in to the real-estate vortex.

Several friends and work associates are looking very enviously at our position - we sold in 2005 when we moved over from the mainland and decided not to buy in that crazy market - we refused to believe that it was sustainable. Those same folks who were telling us we "missed the boat" have admitted that they were too hasty in buying during the past few years. They have expressed their fears about an economic downturn and heard the brakes squeal on their real-estate "investment".

Your site has really helped us when we were doubting our own sanity and were ready to scratch that housing itch! So....thanks again. I believe there are many more like us out there who don't contribute much in the way of conversation to these sites, but read and value the opinions on your blog far more than the local papers!!!

victorianna said...

Maybe Roger is on vacation? I can't see him bothered by trolls. I have been away myself for two weeks, and was very interested to see the commentary when I got back.

We also sold our house awhile back when we decided prices were not sustainable, and have been renting. Frankly, it will be hard to go back to the hassle of ownership. For a long time I really hoped to buy again when we leave this large, central Vic rental, but now I'm torn. It's so easy to rent and let other people worry about the maintenance, the roof, pay the taxes, etc. etc. Rather than dealing with house issues, I have time to hang out with my kids, read, travel. Oh, and the money to travel, too.

I only started reading the blogs six months ago or so, as I began to contemplate what the heck was going on with the market here--and realized I might have to move soon, since the house we currently rent sold to a developer. I have always made my own decisions about whether or not to own or rent, but I have definitely learned a lot from the bloggers and posters here, so I'm glad I found these blogs. You really have performed a great service for lots of people, and there certainly was a time in Victoria (and Vancouver)when it did take great forbearance to be a bear (pun intended). It is good to feel you're not totally alone in your analysis. When you just keep doing the math and it keeps coming out "this is crazy," you know you should trust the math, but sometimes you start to feel like, "Am I the one that's crazy?" So, now, apparently, not.

S2 said...

Great points hhv.

I don't know if I have any strategies for a buyer's market. All I know is what we are planning on doing with regards to buying.

We will wait until the house we want comes down to the price we want to pay for it. No grand design. That's pretty much it for us.

We are willing to walk away if our offer is not accepted. This is our price take it or leave it (it isn't like Victoria is running out of places to live). We don't want to get into a counter offer situation and we will never put an offer on a house where they have an auction environment.

Back in the late 90s some friends did this. They put in an offer on a house and a counter offer came back. They walked and a month later got a phone call asking if their offer was still on the table. They got the house they wanted at the price they wanted.

We aren't trying to time the bottom or make deals. We just want the house we want at the price we want. It doesn't seem so hard does it?

I had an epiphany tonight.

If people bought a house with the plan for it to be their home for a long time and they can afford it no problem then what do they care if the market goes up or down?

Unless they're using it as an investment/speculating on it then why be upset if the market changes?

Maybe the other bears could explain why some long-term home-owner bulls are so angry.

S2 said...

I guess I do have one tip.

If you put an offer on a house and a counter offer comes back you can offer your initial amount again.

Lots of people I talk to seem to think that if you get a counter offer you then have to offer a different amount.

You can offer the same as your first offer.

sitting pretty said...

Zzzzzzzzzzzzzzzzz....

Yah,sure is boring without roger's spin! It's also annoying when people like me come around and push the wrong buttons. But hey! It's a free blogosphere, unless you want to do like greg and delete contrary posts, in which case your audience will drop to zero (or just roger, pleading with people to visit).

Anonymous said...

Could anyone comment as to why the PCS site is no longer available through our realtor? Last week ours was 'replaced' by our REMAX agent by a totally useless service - no longer does it give us access to price changes etc. If anyone is aware of a way of still accessing the PCS please post a reply!

thanks! this blog has been a terrific help to my conviction that prices have been out of whack in Victoria for several years. We are actually glad to be renters.

roger said...

I think this blog would be more productive if comments from trolls such as sitting pretty and happy owner were consistently removed. I'm willing to continue to provide commentary here, but if I would have to put up with the general lack of respect I'm shown here then I'll just stay at where he exercises a sensible degree of censorship.

womp said...

Anon 8:58 -

VREB is replacing PCS with a new system called Tarasoft Matrix. I noticed that all the ReMAX links were locked out, I have once from DFH that is still working, but I question the data updates that it's getting.

In any event I doubt any PCS links will be working by the end of July. You can check out my blog post from last week for slightly more info. I expect to be set up with a Matrix account this week so I'll let everyone know what it's like.

Roger said...

HHV,

The previous post is not mine!! Looks like the trolls are being a nuisance again.

I have been tied up the last few weeks and have not been able to spend much time on real estate stats and blog posts. I will be posting more later this week once I have updated my stats and Web site.

I have sent you an email using the email address you already have on file. I will also log-in so my ID appears on each post.

Roger said...

HHV,

This is the post I was referring to earlier:

I think this blog would be more productive if comments from trolls such as sitting pretty and happy owner were consistently removed. I'm willing to continue to provide commentary here, but if I would have to put up with the general lack of respect I'm shown here then I'll just stay at where he exercises a sensible degree of censorship.

Not my words or sentiments!! This is HHV's blog and he should administer it as he sees fit.

