Friday, May 1, 2009

Spring tug of war

I don't think anyone, not the bulls, nor the bears, could have predicted what is happening this spring. Despite the spin of the VREB, nothing has really changed. Just like in every other year, sales volumes are up month-over-month this spring. But unlike the previous 7 years, sales volumes are down year-over-year. Roger has beat us all with his usual excellent analysis:
April 2009 Statistics - Monthly Analysis--

March 2009 shown in ( )

MLS Sales - 747 (602)
MLS listings - 3861 (3859)

SFH Average - $550.7K ($534.7K)
SFH 6 mo. Avg. - $540.2K ($540.2K)
SFH Median - $515K ($503.8K)
All SFH Sales - 421 (343)

Condo Average - $292.3K ($294.3K)
Condo Median - $274K ($266.5K)
All Condo Sales - 204 (163)

Town Average - $400.7K ($405K)
Town Median - $390K ($356.5K)
All Town Sales - 74 (64)

Year-over-Year Analysis--

GV - Greater Victoria
April 2008 shown in ( )

MLS Sales - 747 (768) - Down 2.7%
MLS listings - 3861 (3859) - Flat

GV SFH Average - $550.7K ($630.3K) - Down 13%
GV SFH Median - $515K ($558K) - Down 7.7%
GV SFH Sales - 400 (395) - Up 1.3%

GV Condo Average - $292.3K ($326K) - Down 10%
GV Condo Median - $274K ($294.9K) - Down 7.1%
GV Condo Sales - $204 ($235) - Down 13%

GV Town Average - $403.4K ($420.7K) - Down 4.1%
GV Town Median - $395K ($407.5K) - Down 3.1%
GV Town Sales - 72 (80) Down 10%
I think some of us bears thought we'd see a leak this spring. We didn't get it. I'm not sure we were paying close enough attention to the direction of interest rates, or maybe we discounted the inflamed effect they'd have on this market.

I will say this: for all my frustration with the spin that comes out of the media and industry, it's certainly proven effective in Victoria, if only temporarily. The greater fools were enticed into excessive leverage situations (notice the absence on mortgage-type data--I'll bet the high ratio mortgages are flying off the shelves comparatively right now).

Despite the cheer leading and patting on the backs of first time buyers coming from the usual suspects, what has happened over the past three months will likely prove to backfire in this market over the coming years.

Let the tug of war continue, the bears just gained ten pounds and the ground will start to make it's usual downhill shift in direction for the rest of the year at the end of May.

144 comments:

greg said...

Do I need to point out how happy and congratulatory the local RE was last spring, April to be exact?

As it turned out, that was the high point of the market last year in terms of volume and price, all downhill for months and months after that.

Considering the state of the economy, anyone wanna bet on a similar downtrend beginning RIGHT NOW?

Hmmm, we'll see....

Anonymous said...

Only in Victoria. Increase the price 100% and then knock 10% off and offer low interest for 5 years and its a deal of a lifetime.

Anonymous said...

I get sick of the VREB spin just like everybody else, especially a few months ago when clearly nothing was selling, but the same can be said for these blogs.

You and others were predicting death and doom in the local market by this juncture of 2009, yet it hasn't happened.

So what's the difference between the VREB's overly positive spin, and the overly negative online?

Is the truth somewhere in the middle?

hhv said...

"You and others were predicting death and doom in the local market by this juncture of 2009, yet it hasn't happened."Please feel free to go back to my posts and cut and paste the predictions of death and doom. Until you do, I'll assume you are misrepresenting the truth.

I predicted a correction, and a significant one; I'd say a market-wide 13% drop in SFH prices in one year is fairly significant so far. I'll also go on record to say that we're probably only half way to where we may start to stabilize.

Anonymous said...

Adjusted for waterfront and other million dollar homes the TRUE overall market price reduction has been about 5-10% (and further adjusted for the outlying areas (of which I am part) the central Victoria adjustment has been about 5% average, spin adjusted of course.

5% of say $550,000 = $27,500. Rent for the same home = $24,000

I also predict the same 5%adjustment before things start to settle out. This is why people are still buying homes - nothing is happening, and there is a perception (regardless of reality) that renters are still "paying' the landlord's mortgage.

Rhino said...

"I get sick of the VREB spin just like everybody else, especially a few months ago when clearly nothing was selling, but the same can be said for these blogs."

This blog is just a market commentary from interested citizens, the VREB is using spin to make money for there members..big difference.

And in terms of your comment about predicting death and doom, it seems most bears on this blog are predicting about 30% off from peak. Prices went up 100% in a few years, I don't see a 30% pullback being that doomsday-ism.

roger said...

Rhino said:

Prices went up 100% in a few years, I don't see a 30% pullback being that doomsday-ism.--

It sure appears like doom and gloom to someone that bought a home in the last few years. If it comes true it wipes out all their equity and puts many underwater on their mortgage. Some homeowners that bought last April are already in negative equity; they are blissfully unaware that this is the case.

Anonymous said...

Each point the interest rate goes lower makes it possible for more buyers to get into the market. The price has also come down some. That has an impact on people who got sick of waiting and feel they need a home to raise a family in - so they are buying. Can't blame them, the pressure is too great (bad decision, but I understand it).

As the price continues to drop, and interest rates stay low, homes will continue to sell to people who have been waiting. I don't think there is anything to disagree with in that statement.

The interesting thing is that, despite the record low interest rates, and the lower prices, (2 huge factors for buyers), the numbers are STILL down from last year.

It doesn't get any better for a buyer than this if the product is worth the price. The fact that fewer people are buying despite the "bargain" relative to other years tells me prices will continue to drop. If you are selling stereos and last year you sold 100, at 1000 bucks at 5% interest and this year you sell 95 at 90 bucks and 3.9% - tells me your stereos do not hold the same value.

Wait til tourist time. People are going to start to feel the pain, reality will sink in and then the major shifts downward will become increasingly evident.

Think of the guy who bought last April for 625 or whatever. He has "lost" 70 K or so in one year! Do you know how long it takes most people to save 70k? If two people are working full time at 60 k per year - 120 k, they can save, what...2 grand a month - maybe - That guy just lost 3 - 4 yrs of his family's income - vanished. If he wanted to retire at 55, he just pushed it to 60. That was the kids college fund -- gone - in one year, because he made a bad decision and wanted fee simple title. Dumb.

If all you have to do is wait one more year to save another 70 k, and anohter 3 - 4 yrs of work - why would anyone choose to buy now?? That does not even include the value of money (ie, 70 k invested, doubling after 7 yrs rather than paying interest on it).

Anonymous said...

Let's face it FoRenters, you are treading water waiting for something that will never happen. Your savings are earning no interest. You lost money in the stock market. And you missed the boat on real estate. Just look yourself in the mirror and face the fact that you screwed up and have put your family's finances in jeopardy forever.

Anonymous said...

In the past year we've spent $10,800 in rent, paid off $10,000 in student debt and saved $15,000 in cash.

SFH prices have dropped $75,000 over that same period.

Boy, we should have bought the house. Then we would not have been able to pay of the loan, save up the cash, build any equity in the house or slept at night.

Yep, FoRenter, FoSmarter it seems.

hhv said...

renting getting easier

vg said...

You anonymous bulls crack me up. When are you going to have some nuts and predict your real estate percentage gains for the next year ?

At least the bears have been close to bang on with their predictions of 15-30% and we still see houses selling BELOW assessment so lets here some predictions with a nick name attatched to you.

Anyone buying now thinking they are going to make big money and the price is going back up 15% is whacked in my opinion. Real estate is a dead investment for many years,even though the media has melted your minds.

Anonymous said...

"In the past year we've spent $10,800 in rent, paid off $10,000 in student debt and saved $15,000 in cash."

Good for you for paying off that debt. Anyone with any level of consumer or student debt should not be considering a house purchase at any price. We worked hard for about 4-5 years to pay off all debt and save 20% down on our first house (purchased perhaps 5 years ago for $290,000.)

We lined our debt up in order of interest rates (moved a couple small loans to the forefront because it felt good to pay loans off entirely)and blasted away. All the while we lived in a rental that was too small for our growing family, rode our bikes as often as possible, and shopped our hearts out for grocery deals.

Having our student loan, LOC, and vehicle debt out of the way made all the difference in the world for our family.

As for prices coming down $75,000 in the past year, you must be looking at a relatively high price range (say $750,000 - $850,000.) That seems pretty high for a family that has just paid off student loans.

vg said...

"In the past year we've spent $10,800 in rent, paid off $10,000 in student debt and saved $15,000 in cash.

SFH prices have dropped $75,000 over that same period. "


And I can easily afford to drive a nice car with an affordable loan and a nice vacation instead of giving it to the city for taxes and the bank for 90% plus to a 40 year ball and chain around my neck.

I also rent a top floor suite with a beautiful city view for $1000 a month while you pay over $2500 month to live in a dumpy neighborhood.

I also have free cash I can invest in all the stocks that got hammered and get into new deals that got delayed,one which I am up handsomely on with much more to come.

If I owned a house I wouldn't have two nickels to rub together and I would be down $100,000 in a year and cashing in the pop bottles in order to take the wife out for dinner.

Yep,those FoRenters have it rough alright. ;)

Anonymous said...

Wow VG,
I don't see anyone (spelled nobody) predicting a rise in RE in the next few years. What is laughable is the suggestion that predictions from a year ago of 15-30% price declines have come true in the past year. Missed the mark a little.

Did you read the stats? You seem to get angrier every week.

Anonymous said...

"And I can easily afford to drive a nice car with an affordable loan and a nice vacation instead of giving it to the city for taxes and the bank for 90% plus to a 40 year ball and chain around my neck.

I also rent a top floor suite with a beautiful city view for $1000 a month."

You're living life to the fullest and all the while spending your downpayment on car loans, vacations, and expensive dinners.

That sounds like just the type of tenant landlords rely on.

vg said...

"As for prices coming down $75,000 in the past year, you must be looking at a relatively high price range (say $750,000 - $850,000.) That seems pretty high for a family that has just paid off student loans."



$630,000 peak to $550 is "average" price so that is $80,000. If it is a $400,000 house it is still $48,000 at a 12% decline YOY.

If you categorize them just cause they paid off student loans then $48,000 is a years wage or more for most in that price range.

vg said...

Wow VG,
I don't see anyone (spelled nobody) predicting a rise in RE in the next few years. What is laughable is the suggestion that predictions from a year ago of 15-30% price declines have come true in the past year. Missed the mark a little. "


You missed the point completely, I said why aren't you bulls making predictions of massive gains ? We see none other than taunts because we have been right so far,just waiting for the full effect of you suckers to keep dreaming the dream. The last 2 months have been a predictable blip as per last recessions.


If I bought 5 years ago this would be the last place I would be wasting my Saturday morning trying to make my case the market is going to go thru the roof.

PS Not angry in the slightest dude,I am living life to the fullest. I don't need to spend my day fixing the roof and the washing machine,I got better things to do. :)

vg said...

That sounds like just the type of tenant landlords rely on."

Once again you conveniently missed/avoided the point. I have cash left to "invest" and take risk with. The happy owner like you is mostly maxed out and can't afford one screw up.

I'm up over 100% on my investments the past few months,cash I would have never made paying the bank 90% of 250% the price of my rent just for the privelege to say "I own".

Bitterbear said...

OK, so I've been lurking on this blog for about a year and now I want to tell my story. I moved my family to Victoria in 2006 from the prairies where our mortgage payment was....wait for it....a whopping $87.00 per month. We left after I completed a PhD in a medical field and needed to pursue post-doctoral training. I had over $100,000 in student debt that I could only pay off by selling my house which I did just before the Saskatchewan market took an unprecedented and unpredicted jump. We rented in Victoria for about 15 months before getting kicked out because the landlord sold the house. At this point, we tried to move back to to the prairies but found prices double what they were when we left. Meanwhile, our downpayment had dwindled trying to cover the exhorbitant rent for the only place we could find in the 2 weeks we were here prior to moving. So, with tails between our legs, we slouched back to Victoria to try to make it work. We found another rental, too small, no dishwasher, full of mold, but it was in the same neighborhood as our kid's schools and we started to buckle down to try to make some money back. I started my own practice which ate up yet more of my downpayment. Now 16 months later, we have been given notice again because the house we are renting has been sold. We have not been able to find a SFD in our area (so kids can be in schools and we don't have to worry about axe murderers renting the basement), so in 4 weeks we are officially homeless. We will of course end up out of our neighborhood and commuting to school.


