A year's worth of change = nothing

December 2009 was a particularly robust sales month - compared to most Decembers that is:

December 2009
Net Unconditional Sales: 453
New Listings: 480
Active Listings: 2,557 

December 2010 is what I'd call a perfectly average sales month - again, when we compare it to other December year data we have access to.

Marko Juras, by way of his access to up to the minute VREB MLS sales data provides us with a slightly premature look at December 2010.

December 2010 (as on December 29)
Net Unconditional Sales: 322
New Listings: 491
Active Listings: 3,228

The average reported price for December 2010 is almost $640,000. The average reported price in December 2009 was $651,316. 

A year's worth of change brought Victorians diddly squat. We watched this market tug back and forth between seller's and buyer's market conditions, with two horrific months creating industry panic in August and September, but otherwise flat territory until a rather difficult to explain/understand fall recovery. Listings fell as sales climbed in October, November and December bucking trends established in previous falls' sales data.

It's prediction time again soon. The industry champions will toss press release after press release written to build confidence in real estate buying. We'll continue to debunk their bunk. I'm going to repeat something I wrote this time last year as a prediction:

Until we see a significant economic event, like an interest rate rise of 1% or greater in the fixed products, this market will keep doing what it did this year: bouncing around up and down each month all the while losing value to the effects of inflation.

Merry Ho Ho

Whatever you're doing to celebrate this time of year, raise a glass and hear my toast:

May you have peace and financial security in your world in this year and next.
May your life be happy and influential on the people around you.
May your contributions here and elsewhere be recognized and rewarded.

Cheers!

Thanks to everyone here, for your reader loyalty, your insightful commentary and your continued participation whether it be daily, weekly, monthly or rarely.

Happy Christmas,

The HHV's

December month to date stats

MLS numbers courtesy of the VREB via Marko Juras.

Month to date December 2010 (last week's month-to-date totals in brackets)
Net Unconditional Sales: 243 (163)
New Listings: 408 (305)
Active Listings: 3,308 (305)

December 2009 totals
Net Unconditional Sales: 453
New Listings: 480
Active Listings: 2,557

It's a particularly slow time of year, in an untypically slow year for Victoria's real estate market. Not really a good time to be selling, but for those buying, there's a higher chance that what's on the market is in the need-to-sell category versus the want-to-sell, which may mean you can drive a harder bargain.

This early-winter's market has been tough to sort out. There's a bit of a tug of war going on, so far with sellers pulling just that little bit harder. The sales to new listings ratio has been between 4 and 6 for the past couple of months; which is why prices aren't falling as fast as they did in August and September when the market had the bears salivating.

Mortgage smackdown

Ben, over at Financial Insights takes on the McListers over at Canadian Mortgage Trends for their thoughts around CMHC regulation.

In one corner, CMT says changes to CMHC amortization policies

"handicap hundreds of thousands of well-qualified homeowners and lessors. These people may have very legitimate needs for the cash-flow flexibility that extended amortizations provide. Forcing strong borrowers to make less-optimal budgeting decisions serves few interests, and is not what government was intended for."

But the knockout punch is delivered in one swift motion by Ben:

"I’m curious how these well-qualified borrowers overcame that ‘handicap’ and the ‘legitimate need for flexibility’ for the 60 plus years prior to the rule changes in 2005.  And as for the last sentence, exactly what should the role of government be when it comes to insuring the profits of private, profit-seeking financial institutions using taxpayer money?"

If you're not already reading Financial Insights every day, add it to your list. I generally appreciate the insights offered at CMT, so this post isn't a poke at them, only on their offside argument that all-but-claims the taxpayer funded insurance schemes of the CMHC are "free market."

Debt bomb goes off in the media

In case you've been under a rock for the past several years (or perhaps you've been following the greater fool's advice and have been building yourself a shelter in the woods, stocking it with gasoline, gold and hunting equipment so you can survive the coming "suburbageddon") you'll find it no surprise that the state of Canadians' debt levels have surpassed those of our neighbours to the south.

You can Google it for yourself, or you can let me do it for you, but either way you'll see some whopper stories in the media about how, jeez, who woulda thunk it?, the stimulus effect of hyper-low interest rates did exactly what it was intended to do but never said it would: caused spenders to spend too much and savers to look elsewhere for other opportunities.

Check this out:

 

That's right, in a country with less than 30 major urban centres, 248 news articles were generated about Canadians spending 150% more than they can actually afford if the taps to easy money weren't more open than the local convenience store. But that's not all, even those pesky Americans, hardly the bastions of prudent finance, have sat up and taken notice:

 

PMSH must just be tickled to be getting more airplay for the snowbirds down south, who out-flock to Florida in more significant numbers than they in-flock to BC. But there's more, with economic gloom clouding over over-spent Europe and hyper-inflated China, there must be some consequences for Canadian households, right?

 

Now before you all start crowing with "it's different here, we have prudent banks, Canadians are more conservative, yada, yadda, yaddda..." let me show you this:

At least we're better than the Greeks  spending more than we earn at a higher level than even the Greeks who must be the collective people within a nation state who's sense of personal responsibility when it comes to life and money is the lowest - these folks manage money believing holding a general strike can make them more of it.

Meanwhile, closer to home, December sales are on pace to come close to September's. Think about that.

November MLS stats

No surprises.

November 2010
Net Unconditional Sales: 479
New Listings: 722
Active Listings: 3,723
Average SFH Price: $636,634
Median SFH Price: $530,000

November 2009
Net Unconditional Sales: 604
New Listings:  796
Active Listings: 2,973
Average Price: $617,987
Median Price: $555,000

Month over month changes
Net Unconditional Sales: +2.5%
New Listings: -26%
Active Listings: -8%
Average Price: -1%
Median Price: -1.9%

Year over year changes
Net Unconditional Sales: -21%
New Listings: -9.8%
Active Listings: +21%
Average Price: +3%
Median Price: -5%

More of the same. There are active buyers, many seeking the same property types: homes with suites, near the core, priced around $500K. There are still far more delusional sellers though: people who think the days of double digit year over year price increases are still upon us pricing their fixer-upper properties as though they were better than new. This market is in a holding pattern. Sales volumes have increased since the August and September 20-year-lows, but they still remain dismal when compared to the majority of the past decade.

In case you were wondering why prices haven't dropped more substantially than they have? Let's compare volumes to 2008.

October 2008 
Net Unconditional Sales: 294

November 2008
Net Unconditional Sales: 257

Sales are almost double what they were in the early winter months of 2008. And that's why prices aren't plummeting.

Monday market update

MLS numbers courtesy of the VREB via Marko Juras.

Month to date November 2010 (last week's month-to-date totals in brackets)
Net Unconditional Sales: 435 (333)
New Listings: 665 (552)
Active Listings: 3,658 (3,737)

November 2009 totals
Net Unconditional Sales: 604
New Listings: 796
Active Listings: 2,973

SFH average price currently stands at $659,336. Doubtful we'll see sales volume numbers matching November 2009 totals, however, it's a given that November's volumes aligned with the October improvement from the terrible numbers reported in August and September. Average prices remain skewed by low sales volumes, however, SFH with suites priced under $500K continue to sell quickly with even a few competitive offering situations for the ones tucked off the busy streets. This appears to be a market that doesn't know where it's going into 2011.

Update: Let's play a little game
Mark linked to a story where TD Bank's Ed Clarke mused about lowering the maximum amortization length from 35 years to 25 years (effectively taking us back 10 years or so in the mortgage insurance industry). He thinks this will prevent a bubble from forming. For the sake of arguments, let's not get into the bubble talk (it's either here or it ain't) but let's assume that for the good of everyone, something needs to be done to put out the fire under the real estate market (there really isn't one, but you could be forgiven for thinking there might be). What to do? I say if you really want to end the era of "free cash" get rid of the CMHC. There should be no more mortgage insurance for banks in Canada. If you want to end the endless cycle of people taking on debilitating debt loads: STOP PROTECTING THE BANKS FROM THEMSELVES. 

Add your suggestions in comments. 

Snowy Monday Market Update

MLS numbers courtesy of the VREB via Marko Juras.

