Thursday, March 5, 2009

Buyer's market de-mistified

We're hearing lots of talk in the MSM these days about Victoria being a "buyer's market." Of course, as usual, most of the talk doesn't ever tell us what a buyer's market does to real estate prices: instead the talk focuses on the Now: buy now, prices have already dropped and probably won't keep dropping much more, who knows when it will end, if you don't buy now you will have missed the boat and you will kick yourself?

InvestorWords defines a buyer's market as: A market which has more sellers than buyers. Low prices result from this excess of supply over demand. also called soft market. opposite of seller's market. The emphasis is mine. Here's what it looks like graphically, not using local numbers:

In the real estate statistical world, a buyer's market is usually 6 months of inventory (MOI) or more. Obviously the larger the number beyond six, the more soft the market is and the more price pressure there will be in the market. It is important to remember that price pressure requires time: in many cases, 6 months or more for a home seller to feel considerable pressure to drop their prices.

Contrast that with 4 MOI or less being a seller's market. The lower the MOI number, the more upwards price pressure and the more bidding wars we should see. It should also be noted that in a seller's market, time windows are much shorter. In other words, it takes a lot less time to sell a house, so the momentum of price pressure is much steeper.

It's generally accepted that 4-6 MOI is a neutral or flat market. In this type of market, prices rise very gradually or stay flat.

The MSM is telling us a buyer's market is a first time buyer's market
. I'll tell you the statistical recognition of the end of a buyer's market is a first time buyer's market. Downwards price pressure will have exhausted itself by then and while total product may be less (as in less choice) it will still be normal and you will still be able to find a decent place at a price you can afford.

Here's what a buyer's market looks like locally, using local numbers graphed by Roger:

Current MOI for all property types is approaching 10. The sales to new listing ratio was 1:3 in February 2009 (for every home sold, 3 came on the market), clearly no shrinking of inventory, so no sign of shifting momentum away from a buyer's market to a neutral one.

Here's the catch FTBers: we're being told that this buyer's market is a FTBer's market. IT IS NOT YET. At least not in single family homes. A quick, rude, count of my PCS listings (houses priced under $425K with a suite or suite potential, the low-end of the market) had an MOI count of under 5. Inventory is selling very close to asking and usually above assessed value. Unless it's got problems, in which case it's not selling or is being hit hard.

All of the price pressure in the Victoria market is concentrated in SFH price $550K and above and throughout the condo market regardless of product or its location.

If you are in the market for a SFH priced $450K or less, you are not buying in a buyer's market, you are competing for a product with the most demand right now and will likely not get the kinds of deals being "smoked and mirrored" out in the MSM and industry speak right now.

You can afford to be patient. As the $550K SFH that isn't selling starts competing with the product that is selling at $450K, we can expect to see a rise in MOI throughout the FTBer end of the SFH market and then you can re-run the numbers to see which way inventory and sales are heading in order to better time your purchasing decisions.

Further homework: check out CondoHype's piece on buy vs rent and PR math.

113 comments:

Anonymous said...

Despite the consensus it's a buyers' market, homebuying intentions in B.C. remain unchanged from a year ago with 26 per cent of residents saying they intend to buy in the next two years -- 55 per cent think it makes more sense to wait until next year to purchase rather than now.

Anonymous said...

Condos to be auctioned off

Pre-sales didn't meet expectations at Langford's Reflections project

In some cases there is well over a $100,000 discount," said Khoo, who said on average the discount ranges from between $50,000 and $100,000

Do you rember what happened in Vancouver few weeks ago? 35-40% off. More and more developers will follow.

Reid said...

HHV, I have been tracking the months on inventory by area and price range for over a year. I do not have the exact sales by price range, but they are statistically close.

Based on my analysis using the average sales over the past three months and Feb 28th SFH inventory levels, I get the following ratios:

Under $500k 5.4
$500k to $650k 7.5
$650k to $800k 10.0
$800k to $1 mil 18
Great than $1 mil 79

Total 7.8

In the under $500k category I have the following ratios by key area:

Victoria 3.8
Esquimalt 3.6
Saanich East 2.9
Saanich West 3.1
Colwood 3.3
Langford 4.1
Sooke 11.4

Total 5.4

The interesting thing to note here is that Sooke with its large listings volume in the low price range actually skew the total months of inventory ratio higher. If you are looking in areas closer to Victoria you are unfortunately looking at a sellers market still as you suggested. This makes no sense given the global economy, but it aligns with the first time buyer incentives, low interest rates and limited concern over job stability.

If you look at prices over $800k it is a serious buyers market with most areas having at least one years worth of inventory. If your job is stable and you own a lower priced house this may be a great time to move up; take advantage of the FTB.

roger said...

The Reflections Auction is not really an auction as most people use the term.. It is really a sales promotion to attract multiple offers. The developer has set the minimum price that will be accepted for a particular unit. The buyers fill in a form with their 1st, 2nd and 3rd choices and a offer for each one. The unit goes to the highest offer.

I did not see a mention in the ad that the "bids" were sealed and would all be opened at a particular time. This is crucial in a real silent bid auction. Confidentially of a bid is crucial if the auction is not using open bids and an auctioneer.

hhv said...

Reid,

Thanks for the detailed breakdown; it fits well with my crude review this am prior to coffee.

I don't think it's just FTBers active in the low-end. I think the low-end is pretty much the only "safe" buy right now in the minds of many Victoria home buyers. Flippers could still be at work. There could be some downsizing going on. There could also be some sell higher, buy lower types active in this segment. Also moves across etc...

Affordability has been crunched so much in this city that anything priced under $500K is probably all that many of the active buyers out there today can get mortgages for.

Except in Sooke it would seem, [sorry Tim, I know you're reading this ;-)]

Reid said...

HHV, afforability is key and you are right most local buyers are likely limited to this low end. Personally I had planned to buy this summer in and around $500k, but have put the entire decision on hold as I do not see the buyers market in this price range that I had hoped for.

I do feel that the high end has to cave at some point over the next year. Maybe save anouther $50k, pay $100-150k more, but get twice the house in a years time.

hhv said...

