Friday, August 1, 2008

A picture of decline

Best graphic on the housing implosion down south I've seen yet. (Funny how people I know keep telling me the Pacific Northwest is immune to the slump, I guess not?) Will we see something like this up here next year?

According to this article, we may be well on our way. Here are the highlights:

Construction activity dropped for a third month in a row in May in Canada while
output from real estate agents plunged 16.8% in the month over the year before.

Together, activity in the two housing-related sectors fell 4.9% in May from May 2007 -- the biggest slide in a decade of available data.

Amid the blizzard of numbers, Canadian GDP unexpectedly contracted 0.1% in May, the fourth drop in six months (Do I need to point out this is flirting with recession?) emphasis mine

These are interesting financial times we live in. Batton down the hatches, this squall could turn into a long storm.

Here's my predictions for July numbers:

  • Listings up 5-10% over last month reported as 20-25% YOY
  • Sales down over last month and last year 5% and 20% respectively
  • Avg prices down over last month 2-3% and flirting with zero growth YOY (1-2%) for SFH
  • Median prices down over last month and up YOY by only 5%--a drop of about 5% from April high for SFH
Yours in comments. VREB stats are up: Great news for bears!

138 comments:

Metaldwarf said...

Alaska seems to be holding their own.

BEST PLACE ON EARTH, EVERYONE IS MOVING HERE, WE HAVE CONSTANT CONTINUOUS SUN 6 MONTHS OF THE YEAR!

VicREBear said...

What does "output from real estate agents" mean? The only "output" I've been getting from them lately is a lot of hot air about balanced markets that are good for buyers and sellers. I wish these so-called expert reports would explain their lingo a bit better.

HouseHuntVictoria said...

output would be revenue generated, or in real world terms, sales commissions, so really it should say, these guys are starting to hurt and look for part time jobs. thank goodness they're allowed to do that now, after all the true mark of a "professional" is one's ability to write off their part-time job wherever as a "prosepcting" activity.

roger said...

Paul B. releases the July numbers for Vancouver on North Vancouver Homes blog

Summer is here and it's more of the same from last month. A continued slump in sales and consistent increase in listings has increased the MOI (months of inventory) dramatically. Last year we had 3 MOI at the end of July and now we are sitting at 8.8MOI.

Listings have begun to slow down. I would expect inventory to drop slightly or flat line this month before climbing again in September. Sales numbers will likely stay low, exhibiting market uncertainty. If the MOI stays high, prices will adjust downward.

Some numbers:

Sales are down 41% (same as June) compared with July 2007. This will bring more bearish news headlines this week.

We started 2008 with slightly less inventory than 2007. We are currently up 67% over last year, and 83% over July 31st 2006. North Vancouver inventory is up over 104% compared to July 07

Metaldwarf said...

Continuing on from the last thread.

B2B probably all good advice. Though you appear more conservative and into cash then my own personal risk tolerance.

I would extend the following adjustments to the last post, and remember my advice is worth exactly what you paid for it.

EMERGENCY PLAN
As an alternative to building up such a large cash position in an emergency fund, consider having at bare minimum one to two months worth of cash to draw on and supplement with other planning.

Why so much less the b2b suggests? What is the emergency fund for? Job loss or an inability to work and earn a wage.

If you were to loose your job, the current job market will suck you back up pretty fast, this is probably short sighted as employment rates can change, but personally I am confident in my ability to find/create a job. (FYI I'm self employed) if you are less confident, hold more cash.

If you were to become disabled and unable to work you would likely have a disability policy through work, check out the specifics of the policy and know how it works, most pay 2/3 of your salary for 2 years if you can't perform your own job, and to age 65 if you are a vegetable. I say most because they are all different, know what protection you have and plan accordingly. If you don't have a plan at work find a different employer with one. EI disability benefits start after 14 days and pay 55% of your income to a max of $435 per week till 119 days after the date of disability. Most disability plans will start paying you after 120days of disability. Disability benefits don’t pay all your wages so learn to live frugally or increase cash accordingly.

RRSPs
If you don’t already have an RRSP you should start one. Your investment choices are really up to your own personal risk tolerances, and timeline. If you are of the opinion that RRSPs are only for retirement and should never ever be touched for a down payment that’s fine. I think that having access to the Home Buyers Plan provides a pretty good rate of return since tax sheltered funds will grow faster then in a non-registered environment. You can get to your maximum amount you can withdraw from your home buyers plan sooner. You can also “borrow” this money with no penalty or interest if you follow the rules set out by CRA. Assuming you pay back the RRSP you are getting a pretty good deal. The mortgage interest saved on an extra $20K down payment over 15 years at 6% is about $10,000. So really at the end of the 15 years you should have paid back $30,000 into your RRSP. You are no longer earning interest on your RRSP but you are saving interest on your mortgage payments, as far as I'm concerned it’s the same thing.

Furthermore, if you have a large cash value saved up in your RRSP above the home buyers limit you can always cash out the RRSP, you have to pay taxes on the non-exempt amount but those are taxes you haven’t paid yet anyways, would have to pay at retirement, and would have already paid on a non-registered investment. I’m not saying it’s a good idea, I’m just saying it is possible and there might be situations where it works.

Now I want to get this out of the way before someone calls me on it. In a previous post I said that none of my investments are registered and everything I have written above is in contradiction to what I am actually doing. I am not being a hypocrite I have my own reasons for not following my own advice. These reasons being primarily that I am in a low tax bracket now and if all goes well I will be in a high tax bracket when I retire. Why pay 40% tax at age 65 when I can pay ~25% now? Second, since I am more aggressive most/all of my investments earnings are capital gains and dividends, very little interest. In a non-registered environment capital gains and dividends retain their tax status and are taxed much less then earned or interest income. In an RRSP all earnings are taxed fully as interest income.


ONCE YOU OWN THE HOUSE
A big question that comes up with home owners is “I have some extra money, should I pay down my mortgage, or contribute to my RRSP?” I say why not do both. Make a contribution to your RRSP and use the tax refund to pay down your mortgage. This is just a general rule though, there is some fancy calculator somewhere which will tell you the optimum rate of return from either option or a blend of the two (sorry can’t find the link).


Just my 0.0195116 USD (2 cents CND @ current exchange)

Anonymous said...

RE Report for July 2008.

With more listing and less sales, more hesitation for buyer to get into the market, more people expecting a big price drop, more economist expecting a slow down, more people say it is not a good time to make big purchase, more closure in the US, higher gas price, average price in July drop 5%, median drop 6%, inventory went up 100%.

The RE market has gone into a crash (expert say “buyers”) from a bubble bear (expert say “balanced”).

Hi guys, we should generate our own report from a bears perspective

roger said...

metaldwarf said:

Why pay 40% tax at age 65 when I can pay ~25% now?

There is nothing in the RRSP rules that restricts you from doing early withdrawals before age 71. It is possible to minimize the tax paid on withdrawals to zero by using RRSP meltdown strategies.

If one retires early (or takes a sabbatical) and uses non-RRSP savings supplemented by modest RRSP withdrawals the tax paid will be minimal. This means there was a big tax saving on contributions and tax free growth inside the RRSP. The new TFSA can also be used to hold 5K (or more) worth of RRSP withdrawals for tax free growth.

Metaldwarf said...

Roger, I'm invested aggressively but leveraging like that article suggests is way outside my comfort zone.

I too am eager to start playing around with my Tax Free Savings Account.

roger said...

BEAR ALERT

VREB has released the July Stats.

June shown in ()

MLS Sales - 616 (723) down 33% YOY
MLS listings - 4557 (4513) up 34% YOY

SFH Average - 578.2K (580K)
SFH 6 mo. Avg. - 596.7K (601K)
SFH Median - 529.9K (538K)
SFH Sales - 359 (395)

Condo Average - 302.5 (320K)
Condo Median - 285K (295K)
Condo Sales - 168 (180)

Town Average - 454.9K (432K)
Town Median - 417.5K (400K)
Town Sales - 52 (81)


More analysis and YOY info to follow.

greg said...

Roger,

I see 18 single family home sales over one million, so the MOI over a milion reaches around 20 months - that's almost two years of inventory.

The other interesting thing was how the numbers of single family home sales outside the usual VREB region etc - they bumped up both the average, median and total sales from even more shocking drops.

Wonder what Carla and the TC will make of this on the weekend?

B2B said...


If you were to loose your job, the current job market will suck you back up pretty fast, this is probably short sighted as employment rates can change, but personally I am confident in my ability to find/create a job.


Hey Metaldwarf, thanks for the comments and I appreciate the discussion. I don't disagree with anything you've said and indeed my cash-heavy advice could be a bit too conservative. I would qualify it by saying that once this ugly bear market is passing by, I would advise younguns to get more aggressive with index ETFs.