Roger

#243

Anonymous said...

spinning pretty said :Zzzzzzzzzzzzzzzzz....

Hey, get up!!!! your bed sores will get worse.

patriotz said...

It's easy to know when it's a good time to buy:

1. If total monthly ownership costs equal rent, go ahead and buy. Price may decline further but so what, you're going to come out ahead in the long run.

2. If you're looking for a market bottom, BC RE will not recover until there is a definite turnaround (not just a bottom) in the US. There is far too much economic linkage between us and them.

I do not expect to buy before 2012. Neither the 1980's bust nor the 1990's bear market turned around sooner than 4 years from the top. And most people in the know are saying that the US recession is going to be the worst since WWII.

Waiting in Bermuda said...

HHV,

I just wanted to thank you for keeping this blog going. I've been a reader for awhile now (if you watch your geographical stats, I'm in Bermuda). Victoria is my hometown, and I plan to return to it when life and real estate make sense to do so. After years of thinking that this may never be possible, blogs like yours have been a great comfort and always a great source of information, thanks to your posts and your informed commenters, like Roger.

Keep up the good work, and thanks again.

Village said...

I've always maintained a no comment censorship policy. I'm actually considering changing this after some of the comments directed at Roger.

Not that it was directed at me. But I'm going to answer anyway. =) Censorship is bad, if you use it to consistently remove dissenting opinions. Something I don't see you doing HHV. But it would be nice if those who are engaging in nothing but personal attacks and bringing nothing to the table be curtailed some.

roger said...

Some of you are wondering what will happen to the Victoria real estate market in the coming months.

Take a look at this graph of sales and active listings for the last three years.

You will note the following:

- In 2005 and 2006 inventory kept climbing until Sept./Oct. In 2007 inventory started dropping in July. Given the current low sales and MSM reports I expect inventory to keep rising until the fall.

- Sales in previous years peak in May and then have a downward trend for the balance of the year. Expect the MOI (months of inventory) which is active listings divided by sales to increase for the rest of the year.

What about average and median prices?

- Here is a graph of average and median SFH. Note the dramatic drop in average and median price over the last two months. Average and median prices are both lower than they were in February of this year. The average sales price is lower than September of last year!!

- What about price tends? This graph shows the 3 month rolling averages. You can see that the 3 month average sales price has been flat for all of 2008 and the median has been flat for three months. Note the big drops in non-averaged median and average price in the last two months. Both are currently under the rolling averages which indicates a downward trend.

What about Year-over-Year price change? This is a rear view mirror real estate board stat that I find misleading. But here it is. It is very spiky due to monthly variation but you can still see the downward trend. You can see trends better if 3 month averaging is used as shown here. In a follow-up post I will show annual and quarterly price gains over time which is a better way of doing price analysis.

All the graphs for June can be seen as a slideshow. Use the controls to pause and single step the charts. The big X will set the presentation to full screen mode.

#2061

Metaldwarf said...

HHV

Personally I think that you should consider requiring a proper log in name and disallow any anon or write in names. That way there will be no more name jacking as Roger, SP and others have experienced. Getting rid of the anons will end up in a lot of self censoring as the riff raff might not take the time and effort to log in. Additionally, if a user continues personal attacks their user name can be banned, it won't stop them from creating a new login but over time they might get a little frustrated and give up. most of the regular contributors already use a login so they wont see any change and you don't have to worry about freedom of speech and censorship.

$0.02 you might need change.

Anonymous said...

Roger, more people respect you (including me).Keep doing the nice job for all of us.

roger said...

HHV,

I sent you an email last night. Did you receive it?

#126

roger said...

womp said:

VREB is replacing PCS with a new system called Tarasoft Matrix.

My PCS account is still running OK. I have one that uses VIREB data and it is also still working.

I wonder if the new Tarasoft system will give less detail than PCS? My suspicion is that some information like DOM, price reductions and sales prices will not be given to the buyers now that RE market conditions have changed. Better to just give clients room sizes and pictures and let their REALTOR® "help" them with assessing the market.

Now that VREB is switching to a new Tarasoft system I wonder if the format of the stats will change? Calgary did a stats format switch last year in the spring just when the market started to turn. Coincidence??


#3114

hhv said...

Roger, I did get the email thanks. I'll respond later when I have a bit more time.

Funny, FVREB changed their stat methods in May 08, right when their market hit the brakes hard.

boomer said...

RE:"wonder if the new Tarasoft system will give less detail than PCS? My suspicion is that some information like DOM, price reductions and sales prices will not be given to the buyers now that RE market conditions have changed. Better to just give clients room sizes and pictures and let their REALTOR® "help" them with assessing the market."

Yup-cynically,but realistically,that seems likely-they'd probably like to get back to something like the good old pre-internet days when realtors had that big bi-monthly book with all the pertinent details in it- which except for selected listings- was closely guarded from viewing by the general public.
An educated buyer is often the salesman's nemesis. Im sure most realtors prefer the "mushroom farm" approach.

Lynn said...

There's a middle ground if you're reluctant to remove objectionable posts - you can always disemvowel them (with a handy automatic disemvoweller like this). That way if people want to they can still puzzle them out, and the rest of us can (thankfully*) skip them.