So, I understand why people buy houses.

But I won't.

Here's why. I'm not an economist but I know something about mass hysteria and a wee bit about statistics. About 3 years ago, I started to notice too much good news coming from top bankers and CEO's, like the party would never end, and I started to ask questions about value versus price. Buffet is right...value is what you get and price is what you pay. The spread has been widening during the last bull run to the point where even people like me who make a decent income and desperately need a house will not pay the price because the value so much lower.

It seems to me that price is composed of the true value of the item (ie the cost of producing it when it was built plus inflation over the years) plus fixed factors like location (Victoria will always be more expensive than the flatlands because it's by the ocean, warmer, has more coffee shops and the beautiful people live here), variable factors like spring bounces in listings and sales which are at least to some extent controllable by timing things right and the rest is hype.

Putting a price on hype is difficult, but this might be a good estimate: if you plan to be in a house for 30 years, look at the 30 year history of sale prices for comparable places. This value will go up and down with market fluctuations. The annual average market value for each year are your data points. Calculate a line through these data points in such a way that the position of the line minimizes the distance from the line and the individual data points...this a regression line for any stat heads out there. Maybe hype is the price differential between the value at which the line falls and the actual asking price of the house. If you must buy a house right now (good luck to you man, keep a stiff upper lip, what what) then plan on paying the value determined by the regression line. I think hhv provided this data a while back (see timing the market). If the linear prediction is a regression line (not sure if that is how hhv got the prediction, but I’ll assume it is). By this graph, the 2009 value of hype is about 100,000 (about 425,000 is the predicted price of the house and about 525,000 is the current average market price).

The beauty of regression is prediction. If all conditions remain the same, a regression line will provide a reasonable prediction of future prices. The regression line right now would predict prices would increase, so one would think buying now for 475,000 would be a good idea. That catch here is not all conditions will remain the same. Interest rates will go up (there’s no where else for them to go unless BoC decides to hold them steady indefinitely….not likely) and unemployment will go up. Rents are tied to income which is inversely related to unemployment, so rents will likely get cheaper. Hopefully, FTBs will get smarter or at least more afraid once the term “underwater” becomes part of the common lexicon. When conditions that increase the slope of the regression line change, the regression line begins to change. In this case the conditions are likely to drag down house prices so the regression line will flatten. How far it will flatten is difficult to determine but my best guess is it will flatten until people can once again comfortably afford to own a house. By my calculations (average family income = 72,000, downpayment = 20,000, 25 year amortization, taxes = 300.00, utilities = 300.00, interest rate = 5%) this puts the average house price at about 250,000 like it was in 2002.

I can't wait that long, but I would if I could.

My 2 cents.

omc said...

I still get a little laugh at our anon bitter realtor trying to put the screws on us. If I could turn back the clock and buy many years earlier, well I still wouldn't because we were in no position to buy because of life circumstance. Any time buying in the past 4 years is missing the market.


Some how that by listening to this ian watt wanna be, and buying now makes our financial future all better? It's the oppposite buddy, houses are devaluing and you are ignoring the debt servicing costs. Face it pal you are a realtor, next week you could be taking a securities course or pumping gas 'cause thats the type of person you are. Good luck in your future endevours. Look in the mirror and repeat after me "would you like fries with that"?

vg said...

Bitterbear,


tough situation but patience is needed at this juncture. Good luck with your rental hunt.

As per Buffet comment "Buffet is right...value is what you get and price is what you pay."

Buffet just said this morning he sees no signs of recovery in the housing market nor the retail and some nasty reprecussions from the bailouts. BC'ers are always late to the game and denial is a dangerous thing.


We also have the bank stress test news this week,could this be the catalyst of the "sell in May and go away" ? We shall see.

vg said...

Fewer first-timers entered Lower Mainland market in 2008


Vancouver SunMay 1, 2009


Fewer first-time buyers jumped into Lower Mainland real estate markets during 2008, according to a new survey by the Real Estate Foundation of British Columbia.


Some 22 per cent of buyers within the territory of the Real Estate Board of Greater Vancouver, and 26 per cent in the Fraser Valley Real Estate Board territory were first-time buyers, according to the survey conducted by the polling firm Mustel Group.


That is down from 31 per cent in the REBGV territory in 2006, the last time the survey was conducted.

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

Carla Wilson wrote a very balanced article on the VREB stats in today's TC. The stats were nicely presented in an easy to read format with median and average prices for all categories.

Real estate sales up last month - But some home prices continue slide--

Greater Victoria's real estate market continued to rack up hefty month-over-month increases in sales while prices in April continued to decline from record highs of the past two years.

roger said...

As usual Garth Turner calls it as he sees it.

Downwardly mobile--

The current real estate market, as frothy, seductive and appealing as it may be, is lubricated with cheap money and greater fools. The lowest mortgage rates in history – forced down because governments fear the dogs of deflation will escape – are intended to make borrowing and debt utterly irresistible. But we will hate ourselves in the morning.

As I have said before, it was excessive credit that got us into this soup, and new borrowing is not going to get us out. People buying today merely because they can afford what they could not two years ago will find they bought at the wrong time, and for the wrong price.

Anonymous said...

"If I bought 5 years ago this would be the last place I would be wasting my Saturday morning trying to make my case the market is going to go thru the roof."

Really?? For starters, who said anything about RE going through the roof? Or about it even going up for that matter? Not going tp happen anytime soon IMO. However, it's also not going to crash 20 - 30% in a year and has NOT to date.

If I had thousands, no make that hundreds of thousands as the claim appears to be, I wouldn't be wasting my time trying to talk this RE market out of the tree. So I guess we're both wasting time eh?

"PS Not angry in the slightest dude,I am living life to the fullest. I don't need to spend my day fixing the roof and the washing machine,I got better things to do. :)"

Nope, you still come off angry.

vg said...

Really?? For starters, who said anything about RE going through the roof? Or about it even going up for that matter? Not going tp happen anytime soon IMO. However, it's also not going to crash 20 - 30% in a year and has NOT to date."


So many of you anonymouses are pumping the market up in your comments so what other direction are you calling for ? Take a nick name so we can tell you apart or risk being painted with the same brush. So I guess you are calling for a complete flatline ? Make up your mind please.



"However, it's also not going to crash 20 - 30% in a year and has NOT to date."


Not yet but we are 13% of the way with some very large haircuts of 20% on some deals so the bears have picked the right direction so who is correct so far ?
Real estate corrections/crashes do not happen overnight,they take up to two years as per the USA. Canada is just late to the game.




"Nope, you still come off angry."


You are just reading it the way you want to.


"If I had thousands, no make that hundreds of thousands as the claim appears to be, I wouldn't be wasting my time trying to talk this RE market out of the tree. So I guess we're both wasting time eh?"




Whose talking out of a tree ? I have been correct in my calls for over a year now while you have lost money,far from wasting my time. How long have you been here as an anonymous ?

As roger and others have said,anonymouses should take a nick name,until then no one will take you seriously.

Just Janice said...

How many bulls would have said RE will double in 5 years in 2002? Probably not many (I'd be surprised if any would have). It did.

Most bears aren't saying that RE will drop 20-30% in a year. Bears are saying real estate is due for a significant correction, most bears don't know how long that correction will take. A rule of thumb is that it will take as long as the run up took. That's probably fairly reasonable. So if it continues to fall at a 14% per annum clip, in a few years we might yet again be at some reasonable price point for the value of the house being bought.

It is frustrating being 'relatively successful' and yet being unable to afford modest accommodations. The rental market has it's frustrations, but it also has some perks. By law, your landlord must give you 2 months notice and 1 months rent if you are asked to leave the premise. That's more than enough time to find suitable alternatives, and the 1 months rent pretty much covers the cost of moving. You may have to forgo the notice/rent if you find something suitable sooner, but in general it is the price that is paid to avoid the over-priced real estate market.

We're a young family (me, my spouse, and 2 part time kids). We rent. It's not always easy but we're happy with what we've had so far. Our first rental was a $700,000+ home (3 beds, 2 baths), and included gardening...for which we paid $2000 a month. We're now in a 4 bed, 2 bath waterfront home...it doesn't include gardening and the utilities are a bit more and it's $2200 a month. In a heartbeat finding value in the rental market is way easier than finding value in the Victoria real estate market.

We aren't Forenters, when the conditions are right we will own. If they're never right, then we will substitute ownership with the mix of other stuff (rental accommodation/investments) that best meets our needs.

Joe Dirt said...

How can your predictions have been correct when even your current comments are off 10%?

SFH's in Victoria have dropped somewhere around 5%. Not 13, not 15, not 14% per annum - 5% change is all you can boast, and that's OK. That's exactly what I would expect for the next year and I see it changing perhaps 20 - 25% overall through the next 2-3 years depending on the overall economic situation.

I do not see any bulls talking like the market is going to go up - please show me one post in the past 3 months (which honestly has been a bullish market given what should be happening) that suggests that the RE is going to go up (I mean one honest effort at a discussion where the "Bull" states or implies that it is his expectation that the market is going to go up, not the "Forenter" trolls.)

If you bears would stay within some limits of the truth you wouldn't attract near as many trolls and your comments could be taken seriously - with or without a nickname.

There's quite a concern over whether or not someone uses a nickname. Ask HHV again to limit the posts to registered users only. He has so far stated that it is not his wish to restrict posters in that manner. Until he makes that decision, I would suggest you either respond to anon posters or you do not, it is your choice.

hhv said...

Joe: avg SFH prices in April 2008 were $630K, avg SFH prices in April 2009 are $550K, peak to one year later drop = 13%. Yes, not all segments of the market have dropped the same or at all in some cases, but that is irrelevant.

Until we have a way to track individual properties/segments, we have to use the VREB avgs we have. We can't change the yardsticks suddenly because the market has changed.

Regardless, the argument is moot. There have been anony bulls and bears trolling here for some time. Yes they're best ignored, but sometimes we just can't help ourselves. I hesitate to censor or require logins precisely because I want to foster discussion, not limit it. People can always scroll past.

For the record, I'm forecasting a 30%-35% total drop from the peak, calculated in today's dollars and we will likely see that "bottom" 2-3 or more years from today (2011-2012).

That's not a sky is falling scenario, but the savings are worth the wait IMHO.

roger said...

Joe Dirt said:

FH's in Victoria have dropped somewhere around 5%. Not 13, not 15, not 14% per annum - 5% change is all you can boast, and that's OK.--

Please show your links to these stats or provide detailed numbers to back up your 5% claim. Or are you just "armwaving".

Once you provide yours I will give you my detailed stats.

omc said...

I wonder if oak bay is leading the way again? It was a busy march and first week or so of april, and it takes a few weeks for the sales to go to completion to show up as stats. it's pretty quiet over here again. I wonder about the may sales #s.

Anonymous said...

My wife, my daughter (12 year old), and me currently rent a nice two-bedroom apartment (9 years old) in James Bay for $900 and started looking for a detached house in Victoria a couple months ago. This house http://www.mls.ca/PropertyDetails.aspx?PropertyID=8053897 looks very attractive to us.

We like it and consider writing an offer. However, the price $749,000 seems to too high and beyond what we can afford for. We have about $160,000 for down payment; our income is about $110,000.

Reasons to buy:
1. I want to provide a better live condition for my daughter before she enters University and leaves us,
2. Cheap borrowing cost,
3. Fear for coming inflation.

Reasons not to buy:
1. Price to income ratio is high,
2. Risk is too high.


I’d like to hear your opinion about buy/not buy. Thanks a lot in advance!

hhv said...

Anon at 7:28. You should do some digging into the effects of short term inflation on the housing market. It may surprise you and squelch your fears.

Anonymous said...

Anon said "Just look yourself in the mirror and face the fact that you screwed up and have put your family's finances in jeopardy forever."

So, buying an overpriced, depreciating asset is a good thing for my family's finances?

