Wednesday, October 8, 2008

Of course we're insulated on our island

Remember, we are nothing like the lower mainland here in Victoria.

Three all-too-common viewpoints, me thinks:

1. The “Phew, got out just in time” seller:

"We looked at it as a shame we hadn't been selling a year ago," Dinsdale said, "but we're happy we were selling now as opposed to six months from now."

2. The “We can’t believe how fast the tide did turn” sellers:

"It was amazing how fast everything around us came down," he added."Even swimming downstream is tough."

3. The “We’re trying to convince ourselves it was a good decision but still really scared it wasn’t” buyers:
"I think if I might have waited, I might have got a better deal," Ray Keyland said, referring to the three-bedroom, 1,779-square foot house they picked up for $399,000.However, Keyland added that he also worried they might run into higher interest rates. Now that they're in the house, "we're in it for the long haul."
For them, I hope that one per cent hike in interest rates isn’t the difference between “long haul” and “Oh, sh$t.”

68 comments:

patriotz said...

.However, Keyland added that he also worried they might run into higher interest rates. Now that they're in the house, "we're in it for the long haul."

Actually Ray, you're only in for the lower rate until your mortgage comes up for renewal. But I guess you didn't think about that.

roger said...

HHV,

Seems like only Victoria is "insulated". The Nanaimo Daily News published this story yesterday:

Inflated Nanaimo housing prices settle

Property values are dropping all over Vancouver Island, with the median house prices down anywhere from $3,000 in Nanaimo to $32,000 in the Cowichan Valley in September, compared to a year ago, based on the most recent statistics from the Vancouver Island Real Estate Board.

Falling real estate values are what In August University of B.C. economist Tsur Somerville predicted falling values, but they are now exceeding his expectations.

Sellers should lower their expectations, said Jim Stewart, a VIREB director. "Certainly it's turning into a buyer's market, there's no question about that," Stewart

"The challenge is prices got stupid over the last couple of years," said Stewart. "If the market goes back more, even if it drops 10%, are we hard done by? Nope."

hhv said...

Funny how a year ago they were all saying that nothing was out of the ordinary and we just had pent up demand leading to "normal" pricing. Now it's the "market got stupid"... I'm pretty sure it wasn't the market that was stupid. It was the stupid is as stupid does...

VicREBear said...

Yes - and now the same jerks who were proclaiming that the previous few years' price increases were based on strong fundamentals are scrambling to give the impression that they knew all along that something was wrong. Just like their American colleagues. Well Jim Stewart, if you knew that "prices got stupid over the last couple of years" then you've been a bald-faced liar during those years, and if you didn't know then you've been incompetent in your position as a VIREB director. Take your pick.

greg said...

What I'd like to know is how a half point cut by the BOC is accompanied by half point/one point hikes to mortgage rates? What's going on here with the so-called fiscally conservative, highly capitalized Canadian banks?

kabloona said...

Greg:

Credit crunch, plain and simple. The BOC can cut the overnight rate it charges the FIs but they don't necessarily have to pass it on. FIs are also tightening restrictions on HELOCs.

http://www.nationalpost.com/story.html?id=868590

roger said...

This developer did not have enough insulation!!

Looking for a haircut

vg said...

Did you see CHEK tonite on the Langford development that is laying off workers so that completions won't be done for spring rather than now ? Who's next ? No room to run for the pump machine unless your name's Tony's Insulation and Denial Ltd.


I can only imagine when we'll hear more from the interior over the next while. There were so many high end developments in the works aimed at the rich but soon to be poor Albertan that there is no way 3/4 of them will ever happen.

greg said...

vg -

the problem for Okanagan real estate is already half of them happened.

The MOI is far worse there than here, it's more like up Island.

Wonder if they had any 10% MOM drops? Maybe I'll check later.

patriotz said...

Looks like this Oak Bay flipper ran out of money!

Asking 519.9K

"Located just a 5 minute walk to Oak Bay Village. This 2 bdrm plus den home is in a 'state of renovation' & is priced accordingly. The electrical was recently updated to 200 amp, & the rest of the home is in the process of a renovation. The home features fir floors, 9ft ceilings in living, dining & bdrms. This home represents an opportunity to finish the renovation to live in a great Oak Bay location or as a holding property for redevelopment. Please Note: The home ia being sold as is where is."

Just Jack said...

The market does not look so good for the Oak Bay "flipper" mentioned above.

There have been several sales over the last few months in Oak Bay that strongle suggest that this property has a market value centering around $460,000.

The sales history supports this estimate in that the property was purchased last August for $459,000. As discussed in previous threads, market prices have retreated back one year.