Month to date November 2010 (last week's month-to-date totals in brackets)
Net Unconditional Sales: 333 (228)
New Listings: 552 (359)
Active Listings: 3,737 (3,750)

November 2009 totals
Net Unconditional Sales: 604
New Listings: 796
Active Listings: 2,973

The market appears to be in a holding pattern. Sales have improved from a terrible September but there is little to indicate November will be a good month relative to previous years nor is there any sign of increasing market activity from October. The current SFH average price is reading as $675,041. If this stays the same Victoria will set a new record for Victoria average prices - unfortunately this number is meaningless as prices are not increasing across the market, rather this is purely a number indicative of the types of homes selling in the Victoria market. There are a fair number of "good deals" in the upper end of the market where buyers are perceiving better value in higher priced homes. While the number points to increasing prices the reality is many homes are still selling for five to seven percent less than when originally listed.  

Demand?

This whole brouhaha with the CREA and the Competition Bureau has had me thinking for a long time about what I (we) would like to see happen in the real estate industry.

Personally, I'd like to see open and transparent property related data, freely available (not to be confused with free as in no money exchange for data) and accessible to the general public. The sales industry protects this information with an invisible pay wall - want to see sales price history and other deemed important information about a property? Hire a REALTOR®.

It's true that you can get some of this data by popping round to your local land titles office and paying to see it, but this exercise becomes very cost intense if you're like me and you're wanting it not for the exercise of purchasing one property but for the exercise of trying to better understand how a segment of the market has performed or is performing. Sure Landcorp can get you data series too, but if you're not going to make money off of purchasing it from them then it's a pretty bad investment right?

There's been a transition of reality regarding the housing market in the past 30 years. Previously owning a home provided a family with a stable foundation - owners worked for the same company their whole careers and their home's market value mattered little because buying and selling was never in their medium term plans. The 1980s, 1990s and especially the 2000s ingrained the "property ladder" construct into the boomer generation and their children so much so that the five year plan is considered long term planning by most, both in their career and home ownership dreams. Because of these phenomena, the market is so much more important today, yet the information needed to accurately apply macro data to individual properties and neighbourhoods remains behind an obstructive pay wall. The agreement between the CREA and the Competition Bureau did little to change this.

I think the TSX model would be a great example for the real estate industry to follow. If I'm interested in buying a stock or ETF, I can Google the existing data and make an informed decision. I can track market segments, I can track preferred shares of GM too if that's my prerogative. I don't have to pay the TSX a dime to do so either. Until I pull the trigger and put some skin in the game. Then they get theirs. And who pays 'em? The companies that charge me money to conduct the transaction and the companies that use them to get their investment dollars. Sounds eerily similar to the way the real estate industry already works doesn't it? And that's my point.

The members of the CREA protect data because it makes their phones ring. When their phones ring they have the opportunity to convince you to use them to conduct your transaction. They charge a fee for this service, as they should. Many Canadians believe they charge too much. Some don't, and are happy to pay full commission believing it's in their best interests. Choices existed before the agreement was made, new choices will exist moving forward, perhaps catering to consumer demand, perhaps not.

So what do you want to see? If a real estate brokerage wanted to be forward thinking, driven by the belief that if they treat their customer with openness, transparency and respect, they can build a profitable and sustainable business model, what would you expect them to offer you and how much is a reasonable charge for these services?

Sales slowdown again? Monday market update

MLS numbers courtesy of the VREB via Marko Juras.

Month to date November 2010 (last week's month-to-date totals in brackets)
Net Unconditional Sales: 228 (131)
New Listings: 359 (192)
Active Listings: 3,750 (3,749)


November 2009 totals
Net Unconditional Sales: 604
New Listings: 796
Active Listings: 2,973

Current average SFH price is $613,649 with original list price of $651,200. Many homes selling are first dropping their prices. Home sellers, on average are getting about 94% of what they originally thought. In other words, buyers are negotiating deals around 6% below original asking prices. Condo average currently is $323,708.

The biggest change I'm seeing is a decline, perhaps significant, in the sales volume again. Between November 8th and November 15th, only 97 units sold, down from 131 in the first 7 days of the month. If this trend continues, we'll see sales around 450 for the month. This is down slightly from November 2009, but almost double the 268 sales recorded in November 2008, which is why we're not seeing prices tumbling faster throughout the fall as we did in 2008. 

Monday market update

MLS numbers courtesy of the VREB via Marko Juras.

Month to date November 2010
Net Unconditional Sales: 131
New Listings: 192
Active Listings: 3,749 

November 2009 totals
Net Unconditional Sales: 604
New Listings: 796
Active Listings: 2,973

Looks like sales activity has kept up thus far with October 2010. While it's definitely up from August and September ultra-lows, a little perspective is necessary: we're still talking about volume that doesn't even come close to matching most of the last 10 years. Listings are high, sales are low, average reported prices are flat, although the homes that are selling are selling for prices not seen since 2007, that is, they're down.

Meanwhile CAAMP released a rather rosy glimpse at a massive debt problem in Canada, as total outstanding mortgage debt leaped over $1 trillion, yes, that's right.

Its sixth annual report on residential mortages found the vast majority of mortgage-holding Canadians (84%) could afford an extra $300 or more a monthly in payments.

This certainly bodes well for Canadian solvency levels, as the total level of outstanding residential mortgages in Canada crossed the $1-trillion mark in August, a 7.6% increase from last year.

Over the past 15 years, the volume of residential mortgages has expanded 194%, or about 7.5% a year. Growth was especially rampant between 2004 to 2008, exceeding 10% each year, the report said.

Eighty-nine per cent of Canadian homeowners have at least 10% equity in their homes, while 80% have more than 20% equity, the report found.

Of the 18% of Canadian homeowners who removed some equity from their homes at an average of $46,000 over the past year, the most common use for the extra cash was to pay down debt.

Although variable-rate mortgages are becoming less costly than fixed-rate mortgages, 66% of Canadians taking out new mortgages chose a fixed rate, the five-year term remaining the most popular in Canada.

October 2010 sales stats

Month-End Market Statistics courtesy of the VREB via Marko Juras.

October 2010
Net Unconditional Sales: 467
New Listings: 976
Active Listings: 4,046
Average SFH Price: $641,780
Median SFH Price: $539,500

October 2009
Net Unconditional Sales: 742
New Listings:  1,067
Active Listings: 3,219
Average Price: $590,567
Median Price: $536,000

Month over month changes
Net Unconditional Sales: +15%
New Listings: +21%
Active Listings: -7%
Average Price: +7%
Median Price: +2%

Year over year changes
Net Unconditional Sales: -37%
New Listings: -9%
Active Listings: +20%
Average Price: +9%
Median Price: +1%

Total market-wide months of inventory stands at 8.7. Average prices are skewed by 12 million dollar plus home sales including one at over $6 million. Use median prices to better understand this market - which is flat YOY and MOM. There is good and bad in the October sales data - for people on both sides of the debate on which way this market may be headed. Now more than ever, potential buyers should exercise caution and patience as they wade into the market. There is no rush to act quickly. 

Update: price numbers from October 2009 fixed.

Over valued

Lots of media and pundit chatter about the over-valued Canadian real estate market lately. Estimates from TD Bank, Scotiabank, RBC, CIBC, Gluskin Sheff and the Economist peg the average Canadian price differential from whatever baseline measurement they're using ranging anywhere from 10% to 30%.

I thought it would be interesting to show what this means (if the market values drop) to the Victoria market using VREB's reported median prices on condos, town homes and single family dwellings. I've taken the liberty to add the monthly mortgage payment based on a 10% down, 35 year amortization at 3.45% interest. I've also added the percentage of gross income these payments represent compared to an annual median household income of $80,000 - which is $6,667, EEK! per month.