Roger, any chance of adding a line to that graph of yours I used that shows inventory levels of $500K or less (or maybe properties priced under the median)?

Do you have access to those kinds of stats?

greg said...

HHV -

good summary of the dichotomy of the current market - price pressure in sub median single family homes, and absurd oversupply in every other metric.

I've thought that the weak sales all through the top of the market would start cascading down. We are starting to see some of that, but until the houses in the top 400s and 500s start to slash prices to compete, nothing much is going to help first time buyers (I'm one of those). That's why you see such a discrepancy between the MOI above and below the median.

A drop in MOI above the median should be accompanied by an increase below, according to this point of view. I'm still waiting to see what an increase in spring inventory is going to accomplish.

Meanwhile, I am getting sick of wainting. Another six months? Ouch.

roger said...

In the last thread I asked the anons if they would please start using names so we could tell one from another. Otherwise most of us will assume you are a drive-by poster or just trying to poke the bears.

So anon's if you want to have a constructive dialogue just use a nickname. It is easy - just select Name/URL, enter your nickname and use a few spaces for the URL.

HHV and other readers. I suggest that we no longer respond to anon comments or taunts. This is one way to have a better exchange of ideas and dialogue. Let's not feed the trolls.

roger said...

HHV said:
Roger, any chance of adding a line to that graph of yours I used that shows inventory levels of $500K or less (or maybe properties priced under the median)?

The graph you posted was for all MLS listings and sales (houses, condos, towns, lots, mobiles etc.) The CMHC slideshow is the only one with a breakout of listings and sales for houses. I update it mid-month when I get the data. You can see the January release by clicking here

I do not scrape the MLS data or Matrix data so I cannot give you an answer to your question. Perhaps Just Jack or Greg can give you some information.

vg said...

Despite the consensus it's a buyers' market, homebuying intentions in B.C. remain unchanged from a year ago with 26 per cent of residents saying they intend to buy in the next two years "



I swore I saw CHEK show only 9% of Victorians planned to buy in the next 2 years ?

vg said...

"HHV and other readers. I suggest that we no longer respond to anon comments or taunts. This is one way to have a better exchange of ideas and dialogue. Let's not feed the trolls."


Agreed.

roger said...

Greg said,

Meanwhile, I am getting sick of wainting. Another six months? Ouch.

Greg - If this market is truly going to have a correction at the low end buyers will need to be patient and not tempted by low interest rates and RE industry/MSM announcements that this is a good time to buy. I recognize that buying real estate tends to be an emotional purchase and some may not wish to wait. If a bear like yourself, with all the stats, folds, then maybe it will take even longer for the market to correct.

Why do I say longer? Because Canada is in a recession folks and it will be here on the island before long.

Anonymous said...

This is really just the beginning of it starting here. Don't cave now fellow bears.

S2

Wendyriffic said...

Hi All!

I keep running into people who are excited by the "buyer's" market. Some financial advisers seem to be suggesting that now is an ideal time to buy a second property, rent out the first, holding onto it (because of the low interest rate) until the market picks up in a year! People are getting hooked by the lure of low rental availability, and the thought that they will be guaranteed 12 months/yr to high rents from great tenants. It's not just FTB that are being targeted.

Just Janice said...

Typically I just lurk here, but I am a very active reader of this blog. I must agree that we are just only at the beginning of everything to come.

I could easily see another 20-25% off the top of Victoria home prices, if you're patient. I also don't really see inflation as the threat over the next 2to 5 years. Our situation is far more similar to the 30's than anybody wants to admit. And given that nobody seems to want to admit that - particularly at the government level (heaven forbid - not the truth, people might panic!) - we will roll around making pathetic moves to fixing the problem. The first step in effectively fixing a mess is accepting the mess for what it is. We aren't even there yet.

This is more like the 30's because this recession wasn't caused by the fed arbitrarily hiking interest rates to cool down an overheated economy - nope this was caused by a financial system breakdown and a massive asset bubble burst, and unlike Japan which could rely on the rest of the world to buy it's goods and services, most of the world is in the same mess. Japan has yet to have an inflation problem and they drastically increased their money supply in the 1990's to deal with their problem.

It's the morning after, and we've looked over to the other side of the bed and have realized that we've made a huge mistake. Worse yet, that mistake has yet to tell us that it's knocked up and that we'll be on the hook for the next 19 years!

roger said...

Here are some more detailed stats to consider:

Why the bump in the average price for single family homes (SFH) last month? There were 7 sales over a million compared to 2 in January. This definitely bumped the average up.

Here is what happened in a few areas around town for single family homes (SFH).

Oak Bay - There were only 10 SFH sales in February compare to 11 in January. Not a single sale over $1M. Average and median prices trending down (slideshow later today).

Langford - 38 SFH sales last month compared to 15 in January for a total of 53 this year. Only 4 sales this year over 600K and lots to choose from.

Sooke - 12 SFH sales last month compared to 7 in January for a total of 19 this year. Only 2 sale this year over 425K. Lots to choose from.

vg said...

"It's the morning after, and we've looked over to the other side of the bed and have realized that we've made a huge mistake. Worse yet, that mistake has yet to tell us that it's knocked up and that we'll be on the hook for the next 19 years!"



What an awesome analogy and I am sure it's happening every morning the past 6 months in this town.

patriotz said...

InvestorWords defines a buyer's market as: A market which has more sellers than buyers

There are always exactly as many sellers as buyers. Every property that sells has one seller and one buyer.

At any given time, there are more people willing to sell above the market price, and more people willing to buy below the market price, than the number of properties selling. That's what the basic supply/demand graph tells you.

There is never any shortage of buyers. The lower the price, the more people are willing to buy. There are always people willing to buy all the properties listed. The only question is how much they are willing to pay.

When people talk about "more sellers than buyers", they really mean that some people with properties listed are not willing to accept the market price. And if someone is not willing to accept the market price, their property is not really for sale. I can put in a sell order for my Nortel shares for $100, but nobody would consider those shares to be really for sale.

There is really no such thing as a "buyers market" or "sellers market". Just a market price where supply meets demand.

roger said...

