Monday, April 13, 2009

Timing the market

The real estate industry wants you to believe you can't time the real estate market. You can. It's incredibly easy and they give you all the information you need to do it, for free! Consider it a public service from people who care.

Here's the most important thing you need to know about real estate history in Victoria: it repeats itself. If you've been talking to anyone involved in the business, you've no doubt heard "Victoria real estate always goes up" or "Victoria real estate doubles every ten years" or "it's time in the market not timing the market."

All three statements take advantage of an ethical gray area the real estate industry continues to exploit. None of them are really true but neither are any of those statements outright lies. But no one involved in selling anything to do with real estate should be allowed to utter them without having to also make a mandatory disclosure, like the one a mutual fund salesperson has to make when they talk about the financial performance of one of their products: you know the one that says past performance doesn't guarantee future performance and all that. Anyway, I digress, and the industry will just regress to "we're selling homes, not investments" if we try to debate this point any further.

Back to my story: real estate market cycles are very slow. How slow you ask? This slow:


Did you know that when those ships you see off Victoria's waterfront go by, they are already slowing down and planning their turns to get into Vancouver's ports? Ships that size have huge momentum. It takes a lot of power to get them up to speed and it takes a lot of distance to slow them down. If you've spent any time on the water, you know to look for the signs of movement in these ships so you can avoid them. And it's the same thing with the real estate market, except your motivation is different: look for the signs of momentum so you can exploit them.

There are several basic tools to use (which Roger shows you graphically here):
  • Supply versus demand ratios: the number of active listings divided by the number of sales and the number of new listings versus the number of sales
  • The 3-month trend in median and average prices
  • Price to rent ratio using the published CMHC average two-bed rent versus the average price of a two bed apartment (yes, that's a condo) in Victoria
Here's three indisputable facts about Victoria real estate:
  1. Every past market correction saw owning (using a 25% down, 25-year mortgage) become cheaper than renting
  2. Every past market correction saw the average price over-correct beyond the inflation trend line
  3. Every past market correction required the same amount of time that it took prices to rise for prices to bottom out
You can see what that looks like here thanks to Roger's great graphic:


Here's where we are today:
  • The low-end of the market, the so-called entry level condos and SFHs have not yet begun their correction (they're still in a seller's market with low supply)
  • We have more supply on the market today than we've seen in almost ten years (dominated by high-priced properties $600K and above)
  • We have less sales in the market than we've seen in almost ten years
  • We have a three month price trend that is clearly down
  • The top end of the market is about 20% off peak prices (waterfront and million dollar plus properties)
  • The new condo market is murky, but we can see that they are also off at least 20% from previously over-inflated asking prices (they were never counted as part of the market stats, and therefore you should never fool yourself into believing that because Bear Mountain discounted themselves 40%, they are suddenly below market)
  • Owning will still cost you roughly 18% more per month than renting, even after last year's price decreases on an equivalent property using a 25% down 25-year mortgage
  • We are one year into a potential six- or seven-year correction (despite the calls from industry insiders telling us we'll return to price increases in 2010, that would ignore fact 3 above)
Given that interest rates basically double your purchase price, waiting to save 15%, is really like saving 30% over the lifetime of a mortgage. Sounds good to me.

Of course, past performance doesn't guarantee future performance. But I'm willing to bet, for the near future at least, that this correction will be exactly like the past corrections, or maybe a bit worse, only because the global economy seems a bit more strung out on the housing crack than it has, well, ever.

142 comments:

omc said...

You guys aren't going to like this. Spring is here and a whole bunch of the houses here in Oak Bay are sprouting sold signs. Sigh.

hhv said...

au contraire omc... for prices to fall, sold signs must appear. It's a good thing and the lowballers have likely been hard at work.

mln said...

Kudos HHV. Your best post yet.

patriotz said...

Excellent post HHV. It's so obvious from looking at the past cycles that the bottoms last a long time.

But I will add one caveat - this time we may be headed for a permanent bottom, because this time around the economic and demographic factors which pulled the market out of past bottoms likely won't happen again.

That's actually normal - as in pre-1980 normal.

omc said...

I wish they were lowball sales. They aint. Prices seem to be back on the rise over here.

My economists friends are still saying this should be happening and we shall see by July, but it sure is hard on the phych.

Anonymous said...

great post. I agree completely. Recent sales do not discourage me, as they only represent the real 'greater fools'.

Thanks for the time and thought put into your post.

Dxx

roger said...

OMC said:

I wish they were lowball sales. They aint. Prices seem to be back on the rise over here.A few weeks does not make a trend. Take a look at the trend in this graph.

hhv said...

coming soon to a new condo development near you?

Reid said...

HHV, great post. I think you are totally correct in that it takes a long time for sellers to lower price expectations and therefore for the market to drop.

I have been studying the Okanagan real estate in recent months more actively. The stats here are far worse than Victoria in terms of months on inventory, sales yoy, etc. but there are a lot of similarities. The low end is selling and the high end is dead. But despite dismal stats which indicate to me that the market has to implode, most sellers are holding firm to unrealistic price expectations. These expectations are being held when clearly the Albertian buyers are gone and the facts are that there are very few sales once you get $100k above the medium price (similar to Victoria), yet sellers are still holding firm on old prices expectations.

So I think regardless of stats and facts, sellers are going to hold on as long as they can afford to. Consequently the market will fall slowly as you suggest. As long as buyers stay on sidelines, the market will drop but it may take a few years for this to unfold given how far it went up.

patriotz said...

So I think regardless of stats and facts, sellers are going to hold on as long as they can afford to.That's what they did in the US too. How did that work out?

It justs prolongs the wait to the bottom, which makes the bottom deeper, because when the sellers finally capitulate, they will be in desperate straits. More time for the "bitter renters" to save up hefty down payments for those bargains a few years hence.

Just Jack said...

Market prices in Victoria are trending down with the residential marketplace characterised as stable to declining.

Just before the marketplace was to start on its parabolic rise a half dozen years ago, anomolies occurred in the market place. There were spikes in new house prices and localised neighbourhoods. The price increases were not over all areas and all types of housing.

I would also expect to see such anomolies occur at the end of a cycle as demand slows and inventory begins a steady climb in the coming months. We may be seeing some of this occurring in this spring market with neighbourhood "hot spots", while the surrounding areas expierence slow sales volumes.

Anonymous said...

HHV, best post so far.

westslope said...

Great blog post. The forecasts are highly plausible. This is the most highly synchronized global recession in the post-war period.

Moreover, the stylized facts of financial-sector meltdown-lead recessions are not pretty. The recoveries are usually long and slow.

OK, we all agree that real estate markets can take a long time to unwind compared to stock markets or commodity markets. But are they really easier to time?

mln said...

But are they really easier to time?The last few market bottoms in Victoria lasted several years, I'd call that pretty easy to time.

But it's not so much about timing, it's about buying when prices make sense, and not depending on hypothetical appreciation to make the numbers work. If that coincides with the bottom, great.

Once ownership costs are similar to renting and prices are relatively stable (i.e. not plummeting by 10% per year) I will be ready to buy. Until then, I'm happy to continue saving the difference by renting!

NanHousing said...

Some more news from Nanaimo. A condo development Texada went on sale a year ago with 89 units. They still have over 60+ remaining and many had not seen reductions since going on the market. Well today it looks like they have reduced almost every unit left from between 7-15% off, some even 50k off.

So far this year only 32 condos have sold and there are at least 240 on the market each month. Wonder if they will have another round of reductions down the road again. These reductions should alert all the folks out there holding out for their ridiculous prices that they need to lower them.

Ryan said...

Reply to VG in the last thread:

"No longer have to save for retirement ? yee haa ! not bloody likely Ryan."

I'm a little confused. First of all, why would you save for retirement when you're already retired, and secondly how would you save? What money are you going to sock away for later when you're living off your savings? Is this like paying off one credit card with another credit card?

However, my original point was that $50,000 in RRSP savings is not equivilent to an annual income of $50,000.

Here's some numbers:

Annual income: $50,000
Taxes: $7,700
Mortgage: $12,000
RRSP: $3,000
EI: $700
CPP Deduction: $2050

So, their net income for other expenses is $24,550. Once retired, the $17,750 for RRSP, CPP, EI and mortgage should be gone, and the tax bill will be lower because that's part of the point of an RRSP.

In order to have a net income in retirement of $24,550 they'd need a gross income of just under $29,000. Using the maximum for OAS of $6,192 and for CPP of $10,908 they would have to withdraw $11,500 from their RRSP to end up with a net income of $24,776.

So yes, even with no corporate pension and no change in lifestyle, you can live for a hell of a lot longer than one year on a $50,000 RRSP.

I used this calculator to play with the numbers.

Anonymous said...

I was just at Fairway foods on Quadra and noticed a lot of items were on sale thoughout the store and there weren't very many customers. I think the downturn is starting to impact grocery stores as well. I think you'll see more and more people avoiding the fancy chains like Fairway and shopping in the discount stores instead.

Anonymous said...

Anon-

I had commented recently about a storewide price slash at London Drugs on regualr items and clearance items. It seems this could be happening at many different stores. Retail spending is way down and inventory has to move and dollars have to come in.