But regarding your note above about job loss. I think one has to be careful here, as you say the current job market will suck you back up fast. The whole point of the emergency fund is to protect you in the event that the local job market goes really sour. So it's no good making plans for the emergency fund based on current, good-times assumptions. The same logic would have someone avoiding buying a fire extinguisher because their house isn't currently on fire, nor do they expect it to ever be. Similarly I am confident that I can get a job even in downturns, but the whole point of the fund is for an emergency in which you bizarrely can't find a job in spite of all your skills (possible for anybody after all!).

There was a related discussion on Calculated Risk years ago about a columnist who was writing about her frustration at having her line of credit revoked. She said she was hanging on to it to be drawn on in case of financial emergency. But of course this makes no sense - if she was in such financial dire straits that she needed the line of credit, she would be a bad prospect for the line of credit and the bank would be crazy to extend it to her.

Anonymous said...

Hmm. In July 2007 the average for single family was $574,753, as opposed to $578,177 this July, for a half percentage point gain YOY. Adjusted for inflation, that's a YOY price drop. Spin that, VREB.

sitting pretty said...

I realize I sound like a broken record, but the VREB stats STILL don't show any YOY declines in median prices in Victoria, Saanich East or Langford, with the exception of Langford condos. And since you bears attach such great significance to median price movements from one month to the next, how about that jump in SFH median in Victoria? Are we back in a bull market then?

roger said...

VREB YOY STATS UPDATE

GV - Greater Victoria
July 2007 shown in ()

MLS Sales - 723 (922) - Down 22%
MLS listings - 4557 (3402) - Up 34%

GV SFH Average - 578,177 (574,753) - Up 0.6%
GV SFH Median - 529,900 (515,000) - Up 2.9%
GV SFH Sales - 335 (453) - Down 26%

GV Condo Average - 302,635 (306,537) - Down 1.3%
GV Condo Median - 285,000 (267,750) - Up 6.4%
GV Condo Sales - 166 (240) - Down 31%

GV Town Average - 446,994 (404,493) - Up 10.5%
GV Town Median - 415,000 (379,900) - Up 11.9%
Town Sales - 51 (102) Down 50%

roger said...

sitting pretty said:

And since you bears attach such great significance to median price movements from one month to the next, how about that jump in SFH median in Victoria? Are we back in a bull market then?

You better buy a new pair of glasses!!

SFH Median Greater Victoria

July 2008 - 529,900
June 2008 - 538,800
May 2008 - 545,000
April 2008 - 558,000

As you can see the median SFH in Greater Victoria has dropped 3 months in a row. Average and median are both back to 2007 levels. And the YOY you love is sinking fast with average and median up a measly 0.6 and 2.9% respectively.

beagle said...

We are in a balanced market. All the plates are still spinning. repaeting myself like a broken record, my call is for a flat 2008 for SFH's. Listings aren't high enough, job market is too good and interest rates are too low for a crash in prices. My prediction is we'll start to see the downward slope after the US election, most likely next spring.

VicREBear said...

"You better buy a new pair of glasses!!"

To be fair, Sitting Pretty was referring to the municipality of Victoria, which indeed had a July '08 median of $531,000 as opposed to $478,000 in June '08. Greater Vic still saw an inflation-adjusted YOY median price drop, though, which is undeniably bearish.

VicREBear said...

I should add that I agree with Beagle; still too much support for a flat but balanced market to start planning any purchasing stratagems just yet.

hhv said...

Roger,

We're going to need a bulltastic last half of the year in order for CREA, BCREA, RoyalLepage and CMHC predictions of 7-10% gains to come true...

If it's not MINUS 7-10% in the market I'll be very surprised considering we're now losing between 2-3% PER MONTH 3 months in a row!

Great day today bears!

sitting pretty said...

As you can see the median SFH in Greater Victoria has dropped 3 months in a row.

I was talking about the SFH median in Victoria, moron.

BTW, does your employer know you spend all your time on this blog?

hhv said...

Forgive SP, roger, after months of picking on bears for cheery picking lonely bearish stats, SP must now cherry pick the ONLY balanced stat left... Oh, how the tide did turn so quick.

roger said...

vicrebear said:

To be fair, Sitting Pretty was referring to the municipality of Victoria, which indeed had a July '08 median of $531,000 as opposed to $478,000 in June '08.

So sitting pretty was saying we are back in a bull market because the median price in Central Victoria, based on 43 sales, jumped from 478K to 531K??

OK... :>)

I suggest that he/she might want to forward that stat to Tony Joe. He seems a little short on spin material this month. Given the measly YOYs', the drop in SFH median and last month's favourite 6 month average he needs some help.

beagle said...

"BTW, does your employer know you spend all your time on this blog?"

What are you gonna squeal on him. pfft, give me a break.

roger said...

Beagle said,

We are in a balanced market. All the plates are still spinning. repaeting myself like a broken record, my call is for a flat 2008 for SFH's.

I agree with you about being in a balanced market for SFH from the RE definition of the term (MOI). What do you think about the condo market - is it balanced?

You are calling for a flat 2008 for SFH after 3 months of drops in average and median price and YOYs below 3% How many more monthly drops or what price level will it take to alter your viewpoint? Not trying to argue - just curious about what you think.

VicREBear said...

"So sitting pretty was saying we are back in a bull market..."

Bull market? I certainly don't agree with that little notion. I was just pointing out a misunderstanding. However, I see that SP has now taken care of that in her usual charming and mature fashion, so my commentary on the matter is no longer required! ;)

beagle said...

Roger, I think the condo market is going to tank and has started. The SFH market doesn't have near the speculation and new stock so it's going to take some stresses economically to shake it out and I don't see enough stress yet. But I believe it's coming down the pike due to macro economical events. Right now some smart people are selling but the vast majority are just hanging on month to month and will till the sh*t really hits the fan. Even if it looks bad the average person desperately wants to hang on to the home ownership dream that has been sold to them. They will hope that it will turn around. It's like the first hour after the Titantic hit the iceberg but we have a ways to go before it actually starts to go down. :)

roger said...

Greg said:

Wonder what Carla and the TC will make of this on the weekend?

This is the TC's favourite VREB graphic:
average SFH price.

Wonder what the readers will think when they see that the average price of a house in Victoria is back to last summer's levels??

This market has been driven by buyers and sellers believing that prices keep going up and up. What will they think now?? With inventory up, sales down and prices dropping both will start changing their perspective. Things will get real interesting in the coming months.

beagle said...

When prices start dropping below assessment values that's when I think you'll see the biggest reaction. The average people I talk to really put value on that assessment number. As long as the house value is higher they think they are doing OK. And it really pisses them off if a neighbour's house has a higher assessment. I know it's irrational but it's been my experience.

roger said...

Beagle,

Thanks for the reply. Your comment about assessment was interesting. I wonder if REALTORS® will be using last years July assessment more now that average and median prices are within 3% of last years levels?

I know the number is flaky, as just jack has pointed out, but who will agree to pay way over assessment in the coming months? Will RE agents really want to carry the advertising costs of an unrealistically priced property as we go forward?

Anonymous said...

Roger (2:31 p.m. post) - think that:

MLS Sales - 723 (922) - Down 22%

Should read:

MLS Sales - 616 (922) - Down 33%

Or:
MLS Commissions (using 3% as a surrogate): 616*3%*578,177 = 10,684,711 (922*3%*574,753 = 15,897,668) - Down 32.8%

Market certainly has crashed for RE Agents... (maybe this is why SP is getting desperate)

Dumb Canuck

Anonymous said...

Carla and the TC (since we know you're probably reading this):

A great headline for tomorrow's paper would be: "Houses Price Fall 5% from Market Peak". A good byline might be: "Experts predict further price falls: Victoria not Immune to U.S. Crash"

5% = (558,000 (April high) - 529,900 (July value)) / 558,000 (April high)

Dumb Canuck

roger said...

dumb canuck said:

Roger (2:31 p.m. post) - think that:

MLS Sales - 723 (922) - Down 22%

Should read:

MLS Sales - 616 (922) - Down 33%


Thank you for the correction. I made an error while loading my stat table. Sales YOY are even worse than I initially calculated!!

BTW - I like your headline.

roger said...

CHEK news @ 5 just had the most negative report on the VREB real estate numbers I have ever seen by the local MSM.

They gave actual YOY data:

- sales numbers for SFH (way down)
- median prices for SFH (small increase)

The report then went on to show all the listings springing up in Gordon Head. Their "expert" this time was a local economist who said if you want to sell in the next few years think about right now and be flexible on price. He was introduced with the word "meltdown" as his perspective on the market.

Muriel said...