I'm loving the great discussion tonight.

Thank you for posting your story Bitterbear and also thanks to Just Janice at 2:08pm.

S2

Just Janice said...

If I had $160,000 for a downpayment, a household income of $110,000, and a 12 year-old, and was presently renting a 2 bedroom apartment for $900, would I buy a house in Victoria right now??

No, I'd be reasonably confident pursuing a strategy of watchful waiting, although I would likely upgrade my rental accommodations. A nice home(3 beds plus) in a good neighbourhood (Fairfield, Oak Bay, James Bay) can be found for less than $2400 a month (way, way less than what the comparable mortgage would be). And, from my experience, kids care to live in a nice place, they really don't know the difference between one that is rented and one that is owned.

Interest rates are very likely to stay low for at least another year. Meanwhile, the recession is still going on, taking some of the demand out of the Victoria market. I would think that the $750,000 home might be $675,000 next year. A savings of $75,000 over the next year. So even though you may spend $30,000 to rent a really nice place in Victoria over the next year, you'll be ahead of the game by $45,000. Whether you own now, or you own a year from now, or you own two years from now will make very little difference to your daughter. Also consider all the things you may have to give up to buy now (vacations, spending money, gifts, investments, etc.).

Just Janice said...

Being a successful renter does require that you know where to look for rentals. Here's some of my all-time-favourite rental sites for Victoria:

UVic's Off-Campus Housing:
http://housing.uvic.ca/ads/index.php

Duttons:
http://duttons.com/unfurnished.html

Pemberton Holmes:
http://www.pembertonpm.com/Metchosin.Commercial.html

Baywood:
http://www.baywood.ca/propertyrentals.htm

Boorman's:
http://boorman.com/for_rent.php

Brown Brothers:
http://brownbrosrentals.com/vacancy_search.html

Cornerstone:
http://www.cornerstoneproperties.bc.ca/

Proline:
http://www.property-managers.net/availability.php

Victoria TC Classifieds:
http://victoriatimescolonist.oodle.com/housing/rent/

UsedVictoria.com

and

Craigslist...

Anonymous said...

Thank you, Just Janice and hhv, for your suggestions! I'll do a little more research about rental market in Victoria.

The apartment we have rented for six years is one of the market priced units that belong to CRHC. It is nice, but small.

Anonymous said...

"FH's in Victoria have dropped somewhere around 5%. Not 13, not 15, not 14% per annum - 5% change is all you can boast, and that's OK.--

Please show your links to these stats or provide detailed numbers to back up your 5% claim. Or are you just "armwaving".

Once you provide yours I will give you my detailed stats."

I'm actually quite comfortable with my numbers as they apply to the majority on here, so the "you show me yours and I'll show you mine is unnecessary" - chock it up to "arm waving" if that helps you sleep tonight.

When did the Bears stop using the median yard stick of 7.7% and switch over to the average of 13% in the year over year numbers. For that matter, it's only 4-5 months ago that the YOY was considered very bad form and laughed at at lenght. Pretty convenient, if you ask me. I'm not bullish on the market but I'm very bearish on BS.

I'm glad HHV has - once again - reiterated his position that he has no intention to censor posters and therefore anonymous posters are welcome as it expands the discussions. Perhaps we can send the self-appointed blog cops to bed as well, eh?

JD

vg said...

"I do not see any bulls talking like the market is going to go up."


Thank God Joe Dirt/anonymous showed up with that brilliant assumption. Let's see now, a bull wants the market to go up and a bear wants the market to go down. So Joe says a bull wants exactly what then ? a complete solid flatline ? Please explain Joe,I am at odds to what your defitition of a bull is ? .

Or maybe we have a new group called the Flatheads who think the market won't move a dime forever ?


I asked you once already but you avoid my questions like the last time you posted with that nick when I asked you how long you have owned and how you plan to buy that second home you were talking about with declining equity before you disapeared into thin air.

I would think someone who is a "bull" who wants to buy a second home would be of the thinking the market is going to rock and roll in order to make financial sense,correct ?

vg said...

I'm glad HHV has - once again - reiterated his position that he has no intention to censor posters and therefore anonymous posters are welcome as it expands the discussions."


I guess it makes the hit and run types like yourself play both sides of the fence. I am at odds why hhv wants it this way as I don't see any top secret hot info being posted by "anonymous" sources that enlighten the conversation. IMO, it only drives people away from taking part but it's his blog and maybe he wants the traffic not the substance.

roger said...

Joe Dirt,

As I expected you have no facts, stats or anything to back up your 5% claim. Just "armwaving" and blanket statements about bears on this blog.

And if you have been following my posts you know that I am not a big fan of using Year-over-Year % drops based on one months average price. That is why I post graphs showing trend lines and rolling averages.

Anonymous said...

To guy with 12 yr old.

By waiting for a yr - 18 months on that 700 plus k house you will likely save around 7-10 k per month. It is very difficult to save 10k per month. By waiting, you are making the easiest money you have ever made.

Some people give the Victoria is different, people want to live here and they will come here anyway. If that were true, why are there so many houses with suites in them?? People with that kind of cash don't want tenants.

I have never met anyone who had money that did not know how to save it. People who are thinking of coming to retire in Vic, some will come - others will say - hey, for 140 K I get can a nice, new, 3 bdrm rancher and someone to mow my lawn in Phoenix or Florida. I would rather live in Vic, but the same thing will cost 550-600 K - don't think so - maybe later. Victoria is nice - but not that nice.

BC is just a year or so behind the US - waiting is difficult - but, if you can save (make) 7-k per month - tax free, on your money - why wouldn't you do that?

Like the other guy said - spend an extra grand on the rental- wait a year, you will come out way ahead in the end.

roger said...

VG,

I agree with you about all these anonymous posters. I also wish HHV would drop that option so posters had to use nicknames and could be responded to appropriately.

Many posters take considerable time and effort to write posts that are informative. This is a bear blog so most are bearish but there are neutral and good bull posts as well. It seems every month any real estate stat goes up these trolls show up to taunt the regular posters and bears in general. It generates more posts but little substance. And then there are all the gold bugs and apocalypse nuts.

I imagine many new readers and lurkers get turned off, don't make a post and move on. This is unfortunate and this blog deserves better.

greg said...

I have to agree with Roger. I would do the same on my blog, but *sarcasm on* since nobody reads it, wouldn't be much point... *sarcasm off*Also, HHV could leave the name option and get rid of anonymous. It doesn't force anyone to log-in. They could type "anonymous" if they wanted to...

roger said...

There have been several posts about the advantages of waiting to buy. Lets take a look at some actual numbers and scenarios.

Assume two buyers have 50K savings to buy a house. One buys a 450K house today and gets a 400K mortgage at 3.8% fixed for five years. The other buyer waits and buys in a year or two while spending 20K a year on rent out of the savings (reducing their downpayment). Both are paying around $1700 per month.

Property taxes, house maintenance, extra utilities and investment return on savings have not been counted for simplicity. This biases the results in the favour of the homeowner but lets see what happens.

Who comes out further ahead if house prices drop 10% a year over the next two years while interest rates rise? Take a look at the mortgage balance in 2014.

Small interest rate increase--

Large interest rate increase--

greg said...

Nice tables Roger, just another dart in that old helium ballon pulling the message that says "buy now", you shouldn't waste years paying rent.

Waiting and paying less shortens amortizations. As long as the trend is down and you don't need to buy, waiting is a no brainer.

What all the anonymous bulls around here are trying to encourage is the idea that you "need" to buy.

No you don't.

Anonymous said...

" They could type "anonymous" if they wanted to..."

And I do. I've also never mentioned the g-word over there either out of respect.

Here and at Prairie's? On the contrary...

But only in reaction.

Art Vandelay said...

VG writes: "Anyone buying now thinking they are going to make big money and the price is going back up 15% is whacked in my opinion. Real estate is a dead investment for many years,even though the media has melted your minds."

Did it ever occur to the bears that some people buy a house simply because they want to live in it, fix it up, have pride in ownership, have security of tenancy (pending job losses notwithstanding)?

Just because you are cowering in your mom's basement, afraid of making a big decision, does not mean the rest of the world is doing likewise.

Art Vandelay said...

Also, what's a VG?

Anonymous said...

Seinfeld?

Boring.

Anonymous said...

Okay Art, thats it!

Today,
after school,
behind the Tarzan swing!

Rhino said...

anon 7:28

The whole throwing in the car thing seems kinda gimmicky. If you did write an offer I would take that out (and lower the offer accordingly).

In terms of to buy are not, it kinda depends on your risk tolerance. Its not hard to see a situation where all your equity would be wiped out. Would this eat at you, or are you more the buy an forget about for 20 years type?

patriotz said...

Did it ever occur to the bears that some people buy a house simply because they want to live in it, fix it up, have pride in ownership, have security of tenancy (pending job losses notwithstanding)?...

No.

Everyone who buys a house expects its price to go up, or at least not to fall below what they paid for it. If they expected the price to fall they wouldn't buy.

Oh BTW I'm not afraid of making decisions. I've made lots of big investment decisions, including buying a house. I'm not "afraid" of buying a house right now. I just think it's stupid. If you want to prove what a tough guy you are by buying now, go ahead. Make a realtor's day.

Anonymous said...

Roger,

Nice table.

Am I correct in assuming the down payment was less each year to account for the money spent on rent? If so, then it really is a strong case for buying - since most people are paying rent anyway - and if you saved the down payment initially, you are probably saving more for a down payment as time goes on (and hopefully investing it in commodities). Anyway, the down payment invested, then increased with savings (at say 10 k per year), is more like 80 - 90 k in two yrs available for down payment on a 350 house instead of 50 on a 450, right? And instead of 10 on a 350.

I mean, how much principle are you paying off on a 400k loan in the first 5 yrs anyway. Of the 1750 rent, how much of it goes to principle? $500? If so, that is only 6 k advantage per year to support the "I am not wasting my money on rent" argument right - not the 20 k.

Just checking - not sure where the lower down payment came from.

HouseHuntVictoria said...

As an experiment, I've changed the commenting criteria to "Open ID." Blogger gives us four choices:

Anyone
Open ID
Google Account
Members of this blog only

So we've moved to one level of censorship. If you want to register for Open ID, please go here.

I have done this as the discussion above presented some pretty good points that have at least convinced me to try.

I could care less about traffic on this site, it makes me no money and only costs me time. From day 1, this blog has been about me learning, and hopefully others getting something valuable out of it too. If the anonymous taunting has eroded that ability, then it's worth the change.

My fear is the extra step now necessary will keep the guys like the one with the 12 year old above from asking questions and gaining insights. To these people I strongly encourage you take the time to get an ID--it's still completely anonymous.

Back to our regularly scheduled programming.

HouseHuntVictoria said...

Anon at 8:03. I've read your comment several times now and still can't see how you think Roger's tables are demonstrating a strong case for buying right now?

Vic said...

"Did it ever occur to the bears that some people buy a house simply because they want to live in it, fix it up, have pride in ownership, have security of tenancy (pending job losses notwithstanding)? "


Those days are gone Art,the media and the agents like you want everyone to be a financial whiz kid/Trump. Or is that the new agent line to justify the gouging/overpriced market to suck in the FTB's ?

Just because you are cowering in your mom's basement, afraid of making a big decision, does not mean the rest of the world is doing likewise."


Actually Artie, I am not "cowering in mom's basement" but then what other comment should I expect from a "real estate" agent. Such a professional you are and is why agents get painted as overpaid shmucks,it's a thin line between being a "professional" and flipping burgers.



"Also, what's a VG?"

I guess you'll never know,as only the long timers may recall. Is it really that important to you ?

Vic said...

FYI my new nick name is Vic becasue HHV has changed the sign in eliminating the "anonymous" access. I never signed in with an email before,just went to the effort to use the name feature.

VG





Kudos HHV, it may take time for the traffic to pick up but those who truly want to contribute to either side of the conversation will make the effort like myself to get a Gmail address and take part. I have never seen any of the other major sites lose traffic because of sign ins. I would eliminate those who may choose to anal and use "anonymous" as their nick name to just spite us.

Vic said...

