Almost every major bank has released some kind of housing market economics report over the past several weeks that either pronounces the Canadian market to be in bubble territory or suggests that we may soon be there.
And now Re/Max comes up with a gem: Housing market to soar in 2010. I won't link to their advertorial here because I want to save readers from the sick taste of bile it inspires. But I will say this: I think they may be right. And by they, I mean both the banks and Re/Max. We are in a bubble and I believe housing prices will continue to rise in 2010.
Yesterday the federal government announced that almost all of it's stimulus funds are committed. What this really means is the money will be flowing next year. Whenever governments rush to spend money, contractors jack prices. Next year could be a great year, one of the best on record even, for Canada's bloated construction sector.
Government spending, and the subsequent consumer spending it will trigger, will be inflationary. Prices will rise.
I don't believe house prices will fall until interest rates rise by at least 1%. When that happens, look out.
65 comments:
I find that very humorous but I guess they need some pump to carry thru the coming winter bleakness. Especially when you see a flood of Bear Mountain condos up for rent on CL. Some are actually at a decent price,what does this tell you ? Dropping rents means fewer renters,but why ? are they all moving out of Victoria ? Fewer renters willing to pay the idiotic prices they were asking at $2000 ?
If the RE boys think prices are going higher then I guess they can fantasize some more because once the interest rates move even a fraction it will cause immediate ripples of the warning shot of what is coming. Not to mention the coming labor battles post Olympics.
Rising vacancy rates are the canary in the coal mine. Are rental rate has been as low as half of one percent. In the last market correction in the mid 1990's that rose to slightly over 4 percent. The moving companies were moving more families out of Victoria than in.
In my opinion the cost of living in Victoria is a lot higher today than in the mid 1990's and I would expect that as construction related jobs disappear, the vacancy rate will soar as people buddy up and leave the city.
With a high vacancy rate and weak rental rates, those people who have rental properties that become vacant may constitute a larger segment of the market.
In this case, it doesn't matter how low interest rates are, when your monthly income from the rental stops. You just can't pay the mortgage.
Good points Jack, and when this happens at supposedly "affordable" entry points then this tells you the game is coming to an end.
Of course the ReMax people fail to call the "low" interest rates what they really are as in "emergency" interest rates. This point is avoided over and over by the MSM.
Funny that remax put out such a bullish prediction given that the CREA did not. Most of these predictions are national, not local. Even the CREA had little clauses about some markets already hitting affordability limits.
Let's take a closer look at what Re/Max actually said in their press release - click here
While low interest rates were a principle factor driving home buying activity, no one can discount the value that Canadians place in owning a home.”
So what happens when the emergency rates go up?
By year-end 2009, average price is expected to increase in 15 of the 23 markets surveyed... Victoria, Kelowna, Edmonton and Calgary – all down marginally in 2009 – are all positioned for growth in 2010. St. John’s will once again lead the country in terms of percentage increase in average price in 2010 with a projected upswing of 11 per cent. Quebec City and Regina are expected to experience escalation of six per cent, while Calgary, Kelowna, and Victoria are forecast to climb five per cent next year.
So Re/Max states that Victoria prices are lower than the peak and will only climb 5% next year.
The major frontrunners in terms of unit sales appreciation in 2010, are all located in Western Canada, including Kelowna with an anticipated upswing of 10 per cent in housing sales; Calgary with an expected increase of eight per cent: and Victoria, which rounds out the top three with a seven per cent hike forecast for unit sales.
So sales in 2010 will be on par with 2007.
I predict for 2010 that gold will rise much higher than real estate in Victoria and Vancouver for the 3rd year in a row. The hedge funds are only starting to dip their toes into bullion now, wait until they revise their holdings beyond 5% and the investment banks really get short squeezed... $2K gold in 2010 is a real possibility.
Damn, I'm really starting to sound like a gold bug now... too bad though, because it just keeps on coming true.
Mr.4AM
Well the world is going to end in 2012 anyway...right??? I don't care what RE/MAX pumps into the mainstream media...I applaud any type of positive spin on the Real Estate Market. Unless your name is Nostradamus, I suggest an accurate presentation of the existing market conditions and let your clients decide what the future holds...NOT YOUR JOB!!
I don't understand your post Mortay. You are a realtor, correct? On the one hand you say it is not a realtor's job to make predictions on the market, but on the other you applaud the pumping. It almost sounds to me that you are saying you should never say anything negative to your clients concerning the market, but it is ok to stretch the truth on the other hand. This is the type of behaviour that most people despise and falsely tar all realtors with.
I am working with a realtor (though we are now waiting and seeing on this market), if I detected this type of coersion I would walk.
Mortay said: I applaud any type of positive spin on the Real Estate Market.
Please folks...don't feed the Trolls.
OMC...my post only suggests that you do due diligence and hire an agent who knows the market. Lawrence Yun PhD, Chief Economist for the National Association of Realtors in the United States was dead wrong regarding Fannie Mae, Freddie Mac, Foreclosure Inventories, and Bank Stability. He is obviously a very educated and smart individual who just made a few wrong assessments.