Just saw the 6pm version of the CHEK news story. I'm pretty sure reporter Mary Griffin is the same one who did last month's (also very balanced) story on the RE numbers, and I think she deserves some credit for digging up that William Tharp, economist guy, whoever he is, to balance off Tony Joe's relentless spin.

boomer said...

poor realtors:


-sales down by a THIRD from the glory days with RECORD listings---no fun there

-trying to convince lots of cranky sellers to reduce prices---no fun there

-trying to convince balky buyers to actually make an offer-no fun there

-having to spend gas money and lotsa time showing aforementioned balky buyers 6 or 12 or 25 possibilities (instead of a couple, followed by a warning about a possible bidding war)
-nope thats not gonna be fun

--going through all the above for a few weeks with no sales-just expenses
---no fun there

-forking over the lease payment on the Bimmer
---well,it's a nice car

roger said...

Muriel said:

I think she deserves some credit for digging up that William Tharp, economist guy, whoever he is, to balance off Tony Joe's relentless spin.

William Tharp is an economist who lives in Victoria and works for Dundee.

roger said...

Anyone else having trouble getting this blog to load when using Internet Explorer (IE6). I started getting "Operation Aborted" messages this afternoon. Works OK with Firefox 2.

HHV - I sent you an email. Blogger forum reporting same problem on other blogs. Prairieboy's site has same issue.

Art Vandelay said...

sitting pretty said...I was talking about the SFH median in Victoria, moron.

Cherry-picking the municipality of Victoria out of VREB stats is about as valid as drawing conclusions about the market based on what's happening on my street.

roger said...who will agree to pay way over assessment in the coming months? Will RE agents really want to carry the advertising costs of an unrealistically priced property as we go forward?

Only the gluttons for punishment. I've turned down three listings in the past 3 weeks because the vendors (I hesitate to call them "sellers") still expect a 125% premium on their 2008 assessment. Those days are over.

boomer said...poor realtors...having to spend gas money and lotsa time showing aforementioned balky buyers 6 or 12 or 25 possibilities...

Any realtor still showing a buyer 12-25 listings is stuck in the 20th century. Buyers can thin their list of properties via the Internet. Then engage a realtor for price advice and some hand-holding over the life of the transaction. No self-respecting realtor drives around with his captives, er, clients in the backseat looking at dozens of properties.

Anonymous said...

"Anyone else having trouble getting this blog to load when using Internet Explorer (IE6)."

Yes, had to hit stop right away or IE6 would kill the page.

boomer said...

"self-respecting realtor drives around with his captives, er, clients in the backseat"


hehe

VicREBear said...

Maybe I wasn't looking in the right place, but there seems to be no mention whatsoever in Saturday's Times-Colonist of the latest VREB statistics. Perhaps it's getting to be a thorny decision - do they present the usual spin and appear behind the curve compared to other local media, or give an honest accounting of the changing market and risk alienating the local REIC? Must be tough.

sitting pretty said...

No self-respecting realtor drives around with his captives, er, clients in the backseat looking at dozens of properties.

Absolute baloney. Anyone looking for a property who thinks the internet presentation is a fair representation is an idiot. Any real esate agent who refuses to drive clients around to look at a lot of properties before they make a huge financial decision is obviously part of the 90% of agents who only get 10% of all the RE commissions.

Muriel said...

William Tharp is an economist who lives in Victoria and works for Dundee.

Thanks for that - I think they also used him for June stats story. I thought the best part of what he said was advising anyone thinking of selling between one and four years from now to think about doing it now and being very flexible on price.

I feel like sending him a thank you note just for that! It's great they are able to find someone credible and local to say this.

Anonymous said...

Vicrebear,

With the RE stats not coming out until so late in the afternoon, the TC didn't have time to have Tony Joe to approved their article before they went to print :-)

Anonymous said...

Sitting Pretty:

Sit on it a bit longer. Come back in a couple of months or so and try to spout the same BS and we'll be laughing harder than we're laughing now.

No, really, you have no conception of how pathetically hilarious you really are.

Like when a building falls on Charlie Chaplin, or when a trick cigar blows up in Groucho Marx's face.

Ancient black and white footage from a bygone era that actually has far more relevance to today than anything you've ever said.

sitting pretty said...

anon at 1:07

Thank you for your cogent analysis of the local RE market. I am sure all of the blog readers appreciate the time and effort you put in to that!

Anonymous said...

interesting set of files at: http://vreb.org/pdf/ - now externally archived. dc

boomer said...

yup- interesting browsing --
lots of stuff in the "historical statistics" folder
thanks

S2 said...

I was floored when my husband told me the word meltdown was used.

Happy dance, happy dance.

Anonymous said...

S2: There's no melt down, nothing of significance has changed. If you've recently sold a house and waiting to trumpet your gross winnings over costs of selling etc, IT WILL NEVER HAPPEN, you have forever lost money in that decision, but then maybe you made it back in the stock market - NOT.

If you're a FTB waiting for prices to come down, certainly wait another year or two, because nothing's going up for at least three years.

Anonymous said...

"Sit on it a bit longer. Come back in a couple of months or so and try to spout the same BS and we'll be laughing harder than we're laughing now.

No, really, you have no conception of how pathetically hilarious you really are."

I've read SP's post and fail to see the connection. He's making a comment about lazy realtors and I would generally agree. RE agents need to work harder - just like the rest of our employment sectors.

The culture on here is odd for sure. If someone wants to rebut or debate comments, why does it have to include ridicule? What exactly are we afraid of? If a poster has a legitimate comment it should stand on it's own, no grade 6 name calling required.

There have been a couple recent comments made that started with: Patriots and ended with Dummy and a more recent post starting with Sitting Pretty that included Moron.

I don't recall the meat of the comments, but sure remember: Patriots, dummy
and Sitting Pretty, Moron.

Surely there can be a general discussion that makes sense of the actual reality of the market.

If a post includes name-calling it should certainly be ignored.

S2 said...

MSM had the word meltdown in one of their newscasts. That is a significant change.

Anonymous said...

That's a great word if we're makin grilled cheese; however, we're talking about a market that has just hit August 1st.

We were trying to sell a home during the summer of 2006 (you'll recall a very hot year.) As we built towards August it got to the point that you would think a "bomb had gone off that kills only buyers." Although we did finally sell, it was a long agonizing summer - and our price was below where our realtor originally thought market should be (in fact he came to us twice for a reduction which we twice denied.)

We now again have a home on the market and I suppose are part of the stats.

We have priced it where we expect it to sell and will not entertain an offer below about $500 of asking price, it's simply priced at market (we in fact intended to price about $20K higher but were talked out of it.)

Our price is about last November's actual market value, which we believe is where the actual market value increases stopped (sure asking prices continued to climb, but they mostly became the Bear's "haircuts" which of course are no loss of anything, but simply a price adjustment back to reality.

If our home does not sell within $500 of asking it will be removed from the market and we will live happily on. This may remind you of the 90's. People simply stopped selling ( except as you will point out those that had to sell for financial, employment or other personal reasons.)



Just me, content.

S2 said...

Can I ask why if you are willing to live in your house happily if it doesn't sell within $500 of asking that you are even selling it at all?

Never having sold a house I guess I just don't understand why someone who really doesn't need to sell and is perfectly happy where they are is selling. :-)

Anonymous said...

Hi S2. We believe that we are listed at market price, that being the price that the property should sell based on what's been happening around us. We have not listed $20k above market with the expectation that we'll get a low ball offer and accept it.

We are selling to move up in the market and buy a larger home. Although we are content where we are in our 2007 built home, we seem to have a disease that mariners call "two foot-itis" - ie never completely satified (we'll be going on our 3rd new home in as many years.) There have been a number of factors that have moved us up including career advancement, inheritance, and good old fashioned investment.

Honestly we may never be satisfied prior to owning a mansion on the water, but this is hardly an investment issue, it's a lifestyle desire (really a different issue from basic RE fundamentals, although equally inportant when trying to gauge, not gouge, the market.)

If our home drops in value but our impending purchase stays the same we may as well stay where we are.

So we priced it where it should sell, are getting reasonable responses (although again agonizingly slow) for the summer-time and expect a decent offer within the month. If an acceptable offer does not materialize by perhaps the end of September we will simply remove the home and wait for another 4-5 years or however long it takes for things to heat up again.

Moving up in the market is much like buying a first home (although much less stress based on my experience - that first home is a killer.) It really doesn't matter how low our home goes as it provides us an oppportunity to buy into a larger home for less (on a percentage basis we save money.)

We will find what we want or we wait.

Thanks

Just me.

Anonymous said...

"wait for another 4-5 years or however long it takes for things to heat up again."

In 4-5 years we will be in the middle of a "real estate nuclear winter", with the heat of the '02-'07 boom a distant memory.
I think the advice going around is sell now for whatever, or forever hold your peace. (of property)

Anonymous said...

People who "don't have to sell" aren't the ones who drive downturns; people who DO have to sell DO. The complete opposite of a "bidding war" climate; call it a race to the greatest pricecut to beat the neighbors.