Unit Type	09/10 median $	10% drop	20% drop	30% drop
Condos	$290,000	$261,000	$232,000	$203,000
Town house	$426,000	$383,400	$340,800	$298,200
SFH	$531,000	$477,900	$424,800	$371,700
Condo mortgage	$1,067	$949	$830	$748
Condo income %	16%	14%	13%	11%
TH mortgage	$1,568	$1,394	$1,220	$1,098
TH income %	24%	21%	18%	16%
SFH mortgage	$1,955	$1,738	$1,520	$1,370
SFH income %	29%	26%	23%	21%

Mortgage debt servicing, generally, as a rule, is not to exceed 32% of gross income. Total shelter costs, including taxes, maintenance etc, is not meant to exceed 40% of gross income. The above household income would be taxable in BC at an approximate marginal rate of 32.5%, leaving an average net income of $61,938 or $5,161 monthly. Check out what happens to "affordability" when we factor in taxes and ownership costs* to the % of net income calculations:

Unit Type	09/10 median $	10% drop	20% drop	30% drop
Condos	$290,000	$261,000	$232,000	$203,000
Town house	$426,000	$383,400	$340,800	$298,200
SFH	$531,000	$477,900	$424,800	$371,700
Condo own costs	$1,392	$1,274	$1,155	$1,073
Condo income %	27%	25%	22%	21%
TH own costs	$1,943	$1,769	$1,595	$1,473
TH income %	38%	34%	31%	29%
SFH own costs	$2,380	$2,163	$1,945	$1,795
SFH income %	46%	42%	38%	35%

What do you think? Any new insights or perspectives? Not accounting for any future changes in interest rates etc, does this look realistic and/or sustainable to you?

* costs are calculated as mortgage + strata/maintenance fee + property taxes for THs and Condos; and mortgage + maintenance costs @ 0.5% + property taxes for SFHs. Strata/maintenance fees/costs and property taxes are approximates.

Open thread

Been a crazy busy week for me. Cat has my tongue, or fingers, or brain, or....

Open thread for you to discuss anything real estate related.

Monday market update

MLS numbers courtesy of the VREB via Marko Juras.

Month to date October 2010 (last week's totals in brackets)
Net Unconditional Sales: 360 (251)
New Listings: 786 (539)
Active Listings: 3,980 (3,963) 

October 2009 totals
Net Unconditional Sales: 742
New Listings: 1,067
Active Listings: 3,219 

New inventory is only slightly outstripping sales (109 sales in the past 7 days versus 247 listings). Active listings are up slightly, although expect the end of month listings dump to bring this number down by a couple of hundred or more. Unless we have a very busy next 6 days, October 2010 numbers will be very close to September 2010 sales volumes. I expect the reported sales to surpass 400, perhaps even reach 450 - which will be celebrated by the usual suspects as "Sales jump by 13%!"

SFD average price is currently $615,112. Marko provides us with these numbers for original list ($683,380), revised prices ($638,634) and final sale prices ($615,112) which suggest vendors are still pricing their units almost 10% above market value when they first hit the market. If you're out there shopping, perhaps this is the kind of discount you should be negotiating.

CREA ratifies deal with Competition Bureau

H/T to Animal Spirit for the link.

Here's what we know:

• Very little. 
• No details.
• CREA says this deal exonerates any claims by the Competition Bureau that previous methods of managing the MLS were anti-competitive.
• Competition Bureau says consumers will be able to pay for "what they want" on a case by case basis rather than be forced to purchase a suite of services for a set commission rate - although it's unclear how this will be accomplished.

Here's what we don't know:

• If Victoria REALTORS® will adopt new fee-for-service business models or simply maintain their current commission-based models.

I think we'll see changes, slowly. I think the establishment will fight these changes bitterly. I expect that many consumers will be very confused because of what individual REALTORS® will be telling them regarding their commissions and cooperating brokerage commissions etc. I expect the VREB to be very quiet on this and maintain the status quo in terms of communication:

"Victoria has a diverse and competitive marketplace, it's business as usual here."

If any REALTOR® out there wants to weigh in on this issue on this site, I'll be happy to post blog posts with links on your behalf. Email me, the link is in the right column. Keep in mind, we're advocates for change here, so we'd love to tell readers of HHV how they can get the best deal on real estate services.

October 25 update: CREA and Canadian Competition Bureau deal is ratified.

Full text here
BNN coverage
Comments by Royal LePage
Comments by head of Comp. Bureau

Let's play a little game

Pick an MLS® listing and make an offer that if accepted you'd do the deal today. Provide reasons why if you want, or don't. Just a silly little exercise to spice up the weekend.

No caveats, but this game won't go over well if you make 50% low-ball offers and comments degenerate into a discussion of reality.

Here's mine:

She's ugly as sin, but that's where I'd like to start to make her ours.

Original list price: $579,000
Current list price: $539,000
2010 BC-assessed value: $446,000

House square footage: 2560 finished, 273 unfinished
Lot size: 9000 square feet
Built in 1963, has 2-bed suite with separate laundry and meter

I'd do the deal at: $450,000, slightly more than 16% below the current listing price. Why I'd do it?

• it's a project to make it right for my wife and I
• the location, while not perfect, would likely work fine for the duration of our home-owning lives
• the suite income at that purchase price will be more than half the mortgage costs*
• the mortgage cost, without accounting for suite income, based on 20% down, 21 year amortization at today's 5-year non-discounted posted rate (5.29%) is manageable ($2,289/month) given our current incomes 
• the actual mortgage product we'd use (closed variable at 3%* @ $1800/month) would allow us to make an extra $400 per month principal payment while maintaining other savings allowing us to reduce the mortgage to 16 years

The house isn't a dream home, she's not perfect and we can find all kinds of reasons why we'd never buy her at today's price, but if we could do that deal and she passes inspection, we'd very likely pull the trigger.

What deal would you do?

UPDATE: must read in the G&M today The long shadow over Canada's housing market (H/T OMC)

Where did the buyers go?

It's no secret a significant number of buyers have left the Victoria real estate market. The usual suspects want you to believe it has to do with uncertainty caused by factors like the HST having brought buyers forward earlier this year or is now making them sit on the sidelines until the referendum is held in just under a year's time. There may be some very limited truth to that, but I think there's a more simpler explanation to be found.

A regular reader and sometimes contributor (Reid) in the past once postulated that the availability of credit was the primary driver of prices. I'm inclined to agree with him.

Sales really began to suck, volume-wise, at around the same time that the Federal Government reigned in CMHC's ability to approve mortgage insurance applications. The single biggest change announced, in my opinion anyway, was the rate at which new applicants would have to qualify: the five-year posted rate. They don't have to take this rate, but the five-year-posted rate, in most cases, is what determines the total amount of money a lender will make available to someone needing an insured mortgage product.

Let's have a look at an example: in this case, it's a mythical Victoria couple, early thirties, one child, if any, looking to buy their first home and wanting to purchase a house, not a condo. They may settle on a town home, albeit reluctantly. They're both working, but still in the early stages of their careers and report earnings that are about average for Victorians: $80,000 per year. Through hard work and sacrifice, they've managed to clear off their student/twenty-something debts and save $20,000 in RRSPs they plan to use for their down payment. They've got decent credit and they're confident their bank would work with them to get them into a home.

Prior to April 17, 2010, this couple, let's call them the Smiths, could walk into their bank and make application for a mortgage. They'd likely have their mortgage account manager show them something like this:

They could get a bit more money if they took a variable rate mortgage, but with fixed rates at ridiculously low levels, they're willing to trade a bit on the interest side for the peace of mind of a low fixed rate for the first five years of their home-owning lives.

The Smiths head out shopping. They're underwhelmed to say the least. They knew houses were expensive in Victoria, but they thought they'd be able to find something small in a quiet neighbourhood close to a school for Sally or Steve. Instead the best they could find was this 1500 square foot home on a busy street:

Their REALTOR® cautioned them: although the market was changing, the impending mortgage insurance rule changes would mean they may not be able to find a house like this in their new price range if they waited too long. The Smiths, not completely comfortable with a buying decision at the time, chose to wait and seek a better property. After three, then four months of waiting, seeking and disappointment, their mortgage pre-approval lapsed so they had to head back to their mortgage account manager to find out they now qualify for this, if they use anything less than a five-year fixed rate term (see update below):

 

Even though they can still lock-in a fixed rate over a shorter term or use a variable rate for less than 3.5%, the Smiths will see almost $100,000 of mortgage disappear off their qualification if they make that decision. And now they're doubly disappointed because when they go out shopping, this 1300 square foot home with the busiest highway in the city at the end of its driveway is literally all they can find:

And so they give up over the short-term. They've been renting a decent condo apartment down in the Cook Street Village neighbourhood for a couple of years at just over $1000 per month so they decide to stay put for the time being. The Smiths agree to keep working with the REALTOR® to find a home, knowing that slowly prices are starting to come down and maybe in a year's time they'll have saved another $10,000 and gained another $5,000 in income and perhaps a few more $460,000 homes like they saw in April 2010 will be closer to $400,000 in late 2011. 