RE/MAX may be completely wrong...on other hand...they could be completely right. Don't let the media or any other venue make the decision for you. Research on your own and hire a good agent who can educate you on the existing market conditions. Anyone who thinks they can predict the future would NOT be selling real estate.
Hachiroku...there is an old saying.."If you can't say something nice, don't say anything at all". When I said that I applaud any positive spin on real estate...it's because we have a very solid market and people are sitting on the sidelines because they are scared. Not because they believe the market is bad, but because people in the real estate business are telling them the market is bad.
I give clear, accurate, and honest information to my clients/customers and let them make the decision regarding buying and selling. RE/MAX, CREA, NAR...can certainly provide me with statistics, but to render an opinion as to what market values, interest rates, or any other variable would be in the future in my opinion is negligent. If Lawrence Yun can't do it...I won't even try. I'm sorry you feel the need to call me a Troll when you have never even met me, but it certainly does perpetuate the negativity and allows the public to solidify their opinions of us by the way we treat people within the same profession. I wish everyone reading this post a happy holiday season and a productive and safe 2010.
The Troll :)
I don't see the labour negotiations going well at the end of March, I think anything other than step-increases are probably unlikely. I also think that many who have been recieving 'Temporary Market Adjustments' - IT folks, and other technical sorts who have been hard to fine, might find that the TMAs get shrunk or zapped altogether or red-circled.
I also can't see a hold off on rising interest rates much into the new year. The latest labour market report showed Victoria's unemployment rate hit 7.1% in November - but for a good portion of the country the jobs numbers were good for the first time in a long time. Interest rates aren't set at the 'local market level'. I don't think the employment picture is going to look better in Victoria for quite some time either. We're a government town, and this government will be looking to trim the deficit for quite sometime to come.
I think what might happen is, that as everywhere else actually bottoms out and corrects (US, Europe), we might finally begin our descent. This will be because instead of appearing as a 'low risk' place to be - Canada will be viewed as 'at moderate to high risk' as we nevery really went through the process that was needed to correct what was wrong. As a result everywhere else, the risk of a further correction will be seen as low, but in Canada our risk will be seen as being quite high.
Timing wise - I don't think the spring market will materialize and I think it might be the worse spring/summer on record in 2010 (March-August). And unlike this past spring, there will be no sudden interest rate drops to bail it out. I think the relentless march back to fundamentals will have commenced at that time.
But I could also be very, very wrong, and this is only IMHO.
Mortay said "Research on your own and hire a good agent who can educate you on the existing market conditions."
One of the purposes of this blog for many is for research and education.
Researching and educating myself about real estate means I certainly don't need a real estate agent to do that for me.
Many who don't research and educate themselves certainly do use a real estate agent to do that for them.
S2
"no one can discount the value that Canadians place in owning a home"
Maybe but that does not in any way justify prices being so high compared to rents. The owner's premium is the renter's discount, and the low returns to landlords cannot be made up by capital appreciation in the long term.
Until the price-rent ratio returns to earth, the housing market is in a bubble. Period.
"Many who don't research and educate themselves certainly do use a real estate agent to do that for them. "
When I buy a car I don't rely on the car salesman to "educate" me on what car is right for me and on what price I should pay. Realtors, both on the buy and sell side, should be treated no different.
There are some 670 condominiums up for sale in the Greater Victoria area and based on a three month average there have been 106 sales per month. That would be a 6.3 month supply of condominiums.
Or putting the data another way over the last 90 days 761 condominiums were listed for sale and during the same period 318 were sold. Thats a sell/list ratio of 41 percent.
How about prices.
The median price for a condominium in Greater Victoria is now $285,000. Which is up from the same period in 2008 from $260,000. But down from 2007 when the median was $290,000. But up from 2006 at $255,000.
How about sales
2009 were 318 average of 106
2008 were 275 average of 92
2007 were 456 average of 152
2006 were 444 average of 148
If for one minute we consider sales volume instead of price as marking the peak, one easily sees that our best days in real estate are behind us. And one might even say that if we had not had the CMHC stimulus then the sales volume over the last year would have been atrocious. All that the hundreds of billions of dollars of CMHC's mortgage backed securities have been able to do, is keep prices and sales volume stagnated. If the government had not swung open the barn doors of the CMHC sub prime market then our economy would have tanked along with home prices.
In my opinion, all that the CMHC stimulus has done is deferred the inevitable.
So, as an investor, when do you know its time to sell.
When prices are going up?
When prices are flat?
When Prices are going down?
The answer is none of the above.
What you should be watching is volume. You can't measure the peak in price by using price as your guide.
The next part of the market is a drop in sales followed by a significant increase in listings. That would be equivalent to the canary in the coal mine singing rap. Right now, the canary is only whistling Lawrence Welk tunes.
Even with a slow down in sales I think lack of development going forward will prevent a significant increase in listings.