This doesn't look good...

CIBC stock drops after bank issues notes paying 10%

Shares of the Canadian Imperial Bank of Commerce fell sharply Thursday after it announced it was raising $1.6 billion of new capital by issuing notes paying nearly 10 per cent interest on one series and 10.25 per cent on another.

A Canadian Bank paying 10% to borrow money! Stay tuned folks.

Islander said...

May name?

ISLANDER said...

Wall Street: Ugly is back
Nasdaq ends at a 6-year low, and Dow and S&P 500 fall to fresh 12-year lows as investors fret about GM, Citigroup and the global economy.

Isn't the stock market 6 monteh adead of economy? So the bottom is at least 6 months away.

roger said...

There has been some discussion that sales are taking place mainly in the low end. Here is an interesting new slideshow.

Oak Bay Single Family Homes

roger said...

I believe the condo bubble burst in Greater Victoria last year. Here are some stats for February:

Feb 2008 shown in ()

Units sold 109 (177)
Sell/list ratio 38% (55%)
Selling/list price ratio 95% (99%)
Days to sell 81 (52)

Here is the updated slideshow...

Condo Market in Greater Victoria

olives said...

So the prices of condos in Greater Victoria and houses in Oak Bay are basically back where they were three years ago, am I reading that right Roger?

greg said...

Olives-

I'm waiting until I can say that about Fernwood...

roger said...

Olives said:

So the prices of condos in Greater Victoria and houses in Oak Bay are basically back where they were three years ago, am I reading that right Roger?

Olives - I think you meant two years.

Yes the condo average and median price statistics are back to late 2006/early 2007 levels. Here is an annotated condo slide. Without a Housing Price Index it is hard to say nail exactly how far back we have gone for specific types of condos. The median price (not average) is the best proxy we have. Just Jack has looked at this in more detail and hopefully will post his opinion.

Oak Bay has such a small number of sales every month that average and median numbers jump around a lot each month. In the last three or four months they have been heading down which is what I am also seeing on PCS for individual properties. The 6 month rolling average does allow trend analysis.

greg said...

Roger said I recognize that buying real estate tends to be an emotional purchase and some may not wish to wait. If a bear like yourself, with all the stats, folds, then maybe it will take even longer for the market to correct.

If it was just me making the decision no question I would wait. I've been stalling my significant other since the fall of 2007. At this point, I doubt I'll be able to continue that game for another year if prices come into the range we can afford in the area where we want to live. What I'm doing is trying to set specific requirements on price, amenities, location etc I can live with in the meanwhile. Basically, I'm stalling.

Of course my significant other is not so patient with these transparent tactics of mine. My in-laws subscribe to the "you can never lose" philosophy of real estate investing, and don't seem to get the correlation of stock market losses and potential for real estate losses. This point of view from close family members doesn't really help the solidarity or the patience. The thing that is helping my stall tactics right now is that prices are going down and we are starting to see some nicer properties at prices we like and not on crappy busy streets etc.

So I guess capitulation is in the offing at some point this year - as long as I can find a place I actually like, not an overpriced, run down shack etc. I've already made a couple low offers that didn't work out - doubt that is going to continue happening if the market tanks any further.

And to be honest, even at this point I can say the wait has been worth it, since I started waiting at the absolute high point of the market. Not to mention a big decline in rates since that time more than compensates for whatever principle I could have paid off by now if I bought 2 years ago (which would be very little...)

To get the greatest choice and the best deal, of course we need to see some more inventory. Looking at what is going on in Vancouver, I remain hopeful...

Just Jack said...

For those bears that are on the edge of capitulating, this spring rally in prices will be disheartening. The spring market will pass, inventory will increase and prices will decrease.

I to find it difficult to look at each month that goes by and not be a "happy home owner". I find solace in small victories.

...NUMBER OF HOUSE LISTINGS IN VICTORIA CITY HIT 104!!!

roger said...

Greg,

Thanks for the reply. I think there are many people in the same boat as you. Some bought last month and there will be more every month from now on. Each person has to make their own decision as to what is best for their family.

In my case I will not discuss the subject of real estate with family, with the exception of my wife. I just don't want to debate the issue with family homeowners. Family dynamics are not the same as friends or co-workers.

My wife and I both realize that if we squeeze the trigger on buying this year we had better be prepared to accept three things: prices will probably drop further; we might have got a better house if we waited and we are staying in what we buy for the long term. By mutually agreeing to these conditions we will avoid looking at each other and debating the decision in the future.

vg said...

For your info on the poster comparing us to Seattle,the average price is closer to Nanaimo prices than Victoria and you get two professional sports teams and much better cultural events than here :


Home sale prices continue to decline in February in Puget Sound area


The median price of a single-family home in King County dropped to $375,000.

Seattle Times


The median sale price of a single-family house that closed last month was $375,000, down from $382,500 in January and $429,900 in February 2008.

The Eastside saw the greatest year-over-year drop — 18.5 percent — while Shoreline, Lake Forest Park and Kenmore experienced the smallest decline, 7.1 percent.

The number of sales that closed last month in the county was down 42 percent from a year earlier, while the number pending sales — offers that have been accepted but haven't closed — slid 21 percent.

But closed sales were down only slightly from January's total, and pending sales were up.

The median price for a closed King County condo sale last month was $257,200, down from $279,750 in January and $289,000 12 months earlier.

VictoriaHell said...

Long time lurker.

I've been looking at houses for over 2 years now. I still can't believe the prices. We own a small place now and need a bigger home for our growing family but at this point we're just going to make due until prices fall in line. We make over 130K a year gross and have no debt other than mortgage and we still think buying a house right now would be financially stressful to say the least.

Anyone else think 300K for a decent family home on a quiet street is about what it should be? Am I crazy to think that?

Also, what the hell is with all the bouldozer bait in this town?

greg said...

Just Jack -

I'm less concerned with a spring rally in prices (don't think we'll see one, price drops might just stall or slow down). What I am more concerned with is a lack of listings in the more affordable core neighbourhoods - Gorge, Swan Lake, Lake Hill, Maplewood, Fernwood, Sears, Camosun, Fairfield, Oak Bay etc.