*I know I don't enjoy reading ad hominem attacks; too high a percentage of that sort of thing at a site, and I stop coming back. From the sites I've seen get taken over by trolls, seems like a lot of people feel the same way. (Conversely, trolls don't seem to stick around where there's a firm moderation policy.) So if you ask me, a certain level of censorship is a good thing - of course, when you say that, the trolls get all outraged about "free speech"...but, y'know, they're perfectly free to go create a blog and write stuff there; no one's stopping them. Commenting on other people's blogs is a privilege, not a right.

boomer said...

Hey Lynn-- that's very cool.
I'm SO going to overuse that.
THKS.


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Anonymous said...

I'm all for an expected level of respect. However, when a not so bearish comment is made and there are 6 wolves at the door with their hackles up you're going to get a reaction. I've made the occasional comment that was basically a, hopefully educated, opinion and have been personally attacked by several of you so called bears.

Maybe keep the overall discussion rational and within what an educated guess might be on the market rather than the 50% drop rethoric and chanting that brings on angry posts.

Have a look back on your headings. This one says, "Strategies for a buyer's market." All of your threads end in the same bashing. If people on here are not actually interested in buying property, why are they posting on here? Why do you actually care what the market is doing?

Homeowners are not angry or dissappointed in their ownership, or at least shouldn't be if they have made wise choices.

I do own property and I intend to buy and sell more in the future and find at least some of the discussions on here useful, if only to gauge potential emmotional temps.

Anonymous said...

Hey Boomer, That's pretty funny!!!

ooops I mean -- tht's prtt fnn!!!

Central Banker

--Cntrl Bnkr

olives said...

"If people on here are not actually interested in buying property, why are they posting on here? Why do you actually care what the market is doing?"

I get the impression that most bearish posters on here are interested in buying property (if they don't already) - not just right now.

I am interested in watching the market for not only that reason, but also because it and the global economic situation in general is so "interesting" right now (to say the least).

Predicting a 50 percent drop is no different than predicting a 10 percent drop - it is just personal opinion. I think the 50 percent is much more likely (or greater), although I'd HATE to be accused of "chanting" (whatever that means).

talus said...

How about another 28% off the US Market??

From Cluster Stock

Unfortunately for consumers, housing was already significantly over-valued. Higher mortgage rates will only increase housing’s unattractiveness, particularly versus rental property. A recent study done by Lehman Brothers concluded that at 6% mortgage rates, housing prices are 28% over-valued versus rental property nationwide.

womp said...

Roger,

I think Tarasoft is supposed to be more feature-rich than PCS, at least from the Realtor's perspective. As I understand it, VREB had two competing systems under analysis and for whatever reason, PCS wasn't one of them, and for whatever other reason, Matrix will be the new one. My realtor is quite excited about the new system, apparently it is usable with cell phones and Blackberries, whereas PCS is not. He actually rattled off a whole list of features when I was talking to him last week and he's pretty excited about it.

Hopefully us "clients" get a bit more functionality too. I'm hoping for a search and a "watchlist" at least...

patriotz said...

I get the impression that most bearish posters on here are interested in buying property (if they don't already) - not just right now.

Well of course, which is why we pay so much attention to the market and the broader economy.

But the "RE is always a good investment" ideologues can't understand that the RE bears are just people who think that RE is too expensive right now, rather than people who never want to buy.

"The dumbest reason in the world to buy a stock is because it's going up." - Warren Buffett. Substitute "house" for "stock".

Anonymous said...

If u cn rd ths, u 2 cn by a chp hs @ th btm of th cmng rl es8 crsh.

Anonymous said...

What about "strategies for a buyer's market?"

boomer said...

hey, anon 9:19

I'm slightly confused about these six Wolves with hackles raised at your door when a not so bearish comment is made?

sounds scaaaary

Anonymous said...

Another strategy when considering how much you can afford when buying. How much will your monthly payment be? Don't just assume your mortgage will have a similar (low) interest rate as we have now. Five years from now, we could be seeing interest rates of 9, 10, 11 percent. Calculate your monthly payments based on these rates to dtermine if you can afford a home.

roger said...

anon 5:47 said:

What about "strategies for a buyer's market?"

Even a bear like me recognizes that personal circumstances for some folks has them looking at purchasing in the near future. Renting is just not an option for some families. So here are a couple of my tips:

1. Avoid making an emotional decision. A house may be very attractive but avoid the temptation to pay anywhere near the asking price. Use some of HHV's tips above. The agent will be trying hard to close the deal once you make an initial offer and you need to be a smart negotiator.

2. Buy when there is little competition. December is the month with the lowest sales. Sellers and agents know that in all likelihood your offer will be the only one that month. November and January are the next best months.

3. Keep the offer acceptance period short. Your offer should expire at the end of the day you make it unless there are extenuating circumstances (estate, owners on vacation etc.) Why give the listing agent time to call around to other agents?

4. Be prepared to be a tough negotiator. If your first offer is outright rejected do not change your strategy and jump way up in price. Come back a little higher - remember the seller is under a lot of pressure. If you feel pressured walk away - you can always come back in a few days and if it sells there is always another house that will meet your needs.