So, how long will it take the seller to accept the current market and lower their price. Or will they go into denial and pull the listing? Interesting one to watch.

B2B said...

Wow - if they bought that for $460k a year ago and sell for that now, they're out all the fees on both ends, the renos, and how much in mortgage payments - $24k min? Never mind lost interest on their down payment, plus their time and stress. Yup, looks like a nightmare. You're almost feeling sorry for them.

Anonymous said...

You should really read up on the Libor and how central banks work. This is no shock that the banks did not match the BOC overnight rate target change in lock step.

Anonymous said...

vg.. which development is it, do you know?

greg said...

anonymous - you missed my [sarcastic]point about the "rate cut". The question was rhetorical; I was pointing out that, despite prime moving down, the 5 year closed rates are moving in the other direction, increasing the spread.

Why would that happen if the financial institution(s) were on a sound financial footing?

Answer: it wouldn't.

Or: the bond market is already pricing in an expected increase in interest rates in the medium term, and the long term trend is up.

Take your pick.

Meanwhile the media gets excited about rate cuts and the average Canadian is not being told about this divergence. They think things are peachy, they hear rates went down.

The only average Canadians who know different are those trying to remortgage or to buy a place now.

Why isn't this divergence making big news, I wonder? Again, a rhetorical [asked merely for effect with no answer expected] question.

I'll answer - if this was more widely reported, downward pressure on housing prices would become even greater.

roger said...

Switching back to real estate....

I received the CMHC stats and have prepared some new slide shows for the Stats Gallery

The CMHC Single Family charts show that inventory continues to climb and that the median price has dropped five months in a row. The YOY average price has gone negative and the sales/active listings ratio continues to be lower than in previous years.

The Condo Stats graphs clearly indicate that there will be considerable pressure on prices in the coming months. Listings stubbornly remain at over 1200 units and sales keep dropping every month with only 111 in September. The sales/active listings ratio in September was 9% which corresponds to a months-of-inventory (MOI) of 11.2. The sales/new listings ratio for September is also very low at 27% indicating a strong buyers market. Median prices have been trending down for 8 months.

Anonymous said...

Another option is that the banks are reacting like the gas stations as their oligopoly grows in the face of money tightening. No mun no fun, the banks will stick it to you when you bend over to pick up that penny. Basically they have no competition as the private funds dry up and that spread will become wider on both sides.

We were in TD not too long ago and received this reasoned response when we asked why they were offering a lower GIC rate than their competitors: "because they haven't been hurt like the other banks."

Huh? So they don't need our money or what? They did finally cough with another 1/2%, but we wouldn't go the 2-4 years fixed that they were pushing.

It is very interesting times with lots of opportunity.

dancer said...

anon said: "It is very interesting times with lots of opportunity.

October 9, 2008 5:03 PM"


PLEASE divulge where those opportunities will be, or are right now

Anonymous said...

you'll have to ask stevie, i haven't the time.

Anonymous said...

Great letter on Garth's site re Kelowna. 80% drop? Maybe!

Mr.4AM said...

"PLEASE divulge where those opportunities will be, or are right now"

physical silver & gold.

roger said...

Understatement of the week:

Housing beginning to feel global chill

The market is realigning and we don't see that there will be a housing market bust in Canada like we're seeing in the United States," said Gregory Klump, chief economist at the Canadian Real Estate Association.

"Rather, we're going from a rather strong seller's market to more balanced market conditions."

Here, Mr. Klump said that while torrid growth remains in a few markets in Western Canada, nationally prices will continue in a downward trend until the "second half of next year. With sales declining as well as listings declining, [prices] will stabilize."


Torrid growth, stable prices??

Anonymous said...

Balanced buyer's market with prices trending down for a year or so. Quite frankly that appears to be a pretty reasonable take on the market (as far as SFH goes.)

Two homes have sold in my area in the last 2 weeks at close to asking price, close to last year's prices which is of course where the real prices stopped.

Anonymous said...

"which is of course where the real prices stopped."


what?

roger said...

anon 6:02 said:

Balanced buyer's market with prices trending down for a year or so.

The RE industry categorizes the market as:
- sellers
- balanced
- buyers

Two homes have sold in my area in the last 2 weeks at close to asking price

I can give you dozens and dozens of sales in the last month that were well under the original listing price. Also lots of agents are using the re-listing scam which distorts the DOM and sale/listing price ratio.

The inescapable fact is that median and average SFH prices have dropped 5 months in a row (since April) and with the latest financial turmoil one can expect this to continue.