Last year we have a the perfect storm, stock market meltdown, poor real estate market sentiment, and huge amounts of inventory coming on-board from developments in Langford and downtown. Prices didn't crash.
Going into next spring new inventory will darastically be reduced. By my counting at least 14 big projects were stalled last year and this year (Silkwind, Colwood Corners, Bayview Phase II, Capella, list goes on..) New single home construction is down as well. Lot inventory is darastically down.
Increase in listings will have to come from existing homes/condos.
Interest rates and HST will hurt affordability; therefore, I don't think prices will go up next year.
I know two people right now that are looking to buy lots in Gordon Head to build. Both have a budget of up to $425,000 for a lot but there is nothing on the market.
I think we have a long way to go before increased listings start affecting prices significant. However, doesn't hurt to wait at this point.
Mortay,
I did npt call you a troll or any other sort of name. I engaged you. I questioned your statement that a realtor should not give any predictions on the market, yet you applaud remax's propaganda. You can't have it both ways.
My O/T post for the day...
I'm currently on vacation in the interior where I grew up. I come from a small town with almost 5000 people.
Currently, the local sawmill is running 1 shift (out of 3) and they are only working that shift 3 days per week.
The local CP Rail repair facility has laid-off over 150 workers and is running the shop on a skeleton crew.
To top it off, the industrial supply store that I worked at as a kid, a store that has been in business for over 35 years, closed it's doors yesterday killing jobs for two more people and their families.
And finally, while I was getting groceries I saw an SUV with Ontario license plates. The woman had a load of IKEA stuff in the back. I can only assume it was destined for the local resort and ski hill.
So what does this tell me? 5000 people that are mainly supported by logging and the railroad will soon be looking for jobs. They no longer need their houses in this town. They no longer need the gas stations, coffee shops, restaurants, doctors and lawyers in the town either.
Sure some businesses will stay. The resort will stay. Those with money will drive out in their SUV's, stocked with IKEA stuff to fill their resort timeshares or second houses. But the blue collar people will be moving. The $30/hr jobs will be gone.
Yes, I'm a little nostalgic for the past but the reality is that there is no future for it here. My hometown will, actually must, reinvent itself in order to continue on. Many towns like it have tried. Some succeeded. Many failed. And the odds are stacked against it today.
So, while Victoria and the lower mainland fail to see the recession continue to revel in their "paper profit" houses, I had coffee with two guys that didn't know what they would do for Christmas. I drove through town and counted the vacant commercial properties and laughed and the ridiculously priced residential real estate.
For the remainder of B.C., this boom is over. All that remains are the pieces of the bust.
I called Mortay a troll...and he/she is.
When I said that I applaud any positive spin on real estate...it's because we have a very solid market and people are sitting on the sidelines because they are scared.
People are scared and they bloody well should be with the lowest interest rates in the history of interest rates....which leaves no where to go but up.
It'll be so awesome when the whole house of cards comes crashing down and all you Real Estate "Professionals" will be like "We never saw this coming!" "How did this happen?"
Hello all...I have decided to leave Victoria and am considering a move to Nanaimo. Does anyone have any stats on year over year median sales, listings and prices for Nanaimo, or could someone tell me where to get it?
Last week I had a chat with a senior executive in the BC Forestry ministry, and I just thought I'd share some of the key points discussed:
Paraphrase: "The BC forestry industry only a few short years ago used to be a cash cow for the goverment bringing in upwards of 1.8 Billion dollars/year. But recently, between the pine bettle crisis & the US housing meltdown, this has now been reduced to a mere 200 Million /yr. This has had some significant (but not only) contribution to the recent government layoffs of ~300 staff. While not publicly announced, there have also been numerous management level layoffs occuring over the last few months, including 5 CIOs getting turfed, and more are expected".
When I asked about the future outlook for the ministry and the potential to ship massive ammounts of wood to China for house building (FYI, parts of China recently ammended their build codes to include wood framing which supposedly withstands earthquakes better than cement structures), this was the reply:
Paraphrase: "Unfortunately, this isn't going to happen anytime in the near future, because China works and builds with the metric system, and due to most of our exports going to the USA, all our mills are equiped with machines can only function with the imperial (feet/inches) system. You'd have to replace vast quantities of very expensive machinary and we haven't been given the funding for this"
Mr.4AM
"Unfortunately, this isn't going to happen anytime in the near future, because China works and builds with the metric system, and due to most of our exports going to the USA, all our mills are equiped with machines can only function with the imperial (feet/inches) system. You'd have to replace vast quantities of very expensive machinary and we haven't been given the funding for this"
My brother in law works in management for Canfor and they are projecting that 50% of their exports will be to China by 2019 (Currently 85% is to the US). Canfor CEO has been in China 3 times in the last 2 years.
As far as the machinary, who cares what the measurement system is? If I order a piece of wood 2.54 centimeters long they will cut me 1 inch, if I order 1 inch they will cut me 1 inch. The guy you talked to much be using antique machinery if they can't program a machine to cut a piece of wood at a specific lenght/height/width.