5. Present a "clean" offer. Your offer will be more tempting to a seller if you have a minimum of subject clauses (but always have a title search and home inspection). Get your financing in place and your current house sold before making an offer.

6. Do your homework before making any offer. You should have a PCS account and be familiar with pricing and recent sales in the desired area. Before making an offer on a given property check out the assessed value, purchase price paid by current owners, days on market and whether it has been on the market in the recent past. Watch out for the re-listing scam.

7. Home inspection is extremely important. Be there during the inspection and let the inspector know that any defects are of concern to you. If there are major concerns (cracked foundation) run from the deal unless you are technically competent to understand the costs and hassle associated with the repair. Use minor defects to your advantage and negotiate a lower price with the seller.

Above all make sure you are content to live in the property for a long time. The RE market will be falling over a period of many years. If you sell within the next few years you will get less than you paid especially after property transfer tax, legal fees and real estate commissions are considered.

Anonymous said...

Thanks Roger for the tips, it is appreciated.

patriotz said...

Renting is just not an option for some families.

What family would that be? The Royal Family?

The fact is that you can rent one of the nicest houses in town for less than the mortgage payments, etc. for a POS at current prices. And your net worth is not at risk either.

beagle said...

Patriotz, people with dogs. Wanting to have dogs really limits your rental opportunities. That's one of the reasons I don't rent even though a downturn in house values are coming. I'm sure there are many other reasons people have also.

olives said...

It can be difficult with dogs, but two of my closest friends have big dogs and are renting houses, so it's not out of the question.

I am noticing more and more ads on usedvic that are "pet friendly".

beagle said...

Ya Olives, as the market cools landlords attitudes to pets is really changing. It would be nice to see for some of the lonely seniors out there. I talk to tons that would love to have a little dog or cat to brighten their lives.

Ryan said...

The owner of the place I'm renting now priginally said "no pets" but we got it anyway despite having three cats. There are a heck of a lot of ads that say no pets I think just as a matter of course. We have a weird culture in this city, maybe because of all the retired people. I'm sure a lot of ads would say "no kids" if it was legal.

hhv said...

anon at 9:19pm

"Maybe keep the overall discussion rational and within what an educated guess might be on the market rather than the 50% drop rethoric and chanting that brings on angry posts."

i'm sorry that you've felt/been on the receiving end of personal attacks on this site. your suggestions are good ones, but i think you can't arbitrarily state that calls for a 50% drop are just bear rhetoric. some bears believe that 50% is likely, and due, based on fundamental rent to purchase price valuations.

i've decided to maintain the status quo on comments around here. pleasse don't feed the trolls and if your moniker is beinng highjacked by a 12 year-old, come up with a method of outsmartinng them, like roger has... take it for what it is though, impersonation is the sincerest form of flattery :) why hasn't anyone tried to be me yet? :(

kidding aside, thanks for the kind comments in this thread gang, i blog because i enjoy writing, enjoy watching the market and enjoy your discussions. i see this blog as a creative outlet and an educational tool i learn from; i'm like the karate kid with multiple Miyagi's. Thanks.

roger said...

HHV,

I seem to recall that you were buying beer when we had a 10% drop - is that correct?

Well the City of Victoria real estate took a nasty turn in June and maybe this deserves an honorary beer. VREB pdf

SFH sales - 39 in June - 63 in May
SFH average - 520K June - 603K in May
SFH median - 478K June - 525K in May

Check it out in the Victoria Stats slideshow

The other area I usually track is Oak Bay. Things didn't go so well there last month either as shown in this Oak Bay slideshow.

The entire RE stats gallery is here

#11520

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

Last month's VREB release was interesting in many respects:

1. The Greater Victoria average and median prices both dropped in June from May.

2. SFH sales in Greater Victoria dropped drastically from 441 sales in May to 358 in June.

3. The average SFH sales price fell below the 6 month average in 50% of the areas in the Greater Victoria area.

4. The June Median SFH price fell in 14 out of 16 areas in the Greater Victoria area.

You can see the details in this VREB based chart

#30141

Art Vandelay said...

Those are great tips. Too bad the vast majority of buyers do not have the time, patience or inclination to follow them. I say that with all sincerity.

I'd like to see a market where people who have cared for their properties are rewarded with quick sales at full price. What we've had is a market where any old POS sells at full market value. And then the buyers face $100K of deferred maintenance.

patriotz said...

I'd like to see a market where people who have cared for their properties are rewarded with quick sales at full price. What we've had is a market where any old POS sells at full market value.

Every house sells for market value, all the time.

The market value of a house is the greatest amount that a buyer is willing to pay for it within a reasonable length of time (duration of listing). Period.

Anonymous said...

When an individual property sells that is a market price. Collectively market prices constitute market value. Market value is a range in value excluding extremes.

For the typical home this may be 5 to 10 percent on eash side of the median price for similar properties.

For example a home sells for $200,000.

Reviewing past sales indicate that similar properties, are selling between a low of $185,000 to a high of $215,000.

Since, the property in question sold for $200,000 it would be at considered fair market value.

