Monday, September 22, 2008

What Price to Rent can I buy at today?

H/T to Captain Capitalism via Smalldeadanimals for the graphic.

A while back, the media went gaga over a recent UBC/Sommerville study that contradicted a slightly less recent Merryl Lynch study regarding fundamental value in the national and local real estate markets. ML came up with 35% as their benchmark for targeted balance between what a house is worth based on what rents are. UBC came up with 11%. UBC used that bastion of accurate statistics, Craigslist, to determine what market rent in Vancouver is. ML, they used CMHC and StatsCan numbers (I believe, but may be mistaken here).

Things are changing fast and furious on the employment front for myself and the Mrs these days and we may be looking for a new place again. I started looking this weekend, not physically, but just online. I went and re-read the post over at Langley Financial Planning about how Mohican buys a house, and I completely agree with both his rationale and math. Is it possible to find a deal like this in Victoria today?

So here's a bit of a challenge to all the readers of this blog. Find me a condo, townhouse or a SFH with a suite, that I can realistically buy today (not necessarily asking price here, think lowball offers that may get accepted, target Tuscany Village, Reflections etc... places we know are struggling with sales and economics and can realistically throw low offers to). Benchmark these places against Craigslist's dreamland of market rents and lets make a deal. Keep 10-15% down, 25 year mortgage, price under $425K parameters in mind. I'll keep looking too and do up the math on your suggestions and grow this post over the next week or so.


Here's the first one. It's a 2-bed 2-bath unit on the Gorge. I have no way of knowing if it is the same unit for sale as for rent, so this isn't exactly accurate science here folks, but close enough for a comparison non?

Craigslist ad: rent at $1295 plus hydro.

MLS # 247947: currently for sale at $245K after 107 DOM (original price $264,500) incidentally, it's neighbour is also for sale at $259,900 after 119 DOM and original price of $279K.

Here are the numbers: Rent = $1295 per month. Ownership costs = (10% down mortgage, 5.25% over 25 years = $1315 per month) + $173 strata fees + $95 property taxes = $1583 per month.

Price to rent ratio is 189 (funny how it mirrors the graph above eh?). Monthly payment difference is 19%.

Can we make it smaller? This seller, according to my PCS account, is "motivated". That means make an offer. So I go in and offer a whopping 15% off the price, which is about $210K. We agree on $215K. I redo the numbers as: $1135 mortgage + other expenses = $1403/month for

Price to rent of 166, and monthly payment difference of 8%.

There are two problems with this scenario: 1. I think $1295/month for a Gorge Rd condo at Tillicum is inflated compared to market rent, probably by as much as 15%/month; and 2. I don't think that a seller that isn't in distress, and is just "motivated" at this stage would be willing to consider an offer that is almost 20% lower than their original asking price. I could be wrong, but even if I am, I'm still overpaying for this property.

When I do up numbers like this, it really hits home for me just how far out of whack this market has gotten, and how far it needs to fall to return to a balanced state. So when you read the local real estate pumpers punditry that this market has returned to "balanced", remember they aren't speaking of market fundamentals, they're speaking of buyers vs sellers, and they're wrong anyway, because clearly, it's a definite buyer's market.

Sunday, September 7, 2008

Are Victoria Prices Falling?

Courtesy of, and a big tip of the hat to, Roger, for such great statistical analysis of the Victoria and Island real estate markets. He's hit another one out of the park with his latest slideshow: Are Victoria prices falling?

It neeeds to be pointed out that Roger uses VREB published data to produce his excellent graphs and tables. There is no spin. There is no "funky" numbers. Just straight as VREB wants us to have them, laid out in a way they likely wouldn't want you to see them. Cheers, Roger. (Click for larger view.)

Avg & Median Sale Prices

Why 2008 is different

Avg & 6-month rolling Avg

Median & 6-month rolling Avg

YOY percent change - no averaging

Percent change YOY of 3-month Avg

Just the prices - Avg & median

Roger has even given us a PDF version so you can print it out and have it handy to take with you whenever you're talking real estate. (edited)

Thursday, September 4, 2008

Journalistic Integrity

I've made much over the spin job we see the MSM (particularly the VanSun and the TC) doing when it comes to how market information is portrayed in the local media.

Is it the responsibility of journalists and editors to delve into the information and fact check it, when the local real estate boards release their market information related to the MLS system?

A quick wiki of journalistic integrity gives us this:
the principles of — truthfulness, accuracy, objectivity, impartiality, fairness and public accountability — as these apply to the acquisition of newsworthy information and its subsequent dissemination to the public.
Let's take a look at the most recent news piece on the Victoria August numbers. Tony Joe, president of the VREB, is quoted as an expert. As is the developer behind Chelsea.

These are two individuals who make a living selling real estate and have a much better grasp of the current state of the market than you or I, but it serves them no purpose to state the obvious truths. The developer's job is to impart confidence in his business. Tony's?, he's elected by the local group of REALTORs to impart confidence in them. I don't believe Tony is attempting to pull the wool over anyones eyes; here is his key message:
well-priced properties can still move quickly
This statement is fundamentally true. Well-priced properties can, and do, move quickly. He's told us a few things this month: the market dropped by 5%, if you want to sell your place next month, drop your price, and if you're looking at buying, low-ball. He's also telling us REALTORs are the only ones with the ability to well-price your home. His job is to increase sales volume, not necessarily price, and that is what I see is his focus; he's a confidence cheerleader.