I admit, I know next to nothing about the Forestry industry, just regurgitating what I heard, but still, 2019 is 9 years away, so that to me does fall into the category of "not anytime in the near future"
Mr.4AM
Bitterbear - The Nanaimo stats for the last few years are available here.
Coast Realty
"I admit, I know next to nothing about the Forestry industry, just regurgitating what I heard, but still, 2019 is 9 years away, so that to me does fall into the category of "not anytime in the near future"
Well, there is no denying the industry is currently experiencing a lot of issues. Profitability is very poor due to low prices and yet when I go build a home it still ends up being expensive.
The thing that scares me is a correction in lumber demand (China, US etc.) and prices going up, then the price of construction will really skyrocket. Trust me, if Canfor can get more money in China they will sell to China, driving the prices we have to pay up.
I think we are better off with these companies struggling. Government revnues suffer, but at least construction prices are realtively stable.
The minute these companies start selling to China is the minute that our standard of living will start dropping. You'll still be making xx/hour but to buy a house will be that much more.
Sub-prime borrowers in Canada are starting to face foreclosure due to credit crunch. Lenders want a taxpayer bailout.
Globe and Mail report
Ms. Matthews is one of many Canadians being abandoned by a breed of alternative lenders that have stopped lending to customers, who, because of poor credit scores, lower-paying jobs, or minimal home equity, couldn't obtain financing from a traditional lender, such as a bank.
Records obtained under the Access to Information Act show that a lobby group representing these lenders has warned the federal government that, unless taxpayers offer help, they will be forced to foreclose on as many as 30,000 homeowners over the next three years.
Interesting article Skeptic,
As much as I'm hoping for a severe housing downturn, I wouldn't want it at the cost of people who have a clean record of paying their mortgages every single month losing their houses due to refusal of their lender to roll-over the mortgage. That said, ideally, they should have clued in when most lenders turned them down originally.I.E. "Hey, maybe I really can't afford it and should just rent?"
I'm not sure how government can help them here, certainly not with a "bail-out", but some kind of loan with a higher interest premium than average would seem fair - assuming that higher premium isn't much higher than what they are paying now, or else it's pointless.
Also, I wonder if perhaps they aren't better off just selling now at peak, to avoid the obvious catastrophe of a much higher interest rate 3 years from now when they have to renew - and maybe to some extent, that's what Xceed is already anticipating.
Mr.4AM
For a good laugh, check out this 2 min video on who qualifies to be counted as officially unemployed in the USA. I imagine in Canada, the counting methodologies are probably not that far off.
Mr.4AM
"These sources say Ottawa is frustrated that some of the companies in this small segment of the Canadian mortgage market have been unwilling to hand over data so the problem can be fully assessed, one source said."
You can only imagine why they won't hand over the info, because it will expose their shady lending practices. It's the USA Gone North,and I expect the 30,000 number to most likely triple or more. They always under estimate on these disasters.
Talus, I know the town well that you grew up in. The sawmill is actually not a sawmill but an engineered wood plant that will come back when US housing recovers. That may still be 2-3 years away, but there are no plans to close the mill. The US owners of that mill decided to keep the Canadian mill running and closed a similar US mill which was a surprise given the strength of the Cdn dollar. So it could be worse for the town. Unfortunately the product made at that mill has no application in China today. Unfortunately CP got hammered by the loss of a large coal contract this year, but my discussions with people there is that people are slowly being rehired. CP is known for treating its employees like dirt. As you suggest jobs at both these organizations pay very well and it has to hurt the town. I could see it clearly when I was there a few months back.
The resort is a great diversifier, but unfortunately the skiing simply does not compare to the new resort 150km to the west. On the positive front, the closer proximity to Alberta will keep the resort viable.
Here we go again!
Office sector debt looms as threat to U.S. recovery
Call it the ghost of speculators past. Despite the stabilization of the U.S. financial system, there is renewed fear that the U.S. economy, having dodged one bullet, will be sidelined by a new monster: the gigantic debt hovering over the country's commercial real estate. The Federal Reserve reports that delinquency rates on commercial real estate loans have doubled in the past year to 7% as demand for commercial space contracts and companies go bankrupt.
One of the largest collapses this year is General Growth Properties Inc., the second-largest shopping mall company in the United States. It filed for bankruptcy after its lenders refused to refinance US$27-billion of debt.
Defaults such as these may be the tip of the iceberg. The Federal Reserve estimates that the total outstanding debt in the U.S. commercial real estate market is US$3.4-trillion, of which US$1.4-trillion must be repaid or refinanced by the end of 2012. If refinancing this debt proves difficult, it could lead to multiple defaults, which in turn could easily trip up economic recovery plans.
The commercial real estate bubble has been slower to burst, but it is expected by many.
"This is the last of the big asset sectors to tank, and it's getting more attention," said Jonathon Miller, a consultant for PricewaterhouseCoopers LLP and author of a new report, Emerging Trends in Real Estate. "We expect it will hit bottom sometime next year, well after other asset sectors."