Sounds easy right!

What if the property sold for $150,000?

or $300,000

So, it isn't the greatest amount that a property sells for that determines market value. And not every house sells for market value every time.

People over pay for properties for many reasons. Such as, an out of town buyer who is not familar with market prices in the city. The house beside your mum, comes up for sale and this would make it easier to take care of her in the years to come. So, you are willing to pay over market to secure the property.

just jack

B2B said...


People over pay for properties for many reasons. Such as, an out of town buyer who is not familar with market prices in the city. The house beside your mum, comes up for sale and this would make it easier to take care of her in the years to come. So, you are willing to pay over market to secure the property.


Fair enough, but Patriotz's point still stands. Those prices are still market value and reflect the best price that seller was able to get for that house. If a broker buys a large amount of COP stock because they think ConocoPhilips will do exceptionally well, they are willing to pay a little extra, and this raises the price of COP. You don't ignore the broker that really really wanted COP when assessing the market price of COP - all the various buyers and sellers, all with their own passionate views, all set the market. The market price is the price the market pays, whether the buyer in a given case is unfamiliar with town or really keen on their mom or whatever.

roger said...

b2b said:

The market price is the price the market pays, whether the buyer in a given case is unfamiliar with town or really keen on their mom or whatever.

This is a key point to consider when predicting where the RE market in Victoria is heading. Over the past few years buyers have been paying ever increasing prices for houses because they felt they would be priced out of the market.

Now that the media and the real estate boards are telling them that it is a buyers market and that they can take their time in making a purchase. Sellers are being told that they need to set a realistic price. Buyer psychology is changing. As Patriotz has often said buyers set the market - not sellers. Buyers will now pay less than asking price and prices will fall. Lowballing is already underway by savvy buyers.

olives said...

I think it was on the Chipman blog (I could be wrong), where he or a different realtor were recommending buyers in Vancouver submit offers of 10 to 15 percent below the current asking prices in anticipation of the much lower values in the very near future.

Ryan said...

I don't think savvy buyers are in the market yet. Unless those lowball offers are 30% or more below asking, they're still paying too much.

patriotz said...

Savvy buyers are not going to be in the market for two years at the earliest. The US bust is over two years old in some cities and still has a long way to go.

This province is in for a major hangover after the Olympics. Just wait for the civil service wage freeze/job cuts, RE busts in Alberta and Ontario vapourizing retirees' equity, and a prolonged slump in the forest industry and tourism.

Anonymous said...

Say your in the market for a BMW. You go to the lot and there are 10 up for sale at $40,000 each. The guy ahead of you says to the salesman he will pay $50,000 for one of them.

Which of the following occurs.

1) The salesman runs out and changes all of the prices as there market value just went up by $10,000.

2.) You figure that the guy ahead of you knows something you don't - so you offer $50,000 on one of the remaining 9 cars.

3.) You, think the guy ahead of you is a fool and you discount his $50,000 offer by 20 percent and you offer $40,000 and get the car.

Your as happy as a pig in poo as you just got a deal of $10,000 off market value or 20 percent.

My point is this.

ONE SALE DOES NOT A MARKET MAKE

We talk a lot about "value" on this blog, it would be a good idea for you as prospective purchaser to understand what market value is and is not.

It is not what an individual pays (market price), but what the market
as a whole is paying (market value).

Some people are sugesting that because its a "buyers market" you should take 10 or 15 percent off the list price. If you don't know what market value is - then what are you taking 15 percent off of, the $50,000, $40,000 or $30,000.



P.S. next guy walks in and buys one of the remaining cars for $30,000. Wow, in less than 60 seconds you went from getting a deal of $10,000 to being taken for $10,000.


just jack

roger said...

just jack said:

We talk a lot about "value" on this blog, it would be a good idea for you as prospective purchaser to understand what market value is and is not.

Jack - From your posts I believe you are plugged in to what is happening in Victoria real estate market.

Take a look at this graph of City of Victoria average and median prices.

You will note that for the last three years there has been a cyclical rolloff, starting in the spring, in rolling average prices with a pickup later in the year. Sales I can understand but prices? I have only noticed this happening in the City of Victoria not in Greater Victoria as shown here

What do you make of this? An opportunity for buyers?

roger said...

Another strtategy tip for buyers:
Wait a while - more inventory on the way!

Globe and Mail reports that Condos drive building

Home prices in Canada are no longer soaring, but somebody had better tell the builders that the market has cooled off.

Housing starts scheduled for release today are forecast at an annual rate of 217,000 in June, compared with 221,300 in May, according to a survey of economists by Bloomberg.

"While Canadian home sales have weakened markedly in 2008, home building activity has yet to respond," said Douglas Porter, the deputy chief economist with BMO Nesbitt Burns Inc.

At the same time, new home prices are only rising by slightly more than 4 per cent on a year-over-year basis, the slowest pace in more than five years. The new house price index is scheduled for release on Friday

"Canada's housing market is weakening," said David Wolf and Carolyn Kwan, economists and strategists with Merrill Lynch, in a report to clients.

"The ratio of new listings to sales - a key inventory metric - has risen above two-to-one for the first time since late 1998," they said.