RE boards and agents will now tell you that "well priced properties sell quickly". This is stating the obvious in an attempt to say all is well in the marketplace. Statements with equivalent meaning but not suitable for spin news releases are:

- Overpriced properties will not sell
- Properties priced low enough will always sell
- Sellers that accept a buyers offer will sell their home
- If the asking price meets the buyers perception of value for the property they can sell it
- Sellers need to list their house at market value in order to get a sale

Anonymous said...

A huge RE development project in Langford just stopped. out of money, out of market, maybe out of hope.

roger said...

Could it be this one - Westhills development delays opening date

Global financial crisis has forced firm to wait a little for markets to settle

The massive 6,000-unit Westhills project is slowing down its development, telling some staff to look for new jobs and has delayed its opening date by six months as a result of the financial crisis rippling around the globe.

According to developer Jim Hartshorne, lead consultant for the privately funded project, while Westhills isn't being squeezed financially it is feeling the effects of the market downturn.

S2 said...

I walked past The Radius and The Hudson and thought about how lovely the view from the Hudson will be overlooking that huge hole in the ground. A million dollar view.

Anonymous said...

yes, westhills.
they even stopped their show homes.

womp said...

I'm going to go out on a limb and predict that the Hudson isn't going to make it either.

greg said...

womp,

if you check out the Hudson web-site, you can see most of the units haven't sold. Here's the link:

Hudson

None of the penthouses on the top 2 floors have sold. I count 29 unsold units - most of the sales are the cheapest units on the lowest floors.

I agree, what is the hold-up? I doubt that project will ever go anywhere.

Also, you have to question the wisdom of publishing a web-site that lets people like me count unsold units in an environment like this, but there you go.

Maybe I should rephrase unsold to "available". Yeah, I'll do that...

Anonymous said...

1.5 million for a 1300 ft top floor apartment? I'll take all 3, here's my visa.

roger said...

Canadian Press reports:

Sellers find it's suddenly a 'buyer's market' as economy takes toll on housing

Reid, who has been a Toronto-area realtor through a few housing cycles, said now is the worst time in a changing real estate market.

"Right now we are in that state of flux where people are figuring out what this new market means to them. The sellers are still trying to figure it out and realize that what they thought they were going to get they aren't going to get, and the buyers are really cocky," he said.

"Once the market has changed, everyone is realistic, including the buyers, sellers and agents."

CIBC economist Benjamin Tal predicts average home prices across Canada will fall between five and 10 per cent by mid-2009, and sales will dip about 20 per cent.

That compares to a national average annual price increase of 10 per cent for existing homes since 2002, a trend that slowed to about one per cent by mid-2008.

"In six short months, the Canadian real estate market was transformed from a confident seller's market to a more muted balance market. By early next year the Canadian housing market will turn, for the first time since 1995, to a buyer's market," Tal said.

The cooling has been greatest in Western Canada, which was until recently the hottest market with prices climbing by about 50 per cent in recent years.

In Vancouver, buyers are either circling or making low-ball offers and the sellers are unable to achieve prices they did a month ago with many properties are now selling below assessed values determined in August 2007, Vancouver realtor Maggie Chandler said.

vg said...

"Two homes have sold in my area in the last 2 weeks at close to asking price, close to last year's prices which is of course where the real prices stopped."



I would think the last 2 weeks will be much different then the future 2 weeks. If there ever was a watershed moment where Joe Average finally woke up to the reality of the situation then this had to be the past week.

As PB reported on his blog,sales appear to have fallen off a cliff so far this month. I think the panicked 40 year sucker was the last of the volume you will see for a very long time.

roger said...

Houses that are in great shape and priced at market value will sell and get close to their asking price.

But many sellers will try and get last years price and be sorely disappointed. Here is a slideshow showing some of these recent sales:

Victoria Real Estate Haircuts

You can use the pause and single step controls to run in manual mode. I suggest that you click the big X and run in full screen mode.

Muriel said...

Thanks Roger - those are truly some bee-yutiful haircuts. I particularly like the last one where the price went from list: 760,000 to sale: 590,000.

Anonymous said...

Those are really great examples of why we won't be buying any time soon. Who can afford $3,000 per month?

Anonymous said...

Not that I'd advise buying now, but in another 10 years you'll think $3,000 per month was a steal. Sometimes you just have to jump in.

patriotz said...

in another 10 years you'll think $3,000 per month was a steal.

Not if the guy next door who bought in 2010 is paying $1,500 per month, you won't.

Anonymous said...