Their REALTOR® keeps sending them links to homes, mostly new condos in the Westshore he thinks may peak their interest, but every time the Smiths crunch the numbers they keep saying to themselves, "why would we pay an extra $800 to a $1000 per month to essentially live in a place like we already do but out in Langford instead of within a 15 minute walk to our jobs?"  

UPDATE: Tim Ayres, local REALTOR® points out in the comments that the Smiths would still be able to qualify for their original mortgage amount if they took out a five-year term fixed rate mortgage. In cases where the Smiths want to use a variable rate, or less than 5 years as the term, the second scenario would apply.  

Magnum Opus

Believe it or not, from time to time, one of the three readers of House Hunt Victoria sends us an e-mail with a question that leaves me grappling with implications for a week at least.

Recently, I received this question:

It seems to me that the central question at its heart is whether it is wiser to buy or to rent a house in Greater Victoria. If you boiled down all your blog entries to form one succinct main point, what would it be?

Now this is no way reflective of the questioner, but man-alive I was left scratching my head at how to even begin answering this question. Not one to overlook a challenge, I decided to give it a shot. I will apologize in advance to the questioner because I think I will not only answer the question, I'll over answer the question leaving more questions than answers in result. Confused yet? Me too.

The first rule of House Hunt Victoria is we don't talk about House Hunt Victoria. Just kidding. But a good Fight Club reference opportunity should never be passed over, right? Truth be told, even the brain trust behind House Hunt Victoria doesn't really know what's going on from day to day, and that's because it's always changing. Keeping up with this blog is a time consuming task. Call it a passion project though, because it doesn't feel like work. I've always said the day it feels like work will be the day I take a break from it. We've been going for over three years now and not a single post has been work to write, though I'm sure that many a post has been work to read. 

I wish I could simply answer the rent versus buy question and be done with this. But it's not that simple and I don't want my writing to be confused with advice giving.

My wife and I choose to rent because we have never owned a home, don't want to have a mortgage of $400,000 or more and don't like the properties we see, right now, in the price range we're comfortable with financially. We get better value and quality of life out of renting right now, but we don't want to rent forever. We think home ownership is an important part of long term financial planning. We're patient, and like to think of ourselves as financially prudent, but we recognize that our circumstances can't and shouldn't be universally applied to everyone around us.

In reality, there is no central thesis here at HHV. But we do seem to do three things, at least we try to do three things, consistently:

1. Provide accurate, up-to-date, un-spun statistical information about the Victoria real estate market. We're grateful to the people who give us access to this information.
2. Take the local media to task for lazy journalism that reads like "advertorials" far too often.
3. Provide a forum for discussion on real estate related topics, usually applied to the local market with a completely different tone than found elsewhere. Some call that tone "bearish," I prefer to think of it as <sarcasm>bitter, angry, basement-dwelling renter.</sarcasm>

Most of my writing is born out of a few central beliefs:

1. If you can afford it when interest rates go up (think historical norm levels 6.5%ish), know you can live in it for a long period of time (think 7 years minimum) and will be comfortable seeing its market value drop (who knows, but think 15%ish just to give yourself a starting point of discomfort) then today can be a good day to buy a home. Note that I say "can be" not is. No one but you can decide if it "is" because your circumstances and comfort levels are very different than theirs. Please also note I'm not saying the market value will drop, but don't you owe it to yourself to recognize that it can drop and you should be comfortable with a drop if it happens?
2. Renting provides an opportunity to get a better product in a better location than buying right now in Victoria. There will always be people who can point to a particular property and say "it's cheaper than rent" but it's usually an incomplete comparison or a product I would never want to find myself living in for a long time. 
3. Low-down, extended amortization mortgage products are dangerous and bad for people to lock themselves into. The advent of 5% down and 35 year amortizations is bad for our economy, bad for household finances and bad for the taxpayers on the hook for any defaults that occur in this segment. CMHC insured mortgages should be avoided wherever possible, IMO. Unfortunately, for the vast majority of Victoria first time buyers, they are a necessary evil. Proceed with caution.
4. There are no crystal balls, only probabilities. Beware the commentator who says they know where prices are headed (on either side of the spectrum and including the ones in the mushy middle). We prefer to focus on trends and then look for economic indicators that may or may not point to a trend change. Past performance does not guarantee future performance and anyone who points to past performance as reassurance for wariness should be obligated to use this disclaimer.

Now, just for sh&ts and giggles, I'll post this poll using the questioner's question and advise readers to not use it to guide any buying or renting decisions they may or may not be attempting to make:

Monday market update

MLS numbers courtesy of the VREB via Marko Juras.

Month to date October 2010 
Net Unconditional Sales: 251
New Listings: 539
Active Listings: 3,963 

October 2009 totals
Net Unconditional Sales: 742
New Listings: 1,067
Active Listings: 3,219 

Single family home average price is currently $612,385. New inventory is only slightly outstripping sales, expect the active listings number to fall slightly for the remainder of the year. Affordability is still an issue, although ridiculously low five-year fixed rates are likely responsible for more than a few sales.

UPDATE
I came across this article in the G&M over my morning coffee. You should read it:

even excluding major factors such as taxes and maintenance, homeowners pay about twice what renters pay.

Please note, the decline in mortgage versus rent payments is an interest rate effect, mostly. Declining interest rates will narrow the gap. Rising house prices will widen the gap.

Times Colonist shifts gears, questions BCREA

Once every blue moon, someone at the Times Colonist gets a realistic piece of journalism past the real estate industry friendly advertorial editors. Cue the scrambling in the news room as phones ring, ears get chewed off and general unhappy client syndrome ensues...

Here's today's story: Real estate market hits soft patch, B.C. sales show modest rebound but Greater Victoria numbers lag.

I won't quote the article, you can read it over there just fine I'm sure. There's a few notables in there though that should be discussed:

1. The BCREA reported average price was $485,459. This is "for all types of housing." It's basically meaningless, because the markets shouldn't be blended like that. Essentially they take the sum total of mobile home, condo, town home, single family dwelling, mansion, waterfront property and acreage sales and divide it up by the total number of unit sales. This is different than the VREB reported data, which breaks it down by unit type and is also different than what is commonly reported on HHV. 
2. At first glance, total listings appear to have fallen off a cliff, being reported at nearly 800 less than what VREB reports, despite using the same sales total. I'm not sure why this is the case, but I can only guess that BCREA is excluding some areas (maybe Sooke, Gulf Islands and Malahat?) as these aren't really Victoria. But why use the sales totals from VREB that includes those areas if you're excluding some of the listings unless your trying to purposely make things appear better than they are? Even given this incorrect calculation, the sales to active listings ratio is still bad, so it's either really bad, or just bad. I'm inclined to think it's really bad.
3. Muir still makes reference to the dubious theory that things aren't bad this year because they were "phenomenal" last year. To which I give you this...

...as proof positive that last year's sales volume wasn't that phenomenal and this year's sales volume actually is pretty crappy compared to the last decade. Please note, the graph hasn't been updated to reflect September's actual sales volume of 395.

It's refreshing to see an article about the BC market applied to the local data, even though the data wasn't really questioned (it should have been IMO), using accurate statements like "But that does not appear to be the case in Victoria" and "Compared to last September, the Victoria numbers look even worse."

Up to date market stats

These are the current VREB reporting area numbers via Marko Juras:

Month-to-date October 2010
Net Unconditional Sales: 161
New Listings: 323
Active Listings: 3,964 

October 2009 Totals
Net Unconditional Sales: 742
New Listings: 1,067
Active Listings: 3,219

If the current trend of 13.4 sales per day continues, total sales volume will be higher in October 2010 than in September 2010, yet still remain below 60% of last year's monthly total. Inventory is also falling, which is typical in the fall months, but remains stubbornly high - almost 20% more than this time last year. Days on market remains within 20% of last year's monthly average (assuming); there is no panic in this market, sellers are being patient as are the few buyers active today.