"With construction continuing to progress at an above-trend pace and consumer fundamentals weakening at the margin, further softening in the Canadian housing market is likely."

There are plenty of reasons for home buyers to be nervous, with a slumping economy and jitters over oil prices.

"Perhaps, the most compelling near-term argument for a decline in housing activity is that the sector is getting such bad press, both abroad and now at home, that builders cannot be blamed if they ease up on the gas pedal," said Eric Lascelles, an economist at TD Securities Inc.


#6012

Anonymous said...

I think it is mostly due to the population of your data. There is considerable variation in the physical composition of the homes in Victoria City when this is combined with a small data set you will see these big swings. The market is imperfect with time lags. I've seen this market stall each November for the last three years and then take off again.

Nevertheless, there are seasonal fluctuations in sales activity and prices.

Traditionally, the best seasons to sell a property are in the spring and fall. Of course, the best seasons to buy are the summer and winter. Starting around 2002 and up until the end of 2005 these seasonal variations disappeared. Prices just kept going up and up. However, during the last three years I have noticed the reappearing of the seasonal price fluctations. When I'm speaking of seasonal fluctions in prices they are less than 3 percent of market value.

So, in a "normal" market you would buy in the summer and sell in the spring.

This spring however is spooky. The only other times I've seen springs like this were in the early 80's and mid 90's just before the market tanked.

I think we will see a "bear trap" or dead cat bounce when property values fall 15 percent below the peak and people start to buy and prices will rise again.

But after that is over, my opinion is that property values will spiral down and in terms of real dollars never be this high again. The demographics just don't support any future real estate boom after this one is over.

Buy when its right for you. Don't worry about what the next guy is doing. Don't get caught in the market value trap. Bid only what you can afford. Be prepared to walk away. And be patient.

How far will prices decline? They will fall until you think that they can't get any lower and then they will fall again and again.

Oh God, now I'm so depressed even Leonard Cohen music would cheer me up.

just jack

roger said...

Just jack,

Thanks for the informative reply.

Roger

##102402

Anonymous said...

Victoria's real estate market continues to be one of the most robust markets in the country. We are seeing a steady stream of price appreciations and good sales numbers abound. The market has slowed but this indicates it's a good time for buyers to continue buying at a feverish pace. Never a better time to sell or buy than now.

olives said...

It's a new paradigm, and everybody who doesn't buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.

Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas.

This asset bubble (in Victoria only) is different than all of the others - it will never slow down, or pop. The gains are permanent

roger said...

New mortgage rules announced by Canadian government

The new rules are planned to take effect October 15, 2008 according to this government news release

The Government of Canada today announced adjustments to the rules for government guaranteed mortgages aimed at protecting and strengthening the Canadian housing market. The new measures include:

- Fixing the maximum amortization period for new government-backed mortgages to 35 years;
- Requiring a minimum down payment of five per cent for new government-backed mortgages;
- Establishing a consistent minimum credit score requirement; and
- Introducing new loan documentation standards


Canadian Mortgage Trends had this to say about the changes

Seems like it is a bit late in the game but there will now be more downwards price pressure with fewer punters able to buy.

#20511

Ryan said...

I love the comment that they're "preventing" a US-style bubble from occurring in Canada. I guess they're using the common Toronto definition of Canada, which is Toronto.

olives said...

Patriotz - on the Garth Turner blog you stated: "Nominal rents only fall when you get really serious overbuilding (like in Florida) or you get a Great Depression."

Do you have an opinion on our level of overbuilding (of condos) in Victoria (or Vancouver) as say compared to Florida? There seems to be so much under construction right now, while many finished last year still haven't sold. Is our overbuilding problem that much less than Florida do you think?

roger said...

Olives said:

It's a new paradigm, and everybody who doesn't buy, now, will be priced out forever.

Olives is that your dark side talking? :>)

#1206

hhv said...

"Seems like it is a bit late in the game but there will now be more downwards price pressure with fewer punters able to buy."

Roger, I think GMAC and Genworth will continue to fill in the void. If people want to be risky with their home buying/financing decisions, and corps want to charge them a premium for the risk (a whole other risk IMHO) then there will continue to be this product available.

What this decision signals to me is that Flaherty is acknowledging there is significant financial risk to the gov't and they are moving ever so slightly to mitigate it. I suspect it will have very little impact on the market.

I'd also suspect that it will mean more sub-prime type products being introduced by Genworth and GMAC.

roger said...

HHV said,

Roger, I think GMAC and Genworth will continue to fill in the void.

I'd also suspect that it will mean more sub-prime type products being introduced by Genworth and GMAC.


I have to disagree with you on this one. Canadian Mortgage Trends had this to say about the announcement:

This affects CMHC insured mortgages as well as mortgages insured by Genworth, AIG, etc. Insured mortgages are generally those with less than 20% down.

AIG and Genworth type lenders rely on the feds to back their insurance in case they default. This is discussed in the Finance Dept. Background paper issued with the news release.

How is the Government Involved in Mortgage Insurance?