I'm curious how many properties that were pulled at the end of last year are going to end up back on the market.

More choice is probably almost as important to me now as lower prices...

roger said...

Readers interested in Months of Inventory above and below the median should check out Greg's recent post over on Cheap Realty

Very interesting and broken down by condos, townhouses and SFH.

Anonymous said...

"Also, what the hell is with all the bouldozer bait in this town?"


Click your heels and you and Toto would be in Windsor. I'm originally from Vancouver and honestly the homes here are crap. Hillside, Sears and most of Fernwood should have been demolished years ago. When prices rose in Vancouver where the land constituted 80 to 90 percent of the value, the bulldozers started on one end of the block and rolled through to the other.

If the Westshore had not been opened up with sewers we probably would have had re-development on a large scale in the city which would have helped Victorian taxpayers as the developers would be paying for much of the needed replacement of sewer and water lines.

Now, we are just going to have to pay more taxes and live with leaky sewer and water lines.

Just Jack said...

We are looking at a classic contraction in the marketplace begining in the outlying areas and rolling back into the city centre.

Currently their are 436 homes for sell in the Westshore and the homes are selling at the rate of 50 per month for a 9 month supply. The Saanich Peninsula areas have 199 homes and about 20 are selling each month for a 10 month supply. And lastly the city core has 516 home for sale and about a hundred sell each month for a 5 month supply.

Over the next three spring months listings typically increase some 30 percent. That could push the city core inventory into the six plus months of supply which would finally put the urban areas into solid bear market territory.

Then the interesting market begins. A lot more selection would mean that the starter homes are going to have to come down to the low 300K range. Also, a lot more of the buyers in the last few years will be upside down in their mortgages, over extended and behind in their payments.

Carla and Bob's illigimate child will thus be hatched.

patriotz said...

A Canadian Bank paying 10% to borrow money! Stay tuned folks.

These notes are Tier 1 capital with a resettable interest rate. They are really very much like preferred shares, except they pay interest rather than dividends from a tax point of view.

As far as yields on actual bonds are concerned, CIBC is paying from 2.56% to 6.31%:

Canadian Fixed Income

roger said...

The publicly released VREB reports for SFH give average prices and stats for all categories combined (standard residential, waterfront, acreage, duplex & triplex). However, data is available for each category. Standard single family residential (i.e.city lots)is what most readers are interested in buying.

So I have prepared a slideshow that is quite detailed for standard SFH residential. You can view the slideshow by clicking here.

You will definitely need to use the Pause & < > controls to manually step through the presentation. There is explanatory text in the first few slides.

Reader feedback on your market impressions would be interesting.

omc said...

Thaks for your work Roger, I think seeing the graphs and reading the #s really clears things up and lowers the tension levels a bit. When it is time for us to buy i will be using your information when I make offers; 10 months and over inventory levels will put me in a much stronger bargaining position. I think I'll be educating the realtor LOL, if I use one.

I went through the data on here, the interior and up Island and they are all indicating a strong correction to the market. We are just behind, which is normal as the outlying areas go down first.

hhv said...

Interesting article in the Homes Section of Canwest media outlets today.

Home ownership may be over-valued

"Homeowners are no happier than renters, says a study by an economist at the Wharton School of Business in the U.S. "And while home ownership has some social benefits -- a higher level of civic engagement is one -- it is costly to the economy ... Too often, it ties people to declining or blighted locations, and forces them into work -- if they can find it -- that is a poor match for their interests and abilities."

Anonymous said...

Taxes going up, ferry fares going up, BC economy expected to contract.

Nothing to see here folks. Just keep walking...um...I mean buying.

S2

olives said...

I'm with you S2 - even if house prices were low, affordable, whatever, would it be a good time to buy even then with all the economic uncertainty right now?

If you're a government employee would you want to take on a mortgage at this time if you think you may be taking a 20 percent pay cut in the near future? (and that's if you don't get laid off completely)

roger said...

Olives,

Just wait until after the May election. Campbell is soft pedalling it now, just like October Harper.

Around June or July it will be "the unexpected downturn in the BC economy means we now have to ....."

greg said...

Roger -

you mean in the current climate you think Gordo is going to win again?

roger said...

Greg,

I guess we will have to see what the public thinks in a month or so when the election pollsters start releasing results.

patriotz said...

you mean in the current climate you think Gordo is going to win again?

It makes it more likely that Gordo is going to win again. People haven't connected the dots and seen that the BC economy is a clone of Arizona or Florida. Gordo will claim that all the economic problems arise from south of the border and only his leadership will pull us through.

Look at the poll results from Mustel:
Gap Widens Between BC Liberals and NDP (pdf)

The graphs speak for themselves.

greg said...

Patriotz -

Aren't they going to blam all the problems on Glen Clark and the fast ferries again?

Can't wait for them to trot out the Greens again for their two months of media darling coverage.

Come to think of it, maybe closing CHEK and A Channel isn't such a bad idea after all...

Just Janice said...

I'm curious where the employment statistics are?? They're supposed to be released on the first friday of the month by Statistics Canada...perhaps they're having a VIREB moment...

Statscan Chief: The PM isn't going to like this....are you sure you haven't made a mistake?

Statscan Analyst: I'm sure they're right, we're hemorrhaging jobs on the west, in the east and in Toronto.

Statscan Chief: Check your numbers again, they must be wrong!

Statscan Analyst: But that would mean we can't publish on time...

Statscan Chief:
Damn the publication schedule - my stock portfolio is already off - do you know what the market will do if it sees this??? We need time to figure out how to spin this!


On another note - the present budget makes me giggle, as do the occasional emails from J. MacDonald. I'd say we're at least in the red to $2.5 Billion, and that 10% of the public service should consider themselves at risk - mostly the young professional with less than 3 years service and a house with a jumbo mortgage and a baby on the way. It's 1981all over again and if you're a new homeowner between the ages of 25 and 35, watch out - things are going to get messy.