Mr. 4am -
I can confirm that the Canadian definition of unemployed is "Not presently employed and actively looking for work".
Anybody who is underemployed, not looking or retraining until something comes along is not counted as 'unemployed'.
What's somewhat disturbing about the latest labour numbers is the large share of the increase that was attributable to the educational sector (+40,000 jobs). This is disturbing because it signals that people are retraining (lost hope of finding work in the field they once were in) and dropping out of the labour market. So it looks like unemployment has dropped when that may not actually be the case.
FYI EI is now using an unemployment rate of 7.9% for Victoria...
Mom annd Dad help the kids buy a ball and chain.
TD Canada Trust's recent Generational Homeownership Study
"Today, less than half of young adults [49%] agree that paying off their mortgage is a first priority, compared with 64% of those over 55," according to the study
About 36% of today's 18-to-34 age bracket said they could not have afforded their first home without help from family compared with 16% in the 55-plus category.
Going a step further, 27% of young buyers either received a gift of money or borrowed from family or friends.
Better watch it Reid we might be related : )
I knew it was an engineered wood plant but I didn't figure that would mean much to the readers here. "Sawmill" is much easier to explain and I feel the end result will be the same. I could be wrong but I have seen so many small mills (with a variety of products) go down that I don't know how this one could be different.
If anything I think that the CP Rail facility will survive but it was never as large an employer as the mill.
I know that resort 140km to the west well -- that town was my birthplace! I still cannot figure out how that town continues to survive without any real industry at all. And they have insanely high real estate prices too. I had heard word that the investors in that resort were in difficulty or had pulled out.
Out here, the recession just seems to be in your face much more than down at the coast.
VREB Month-to-Date Statistics came out this morning to member agents.
For period Dec. 1-6
Net Unconditional MLS Sales: 121
New Listings: 154
Total Active Listing: 2,829
Oh man, I don't know whether to laugh or cry. Too funny and sad at the same time. Definitely need more financial education in the US (and our) school systems. Check out this video on a 'petition for hyperinflation'
Mr.4AM
Reid and Talus - beautiful showers in Golden?
Talus, I would have to guess one of your parents worked at CP and you got relocated when the works yard moved.
The "sawmill" it is far better and more secure to be making that EWP, so I think that should allow the mill to survive. As far as the town to the west, all you have to do is ski the place and you will see why people have been buying real estate there. In mine and many other skiers’ opinions, the mountain blows Whistler away – it is truly epic. The original investor got hammered by Leeman Brothers last fall, but the resort was taken over by a wealthy Canadian family. Rumor has it that Vail is trying the buy the resort and if that is true, real estate could rise further as crazy as that may seem.
Seeing some real deals on rentals on CL for a change and they are thru some of the management companies. Some are entire houses in the $1600 range in decent neighborhoods. Something tells me there is a shift in the rental pool and there are too many wannabe landlords out there flooding the market. The official
one percent or less rental availability number is such a joke.
More Vancouver condo insanity over at the Globe and Mail today.
"About 20 people spent a frigid Friday night a week ago outside the sales office for a new building called The Mark. By the end of business the next day, 163 of the 214 available condos had been sold."
"And lately there doesn't seem to be a home that isn't selling for more than the listed price. One home on the east side of the city went for more than $300,000 above asking. Many have been going for a couple of hundred grand more."
"If you believe the economy is coming back, that your job is safe and that real estate remains the most solid investment a person can make, why wouldn't you jump in? Prices are only going to keep going up, right? The longer you wait the more it will cost you. Isn't that the law of the jungle? It is, except no one expects this latest price surge to continue. The bidding will become unsustainable. Home affordability will deteriorate to a point where the average person can't get in. Some think we're almost there."
People sure have short memories. Never mind, prices going down because (utterly ridiculous) affordability limits are reached, just watch what happens when the next sovereign debt crisis blows the stock markets sky high. We still haven't seen all the potential repercussions of Dubai, and Ireland and Greece are walking the thin edge of a cliff, to say nothing of a 1/2 dozen other countries in similar situations, or another surprise out of left field.
And even if somehow the world manages to keep on spinning without any financial nukes going off, then surely the BoC will start hiking up interest rates in Q3 2010.
The leg down of the Unreal estate in Vancouver is going to be phenomenal.
Mr.4AM
this is a pretty interesting read from a US perspective on Canada Vs USA RE.
Here is a brief summary from the link:
"One possible critique of this argument is that while Canada has not yet experienced a housing bust, it is likely to experience one in the next year. Indeed, a recent Merrill-Lynch-Canada report noted that Canadian house prices over the past decade closely resemble U.S. house prices with a two-year lag (see figure 1). Based on this, they concluded that Canada was also likely to experience a large decline in house prices over the coming year. Canada’s smaller subprime market share and fewer households with high LTV ratios, however, suggest that the country is less likely to see the rapid increase in defaults that helped trigger the bust in U.S. housing prices. So far the incoming data suggest that the Canadian housing market is likely to experience a housing market slowdown rather than a bust."