Mortgage insurance is available to regulated and unregulated lenders in Canada from Canada Mortgage and Housing Corporation (CMHC) and from private mortgage insurers. Since CMHC is a Crown corporation, the Government is ultimately responsible for all of CMHC’s obligations including its mortgage insurance claims.

To make it possible for private insurers to compete effectively with CMHC, the Government also backs private mortgage insurers’ obligations to lenders through guarantee agreements that protect lenders in the event of default by the insurer. The Government’s backing of private insurers’ business that is eligible for the guarantee is subject to a deductible equal to 10 per cent of the original principal amount of the mortgage loan.


The New Mortgage Insurance Guarantee Framework

The new mortgage insurance guarantee framework will establish a boundary on the risk characteristics of the mortgage and of the borrower that are acceptable when the Government guarantees the mortgage insurance policy. These requirements will apply to all government-backed mortgage insurance policies (whether issued by CMHC or private insurers) for high-ratio mortgages on residential properties with up to four units.


This change to mortgage policy will accelerate the RE downturn. There may be a few punters that try to get no down/40 financing and buy in the next few months but I think most lenders will start lending according to the spirit of the new rules right away. The days of arranging no down payment and minimum payments loans are gone!! High priced real estate areas like Victoria and Vancouver will feel the impact very soon.

This thread is about buyer tips so here is one for folks considering buying a house in 2008. Wear a hard hat and wear leather gloves while trying to catch a falling knife.

#112203

Anonymous said...

New lending regulations.



First Mate: "Captain, ice berg off the port bow"

Captain: "I'll just make a little correction and will miss it."

just jack

Anonymous said...

What everyone fails to realise is that no one in Victoria even uses 40 year amortization mortgages or zero down payment. Prices are so affordable here there's no need. Plus since prices continue to rise it's a guaranteed investment anyway.

hhv said...

Roger,

thanks for the digging. I'm glad my assumptions were wrong and now I see it in the same light as you...

I wonder if this also means the end of the cashback products that were so often used to finance the 5% down work around CMHC fee schemes?

olives said...

"Olives is that your dark side talking? :>)"


heehee

for some reason that Honda quote still gives me a chuckle every time I read it.

roger said...

hhv said:

I wonder if this also means the end of the cashback products that were so often used to finance the 5% down work around CMHC fee schemes?

I imagine the banks and lending companies will try to do what they can to attract customers under the new regulations. Those cashback schemes were one way of locking you to a lender for a long period of time. Switching to another lender meant paying back some of the money.

It will be interesting to see how this unfolds. The Canadian Mortgage Trends blog said they would update folks as more detail became available.


HHV - how about that big City of Victoria drop in prices? Beer time?

#23202

roger said...

Another tip for buyers. Look for price reductions. There are plenty of those lately. Here are today's Victoria & Saanich (under 750K) reductions. This week's list is in this slideshow

boomer said...

R.Morrison-Vancouver Realtor recently advertised thusly:

"Imagine the look on their faces when I called the next day with an approval. With the introduction of a NEW 40 Year extended mortgage, they now qualified for the home of their dreams! Vancouver’s looking a lot better from their new living room window!
And what’s even more exciting is that their basement suite is bringing them $1400 in mortgage helper, so they are really only paying an extra $200 to OWN a home instead of RENTING! Way to go (*Dick*) and (*Jane*)!
Want to join their success? Call us today."

( buyers names changed)


Interesting that going 40 yrs was routinely touted by the RE industry and lenders as the answer to unaffordability problems for young families

Oh well,looks like the government is blocking that little boulevard to "success"-I guess there will have to be some OTHER solution to the affordability issue.
hmmmmmmmm?

patriotz said...

It is not what an individual pays (market price), but what the market
as a whole is paying (market value).


The "market as a whole" does not buy a house, an individual purchaser does. Each house is different. The market price of a house is what it sells for.

The BMW comparison is not valid because the cars are identical. And in that example, the argument could be made that the market price is just fluctuating, as it does in the stock market where all stocks of a given company are also identical.

And Olives, I don't have any stats, but I'm pretty sure Victoria is not in the same league as places like Florida or Phoenix when it comes to overbuilding. Absent that degree of overbuilding, nominal rents are quite sticky downward.

What you will see however is landlords will be less picky about who they rent to and allowing pets, giving incentives, etc. This is really a disguised price drop.

Anonymous said...

"The BMW comparison is not valid because the cars are identical."



I take it that you have not been out to any of the newer subdivisions in Langford. Yup, a lot of variety there. Would you like Biege or Mocha fiber board siding with that single car garage, sir?

But to underscore the point once more.

One sale does not make a market.


Beware of statements like:

"and that house across the street just sold for $900,000 and this house is much nicer. Your getting a deal on this property. The sellers need to make a quick sale and we have priced it below market value at 10 percent less than the one across the street. I'm showing the property later on today to a nice couple who are very interested, so you should offer close to full price without any subject clauses."

Excuse me, Ms salesperson but "didn't that house down the street sell last month for $800,000 and one a block over for $825,000."

"Why, yes of course they did, sir but they were beige and you can clearly see this house is mocha. Mocha homes are always better investments."

just jack

patriotz said...

If two houses are indeed identical, then yes the selling price of one house is the current market price of the other house.