My predictions for 2009/10:
-Divorce climbs (money problems and matrimony rarely get on well)..
-Bankruptcy sky rockets (EI just doesn't keep pace with monthly obligations)
-Unemployment shoots up - I'm thinking 8%+ in Victoria.
-Distressed sales become common.
-House prices tumble.
-Interest rates remain low, deflation makes headlines.
-TSX sinks to 5000.

When the fundamentals return to the markets, then and only then will I enter either housing or stocks. For houseing this means being able to buy a 2/3 bedroom, 1 bath house at 2.5 to 3 times median income in a decent working class neighbourhood. Because it doesn't matter what interest rates are right now, its about how much you're on the hook for. The monthly payment gimic has been the focus for too many years now.

Stocks won't be good until the fundamentals are fixed. The fundamentals won't be fixed until households purge their debts to manageable levels, afterall household consumption drives our economy and a huge share of that is discretionary. I'm guessing we're looking at 24 to 36 more months of hard time.

hhv said...

just janice, you forgot the news headlines will read: "how come no one saw this coming?" "how are we expected to see this coming?" "no one could have seen this coming" and "shouldn't you have seen this coming?"

roger said...

Just Janice,

Nice post. I see that you are an economist. Hope you keep posting. You seem to have your ear to the ground.

boomer said...

greg --IMHO-- you could do well by not getting into the spring silly season, even though its pretty subdued this year, and delaying till november/december to purchase--there will still be big inventory and prices aint likely goin UP in the next 6 months, regardless.

(and keep track of expired listings for even more possibilities)

Just Janice said...

It's interesting to see that rents are declining in some areas of the US now, I frequently wonder if we will see the same phenomenon.

I've come to the conclusion that it is quite likely that we will. When a person can't sell a property for what the seller wants, the next best option is to rent it out. I see many potential sellers heading down this road - deciding that after months of languishing on the market that they will just rent the place out and own it for the longer term (until prices reach a level where they'd be satisfied selling). I suspect that many think that this year's market is bad, but that next year's market will be better. This will bring more rental units onto the market, depressing the prices of rentals. This will mean that the market will have further to fall, as I think that at market bottoms, rents plus some small ownership premium are equal to 25 year amortizations with 5% down. Of course, those that can exercise this option are only a portion of all sellers. There will be people who must sell, people die, people get relocated for work, people divorce, people go bankcrupt, people get foreclosed upon. For these people, selling is not an option, it's a neccessity. And I see sales, particularly as a result of bankruptcy, divorce and foreclosure increasing over the next little while. These will increase the supply of inventory on the market, and will depress prices.

It's not just the small fraction of homes changing hands that matters when determining market prices for real estate. The opportunity cost of owning matters - and that opportunity cost is the kind of house you could have been living in if you were renting. Keep your eyes on the ball - what is the value of living in a given home and what is the pride of ownership really worth? This is what should determine a realistic market price...otherwise there's opportunity to be much happier renting....

roger said...

Just Janice said,

I see many potential sellers heading down this road - deciding that after months of languishing on the market that they will just rent the place out and own it for the longer term (until prices reach a level where they'd be satisfied selling)

Interesting you mention that. I was reading the TC today and there were two full, page long columns of unfurnished houses to rent. Lots of condos to rent as well.

hhv said...

"Interesting you mention that. I was reading the TC today and there were two full, page long columns of unfurnished houses to rent. Lots of condos to rent as well."

No one can claim ignorance of free internet advertising anymore. Could this be a sign that people are having trouble renting their suites and houses now? You have to pay for the TC classifieds, why would you when you can just list on CL and UV for free?

Anonymous said...

While I wouldn't discount the availability, and value, of free advertising on the web, I wonder what percentage of renters has direct access and what percentage actually choose to rent through that medium. It would appear from reading CL and UV that a lot of renters and landlords are getting pretty frustrated with the nonsense on both sides.

If I was currently advertising (and I will be soon) I would probably quickly blitz the web and then turn to traditional advertising methods - in the right area we simply put a sign on the lawn.

One of the problems with the web is the enormous numbers of timewasters from people that simply appear to be bored, or worse are out to scam.

If I was a property manager I would imagine that the onslought of useless replies would drive me, and my properties, off the web pretty quickly. Has anyone noticed a drop in WEB advertising from these firms as of late?

hhv said...

anon, I'd guess the activities you describe account for much less than 10% of total activity on those sights.

Anonymous said...

You could be right; however, my experience in advertising on the sites (not necessarily property) is a highly frustrating level of responses from people that appear to have no intention of even meeting. Just an observation.

I've actually gotten to the point that I find it easier to give something away than attempt to sell it through CL. Maybe I'm getting old :-)

patriotz said...

When a person can't sell a property for what the seller wants, the next best option is to rent it out.

No, the next best option is to sell the property for less than the seller wants. i.e. the market price, because prices are going to go a lot lower.

But a lot of sellers are to dumb to see this.

greg said...

Boomer -

thanks for the advice about waiting out the silly season. Did that already in 2007-2008 to great effect.

I'll probably be one of those capitulating bears, but it hasn't happened yet. If I end up paying too much, at least I'm holding out for something good.

Too much and no good = no way....

Art Vandelay said...

Anon 7:39 p.m., interesting post. My wife and I are from Alberta and we were talking along those lines the other day. The level of dereliction in the housing stock in Victoria is appalling. If there's anything good to come out of this burst RE bubble, it's that buyers will no longer feel compelled to pay over-list for houses that haven't been updated in 40 years, have 4-fuse main panels, cast-iron plumbing, and trees that were last alive when Rattenbury was alive.

womp said...

hhv,

I would have to say that there are lots of people out there that can claim ignorance of online advertising. When we were searching for a rental last year, we had way more luck with listings in the paper than online. We even found a townhouse renting for so cheap that we thought it was a joke - but it was real, and the couple was older and from out of town. They had no clue that rents were skyrocketing here, and likely didn't even have a computer. It was our #1 choice, but sadly, they were the only people we interviewed who didn't choose us as their #1 tenant choice.

I find the online listings to be a good match for those who don't want to put any effort into a rental hunt - they'll usually pay the steeper prices for their laziness!