"My fear is the extra step now necessary will keep the guys like the one with the 12 year old above from asking questions and gaining insights. "




I see those questions on the BC real estate board,and others. If someone wants to ask or learn it is no big deal to sign up for anything these days. If they didn't want to make the effort then it couldn't be that sincere a question IMO.

Vic said...

One more comment to Artie. I have bought and sold several houses in my lifetime bud so I think I have the experience and wisdom to know this is the most overpriced market of all time. Buying now would be ones biggest mistake of a lifetime and a $100-200,000 mistake is the difference between a comfortable life and bankruptcy when inflation kicks in the next year or two. Maybe you should do some "professional" homework on affordability factors as we are near/at historic highs.


I am suprised you would make such an ignorant comment as I used to think you were one of the brighter bulls on here.

Buy or Not Buy said...

We had a viewing that house on last Thursday and planed to write an offer at 700K with condition (finance and inspection).
After my agent talked to the seller’s agent, she told me that the seller won’t consider at any offer lower than 725K. The seller had three offers. The highest one was 725K.

Although we think that that house meet our needs and we also like the finished quality, we don’t want to pay over 725K. So we haven't written our offer yet.

We intend to live a house for long term and don’t expect to make a profit by flipping house. However, we cannot afford to a more than 20%drop in price.

Thank you for all your suggestions and comments!

PS: I signed up. It just took a minute.

StargazerXL said...

Bitterbear,

I couldn't resist checking out that property on mls. Looking at the pictures, there's a beautiful Mercedes parked out front, which I thought was placed to make the property look classier. I thought to myself, "are they throwing the car in for free? LOL"

As it turns out, they *are* throwing the car in with the deal! I'm not recommending that you consider this offer (seems too close to the Pat Bay Highway for me), but that is definitely a WTF moment to me.

I remember various desperate condo projects offering kayaks to new buyers last year, but this enticement takes the cake.

Vic said...

"After my agent talked to the seller’s agent, she told me that the seller won’t consider at any offer lower than 725K. The seller had three offers. The highest one was 725K. "


I would walk. Any bidding war in this market is completely insane to get involved in. Look at the other places in that price range. I saw one where the guy just dropped the price $50,000 and it looks like a nice place for $749,000. Might be out of your range but what does that tell you is coming ? more price drops.


This is the hype time of the year where the agents and buyers will suck you in that prices will never be this low again,don't buy into it.

HouseHuntVictoria said...

While there may be more properties on the market in the spring. Personally, I'd rather buy in the fall. Less competition by buyers, more "must sells" on the market. That's when the discounts will be biggest. Just my 2 cents

Just Janice said...

Just thought of a whole new meaning for 'April Fools Day' - the start of the most foolish real estate season of the year...

In terms of annual 'best time to buy', Roger's graphs are quite informative. I mean if you're going to do it anyways, you may as well do it at a time when you're least likely to be gouged by fairytale prices....

I'm thinking that Nov-March is probably the best time to buy...the sellers at that time of year are the most serious.

There's a house on Point street 3bed, 2ba...been on the market for ages. In Fairfield - 4 doors down from the water. Looks nice. The asking is at $738,000 now....probably could get it for $725 or less.

Personally, I wouldn't buy right now. I think the market does have at least 20-30% to go in the next 2-4 years.

Let's just say you bought that house for $725,000. You have $160,000 down leaving a mortgage of $565,000. Let's say that 5 years from now the house is worth 20% less...or $580,000. Your payments are $2956 per month at 3.95%, for a 25 year term. $491,425 remains as principle at the end of the 5 year term when you go to renew. You have about $90,000 in equity. You've lost $70,000 in equity despite having put down $160,000 initially. Let's say interest rates stay relatively low and you can renew in 5 years at 5.25% and a 20 year term...guess what your payments go up to $3,295 per month. Now if you had just waited 5 years instead, assuming you contribute no more to your downpayment ($160,000) and rates are 5.25% and you still do a 20 year term your monthly payments are $2816 per month. You still own the house at the same time, but you preserve more of your equity ($160000, instead of $90000)....(Note all figures are from the RBC mortgage calculator)....

Buy or Not Buy said...

I initially looked for a detached house around 500K, but couldn't find one that we'd like to live in. So, I extended my price search range to 750K, which is apparently too high to my financial ability.

My experience and knowledge on the RE market is very limited. I noticed that a strange thing showed on the “Property Assessment Report. The improvement value varies from year to year. For example, it decreased from 271K in 2005 to 200K in 2006.

I suspected if there was a major defect found in the house during that period. I asked my agent, she couldn't finger out the reasons. Does my agent have the responsibility to give me a clear answer to my question or is it my job?

Thank you very much.

Just Janice said...

AN example of value in the rental market:

http://victoria.en.craigslist.ca/apa/1151624734.html

$2000 per month...3 beds, right on cook, accross from Beacon Hill...

Nope this isn't your mother's basement, but a fine place to wait things out...

roger said...

Several readers have made comments about my rent vs. buy spreadsheets posted above. Here are some clarifications.

In both cases the initial savings amounted to 50K. The house buyer put the entire 50K down and bought a house with a $1700 per month mortgage. The renter paid $1700 per month rent out of the savings. Homeowners might say he was "throwing his money away on rent". After one year the renter only had 30K as a downpayment and after two years 10K. The drop in price was 10% a year, which several posters have said is their prediction, and is close to what has happened in the last year.

Some might suggest that the renter would continue to save and not erode the downpayment savings. Others might say that a homeowner would make additional payments. Some might claim that cheaper rent could be obtained in the interim. I tried to make an apple to apple comparison between buying now and buying in one or two years by limiting the options.

This example was heavily biased in favour of the homeowner. I did not add in the additional costs of homeownership, including maintenance, property taxes or house insurance.

One can clearly see that even with rising interest rates the renter had a smaller mortgage balance in 2014. In other words the patient renter comes out ahead.

Bitterbear said...

Buy or not buy

Walk away. This smacks of manipulation. I have bought houses in the past where agents have given me the "there's another buyer interested" line and I'm embarrassed to say I've been sucked in. This is a tactic that plays on the emotional aspects of buying a house. A realtor knows once your fall in love with the place, they have you. I'd walk away from this one. It sends a powerful message to your realtor that you buy houses with the same pragmatism with which you buy stocks. When you view a property, leave your heart in the car.

On a different but related note....In a fit of despair I tried a few months back to put in an offer ( a low ball) on a property and the 2 two agents, mine and the sellers, collectively decided not to bother presenting my offer because they thought it would be too low even though they didn't even know what it would be. So I bailed because my suspicion was that the realtors, by refusing to present low offers, were working to maintain the delusion that the market was still trending upward. In the end the house sold in our price range anyway. My experience with realtors is they can be great people when you aren't their client.

roger said...

Just Janice,

Your example was interesting but you left out rental costs during the five year period the renter sits on the sidelines. The renter only comes out ahead if the total rental costs were less than about 50K during this five year wait.

roger said...

Beware of anyone that tells you that it is always better to buy or to rent.--

You need to use a mortgage calculator and/or a spreadsheet in order to determine what works for you. Adjusting the variables (down payment, amortization, future price projections, interest rates, rent) will give much different results. I have shown some examples based on certain predictions but each situation is different.

Renting can pay off in a falling market but this only works if you don't wait too long. The main reason is that the renter needs to see the prices fall much faster than the annual rental amount. Unless the market is in free fall 2 years is about the max to wait.

Why? Rent is lost forever. Mortgage interest is also lost forever but there is also a principal component of every monthly payment that needs to be considered. The principal reduction is small in the first few years but gets larger with each passing year, especially with shorter amortization periods. This reduces the mortgage balance and gives the homeowner an offset against falling prices.

This offset advantage is easily seen when comparing a perpetual renter with a homeowner with a 25 year mortgage. When the mortgage is finally paid off the homeowner has an asset and the renter has nothing.

patriotz said...

Your example was interesting but you left out rental costs during the five year period the renter sits on the sidelines....


You are leaving out the interest, taxes, etc. - which are rental costs to the bank and government respectively - paid by the "owner" during the same period, which are higher than the rent paid by the renter.

It never, ever, makes sense to buy a house for more now rather than less later, unless the monthly cost of ownership is way below renting, which hasn't been the case since the 1930's.

This seems to be obvious to everyone in the case of things like TV's but for some reason people don't get it (or pretend not to get it) for houses.

roger said...

Patriotz,

We have been over this ground many times before. The TV is not a good example. I don't live in a TV and I don't need one.

But I do need a place to live. Unless I want to be a nomad and camp in the forest somewhere or sponge off someone else (i.e. parents) I have two choices: rent or buy a home. If I buy, I lose possible investment returns (interest, stock gains etc.) on my downpayment, pay interest on the mortgage every month and incur maintenance costs and property tax. If I rent, I pay money to the landlord. In both cases there is an occupancy cost to have shelter.

The debate, ignoring lifestyle choice, is which is financially more advantageous to an individual. My example was meant to illustrate that there is a tradeoff and you need some tools to do an analysis.

If you wish to make your point clear I suggest you do an example like I did. Showing us the numbers is more illustrative and convincing than making blanket statements.

Just Janice said...

Hmmm...Over the five years in my above example the mortgage principle is paid down by $75,000 ($1250 per month). Meanwhile payments have been going on at $2956 per month), so effectively, even when you buy you pay $1706 per month in rent...not to mention property taxes and maintenance (Let's asume these clock in at $150 per month).

So if prices remain flat and you pay $1856 or less per month in rent you are neither better or worse off renting than you are buying (assuming you sock away that $1250 per month that is 'saved' by renting). Then throw in a 'falling market' and it's clear the renter is in much nicer shoes for the time being.

Nick said...

Probably a good idea to increase the moderation slightly, should keep the drive-by gold bugs and assorted crazies away.

greg said...

Hey HHV,

thanks for turning on the moderation. Patrick did that over at Patrick.net, it was a great improvement.

Bulls can still log in and post their positive pieces, they just can't pretend they're 5-10 other people while doing so.

Again, thanks for that.

patriotz said...

If you wish to make your point clear I suggest you do an example like I did....

JJ gave a correct example including nonrecoverable costs of ownership (interest, taxes etc.), as opposed to your incorrect example which didn't. Bottom line is if those costs exceed rent, which they do right now of course. the renter doesn't even have to see prices come down at all to come out ahead by waiting.

The only scenario where it might be a better idea to buy now at a higher price than later at a lower price is if the costs of ownership are far lower than renting, and God knows we are about as far removed from that today as we have ever been.

If you don't agree, well just go out and buy a house right now. Let's compare notes this time next year.

roger said...

Patriotz,

Sometimes in your rush to spin out the same old story you overlook what a poster is actually saying and the point of their post. Remember that I am bearish on Victoria real estate and have no intention of buying here while prices are so out of whack. So stop making condescending remarks such as If you don't agree, well just go out and buy a house right now.What I tried to point out in my two spreadsheet examples is that even making basic assumptions, that are biased for today's home buyer, it still pays to rent while prices fall at the current rate of 10%. Sometimes it pays to simplify in order to make a point. When you factor in property taxes, maintenance and house insurance it just strengthens the rent argument.

In Janice's example I pointed out that she neglected to account for annual rent payments. She courteously discussed this issue in a subsequent post.

In may last post I just stated that there are many variables to consider when making a rent vs. buy condition and each individual should make the decision that suits their situation.

Patriotz - I notice a pattern to most of your posts. You scan many blogs (PB, HHV, RET) looking for posts to criticize with your pejorative and repetitive comments. It is really getting old and tiresome. Try making an original post (with a new theme) once in a while that others might find informative.

roger said...

Follow up to my previous post....

What am I trying to accomplish with my posts? I try to contribute what I think others might find interesting or informative about real estate. This includes relevant articles, stats or spreadsheet examples to name a few.

Are my posts always accurate and complete? NO. Even though I spend some time preparing them sometimes I am wrong or did not explain my point of view very well. Constructive criticism is expected and the courteous feedback is useful.

I think this is what many of us are trying to accomplish. Reading other peoples viewpoints and sharing ideas is a great way to learn. HHV has removed anonymous posters and I think this is a big step forward for this blog.

Reid said...