A must-read over at VancouverCondo.info today:

So the sideways prediction in home prices that homeowners are predicting? WISHFUL THINKING. The downward spiral the bears are predicting? The natural outcome of moral hazard.

If you understand that the government of Canada became the biggest subprime lender in the world, you are right. If you don’t understand this, you are the one we are all going to laugh at.

If you don’t understand that the government of Canada is actively trying to deflate this bubble (praying for a soft landing that never actually happens) you are the village idiot!

Let's not get ahead of ourselves

For those of us who believe that residential real estate prices are greatly over valued in Victoria currently, we need to remind ourselves that our desire for price reductions can skew our outlook of actual market changes in the same manner that perception of future gains skewed the outlook of housing when the market was hot.

The market's falling in Victoria. Sales are way down and prices are slowly starting to recede. But this isn't like 2008. And I can't say with certainty that it will continue to play out like 2008 did, with a substantial correction over a short period of time.

Here's why:

These are the numbers for SFH purchases in September 2010 and 2009 excluding waterfront and acreages:

At first glance, these numbers likely look terrible with REALTORS® making just over half of what they did in September 2009. But look closer:

• there's only 6.7 months of inventory - just barely into buyers market territory
• Days on Market is just over a week longer - hardly cause for concern for most home sellers
• Average prices are roughly the same - not enough to make people trying to sell feel like they're losing money, yet

Now take a look at the 2010 and 2009 year-to-date comparisons:

These numbers are more mixed:

• Unit sales are down 20% and falling fast
• Over half of all listings put on the market remain unsold
• Yet prices are up 9% year over year 
• And the homes that sell are still selling 16% faster than they did last year

It's important to recognize that people are still buying homes for a lot of money in this city. And I'm not talking about the million dollar or even $750,000 plus homes here. Over 43% of homes that sold in Victoria last month were priced between $400,000 and $550,000 - this is the bread and butter single family home market in this city. Using monthly payment metrics at current interest rates, these homes are "affordable," especially if they have suites, which many of them do. Comparing them to average household incomes ($80Kish) these homes are between 5 and 6.8 times annual incomes - very high in the big scheme of things - but it's also unlikely that the majority of people who are buying these homes are earning those incomes, especially after the changes to suite income mortgage calculations.

Don't get me wrong, things are ugly in our market, but the inputs still look fairly stable: employment is steady, incomes are steady and interest rates are steady. In my opinion, what's happening in our market is people are getting better quality homes for the same money as a year ago. This is next to impossible to quantify in data, but if it's true and the trend continues we'll start to see more homes selling for less as the upper end of the market pushes down. But it's going to take more time than six months to reflect in the numbers and I don't see it as cause for a wave of panic selling, yet. 

The rental market

If you thought the market for Victoria rentals was tight, think again.

It's not. If landlords need to rent a unit, the price is likely being reduced. It's not uncommon to find listings on Craigslist and UsedVictoria with lines like: "available immediately" and "flexible move in dates" meaning the place is empty now and if you'll only agree to lease it for a year, we'll let you move in slowly this month until you vacate your present place.

It's a buyers' market in the rental pool and if you're a renter searching for a new place to call home for the next year or so, you should be negotiating that rent down. Heck, if you're a renter not currently under lease, you can likely negotiate your rent down under threat of moving on.

We rented our current house in July of this year. I had coffee with our landlord the other day and she asked me how we were enjoying the house. I told it her it has great character but it's tired and could really use an empty month of maintenance work to get it into better shape. She tried to strike a deal with me to get me to do the work for "free" if she paid for materials. I laughed out loud... damn near spat my coffee on my pants.

I said to her, "Why would I want to do that? My time is valuable and the labour part of the work will be your most costly expense. Are you offering to drop my rent?"

She said, "You're already getting a great deal. You're paying less than the previous tenants were."

I said, "This is your only rental property isn't it?"

"Yes."

"So you're probably not aware what's happening in the rental market so much then right?"

"I always look at what's online whenever I need to rent the place and make sure I'm in the right ballpark. That was back in July, it's only October now."

"Things are coming down," I said.

"Maybe."

"We look fairly frequently and I need to tell you I'm tempted to start looking to see if we can find the same kind of place for less money or find more place for the same money."

"Really?" she asked. "I don't know how that's possible, I'm not making anything on the house each month off you. You only pay the hydro bill. I pay property tax, city water and garbage. You've got it pretty good."

"Seriously. There's lots out there and people are dropping their prices. We're tempted."

"Are you giving me notice then?"

"Not yet. But please don't confuse your costs on the house with what the rental rates should be. If we do decide to move, I won't make any decisions without talking to you first. If you want us to stay, we may be able to come to an agreement. But I won't sign a lease."

We started talking about other things. It was a friendly conversation and I think I caught her off guard. I like my landlord, we haven't had to deal with any real issues with the house but we never planned to stay in it too long and told her so when we agreed to move in. We negotiated on the rent and she took seven per cent off her original asking rent even though we refused to sign a one year lease. We verbally agreed to 6 months at $1400 per month and we'll respect that verbal agreement.

I have people close to me who are snowbirds. Each winter they head to warmth and usually try to rent their house out for four months or so. They recognize that most people don't want a short term furnished rental so they usually price it about 60 per cent of what a long term unfurnished place would rent for and be very picky with their tenants. This year, after two months of searching and nearing four weeks to departure they've given up hope. I got a call over the weekend offering us to move in, rent free, just pay the utilities and make sure the house is looked after. Four or 5 months of rent-free living will add over $5,600 to our down payment fund. We're tempted.

September sales continue falling trend

Month-End Market Statistics courtesy of the VREB via Marko Juras. Now updated with prices.

September 2010
Net Unconditional Sales: 395
New Listings: 1,211
Active Listings: 4,323
Average SFH Price: $599,825
Median SFH Price: $531,000

September 2009 
Net Unconditional Sales: 776
New Listings: 1,129 
Active Listings: 3,419
Average Price: $619,936
Median Price: $550,000


Month over month changes
Net Unconditional Sales: -8%
New Listings: +21% 
Active Listings: -1%
Average Price: + 2%
Median Price: - 3.2%


Year over year changes
Net Unconditional Sales: -49%
New Listings: +7%
Active Listings: +21%
Average Price: -3.3%
Median Price: -3.5%


There was a definite surge in sales in the final two weeks of the month. Will the surge continue? There's also been a consistent surge of new listings keeping inventory stubbornly high.

Current market-wide months of inventory stands at 10.9%.

REALTORS® cave

Recognizing they're bringing a butter knife to an aerial dogfight, the CREA (umbrella organization of Canadian REALTORS®) have agreed to step down from the shoving match and accept the fact they've been running the MLS® system in an anti-competitive manner:

In a development that could drastically change the way Canadians buy and sell their homes, the real estate industry has reached a landmark agreement with federal competition authorities.

The legally binding deal will allow for home sellers to pay for only those services they want from their real estate agents. Previously, under the rules established by the Canadian Real Estate Association (CREA), consumers had to opt for an entire slate of services, a practice the Competition Bureau deemed anticompetitive.

Says one lawyer who wanted to access the MLS® system without acting as a full-service REALTOR® for his clients: 

“This is precisely what I’ve been fighting for for the last decade,” he said. “That the consumer and real estate agent get to decide the framework of their relationship without having CREA and their local boards say certain arrangements are not appropriate for MLS.”

It's still early in the big schemes of this new development. But two things remain: the CREA's claims against the Competition Bureau regarding agency weren't strong enough for the CREA to spend money defending and the Competition Bureau didn't feel it necessary to push the CREA to allow non-REALTOR® access to MLS® listings. Simply put, as far as I can tell, you'll still have to use a licensed REALTOR® to list your home on MLS® and that REALTOR® will still have the option of not charging a flat rate or simple MLS® listing fee if said REALTOR® believes they can make a living without offering that basic service. 

Time will tell, along with the details of this new agreement, but I'm not sure this development creates the conditions necessary for drastic change in the way Canadian consumers buy and sell homes.

(H/T Mr.4AM for link)

Monday market update

Numbers courtesy of the VREB via Marko Juras.