Full article: http://www.clevelandfed.org/research/commentary/2009/0909.cfm
Good find matt, here's a working link.
So what percentage of our market has to be under duress to affect prices?
5%
15%
50%
more?
Just Jack:
Are you asking total market or total listings? Total market turnover is under 5% per year. I'd say we'd need to see at least 15% of total listings to create significant negative market pressure. Which is less than 1% of total market.
Considering the total real estate market that sees buying & selling historically comprises of aprox 5% of all real estate in Victoria, then the real question is what percentage of that 5% experiencing duress would trigger prices in general to go down.
I don't really know but would venture to guess 50% (the majority) across the bigger categories: SFDs & condos.
I think the more important questions though are what factors will trigger the duress and when?
I've listed these before, but here we go again:
1. Rising mortgage rates - variable rates will go up when the BoC is likely to start increasing the overnight rates in late Q2 2010. As per Roger, fixed rates may very well increase beforehand; however, as of yesterday, it seems they may have just gone down a bit.
2.Any kind of government policy change that disfavours home ownership - Examples:
a) Decreases in maximum amortizations (35 years to 30 or less)
b) Increases in minimum down payments (5% to 10%+)
c) Increases in capital gain taxes
d) CMHC insurance caps or reduction of insurance caps. Increase of downpayment percentage to escape CMHC insurance fees.
e) Increased costs in buy/sell transactions (i.e. HST in July 2010).
f) Requiring stricter lending practices by financial institutions (the list could be a long one here)
g) Ending of home renovation tax grants.
3. Affordability limits being reached with current policies/interest rates in place - we may not be far off here.
4. Another major stock market crash scaring lenders from lending & buyers from buying, and sellers into panic selling. This is likely to stem from:
a) Continued increased risk of sovereign debt defaults (i.e. Dubai, Greece, Ukraine, Ireland) which could cause a domino like meltdown across the globe. Dubai has a 3.5 Billion debt payment due on Dec 14th. Counter parties at risk include 3 major British banks that already suffered major losses in 2008/2009. The UK GBP is already in serious trouble.
b) Continuation of countries around the world deleveraging their US dollar holdings/debt, which could trigger either a USD currency crisis if something goes wrong, or just a slow-motion train wreck for the US dollar and the US.
c) Any further significant problems in the USA could impact Canada due to ~80% exporting of our goods to them and affecting our export markets further, resulting in job losses, resulting in RE selling, resulting in decreasing prices.
d) Further and continued devaluation of the US dollar. Many estimate we'll see a USD/Canada par again in 2010. This could derail our so called "recovery".
e) China continues to reduce US Treasury purchases to the point that USA has to apply further QE by hundreds of billions, like Japan is currently doing but to a smaller degree.
f) Option ARM blow-up in the USA
5. Another major oil spike that would inflate the cost of goods, transportation etc. making a dent in consumer pocketbooks and driving some over the cliff and forcing them into selling their home. Note, that the derivatives market suspected of causing $147/Barrel oil remain unregulated.
6. Continued Unemployment increases due to government cuts/lay-offs in Victoria to stem budget deficits, or even in the USA; though if they thrown enough borrowed money at the problem, eventually (but temporarily) the unemployment rate will decrease as we recently saw in the USA.
7. An eventual end to economic stimulus packages I'd love to see this end in 2010, but there's no chance a *real* recovery will be in place for this to be possible, or at least possible without catastrophic consequences.
8. More and Higher taxes Use your imagination.
9. Black Swan Event(s) - Too many possibilities to list. I'll leave that to the conspiracy theorist. :-P
Mr.4AM
I've also been seeing far more rental vacancies at reasonable prices on Craigslist and Times Colonist.com. Has the pool of FTB with good jobs moved almost completely into house purchases and are vacating rentals this much. The sales pressure on the low interest rates is quite phenomenal.
Unfortunately also have acquaintances who recently became 'Real Estate Investors' in Victoria.
The CMHC rental vacancy data is released every six months - last was June 10, so the next release could be this week or next. Of course it doesn't catch the owner suites, but the bigger buildings have a lot of for rent signs on them. Also have seen quite a few Duttons and other firm house or character suite rentals sitting vacant for quite a long time in Fairfield.
The upcoming CMHC rental vacancy data won't indicate much increase until the next June report. Most of the closings happened this fall and many of these buyers would have kept their rentals till Nov or Dec.
Right now we're in waiting for rental listings to get stale and numerous so that rents are made more attractive (lowered). Unless something significant happens in the sales market, we're looking for a bigger rental in the new year.
Bears - we are not alone!!
CBC posted this today:
Interest hikes could shock mortgage holders
Homebuyers could be lulled into taking on larger mortgages than they can handle because of continued record low interest rates, says the C.D. Howe Institute.
"Does the simple experience of short-term interest rates being so low, for so long, encourage people … to mortgage themselves more than they otherwise would, and buy a bigger house than they otherwise would … and get themselves into trouble longer term?" said C.D. Howe president and CEO William Robson.