Just Janice said...

Patriotz,
Actually to many people renting it out seems to be the next best to selling if it can't be sold for the desired price right now. This happens as long as they don't 'have to sell' and feel that they can 'wait out' the down turn in the market and think that the down turn won't be for that long - like maybe 5 years until they're seeing the kind of prices we saw last year. Most don't realize how severe this downturn is, particularly among the FTB crowd who may not remember 1991 or better yet 1981. The have fully subscribed to the it can't happen here mantra and are slowly realizing that it can, happen here but firmly believe that it can't happen here for long and it won't be that bad. We're a long way from 'holy crap, it really is happening here and prices really won't catch up again for 20 years'...which is where we need to be for people to think that selling now is better than selling a year from now or two years from now or 5 years from now. Selling right now at 10-15% off of last years prices is probably the best strategy, rent for the next 2-3 years banking the difference and then buy in 3 years time. Many don't realize how far from bottom we really are.

It's the same crowd that think that - well the stock market has already lost 15% to sell now is just locking in those losses. Instead they should be thinking - the market has already lost 15%, what is the risk of it going down further and by how much? So instead of just losing 15-20% they wind up losing 50%+. Unfortunately, looking at losses as sunk costs and making rational decisions based on the information right now seems to be a rare skill.

The big question people should be asking themselves right now is whether or not we are in 'normal' times and whether or not the 'common wisdom' still applies in times that are not normal?

olives said...

As for "locking in losses", I get the impression the majority believe the "recovery" will begin soon, and so the idea of selling now and cutting their losses may not even enter many peoples' minds.

I have heard others who realize this is more than a "normal" recession, state that they are now feel "paralyzed with fear".

roger said...

Olives,

Owners that want to sell have already mentally "locked in their paper profits" as prices in their neighbourhood went up. It is really hard to get them to accept a drop in this "mental profit". Even if they bought twenty years ago they still think they are losing money or giving it away. Unrealistic owners will just sit there month after month. When they finally accept reality they will start chasing the market down.

Denial runs deep in Victoria. It will take a miserable spring before reality sets in. And it is happening. Realtors are telling me most sales are taking place at the low end. There is some activity over the median but the high end is stagnant. Only seven sales over $1M last month and well over two hundred to choose from.

roger said...

How fast is the recession deepening in the US. Unemployment is getting worse and is now at 8.1% with no end in sight. A picture tells it all...

Job Losses & Past Recessions

greg said...

Hey Roger -

do you have the source for that stat? Over about $700,000 sales have been terrible for ages. Anyone who wants to sell is going to need to make some big adjustments.

omc said...

I was wondering what people are seeing as of sales volumes lately. I am looking at houses in Rockland, fairfield, oak bay, ten mile ect, and I am not seeing many sales. There was a brief pick up a couple of weeks ago with lower end houses in gordon head, but hardly anything since. A fair amount of "new" listings, though most are poorly priced.

Mr.4AM said...

Roger said: "[USA]Unemployment is getting worse and is now at 8.1% with no end in sight"


Understanding USA unemployment stats:
Actually, that's the convinently modified "U3" statistic you, the MSM and US gov are quoting. In order to compare this to past major recessions, the math should really be done using the "U6" methodology which was the method used until a decade or so ago (I'd have to research when this changed, but I believe it was around the Clinton era).

In other words, U3 is the seasonally adjusted USA unemployment figure that does NOT take into account people who previously had full time jobs that now can only get part time jobs (and often at lower wages), or those who's EI equivalent has ran out and are no longer being counted as persons looking for work (aka. "marginally attached workers").

Conclusion:
In the 1930's great depression, there was no U3, and unemployment was measured with the U6 figure. At it's peak, we are told that unemployment reached 25% of the total population. Today's U6 in the USA on Feb 2009 reached 14.8% unemployment (seasonally adjusted) - a far cry from the mathematically "massaged" 8.1% figure. The non-seasonally adjusted figure in Feb 2009 is actually 16%! No where near a great depression yet, but well past the conventional 10% unemployment depression line in the sand. Only, 1 year ago that 16% figure was 9.5%, so it grew at a rate of 6.5% in 1 year. Another 2 years at this rate and we'll be in a great depression if we want to compare apples to apples.

All figures U1 -> U6 available at the United States Bureau of Labor Statistics.

Mr.4AM

JoeSerious said...

I think we're seeing a serious bottoming of the market in Victoria and elsewhere right now. How do I know this? If you watch CNN you will notice that they are all talking about a new trendline in foreclosures that is trending in an upward direction. This means that foreclosures are stopping and the apreciation of real estate is once again upon us.

Victoria's foreclosure rate is still quite low and spring is nearly here so prices should be rising again soon. With interest rates so low everyone will be rushing to buy here.

Anonymous said...

S&P downgrades Vancouver's credit rating - Again!

The olympic village borrowing pay-back costs just went up to the tune of $300,000 for every 100 Million.

Bah, $300,000 is nothing. Vancouver can make that up by selling a single 400 sqt bachelour basement suite to international Siberian visitors coming to see our Vancouver's Olympics and deciding to move here.

roger said...

JoeSerious,

There is a lot of coverage of Victoria on CNN lately. I think you may be on to something... :>)

Anonymous said...

I know someone in the real estate industry who just got a call to do their first foreclosure this year. Sign of things to come?

JoeSerious said...

Not a chance anonymous. It's clear that foreclosures will not be a problem here because of our strict lending standards.

Anonymous said...

JoeSerious... get serious. Realtorspeak isn't funny, it's criminal.

Anonymous said...

The only foreclosure that we have to worry about in Victoria is from the Grim Reaper. Think about it.

Nick said...

I also doubt foreclosures will be a huge story in Canada, not because of lending standards but because we don't have jingle mail here. People will be less reluctant to walk away here, although bankruptcy might force some people's hands.

roger said...

Nick,

So what happens when someone is in a negative equity position on their property and they have to sell due to divorce, job loss or illness to name a few?

For example - if they owe 20K more than the property is worth and the agent fees are 15K they have to come up with a minimum of 35K on closing day. If they don't have the 35K what then?