If stores have to cut prices like this, in the end it will result in lower wages and/or layoffs.

In tough times, people will find the lowest prices they can get and cut out unneccessary spending.

roger said...
This comment has been removed by the author.
roger said...
This comment has been removed by the author.
roger said...

Has the dead cat bounce got you down? Well you will feel better after looking at this..

Plunge-O-Meter (Canadian Housing)and
Major Cities Price Chart

Prairieboy said...

HHV, re: point #1 - Every past market correction saw owning (using a 25% down, 25-year mortgage) become cheaper than rentingToday, $300000 at 3.95% for a 5 year fixed, with a 25 year amortization, the mortgage equals $1570 per month. Add taxes and heat, let's say the total is $2000 per month. I believe in the past you said that rent for a house is approx $500 per month per room. $2000 per month should get you a 4 bedroom. Using this, and regarding your point #1, should that 4 bedroom house cost $300000 or $400000 ($100000 down, $300000 mortgage)?

If fair price is $400000, then if you could buy MLS 258855 for $400000, has owning become "as cheap" as renting?

Anonymous said...

"In tough times, people will find the lowest prices they can get and cut out unneccessary spending."

I heard something the other day about Wallmart upping their marketing strategy to include the upper middle class - a group not known for following price rollbacks. They will all reposition over the next few years.

hhv said...

PB,

Here's my thoughts without looking at the listing:

When the market as a whole meets the criteria, rather than an individual property, you'll know it's a great time to buy. If you can find one property that meets the criteria, and you know you're making a good purchasing decision for your family, should you really care what I think?

Now let me look at the listing and get back to you.

Anonymous said...

"$300000 at 3.95% for a 5 year fixed, with a 25 year amortization, the mortgage equals $1570 per month. Add taxes and heat, let's say the total is $2000 per month."

Are we deducting the $600-$700 per month mortgage principle reduction from this?

BTW, am I the only one paying $450 / billking in hydro this winter? It's time to warm this city up.

hhv said...

OK PB, looked at the listing and to be completely honest, if you're tempted, I can understand why. From the web it looks clean and has a lot of nice features including a great yard for the little one to grow into.

It hasn't been reno'd, but it's been updated somewhat... I'd look for flood history, drainage in the yard, condition of the roof and electrical, heating system (if it's oil, where's the tank and how old?, insurance issues?) The lack of bathroom photos is a warning sign to me.

Didn't you say you wanted to stay close to town? You'll be trading a walk to work (I'm assuming here based on what little I know of you) lifestyle for a 30-60 minute commute depending on traffic etc.

Are you planning on renting the suite in order to make this place affordable? If so, can you stomach months, and it could be many, of vacancy? I can't imagine that a suite in BB commands the same demand as something in town.

I also think that if the correction does hit the low end market you'll have to watch your market value drop from $400K, potentially all the way down to $300K. That shouldn't be a concern if you're anything like me; when I buy, I will stop looking at the real estate market with anything other than a passing glance at tax time.

All offers should be conditional to every potential out you can think of: inspection, financing, the direction of the wind, the fickleness of your mood, whether the burger you ate at Brewsters for lunch (paid for by your REALTOR) while you're thinking about this decision more is sitting well etc...

If they don't bite, another listing like this will come along soon enough, it's not like prices are going up! And remember, this house has yet to drop in value from it's peak... it's still in seller's market territory. It may not be a bidding war target, but it certainly isn't something that would have sold for $450K last April.

We've been watching the same houses in the same segments for the last two years, and we both know prices at the low end haven't moved much at all since Spring 2007.

To put it into perspective, compare it with this place.

Of course, if we do move to that town, we'll buy something like this because then we'll be able to max out our RRSPs and TFSAs and I'll slowly build my wife's dream basement myself (her dream is to move me and my work into the basement ;-)

Prairieboy said...

Thanks for the in-depth response HHV. Truth be told, I think that was the first time I looked at that house - we aren't interested in buying it. I picked it only because I think it demonstrates that some houses are close to that point where the cost of rent = owning. We will be looking quite seriously this year though - it's in order to keep our sanity, and I don't want to be moving again for a long long time, thus ruling out another rental.

Nice houses you pointed out. If you are serious about that move out there, I hope you or the missus aren't working in the big city - that is a wicked commute, at least in comparison to Victoria!

Anonymous said...

Retailers throughout the region are bleeding red ink. I was in sears the other day and ladies shoes were on sale for 50% off for example as were men's shoes. Not a person in the store at 8am on a saturday morning which was odd. I'll keep reporting on these strange anecdotes.

greg said...

PB and HHV - depends on the lifestyle, but I've seen similar nicer listings popping up in town, around those prices. By in-town, I mean closer than Brentwood Bay.

Check this out: MLS®: 259651

It's not in the area I'm interested in, but its a lot closer to town than Brentwood Bay.

Anonymous said...

As far as retail is concerned, a bunch more shops closed in Market Square in the last few weeks. More signs of the times.

hhv said...

Greg and PB, I go back to my earlier statement about the market as a whole meeting the criteria. Is it too much to think that we could see median prices get back down to $400K? Imagine the choice and quality you'll be able to buy then?

I'm not surprised that we can find the occasional property that fits the rent vs own costs, especially given the combo of uber low interest rates and high rents.

When we first started looking, we could have made it happen but we didn't because we didn't want to live out of town or we weren't happy with what we saw on the market and didn't want to have to "act fast" in the buying process. The only thing that's changed is the acting fast part. We'll continue to wait until the median drops further. If we get tired of waiting, we'll seriously explore leaving.

I know someone who lives in that town and have stayed there before, it's 25 minutes to downtown Calgary, 45 during rush hour. About the same time as Langford or Brentwood these days that's why I used it as a comparison. Wages are still $10K more per year on average for both me and Ms. HHV too.

roger said...

Here is something else to consider...

If you buy one of the older homes under 500K in Victoria what will happen over the next ten years?? Many will need high maintenance (roof, siding, windows, furnace) over this period (think $$$) In ten years the house will be even more dated; architecturally and inside (bathrooms, kitchen etc.). Will these older tired houses appreciate in value?

And forget about some retiring boomer buying the place. When someone retires and moves here they are downsizing to something with minimum maintenance.

roger said...

Young people really need to consider their future when they buy a house in Victoria. If you sink all your savings into the down payment and a huge portion of your income into the mortgage what is left?

There will be little left for most to enjoy life outside the house. Travel, entertainment, a decent car and other expenses will be put on hold. Raising a family and providing for them will require even more scrimping.

Another big drawback will be the ability to build a nest egg. Everyone should have a six month saving cushion to cover job loss or illness. Retirement will be many years away but if you don't save now you will be on the Freedom 70 plan unless you work for the government.

The alternative is moving away to an area with much lower housing prices. Then you can save money (RRSP, TFSA), build equity and have more disposable income. One could move back to Victoria in ten years and be ahead of the game.

I have lived in many places in Canada and enjoyed myself. Every place has something to offer. Is the weather and lifestyle in Victoria really worth compromising your future?

hhv said...

Roger,

Alberta is one year ahead of the correction, their prices are more attractive and their pay is better. I know 4-5 year homeowners in Victoria who are considering selling so that they can move their, pay 2/3rds down, earn more and have more money to do other things with. After the past two winters here, Calgary area isn't looking too bad at all. Victoria is gorgeous, but at what cost? Anything over 1 year's income difference is too much IMHO.

Anonymous said...

Check this out: MLS®: 259651

OMG...still waaaaaaaaaay to high. People in this town are on crack!

Let me see, 1700 sq ft @ 1.20/sq ft (yes building costs have down down) = 240k

The lot is garbage and in a "desirable area" It's fucking Langford people! I give it a real world value of 100k

Total value and soon to be IMO reality...sorry it sux but it's true = 340k AND EVEN THAT IS TOO HIGH!

Sooooo....100k overpriced minimum. IMO a piece of crap like that in a shit neighbourhood should and will be selling for 250k in 2-3 years.



Mother of god, why would anyone pay more?????????

Reid said...

Roger, you are thinking correctly, but it is not how most think today. I have spent my entire working life leading the “pay down debt and generate financial security program” after I saw my father get hammered in the 1981 recession. I have always lived below my means and focused on debt reduction and maximizing RRSP’s. I can tell you that I am in the minority as I know many people earning half my wage live a lifestyle far beyond mine. I have been fortunate to have earned an income well above average throughout my career, but have typically averaged 55 hours of work and quite frankly today I am more focused on being able to scale back work and possibly retire early than living a high lifestyle.

I have owned six houses and one townhouse over the past 20 years and in that period have paid off two mortgages completely; both around $200k. Today I own a great house with no mortgage, but I have earned that. Paying off those mortgages was REALLY hard as it took consistent years of sacrifice and yet my mortgages were half or less of what people today are taking on for crappy homes. So if it was really hard for someone living far below their means and earns a superior income to pay down these $200k mortgages how the hell can these FTB’s of SFH’s have any hope of paying these houses off; there is limited hope from what I can see and I really do not think they plan on paying off the mortgages. They are just fulfilling a dream of home ownership and are justifying their purchases around these low mortgage rates; there is no long term vision, no plan for retirement, etc. It will end ugly for many.