April SFH homes in greater Victoria were up 9% over 2008, but sales of houses under $500k were up almost 35%. Sales of houses under $650k were up over 30% over 2008 levels. In contrast, sales of houses over $650k were down more than 30% over 2008. So the strange dichotomy continues. The market appears to be driven by entry level activity.

Sales volumes of SFH’s under $500k in Saanich East, Saanich West, Colwood and Langford were 40% or more higher than April 2008 levels.

MOI for SFH under $500k in Victoria, Oak Bay, Esquimalt, Saanich East, Saanich West and Colwood are all under 1.2 indicating a very strong sellers market in all areas. One has to assume this demand at the entry level is being driven by the low interest rates and the increased number of buyers that can now qualify to buy a SFH in Victoria.

Given that I have seen the five year mortgage rates drop more relatively in the past month than I have even seen, I assume this will continue to drive more entry level buyers into the RE market over the coming months unless some serious job losses start to take hold. Now that the market has momentum it will gets others off the fence.

What happened over the past few months caused me a lot of frustration as I could not understand what was driving this market in such uncertain times. As I have spent the better part of career working as an analyst, I have studied this thing ever which way I can to try and put reason to it. This research has led me to conclude that RE prices are driven by different factors depending on where the economy and/or ownership costs sit:
1. Most of the time RE prices are driven by what the bank will offer in terms of a mortgage to potential buyers (per my April 23rd post)
2. A smaller percent of the time it is driven by an excess of desperate sellers (which typically takes place when existing homeowner’s cannot meet their mortgage obligations) trying to sell homes into a market where buyers feel there is too much risk and/or cost to enter or buy up in the RE market.

If you track the cost of housing when we operate under option 1, there is a very high correlation between RE prices and mortgage levels being offered. I think most bears thought that this recession would have caused buyers yo back off and we would start to see more desperate sellers leading us into option 2. But today given the historically low interests rates we are clearly still in option 1 for houses under about $600k, especially in desirable areas.

Until buyers start to perceive risk in buying real estate and/or we get a significant increase in interest rates I cannot see us moving into option 2, so for the coming months I forecast that we will continue to see decent demand at the lower price levels for SFH’s and quite possibly increases in medium and average sale prices.

I still believe that we will see option 2 once the conditions change, but it is not going to happen until either we get real unemployment in this town or interest rates rise.

The benefit for me in all this work is that I no longer get frustrated by the local RE market. I now laugh at it knowing how stupid these buyers are and how fiscal policy is simply trapping more unsuspecting people into the RE trap.

Vic said...

What boggles the mind is who are these under $500,000 buyers and how much down payment are they using to make it affordable and how much income are they making in order to pay off a $2500 plus mortgage ?


With an average income of $50,000 times 2 for both spouses then you are giving up almost one whole paycheck each just to pay the mortgage.

I can't see this surge lasting long as there can be only so many out there with family incomes higher than this that would be first time buyers. This town just doesn't have that many high wage earners to keep the volume going we have seen for 7 years now.


On an anecdotal note, I have a family member who has been seeking work at the entry level position and it is not a case any more of just walking into any store and getting hired. People are holding on to the mininum wage jobs and the good ones especially are not a cake walk as this time last year. I expect to see some unemployment fallout at one point of the coming months.


HHV,

thanks for changing the sign in,I can see the tone of the blog changing already.I assume PB's site will get worse where the Joe Dirt's will congregate. Better late than never.

Vic said...

Garth as a great thread on his Kelowna visit,sounds very grim up there.



"As in the Lower Mainland, as in Victoria and as in Vancouver – but way more so – this place is real estate obsessed. Worse, its rapidly aging population of retirees, supporting a one-dimensional service economy, have dumped the bulk of their wealth in an asset class which, like most Boomers, has passed its ‘best before’ date.

Can’t tell you how many times I heard the same thing. ‘It’s different here.’ Like nobody else in Canada has scenery, a lake, wineries and RV dealerships as far as the eye can see. However, the delusion remains – as it does across great swaths of Vancouver Island – that people in Red Deer and Mississauga moisten when they think of the wet coast."

Metaldwarf said...

Re: Reid's post

All the wealthy people i know are very conservative with their money. some of the richest people i know are also the cheapest penny pinchers. the fact that the $600K+ market is dead just leads me to believe "the money" isnt buying. They have likely come to a similar conclusion to the bears here.

the dicotomy between the high end and low end of the market is very interesting. i think we are setting the stage of another housing crisis 5 years from now. if buyers in the low end are coming out of the woodwork now only because interest rates are low it is therefore a given that they are at their max for affordability. i would love some numbers on recent debt service ratios and financing options 5/35 mortgage vs 20 or 25 year.
as has been said interest rates can only go up. i imagine that most FTB will take 5 year fixed as it is most popular. where rates will be in 5 years is anybody's guess but if they are still near zero we are in big trouble anyways. in 5 years a new wave of mortgages reset at higher rates, even if prices stay flat FTB's will have little to no equity to refinance. they could possible stretch their amortization another 35 years, but this spring could be the setup for a repeat of 1981 in 2014.

i wont wait that long to buy, my spouse is going back to school in Sept. and should be gainfully employed in a better job by July 2010. I expect to start hunting for a home seriously in fall 2010. by then i should, hopefully, have $125,000 for a downpayment, and will look for a SFH with suite. my price range is about $425,000 give or take depending on rates (yes, monthly payment is more important than price, bad me.)on a 20 or 25 year mortgage. with plans to rapid pay it in 17 years.

the best laid plans of mice and men...

HouseHuntVictoria said...

MD,

I think the default mortgage product has changed drastically. What used to be 25% down, 25 year amortization has morphed into 5% down, 35 year amortization. It is hard to find any real estate related advertisement that does not use this mortgage scenario as the default.

All marketing is now focused on the monthly payment. For marketing purposes only, the 5% down, 35 year amortization gives the lowest down payment.

Our peers (you and I are approximately same life positions) are the same ones who drive cars they can't afford to own, using leases, own TVs and stereos that couldn't buy with cash, using buy now do not pay till 2011 schemes, and furnish their condos with furniture from the Brick using the same "financing" methods.

It's a crying shame, but it's real and can't be ignored. The long term implications of this are unknown, but have the potential to be significant.

Metaldwarf said...

I have a friend, hes my age 24, has been in a new job for 9 months, and is doing remarkably well so far. However, on his early success he has bought a $1.2M condo on the wrong side of the blue bridge, has two cars, a 125K sports car, and a $80,000 SUV, he is single, they are both his. He has all the bling, is out at restaurants every night, living the good life. He is the perfect example of the extreme leverage people will take. He earns twice what I do, but he lives paycheque to paycheque and being in a commission job those paycheques are never guarenteed. For all his "wealth" I have had to spot him several times, when his debit or credit card has been declined. he has no savings, is always living in overdraft, or off credit cards, most of what he does earn goes to new toys and not to pay off the debt he owes so the credit card gets the minimum pay and he gets ANOTHER new rolex.

I have very mixed feeling about our friendship, at times i am envious of his material possession and displays of wealth, though at the same time i know he struggles with bills, has too much debt, and if his job prospects change he is sooo screwed.

beckalodeon said...

Reid...

I'd like to respond to your comment that recent buyers are "stupid". My wife and I bought our first house in April; our story might shed some light on our 'stupidity'.

I've been a rabid bear on Victoria RE for many years. In my office, people laughed at me when I railed on from 2006-2008 about how they were nuts to buy into the bubble and that they'd regret it. (They are now kicking themselves.)

For years, I had a wall of Victoria Real Estate Shame in my office that showed just how insane the boom had been. Didn't matter - people will do what they think is right, especially in a bubble.

Like many bears, I have intensely studied the Vic RE market and its trends. I'm passionate about investing, and this has served me well when analyzing real estate. This blog and many, many others have also been excellent resources.

My wife and I have been renting cheaply and saving diligently for many years. We have also traveled around the world and learned a lot about what we like and don't like in housing.

So, why did we buy now? What changed in the market, or us, or both? As you know, saavy bears run the numbers constantly and watch the market carefully. I've cultivated relationships with a mortgage specialist and an excellent realtor (yes, they exist). They've been very helpful giving me the real story on what's happening with mortgage trends/initiations and buyers'/sellers' attitudes.

Short version: after many years of preparation, we were ready to make our move more or less immediately when the right opportunity presented itself.

All that said, I was gobsmacked when I ran the affordability calcs for March and April this year versus 2008. In our price range ($600-700K), with our down payment of over 20%, our mortgage payment would be about 1/2 of what the bank would be willing to lend us. Digging further, I realized that mortgage rates would have to triple or quadruple (and they may) for us to be house poor (something we're determined to avoid).

I also noticed something fascinating in the most recent RBC housing report: the sales-to-new listings chart for Victoria shows that this is the first 'true' buyers' market in this city since mid-1994. I stuck that on my Wall of Real Estate Shame and started really thinking about it.

My wife and I discussed all of this calmly and rationally, as we've done many, many times over the years; however, this time, for the first time ever, we decided to start looking seriously. We had educated ourselves to the extent that we were able to recognize that our opportunity had arrived.

Much to our surprise (and delight), we found the right home far more quickly that we had expected, for far less than we had expected to pay.

We were extremely fortunate that there were no other offers, as this is a great house in a fantastic area. Last year, there would have been half a dozen bidders, and we would simply not have played that game. We had the opportunity to negotiate hard, and we did so.

We are happy with our purchase, but we are also realistic. We have no illusions about getting rich just because we bought a house in Victoria - it's just a house. We were simply ready on a personal and financial level to leave renting behind and face the challenge and expense of owning a home. Like most people (and maybe to a greater extent), we worry about our jobs, the crappy economy, and so on - we have not entered into this purchase lightly. To deal with our angst, we have built in breathing room should things go sideways.

I have also not suddenly become bullish on real estate; it was more a case of 'listening' to the numbers. My interpretation of the hard data and the context of our personal situation persuaded me to start being a lot less bearish two months ago.

Did we buy at the bottom? I have no idea. The indicia guided us towards our best guess, and that's all we can really do. I happen to expect more of a decline, which will be annoying, but is unlikely to crush us financially.

So, circling back to my original point: not everyone who buys a house is "stupid", borrowing far too much, and without leaving any room for the vicissitudes of life. My wife and I are just regular middle class folks who have carefully planned for this transition. I think there are a lot of people out there like us - many of them are the bears who post on this and other bear RE blogs. Most of them are pretty sharp.

I understand your frustration with this market. I've lived with it for years myself. I will probably always think house prices in Victoria represent a special form of insanity. So it goes.

I think it's fair to acknowledge that many buyers are hardcore number crunchers who been preparing for years. I hope that the perspective of a recent buyer sheds some light on the 'stupidity'.

cheers,
beck

Just Jack said...

Well, he sounds like the typical 24 year old to me. I remember my early twenties touring europe in my Lamborgini after getting my first job as an articling student. Many a time I had to downgrade from a suite to a regular hotel room. But, you have to suffer some times in order to get the good life later on. And how I know suffering. Sure its sounds nice to have a Manhattan condo looking over the park - but in the summer time in can be hell. And dating super models can be such a drag. That's why I moved to Victoria to escape those summers and those people who are all show and no substance - unlike me.

Okay seriously now - what kind of business pays a 24 year old that kind of coin?

patriotz said...

I happen to expect more of a decline, which will be annoying, but is unlikely to crush us financially....

You are being realistic, not stupid at all. You've decided that the particular deal you got suits your needs and have calculated that future market price and interest rate contingencies will not jeopardize your position.

The really stupid people are those who buy without considering future contingencies, i.e. the "prices can't go down and interest rates can't go up" crowd.

The hard core bears are the people who are more conservative about contingencies than you. We don't claim to be any smarter, it's just that our own resources require us to be more careful.

Buy or Not Buy said...

Becklodeon,

Could you please let me know your realtor and mortgage specialist? Your help would be highly appreciated!

My email address is j_m_liu_01@hotmail.com

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

"Okay seriously now - what kind of business pays a 24 year old that kind of coin?" Drug dealing.

Reid said...

Beck, you have done your homework and that is what all buyers should do. You have considered all options and future scenarios. You are not a typcial buyer and therefore should be able to deal with any shocks that may hit you.