Answer -YES. Most Canadians have poor financial skills and are lured by granite and stainless.
On Tuesday, the Bank of Canada announced it would keep its key overnight rate at the historic low of 0.25 per cent. The C.D. Howe Institute says that is helping to create a false sense of security among borrowers who have taken on debts larger than they could normally afford.
Robson said a rapid rise in interest rates could prove devastating for homeowners who have not evaluated their ability to carry their mortgages at a higher interest rate.
The council said the central bank should give a strong signal that an eventual overnight rate move may be quick and large. It also suggested the bank rein in the housing market by raising the required down payment on government-insured mortgages.
Rising interest rates tend to have a herd affect of causing people to jump into the real estate market.
Roughly, every 1.25 percent increase in the interest rate is equivalent to a $10,000 increase in income to qualify for a mortgage. Sure prices are high, but these people qualify. An increase in 1.25 percent may mean lower prices, but now these people do not qualify for a mortgage even at the lower prices.
Today's buyers realize that they can buy at today's rate but not one that may be one or more percent higher. There thoughts are of the immediate future of less than 90 days. And not of what rates may be in five years. They are unrealistically thinking that the increase in the interest rate will be covered by an increase in their income in five years.
NOTE: NEVER LEVERAGE REAL ESTATE IN A MARKET WITH INCREASING INTEREST RATES - if you do, please see your picture in the dictionary under economic suicide.
As for the duress market. It can take many forms such as an increase in your mortgage rate (the slow death by a thousand bleeding wounds), divorce (money issues hasten this as one partner wants out NOW), increased vacancy, (your basement suite or investment home becomes vacant and the loss in rent can not be made up out of your personal income), death (nothing says sell faster than a siblings greed), loss of income from pay reductions or loss of job (a slow death as most people will hang onto the house till the end, especially if they have very little equity in the home.) Re-location (a big thing in a navy town).
Approximately 4 percent of the total housing stock (inventory) has been sold on an annual basis in Victoria, over the last decade. Even in depressed markets the change in the total sales percentage may only drop to 2 percent. But listings and days-on-market will skyrocket (hard to get good data on the days-on-market because of the "unethical?" practice of re-listing properties in Victoria).
So, what percent of homes listed for sale have to be under duress?
I think what happens is that at first the percentage is quite small say one in 10 houses. But as the home owners that are not under duress, take their homes off the market (they think the slouch in prices is temporary), the majority of listings left are of motivated sellers, like the ones described above.
How fast this occurs, would be a matter of how fast our economy contracts.
IMO declining prices will have more to do with buyers than sellers going forward. The number of homes listed each year does not change all that much, but buyer demand can change dramatically. If interest rates were 6% today we would simply have WAY less buyers (unless prices were lower) because most simply could not qualify.
Most buyers (FTB or otherwise) are focused on what the bank will lend them and what their monthly payments will be. At 6% people can borrow a lot less and consequently there will be far lower demand for housing in Victoria.
Today there are plenty of motivated sellers, but this has no impact on price as there are more buyers than sellers. Once buyer demand drops, then seller duress becomes a major issue. These sellers have to sell and to accomplish that they will have to reduce price expectations. Today they simply get their price.
So IMO putting aside another economic meltdown, any real estate price correction in this market will be lead by substantially higher mortgage interest rates. As Just Jack said there will initially be a number of buyers entering the market as interest rates rise, but once these higher rates are firmly established, prices will come down. The earliest we will see materially higher interest rates will be late 2010 but more likely 2011-12.
Interestingly you need to go all the way back to the late 1970’s and early 1980’s to find a time when mortgage rates rose substantially. The end result then was ugly. In Canada we have witnessed over 25 years of declining interest rates, so few buyers today have memories of what it is like to adjust your lifestyle to higher interest rates or how damaging it can be.
Hopefully new buyers are locking into five year mortgages at these rates.
Once the interest rates go up maybe people can have their own personal debt clocks just like our neighbours to the south: http://usdebtclock.org/
My brother in law works in management for Canfor and they are projecting that 50% of their exports will be to China by 2019 (Currently 85% is to the US). Canfor CEO has been in China 3 times in the last 2 years.
Marko, next time you see your brother in law, ask him at what price they'll have to sell lumber to China in order to be competitive with Russian timber, even with Russia's export duties. Oh, and you might include NZ and Australia as well, their plantations are much closer to China than ours, and they already have an established market there.
In Canada we have witnessed over 25 years of declining interest rates, so few buyers today have memories of what it is like to adjust your lifestyle to higher interest rates or how damaging it can be.
The economy is different now. Inflation is tightly controlled by the central banks, hence long term low interest rates. It would take mortgage interest rates in double digits for prices to take a significant hit, and that is not likely to happen because of all the other economic damage and inflation the corresponding bank rates would generate. I'm sorry to have to tell you this, but if you can't afford to buy now, you will never be able to. We'll see dips like in 2008-09 again, but prices will drift back. It's supply and demand and cheap money.