I see this scenario unfolding for some folks in the fall.

hhv said...

Roger,

who is the last to get paid in that scenario... we know banks are very good at protecting their interests... would an agent agree to a scenario where they know they're not gonna get paid upon sale if someone is underwater?

msr said...

hhv,

In the bull market I bet most realtors wouldn't even return a call for a property like that. However, given the current market, I could see plenty of realtors taking a risk if only for the chance to get any commission.

roger said...

HHV,

The answer is they can't sell at all. This is known as a "short sale". In the US some banks will eat the negative equity portion in order to get the bulk of the money back. Why would they do that in Canada if there is CMHC insurance in the event of foreclosure?

So the property has to go into foreclosure or the owners have to work out another loan arrangement with the bank to cover the shortfall. Do you think the bank will lend them 20K with no collateral and weak finances?

The other snag here is the lawyers acting for the buyer and seller won't close the deal unless the buyer can be 100% assured of clear title when funds are transferred on the closing date.

Anonymous said...

We're still talking apples to rotten eggs. Sure there will be somewhat increased bankuptcies even in Victoria, but it's not going to be material to you and I.

We are not going to be lining up to take advantage of the poor waife that cannot afford potatoes this month let alone pay his mortgage.

It really is a non-issue.

roger said...

MSR,

The agent may take the listing but as soon as they find out that it is a short sale they will probably cancel the listing. They will know that they are wasting their time unless the seller can demonstrate that they can discharge the mortgage in full.

The agents would get all their commission or none at all. The deal cannot complete unless all legal fees, property transfer tax, realtor fees, outstanding mortgage principal, utility adjustments and city taxes are fully able to be settled on closing day. Lawyers are required to give undertakings to this effect. Any glitches and the deal is stalled or delayed until all the issues are resolved.

patriotz said...

So what happens when someone is in a negative equity position on their property and they have to sell due to divorce, job loss or illness to name a few?

They walk.

Happened in the 80's, is happening in spades south of the border, and will happen here, contrary to what Anon 10:08 seems to think.

roger said...

Patriotz said:

They walk.

Happened in the 80's, is happening in spades south of the border, and will happen here...


I agree with you. Lots of people that bought near the peak a year ago with 5-10% down are negative equity now. As long as they can make their payments and are content to stay where they are no problem.

But if circumstances force them to sell they will walk down to the bank and drop the keys on the desk.

roger said...

I should mention that I wish no ill to anyone who bought a property and finds themselves in trouble. But to say this isn't going to happen in Victoria is ignoring reality.

Nick said...

Roger: Oh, I agree, I think there is definitely a potential for some people to foreclose if they have to sell, I just didn't think the situation would be as bad here because you have to go through the courts and the consequences are more severe. For example, in the US, there have been many stories about people preemptively walking away from their home because they were losing equity. Here, the lender would likely go after you and compel you to pay your mortgage if you have the means to do so, right?

Anonymous said...

Short sales (sales where owners owe more than the house is worth) are every bit as good as foreclosures as far as getting a realistic affordable price is concerned.

And there will be MILLIONS of short sales.

Anonymous said...

That's a question of insolvency. if you can afford your payment, you'll make them.

This isn't a matter of ignoring the fact that there will be increased debt issues, it's a matter of statistically insignificant changes in the Victoria rates.

patriotz said...

And there will be MILLIONS of short sales.

There will be NO short sales on CMHC-insured mortgages, because the bank is guaranteed to get their principal back on default. They are not going to accept less. I also think the issue is pretty much moot for low-ratio mortgages.

Now in theory CMHC could institute a program where they would compensate a lender on a short sale rather than just a foreclosure, but I think this is unlikely to happen because it would be seen as a bailout of BC by the rest of the country. Like the Olympic Village, you know?

Also - contrary to what a lot of people think, only about half of US states are non-recourse. In the other states the lender can go after you just like here. For example, California is non-recourse, but Florida is recourse. Hasn't made a lot of difference has it?

I don't think you are going to see discretionary walkaways based simply on asset value rather then ability to pay, but if someone has lost the ability to pay, it's game over.

US foreclosure guide

Anonymous said...

Anon 10:08 said... We are not going to be lining up to take advantage of the poor waife that cannot afford potatoes this month let alone pay his mortgage.

++++++

* No, but I'll be "helping" him out by buying his foreclosed home at dirt cheap discounts.

The amount of denial in Victoria is amazing. This only tells me the carnage will be massive and shocking to many a folk.

People think I'm a bearish negative person, but so far it has turned out that I'm merely just a realist.

Anonymous said...

Patriotz said....There will be NO short sales on CMHC-insured mortgages, because the bank is guaranteed to get their principal back on default.

++++
Right, that's assuming CMHC will not go the way of AIG... meaning, odds are, they may not have enough base capital to pay out on all that insurance they sold if things get bad enough. Anybody know how many billions in reserve they have? Because that's what it will take.

hhv said...

A banker I know just told me their bank has already relaxed some its rules regarding missed mortgage payments... the bank doesn't want to tip the scales at this point, so where we're not sure how many missed payments were previously allowed (think 2), we are now sure that up to 4 missed payments will be allowed (including consecutively) over the term of the mortgage. They've even instituted an "advising customers thru difficult times" group to handle the customers falling behind on all types of debt products.

roger said...

Denial is alive and well in Victoria even by those that should know better...

Hot jobs in a cool market

But Sasha Angus, economic development officer with the Greater Victoria Development Agency, says the capital region is somewhat insulated from recessionary forces thanks to the public sector presence here. "They have become sort of a cornerstone for our local retailers."

There's still a place for the traditional full-time job model in Greater Victoria, he says

omc said...

This morning I looked at The TC web page and they had a little report on the coming stats canada job #s and how it was going to be very bad and how bad the last months #s were. A couple of minutes later it was gone. NO NEGATIVE THOUGHTS ALLOWED!

patriotz said...

Right, that's assuming CMHC will not go the way of AIG...

It won't. CMHC is a Crown Corporation and its debts and obligations carry the same guarantee as any Crown debt, i.e. a direct line to your pocketbook.