My comment regarding people that are stupid was directed at people who are buying houses in the $500k (+/-) with little downpayment and a huge mortgage relative to their income.

As I have said on this blog before I feel there are some decent deals on houses above $650k (especially once you get to $800k) and have concluded myself that if I were to buy in Victoria today that is where I would direct my energy. For an extra $200k you get so much more for your money. Unfortunately a number of people on this blog are not positioned to buy in the $700k range.

If you bought a house in that $700k price range, then I would agree that you likely have secured a far better house than you would have acquire 12 months ago for the same money. Combine this with lower interest rates and I can see how it works for you guys.

I do not believe those paying $500k are getting a lot more than they got 12 months ago and many are taking on 5x their income in mortgage debt to buy these overpriced homes. These buyers I still feel are stupid because many are going to pay a dear price at some point in the future regardless of how the economic situation unfolds.

HouseHuntVictoria said...

I don't think any of us are in a place to label all buyers stupid. Obviously, some are over-leveraging themselves and some are acting conservatively and making decisions based on a given set of knowledge they feel is adequate to judge their personal situations.

We've been actively looking in areas of the market we hadn't previously on an almost daily basis for the past three months.

This market is still insane. You still see homes that are in desperate need of maintenance priced in dream land. We skip those. Anything we find that isn't in that category, in my opinion only, based on rudimentary calculations is still very much in seller's market territory.

The difference right now is perception. Most people have an understanding that the bidding wars are over. But most home sellers with quality offerings also think they will get the price they want if they are willing to wait. I still see the market as a whole as a tug of war. Something has to give and it will likely be prices.

roger said...

Beckalodeon,

Congratulations on doing your own diligent number crunching and making your new home purchase!!

The fact that you recognize the risks, bought for the long term and are prepared financially and emotionally for a possible downturn makes you an astute buyer. You also put down a nice chunk of money and are probably the type of couple that will make extra principal payments.

I think what most of us are trying to express is real concern for those who are buying under 500K with highly levered loans. Using 5%, 35 year mortgages that they can barely afford is a recipe for disaster. Add on all the other debt (furniture, renos etc) and it won't take much for many to be in over their heads.

The word "stupid" is a bit over the top when describing these folks. Some are just misinformed or being foolish due to a "want it now attitude".

Vic said...

"The hard core bears are the people who are more conservative about contingencies than you. We don't claim to be any smarter, it's just that our own resources require us to be more careful."


And our age factors make a huge difference. Some of us are in a point where Freedom 55 is within eye shot or at the most a decade away and do not want to make a crucial mistake by buying way too early. The younger set can take a hit or two and have time to recover,some can't. If you got a good deal in your mind then kudos to you.


But when I still see bidding wars happening,that tells me the market is still a bloated pig. If you got one of those deals that went 10% under assessment after a 15% plus haircut and it has high resale curb appeal then you can probably ride it out if the shoe doesn't drop come July -September.

roger said...

HHV,

I was just downtown at a major bank this morning talking to one of the client advisers. The discussion was interesting and I want to pass on some of the comments.

- Major banks have lowered their rates in the last week. 5 Year closed variables are presently at 3.05% with open ones going for 3.25%. 5 Year fixed are now at 3.9%. These rates are hard to beat at a mortgage broker unless you want your loan with a second tier bank, trust company or credit union. The comment was that folks with small down payments or credit issues will still benefit from a broker. Prime customers will probably get the same or better dealing directly with their own financial institution.

- Major banks have tightened up on mortgage applications and are carefully screening applications. The comment was that some applicants that would have been previously approved are being denied a loan.

- Even if you are pre-approved make any purchase offer subject to financing Two reasons for this. The bank will verify your income and loan obligations once again when you bring in your subject offer. Properties are now appraised far more than ever - banks know the market has fallen was the comment. The loan officer had several deals on their desk that the appraiser said were too high and the property was worth less.

- With a higher the downpayment (i.e lower LTV) there is a much better chance of securing a higher loan amount. Reason: bank has more cushion if the market falls.

- Check that the mortgage contract has actual wording about conditions associated with switching to a fixed rate. The main issue is do you get a discount off the posted fixed rate.

BTW - I am just reporting what was said by a bank representative so don't take this post as my opinion.

roger said...

What happens to a real estate market when the economy goes soft and the boomers stop coming?

One only has to look North of the Malahat to see the result. VIREB just released their stats for April.

April Stats--

Press Release--

Highlights--

- Sales down 26% from last year
- Average prices down 9% YOY across all areas
- Average and median prices down YOY in 5 of 6 zones
- Average prices up 10K MOM
- Median prices up 14K MOM

HouseHuntVictoria said...

Roger, supports what I've heard from my bank sources lately. I've also been told that banks are still hearing from their clients they've been pre-approved at a broker but want to see if they can get the same or better deal with their own bank. When banks starts talking about the points you mentioned, they simply don't bother going through the trouble because the brokers are giving them hassle-free money. I'd bet the number of mortgages done by brokers right now compared to banks in the entry level is probably 60-40.

StargazerXL said...

Beckalodeon,

Your story seems too good to be true to me. You were an ardent bear, somehow saved up ~$125-$175K (i.e,. over 20% in your $600-700K price range), and bought a "great house in a fantastic neighbourhood" for "far less than you expected" because:

1) your mortgage payment would be about 1/2 of what the bank would be willing to lend you (whatever that means, ~$1.3K/month on $325K mortgages vs. an offer of a $650K mortgage?), and

2) the most recent RBC housing report has the sales-to-new listings chart for Victoria showing that this is the first 'true' buyers' market in this city since mid-1994 (first I've heard of this)?

I just find this hard to believe. Someone "rabidly bearish" who watched the market as closely as you claim wouldn't have just realized that things were suddenly affordable last month, especially if they were developing a downpayment of that magnitude.

I concur with the others that careful thought is necessary before making a house purchase. That said, I think this is a realtor spinning a fancy story to show how possible things are, to get the wavering bears here to capitulate.

At any rate, good luck with that mortgage when the rates go up!

Olives said...

Okay, are some of you just being really polite to beckalodeon? Really, how is it possibly a good time right now for a first time buyer to purchase a home?

beckalodeon said...

Interesting responses; thanks for them.

HHV, Reid... Your comments are bang-on regarding sellers with quality offerings, and regarding market conditions above $600K.

What we noticed is that while many buyers were out looking, all the awful financial headlines were making them skittish about making offers. I can't blame them: I felt like throwing up in my mouth when we drafted up our offer.

It's scary to buy a house in the middle of a bad recession - but should we instead wait for the top of the economic cycle? That's a question I've turned over and over again in my mind, as I'm sure you have.

This reluctance to commit on the part of other potential buyers - a reluctance largely absent from this market for so long - gave us an opportunity we didn't think we'd ever get in Victoria; that is, to buy a high-quality offering in a neighborhood in which people will likely always want to live without a freakin' bidding war.

Roger...

One last thing: my mortgage specialist was still able to beat our bank's best offer (and, believe me, I negotiated hard with the bank). We have very high credit scores, but the bank just didn't want to get with the programme. Our mortgage was placed with a well-known and reputable lender with great Internet access, etc.

BTW, every part of our negotiation with the bank had to go through a couple of levels of ridiculous bureaucracy. Everyone had to ask someone else for permission because they just couldn't believe I was being honest about the rates I was being offered elsewhere.

In contrast, the mortgage specialist simply waited for the bank to counter and then beat the offer over and over again. If you love Kafkaesque customer service, hit up your bank for a mortgage.

- beck

roger said...

Beck,

Your comment about the banks needing multiple levels of approval came up this morning at my meeting. Your observation was spot on. The loan officer said that low interest rates have taken away all discretion on rates and fees. Any request for fee reduction (appraisals etc.) or lower rates has to now go up for approval.

I am sure you got a better rate going through a broker. My last mortgage experience with a trust company was less than satisfactory. And my banking experience with an orange bank was bad news. I like local bricks and mortar. I guess it just depends on whether you feel comfortable with the institution holding the mortgage.

Now that you have bought I imagine you will be staying away from cranky bear blogs. Enjoy your new home - all the best...

beckalodeon said...

StargazerXL...

You think I'm a realtor? Good gravy. Sure, go with that.

As for our down payment, that's what we saved outside our RRSPs, after maximizing the latter. We are savers, although we have an expensive travel habit. We also have a TV that's a decade-and-a-half old, and a really, really ugly couch decorated with cat scratches. I have a day job and also do contract work. Over time, our incomes have gone up significantly but our spending has not. I track everything to do with our financial lives on a fairly elaborate and robust spreadsheet. Get the idea? We're serious control freaks when it comes to our finances.

I'm also amazed that you think our situation is too good to be true. Too good to be true would be buying the house we did for three times our income. That would have been truly awesome, and certainly too good to be true; an unfortunate reality, to be sure.

I will probably always think we paid way too much, but it was certainly much less than we would have paid in 2007/8. We feel lucky, but it's not like we got the bargain of a lifetime. It's a relative thing - we still bought a house in a very expensive market.

As for the RBC housing report, Google is your friend. Check it out. There's also a link from the Housing Analysis blog... super difficult for you to locate probably, but stretch your wings a bit - stargaze, if you will. I kid, I kid - but not about the report.

I didn't say that I went from being rabidly bearish to bullish. I said that I simply started to be a lot less bearish. We had planned a six-month house search (as we had just signed a six-month lease), but life got in the way and we found a place we loved, and that we recognized as high-quality (because we've been looking on and off since June 2005). That doesn't mean that it wasn't a total gut-check for us after living so long without debt.

And, yes, I would not be surprised to see a significant increase in mortgage rates. I appreciate your best wishes in this regard.

As for the comment from Olives regarding whether it's a good time to be a first-time buyer... well, I really have no idea. It's absolutely nerve-wracking and it's stupidly expensive.

It was right for us, but I certainly wouldn't judge others who don't feel the same about it. I have total respect for the thoughtful Victoria RE bears. The bears (AKA, shorts) in any market tend to be the most well-read, rational, and analytical participants, refusing to take things at face value. My kind of people.

- beck

PS Roger... are you kidding? Cranky Victoria bear blogs are part of my life now. I'll be right here, mostly lurking, like always (in between futile trips to Home Depot and serious debates about the merits of various sprinkler systems).

Reid said...

I apologize for my “stupid” reference. I will tone it down in the future. When someone provides me with a stock tip, I take it upon myself to do a lot of due diligence before I make an investment in the recommended stock. I may only be investing $10k, but I take that investment seriously. In most cases, I do not make the investment as my due diligence does not align with what I heard or I see potential risks. I expect others do the same.

When someone is making a $500k purchase I would expect their due diligence to far exceed that described above. But so many people buy real estate on the advice of a realtor or friend without performing adequate due diligence. This blog provides such an excellent resource for potential buyers to better understand the market and potential risks.

Someone I know decided last October to buy a condo in Vic West as the developer was offering a discount over original prices. I STRONGLY discouraged her from buying. Discount five year mortgage rates were above 5% then and the purchase made no sense to me. When I pushed her hard, she confessed that she had to buy before the end of October because the 0% down and 40 year amortizations were going away and that there was no way her and her husband could save a 5% down payment. She saw this as her only option to get into the market regardless of what I was telling her. I see many others doing similar things today at the entry level. She may have been uninformed or misguided, but see this as stupidity given the dollars and risk involved.

HouseHuntVictoria said...

Beck,

Out of curiousity and not skepticism, why have you only decided to begin commenting now? I don't recall seeing your nickname anywhere previously.

As for the RBC report, it must be using very different data than I have been, because 3.78 MOI in SFH is hardly a "buyer's market."

As far as I can see, Victoria is still firmly in a seller's market when it comes to sales to listings ratios. The only reasons prices aren't climbing is because affordability is so out of whack.

Unless people had large down payments (like you claim to have had) there are very few families who can buy into homes priced above $550K--they just can't get the financing.

We're not poor by any stretch of imagination, but I've run the numbers on properties priced up to $700K a lot lately. Even with 15% down in that range, and taking a mortgage helper income into consideration, it is still a huge stretch for any family earning less than $130K per year to spend $700K. $130K is $50K above the local average household income.