Just as the price that 100 shares of Royal Bank sell for is the current market price for all shares.

But if 100 shares sell for $40 now, and another 100 shares sell for $35 an hour from now, the market price has dropped for all shares.

Likewise if you have a group of identical houses, if one house sold for 400K today, and another house sold for 350K next week, the market price for all those houses has fallen.

The market price for any group of identical assets is always the price of the most recent sale.

Anonymous said...

New lending regulations.



First Mate: "Captain, iceberg off the port bow"

Captain: "Full speed ahead; it's too late we're gonna hit the damn thing anyway."

Anonymous said...

So, a house comes up for sale and is listed for sale at $600,000. Four couples bid on the home.

The final bids are:

couple A: 475,000
couple B: 465,000
couple C: 455,000
couple D: 535,000

What is the market value of the property?



Ooops, couple D just found out that they don't qualify for bank financing and can't complete on the home. What is the property's market value now?

The market value of the property never changed. For the above example the property had a market value between $455,000 to $475,000.
Couple D were just over buying at $535,000.

just jack

B2B said...

If a sale closes at a given price, that's the market value. I don't see what's so complicated about it.


In other news:


What everyone fails to realise is that no one in Victoria even uses 40 year amortization mortgages or zero down payment. Prices are so affordable here there's no need. Plus since prices continue to rise it's a guaranteed investment anyway.


That's a good point actually. I think I'm going to capitulate and buy a house.

Anonymous said...

"If a sale closes at a given price, that's the market value. I don't see what's so complicated about it."



Because, before you put an offer in on a property you are going to instruct your realtor to send you recent sales of similar properties, so that you know your paying fair market value.

If you don't know what market value is, then your just taking the word of a biased party to the transaction. In most cases, your agent is not going to tell you his/her opinion of value, rather they're going to suggest you offer close to list price, so your not going to get much help from them.

It is up to you to educate yourself as to the market value of the property and not to be fooled into believing that its the last sale (no matter how ridiculous) that sets the market value.

I'm sugesting that you use your common sense and act in your own educated self interest.

just jack

Anonymous said...

Regarding the new restrictions on mortgages, is this going to force more first time buyers to wait even longer?

What will happen to the rental market if people aren't able to buy their first home?

B2B said...


If you don't know what market value is, then your just taking the word of a biased party to the transaction. In most cases, your agent is not going to tell you his/her opinion of value, rather they're going to suggest you offer close to list price, so your not going to get much help from them.

It is up to you to educate yourself as to the market value of the property and not to be fooled into believing that its the last sale (no matter how ridiculous) that sets the market value.

I'm sugesting that you use your common sense and act in your own educated self interest.


I guess we're sort of talking at cross purposes. Of course I agree that mental sale prices, such as we've seen for 6+ years, are silly, ridiculous etc. But the silly prices contribute to the market as much as anything. The market is made up of all the silly sale prices. It seems that you're arguing that one should ignore outliers when deciding what fair value is - but this market is not driven by fair value, it's driven up at the margin (until the peak was in) by irrational speculation.

So sure, some people will overprice in a neighborhood and you don't just take the word of the listing realtor that it's fairly priced if they're asking way over comparables. But if the house does sell at the higher price, then you've got a new market price on your hands and you will have to give up on your former idea of fair price.

Of course buyers should act in their own self-interest and try to pay as little as possible for a property. And sellers should try to get as much as they can. Whatever price they settle on, makes up the market price in aggregate. And the market price is based on the most recent sales, since that's the most recent data on what buyers will pay today. Obviously at market inflection points like the current time, this will get more difficult. Is that your point?

I have to say that this whole conversation is not really adding anything to the blog, and is just back-and-forth about semantics. I'm ready to throw in the towel and spare the electrons if you are!

Anonymous said...

ditto

just jack

Crystal L. Cox said...

Selling a Home, you Need to Know How Real Estate Brokers are Hurting You. www.SavvyBroker.com - the Confessions of a Realtor, your Real Estate Industry Whistleblower.

Anonymous said...

S P A M

Fodder said...

Reading through the discussion on market value I can help but think your absolutely right and wrong. With the real estate market in Victoria up until recently there has been no real market value. There has been an easy credit market driving the real estate market.
I know this is saying the same thing, cause what a house sells for a house sells for. I just think it's important to point out which market was driving the bus.
Taking the ideas from you guys earlier, an average house is only worth what the bank will lend the average family. No matter how you slice it, an interest rate increase of 2% with a stable average income has unavoidable consequences.
It's scary how many people bought houses based completely on what the bank thought they could afford.

Anonymous said...

Good article in Vancouver Sun today

"Don Cayo: Investment in home ownership is not for everyone"

http://www.canada.com/vancouversun/features/usaid/story.html?id=f75afdf5-8691-4a25-a94e-a4e5014c1614

S2

Toronto realtor said...

Good article and even better discussion above. I have a same opinion about “news” and other rumors in newspapers. I am dealing with real estate in Toronto for a long time so I have a quite good survey about local market. I think that maybe 70% of articles about real estate are in newspapers just because there is nothing else to fill a white page with. Oh and I almost forget: picture is just great!
julie