I have been speculating myself as to whether the unfolding bust will leave CMHC underwater. Note that there has not been any significant RE bust in Canada for about 15 years (since the Toronto bust of the early 90's). That's a lot of time to build up reserves.

Should it have to, CMHC can go directly to the bond markets for money. It has already been doing so for some time (Canada Housing Trust). I think the GoC would rather have it do this, and pay off the debt through higher insurance charges, than to pay it off from the general fund, which would be politically very difficult. IMHO.

victorianna said...

Well, for those thinking of capitulating this year, here's a thought. I'm a late boomer who's been in and out of the housing market several times. I refuse to go back in now, partly because I refuse to pay for some early boomer or silent generation member's retirement trips to Europe or evenings out in lovely restaurants while I take my kids to McDonalds or eat macaroni and cheese at home.

No thank you, I'm just that stubborn that I will stay in my comfortable rental until I can pay a reasonable price for a reasonable home. How will I know? Someone here sensibly pointed out that affordability is when the median price hits 2.5 to 3 times average family income. We've got to go a long way baby to get there. Meanwhile, no way will my husband and I get sucked into this market, because I intend to fund my own retirement and trips to Europe, not somebody else's.

hp said...

There has been a lot of discussion here on short sales and foreclosure sales.

I believe that here in BC, we only have foreclosures and these are called "Judicial Sales" while in some other provinces they are called "Power of Sale".

The foreclosure process in BC is long and involved and is listed here:
foreclosures.ca
(thanks Roger for the link instructions)

In these cases, the homeowner has not paid the mortgage and has been given written warming of foreclosure from the lender. The realtor is then working for the lender, not the homeowner.

As I understand it, a homeowner with negative equity (but not in foreclosure) can sell a house, but must still pay the bank the full amount of the mortgage on closing of the sale - that would mean giving a cheque to the bank to cover the shortfall.

There haven't been many foreclosures in BC since the last recession - does anyone have any experience with those?

olives said...

Mish has California numbers today - median down 57 percent in 21 months. Monterey County down 71 percent.

beagle said...

Looking out the window right now I can see why all those eastern boomers are clambering to come here. :)

Anonymous said...

"Looking out the window right now I can see why all those eastern boomers are clambering to come here. :)"

No kidding. Why even consider a nice 100K place in Florida or Arizona when you can have a condo in the wet snow for 400?

Anonymous said...

Probably nothing to do with hurricanes, floods, drought, intollerable heat...need we go on?

Anonymous said...

With the snow today I'm inside and having lots of fun reading the on-line Vancouver Sun's real estate section.

S2

Just Janice said...

According to CTV:

"Finance Minister Jim Flaherty says Canadians should expect a "continuing deterioration" of employment figures for much of this year before the Conservative budget can turn around the country's economic fortunes and create jobs.

Canada's unemployment rate for January was 7.2 per cent, with 129,000 jobs lost, according to Statistics Canada figures released last month put. It was the largest monthly decline in more than three decades.

Employment statistics for February will be released on Friday, and Flaherty told CTV's Question Period on Sunday that while he did not know what the exact numbers will be, the news could be grim."


-This release of the February employment numbers will be the latest monthly release in the last year...

-I'm guessing the StatsCan guys let our dear finance minister know that the news was not good, and he's just trying to 'soften the blow' by 'managing expectations'.

Friday should be an interesting day on Bay Street.

In other news did you see that CMHC is reporting that new building permits are now off about 45% YOY and declined 12% between Jan and February alone? At least the quality of what is being built can be expected to rise.

BearMuncher said...

I think Friday will be the official bottom of the recession followed by a sharp L shaped up turn which will begin soon after school's out. Real estate will probably take until next spring to really take off. The fundamentals are all coming together now for what's known as a post-recession super boom. The formations I'm seeing in the stock charts and the real estate charts are showing support for a huge upward movement.

Anonymous said...

"a post-recession super boom"

Nice, LOL.

Just Janice said...

BearMuncher -
You should rename yourself to SquirrelNibbler. Bottom is another 18-24 months away.

Wishful thinking otherwise won't make it so.

I suppose you would consder the 1932-1940 period a 'super-boom' which was further fanned by the war, making it an 'ultra-super-boom' even though it took until the 50's to regain the 1929 high....

Nick said...

All this talk of mortgages reminds me of a question I had. Stories from the US often refer to the 30 year fixed mortgage rate as a benchmark when talking about mortgage rates. Why don't long term, fixed-rate mortgages exist in Canada, at least not without a massive premium over the 5 year fixed rate, which seems to be our benchmark. Is there a regulatory difference or some other factor that has caused such a difference between the two countries?

BearMuncher said...

Every tripple M top formation in history is followed by a sudden spiral shaped vortex of doom which precedes a hockey stick like upward super boom formation. Ultra super booms rarely follow tripple M tops. I think 1932-1940 were unique in this way.

Anonymous said...

I had to first check and see if this was actually a theory or someone biting my squirrel's tail. So do tell...what's this about the tripple M? And how far up and how fast do you think the rebound will be?

omc said...

Nope, bearmuncher is right. It's well known that when you and a whole lot of people lose your jobs all at once there is only one thing to do; go out and pay WAY too much for a house!

Anonymous said...

Just wanted to comment on great opportunities for cheap houses in Florida. Just met a guy who moved here from tampa bay ( go figure considering victoria is such a sh_t hole) and he tells me that 20% of homes in florida are hurricane damaged and are basically ready to fall down. We're not talking about homes already levelled, but structures damaged and basically straightened up, a bit of plywood nailed to it and put back in action. because nobody can afford hurricane insurance these homes don't get repaired properly and are just junk. Something to think about if ready to make comparisons.

Anonymous said...

That's right. No short sales in Canada.

They're called BANKRUPTCY sales.

happy4 said...

I just want to say that I love you for maintaining this blog all these years. You area blessing.

Same goes to Roger for his stats, and everyone else who comes on here to represent the common man with a voice of reason.

I mostly lurk, but am always appreciative.

Bravo!