Monday, March 1, 2010

February 2010 stats

Via @timayres on Twitter:

Year over year numbers

Feb 2010 (2009 #'s)
Sales: 621 (403)
New listings: 1460 (1081)
Total active listings: 3280 (3844)

Sales to new listings ratio: 42.5% (37%)
Sales to active listings ratio: 19% (10%)

Month over month numbers

Feb 2010 (January 2010 #'s)
Sales: 621 (418)
New listings: 1460 (1205)
Total active listings: 3280 (2793)

Sales to new listings ratio: 42.5% (34.6%)
Sales to active listings ratio: 19% (15%)

Graphics courtesy of Double Agent (click for full size):

February sales to new listings ratio over past 5 years
Weekly sales to new listings ratios


Numbers are borderline bearish, but they didn't get more bearish in February, they got less so. There was supposed to be a collective pause in the market during the Olympics. We won't see if this was the case until next week or later (given the delay in reporting sales), but I suspect it didn't really happen. Until May, I see more of the same in this market. The numbers I will be carefully watching are listings, not sales. We won't see a slowdown in sales. We need a flood of listings; it looks like the waters are starting to run high, will the flood gates open?

85 comments:

HouseHuntVictoria said...

Just C&Ping Just Jack's comment from last post:

Monday morning and the first of the month which gives us an opportunity to look back on February with some ratios and medians and a snap shot of what the median price bought you last month.

First up.

The urban municipalities of Victoria. 145 homes sold last month with 306 new listings. Which gave us a 0.47 sales to new listing ratio and a median price of $625,000. A balanced market being between 0.4 to 0.6 clearly indicates this market is almost dead centre in not favoring either the buyer or the seller. The median price bought you an updated 1970's home having 2,100 square foot of living space on a 7,700 square foot lot in a modest middle income neighbourhood like Gordon Head. Think "Gordon Head Box"

The Western Communities struggled a bit last with a sales to new listing ratio of 0.34 and a median price of $461,500 for a 1990's built home of some 1,950 square feet on a 7,800 square foot lot. Basically, a Gordon Head Box but in Colwood. The $163,500 equating to about $525 per month in a mortgage or roughly the monthly expenses of a two car family commuting from Colwood to Victoria. Or make that one BMW 5 series with a cool surround sound system financed on your mortgage.

Last up for single family homes being the Peninsula areas of North, Central Saanich and Sidney. Dismal sales of 34 homes and equally dismal new listings of 79 for a sales to new listing ratio of 0.43 and a median price of $600,000 Too few sales to make any good comparisons, but your probably looking at a modest home in Dean Park at this price. Basically a home in the bone yard of the Pacific where the retires, like African elephants, come to die.

Now, onto Condo's in the Victoria Core. A whopping 130 sales and a stimulating 274 new listings, gives us a ratio of 0.47 and a median of $283,500 for a 900 square foot sky box. Which would be a lower floor mid 1990's (repaired leaky) condominium in Fernwood. However, with the added CMHC fees, strata cost and taxes, the only car you can afford is that 65 Valiant your grandfather gave you. But your better than most - because you do get a secured underground parking space unlike those work/live condominiums where your neighbor may operate a 24 hour massage business or an MLA office (I always get these two mixed up - as you get similar results from both of them).


Anyway Happy Monday.

Double-Agent said...

SPIN ALERT

In a few hours VREB will be releasing the Feb. 2010 numbers. You can expect these two spin comments in the report.

- Feb. sales are better than last month.

- Feb 2010 numbers are way higher than Feb. 2009.

Both of these statements are meant for publication in the TC. They will parrot them like they do every month.

Here are the facts... Feb sales are always higher than January. Last year February was a disaster due to the economic meltdown. You can expect YOY sales numbers for 2010 to beat 2009 until May.

February 2010 sales are typical for this time of year but listings are piling on as shown in this chart. Take a look at the sales/new listings ratio compared to 2005-2008.

February Historical Stats

Here are the sales and new listings on a weekly basis. New listings are picking up speed and sales are flattening out.

Weekly Sales & New Listings

BTW - The reception in our office is not reporting any Olympic games attendees calling about condos.

HouseHuntVictoria said...

Double Agent,

Thanks for those graphics. I'll pin them up front for everyone to see.

Clearly we can see the beginning of a change.

Double-Agent said...

HHV,

Here is another chart for you and your readers. New listings coming on strong and active listings climbing quickly.

New and Active Listings

I agree with the other posters that have said we are encountering pent up supply

Double-Agent said...

I said VREB would spin today and they didn't disappoint... Carla is already doing a cut and paste job over at the TC.

VREB Press Release

The number of homes and other properties sold throughout the Victoria [area] surged in February compared to January and remained well above the number of sales in February of last year. A total of 621 homes and other properties sold in February through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®), up from the 418 sales in January and 403 sales in February of last year.

Bears take note - Average and median prices are down significantly

Vic said...

You called it DB, spin meisters out in full force. A 5% drop in median price in a supposed hot sales market is a massive negative. You lost alot of money if you bought in January, those are the facts Jack. (not you JJ);).

But of course the old BS excuse :"There will always be month-to-month fluctuations in prices depending on what kinds of properties sell in a particular month, but the relatively high number of sales in February shows ongoing consumer confidence."

Thats funny,record sales and falling prices always equals a market top.



DB says:

"BTW - The reception in our office is not reporting any Olympic games attendees calling about condos."


You mean Matt Lauer and Al Roker aren't moving here ? ;)

Robert Reynolds - GBA said...

