Predictions

Happy holidays everyone.

2008 has proven to be a year chock-full of surprises. We've seen the average single family home lose almost $100,000 in value. We've seen listings skyrocket and sales plummet. We've seen panic from within the real estate industry. We've seen the MSM go from head cheerleader to pallbearer to cheerleader to confused. We've seen "real estate industry experts" continue to demonstrate their inability to accurately predict "what time the 3 o'clock ferry to Vancouver will leave."

And we've seen the MSM tell us the "bloggers got it right" but not before Re/Max confirmed BC bear blogger's numbers with their own admissions.

So what could possibly occur in 2009?

Dear readers, I'll give you my predictions and I'll ask for yours in comments.

Spring 2009 is the turning point. One thing will definitely happen: listing will jump drastically, hitting all time highs in March/April, probably nearing 6000 total units. I expect to see a slight rise in sales volumes in March/April, not reaching spring 2007 levels, but somewhere in the neighbourhood of 450-500 units. January and February will look like Oct/Nov 08 and see drops in prices as a result.

As far as prices go, I expect to see a leveling-off of price declines (the proverbial dead cat bounce) over the same stretch, prior to a 2008-like plunge that will see month-over-month average changes in the negative 2%-2.5%, totalling up to somewhere in the neighbourhood of 18%-24% total annual decline.

I expect to see a total drop in average sales prices from the April 2008 peak nearing 30% by the end of 2009. That will mean a house that sold for $625K in April 2008 will be selling for around $440K next December. Something to look forward to bears: those crappy, neglected, homes with suites in neighbourhoods you'd rather not live in that are currently sitting on the market for around $425K, they'll be sitting on the market at the end of 2009 for somewhere around $300K.

Remember people, my predictions are worth exactly what you paid for them.

Canada's sub-prime

Interesting analysis in the G&M today regarding low-down extended amortization products. Here's some low-lights:

In the first half of this year [2008], as the subprime mortgage crisis was exploding in the United States, a contagion of U.S.-style lending practices quietly crossed the border and infected Canada's previously prudent mortgage regime.

New mortgage borrowers signed up for an estimated $56-billion of risky 40-year mortgages, more than half of the total new mortgages approved by banks, trust companies and other lenders during that time, according to banking and insurance sources. Those sources estimated that 10 per cent of the mortgages, worth about $10-billion, were taken out with no money down.

Virtually unavailable in Canada two years ago, high-risk mortgages proliferated in 2007 and early 2008 and must now be shouldered by thousands of consumers at a time when the economy is sinking quickly and real-estate prices are swooning. Long-term mortgages – designed to help newcomers get into the housing market sooner – are the most expensive in terms of interest costs, and least flexible when mortgage-holders cannot meet their payments and need extensions.

The Bank of Canada this week warned that the perilous economy could lead to a doubling of so-called “vulnerable households” – those unable to meet their debts – and perhaps cost thousands of Canadians their homes. The central bank, which is always cautious with its words, said in a report that there is the potential for “a substantial increase in default rates on household debt.”

Banking and insurance officials were so concerned about the alarming rush to 40-year mortgages at the beginning of 2008 that one bank executive warned the Bank of Canada's chief financial stability officer, Mark Zelmer, in a meeting that “the government has got to put an end to this.”

Critics, including former Bank of Canada governor David Dodge, say the lax mortgage policies only further stoked soaring house prices.

I remember those days very clearly. I was shocked to learn we could stretch our mortgage payments out to 35 years. I was equally awed when we next learned we no longer needed a minimum 10% down. Imagine my response when we were told we could put 5% down, extend the amortization out over 40 years and even qualify for a 7% cashback option that would give us our downpayment and closing costs; it was almost as heart attack-inducing as when I learned we could skip the cashback and put nothing down, thus "saving" ourselves an interest "penalty."

I wrote about this last September. I even did a radio show on CBC last summer when this was considered a new and innovative market designed to "help" people like me. I called the 0 down 40 year products a "life sentence to the poor house." I'd like to re-name the now defunct products and their still-proliferating brothers and sisters--5% down 35 year amortizations and the cashback options--to something more indicative of what more and more experts are starting to recognize them for: "a quick trip to foreclosure."

So much for Canadian consumers being different.

A typically slow time of year

is even slower than typical. No sales in my filtered PCS in December.

The last SFH with suite potential in the Saaniches, Colwood, Langford, Esquimalt and Victoria sold on November 18. It sold for $60K under its new asking price ($665K) once the adjoining lot was added to the property (original price $415K).

The last two-bed condo in the same areas sold for $50K under asking price on November 24.

I was walking through the electronics department of the Bay the other day. The salesman said to me, "even if it doesn't have a sale sign on it, it's on sale. Every TV."

"How much I replied?"

"Oh, give or take 25%" he replied. "Depends on the model. You interested in anything specific?"

"Not yet. Your prices are competitive. I think I will wait until they are compelling."

HHV to MSM: yer turn, I think they're hearing it

H/T to Anon for graphics (please don't make me H/T anon anymore people, I like to give credit where credit is due)

Real estate forecast grim. When I started this blog, I never, and I mean never, imagined I'd read an article with a title like that in the TC. One choice tidbit:

Greater Victoria will lead the country in real estate declines next year as both average price and the number of sales tumble

Re/Max, without using the words, have stated very clearly, that Victoria real estate is the most over valued in the country.

What I find most telling about this article is that Re/Max states that despite the fact that our economic drivers are more insulated from the overall market our home prices will fall further. I question the insulated lines, but here it really is irrelevant.

Forgive me for feeling a deep sense of vindication today. Victoria real estate bloggers and regular market watchers and commentators, you've been confirmed by Re/Max today.

November numbers

Cautious Buyers Lead to Decline in November Sales

December 1, 2008

The number of property sales throughout Greater Victoria declined in November as buyers remained cautious due to concerns over the economy and direction of the market.

A total of 268 homes and other properties sold in November through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®) down from the 316 sales in October. There were 623 sales in November of last year. November’s sales were the lowest monthly sales since December, 1999. The number of properties available for sale at the end of November was 4,459. That represents a 40 per cent increase compared to November of last year but a further decline from the 4,680 properties available for sale at the end of October.

Victoria Real Estate Board President, Tony Joe, says it’s clear the uncertain economic climate is having an effect on the housing market. "More people are taking a ‘wait and see’ approach and are less inclined to buy or sell unless they have to given all the uncertainty we hear about almost every day. Despite this, so far there has only been a modest effect on prices for single family homes and townhomes." Joe noted that the average price of single family homes in Greater Victoria last month was $524,128, down from $565,741 in October; the six-month average was $562,772 though the median price in November at $500,000 was up slightly from $495,000 in October.

Condominium prices were most affected last month. The overall average price for condominiums was $273,890 last month, posting a significant decline from $323,028 in October. The average for the last six months was $308,133. The median price for condominiums in November was $258,450. The average price of all townhomes sold last month was $447,370 up from $389,731 in October due in large part to two sales, one in Victoria for over $775,000 and one in Sidney for over $950,000. The six month average was $425,086 while the median price in November was substantially lower at $372,250.

MLS® sales last month included 153 single family homes, 77 condominiums, 20 townhomes and seven manufactured homes.

Thank you Tony, your credibility went up from last month's lows, at least in my eyes. Overall, these numbers are not great for impatient bears, nor are they great for the "this time it's different crowd." More of the same from last month really.

Highlights not shared: April 2008 average SFH price was $626K, this month $524K, an approximately 17% decline.