His explanations of why sales are down "vacation-caused" are weak. We know they are weak. Roger has proven them patently false, using VREB's own data. Does Tony have a responsibility to prove his assertions? I think such a small statement can get passed off, and should be, by anyone looking at buying or selling a house in Victoria. Look, if you're buying or selling, that one sentence in one article on one day should not be the deciding factor in your decision.

The bigger question is, should Carla have called him on it? Does she, or her editors, have a responsibility to fact check a quote? Probably not. She is publishing someone else's statement, not her own, and not trying to take credit for it. She should make sure she quoted him correctly, and if she did, Tony ends up wearing the egg on his face.

The trouble is, it spits in the face of those of us who wrongly assume that the MSM has journalistic integrity in today's market place. Are we wrong to expect it? The internet has changed everything. It has democratized information. You and I, we both have the same access to information as the average journalist these days. We can decipher the spin, we can analyse the stats, we can even publish our opinions and facts that we find. If I spouted off on this blog more often, you wouldn't read it. Many people don't.

But when the MSM drops their integrity, they sell less papers and there is a cause and effect reaction in the market that punishes them greatly. They've already dropped the ball on classifieds. They're dropping the ball on advertising. They're dropping the ball on reporting. The TC especially is dropping the ball on what people have come to expect of the the internet (a voice of their own) and don't even allow comments, moderated or not. I'll leave you with this to end my editorial:
Every news organization has only its credibility and reputation to rely on.
-Tony Burman, editor-in-chief of CBC News
The MSM has been slow to adapt to the internet reality, as have the players that rely on them to get their messages out. In effect, these gang of change-fearing "presstitutes" are committing a slow suicide. Check out their stock valuations, they're not making money and they're getting hammered by investors.

Their credibility is crumbling and their reputation is diminishing. And the consequence of this is that people seek information elsewhere and advertisers follow. I fully expect to see further consolidation of media outlets (National Post is probably done in the very near future) and further entrenchment of the old ways of doing business. Because they really just don't get it. Nor do I, but I think I may be onto something...

Tuesday, September 2, 2008

Property sales and prices soften in August

No need for spin: straight from the horses mouth (VREB)

Sales of homes and other properties in the Greater Victoria area followed the expected trend and softened last month as many people enjoyed vacation time. Prices also moderated slightly. A total of 517 homes and other properties sold in August through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®) compared to the 616 sales in July. There were 846 sales in August of last year.

Victoria Real Estate Board President, Tony Joe, notes that today’s buyers now have more properties from which to choose than at any time since 1996. "The number of properties available for sale is now at the highest level in over 12 years, increasing in August to 4,657. That represents a 39 per cent increase compared to August of last year." Joe notes that prices moderated last month with nearly 46 per cent of single family homes selling for under $500,000. "The average price of single family homes in Greater Victoria last month was $549,914, down from over $578,000 in July; the six-month average was $592,582 though the median price in August was considerably lower at $512,000." Joe noted that eleven single family homes sold for over $1 million in August, including two sales on the Gulf Islands.

The average price of all townhomes sold last month was $413,994, down from nearly $455,000 in July; the six month average was $435,309. The median price in August was $382,000. Joe noted that the overall average price for condominiums at $302,200 last month was virtually unchanged from July. The average for the last six months was $319,825. The median price for condominiums in August was $280,000.

MLS® sales last month included 269 single family homes, 160 condominiums, 53 townhomes and eight manufactured homes.
Roger has a good analysis (from comments in last thread):
August 2008 Statistics - Monthly Analysis

July 2008 shown in ()

MLS Sales - 517 (616)
MLS listings - 4657 (4557)

SFH Average - 549.9K (578.2K)
SFH 6 mo. Avg. - 592.6K (596.7K)
SFH Median - 512K (529.9K)
All SFH Sales - 269 (359)

Condo Average - 302.2K (302.5)
Condo Median - 280K (285K)
All Condo Sales - 160 (168)

Town Average - 414K (454.9K)
Town Median - 382K (417.5K)
All Town Sales - 53 (52)

Year-over-Year Analysis

GV - Greater Victoria
August 2007 shown in ()

MLS Sales - 517 (846) - Down 39%
MLS listings - 4657 (3352) - Up 39%

GV SFH Average - 549,914 (576,632) - Down 4.6%
GV SFH Median - 512,000 (515,000) - Down 0.6%
GV SFH Sales - 244 (399) - Down 39%

GV Condo Average - 302,200 (298,478) - Up 1.3%
GV Condo Median - 280,000 (275,000) - Up 1.8%
GV Condo Sales - 160 (217) - Down 26%

GV Townhouse Average - 415,327 (396,129) - Up 4.8%
GV Townhouse Median - 382,000 (378,950) - Up 0.8%
Townhouse Sales - 51 (95) Down 46%
I'm assuming he'll have updated graphs in the next few days...

Comment away. H/T Roger (apparently the TC already is)