Real estate in other parts of the province will get hammered hard over the next 12 to 24 months even if Victoria does not and many of them are great places to live. I lived in Okanagan for many years and prefer the weather there to Victoria as I love to ski and enjoy hot dry summers. My advice is to stay disciplined and do not let go of your retirement planning when looking to buy a house as in the long term retirement planning is more important.

roger said...
This comment has been removed by the author.
Reid said...

Roger, I am on the same program. I do not want to take out another $200k mortgage just to live in Victoria, own a crappier house and earn less $. I will give Victoria 6 to 12 more months to see if I can buy mortgage free and if not, then I will go elsewhere. Then I will start to enjoy the place rather than always working hard just to paying down more debt.

Wenna said...

I am really surprised to see talk about Airdrie, Alberta on here as a potentially more desirable place than Victoria to live! I guess it's a sign of the ridiculous housing prices here. I left Alberta a year ago, taking a 50% cut in pay, to move here. I can't even begin to tell you how happy I am with this choice, despite having to adjust to a rapidly reduced income. I refused to raise my children in Alberta. Sure, you make more money there, but the place is ALL about money, ALL the time. I would hardly call Airdrie a "town", either - it's just a farmer's field with cookie-cutter, poorly-built houses surrounded by big-box stores, and property crime because there is nothing for teenagers to do. And no way is it only a 25-minute commute. When I commuted into Calgary from a suburb, getting through the downtown core itself took 25 minutes, let alone the freeway drive to the edge of downtown. I would be so sad to hear that someone gave up on this beautiful community to go to a place like Airdrie because houses cost too much here. What a travesty.

roger said...

**Cut & paste gremlin got my last post**

Reid,

You and I share the same view on financial planning. I was also mortgage free in my last property. I too saved like mad to pay down the mortgage on my house in Ottawa. I poured everything I could into an RRSP and savings so that I did not live in fear of losing my job with a subsequent fall into financial ruin.

Like most Canadians I do not have a private pension plan. So CPP, OAS, RRSP and savings are needed to fund my retirement. It was only yesterday that I was leaving university and now I am a retiring boomer. I only wish I could convince those younger than me to realize that time passes really quickly and you need to plan for the future.

Salaries are also lower here. This is especially true in the high tech field where I have had several jobs over the past years.

As for me, I plan on moving to another area. Maybe up island or somewhere else. Granted there is little snow here but you just don't get good value for your housing dollar in Victoria. I suspect many other boomers will come to the same conclusion when they consider retiring here.

roger said...

Wenna said,

I would be so sad to hear that someone gave up on this beautiful community to go to a place like Airdrie because houses cost too much here. What a travesty.Many people do not have any choice but to move somewhere else if they want a financial future. And as I mentioned earlier there are many other nice places in Canada that have a lot to offer.

As I recall you just moved to Victoria a short time ago. Once you have been here a while you will see that there are some downsides to living here as well (downtown core has issues, ferries, grey skies and rain). For some these things are not a problem. I guess it depends on what type of environment you want to live in. Each to his own I guess.

hhv said...

Wenna,

I did the drive several times in November myself, 25 minutes from Coopers Crossing in the south of Airdrie to Banker's Hall at weekday lunchtime.

Cookie-cutter houses? Sure. But they're all over Bear Mountain too. People used to say Gordon Head was cookie cutter too.

Victoria is beautiful, but I've lived in enough cities outside Victoria to understand that all cities have their problems as well as their beauty.

Why should a family have to sacrifice their future to live in Victoria? Owning a home is an important part of my family's financial security plan. Overpaying for one in Victoria will kill our plan.

If Victorian's aren't money focused, why such love for real estate here? Money-loving is not an Alberta only problem.

I think you're going to see a lot of people leave. The jobs here aren't high end and have little growth potential outside government. Incomes are lower than elsewhere. Cost of living is high. And now that houses aren't creating wealth for people anymore, they'll have to consider "is it really worth it after all?"

Roger's advice of leave to return has been the way for Victorian's for decades, minus the past 6 years. I predict it will return to the norm very soon.

greg said...

I think we should compare apples to apples.

Maybe Airdrie = Bear Mountain - like HHV said, houses in Airdrie look suspiciously like houses at Bear Mountain, with the same ridiculously small lots to square footage, despite the surrounding empty fields.

Calgary centre is a better comparison to Victoria centre, and I think you will see that Calgary is colder, cheaper, still beautiful, and still with concerns about property crime etc.

How do I know this? Well, while in Calgary the locals warned me about catching the train at night or getting off at certain stops - the same as people in Vancouver might recommend avoiding the metrotown skytrain station.

Having lived in some small towns in BC, like Wenna, I would warn anyone against dismissing first hand accounts of what a place is like. I mean, we hear a lot of news about gun battles in the Vancouver area, and if someone told you a neighbourhood in Surrey was dodgy, would you ignore that and move there anyway 'cause the houses are cheaper than in Kitsilano? There are smaller/cheaper places around, some are economically depressed and have other problems, other retain a rural small town charm.

Go with the places with rural charm, if you want to live in a small town. Generally, bedroom communities don't fall into that category.

If you've only lived in cities the size of Victoria or larger, I would urge some caution before deciding to downsize to a small town.

Even apples come in different varieties. Not everyone prefers red delicious to fuji or macintosh.

Wenna said...

HHV, Roger,

I agree - everyone has different opinions and likes and dislikes. The world would be pretty boring without them! I've lived in several different places and they all had their pros and cons. And yes, I did just move here not even a year ago so I'm sure the honeymoon phase will eventually end and life will not be so rosy. I know plenty of people who think Calgary is the greatest place on earth. I just happen to disagree. Strongly!

My point is just that it's sad that people have to give up on one or two or ten things that are really important to get a decent house. It's just drives home how insanely costly it is to own a decent place to live.

I think Greg's points are great. I know there are several quaint towns around Calgary that would offer much more character so I would encourage you to check those out before decided on Airdrie.

patriotz said...
This comment has been removed by the author.
patriotz said...
This comment has been removed by the author.
patriotz said...
This comment has been removed by the author.
patriotz said...

And now that houses aren't creating wealth for people anymore
.....
Houses never created wealth in the first place. They consume wealth. You create wealth by producing goods and services in trade. This is what Adam Smith said centuries ago. Unfortunately people have forgotten this.

The housing bubble created only the illusion of wealth, which is exactly why the world is in the economic mess we see today.

norwester said...

Perhaps one of the drivers or props of the market here is not unlike what has been observed south of the border.

Bill Bishop argues in his recent book "The Big Sort: Why the Clustering of Like-Minded America Is Tearing Us Apart", the so-called creative class’s quest for lifestyle self-determination has had a giant and, in some ways, deleterious national effect. In the past, U.S. migration patterns were based on economics and available jobs.

By contrast, writes Bishop, over the past 30 years, “there was a surge of people who wanted to live in cities for what could only be social — or even aesthetic — reasons.”

In Austin alone, the percentage of people with a college education went from 17 percent in 1970 to 45 percent in 2004. In 60 years, the total population of San Francisco stayed roughly the same, but the average house price rose ninefold, from $60,162 to nearly $550,000 (compared with Cincinnati, where the average house price increased from $65,000 to $145,000).

New “superstar cities” (a term coined by the economist Joseph Gyourko) were metro areas where residence had become, in essence, a luxury good. People paid for the privilege of being in cities such as San Francisco, Seattle, San Jose, Portland, Los Angeles, New York, Austin, and Raleigh-Durham because they wanted to live there, not because they expected an economic return.

In short, the function of cities had changed. Their reason for being — and their residents’ reason for living within them — was no longer to produce saleable goods and services. The city’s new product was lifestyle.

These locales became “‘consumer cit­ies’ — metro areas that catered to the well-paid, well-educated people who moved there.”

We can certainly debate people's preferences about the various towns and regions of the country. Alberta is certainly not all about money, Calgary mostly is. But Calgary is not Alberta, though it likes to think it is. I can think of many towns (Edmonton, Medicine Hat and Lethbridge, to name a few) where family and community looms much larger amongst the general populace than the almighty buck.

However, it is hard to argue with trends. Whether they are right or wrong, people are voting with their feet and thereby making it less affordable and thus less attractive to others. It may not be San Francisco, but it is probably lifestyle that is Victoria's primary appeal.

Like it or not, Victoria is very attractive to many Canadians. The question is the extent to which they are able and/or willing to pay a premium to live here. To what extent can that attraction offset the larger economic trends that are erasing wealth and forcing housing prices down? When does lifestyle become too expensive?

patriotz said...

People paid for the privilege of being in cities such as San Francisco, Seattle, San Jose, Portland, Los Angeles, New York, Austin, and Raleigh-Durham because they wanted to live there, not because they expected an economic return.....
Oh please. All these cities are major job centres. You really think that RE in these cities would be able to command the prices it does if they had job prospects like, e.g., Cincinnati?