Month to date September 2010. (2009 September numbers in brackets)

Net Unconditional Sales: 306 (776)
New Listings: 1,002 (1,129)
Active Listings: 4,181 (3,419)

Price Original = $649,357
Price List = $635,443
Price Sold = $612,296

SFH average days on market = 56

Price changes last week = 203

Sales volumes jumped last week. If the next three days play out similar, it won't be impossible to surpass 350 for the month, perhaps even hit 375. Regardless, this number can only be called disastrous as it is less than 50% of last year's numbers and still marks a 20-year-low for September sales volumes.

Due to the low sales volumes, average price reporting is going to be extremely volatile. In August, $586,000 was likely reported too much as a "drastic drop" without the corresponding explanation "lack of high end sales" skewing the average down. In September there have been considerably more expensive homes selling dragging the average back up - somewhere near $610K. The truth likely lies somewhere in between.

Double-Agent market update

Here are the weekly graphs of market conditions based on VREB data.

Sales stayed in the doldrums with only 67 pending sales reported in the last week. Active listings rose which is not the typical September pattern.

September is shaping up to be a sales disaster unlike anything seen in the last 10 years.

New listings increased which is unusual for this time of the year.

VREB only reports sales and listings on a monthly basis. We calculate a running total of the last 4 weeks every Monday.

The overall months-of-inventory now exceeds 12 which is almost 3 times the level seen in Sept. 2009!! The sales/new listings ratio has also taken a nosedive this month.

Sellers are now under pressure to lower their price expectations if they want to sell. The few buyers out there can take their time, be choosy and can grind hard when making an offer. Under these conditions prices will undoubtedly keep falling for the foreseeable future.

HHV note: The above is quoted directly from Double-Agent's comment in the previous post, the graphs are from his work. Contributions from readers are what make this blog what it is. I'm extremely grateful for the contributions of commentators. 

Times Colonist misleads again

Today's story about housing construction starts increasing is completely out of context with current market conditions.

Sales volumes can only be described as disastrous. Average prices, including average prices for new construction, are falling.

Yet builders started more projects in August of 2010 than in August of 2009 - so "logically," the Times Colonist implies through it's headline: Victoria's housing market improves

Um, no. It hasn't. It's actually getting worse. What happened, and the headline you should have written, is Victoria housing starts increase from one year ago.

Monday market update

Numbers courtesy of VREB via Marko Juras.

2010 (2009 September monthly totals in brackets)
Net Unconditional Sales: 185 (776)
New Listings: 779 (1,129)
Active Listings: 4,214 (3,419)

There are nine business days left in the month. Will sales volumes hit 300?

Prices are falling quickly, although the average price as reported by VREB will likely show a monthly increase in September from August.

Here's a snap shot of price action in September, again courtesy of Marko.

Price Original = $643,469
Price List = $630,605
Price Sold = $606,730

Sellers are accepting offers, on average, 6% below their original price.

I'd be curious to know what average days on market is now: 61 says Marko. Correct me if I'm wrong, but that seems to be around a 100% increase from one year ago - I was wrong, as per Marko, 51 DOM was average September 2009.

Real estate freefall

It's not very often we get to compliment the local news on a real estate story. Today we can. This was balanced, honest and had enough different viewpoints from a variety of sources to actually be called news. House Hunt Victoria commentator and local REALTOR® Marko Juras is featured, including a plug for his new 70% cash-back to buyers business model and his very realistic advice for would-be homeowners with no money.

Does "seasonal adjustment" have any place in real estate stats?

I received an e-mail from a concerned reader regarding the Canadian Real Estate Association's most recent claim that sales volumes are up across Canada, led by BC and Ontario. Alarm bells went off immediately when I read BC as we already know that Victoria's sales volume number for August is a 20-year-low. How could that mean that sales were up from July when sales were actually down almost 20% month-over-month?

Are sales booming in other parts of the province? No.

How could this possibly be reported as a positive statistic?

Enter seasonally adjusted data, defined as:

Observations over time (time series data) modified to eliminate the effect of seasonal variations.

Time series data is exactly what we get each month from the VREB: monthly sales statistics. Seasonal variations in the case of local real estate pertain to changes in inventory levels (total active listings, sales volumes and new listings volumes) caused by the seasonality of the business.

Is real estate a seasonal business? We know that Victoria has a pronounced spring buying and selling season as represented by decades of sales statistics. You could make the argument that there is seasonality to the business, much like tourism, because there are months that are traditionally more busy than others.

We also know that when you compare data from say, August 2009 (the month) and August 2010, you're dealing with data from the same month and effectively the same season. Do you need to seasonally adjust the data? No. How about July 2009 with July 2010? No. July 2010 with August 2010? If you believe the summer begins or ends in August, maybe. But really, no.

So why would the CREA and BCREA report sales statistics this way? Because it puts a positive spin on a very poorly performing real estate market.

Different months out-perform other months. You can compare one month to the next, one month of a given year to the same month in previous years and sub-sections of data (e.g. April, May and June) from one year to another. I'm not a statistician or a math whiz by any stretch of the imagination but from a cursory glance I just can't see why you'd want to or need to seasonally adjust real estate sales volumes/dollar-amounts unless you are purposely trying to employ a statistical trick to make data appear favourable.

I know there are several regular commentators here that know far more about stats than I, so I'll ask them to weigh in on this issue in the comments.

Sales volume falls off a cliff in September

Month-to-date sales statistics, courtesy of Marko Juras, REALTOR®:

September 2010 (2009 September totals in brackets)
Net Unconditional Sales: 118 (776)
New Listings: 466 (1,129)
Active Listings: 4,181 (3,419)

Double-Agent's graphs:

Sales to new listings ratio in the first 13 days of September 2010 is 25%. Typically this number has been above 40% for each month this year. We may yet get there. Current average price, if it holds, would set a new record for Victoria at $658,329. It's important to understand this number is basically meaningless because of the extremely low sales volume. Much the same as last month's SFH average price, when used alone, is basically meaningless, although it pointed to a continued downward trend in prices. We know from aggregating 20 or more pending sales that the homes that are selling are not selling for asking price, but we also know that very few homes, and especially very few of the low-end homes are selling.

Over the coming weeks and months we will hear from the usual sources (defined as those who make a living directly off real estate transactions and products) that a buyer's market presents a great time to buy a house. I'd like to say that a buyer's market usually provides a better opportunity to purchase a home without the added pressure of a seller's market, but do not kid yourself for one minute thinking that the market today presents a great buying opportunity. Affordability still sucks, prices are still grossly inflated against incomes and rents, and the current market conditions are only beginning to seep into mainstream thought - as in you're only starting to hear about the dearth of sales at dinner parties.

When you go to a dinner party and the consensus opinion around the table is you'd be crazy to buy a home, prices have been falling and there's no end in sight, I know three couples who have lost their shirts in real estate etc, there's your buying opportunity.

For now, buyer's market and seller's market are just marketing speak. It's a spun way of telling you where months of inventory stands. Under four months of inventory is considered seller's market territory. Prices usually rise. Between four and six months of inventory is considered a balanced market. Prices will usually bounce around but remain mostly flat. A buyer's market is when we have six or more months of inventory. At the end of August 2010, the VREB area reported over 9 months of inventory. Prices should fall for as long as this number stays higher than six. Why would you buy today when prices will likely be cheaper tomorrow? The usual suspects will tell you that you have no way of knowing for sure that prices will be cheaper tomorrow. You can say sure, but the likelihood of falling prices is far greater than rising prices.

Oh, and when they tell you real estate always goes up, tell them to have a look at prices in Japan since 1991. When they tell you we're not Japan, tell them just last month they were telling you we live on an island with a limited supply of land and an aging population who wants to be here.

Surprise: Times Colonist continues advertorials as news

The last market update by the TC was actually fairly balanced. But it's no surprise that this piece, written by Andrew Duffy, contains no balance and through careful use of non-defined real estate marketing speak and edits, no doubt imposed by the vice president of advertising revenue, manages to paint a rosy picture of a condo market that appears to be on the brink of major change.

The thesis is "Condos drive housing numbers." Now, the piece is actually talking about housing unit starts in the downtown core. So a more accurate title would be "New condo construction dominates downtown" or something along those lines; but when your modus operandi is to convince first time home buyers that it's in their best interests to spend between $300,000 and $350,000 dollars on a 550 square foot 1 bedroom, 1 bathroom condo unit in the core when there are several dozen 800+ SF 2 bed, 1 bath units within a 10 minute walk, you probably ought not to write about more affordable options eh? Regardless, the headline is as misleading as the rest of the article and the condo market is quietly shaping up to be ground zero in Victoria's sales volume decline.