And as Patrioz has pointed out on many posts, no one HAS to buy.

No one.

Anonymous said...

My response to sitting pretty was to its first post in this thread spouting the usual bull market BS.

And I didn't use the word "moron".

And fellow bears find my posts far more entertaining than any of the spew propganda you've spouted, sitting pretty.

Mr.4AM said...

Anon 9:58 aka "Just me content".

Wow. On one hand you sound logical (pricing the house where it should be based on fundamentals), on the other you sound ignorant or oblivious about what is happening in the macro-economic world around you that is starting to affect Canadians, and unwise about your unsatisfiable desires.

In 4 or 5 years, the US economy will either have collapsed or be even closer to it and drag Canada and much of the world down the roller coaster ride. This is not unrational doom & gloom projections, but actually based on a lot of research and historical precidence(see video below). In 4 to 5 years, you will realise that your wanting to "move up", will be the biggest financial mistake in your life. You will take on a huge amount of debt, just before the economic landscape is about to fall from under your feet requiring savings, not debt to survive.

Find a couple of hours and take yourself from Episode 1 to 15 of The Crash Course. If you don't have that much time, then at least spend 15 minutes and watch the video on asset bubbles and ideally also the one on debt.

Throughout the series, the author explains in very easy terms to understand the various vectors (or perhaps "bullets") that are aimed at the resiliant US economy and in fact the world, only this time around there's just way too many balls to juggle in too narrow of a window. These are primarily:

Economy
-Demographics (world logrythmic population growth + ChIndia effect)
-Bursting house & now credit bubble
-Failure to save (personally, corporately, government)
-Manipulated fiat money system

Energy:
-Peak Oil
-Peak Natural Gas

Environment:
-Climate Change
-Food production (lacking)

I would add to this one more category:
War
-Iraq + Afghanistan
-Civil unrest at the bottom of the US economic meltdown
-Iran / WW3?

Which brings me to his conclusion (with which I concur)...

"The next twenty years are going to be completely unlike the last 20".

Good luck!

Anonymous said...

Anon 4:03 AM. Good god why are you up at 4AM? Hopefully going fishing.

It was SP's comment not yours, although it seems to be removed now.

Anonymous said...

Mr 4AM "In 4 to 5 years, you will realise that your wanting to "move up", will be the biggest financial mistake in your life. You will take on a huge amount of debt, just before the economic landscape is about to fall from under your feet requiring savings, not debt to survive."

Firstly if I had to focus on all of that I'd probably have to go out and call it quits, because noone, indebted or not, would weather such a dire mess. I per sonally do not see it and yes I'm paying attention.

Secondly, where did you read that I'm increasing my debt? My cash costs of homeownership will continue to be less than 25% of my net income and I have no personal "bad" debt, no student loans etc.

Thanks

Anonymous said...

Let me replace "Secondly, where did you read that I'm increasing my debt?"

With "Secondly, actually I'm not increasing debt."

I realized the first phrase sounds confrontational and was not my intent.

Thanks

Muriel said...

Still no real estate stats story in the TC - I do find that strange, though there is no biz section today, and that's where it usually runs. Monday, I wonder?

boomer said...

anon 12:14
re trading up-- of course,the only significant factor of concern to you, price wise, is the DIFFERENCE -not the actual sale or purchase price.
(although the purchase side number might look high in future)

Of course the radical approach would be to "lift a leg" between your sale and purchase , but that would involve finding suitable alternate living space for the interim-- and the hassle and uncertainty.
I agree it is an excellent time to trade up-assuming you can sell your current place,you certainly have lots to choose from.

Mr.4AM said...

To Anon 8:54 said:
"Secondly, actually I'm not increasing debt."

Well on your first post above, you said: "We are selling to move up in the market and buy a larger home".

I suppose if you sell now, and wait 3 years or so, it will be possible to move into a larger home with little or no increased debt given the price reduction trend, but if you sell now and buy back immediately into a larger home, assuming that larger home is somewhat near your existing home, then it's easy to conclude that you will pay more for your larger home and therefore require a bigger mortgage (nevermind all the real estate transaction costs).

Also, I think you got your facts backwards about what is good and bad debt. Assets that depreciate in value over a relatively short ammount of time (i.e. cars) are not the best kind of debt to have around. I would consider buying a house now, purchasing into an equally deflating asset class, unless as Glenn Beck sarcastically put it, you plan on holding for a "long, long, loooong, long time".

As for you not increasing your debt because your home ownership of a larger home will continue to be less than 25% of your net income, then good for you. You are in a much better situation than the vast majority. However, even with 75% cash into your property. Assuming you are moving up into say a hypothetical $700,000 house (25% mortgage=$175K), and over the next 3 years, it drops in price to $550,000. Tell me, where did the $150,000 go? not in your pocket. Will you be in serious trouble? Not exactly because in 3 more years, you will still owe $163K on your mortgage (at 5 yr fixed, 30yr term, 6.5% intrest) which assuming same wage earnings or higher should continue to be a manageable ammount; but over all you are still down at least $150K at the end of 3 years and even more at the end of 5 years.

So in your case the question is, can you justify losing ~$150,000 + realty fees + increased property taxes, repairs & insurance, so that you can move up now as opposed to in 3 years?

In fact, if you want to move up the most, the fastest, you might actually consider calling it "quits" for 5 years. Sell, go rent, and come back in 5 years. I guarantee the house you can afford to move up into at that time, will be nearly twice the home you are trying to move into today, and no you won't be able to do that if you try to move up now and then again in 5 years. Having said that, I understand that with family and being used to a certain living standard, going back to renting is too hard a change for most people.

I have of course over simplified the above. Others on here have more patience to spell out all the nitty gritty calculation details, but I think you get the picture.

On a side note, if you watch that "Crash Course" I mentioned before, you will learn that student loans are not actually considered bad debt as they are an investment in you earning higher earnings per year for years to come; not only that, but often there's partial forgiveness on those kinds of debts.

Best Regards,
Mr.4AM

boomer said...

mr 4am-although your comments are right on,i think anon-the trader upper is simply making a life decision not entirely based on dollars and cents.
--people do buy new cars and other depreciating assets-thank goodness or there wouldnt be any used ones around for us slobs--
RE FIRST TIMERS are a different story but hes just switching his equity to a larger place. Sure he could wait 5 years but as John Lennon said "life is what happens while you're making other plans"

want a bigger place? Logistically, now is a good time to do it- if you can get a decent price for what you're selling. Doesnt mean overall prices are going up.

Anonymous said...

Anon 8:42

Thanks for the clarification. As to why I'm up at 4:03 AM... early to bed, early to rise... (translation: I have no life nor obligations that require me to keep normal regular hours.) Allows me to keep track of the crash minute-by-waking minute. ;)

Mr.4AM said...

Actually for the record, I make over $100K a year in IT, just made $250K profit on a house I sold (no joke - last week), and have savings also in the 6 digits beyond that profit, have ZERO debts, and I'm well under 35. Thank you very much ;-)

Mr.4AM said...

Boomer,
Fair enough.

Anonymous said...

"Having said that, I understand that with family and being used to a certain living standard, going back to renting is too hard a change for most people"

This is certainly a primary driver to be in my own home.

As far as the debt, what I was saying (apparently unclearly) is that I don't have any bad debt (ie consumerism) or student loans etc. Clearly education is a prime investment well worth the loans. I simply spent my first few years out of school focused on paying all of that off.

We all make decisions in life based on many factors that could not possibly be summed up or analyzed in any meaningful way on here.

I wish I was under 35, no kids, and making $100k+ per year, but alas it is not to be:-) I will, however, be under 50 when my kids have grown (hopefully moved out) and this too has its advantages.

What a great weekend this has turned out to be.

sitting pretty said...

Actually for the record, I make over $100K a year in IT, just made $250K profit on a house I sold (no joke - last week), and have savings also in the 6 digits beyond that profit, have ZERO debts, and I'm well under 35.

People who boast about their financial accomplishments at this level of detail are usually very insecure and likely exaggerating quite a bit.

vg said...

Don't mind sitting pretty, it's just her "time of the month". ;)



Great to see CHEK tell it like it is, "meltdown" is a harsh word that is only used rarely by professionals in a town pumped full of radioactive counter tops and stainless steel fridges.

vg said...

"People who boast about their financial accomplishments at this level of detail are usually very insecure and likely exaggerating quite a bit."



SP can't handle that some people win and take profit while she sits on her ass counting the losses. Now that's what I call a "moron" with some serious lack of self esteem.

Anonymous said...

Mr 4AM.

Hate to break it to ya buddy but 25% of your $250K goes to the Government!

They made their money for even less work!

Mr.4AM said...