I agree with Bubble 'n' Fizz.
Bubble, we only need 6% mortgage rates to see the cards start tumbling down. 6% mortgage rates were the norm a couple years ago, not 20. If we ever hit 10%+ mortgage rate, then real estate will crash harder than you could ever imagine.
Bubble's not only can I afford to buy a house, but I own my home outight, so higher interest rates will not impact me. But I am realistic about what my house is really worth and IMO it is overvalued. I choose not to sell it for personal reasons, but I can afford a drop in value which I fully expect over the next three years.
Bubble & Fizzle said:
"Inflation is tightly controlled by Central Banks"
- Oh really?" Only in the short term. Long term, (the bond market &) market forces determine interest rates, fighting this with Quantitative Easing can only be done for so long."Quantitative easingis seen as a risky strategy that could trigger higher inflation than desired or even hyperinflation if it is improperly used and too much money is created."
"It would take mortgage interest rates in double digits for prices to take a significant hit"
- Oh really?
"and [double digit inflation] is not likely to happen because of all the other economic damage"
- As per previous link, Double digit inflation is not required to trigger a housing meltdown, but if it were to occur, the housing meltdown would only go into overdrive.
"I'm sorry to have to tell you this, but if you can't afford to buy now, you will never be able to"
- Oh really?
"We'll see dips like in 2008-09 again, but prices will drift back."
- Oh really?
Talk about not uttering a single sentence of truth. B&F you should seriously consider applying for a position like the one this guy had.
Mr.4AM
Bubbles said:
I'm sorry to have to tell you this, but if you can't afford to buy now, you will never be able to.
Bubbles - Would you please explain who will be able to buy in the future? Move up buyers need someone to buy their house. What is the profile of a first time buyer (FTB) in 3 years from now?
Just need to know so VREB can get the marketing program ready.
Its BCREA's turn to issue a news release. Times Colonist parrots it as usual.
B.C. residential real estate sales hit four-year high for the month of November
In Greater Victoria, November sales were up 116 per cent to 557 units while the Vancouver Island Real Estate Board — covering everything north of the Malahat — saw a 111 per cent increase to 583 unit sales.
The dollar volume on sales in Greater Victoria hit $274 million, a whopping 146 per cent increase from November 2008. The Island board’s total more than doubled to $180 million comparing the same periods. Average prices in both regions, however, declined with Victoria’s average on all housing types, including condos and townhouses, slipping nearly three per cent to $473,478 and the Island’s dipping five per cent to $315,983
So... Lowest mortgage rates in history, "whopping" sales and prices are down. No wonder BCREA said:
low interest rates on mortgages, pent-up demand and strong consumer confidence have propelled the industry to near record levels, but cautioned that a market levelling is near.
“Consumer demand in these markets is expected to moderate in the new year as pent-up demand is largely expended and higher home prices erode affordability,” said association chief economist Cameron Muir.
Wait till interest rates go up. Economics 101 - supply and demand.
Profile of the FTB in the next 3 years?
How about a savy, skeptical over-educated 40-something bear with an iron fist around a hard-earned downpayment, two kids in private school, aging parents and a nose for bs.
Bitterbear - correct for me except the private school (and the number of kids).
b.s. meter on me is too high.
Bob leftcoaster (from earlier) - let's wait and see what the numbers show. Since it is semi-annual, its a long time between data points, but also this can show big jumps. Yes, the rate is probably still rising, but could be an interesting early indicator of where some of the stress in the system is (or is not).
What is the profile of a first time buyer (FTB) in 3 years from now?
Same as it is now, and that includes NOT being any of the bears here because they will forever be waiting for the fabled crash and 50% price correction.
Bubbles said:"blah blah blah {disinformation without any credible citations} blah blah blah"
*yawn*
Mr.4AM
Same as it is now, and that includes NOT being any of the bears here because they will forever be waiting for the fabled crash and 50% price correction.
Oh yes... there will never be a correction. Remember this graph?
Months of inventory quadrupled during house hunting season. That's insane! You notice when it dropped back down to 5 MOI? That's when the BoC dropped the overnight rate to basically 0. That's right, it took interest rates dropping to the lowest in a generation to breathe life back into the market.
Before the US housing crash, it could at least be credibly argued that it would take double digit interest rates to pop the bubble. That would be significantly above historic rates. But now? A massive increase back to historical norms would knock the wind out the market.
So, you can certainly argue that a zero-interest rate policy is coming but you'd have to do more than just whine that we aren't buying your property. So either prove why assuming a return to the median isn't a good policy in this situation or just admit that you're wrong.
Bubbles must have just passed the real estate agent exam as per typical denial of all bear facts based on factual data and provider of none to rising prices arguement. No concept of average incomes,coming labor battles with zero percent wage increases for years to come,rising taxes, overheated market and no balls to lay out their predictions on price rises. All makes for one head troll sweating bullets they are overleveraged or they wouldn't be here in the first place. "Fizzle" will be an understatement in due time.
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