Here's the basic fact: Since May of 2010, sales volumes in Victoria's downtown condo market have declined 52%. August 2010 sales volume was 1 unit less than December 2009 - typically the slowest month of a given year for unit sales.

Look, builders build, it's what they do. Planning to build downtown condo developments takes years. Market conditions change during those years. One need only look at that gawd awful gaping hole in the ground where Radius should be occupied by now to see evidence of building plans going sideways. Speaking of which, we haven't seen a story about Radius in a long time have we? Why is a story about developers very likely  overbuilding again, much like they did in 2007/08, in 2010/11 presented as a "boom buying opportunity" to potential buyers?

"As long as there's housing starts there's construction and employment being generated in the community," he said, noting that with 1,531 total starts in Greater Victoria so far this year -- there were just 488 over the first eight months of last year -- the housing market has to be considered quite healthy."

Unemployment in Victoria has nearly doubled in the past two years. That's a significant increase, despite the "healthy" housing market. Sales volumes have dropped almost 50% from this time last year and 2010 will very likely be the worst housing market for sales in a decade, despite the "healthy" housing market. I'm happy that new construction projects are still being planned and construction is still underway, don't get me wrong, it's necessary to keep people employed and keep the negative pressure up on housing prices so that Victoria may become more affordable in the future. There are many benefits that can be touted -- but market stability is a myth right now. And encouraging first time buyers to mortgage their futures away should be a sue-able offense -- imagine if buyers could launch class-actions against media and pundits for their inaccurate and misleading statements about the local market?

Piling it on

I have to admit, I'm not sure why the Bank of Canada raised the overnight lending rate today, but they did.

I don't see too much optimism in any Canadian markets right now, at least inflationary optimism anyway.

I doubt if variable rate mortgage interest rate changes will have much impact on the local real estate market, which appears to be trending down in both sales volumes and average prices while listings remain stubbornly high:

 h/t Double-Agent for graphs

The gap between variable and fixed-rate mortgages is narrowing. But it matters not really. Public sentiment is what matters most to this market moving forward. If people overwhelmingly believe prices are falling and the bubble is bursting, the pressure to buy a home will change to "What were you thinking buying a house in this market?" Today's interest rate change will likely only slightly impact sentiment, making people believe affordability is getting worse, not better.

What are you hearing at the water cooler and when you drop your kids at school?

"This is bad, very bad"

Another great graph produced by Double-Agent! (check links below for more)

August 2010 numbers are out, courtesy of Marko Juras.

August 2010 
Net Unconditional Sales: 425
New Listings: 956
Active Listings: 4,356

August 2009 
Net Unconditional Sales: 764
New Listings: 1,094
Active Listings: 3,509

Year over year changes
Net Unconditional Sales: -44%
New Listings: -13%
Active Listings: +20%

Month over month changes
Net Unconditional Sales: -19%
New Listings: -15%
Active Listings: -3%

UPDATE
The average price for single-family homes sold in Greater Victoria last month was $586,676 down from $615,004 in July. (VREB)

July 2010 median price was $557,250. Average price declined 5% while median price dropped 2%. Single family home prices are falling faster than many of us bears would have thought.

Double-Agent's graph links:

August sales by year (2001-2010)
3 month total sales (June to August) by year (2001-2010)
August sales, active listings and months of inventory (2005-2010)
August sales and active listings (sales to active listings ratio, by year, 2005-2010)
Sales to new listings ratio, by year (2005-2010)

Sneak peak @ August sales

While the business writers over at the Times Colonist wait until the VREB releases their August Victoria real estate market story pre-written for them, readers of HHV get a sneak peak at what can only be described as a "a dreadful month for real estate sales in Victoria." (Double-Agent's words)

Marko Juras, local REALTOR®, gave us the month-to-date numbers current to August 30, 2010, leaving two business days to process any weekend completions and finalize the stats:

MTD August
2010 (2009 in brackets)
Net Unconditional Sales: 396 (764)
New Listings: 877 (1,094)
Active Listings: 4,254 (3,509)

Double-Agent continues to provide us with fantastic graphs so we can visually see the proverbial cliff at which the Victoria market finds itself perilously perched upon:

Sales and Active Listings, by Week

Active listings volume grew in the final week of August while sales volumes tapered off to ensure the the VREB will have to go all they way back to 1978 to find a comparable monthly sales volume statistic in an effort to reassure home buyers and sellers, despite the rash of price reductions and stale listings, the Victoria market remains balanced and poised for a comeback this fall and into 2011.

New and Active Listings Volumes, by Week

Typically, the Victoria market experiences a sales and listings volume decline, usually beginning in July and continuing for the remainder of the year. Despite the spin we will soon be hearing from the usual suspects, there is no statistical proof to the assertion that market activity picks up in the fall from the late summer. The image above shows us that new listings are slowly tapering, as they always do, yet total active listings volume remains stubbornly high. Properties are sitting on the market longer, and this time it's different, as would-be sellers aren't taking their homes off the market in any great volume to try again in the spring. Everyone knows prices are falling, buyers and sellers, the race down appears to be on.

Now, despite what our good friend Fred may claim over at his place of real estate statistical dreamland, the graph above clearly demonstrates Victoria has fallen into firm buyer's market territory. Sellers who want to sell must drop their prices. Sellers who have to sell must drop their prices and pray. The few buyers who are active are likely low-balling like crazy and praying the market rebounds in the spring.

We'll likely see a finalized sales volume number near 450 with single family average home prices near $600K and the median price near $550K. It's getting ugly out there.

How REALTORS® help

VancouverCondo.info linked to an interesting article in the Toronto Star on Monday. In preparation for the looming communications battle between the Competition Bureau and the CREA, they've decided to strike preemptively with some never-before-seen-in-Canada ugliness. Now I know a lot of you are thinking to yourselves "HHV, why would you subject me to this ridiculous bombardment of nasty REALTOR® propaganda?"

It's simple: first, don't click on the link if you don't want to see the crap in the first place, but second, and far more importantly, we need to see that the CREA, and the REALTORS® who support them, don't respect their consumer group enough to advertise with any semblance of truthful intelligence. Take the video above, do the CREA really believe that speaks to any of us? Sure it's funny to see a pyjama-clad fat man put the beats to a shoddy tear down under a downtown Toronto? flight path - as if their consumers couldn't figure out buying that sh&thole was a bad idea in the first place - thanks for the added value! Not.

It's this kind of nonsense that leads to the bad reputation the REALTOR® groups must contend with in the first place. Furthermore, any argument that there is competition in their market in the first place doesn't hold water. As long as the CREA and their member organizations enforce the closed nature of the MLS® there will never be open competition in the real estate marketplace in Canada.

Until I can employ a REALTOR® to list my home on the MLS® for a flat-fee and then have them walk away from the rest of the buying and selling process, the CREA is limiting my choice as a consumer. There may be varying degrees of service built into the REALTOR® monopoly, and I may be able to negotiate commissions with some individual REALTORS®, but the monopoly still exists: the vast majority of buyers will buy using a full-service REALTOR® believing their service is free, those same REALTORS® will guide their clients away from low-commission or no-commission listed properties - a practice which their industry guidelines strictly forbids but rarely, and never with any significant consequence, enforces.

As a buyer, I would like to choose the option of buying without using an agent. Right now, if the property I want to buy is listed with a REALTOR® I have three choices: hire a buyer's agent, enter a dual agency agreement with the listing REALTOR® or walk away. Considering 90%+ of all homes are bought and sold through the MLS®, how do these restrictions on consumer choice equate to an open and competitive market?

Canadian real estate consumers suffer from a strangle-held, archaic and anti-competitive listings system, held under the guise of a bullsh&t argument about what constitutes agency between sellers and the agent who lists a home on the MLS®. I'm not holding my breath that the outcome of next April's court challenge will break this monopoly, but the next 8 months or so sure will be interesting for us market watchers regardless.

Projection: August 2010 sales volume worse than July

H/T to Double-Agent for graphic

I know, I know, ballsy projection on my part eh? The trend continues.