Anon 1:07. Actually I put my money where my mouth is. That was my primary residence, so I get to keep that 25% as well, thank you very much.

Sittin' Pretty, your statement doesn't make much sense. It's hard to feel insecure, when one is doing relatively well in life.

Anonymous said...

4AM

OOps, you don't make money on a primary residence my friend unless you decide to take the $$$ and live in a tent for a few years until prices come down or else you retire and downsize.

Your house may have gone up in price by $250K but then so did the one you bought to replace it!

Mr.4AM said...

Anon 10:39,
I'm relatively young and have time (and $) on my side, so I sold my primary with the intent to rent for a few years, which is what I meant by putting my money where my mouth is. Buy low, sell high. Such a simple concept isn't it?

If you plan to comment further on my circumstances, perhaps you might like to share yours with the rest of us. Hey, I'm young and open minded - I like to learn from other's success and failures.

Anonymous said...

4AM.

Then you are playing the housing market like you would the stock market.

If you time it right, pricing goes down and then you buy a house at a discount then ok.

You of course have to factor in the money you are paying in rent.

Most advisors would tell you not to gamble with your own home, you make money in real estate by purchasing investment / rental properties.

Mr.4AM said...

Anon 12:39,
You make "playing the housing market like the stock market" sound like a bad thing. If you've managed some success at it, then it's quite the opposite. In fact, it was one of the safest and highest leveraged investments possible in the time period, but that ride is now over, so time to get off the horse and go find a different one.

The vast majority of advisors aren't rich, that's why they still have to work for a living! If you only knew how unsuccessful or mediocre the vast majority of them are (I'm speaking about your average financial advisor in a bank), you might think twice about whom to take advice from.

You make money when you buy low and sell high, regardless of the asset class. In the past few years, housing happened to be a good one to invest in, but not anymore. When I buy back in eventually, it may very well be an investment property, as I doubt we'll ever see a real estate boom like this for a good 50+ years (if ever), and the main way to make money on housing then will likely be to collect rent to pay your mortgage, and write off your yearly mortgage interest payments. But I assure you, I won't be counting/hoping to get rich off appreciation, as I am expecting things to remain relatively flat for years to come.

As for renting today, you don't have to do a lot of math to figure out that currently in Victoria, renting is about 50% cheaper than buying and carrying on with a mortgage. If you also take into account the very strong likelyhood of a real estate price decline, then selling to rent (if your lifestyle/circumstances allow it) makes even more sense.

But enough of this, time to hit the beach on this sunny day and go enjoy a free concert downtown - renter or buyer, free is free ;-)

roger said...

Seems like just yesterday .....

Housing market softens slightly

Published: July 22, 2008 1:00 PM
But the six-month average price itself is still tending up, notes VREB president Tony Joe, climbing $14,000 since January. He expects to see the market level-off at current prices.


6 month SFH averages
Jan-08 586K
May-08 607K - up 21K
June-08 600K - up 14K
July-08 597K - up 11K

Hmm... Seems like this stat is melting away with the summer weather. No mention of this stat for SFH in the latest report for July. But condos that are tanking had this tidbit:

"It’s important to note, however, that the average for the last six months was $324,583 showing little change from the $326,904 six month average at the beginning of the year," added Joe

Anonymous said...

Is it just me, or did I see two houses for sale on the 1900 and 2100 blocks of Ferndale Road (nice area) with very unkempt front lawns. No one is taking care of them - does this mean that a flipper is so underwater that they don't care anymore, or is it an absentee seller?

Didn't catch the actual addresses or realtors - was going a bit too fast on my bike.

Just Jack or someone else in the know - are they foreclosures?

Dumb Canuck

roger said...

Dumb Canuck,

One of them is located at 2151 Ferndale

Was originally listed @ 629K DOM 48
Relisted at 619K - now 570K DOM 108

major price reduction of $50,000 ...... large home on a 80 x 160 lot....updating requirred as home was tenanted workshop...lower suite....great sought for location .....lock box vacant

Anonymous said...

2151 Ferndale has been rented to UVIC students for several years and it shows very badly. The home has had only minor updating since it was built.

But, on the flip side it is a really good sized lot with partial water views.

This home would have been snapped up last year, probably at close to the original asking price, as it is a prime example of what "flippers" were looking for.

The flippers are now gone, leaving only middle income households with extra money for renovations. This is a small market segment as most looking at this home would be selling their condominium with little money left over for repairs.

$570K for a large lot home in this neighbourhood is not a bad price in relation to other properties.

However, this property having most of its value in the land would fall more dramatically than well maintained homes on smaller lots- which are in greater demand.

Not a good one to buy, if your expecting property values to decline.

If your expecting prices to increase, this is one you should put on your short list. But your not going to get away with cheap repairs. Budjet not less than $75,000 for repairs.

just jack

roger said...

I have prepared two new slideshows and put them in the Real Estate Gallery

GV - July stats Analysis

VREB Graphs - July08

Anonymous said...

Roger, thank you for putting the time into updating these graphs so frequently.

As a first time buyer who has only been following the market since May, your stats gallery is what finally convinced me to hold off. I'm sure it's doing the same for many others as well.

Anonymous said...

Just Jack and Roger - Thanks.

We're not looking to buy yet - we'll wait until the prices are affordable for our income. Considering that we are quite a bit over median household in Victoria, but not high income, this could be a while. We're waiting until around 3.5 to 4 times annual income for a decent SFD happens. I'm not sure how a middle income family (say earning 85K family) could afford this place without a big downpayment. That would be more around 7 times income, without maintenance costs...

The Ferndale houses were interesting to me because they were so poorly maintained on the outside. Just Jack - the description of 2151 seems accurate. Do you know if flippers bought it recently, or if it has been the same owners for a while?

It would be a good poster child for the Times-Colonist on the housing market gone south! (hint Carla, if you ever get around to writing the July housing price piece in the paper)

Anonymous said...

last one was me

- Dumb Canuck

Anonymous said...

The house is not a flip. The owner does not live in Victoria.


just jack

Anonymous said...

Just Jack - thanks - so in other words, the owner could likely sit on it for a while, renting it out again if it doesn't sell.

- Dumb Canuck

patriotz said...

Also, I think you got your facts backwards about what is good and bad debt. Assets that depreciate in value over a relatively short ammount of time (i.e. cars) are not the best kind of debt to have around.

Businesses borrow money to buy assets that rapidly depreciate such as cars, airplanes, computers, etc. all the time.

Debt is good if the interest paid is less than the net yield on the asset purchased. Net yield includes all expenses, such as depreciation, taxes, etc. It does not include unrealized capital gains because you don't get those until you sell and gains cannot be assumed in advance because they depend only on what someone else is willing to pay you for the asset, which is beyond your control.

As is often pointed out on this forum, the net yield for Victoria RE is about half the cost of borrowing money, which makes it one of the worst investments you could think of.

Anonymous said...

If RE was Nortel stock, you might have a point. However, RE as a princ res is bought for so many more reasons than financial gain that it almost doesn't rank. Financially speaking, all people want to know is what they can afford to pay - and unfortunately for some, they don't look close enough.

I could probably be talked into selling and renting purely from a financial perspective on today's market, but if I was planning to rebuy again in 4-5 years I know that that decision would in fact be money lost. The cost of getting out, renting for 4 years and re-buying is far to great - financially and personally. And, as you point out you cannot know where the market will be by then.

Even as a landlord, I find the cost of selling a rental and repurchasing 4 years down the road would exceed the gain of doing so (hard costs of selling, breaking mortgages, capital gains tax, costs of repurchasing, and it would a pain in the a$$.)

RE is simply not that liquid when it comes to all of the factors and costs associated with selling. We gave brief consideration to selling our rental and discussed it with one of the tenants; they gave written notice the next day. Even the very thought of it was enough to upset the apple cart. So when a landlord contemplates selling and listing there is immediate risk of vacancy and loss- just try and re-rent if you're going to list the property.

As it turns out we decided to hold for the foreseeable future (for personal reasons not all including financial) and had the opportunity once again to raise the rents greater than the annual allowable amount. The suite was re-rented the next day with a new monthly rent about $200 more than the current tenancy, and the house now more than pays all of it's own cost including the mortgage.

Which brings me to another point. We have raised our rents on the overall house (two suites) by about $800 per month in the last 6 months. We try to stay slightly below market as we believe it creates lower turnover and a better overall relationship (the tenants take better care.)

I recently looked on CL to compare our lower suite to market (newly reno'd, good size, great location) and found that we are still potentially $300 / month below. It appears that rents even for 2 bd basement suites are up around $1200 give or take utilities depending on condition/location.

I even saw a 2 bedroom unfurnished near Uvic advertised at $1,800 inclusive. Add says, "great for small family." Who's small family, the owners? Is this actually becoming reality? Honestly, I'm not sure I could look someone in the eye on the 1st of every month with those rates.