Oh BTW Seattle is no more expensive than Victoria, Portland is cheaper, Austin cheaper than that and Raleigh-Durham way cheaper. Of that list only SF, San Jose, LA and NYC are more expensive then Victoria, for very good reason. And all of them are seeing price declines of course.

Victoria is not special, the only thing special about it is its inflated self-image.

Fooder said...

Nerwester,
very interesting and frightening article. I'd love to say the system is broken, but it's the people in the system. Like Reid says we spend everything for a lifestyle. We don't have a concept of the big picture or an unplanned for future.

Anonymous said...

All I gotta say is thank god Obama won the election, or else, we would have seen a new flood of American migrants come to Canada and a Real Estate downturn would have never happened. I'm not kidding.

Anonymous said...

"Victoria is not special, the only thing special about it is its inflated self-image."

Like it or not many feel that Victoria is different and many ARE willing to pay a hefty premium for the image and lifestyle - whether you agree or not is not relevant.

When we got out of school here (late 90's) and started looking for work we realized two things:
1. the city is way over-educated, and 2. you will earn approximately 1/2 of what you could earn with the same education elsewhere.

Like many others we chose to stay because of the lifestyle Victoria offers, and we knew (know) full well that we were foregoing significant wages to stay. It's a lifestyle choice that we are willing to pay for.

Phil said...

"Like it or not many feel that Victoria is different and many ARE willing to pay a hefty premium for the image and lifestyle"

But that's what they were saying two years ago in Miami and Tampa and Phoenix and Las Vegas and San Diego and Sacramento and ......

Anonymous said...

There is no bottom in site yet for the housing market!

The Case-Shiller Home Price Index is at a record low, dropping almost
20% in the past year and now down about 24%. However, it needs to drop
to between -50% to -60% to get back to realistic prices. New home sales
are at their lowest level since 1963. Inventory levels are still at
records and will have to be worked down. This is not the time to hold
real estate and hope for a recovery, the longer you wait to sell, the
lower the price will be, especially when we get into the next phase of
this downturn, after the bear rally and when hope fades and all
realize the Fed stimulus did not work.

Not only are housing inventories at records but so are vacancy rates
at record levels. We don't even know if we have seen the ultimate high
with inventories and vacancies and lows in prices, let alone begin the
recovery process. The first step is for inventories to come down and
that will mean much lower prices still.

The amount of square footage space per Single Family Home is at a
record high and the number of persons per household is at a record
low. These are bubble extremes that have to revert back towards more
normal levels.

What I am saying is this housing bubble has created way too much
housing at a time when the baby boom generation is entering the phase
to down size their homes or move out entirely.

This housing problem will not be fixed in a couple years. It will take
many years - perhaps 1 or 2 decades.

Don’t be fooled by the recent improvement in existing home sales
numbers: 45% of the sales were foreclosures and short sales, or banks
dumping properties.

Normally February sales are up over January. It is a very seasonal
thing. Using the seasonally adjusted numbers, you find sales were down
2.9% instead of up 4.7%. But the media reports the positive number.
Also the 4.7% rise was "plus or minus 18.3%". That means sales could
have risen as much as 23% or dropped 13%. We won't know for awhile
until we get real numbers and not estimates.

Typically with these government statistics, you get a preliminary
number, which is a guess based on past trends, and then as time goes
along that data is revised. In recessions like we are in now the
revisions are almost always negative.


Shilling estimates that we still have about 2.4 million excess homes
and Shilling and other analysts agree it will at least be to 2012 to
work through this excess and that assumes that it does not get any
worse than it is now?


I remember well a similar housing and stock market bubble in Japan
that ended in 1990. We made a lot of $$ in that decline by purchasing
Nikkei Put warrants on the main Japanese stock index. Japan has an
older population than the U.S. hence the peak in their baby boom was
back in 1990 compared to around now in North America. Japanese real
estate is still deflating to this day from the 1990 peak and their
stock market just hit another new low since the 1990 peak.


As expected, so far lower mortgage rates have not stimulating much
home buying, merely refinancing. The massive injections into the banks
have kept them from melting down near term but have not stimulated
substantial new lending again.


That is because we have begun a deflationary process and a slowing in
demographics that ultimately is too large for the government to
counteract, even with $4 trillion or more.

hhv said...

There is no significant influx of people to Victoria. Our growth rate is just under 1%, less than the provincial average of just over 1%, and it has been thus for almost 20 years. There was no "major migration shift" into Victoria over this boom period.

It was Victorians by and large who drove prices northwards with their misguided belief that some greater fool from the east would outbid a local when they went to sell their home. Little did they know that it would be a local greater fool who would do so. High home prices are Victorians fault alone.

Developers who came here and built products to sell to wealthy people from anywhere east of here ended up selling 75% plus of their product to Victorians, 10% of their product to from-away's and the other 15% is unsold.

While high home prices are not just a Victoria problem, Victoria's high home prices are Victoria's problem. Until people who already live here say enough is enough, I won't pay, nor should I have to pay, 7.8 times my annual salary to buy a house in Gordon Head this trend will prolong. But it is unsustainable and must correct at some point in time.

I'd like to say I'm confident this will happen soon, with the rash of home buying this spring, I have to admit it won't be happening as soon as I thought. But it must. There simply aren't the jobs here to attract the FTBers from away to move here. When this round of FTBers is exhausted, and the inevitable layoffs occur in the "insulated" industries like government, the FTBer will leave the market again.

hhv said...

Balance or stupidity? You decide. TC today: "Real estate in slow recovery" is the headline. "Despite careful tracking of residential house sales and values in B.C., it's too early to know where the market is heading, says a real estate analyst." is the first paragraph.

roger said...

Here is a link to the TC article HHV referred to in his last post. I suspect the business editor selected the article caption not the writer.

Real estate in slow recoveryDespite careful tracking of residential house sales and values in B.C., it's too early to know where the market is heading, says a real estate analyst.

It will take another three to four months to predict where the bottom of the market is, Rudy Nielsen, president of Vancouver-based Landcor Data Corporation, said yesterday. He added from there, any recovery will be slow.

"A lot of consumers are very nervous. They are sitting on their money," Nielsen said. "Nobody can really predict where we are going right now."

roger said...

I am going to go out on a limb and predict that April sales numbers will be much better than those seen in February and March.

If I am right can you imagine the headlines in the Times Colonist about the rebound in the Victoria housing market. The usual suspects (VREB, realtors and mortgage brokers) will all be interviewed and will have glowing reports about hordes of buyers jumping into the market.

Upcoming quotes:

"Low interest rates and a good selection of houses mean now is a great time to buy"

"Sellers looking to move up should take advantage of brisk sales and high demand."

"The market is stabilizing and recovery is underway."

Sales will still be lower than those seen in the last five years but that is just bear talk.

Anonymous said...

I was just down at the bay center shopping mall and it was packed to the gills full of shoppers. Most were not holding bags so maybe they were "just looking, thanks". It's clear there is some confusion in the consumer's minds at this time. Many of their faces were frowning and I'm not so sure it was because of the prospect of rain later today. I also heard some construction people talking about cutting back on drinking and pot smoking.

roger said...

Here is an interesting article by an American blogger:

Why a 50% Drop in Housing Is Not the Bottom The "Anatomy of a Bubble" makes for interesting reading.

No model can predict the timing, highs or lows of any bubble, but bubbles tend to follow a pattern traced in human psychology:

1. As euphoria grabs hold, prices rise in a steep ascent to a point at which "everyone" believes there is no end to the trend.

2. The initial descent from the bubble peak is a "shock" which leaves the bubble mentality intact, i.e. the Bull Market in tulip bulbs, real estate, tech stocks, etc. is only suffering a standard retracement/indigestion; the trend higher is still in place.

3. In housing, this psychology is embedded in such chestnuts as "they're not making any more land," "real estate always rises over time," "population growth means demand for housing will always rise," "the house is the foundation of middle class wealth appreciation," and so on......

Just Janice said...

At 4% interest your payments on a 500k mortgage are $2630.11 per month. 500k presently gets you a house in Victoria that would rent for less than $2000 per month given quality and location. So each month there is a $630.11 difference, not including the costs of property taxes and maintenance. And thats with a 25 year 4% mortgage!! Even with shockingly low interest rates it doesn't make sense to own.

And if that rate were to rise to 8%, that same mortgage would then cost $3816.07 per month.

Alternatively, keeping the payments the same or less as in the 4% scenario in the 8% world you would be limited to spending 350k or less on a house.

I don't get how the headlines can be 'in slow recovery' when they should be say 'nowhere to go but down'...interest rates can't get much lower and must over time go up, unemployment is going up, and yet....

A personal finance and economics course should be mandatory in the school system!

hhv said...

Roger, today's market clearly demonstrates #2!

Reid said...

“A personal finance and economics course should be mandatory in the school system!”

JustJanice, I could not agree with you more. This is the biggest flaw in our primary and secondary education system, our parenting, our universities, etc. To make matters worse, the government then comes in and teases these financially illiterate people with 40year (now 35yr) mortgages allowing them to borrow even more money.

I am on the same wavelength, I cannot see how prices can rise going forward. Option one is that stimulus works and if so, almost all economists are calling for higher interest rates and as you suggest this will limit what people can borrow. So prices should come down.