Required further reading. H/T Skeptic

From the article: Real-estate agents talk about the three Ds: death, debt and divorce. These are the forces that push owners to sell.... once Labour Day passes, people who put their plans on hold during the summer will begin to move forward. Owners may list their house or condo because they have a new job in another city or they need more space. The opportunists who were looking to take advantage of [the] “just craziness” in the spring are gone. [Agents are] being called to evaluate lots or properties in preparation for a fall listing. “They’re coming to the market for a reason, not just to cash out,”

Required further-further reading

From the article: Canada's economy would sustain damage as the wealth effect shifts into reverse. Still, a correction is the solution, not the problem, and preferable to allowing the bubble to persist. Ottawa's activities during the recession spared us greater misfortune, but we have yet to pay the bill. It's in the mail. And it's going to sting. (emphasis mine) 

Open letter to Dr. Kieth Martin, MP, Esquimalt - Juan de Fuca

Dear Dr. Martin,

I'd like to take a moment to respond to a letter you would have received back in June of this year from Shayne Fedosenko, a Pemberton Holmes REALTOR® from their Sooke office. In case you missed it, I've linked to it here, as reprinted on the Pemberton Holmes Facebook page.

Apparently, Mr. Fedosenko, an individual who makes his income from helping others buy and sell real estate (in economic terms a rent seeker), is feeling great concern about the current state of the Victoria Real Estate Board's market territory, in which your constituency falls. He opines that it is not the HST - a tax shift that ultimately benefits his personal business model - that is to blame, but instead feels the new restrictions on how mortgage lenders calculate secondary suite income as it is used to qualify for mortgages has reduced the amount of money available to would-be buyers looking to purchase homes with suites.

He makes several deeply distressing claims: the first, that mortgage amount qualification used to be calculated along these parameters:

"This is the way that it used to be: you could take the suite income, say it was $1200/month and they would add it to your mortgage qualifications as a $200,000-$250,000 increase in your qualification amount, now what they do is take the amount of the rent: $1200 /month, multiply it by the 12 months in a year and add it to your income, making only an extra $ 40,000+ to your qualification amount." 

In the past, before the current government allowed the Canada Mortgage and Housing Commission to liberalize mortgage insurance products, lenders would not have lent to the extent that Mr. Fedosenko suggests is appropriate. Canadian banks would only lend so that total debt servicing did not exceed 35% of household income. Historically speaking, this translated to home values in the Victoria area growing steadily with inflation along the lines of household income so that an equilibrium of home price to income ratios did not exceed 3.5 to 4 times annual income. Whenever home prices did exceed this equilibrium, like the run-ups in prices that ended in 1981 and 1994, the market would naturally correct back to this equilibrium, usually over-correcting for a short period of time first.

Currently, the Victoria average home price to income ratio as calculated by the Royal Canadian Bank's annual affordability survey pegs the home price to income ratio exceeding 7 and nearing 8. This is unsustainable and not good for the community nor the country. Simply put, mortgage debt obligations are robbing local families of the ability to spend money in their communities on the things that many of their incomes depend on. The Government of Canada must take the correct actions, and they did, through restricting taxpayer exposure to the excesses of the real estate market.

Currently the CMHC is as over-extended in the real estate market as the home owners that Mr. Fedosenko purports to be concerned about. This quote is from a news story on the CBC website appropriately titled Michael Hlinka: Is a Canadian housing bubble about to burst:

"The household debt-to-income ratio has remained on an upward trend ... as debt accumulation continues to outpace the growth in disposable income.

But households aren't the only entity overextended. CMHC, which insures these mortgages, has about $9 billion in equity, while it guarantees - get this - $770 billion in mortgages. 

That's more leverage that(sic) we saw from any U.S. bank or lending institution, by the way."

Dr. Martin, I'm certain you will agree with me when I say that the Government of Canada is not in the business of bailing out the poor financial decisions of Canadians. This is a slippery slope that we should not tread towards. What's next? Car manufacturers lobbying to bail out the poor credit decisions of their financial arms when they lend to people that cannot afford to purchase new cars?

The second claim, which to me, highlights the questionable ethics of some members of the local real estate industry, mixes market data in an attempt to obfuscate and confuse readers (in this case you) to believe market conditions are favourable to their (industry's) desired outcome. Normally, this means trying to make buyers and sellers, both real and potential, believe now is always the best time to buy and/or sell a home, activities to which they collect "rent" on. In the case of Mr. Fedosenko's use of market data, with regards to his letter to you, he is trying to convince you that current market conditions are much worse than they actually are in an effort to have you take action on an issue in the wrong direction.

Mr. Fedosenko claims that "Last month [May 2010] there were 300 home sales on the Lower Vancouver Island with 4700+ listings." According to the data published by the VREB, there were 671 home sales in their reporting area, that is more than 140% higher than claimed. Now initially I thought Mr. Fedosenko may have been referring to single family homes with his 300 number. But it turns out that number doesn't match either as there were actually 364 single family homes sold in May 2010.

Mr. Fedosenko also claimed there were 4700+ active listings at that time. While his numbers still don't match May's VREB reported number (just over 4500, it wasn't until the end of June 2010 that listings peaked at 4700), at least they come within 5%, an understandable error.

Mr. Fedosenko's opinion also differs from the one given by his real estate association's current president, Randi Masters, who noted that current sales volumes "reflect a return to these historically average levels compared to the significantly higher levels seen between 2001 and 2007 when we had a very active market." Masters suggests the market is now balanced, Fedosenko claims "Hundreds of foreclosures [are] coming, about 75% of the home owners could not qualify to buy their own houses (especially with suite)." 

Mr. Fedosenko also makes incorrect claims regarding suite vacancy rates. He writes: "Please note that there is a zero vacancy for suite rentals right now in this area." CMHC does not track secondary suite rental vacancy rates. However, their reported vacancy rates for the Victoria area show an over 100% increase in the amount of vacant units, which by the end of 2009 was 1.4%, after several previous years at approximately 0.5%. While we don't know actual numbers, it stands to reason that secondary suite rentals would have followed a similar trend.  

I understand Mr. Fedosenkos' concern for home owners, the local real estate market and the impacts valuation changes will have on the economy. I've been writing on this very subject, much to the chagrin of many local real estate industry actors, for several years now. I am deeply troubled by the extent to which certain actors will go to maintain the unsustainable market status quo and do further damage to the financial well being of Victoria area families. The writing was on the wall years ago; all you had to do was look to see it. The current government chose the wrong policy options in 2006/2007 and extended mortgage insurance to people who would otherwise not be able to over-extend themselves because the banks would not lend to them.

This is Canada's version of a sub-prime mortgage crisis. Any attempts to prolong the real estate market at current price levels will only deepen the impact of an unavoidable market correction. We should have learned from the experience of our American cousins. The current government allowed similar activities to occur in our mortgage and real estate markets that will have profound financial consequences for Canadian households and the broader Canadian economy. We need only look south of the border again now to learn a new lesson: four years after their market began its much needed correction, no government intervention has been effective in preventing catastrophic financial losses for banks or homeowners; instead, government actions simply "doubled down" on the debt loads and will lead to higher taxes and restricted economic growth over the long term further hurting households and the broader economy.

I implore you not to encourage further exposure to the grave financial risks inherent in the Canadian real estate market for either the Canadian government or Victoria and area households through excessive and unsustainable debt. If you feel compelled to further investigate real estate related issues, I encourage you to read up on the Competition Bureau's upcoming tribunal challenge against some of the Canadian Real Estate Associations' business practices that they (Competition Bureau) have deemed anti-competitive.

Thank You,

House Hunt Victoria

To the readers: if you are as concerned as I am in regards to this issue, please feel free to cut and paste my letter above or write your own letters to your local Member of Parliament. Here's their contact info:


Esquimalt - Jdf   Hon Keith Martin
MartiK1@parl.gc.ca
250-474-6505

666 Granderson Rd
Victoria, BC  V9B 2R8

Victoria  Denise Savoie
Savoie.D@parl.gc.ca
250-363-3600
970 Blanshard St
Victoria BC  V8V 2H3

Saanich – Gulf Islands  Hon Gary Lunn
lunng@parl.gc.ca
250-656-2320
9843 Second St
Sidney, BC  V8L 3C7