Muriel said...

Anon 7:00

$1,200 for a basement suite sure doesn't reflect my recent experience looking for a new place to rent - just this past spring. We ended up with what I (and many of our visitors) consider to be a fantastic place - 1,100 sqft character main floor with garden/yard access, fabulous kitchen, high ceilings, a 7-minute walk from library and downtown Y. This for well under $1,500.

patriotz said...

However, RE as a princ res is bought for so many more reasons than financial gain that it almost doesn't rank.

That is irrelevant. For investors, RE is bought only for financial gains, and investors are both the marginal buyers and sellers and thus determine the market price for everyone.

If RE is yielding less than borrowing costs, and price appreciation stops (as it must eventually), new investors will stop buying, and cash flow negative investors must sell and will sell. Many cash flow positive investors will also sell voluntarily. That is exactly what happens in every bust and it is happening now.

Investors will not return until yield covers borrowing costs. That marks the market bottom.

Anonymous said...

"That is irrelevant. For investors, RE is bought only for financial gains, and investors are both the marginal buyers and sellers and thus determine the market price for everyone."

I think the discussion was about good vs bad debt as applied to consumers - ie car loans, credit cards, mortgages, and student loans.

Mortgages are widely regarded as good debt when picking from the list, and I would suggest that there are a lot of people out there that are quite happy to pay their mortgages - particularily those that bought 5+ years ago.

Again strickly financially speaking, maybe there could be an argument, but financial return is not high on the list of considerations when contemplating buying your own home.

Most of those that bought 5 years ago could not have imagined the run-up to come, nor is it particularily relevant to them today.

roger said...

anon 9:05 said:

Again strickly (sic) financially speaking, maybe there could be an argument, but financial return is not high on the list of considerations when contemplating buying your own home.

I agree with you if the purchaser is only buying for personal use. Unfortunately purchasing a home, without considering equivalent rental costs, means your home might be worth less than you paid when the market cycle reverses.

Most of those that bought 5 years ago could not have imagined the run-up to come, nor is it particularily (sic) relevant to them today.

No one saw the bubble forming five years ago. Those that bought five years ago will find the market downturn relevant to them for the following reasons:

- If they refinanced to "take out some equity" and in a few years find their mortgage is now a large fraction (or exceeds) the market value.
- If they have a large balance on their home equity line of credit (HELOC) and the market value of their house drops. Leverage works both ways.
- Experiencing that uneasy feeling seeing your major asset shrink and your net worth decline. Especially important if you were counting on your house to fund your retirement.
- Loss of bragging rights with friends, neighbours and family members. Especially painful when renters tell them they are glad they didn't take their advice last year.

Anonymous said...

Absolutely right, those that have bought weith zero down, borrowed the equity out of their homes for various reasons or have bought in the last year or so could feel significant pain in the next couple years.

This will present opportunities for those that have either waited the last couple years out or have otherwise saved money for investment (or have significant equity in their homes.)

For the rest of us that bought several years ago with a reasonable downpayment (mine was 20%) and have not re-borrowed, the ups and downs are not nearly as relevant.

For those that have recently sold thinking they have "made a pile of money" but intend to buy back in within 4-5 years, the decision is a guaranteed loss both financially and personally (unless you've rented a tent.)

For those that have sold and moved to Prince George - live happily ever after.

patriotz said...

I think the discussion was about good vs bad debt as applied to consumers - ie car loans, credit cards, mortgages, and student loans.

Mortgages are widely regarded as good debt when picking from the list


What is "widely regarded" is beside the point. RE was "widely regarded" as a "can't-lose" investment in the US two years ago, and look what happened.

Borrowing to buy a house is a good idea if the rental value exceeds financing costs. This is true whether you are an owner-occupier or an investor and for the same reasons. The investor is just a lot more sensitive to them.

Vancouveritis said...

For those that have recently sold thinking they have "made a pile of money" but intend to buy back in within 4-5 years, the decision is a guaranteed loss both financially and personally (unless you've rented a tent.)

It's certainly NOT a guaranteed loss within 4-5 years. There is a strong possibility of a real estate crash followed by a prolonged stabilization at prices much lower than today's. The global financial situation does not bode well.

So let's say you have sold your house and are renting a nice apartment at $1200 a month. Over 5 years you will spend $72,000. Don't think there's a good chance that the house you've just sold will decrease in value by more than $72,000? We should also include realty fees, moving costs, etc., but I would argue that the average house price in Victoria will fall by more than $100,000 within 5 years. But that is the debate - will house prices fall, and if they do, by how much?

This scenario doesn't include the costs of NOT SELLING your home: strata fees, maintenance costs, insurance.

But my point is: there is no guaranteed loss over the next 4-5 years if you've sold and are renting.

roger said...

anon said:

For those that have recently sold thinking they have "made a pile of money" but intend to buy back in within 4-5 years, the decision is a guaranteed loss both financially and personally (unless you've rented a tent.)

If you look at other housing cycles you will see that the downturn lasts about as long as the rise duration. Given that we just peaked, after a 7 year runup, and have been heading down for only three months we have a long way to go to the bottom.

Why not show us an example of how you arrived at your conclusion?

B2B said...


I recently looked on CL to compare our lower suite to market (newly reno'd, good size, great location) and found that we are still potentially $300 / month below. It appears that rents even for 2 bd basement suites are up around $1200 give or take utilities depending on condition/location.

I even saw a 2 bedroom unfurnished near Uvic advertised at $1,800 inclusive. Add says, "great for small family." Who's small family, the owners?


Don't bother looking on Craigslist for an indication of current rents. I avoided using it at all for my recent search based on the negative feedback on this and other blogs, which was borne out by my looking at it. It's filled with ads from recent amateur investors who are mostly dreaming.

I would only bother with the TC, kijiji, rentbc.com and the good agencies. Craigslist is worthless for rentals.

A 2-bed suite unfurnished for $1800 is indeed dreaming. My current rental on the Peninsula is $1800 and is a waterfront 3-bed, 3-bath house.

Compare your rents to Pemberton Holmes or the TC to get a better idea of real market rent. The other issue today is that you will see a lot of outliers from recent amateur investors that will never rent reliably at the asking price. You can pretty much ignore these outliers as the investor concerned will probably be blown out of the market in the next year.

Anonymous said...

Ok, "guaranteed loss" was a little provocative. Clearly it depends on personal circumstances (ie no mortgage vs fully mortgaged, paying $1,200 or staying at the same confort say $2,300, bought 5 years ago or last year etc, etc.)

Now, of course if you bought 20 years ago and have no mortgage then you should own 5 homes by now and should not be having this conversation:-)

Anonymous said...

If we are in for a market correction, then I would agree that the slope of the line showing appreciation will be mirrored in a declining market. For example, Victoria's market correction in the mid 1990's and 1970's.

However, if we are in a bubble then we would have a preciptious drop, much like the early 1980's, tech stocks, South Sea bubble, tulip bulbs, etc.

I don't know which one we will expierence. The odds are in favour of a market correction as this is how most inflated real estate markets have ended.

However, if people in Victoria and Vancouver collectively feel that we are going to have a "melt down" in prices, they will just stop buying. Hence, a massive drop over a short time period. This happened in Victoria's leaky condominium market in the mid 1990's.


just jack

Anonymous said...

"I would only bother with the TC, kijiji, rentbc.com and the good agencies. Craigslist is worthless for rentals."

Thanks, I'll keep those in mind next time through.

Anonymous said...

According to VREB's latest figures, about 13.5% of total listings sold in July 2008. That's lower than in any month as far back as I can track in their stats (back to February 2006).

So big deal? Yep, that's a big deal.

1) That figure is lower even than December 2006 and December 2007. If you've ever tried to sell your home in December, you'll understand the significance of that comparison.

2) It's less than half what it was at this time last year. That is the most dramatic drop YoY of any month back to February 2006 by a long shot, and it has been getting progressively worse month-by-month since April. Keep in mind, this is the timeframe over which sales typically pick up and take care of the spring inventory.

3)Borrowing Fraser Valley Real Estate Board's definitions, it is solidly in "buyer's market" territory.

4) August through December is typically the time when the market softens.

Don't waste your time arguing over the noise from one month to the next on average or median prices. For one thing, the trend, based on a 3-month average, is clearly down since early this year.

More importantly, think about this: When sales/listings ratios are in the moderating phase, it is reasonable to expect that buyers are getting more "house" for the dollar. There is no reason to think, however, that they will spend appreciably less money. Homebuyer with X salary still qualifies to spend Y on a house.

In the new buyer's market, Y buys more house, but that won't get reflected in either the average OR the median price. For a while, anyway. Eventually, it gives way. Just look at every single metropolitan area in the US; that's the way it played out, market after market, without fail.