Option two, this recession deepens and at some point people in Victoria will get it either because the unemployment rate rises, they see their friends out of work, or they start reading. This combined with rising foreclosures (as too may people are overleveraged) will drive down prices.

olives said...

A most EXCELLENT article Roger.

norwester said...

hhv,

"There is no significant influx of people to Victoria."

I agree there is only a steady stream. But I think you underestimate the impact of that 10 or 12%. As I indicated in my post: "In 60 years, the total population of San Francisco stayed roughly the same, but the average house price rose ninefold."

Obviously, a city does not have to grow to change dramatically. I suspect that the mid to high segments of the market in Victoria are disproportionately influenced by that 10%. They are, like the segment described in the US experience, predominantly university educated and well heeled. They are bringing the money that was more readily earned elsewhere. I think that is likely true of San Francisco.

In addition, this group probably buys more than once as they age.

More importantly, it seems to me that native Victorians also count on this group to justify their own willingness to spend more. There is an underlying expectation that this segment will keep coming and be willing to pay the local premium. This expectation is an important element to local confidence in the market.

Ryan said...

"Obviously, a city does not have to grow to change dramatically. I suspect that the mid to high segments of the market in Victoria are disproportionately influenced by that 10%. They are, like the segment described in the US experience, predominantly university educated and well heeled. They are bringing the money that was more readily earned elsewhere. I think that is likely true of San Francisco."

House prices in San Fransisco do not stem from some influx of money earned elsewhere, they're a result of silicon valley and the high wages earned there. People flock to San Fransisco because that's where Google and the rest of the tech sector is most concentrated. People didn't move to SF because of the lifestyle and then decide to create jobs that can support the cost of living, the price of housing rose because it's what the market would bear.

Victoria has no Google, HP, Yahoo, Intel or Apple. People moved to San Francisco to get high paying jobs; people move away from Victoria to find high paying jobs. The two cities have almost nothing in common.

Furthermore, your supposition that all these rich people are moving to Victoria and holding up the high end of the market is not supported by data. Currently, the high end is completely frozen, and it's only below-median properties that are selling. That would seem to refute your contention that outside money is a major factor, and point back to locals driving the local market.

hhv said...

Ryan, thanks for articulating my point exactly. I don't really think norwester is far off the mark from what we are all agreeing: that it is only locals who are driving the market. Some "think" it's outside money driving up prices, some "think" it's the expectation outside money will support high prices. Either way, outside money isn't supporting current prices today. The outside buyer isn't buying. Only the FTBer is.

greg said...

Regardless of how it's articulated, I think a downside surprise is pending with the April sales numbers.

Not much selling, if anything, its tracking lower than March.

I think this FTB effect is being respected unduly by the bears. By definition, FTBers have the least capability to buy and influence the market. I think we'll see this weighing down on the market as we move forward.

If sales are down year over year and from last month, spinning will require new levels of selectivity. Doubt anyone that creative works at VREB, but you never know...

Ryan said...

I don't expect an April surprise. As this graph from the Sacramento blog shows, there's often a spring bounce that continues upward into June. The important point is that it's not indicative of the larger trend.

But I think it's overly optimistic to expect April to be lower than March, especially since we aren't really seeing the correction at the low end of the Victoria market yet. At some point I'm sure all those million dollar houses will drop prices and force the rest of the market down, but it won't surprise me at all if that doesn't happen until summer.

vg said...

"Real estate in slow recovery" is the headline."


One month is a recovery ? what a concept, only in the TC you say. This is why I cancelled that rag.

Isn't this more reality ? :



"The province's housing markets remain under heavy downward pressure," said Robert Hogue, senior economist, RBC. "While housing affordability is
improving as the correction process runs its course. RBC's affordability measures for the province are still at levels far off historical averages."

omc said...

What I am seeing now is that most of the reasonably priced houses seem to have sold and are being replaced on the market by dreamers. MlS #261318 and 261314 are both listed extremely over assesment, but have had very similar houses sell on the same street for far under assesment earlier this spring. This seems to be a trend in the new listings.

Is this happening on the lower end of the market?

hhv said...

What's really telling is our avg prices aren't really bouncing... they are merely fluctuating within the normal month to month bounce rate. Our correction, if plotted in a graph like that, would be steeper, and our first spring bounce will show more like their second spring bounce. Things aren't good here, despite the spin and the sales volume at the low end.

hhv said...

omc... the houses and prices showing up in my pcs filter (vic, vic west, esq, saan e & w, langford, colwood, view royal, $425K or less with suite or suite potential) haven't changed much in 2 years. I look on mls at places above that price, but really, there isn't much difference in quality, choice or location for under $500K--you're getting an older home that needs work in a fairly busy location or a new home on a bare-land strata in Millstream.

vg said...

Lets not forget to notice bankruptcies are up 44% in BC.


The economic distress that came late to the West was reflected in Canada's most recent insolvency statistics Thursday, with Alberta and British Columbia leading the country in the increase in bankruptcies.

The number of bankruptcies across Canada in February was up 22.1 per cent from a year earlier and 13.1 per cent higher than in January, the federal office of the Superintendent of Bankruptcy said in its monthly report. In total, there were 9,495 consumer and business bankruptcies in February.

Bankruptcies were up 67.4 per cent year-over-year in Alberta and 44.8 per cent in B.C.

Anonymous said...

I was just walking along the galloping goose and noticed that a lot of the walkers had tattered clothes. This is a dramatic change from the last few years. I also noticed less dogs and the bikes were less shiny. The sky seemed grayer as well.

omc said...

Yikes hhv,

That things haven't moved in that range in 2 years isn't good. I happen to think $425 is alot of money, contrary to what people who don't have to pay those mortgages think. I hate it when neighbours and such talk to me about houses for sale and the price, and when I say I can't afford that price give me some wierd look(I only earn 2X more than they ever did). They would have bought many years ago.

I have friends I went to university with that went to Ottawa to escape the poverty of working here. I am familiar with the area (ex army) and travel there (now federal gov). Have you looked there instead of alberta? It is much more affordable, has as nice a feel as Vic and (gasp)there are FAR more young than old walking around. If my wife wasn't born and bred here...

norwester said...

Ryan & hhv,

I'm actually with you guys, as hhv suggested. I'm just not very good at conveying it. It is very clear today that low interest rates and the entry level market FTB is the story. And the upper end is indeed frozen.

What I am curious about are the larger trends and what this means for the carriage trade. Why do people think and value the way that they do? Markets are clearly about perception and confidence, or lack thereof.

What is it that has thus far enabled people to justify their spending, and are those justifications wearing thin? If so, are we going to see the emergence of counter trends?

Comments from a number of bloggers certainly suggest that people are thinking about their priorities and reevaluating their assumptions.

What if Albertans come in fewer numbers and with less money? Will this have any effect on local confidence in the value of this market? I think that this segment is an important element to this market. The difficult is quantifying it.

However, I could be completely wrong. It could be sufficient for Victorians to simply drive this market themselves with or without the continued flow from outside.

omc said...

In order for us to drive this market ourselves we would have to be able to pay the huge $ for the houses. Do you know any one that can afford over 1 mill for a house with money they actually earned them selves? The pay here is far too low to support these prices as all of the reports from the banks have pointed out. If you can afford $425 you should be in a pretyy damned nice house, not the roach motel.

Just Janice said...

These are strange, strange times. To find similar times you'd have go back to 1920 to 1935...the euphoria of a seemingly never-ending illusion of wealth followed by reality sinking in...
We live in times when the car business is in the employment insurance business - complete with tags like 'its a smart time to buy'. Can you imagine if realtors/banks started flogging that? Buy a house and if you lose your job we'll cover the payments! Now that might (temporarily) turn around this market, but there will be a cost...a very steep cost.

hhv said...

A quick scan of craigslist shows almost 100 rental listings per day over the past 3 days. So much for a shortage. Things could go downhill very quickly. Especially with avg asking rents over $900/bed.

roger said...
This comment has been removed by the author.
roger said...
This comment has been removed by the author.
roger said...

OMC said,

If you can afford $425 you should be in a pretty damned nice house, not the roach motel.--------------------------------

You are not alone in your frustration. However, prices are not going to drop on the lower end for some time. The reason is simple. Too many people are infatuated with Victoria. They view it as someplace that is far better than anywhere else in Canada for reasons that I do not understand. I have lived in several other cities in Canada and Europe and never experienced this anywhere else.

Some folks are prepared to forsake their financial future in order to buy a home here. Interest rates have been dropping since the dot.com bubble burst and just keep fuelling the madness. The recent drop in variable and fixed rates has just put more gasoline on the fire for first time and step-up buyers. The recession has added some counterbalance so prices will not rise but remain flat at the low end. The mid to high end prices are dropping because the smart money understands that the market is overvalued. But the low end has lots of FTBs that will take anything that comes their way as long as the bank will loan them the money.

Things will not cool off at the low end until interest rates rise and people just can't get a mortgage anymore, afford the payments or the recession deepens in Victoria and people have to sell or the property is foreclosed.