You may have found a situation that fits your needs/risk tolerance, but I would hardly suggest that there are many opportunities for people sitting on the sidelines to do the same.

Despite what some people think, bidding wars are not the norm for Victoria. There is not an abnormal number of people migrating here comparative to other regions of BC and most properties, even during the record sales volumes years sat for 30 plus days on the market. Our over-heated market was over-heated and irrational, those conditions were never the "norm."

Rhino said...

Vic Said.."What boggles the mind is who are these under $500,000 buyers and how much down payment are they using to make it affordable and how much income are they making in order to pay off a $2500 plus mortgage ?"

I just sold my Condo in March in Vancouver to move back to Vic. I had 5 accepted offers, 4 fell through (buyers got cold feet). You can see on the offer sheet what the buyer is trying to get as financing. 4 out of 5 were 5% down. These 4 were also all young couples with double incomes (and probably no kids). I have a feeling this is typical of the demographic most active right now. Professional couples with strong combined incomes but low down payments.

Its too bad there isn't a financing report to go along with the monthly sales report, it would make the picture a lot clearer.

beckalodeon said...

HHV...

Good question about my lack of posting. I don't think I even bothered getting a Blogger account until a few months ago. I'm just so busy trying to sell real estate that... don't tell StargazerXL!

WRT to the Vic RE bear blogsphere, I've found it very useful to lurk and learn. Although I can tell you all about spreads, straddles and going double-short 20-year US treasuries, I had a lot of catching up to do on the RE side. Bears are always a market's best source of 'real' info, so I was pleasantly surprised at the depth of the Vic RE bear blogsosphere. And, just for pure schlock and awe, I watch Ian Watt's video blog. Best to know thine enemy.

Frankly, as a lifelong renter who likes the flexibility of same, I pretty much ignored Vic real estate market for years and years. Then I got married... to a Victoria girl - know what I mean?

Regarding the RBC report, maybe it's a matter of interpretation. I put the sales-to-new listing ratio chart up, walked to the other side of the room, turned around and looked to see where the bottoms formed. Sophisticated methodology, no?

That ratio has reached the recent nadir levels only twice in twenty years. Things really have to suck in macroeconomic terms for such an anomaly to occur. To me, that's kinda interesting, statistically speaking. Hey, I could be dead wrong - I accept that.

Interesting comments regarding the bidding wars - I had no idea that they weren't normal. What you say is no doubt a fact. I based my comments on anecdotal evidence only. I work in a fairly good-sized office and by all accounts I'm the only person in the last few years who was able to buy the first house he made an offer on without a bidding war. So, my comments are completely subjective - nothing more was meant to be conveyed other than the fact I was very relieved that we could negotiate without a third-party present.

I would completely agree that those earning the average family income in Victoria are going to have a very different experience than we did. And, yes, we 'claim' (where's the trust? LOL) to have had a large down payment. There was no way in hell that we were going to pay CMHC fees. However, we didn't need our entire savings for the down payment - we ended up paying significantly less than $700K (although rather alarmingly we were told that we could borrow a lot more than that, which would have been really, really dumb).

Well, at least now we can afford to replace that ugly couch and maybe get a decent TV.

- beck

Metaldwarf said...

Not drugs, worse... Life Insurance.

roger said...

Beck,

Since you are in the financial industry here is something to think about.

Lets say you increase your mortgage to the max after you own the house. Then buy one or more of the recently issued bank reset preferred shares paying a 6 to 6.25% dividend. The dividend is tax deductible and if your mortgage is at 3.8% you make 2.4% on the spread. You also get a break on the taxes due to the dividend tax credit.

These bank preferreds reset in five years to 4-4.3% over the BOC rate or 5 year GOC bond rate. It is highly likely that the bank will call them in due to rising interest rates and better borrowing conditions. If not you will get the higher interest rate. Hard to lose unless the big banks in Canada run into serious trouble and can't pay dividends on common or preferred stock.

** Full disclosure - I own a mittful of this stuff.

Nick said...

I find the discussion above very interesting. I have been surprised at how many people have been jumping into the market based solely on interest rates. I tend to examine all the risks and plan according, rather than assume things will work out, which will likely make it difficult to purchase Victoria real estate. If rates rise when these reset in 5 years, just wait for the pandemonium. Actually, dollars to donuts says if that happens, the government will just bail these idiots out and I’ll have to organize a Tea Party in the Inner Harbour.

I don’t think many people have factored a potential economic downturn or any other financial difficulties into their financial planning at all. It’s interesting how quickly people here have abandoned long-held financial principles about how much to leverage yourself when buying a house. I want to buy a house, but I’d like to buy it with the old assumptions like putting at least 20% down, put it on a 25 year amortization, keep at least 3 months of living expenses in the bank and not spending more than a third of your income on your mortgage. I wish that there were easily-available stats on mortgages and how leveraged people are. I wonder what will happen to some of these people when their roof starts leaking or their heater breaks down. Stretching myself thin to buy a 90 year piece of crap that needs untold thousands in maintenance doesn’t make a lot of sense to me.

I currently rent a 2 bedroom place for $950 a month and put at least $1000 a month into savings. To buy a townhouse or house in town with at least 2 bedrooms, I would be looking at basically doubling what I pay for shelter since I’m not going to take on an amortization longer than 25 years. To accomplish this right now, that would mean spending my entire savings and leaving very little cash reserves for any emergency or in case of job loss. Not only that, but I’d be paying a good chunk less against the mortgage principle than I’m putting into savings. I can’t look at the decision to buy a house and have it make sense in any way other than emotionally.

Beckalodeon, congrats on your purchase! Sounds like you bought a nice place and it also sounds like you did your homework. However, if you had 125k in the bank and could take on a mortgage of over 700k, you’re fairly well off. You must be in or close to being in the top quintile for household income and you shouldn’t really have to worry about the decision to buy a house, other than which neighbourhood you want to live in. Someone like me who makes three-quarters of what you make and doesn’t have as big of a down payment is somewhat boned because I’m competing with the 5/35’ers who seem willing to take a mortgage on a Tillicum poverty box to their grave. If the economy was better, I'd be at the point where I start browsing the job opportunities in other more affordable cities.

Just Jack said...

"One last thing: my mortgage specialist was still able to beat our bank's best offer (and, believe me, I negotiated hard with the bank). We have very high credit scores, but the bank just didn't want to get with the programme. Our mortgage was placed with a well-known and reputable lender with great Internet access, etc."


So who do you think your mortgage specialist is hocking your mortgage to? Did you ask your mortgage specialist how much this lender is paying him? If you miss or are late in a payment what are the charges? If your having problems with the mortgage do you talk with someone in India, who really does not care about servicing you, all they want is the money.

It's the terms and the people that you are dealing with that are important. The difference of a quarter point on basically free money is immaterial. The interest rate is the hook used by mortgage specialists.


BUT, I can still find you a better deal than your mortgage specialist. All this guy asks is for two things:

1) That you pay back the money.

And
2) Double the value of your mortgage in life insurance if you don't pay back the money.

Lets just hope the above mortgage specialist doesn't call in your loan?

beckalodeon said...

Nick...

Good comments there. We're not rich, but we make somewhat more than the average Victoria household (I realize I'm mixing a balance sheet item with a line from the income statement, but you take my point). And, like you, we've lived within our means for many years. Some examples of our penny-pinching ways: we paid cash for our car, which was not new; I don't even have a cell phone, because I can't justify the ongoing expense (hey, I want an iPhone/BlackBerry just as much as anyone).

That's a great point about competing with the 5/35ers. That's exactly what I was worried about when we became serious about a house. I think we got around that to some extent because of our price range, and because we wanted a place without a suite (which many people obviously want/need).

Just to be clear: it was bloody hard to save that money while all of our friends were leasing BMWs and buying 60" TVs. We'd go over to a friend's place for a dinner party and think, "Geez, we really do have crappy crap. We suck."

But, every time I did our month-end family finance calcs, I felt a hell of a lot better about our situation. And, as I intimated before, we chose to substitute experiences (in the form of travel) for stuff. That helped us deal with our voluntary 'poverty' while we saved like madpeople most of the time.

For years, we've been saying to each other, "we'll buy a nice X when we get a house". That time has finally come... still no BMW on the horizon, though.

- beck

Vic said...

"Good question about my lack of posting. I don't think I even bothered getting a Blogger account until a few months ago."



You have never needed a blogger account to post here til today. Hmmm...I think Olives is on to something. A little too vocal on the buy side for my liking too.


How about that contract work beck ? I thought banks were tightening up on people who rely on that type of income as per roger's posts about banks pulling in the noose ?



I also thought RBC, TD and the BC Credit buddy of mine Pastrick have all called for another 10-15% decline over the next year as unemployment and affordability squeezes those out of the market ? I would think with the research beck has done he would have come across these important statements made in the last 30 days or so.


As well there was no reference to the Great Bear himself Garth who would be foremost on any buyers list of those to consider but something tells me we will hear soon enough. ;)


Somethin smells in Poughkeepsie. ;)

beckalodeon said...

Jack and Vic...

Well, wow. OK, You've convinced me to stop wasting my time attempting to share my opinion.

Before I go back to lurking, a couple of things:

Jack, are you OK? Seriously. Everything you've quizzed me on is is very basic mortgage stuff, all of which I've been thinking about for years. 'Nuff said.

Vic...

Um, what? I'm clearly not as up on blog posting as yourself... I assume I'm posting via Google Blogger because it asked me to log in before doing so. How is that mysterious?

I'm very sorry that you think I'm too vocal on the "buy side". I guess I'll start posting on the Taliban blog, which is a bit more tolerant of a diversity of thought than yourself.

Regarding the contract work... huh? I'm not sure why this matters to you, but I didn't include contract income, bonuses, capital gains, dividend income, or interest income in my mortgage application. We qualified for a mortgage based on employment income, down payment, and credit rating... does that somehow disturb you?

As for Garth, I've been reading him for years, first books and now blogs. He kept us well away from the market last year, for sure.

But, I have a bit of a contrarian streak (like any good bear); when I saw that Garth had signaled the end of the world with his xurbia site, I started to get more constructive that maybe things had gotten a touch too, well... moonbat. I think you two just sorta proved that.

Other posters here are bears, and have strong opinions, but they don't automatically assume that someone with a slightly different take has some kind of subversive agenda.

Sheesh.

- beck

roger said...

I just finished preparing two new slideshows based on the VREB stats released last week.

Greater Victoria Stats Analysis--

Oak Bay Stats--

You can use the controls at the top of the slides to pause and single step the slides. Click the big X to run full screen.

Comments or questions appreciated.

Reid said...

Roger, thanks for doing the stats. These is very useful factual information that we can all draw from.

You may want to update the title on the show which has the year April 2008 versus 2009.

Nick said...

beckalodeon: Don't let the grumpy bears drive you away, I enjoy hearing from the bears who have bought or are close to it.

Vic said...

"But, I have a bit of a contrarian streak (like any good bear); when I saw that Garth had signaled the end of the world with his xurbia site, I started to get more constructive that maybe things had gotten a touch too, well... moonbat. I think you two just sorta proved that."


Sorry to hurt you feelings beck, I am just a tad contrarian on new posters who have lurked for 2 years and seem to have a verbal onslaught of more details I would expose about myself within one day. Call it a "hunch".


On the other hand I have just cruised through the MLS for the first time in a long time and I have not seen such utter sh*t for sale til it gets above $500,000 unless you like the idea of living in Sooke Potholes.


I just can't see how anyone can think this is a buyers market. I see a pig with so much lip stick it's dripping off of it in massive globs.

But thats just me, a "value" investor not an emotional one caught up in the moment to have a half million dollar ball and chain around me for 35 years. I am so far away from buying in this tank job waiting to happen it isn't funny.

Me and Garth ? yeah, we both think alike. ;)

Vic said...

"I'm very sorry that you think I'm too vocal on the "buy side". I guess I'll start posting on the Taliban blog, which is a bit more tolerant of a diversity of thought than yourself."


PS beck, The Taliban ? come now,you are going a little on the extreme side but what did you actually expect here if you have read this for 2 years,honestly now.