Prices come down, mortgage interest goes up, inflation erodes mortgage principle, rent goes up, it's all relative. In 10 years $3,000 WILL seem like a steal.

Anonymous said...

I bet this guy is worried right about now.

The Reflections in Langford
MLS#
253926
253930
253932
253928
253933

"NOTE: SELLER OWNS 7 UNITS IN THIS PROJECT AND WILL SELL ALL THE UNITS AS A PACKAGE OR INDIVIDUALLY."

patriotz said...

In 10 years $3,000 WILL seem like a steal.

Got wage inflation? Not these days.

Anonymous said...

anon said:

I bet this guy is worried right about now.

The Reflections in Langford


Seems like this guy is left holding the bag

Anonymous said...

Ask all the builders if there's been wage inflation. Starting wages $18 / hour. Tim Hortons can't find employees. Oh no, no wage inflation at all...???

Dumb Canuck said...

Wait until the negative wage inflation. As soon as the developers see that there are excess construction workers, then they'll be 'asking' their subcontractors to work for less. I'd give it a month until it happens. Then we'll see a lot of shiny pick up trucks for sale beside the main roads.

roger said...

Many of us have heard homeowners talk about how much they made on their house in the last few years. Recently the chat around the water cooler has been on losses in the stock market.

Here is a different perspective on the "paper profits & losses".

All that money lost in stock market, housing never really existed: economist

Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a "fallacy." He says the price of a stock has never been the same thing as money - it's simply the "best guess" of what the stock is worth.

Shiller uses the example of an appraiser who values a house at $350,000, a week after saying it was worth $400,000. "In a sense, $50,000 just disappeared when he said that," he said. "But it's all in the mind."

Metaldwarf said...

TSX jumps +17% at open today. Currently up around +11%

Let me be the first to call it:

Dead Cat Bounce

roger said...

My last slideshow Real Estate Haircuts showed what happens to unrealistic sellers in the current market.

Today there is still a lineup outside the barbershop with more nervous owners looking for offers.

You can use the pause and single step controls to run in manual mode. I suggest that you click the big X and run in full screen mode.

B2B said...

Interesting Roger to see so many houses with DOM only 30 or 40, but with massive price reductions. One would assume, reading between the lines, that they would have had next to 0 interest in that month of being on the market to make such a reduction.

This is in line with anecdotes I've heard, such as a couple up island who had their first open house recently and had not a single person show up.

olives said...

Thanks Roger. I think you're going to have a lot more material soon for your "offers" slideshow.

roger said...

Olives,

I have to agree with you.

When did we last see detached homes in Gordon head that were 20 years old selling for 425K with a 90K price reduction??

Things are changing quickly!!

patriotz said...

That property also sold for 425K April 30, 2007. Consider selling costs, holding costs, probable renovations and the owner must be out over 50K.

It was assessed for 431K.

Anonymous said...

looking for offers - some of those haircuts are even worse than Roger's slideshow shows since the properties were previously listed at even higher prices. For instance 102 Moss was originally at 799K and 632 harbinger was at 699 K

Anonymous said...

Paul Kedrosky, who writes the Infectious Greed blog, made a list of dire predictions - plus a few opportunities - for the next stage in the business cycle. The way he sees it:

S&P 500 earnings forecasts are about to plunge faster than at any time in recent history, which presumably includes the sharp revisions that followed the technology bust at the start of the decade. This could lead to a revaluation of the markets. “After all, at S&P 1010 we are trading at 19-times trailing earnings, and 18-times forward [earnings], neither of which are inexpensive, historically speaking,” he said.

The U.S. economy is already in a recession, which will last well into the fourth quarter of 2009.

U.S. unemployment, currently sitting at 6.1 per cent, could rise as high as 9 per cent.

The housing market will fall another 10 to 15 per cent in the United States, and Canada is just at the start of a major decline.

roger said...

Now that the election is over it's time to focus on real estate in Victoria. Reuters had this article on the wire this morning:

Canada average house price falls in September

TORONTO, Oct 15 (Reuters) - Home resales in Canada rose modestly in September from August, but a drop in sales in some expensive markets pulled down the average price, the Canadian Real Estate Association said on Wednesday.

The average house price fell 6.2 percent from the year before to C$315,461 ($269,625), dragged down by sales declines in Vancouver and Victoria, British Columbia, which offset rebounds in Calgary and Edmonton, Alberta.

"Price declines in some of Canada's more expensive housing markets will outweigh further price gains in other markets and continue pulling the national average price lower over the rest of the year and into 2009," said CREA Chief Economist Gregory Klump.

Anonymous said...