Until then those who don't want to continue renting and saving, for several more years, have two choices: take the plunge and join the mortgage poor or move somewhere else. Grumbling will only make you unhappy.

roger said...

HHV,

Had to try several times on the last post. Blogger seems to be doing funny things with html.

Just Janice said...

Garth Turner, author of the Greater Fool blog has a great post today which characterizes the present situation beautifully....in it he states:

"That was it. The party’s over. The future is one filled with more expensive money, higher taxes, indebted governments and reduced expectations. We’ve already spelled out the implications for real estate – another year of declines (at least), followed by half a decade of flatlined prices. There will be great opportunities, but not repeating the old ones."

Zephod said...

Roger says,

You are not alone in your frustration. However, prices are not going to drop on the lower end for some time. The reason is simple. Too many people are infatuated with Victoria. They view it as someplace that is far better than anywhere else in Canada for reasons that I do not understand.
We may not understand the why, but this comment and many more frustrated ones here would seem to indicate that there is indeed something "different" about real-estate in Victoria--for better or for worse.

Put another way, if it were not so different, then why would we need to be considering a move to Aidrie AB just to remain solvent.

phil said...

Why are we suprised by the spring bounce?
There will always be splashes as the toilet flushes.

This is from San Diego a year ago... Sound Familiar?

http://tinyurl.com/c24kat

womp said...

I'm currently vacationing in Maui, and condo prices are down 23% from last year here. Not looking good for this year either.

Looks like I could buy a house in Kihei starting at 250k USD, become a contract programmer and teach diving in my spare time.

Remind me again why I'm saving for a house in Victoria?

KickinBack said...

First time poster, long time lurker.
Born in downtown Victoria, moved away as a sprout, now retiring and hoping to return to Vic.
My financial situation seems similar to Rogers however I still live in Calgary and my wife and I have not as yet"pulled the plug" work wise.
As a reference to others we have fairly recently sold our home in Calgary.
It was a paid off 1700 sqft house in immaculate condition in an extremely desirable area of Calgary.
Maximum City of Calagry assesment was $700,000ish. Sale price $550,000ish.
20% discount from max assesment.
Approx 1 in 12 listed houses in Calgary are selling and DOM is around 100 I beleive.
We only got 2 offers in the time our property was listed.
425 to 525 will get you a very, very nice house in Calgary these days.
So thats Calgary in a nutshell.
I may have timed my sale poorly but I still sold the place for double what I paid for it.
For now I rent and wait and watch the markets.

There is no chance that my wife and I will return to Victoria unless $500,000 will get me into
very nice property.
I will go elsewhere or continue to rent or perhaps rent and snowbird to Austin or New Mexico or the like.

Anonymous said...

"Regardless of how it's articulated, I think a downside surprise is pending with the April sales numbers."

We're out in Sooke and almost every property listed in our neighbourhood has sold. The prices appear down somewhat, but the sold stickers are out there in force.

If I was buying in the near future, I would still wait another 6-9 months or until it is evident that interest rates are heading back up.

Fooder said...

I have to dispute that people believe Victoria is worth 50% higher housing prices. I really think people see value in the prices today. Meaning people still think they will over pay for their home, but someone else will pay even more in 2 years.

My hope is that eventually the psychology in Victoria will be hit with the realization that spending 400k will not lead to a free 100k in 2 years. A bunch of us get it already, yet I think the bulk of people have blinders on. I'm not sure what it will take to shatter the mind set, but things wont change much until it does.

This will end badly.

vg said...

We can't care what happens this month and next,it's over the summer that things will decide wether this market is still supported by the FTB's and the so called "pent up demand" to go into massive debt for life.

Past 2 recessions showed the market wanes bad by July leading into fall. Spring is for those sucked in by the MSM that you won't ever get in cheaper. We know that is all BS,even the RBC and TD banks say another 10-15 % easy is coming off this over inflated pig.

greg said...

Judging by my PCS and the numbers of vacancy (rental) and sold (realty) properties I'm seeing, I'll reiterate - there's some hype going on, and the numbers are not going to be any better than March. Year over year, they'll be down, and the average and median are going to be down as well.

I don't think this is going out on a limb, but last year's crash retreated from the prices in April 08, and this spring they haven't really recovered.

For the bears, try not to confuse what you were hoping and counting on (quicker drops continuing without pause)with what's actually happening. Just because things aren't dropping as quickly as hoped for, does not mean the market has reversed course.

Sales numbers so far this year are down significantly from last year, and last year was down from 2007.

The only thing that has "saved" the current market is a lack of new listings - so the FTBers stepping up to the plate have been absorbing some of the older inventory.

The real question is, why isn't inventory growing if sales are anemic, and can the situation continue long enough to reverse the tide?

We'll see...

Just Janice said...

Two weeks until the April numbers are out. There's some really outstanding analysis on this blog (and others), exceptionally good analysis. It would be nice if that information could be shared more widely.

So here's what I suggest, we should write a letter to the editor of the TC/Monday Magazine/the community papers...an opinion/analysis piece that demonstrates what has been so-lacking in real estate coverage in Victoria in the last year. We could call it the "Reality of Realty in Victoria"...

Just Janice said...

A quote from Paul Krugman (nobel laureate, economist who knows his stuff and has enough of a spine to speak it)...

"So here’s my advice, to the public and policy makers alike: Don’t count your recoveries before they’re hatched."

I think it applies aptly to the Victoria real estate market.

roger said...

KickinBack,

Thanks for taking the time to share your story about Calgary real estate and a potential move to Victoria.

You have confirmed what many on this blog have been saying for some time; retired Albertans are not going to move here and pay ridiculous sums for poor quality houses or shoebox condos. There are just too many other options available, including renting and snowbirding in a sunny winter climate. Bear Mountain is one example of a development that has seen Albertans vanish once the investment didn't make economic sense.

Most Victorians, due to their myopia about this city, cannot understand that other people will not take a financial setback in order to live here. That is one of the reasons high end sales are so low right now. Very few out of town buyers in this price range.

One final comment. There is a push on in the US right now to have a "Siver Card Visa" for foreign retirees that buy a home and are financially self sufficient. If this comes to fruition how many Canadian retirees will still consider moving here?

Reid said...

Greg, I think that there has not been as many lower priced listings this year because many "move up" buyers know what it costs to own a house (maintenance, property taxes, mortgage, etc) and given the economy are being prudent by staying in their existing homes rather than taking on a huge mortgage for a nicer house.

These "move up" people are a little more realistic than the FTB's who appear to be fulfilling a lifelong dream of owning a house regardless of logic or long term financial implications.

greg said...

Reid,

I'm also wondering about the "talking points" realtors may be throwing out there whenever they get calls from sellers with "unrealistic listing prices".

For example, if a potential seller calls up, asks about listing, mentions a price, then gets told to hold off as market conditions a little later may be more favourable to getting a higher price, do you think some of the sellers are going to hold off a bit, in the expectation that listing a bit later will result in more money at the sale?

If so, we should start to see a rush of new listings at some point later this year, as the real estate hype draws them back into the market.

What happens as they list and prices then do not match expectations? Do some of them lower prices, or do they all exit the market again?

I'm waiting to see what happens, maybe my hypothesis is wrong...

Just Janice said...

I came across this really, really, really interesting video. It's a bunch of Yale economists (including Shiller) talking about the financial crisis. It's pretty clear about what is going on, what is being done about it and what should be done about it.

Very interesting...very informative...very applicable...

It's about an hour in length, but worth the watch!

http://gregmankiw.blogspot.com/2009/04/yale-economists-on-financial-crisis.html

Reid said...

Greg, I would think that a lot will depend on the sellers circumstances. If I was planning to buy a more expensive home or move down to a condo, right now is the right time to list. Problem is how many of these sellers are realistic in their pricing. Last year the huge listing surge came in May and beyond, so we still could see a surge.

Any seller of a $500k (+/-) property that is holding off listing because they foresee higher prices coming is in my opinion an idiot as it is not going to get any better than this to sell a low valued home.

WhyDoIStay? said...

More and more I am finding Victoria to be a depressing place. Wow, it's sunny here, with mild winters... but I make over $50k/yr, yet can barely afford (using 30% of income as a general rule) an old condo. I can't even find a decent rental apartment that takes animals for under $900/month! I don't want to live in a crackshack basement suite with low ceilings, and I don't want to pay $900 for a place thats falling apart.

I love my job here, but the more I think about it, the more it seems like my job is the only thing keeping me here. Calgary is looking better and better, if I could find a similar job with similar or better pay, I think I would leave and never return to Victoria...

Anonymous said...

So, you own a 3 bedroom war shack in Fernwood and want to move up to a home in Gordon Head. And your convinced that prices are going to continue to rise.

Why would you sell the Fernwood starter home? Keep the home and rent it out. Then, when prices go higher, sell the war shack and pay off the Gordon Head home.

Anonymous said...

That's probably an excellent and prudent plan. When the market has come off peak like this the obvious answer is to leverage yourself up even more. That is why I am in the process of buying four condos in the reflections complex. 1 for me to live in and 3 for investments.

Ryan said...

"Things will not cool off at the low end until interest rates rise and people just can't get a mortgage anymore, afford the payments or the recession deepens in Victoria and people have to sell or the property is foreclosed."