It's been a long, long time comin' but I know, change gonna come, yes it will.

awum

Anonymous said...

For those that have recently sold thinking they have "made a pile of money" but intend to buy back in within 4-5 years, the decision is a guaranteed loss both financially and personally (unless you've rented a tent.)

Written by someone demonstrating no grasp of the huge gulf between ownership cost and rent in this market. Those who recently sold, even if they buy back into the market at exactly the same level say three or four years from now, will have saved the difference between rent and ownership costs for three or four years. That's either a good chunk of money to throw down as equity on the house when they buy back in, or it payed for that fabulous trip 'round the world that they annoyed you with in the meantime. Either way, smart move. I'd go with "guanteed win" provided that they are ready to move back into the market if it shows renewed signs of strength.

awum

roger said...

awum said:

Don't waste your time arguing over the noise from one month to the next on average or median prices. For one thing, the trend, based on a 3-month average, is clearly down since early this year.

Here is the SFH graph for those interested.

vg said...

roger ,

as an amateur TA chartist I would draw a line on the median chart under the price points from October to May and see we have broken downward thru one uptrend/support line.


I would draw another across the support lines of January to present at the $525 mark and a decline thru that level next month would firmly establish a clear downtrend in my books.

Anonymous said...

"I even saw a 2 bedroom unfurnished near Uvic advertised at $1,800 inclusive. Add says, "great for small family." Who's small family, the owners? Is this actually becoming reality? Honestly, I'm not sure I could look someone in the eye on the 1st of every month with those rates."

That certainly sounds out of line, but I know someone paying over $1,300 plus utilities for a 3 bedroom basement suite in Esquimalt - in a friggin duplex. SFH rents are clearly increasing with the higher cost of purchase. Maybe there are landlords out there not paying much attention (keep yours if that's the case.)

B2B said...

There are indeed landlords out there who are "not paying attention", but it's just for the purpose of keeping rents reasonable so as to attract high-quality, long-term and happy tenants. There are landlords out there that are reasonable and not recent investors - it just takes some considerable shopping around. Obviously those landlords who bought revenue properties years and years ago, with say a mortgage payment of $500 and easy rent of $1000, are not so bothered about upping the rent if they have fantastic long-term tenants in. As a sometime landlord, this has been my approach and my family's approach.

And now for some much-needed comic relief - most bulls and bears alike can agree that $700k for a house in Port Renfrew is seriously out to lunch:
California dreamin

Anonymous said...

"Those who recently sold, even if they buy back into the market at exactly the same level say three or four years from now, will have saved the difference between rent and ownership costs for three or four years."

The difference between ownership cost and rent. Assuming 2001 purchase: Mortgage $1,750 plus various costs (less principle of say $800/month) equals say $1,500 and rent would be mimimum $2,300 for the same house (unless your "renting a tent.") Cost out $20,000 minimum, cost back in $20,000 ballpark. 3-4 years, there's no build up of equity, none.

You'll need at least a $100,000 drop in prices to make this move anywhere close to worthwhile. Add in personal cost ie stress etc and the cost is much higher. Got a family? Forget it. Now, as mentioned there would be multiple variations of this depending on personal circumstances.

Go ahead and throw in investment of proceeds, it's all subjective, depends on mortgage, and could easily get a person in even more trouble.

Anonymous said...

That would be a 3.4% MOM drop in the VIREB area. Median is not reported for the whole area, but is down in some areas and up in others.

(http://www.vireb.com/assets/news/files/july_2008_mls_stats_news_release.pdf)

- Dumb Canuck

beagle said...

That's a tough calculation to follow anon 7:19 PM. Can you make it clearer and assuming a 2008 purchase.

Anonymous said...

It would be a complete disaster to not buy a home in this market. You will never ever ever see this much selection again and could very likely be priced out forerver now that the mortgage rules have changed. Everyone in the entire world knows Victoria is the place to be.

Anonymous said...

Victoria is a nice place,just can't afford to retire here,my kids won't be able to live here if the market keeps"going up".I think there just are not enuogh high paying jobs to sustain this imagined value going up forever.Who will be left in 10-20 years?I won't be,I've already bought land back east and will gladly visit the island and enjoy it.Hopefully Victoria will still be nice and I know up island will always be but it is too rich for my blood right now.I'll have the money 40 years from now to travel and not be tied to a mortgage,or even 30,20 10 years from now but I won't be stuck with a mortgage living in Canada's "San Diego".

Anonymous said...

"That's a tough calculation to follow anon 7:19 PM. Can you make it clearer and assuming a 2008 purchase."

I don't think I could assume a 2008 purchase as we're assuming a purchase that has generated significant gains - ie $250K that therefore would (assuming normal market conditions) have taken place perhaps in 2001. To assume a 2008 purchase and sale would effectively assume no purchase in the first place.

If you were tempted to buy in early 2008, but have held off then you may have already made (saved) money (depending on what you're buying and assuming you intend to buy in the near future.)

The overall market may not have changed much but there's already some great deals to be had from people that have either had to move or have risked unconditional purchases (there's two empty houses in my neighbourhood now that would possibly accept 10-20K off actual market value.)

I think what this clearly demonstrates is that there are so many factors to consider, both financially and personally, that one cannot place a blanket across the market. It simply depends.

Anonymous said...

"my kids won't be able to live here if the market keeps"going up"

Our kids probably can't afford to live here now. There will be those that choose to find higher ground, but there's lots of people looking at retirig here. No joke, no sarcasm, people actually think they want to live here - go figure.

Anonymous said...

"That's a tough calculation to follow anon 7:19 PM. Can you make it clearer and assuming a 2008 purchase."

Let me add, I couldn't afford 2008's RE on my above average (by apparently Victoria standards) wages or my savings. What are we talking on $500,000 purchase, $3,500+ per month over 20-25 years? It's simply not manageable (and I'll pass on the 35 year amort thanks.)

roger said...

Vancouver and lower mainland stats released today. The Vancouver Sun published this article: Real estate prices deflate in July

Month-over-month declines in real estate prices across many Lower Mainland property markets are another sign the overall market cycle has run its course, according to one housing economist.

The so-called benchmark price for all property types tracked by in Metro Vancouver, excluding Surrey, have dipped 2.1 per cent since May to hit $556,605 at the end of July, the Real Estate Board of Greater Vancouver reported Tuesday.

In the Fraser Valley markets, which include Surrey, there were also month-to-month drops in prices in July with the biggest decline in average single-family-home price. The average Surrey house price of $520,232 was down six per cent from the month before.

The Vancouver board reported 2,174 property sales in July, a 44-per-cent decline from the same month in 2007. July listings, meanwhile, increased 24 per cent to 6,104 compared with the same month a year ago.

roger said...

Times Colonist publishes an article on VREB's July news release.
Number of homes for sale highest in a decade

Slowing sales and rising inventory in Greater Victoria last month show how the once red hot real estate market is cooling down.

When it comes to homes that are sitting unsold, Muir said, "A lot of that has to do with homes that were priced according to previous accelerating market conditions, which will tend not to be the best strategy given today's market realities."

Buyers are getting more choice now that inventory is up by 34 per cent compared with July of last year.

Last month saw a total of 616 properties sold in the region, down from 723 in June. the board said. Looking back to July 2007, a hotter market delivered 922 sales.

property in Brazil said...

HI,

That is really looking the best I have ever seen. I think it would be a complete disaster to not buy a home in this market. You will never ever see this much selection again and could very likely be priced out forerver now that the mortgage rules have changed. Everyone in the entire world knows Victoria is the place to be.

patriotz said...

Go ahead and throw in investment of proceeds, it's all subjective, depends on mortgage, and could easily get a person in even more trouble.

There is nothing subjective about it. You can get guaranteed returns from GIC's, CSB's, and federal and provincial bonds. Yes I know you have to pay income tax on the interest, but the bottom line is, if prices fall 10% or more going forward, you are better off selling now and buying later. No matter when you bought.

I am not however making a recommendation to any current owner-occupier. Whether you want to sell and move is up to you. I will recommend to any investor to get the hell out now.

Anonymous said...

"There is nothing subjective about it. You can get guaranteed returns from GIC's, CSB's, and federal and provincial bonds."

What is the net return on GICs today? Rate perhaps 3.5% less tax say 40% net return = 2.1%, actual inflation 3.5%+ = real loss on the investment.

This is a dilemna for people trying to save up short-term to buy a house (at least I found it hard.) Where do you put your money short-term that earns anything. There are not too many good choices that do not involve risk.

And so, yes, it's subjective, depends on how long you intend to stay out of the market, where you were personally when you sold (ie how much equity), what your risk tolerances are, and even what tax bracket you're in.

Honestly, I have to assume that the guys on here that have done this made a choice that fits with their personal situation and did their homework with regards to potential risks / returns.

Anonymous said...