I'm sure there is a blog for enthusiastic buyers, it's called Vibrant Victoria. They will love you there.

roger said...

Reid,

Thanks for the feedback. I made the title changes you mentioned. I must be living in the past :>)

Vic said...

roger,

great charts,the Victoria one has the word "seasonal" written all over it.

The Oak Bay one says to me "trouble in deep pocket land". Those rolling averages have a nasty looking downtrend to them.

StargazerXL said...

Well "Beckalodabull," enjoy your new house! Thanks for stopping by!

Dumb Canuck said...

Update on the 1134 Dallas flip...

MLS®: 258338 (used to be 250314):
~ 1 million 1.5 yrs ago (bought)
250-300K reno cost
95 K carrying cost (5%/yr)
45 K agent fee (assuming 1.5M sale)
20 K staging cost
1,410,000 Total Cost

~1,790,000 list in the summer
1,675,000 (first week of Oct).
1,595,000 (list shown Nov. )
Jan. 1/09 - taken off market, lock box on door
1,495,000 Feb. 6/09 re-listed (same agent)
1,395,000 Mar. 18/09 price drop
1,295,000 sometime before May 2/09

??? sales price
495K drop in list price, or 27.7%
??? % drop to sales price

2009 assessment: $1,173,000.

patriotz said...

It's scary to buy a house in the middle of a bad recession...


You think we're in the middle of the recession? I think it's just getting warmed up.

Actually, dollars to donuts says if that happens (rate increase), the government will just bail these idiots out and I’ll have to organize a Tea Party in the Inner Harbour....


There will be no bail outs of buyers. There were none in the 80's and there won't be any this time either. The banks already have their bailout (CMHC insurance) and that's what matters.

The provincial government is going to be hard pressed just keeping basic services going for the next while and anyone who thinks they are going to come riding to the rescue of some foolish buyers is dreaming. Ditto the Feds.

Note BTW in Alberta where the bust has been on for 2 years now, and the government is the flushest in the country, there have been no bailouts either.

Vic said...

Just came across a listing I was tracking back last summer. It was up for over a year at $1.4 million and taken off the market in the fall. I see it now relisted at $895,000 with a new granite countertop. Ouch !

If the high end is dumping 30% plus on the nice places,the dumps on the low end have to come down.

Just Jack said...

Sorry Beck, but I ain't buyin your story. It sounds like a testimonial from a real estate brochure. Too polished, and designed to alleviate the fears of prospective purchasers. Your choice of words, generalities and lack of specific details leads me to a conclusion that others on this board have expressed also.

Beck - your a duck

Maniac said...

It's really very simple. If you believe that real estate in Victoria will continue to slide then you are very unhappy right now. You're brooding in your moldy rental thinking about how much of a mistake you made 5 years ago. It's a miserable place to be. If you bought in the last five years you are happy and are loving life. It's really that simple.

Now ask yourself this: Is today exactly like 5 years ago? I think it is. I think you bears are about to lose out again. Beck knew this was the case but keeps beating around the bush about it.

Just Jack said...

Well, Maniac

I am unhappy, like others on this site I keep seeing the old crap boxes listed and re-listed and re-listed again. There are 10,500 detached homes in the City of Victoria and only 75 are up for sale. And this is why we have to overpay for sub quality housing. And when things are about to change our government steps in pumps billions of our tax dollars into the banks to keep this charade going.

Well Maniac, it STINKS. And I am bitter. I have saved over the years and I have watched some of my savings get nailed in the stock market. How our PM can look straight into the camera and lie to us in order to save his job. I'm tired of the lies and BS put out by real estate boards and realtors. And god damn it - when the tire manufacturer says your tires are good for 80,000 kilometers - I damn well want them to be.

I want truth in advertising, honesty and transparency in government and our children back at home playing nintendo rather than burying a million more people in Irag and Afganistan.

Vic said...

You nailed it Jack,if it smells like it,it usually is.


I see the Vancouver numbers are out and the hype is all about SALES,SALES,SALES ! hardly a mention that the prices are flat, just that the sales is all that counts. The sheep are continuing to be led to the slaughter.


A blip is not a trend,it is a moment to take a breath before the next large leg down.

Reid said...

Maniac, buyers of real estate over the past five years may be happy, but I bet in five years time a lot of these folks will be a lot less happy. I cannot see many options that will cause real estate prices to rise in the coming years. Possible outcomes in the economy (say 3-5 years from now):
1. If interest rates stay as low as they are today, then we will be in a depression and unemployment levels will rise substantially. This will dramatically increase the number of homes for sale at a time when fewer buyers will have the ability/guts to enter the market. Prices will be far below today’s level
2. The economy improves and the government is able to keep inflation in check. In this case five year mortgage rates will likely have risen to or above 6%. Combine this with low income gains (you will not get low inflation and high wage increases) and now buyers will not be able to secure huge mortgages to buy homes at today prices. There may be lots of willing buyers, but there means will have been reduced by mortgage lending policies. Many recent buyers will be looking at substantially higher mortgage payments when renew their mortgages forcing many to sell at a time when there are fewer qualified buyers available to meet their price expectations. Result prices will go down
3. The current stimulus results in higher levels of inflation that governments cannot quickly get under control. The high inflation will led to substantially higher interest rates and even with higher wage growth, the inability for buyers to borrow much debt at these high interest rates will far outweight the higher incomes. Result is that qualified buyers will simply not be able to pay much for homes (until years of inflation wipe out the initial losses) at a time when thousands of existing homes owners will be struggling with mortgage payments that could be doubling or more. Result prices will go down.

The only cases where prices may stay stable or possibly rise would be:
1. The government re-introduces the 40 year (or possibly longer) mortgage
2. Government introduces interest deducibility of mortgages (highly unlikely given impact of government revenues)
3. Interest rates stay low but income growth comes back.

The last option is the one bulls can grab onto, but I cannot see five year interest rates being anything below 5% once we are out of this recession and we need to be out of this recession before we will be income growth.

HouseHuntVictoria said...

wow, do i ever stand corrected on my fear this commentary would go quiet/boring if i started requiring logins... keep it up peeps, i'm learning lots, but let's not eat one another too much k?

HouseHuntVictoria said...

Roger, slam dunk as usual. Thank you.

Rhino said...

"You're brooding in your moldy rental thinking about how much of a mistake you made 5 years ago. It's a miserable place to be. If you bought in the last five years you are happy and are loving life. It's really that simple."

Seems like a kinda mean spirited post for someone who is so happy and loving life...

Was watching a good Peter Schiff speech tonight. At the 10 min mark he starts talking about real estate, and has some funny stories (sounds like victoria present day).

http://www.youtube.com/watch?v=EgMclXX5msc&feature=related

Just Janice said...

http://www.youtube.com/watch?v=2fq2ga4HkGY&annotation_id=annotation_815755&feature=iv

It's just a really cute song about inflation or deflation.....

Olives said...

Thanks for being the voice of reason Reid. I would argue though that the three items required for price stability at the bottom of your post at some point in the future (very near?) will be in the pushing-on-string category.

I think this current bear market stock rally is leading many people out to pasture.

Vic said...

"With respect to the benchmark price, Somerville said other statistics show prices are continuing to fall in the Greater Vancouver area. "


“Their (REBGV) numbers are not the same as what we’re seeing from some other places, so I think it is hard to make sense of what’s going on there,” Somerville said.



Smells like some inconsistencies on what the media/RE pump machine is portraying by jumping back on the bandwagon versus what the economists are seeing in the Vancouver market.



http://www.vancouversun.com/business/Metro+Vancouver+residential+sales+prices+climb/1562546/story.html

roger said...

With all the news about mortgage rates and the spin from VREB and realtors it is easy to overlook RE market trends and be influenced by what happened in one month - April.

So here are some facts and questions for my fellow bears..

- April sales were up significantly from March but are still lower than the levels seen in recent years These lower 2009 sales were with record low interest rates and associated hype. If you take a look at 1st quarter sales you will see that they were dismal. So low interest rates have driven the recent market. Will this continue?

- There is no disputing that SFH prices have increased somewhat in the last few months but it is the price trend that puts things in context. One or two good months in the peak sales season is not a trend reversal.

- Even VREB has stated that many sales are taking place at the low end. Oak Bay high end sales have shown typical increases in recent months. Here are the average and median prices but look at the rolling averages and where they are heading.

- People sell for many reasons but one of the main drivers of any RE market is move up buyers. I believe this crowd is sitting tight because new listings are not showing the big monthly spring increases of previous years.

May is going to be an interesting month. It is usually the peak month for sales and new listings (see graphs above). After that sales taper off every month but inventory continues to grow until the end of summer. Once we get to June and July the RE industry will not be able to hype sales; they will be sliding.

One realtor told me that he believes the buyer pool is getting thin. How many FTB's with a good credit history and 5% down are still out there? Fixed bond rates are starting to move up and fixed mortgage rates will likely follow in a few months.

So stay focused on trends and not be swayed by peak sales season hype.

aston said...

In my recent house-hunting, what I've been seeing is higher-end properties coming down in price much more quickly than the low-end properties... most likely fueled by first-time buyers who are taking full advantage of 3.x% fixed rates. I’ve listed a few examples here (although I wish I had some hard data to back up my observations.)

It can only be a matter of time before the price reductions in the high-end market hit the sub-$550,000 market.

Roger, those are some fantastic graphs... where do you get your awesome data? Do you just look at the VREB stats and extrapolate numbers from their charts?

Reid said...

Nick said:

“Someone like me who makes three-quarters of what you make and doesn’t have as big of a down payment is somewhat boned because I’m competing with the 5/35’ers who seem willing to take a mortgage on a Tillicum poverty box to their grave.”

I love the reference to 5/35ers as it is very telling of today’s market. I would take it one step further and call it 5/35/5.5ers with the 5.5 referring the multiple of debt relative to the buyers income. Twenty years ago it was 25/25/2.5ers and now we have 5/35/5.5ers; now wonder we have a RE bubble.

I oversee the finance of a large manufacturing company and decided to change banks two years ago when the prime rate was 6.25%. I put a deal in place with a charter bank for 3x our EBITDA and I could have pushed that to 3.5x EBITDA, but we did not require it.

Today the prime rate is down at 2.25% and I am fighting for my life to have them continue to lend to us at 3x EBITDA. Their corporate bankers tell me that it is very difficult to justify a deal today at 3x EBITDA and most deals are being down at 2.5x EBITDA if at all.

So as interest rates drop, banks are cranking UP the ability for people to borrow money while at the very same time they are putting the hammer DOWN and restricting what businesses can borrow. Today I can borrow 5.5 times my income but my business can only borrow 2.5 times its cash flow.

If government was prudent they would introduce a limit to what a bank can lend to an individual/family based on their income regardless of interest rates and amortization periods. I would suggest the limit should be 4x household income. Such a measure would limit the damage that is about to come to both individuals and the economy when interest rates rise and/or job losses increase.

If such a measure was put in place it would reduce the medium SFH price to about $400k in Victoria which is fundamentally where it should be. There would be a transition period where sellers would hold on to price expectations, but once it became clear that buyers could no longer afford those price expectations given lower mortgage borrowing capacities, the market would correct and we would have a far healthier RE environment.

Vic said...

"One realtor told me that he believes the buyer pool is getting thin. How many FTB's with a good credit history and 5% down are still out there? "


roger,

thats great to hear,sooner or later this had to kick in.



aston,

this was my viewpoint after checking out MLS. The $400-550,000 range is so far overpriced it isn't funny,especially trying to sell so far over an out of date assessment. Wake up time soon for the low end.


I think the stock market will see profit taking soon with leaks out today that half the US banks needing more cash.


Shiller is on BNN soon,should be interesting.

Vic said...

Reid,


excellent info. Is the lending ability of your company based on the particular sector of your product or is it an overall "manufacturing" sector that is getting the same treatment ?

Reid said...

Vic, those EBITDA multiples the corporate bankers use are fairly stable across all industries. If your industry/business is more profitable, then they will lend you more money as your EBITDA will be higher, but the multiple will stay intact.

You would never see 5.5x EBITDA in corporate banking regardless of the economy (at least not from a chartered bank at prime interest rates).