I don't think we need to see any external forces applied at this point. The bubble is already bursting, and I don't believe the local market stay segmented like that indefinitely.

What I think will happen is that houses in the upper market that aren't selling will have to lower prices. When this happens, overpriced houses will be priced the same as better houses that have lowered their price, and they in turn will have to lower their price. This will press down all the way through the market.

So while it's possible we won't see a big change in the median selling price, I think over time the quality of houses selling for those prices will improve. Eventually, it will press down all the way to condos, because why buy a condo for the same price as a small townhouse, and why buy a bigger townhouse for the same price as a SFH?

Once that happens, the median selling price will plummet. The main point is that I don't think we need higher interest rates or job losses to cause it, just like we didn't need those to lock up the higher end of the market and they didn't need them to cause corrections in places like Vancouver and San Diego.

greg said...

Here's a topic - food for thought.

Why all the emphasis on Alberta buyers? Prices in Alberta are generally lower than Victoria - the differential supposedly supplied by those older boomers with higher incomes buying vacation or second homes here - not families selling up and moving to Victoria.

If you want to look at the most likely support for higher prices in Victoria, how about this?

As prices in Vancouver continue to plummet, you have sellers exiting the market. Even at 20% off, a lot of these sellers can afford to pay cash and bank the difference.

If this hypothesis is correct, what would stop this support for the Victoria market?

Hmm, how about lower Vancouver prices? At some point, a threshold will be crossed where moving from Vancouver to Victoria (or Nanaimo or Courtenay etc)will be a lifestyle choice without any financial benefit.

Looking at average prices in Victoria and the benchmark in Victoria, the spread is getting closer all the time.

If Vancouver prices drop further, that's one more support kicked out from under the Victoria market.

Again, I suspect sales in all those cities with lower prices (Calgary, Edmonton, Toronto, Winnipeg, Montreal etc) are unlikely to provide support in Victoria for single family homes. Indirectly there may be some support as these people downsize if the move and buy condos - but only if those selling the condos are moving up into local houses as well.

For that purpose, new unit sales are a wash.

Any thoughts on this?

Anonymous said...

Anyone else see the Vancouver Sun article "BC Consumer Bankruptcies, proposals up almost 50 per cent"?

I found this little tidbit interesing.

"Industries hardest hit on a national level included real estate and rental and leasing, which jumped from eight cases to
22, an increase of 175 per cent."

S2

Anonymous said...

What makes Victoria so appealing?

I have to ask the question....It seems like when people run out of rational reasons for the RE bubble in Victoria, they always come back to the "everyone wants to live here" argument.

So let's see what makes it such a desirable place to live.....

1. Mild sunny winters.....nope winters here pretty much suck. Sure it's warmer than Alberta but it's also rainier and cloudier.

2. Lack of traffic....nope traffic is every bit as bad as cities much larger. Can you say Collwood Crawl?

3. Safe, clean downtown.....A resounding nope! Small town with BIG city crime problems (stay tuned, coming soon - drive by shootings)

4. Good infrastructure...nope roads are a mess, lack of overpasses, bridges falling apart etc etc etc.

5. Culture....HUH?

6. Easy commute to the BIG city....nope ya first have to pay big $$$ then wait hours to get on this bigass boat that on a not too windy day will take you the big city. Where you can get some culture, good food, entertainment (real concerts, live theater and pro sports).... Of course this overnighter will roughly cost you the same price a week in mexico!

7. Friendly people...nope just a bunch of born and raised yahoos that look down on others that were privileged to have been birthed in Victoria.

8. Singles scene....LOL hell no! enough said.

Affordability...LMAO!!!!!!!!

I'm serious people...this argument is getting old. What does Vic really have to offer???? I'm serious. IF I could (my job prevents me) I would pack up and leave yesterday. Yet everyone and their dog keeps using this stale argument for why prices are so high here.

I welcome all comments.......please tell me what makes Vic so great???

vg said...

Global TV talking up continued falling prices for Vancouver,not a good signs for the hypsters. They showed a million dollar bungalow in Vancouver westside. "Exorbitant" was the word used by the RE expert.

On top of that the IMF is continuing the depression scenario is still alive.

Reid said...

Comments from IMF today:

"The current global recession is likely to be unusually long and severe and the recovery sluggish since it sprang from a financial crisis, the International Monetary Fund said yesterday.

The IMF called for aggressive and co-ordinated monetary and fiscal policies, and said restoring confidence in the financial sector was important for economic policies to work and for a recovery to take hold.

The new IMF analysis shows recessions tied to financial crises, such as the current one which has its roots in reckless bank lending to the U.S. housing market, are more difficult to shake because they are often held back by weak demand. Worse still is that the current global recession combines a financial crisis at the heart of the world's largest economy with a broader global downturn, making it unique, the IMF said."

Anonymous said...

For all of those that do not believe Victoria is a great place to live for all of the attributes quoted (and laughed off) on here, I implore you - please move away!!!Really, no charge for looking - just go back!...

The longer you stay, the higher our housing costs. Just leave....Calgary is nice with the Stampede and all, Edmonton, well..., Ontario, Winnipeg is cheap: 2.37 seasons and you can watch the sun set all night. Think about it, please...

For all the rest and in particular those that were born here and appreciate our great city, just sit back and wait. Historically speaking the RE prices will come down another 10% this year - if you can match that up with unheard of interest rates you're laughing (maybe not "all" the way to the bank, but definitely better than last April.) After mid-next-year prices will flatten off for 5-7 years as they always do. Listings will fall off as they have already started to do and we await the next run up. That's life.

History repeats itself and given the Real Estate Rally this Spring that's about all anyone can hang on to.

Anonymous said...

Oh, did I say for those of you that do not appreciate Victoria for all that it isn't: GO FRIGGIN HOME!!!

roger said...

Ryan,

I used to believe that prices would ripple down the price ladder and result in lower prices at all price levels. Watching PCS this spring has convinced me that FTB's have little patience and will pay very close to asking and will get into multiple offer situations. Once they have a pre-approval letter in their hand they want to buy NOW.

So I just don't see the low end dropping much until the Koolaid punch bowl is empty. This will happen when the recession results in more job losses or interest rates go up considerably.

Anonymous said...

Len Barrie was pumping BM on CHEK tonite. It was so obvious it was a show for those potential middle eastern buyers that the places are selling. $500,000 for a condo with debatable aneminties doesn't do it for me. I didn't see a pool or hot tub and the group exercise room looked pretty tiny for the amount of condos that are in that block. Pretty pricey for some granite and stainless.

Anonymous said...

"This will happen when the recession results in more job losses or interest rates go up considerably."

Where do you see the balance between price and interest rates? If they're moving together (and I also believe they will) there won't be any savings in waiting 2-3 years, just more rent.

patriotz said...

This will happen when the recession results in more job lossesDon't forget Gordo's Massacre post-May 12.

patriotz said...

If they're moving together (and I also believe they will) there won't be any savings in waiting 2-3 years, just more rent......
Ok you're saying you don't see the difference between buying now at a high price and low rates and buying later at a lower price and higher rates?

You don't seem to understand that the person who buys today at a high price and low interest rates will be paying higher interest rates on that same high price in 5 years.

While the person who waits 5 years will be paying the same interest rates on a lower price, for the entire lifetime of the mortgage.

Anonymous said...

Shhh, We're watching a movie...

roger said...
This comment has been removed by the author.
roger said...

anon said:

Where do you see the balance between price and interest rates? If they're moving together (and I also believe they will) there won't be any savings in waiting 2-3 years, just more rent.

Check the archives. A couple of months ago we had an extensive discussion on this very topic. Examples with actual numbers were used. Waiting paid off. As Patriotz said in a few years today's buyer and the buyer who waits are both paying higher interest rates. The guy today has a lot more principal to pay off.

Mr.4AM said...

Roger/Patriotz said:
"You don't seem to understand that the person who buys today at a high price and low interest rates will be paying higher interest rates on that same high price in 5 years.
While the person who waits 5 years will be paying the same interest rates on a lower price, for the entire lifetime of the mortgage."
Well said...and further, when you consider the very real possibility of a Currency Crisis in the next year or two that will be coupled with severe inflation (in consumables, not housing) and fast accelerating interest rates; this will have the consequence of even further deterioration in housing prices (as it always does) and again benefit those who wait because mortgages will be resetting during that period and owners who initially maxed out on their debt levels to buy the house, will see their monthly payments sky rocket to the point of forcing them to sell and sell fast or face foreclosure.

The more I read about the economy and real estate, the more I come to the conclusion that the downturn in housing will be far more severe in terms of price decline and longer in time than I initially anticipated a couple of years ago.

Mr.4AM

PS. Favorite quote from my readings today:

"Global Keynesian stimulus as an alternative to debt cancellation is a triumph of ideology over evidence that will end in inflationary tears." - Eric Janszen

Anonymous said...

At least one of you also predicted a 30% drop in 1 year one year ago. For the housing that the average FTB on here is likely to buy that price change has been 5 - 10% and now slowed significantly. This is history in Victoria.