B2B: "And now for some much-needed comic relief - most bulls and bears alike can agree that $700k for a house in Port Renfrew is seriously out to lunch."

But that's 7 acres of riverside waterfront, at least during the summer months, maybe it's 1 acre during the winter?:-)

Actually I think Renfrew has potential for recreation property and has been coming into its own with various developments, but $700k?

patriotz said...

This is a dilemna for people trying to save up short-term to buy a house (at least I found it hard.)

No it's not. If you are saving money to buy a house, the only prices that matter are house prices, and they are going down.

How hard is that to understand?

Anonymous said...

"This is a dilemna for people trying to save up short-term to buy a house (at least I found it hard.) Where do you put your money short-term that earns anything. There are not too many good choices that do not involve risk."

The discussion was not house price, it was short term investment choices.

I'm not overly concerned with house prices, although if I was not currently in the market I would also wait 2-3 years to buy.

Vancouveritis said...

B2B: "And now for some much-needed comic relief - most bulls and bears alike can agree that $700k for a house in Port Renfrew is seriously out to lunch."

Anonymous: "But that's 7 acres of riverside waterfront, at least during the summer months, maybe it's 1 acre during the winter?"

And in the spring, you might be under water! Riverfront property = flood zone. No thanks - not for 700 grand.

Anonymous said...

The Renfrew rivers are notorious for significant flooding and serious washing out - bridge and all. Not say that that particular property is in that position.

Anonymous said...

"Honestly, I have to assume that the guys on here that have done this made a choice that fits with their personal situation and did their homework with regards to potential risks / returns."

I did a quick calculation on a 5 year sell vs hold today on my principle residence (I assumed I would want to maintain my standard of living and rent a house similiar to mine and therefore no credit for cheap rent.)

If prices drop overall 10% in 5 years I could be better off by about $10,000. If they dropped 20%, it would be $60,000.
Anything under 10% and I've lost money. Maybe in 5 years prices haven't changed at all, maybe they've actually gone up. It's not worth the risk, hassle and stress in my situation.

Anonymous said...

anon 8:51,

I think most people here are thinking prices will drop somewhere between 20 to 40% by the time we see a bottom, and if that takes 3-5 years, that's fine. Sell now, take your profits and invest.

Even if you are only managing a very conservative 5%/yr, that's still better than losing 5% per year... in fact it's a 10% difference. When you come back into the market, you will have more cash than you had before, and house prices will be significantly lower.

Sounds like a no-brainer to me.

If you want to squeeze a few extra dozen thousand out of the equation, then downsize and go rent a place that's a bit bellow your standard of living, it will just mean that when you go to buy, you will be able to afford that much better a house for the long term.

beagle said...

anon 8:51 - Like you say it all depends on how much equity is built up in the principle residence that can be put to work while your renting. Every calculation will be unique.

patriotz said...

It doesn't actually, because the less equity you have the bigger your mortgage is, and not having to make the mortgage payments is also an investment return. Better than you get from investing in fixed income in fact.

B2B said...


What is the net return on GICs today? Rate perhaps 3.5% less tax say 40% net return = 2.1%, actual inflation 3.5%+ = real loss on the investment.

This is a dilemna for people trying to save up short-term to buy a house (at least I found it hard.) Where do you put your money short-term that earns anything. There are not too many good choices that do not involve risk.


While technically true, this is an odd way to think of the alternatives between selling a house, pocketing the cash, and renting while saving loads of money every month.

Think of it this way. I can have $400k tied up in a house, or I can sell and realize say $200k of it in cash. Sure my cash will not quite keep pace with inflation, but neither will the house from now on!

As the thousands of dollars add up month over month in savings from renting, that money doesn't go "poof" and cease to exist just because GICs don't quite keep pace with inflation. If you're a savvy renter who sold out of the market like many people on here and have $100k in cash savings, that money is still in the bank. It's a far better position to be in than in debt, and inflation doesn't change that. It's keeping your powder dry.

Put another way, with $100k in cash and waiting the market out, you're not really losing money, because inflation is affecting food and so on, which your salary covers. House prices, which you're saving some of the cash for, are deflating, so your cash is appreciating in value against houses.

Really - if you're arguing against the strategy of getting out of debt and building a mountain of cash, simply because GICs don't currently pay all that well, then you've really got an odd perspective.

Metaldwarf said...

interesting number from the USA

"National Association of Realtors, reports that today's median first-time homebuyer is 32 years old and puts down just 2% on a $150,000 home."

I'm younger then 32 and have way better then 2% down payment. Too bad there are no $150,000 condos. Two out of three ain't bad, but it ain't exactly helpful either.

Ryan said...

I'm 33 and if I could get anything worth living in for $150,000 I would've bought last year. Of course, I also had a lot more than 2% to put down. By the time prices bottom out I hope to be able to put more than 20% down on a $250,000 - 300,000 place.

Nick said...

I got a chuckle out of MLS listing #250713.

"Located on a small, low maintenance lot, this could be your opportunity to enter the market.

At a mere $489,000 for a house in Esquimalt, sounds like a perfect opportunity to enter the market! Better snap up a zero-down, 40 year mortgage before they're gone!

Anonymous said...

metaldwarf & ryan...

$150K condos were here in the plenty just 4 years ago. If we've just peaked in March/April, then in 4 years or less, you should see $150K condos again or close to it because we're very much over built.

I can't wait to see what the town and country condos are going to sell for, given there's not even a first floor there, or even better, the new cook street village condos, those might actually be worth $150K or more eventually just because of the nice location.

I remember not that long ago (3 years?) a good friend of mine told me she bought a 1 bedroom 30 year old condo 5 blocks from cook st. village for "only" 179K and thought she got a great deal. This after a family member had just sold a similar condo 8 months before for 134K. Those *older* condos are worth at most $100-$120K. Don't forget most housing in Canada isn't made like it is in Europe, the lifespan is not 100 to 130 years, it's 40. As you approach 40 years in a condo, the strata council better have deep pockets to deal with a lot of patching and fixing.

For a new condo, yes $150K or a bit more might be justifiable, but just watch, if you were around in the mid 90's, you'd know that condos in some areas dipped as much as 40%, and the kind of over supply we have now wasn't around.

So save your pennies, and wait patiently, if you time it right, you might even be able to get 2 or 3 condos - not that I'd recommend that.

I'm also 33, and I'm waiting 3+ years to buy a house, not a condo; however, I can afford a bit over an average house now, but refuse to pay these ridiculous prices like all my friends did.

Anonymous said...

"This is a dilemna for people trying to save up short-term to buy a house (at least I found it hard.) Where do you put your money short-term that earns anything. There are not too many good choices that do not involve risk.

While technically true, this is an odd way to think of the alternatives between selling a house, pocketing the cash, and renting while saving loads of money every month."

But it's not simply a matter of selling today and buying back in in 4 years. None of us have any real idea where prices may be in 4 years. You may get there and decide for personal reasons that you need to wait another 4 years or you may decide to never buy (maybe you inherit a property?)

In the meantime your funds are losing real buying power and you have missed other opportunities - the opportunity cost of waiting to buy is built in in the form of inflation. I consider this relevant.

Not only "technically true", it's actually just one piece of the financial puzzle. One needs to look at all of the factors in considering such a decision.

I wouldn't personally include a credit for mounds of rent income because I have a family of 4 and would want / need to maintain my current lifestyle.

Someone else may have no family (ie no kids) and be willing to rent a $1,000/m basement suite or small condo - and so the "rent savings" comes in the form of personal sacrifice and maybe more dinners out with the girlfriend(s.)

Again, if finance was the only consideration, and I could rent a $1,000 / month condo, the balance of probabilities in terms of real price changes may tip towards selling, but it's actually a very small component to a hold vs rent issue for us.

What I will be counting on if real prices change dramatically is the ability to buy more rental property with higher rents being charged in the future.

Anonymous said...

"It doesn't actually, because the less equity you have the bigger your mortgage is, and not having to make the mortgage payments is also an investment return. Better than you get from investing in fixed income in fact."

Firstly you are still paying rent, any credit from not paying the mortgage but instead lower rents comes at a cost of personal sacrifice.

You could also look at a high mortgage as including a built-in buffer on inflation. If you owe 80% of your home's value with a 5 yr 5% fixed mortgage, you could easily come out ahead in terms of purchasing power. At the end of 5 years with an inflation rate of say 5% rather than the 2.5% that was prevalent when you purchased you're practically making money on that mortgage.

5 years later you're earning about 26% more (5% compounded over 5 years), not counting the fact that you may have moved up in career, and you still owe the principle as set out in your mortgage agreement. From an inflation adjusted basis you're much better off (or perhaps "much less worse-off should RE prices actually decline) in real terms than it might appear.

At the same time rents could easily be 25% higher and appear to continue to go up even today.