That's really great, but the change in interest rate POLICY just wiped out $100,000 of any drop in prices - present or future. The banks have decided to take on the role of the BOC and manage the economy on their own terms. This will effect new buyers for the short and long term forseeable future.

I just hope people aren't saving their nest egg downpayment anywhere outside of a GIC.

Mortgage payments will still be the same. Only rent keeps going up.

Libre Esprit said...

Of course we're insulated on the island!
"Builder halts $1.4-billion Langford project"

Construction on the Capella project in Langford has been "halted" pre-sales are being refunded and work will not resume for another "year or two" says Quigg, the developer.

http://tinyurl.com/44xpjy

As one who is old enough to remember the halt in construction back in the early 80s and the half built hotel, now the Wellesley senior's residences - this is just another case of déjà-vu!

Any bets on the next project to "halt"

VicREBear said...

It's peculiar that according to Quigg, "60 per cent of the first offering of units were sold", yet he can't get financing. In the meantime, the Silkwind has only 35 per cent sold and their financing is supposedly in place. Maybe the "first offering" was just a dozen or so units. Or maybe everyone is lying like crazy as they CYA before bailing.

patriotz said...

The banks have decided to take on the role of the BOC and manage the economy on their own terms.

What are you talking about?

First of all, it is not the role of the BoC to "manage the economy". The role of the BoC is to maintain price stability, and the integrity of the banking system. All other economic management functions belong to government.

Two, when a bank sets the interest rates it charges it is not trying to "manage the economy". It's just trying to make a profit, like any other business.

You're talking as though retail interest rates ought to be controlled by some authority. That's central planning. They should be set by the market, just like the price of everything else.

womp said...

Any bets on the next project to "halt"

I'm gonna go with the Hudson.

roger said...

"Any bets on the next project to "halt"

It's a difficult choice - there are so many to choose from. My prediction is the Oak Bay Beach Hotel.

Anonymous said...

Infinity Surrey bankruptcy trouble


Several people just posted this news - another lower mainland condo tower has run into money troubles. The Infinity at Central City' is the largest residential complex in the history of Surrey.With just one of the 35-storey towers completed and occupied, Infinity's South Korean developers have been granted protection from their creditors. The Infinity is supposed to have five high-rise towers and 1400 units. Robert Millar, lawyer for Jung Developments and Hee Yong Yang says Yang has been adversely impacted by these changes and world wide tightening in the credit and financial markets. ...

Metaldwarf said...

Toronto stocks slump further
STEVE LADURANTAYE
Globe and Mail Update
October 16, 2008 at 1:18 PM EDT

Meanwhile, the Dow Jones industrial average flirted with a small gain in early afternoon before sliding back. It started the day 39 per cent lower than its all-time high of 14,164.53 reached in October, 2007.

The drop doesn't put it anywhere near the losses seen during the Depression, when the Dow lost 89 per cent of its value. It is, however, worse than the 1987 crash, when the Dow lost 37 per cent of its value.

Metaldwarf said...

link to full article from above

http://tinyurl.com/3pu5wm

Anonymous said...

Patriots said: "You're talking as though retail interest rates ought to be controlled by some authority. That's central planning. They should be set by the market, just like the price of everything else."

Ya... like the price of gas???Maybe milk??? Bread??? I'm not talking about what ought to be happening I'm talking about what IS happpening. The banks are starting to see themselves as the only game in town and responding in kind.

What free market are you referring to??? Where do you not see the BOC managing the economy??? You're probably well aware of the acronym BOHICA, eh? Well get ready.

Anonymous said...

"Of course we're insulated on the island!
"Builder halts $1.4-billion Langford project"

Construction on the Capella project in Langford has been "halted" pre-sales are being refunded and work will not resume for another "year or two" says Quigg, the developer.

http://tinyurl.com/44xpjy

As one who is old enough to remember the halt in construction back in the early 80s and the half built hotel, now the Wellesley senior's residences - this is just another case of déjà-vu!

Any bets on the next project to "halt"

Do a search on that developer, he's been around long enough to see a recession or two. He's even had his hand in on a senior housing or two.

Dumb Canuck said...

I'll go for the Bear Mountain interchange to halt...

patriotz said...

The banks are starting to see themselves as the only game in town and responding in kind.

It is the business of banks and similar institutions to lend money, just as it's the business of gas stations to sell gas.

Gas stations charge a given price for gas because they need to make a profit, and banks charge a given rate for loans because they need to make a profit too.

How can you imply that banks are involved in some sort of evil conspiracy to hike interest rates when they are near historic lows? Were you around in the 70's, 80's, or 90's?