Your opinions are great, those graphs were great too Roger. Unfortunalty they were also (I believe) "average" price changes including all properties high and low.

A 30 year averaging of the mean would tell the relevant story.

hhv said...

anon at 652,

Start lobbying the vreb, they won't give access to those numbers.

There have been all kinds of predictions on this blog, but not from myself or the regular commentators. I've openly called for a total decline of 35%, not an annual one, I know Roger expects less, likely closer to 25% total. But we're speaking of average prices, not median ones. We don't have median data going back further than 2002. And it's only public as far back as 2007.

beagle said...

I finally figured out who is driving this market. It's gardeners! They come here for the plant hardiness, see it is different here in southern BC.

Plant Hardiness Zones

Anonymous said...

For all of those that do not believe Victoria is a great place to live for all of the attributes quoted (and laughed off) on here, I implore you - please move away!!!Really, no charge for looking - just go back!...

The longer you stay, the higher our housing costs. Just leave....Calgary is nice with the Stampede and all, Edmonton, well..., Ontario, Winnipeg is cheap: 2.37 seasons and you can watch the sun set all night. Think about it, please...

For all the rest and in particular those that were born here and appreciate our great city, just sit back and wait. Historically speaking the RE prices will come down another 10% this year - if you can match that up with unheard of interest rates you're laughing (maybe not "all" the way to the bank, but definitely better than last April.) After mid-next-year prices will flatten off for 5-7 years as they always do. Listings will fall off as they have already started to do and we await the next run up. That's life.

History repeats itself and given the Real Estate Rally this Spring that's about all anyone can hang on to.

BLAH BLAH BLAH.... YOU MUST BE ONE OF THOSE INBREEDERS I WAS REFERRING TOO EH? PITIFUL HOW YOU BORN AND RAISED MOOKS THINK VIC IS SO FANTASTIC......AND DUDE I SAID I'D BE GONE YESTERDAY IF IT WASN'T FOR MY JOB KEEPING ME HERE!

****I've yet to hear from anyone refuting what I said by the way***

Vic sucks and even more now that prices have gone idiotic.....party will be over real soon...50% decline from 2007 highs. Believe that!

Just had a buddy get laid off (construction) along with a whack of his pals. Construction is dead and the only thing driving this false economy for all these past 6 years. I sure hope none of those guys have mortgages :(

Govt, construction, even tourism and hospitiality jobs all getting axed and you guys think 50% ain't possible? What goes up come down....and remember RE was overpriced 6 years ago!

Vic will look like S. Cal , Nevada, Fla real soon....we are just a year or 2 behind the curve. What will the inbreeders say then?

Art Vandelay said...

Airdrie = Bear Mountain???

Back away from the crack pipe. I've been in both and it you can even think that comparison, much less type it, you are as deluded as the guy standing on the street corner mumbling about being Jesus Christ.

Anonymous said...

The other shoe has dropped among the professionals I work with. They get it now. There's been a few people let go and everyone is on edge because they know they could be next. There's one more pool of potential FTBs which won't be buying this year.

I think the recession is now trickling into this town though. It's sure taken a while but over the past two weeks I've noticed some more fear among people I know. For a while there was pure denial.

beagle said...

From the TC,
"Strong early sales at Bear Mountain's Finlayson Reach, St. Andrew's Walk and Stonehaven condo developments -- due to a marketing campaign offering up to 40 per cent off the purchase price for some units, with the average discount about 20 per cent -- have done more than just fill up the buildings.

It means the development group can proceed with plans to retender the construction of the stalled Highlander condo project.

"It lets us get Highlander built and at better prices for people, too," said Barrie, noting reduced building costs will mean the purchase price of the new units will be 15 to 20 per cent below what had been expected."
So how you liking that article if you bought a condo up there a year ago. 20% discounts to what you paid. Your 500,000 condo is now worth 400,000. You need a 25% market rise to get back to even. enjoy your golf.

patriotz said...

For the housing that the average FTB on here is likely to buy that price change has been 5 - 10% and now slowed significantly.Can you show us just one property that sold in the first 4 months of 2008, and has sold again in 2009 for more than 90% of that price? Just one.

Zephod said...

Victoria-haters, gold bugs, and apocalypse lovers--the slippery slope for any bear blog i think--just check out prairie boy these days...

This blog is about finding a house in Victoria--if you don't want to live here and/or think the world is about to end, why on earth would you ever buy here (or anywhere in the latter case)? Even if a job (my god, so people do come to Victoria for work?) or family keeps you here, why not continue to rent?--it's the most cost effective option anyway.

Anonymous said...

Wow comparing monster houses on shoebox lots is doing a disservice to Bear Mountain? Nice one Art you crack smoking junkie. Calling people crack smoking junkies? Nice one Art, you crack smoking junkie.

Anonymous said...

Zephod: Anyone who thinks they're going to be able to buy a house with crashing paper in a Depression is going to be woefully educated and renting for a very, very long time.

And another thing; recognizing an apocalypse is not loving it. However, ignoring one is enabling it.

Anonymous said...

I agree with Zephod, if you really hate Victoria and the residents that much or believe the world is coming to an end, maybe you should consider living elsewhere.

Anonymous said...

"Can you show us just one property that sold in the first 4 months of 2008, and has sold again in 2009 for more than 90% of that price? Just one"

For starters, I'm not sure who the "us" are that you would like me to show.

More importantly, I'm not referring to one home I'm referring to the market as a whole. Are you denying that the prices on an entry level FTB's house has dropped at best 10% from April 2008?

I personally do not see the anomaly of April 2008 as much of a benchmark - Any FTB buying at that point may have a long time to live out their decision. October / November of 2007 is probably a better comparison. What have prices "as a market" done from there? I'd say, not much at the 400,000 - 500,000 level.

Anonymous said...

You're all foRenters so just face it. Look in the mirror and say "yes I want to be a renter for the rest of my life". That's ok, nothing wrong with it. I need you to pay my mortgage.

Anonymous said...

"I agree with Zephod, if you really hate Victoria and the residents that much or believe the world is coming to an end, maybe you should consider living elsewhere."

-------

I don't hate Victoria (except the house prices). I am seriously considering that, that's why I'm still renting.

I think people seriously underestimate the chaos we'll be seeing in the world in the next couple of years.

I'm staying uninvested and nimble. Able to turn on a dime and move to anywhere that looks like it will survive the upcoming madness. So far Victoria has been a nice place to weather the storm... but this Island is by no means isolated, let alone insulated.

roger said...

I see we have the usual crowd of nervous homeowners on the blog again. Seems to happen every time listings and sales pick up or we have a pause in the price downturn. Then out come the same tired, old lines.

- Prices haven't really changed much in the xxx price range

- Victoria real estate will double in the next xxx years

- You will just be a renter forever

- Thanks for paying my mortgage you loser renters

- Stats are misleading. The stats and graphs don't reflect what is happening with certain types of real estate.

- If you don't think Victoria is beautiful or paradise then leave now. We don't want you here pointing out negative stuff

- We are insulated here and our diverse strong economy will keep real estate on solid footing

Most of these posts are made by anonymous posters who haven't even got the imagination to come up with a username. Once the spring sales season fades away these posters will disappear only to reappear on the next price uptick or jump in sales activity.

omc said...

I love those anon losers. They think they are something. Either that or they are prepubesant boys.

We won't be renters all our life, we just won't buy until the time is right. Right now is definitly not the time. Prices can't go up, so what are we risking?

I work with a guy that is a bit cool aid on real estate and renting out. I have said if he buy anything this year he has to bet me that it won't be worth less next year, he won't. He is scared.

vg said...

roger and omc,

most of those anonymous pumpers are connected to the real estate business and know now the power of the blogs. HHV and other sites are a force to be reckoned with.


See Garth's latest on his high end Vancouver meeting,not one big bucks guy in the house disputing his claims of what we know is coming.

The RE boys in Vic are panicking to try and swing momentum on a one month predictable upswing in sales. Thats why none choose to use a real nickname,cause they won't be here long.

omc said...

I don't think we should be so hard on the so called "victoria haters". Its ok to vent your frustration here, and I don't really disagree with them that you sell your soul to live here. Is it really worth it?

We should vent a bit more on " I hate realtors " though. It makes me smile, and I have never met such a bunch of low functioning snakes. Insider trading, conflict of intrest and out right lying. An example would be simply trying to get one of your own buyers to purchase a home before you release it to mls. It only benefits the realtor and any real profession would never allow it. They do much, much worse and still smile at you.

So lets let our anons know how welcome they are!

Anonymous said...

"most of those anonymous pumpers are connected to the real estate business and know now the power of the blogs. HHV and other sites are a force to be reckoned with."

As with so many assumptions and predictions on here, this is untrue.

What is interesting is that as soon as we get towards discussions involving testable reality, many of the posters, with and without names, come up empty handed. That is, their statements of fact are wrong at least 50% of the time.

Let's see how interesting this blog is without anonymous posters.

vg said...

"Let's see how interesting this blog is without anonymous posters."


As usual you anonymousers miss the point of being taken half serious. I would enjoy the lack of empty pumping posts based on one months predictable sales on the most overvalued shacks on the planet.