Roger, I know you still lurk. MSR and I are interested in putting together some of your graphs with new data. If you feel obliged, please shoot me or MSR an email or a link to your chart data.

Rob@hmrinsurance.ca

Cheers,

Rob

Double-Agent said...

More on the VREB stats...

Hard to tell from the press release that condo and house prices have fallen for 2 months in a row.

GV House and Condo Prices

Condos are on the way down. Once the new investor rules kick in April 19 (min. 20% down for CMHC insurance) its all over but the crying. Look out below!

Carla or Darren - I hope that you publish these graphs along with your article. People need to know that the market peaked in December 2009 before they commit to 35 years of rising mortgage payments.

JustWaiting said...

In the last few years many FTB's have been buying houses with a suite. They have been using the projected rental income as qualifying income in their mortgage application.

A local mortgage broker reports that this may no longer be possible after April 19th.

Al Kennedy comments on KIV

If this comes into effect it will have a drastic effect on many purchasers. Also those with an existing rental suite may be stuck with renewal at posted rates with their lender since they won't be able to renew anywhere else.

omc said...

I too think the market peaked in December. I don't have any real proof, but my own observation of similar house sales.


It isn't big enough though to account for the drop in prices, I believe that is due to the type of houses that have been selling. My PCS covers saanich and it appears that the basement suite buyers are on fire, while the more experienced buyers of higher end properties are waiting to see what happens.

With the 5% economic growth in the 4th quarter it could get pretty interesting this summer. If they raise the prime rate by .5% we get a decrease in affordability that almost matches what happened in the early 80s. A .5% increase on a $600k mortgage (2.25%- 2.75%) is almost the same as the 3% rise that happened in the early 80s from 18-21% with a $200k mortgage. A peaked market that gets a knock of a decrease in affordability of 7-8% due to interest rate rise has only one way to go. Add this to the buyers who will not qualify under the new rules. Market sentiment could 180 after this spring.

omc said...

If you haven't read justwaiting's post, do so. Try not to dance around though, at least at work.

msr said...

So, I've added this month's stats to my charts which you can view here.

So far, it looks like 2010 is starting out like 2008 but who knows how long that will last?

Vic said...

CHEK mentions the sales increase but conveniently leaves out the price drops. The MSM is back to their usual BS. I thought with Tony Parsons taking over there might be some credibility finally show up in the Victoria media.

Just Jack said...

The advertisers run the show. Not the journa...newscast...talking heads.

I'm doing my happy dance over here and I did a mini one at work today even though omc said not to. Thanks for posting justwaiting.

S2 (JJ's better half)

santhosh said...

I have used www.SkipBrokers.com to find all of my no fee apartments in NYC for the past 5 years...No fee apartments....

Robert Reynolds - GBA said...

Happy Budget Day

Double-Agent said...

The parrot over at the Times Colonist squawks again...

Victoria real estate market heats up for spring

By Carla Wilson, Times ColonistMarch 2, 2010

Greater Victoria real estate sales jumped by 45.5 per cent in February from the previous month as buyers blasted back into the market before a rise in borrowing costs and more stringent mortgage rules are imposed.

A total of 621 properties sold through the Multiple Listing Service of the Victoria Real Estate board in February, up from 418 in January. Last month's sales increased 54 per cent from February 2009.

Vic said...

More cuts to the government ministries and services. Not sure if that is the same info someone else posted on here a week or so back. Hack and slash time before the O-Bills come rolling in.

JustWaiting said...

Double Agent,

I see that the TC has enabled comments on the article that you posted. Readers are really hammering the article for biased reporting. There is even a plug for this blog.

I suggest readers of this blog post their comments over there as well. Maybe the TC will get the message and do a decent job next time..

Vic said...

$1.7 Billion deficit... ouch ! Somethin tells me this is just the start.

Just Jack said...

The Problem with Condos

While home prices in the core municipalities have increased a staggering 24 percent over last year or some $120,000, the core condominium price has increased only 9 percent or $22,000. Now nine percent is good, I'd like my stocks to increase at that rate. The problem is that if your buying a condominium in order to get into the detached home market - its just not going to happen.

The spread between condos and homes is too large to make that jump into a house. And this is the deal breaker. If you bought a condo in the last five years with high ratio financing - your stuck there - for a long, long time.

Unless your willing to take a drop in lifestyle from a 15 year old 900 square foot no care condominium to a 60 year old 900 square foot fixer upper home, in a dodgy hood - and you'll still have to get high ratio financing.

And its only going to get worse as the spread continues to widen.

Animal Spirit said...

Budget cuts mean basically no new hires in the provincial government, and likely layoffs from Forests and Ag and Lands. Good people will be hurt - hopefully all will find work quickly. For the housing market, this means that there will be less marginal demand from new provincial employees.

HHV - don't worry about my e-mail - found the comment post function

Robert Reynolds - send you some listing stats from last year (not exactly what you asked for from Roger). Let me know if you got it.

Bubble 'n Fizz(le) said...

...interest rates to remain low..."sold" signs everywhere...open houses packed...prices up significantly year-over-year...bidding wars for anything decent under $700K...retired or soon-to-be-retired people from across Canada looking at Victoria as a beautifully scenic place to live with the mildest climate in the country...basement suite bears stil waiting for the crash. The more things change in Victoria RE, the more they stay the same.

Vic said...

Of course, all those retirees from far cheaper areas of Canada flocking here to bid on far more expensive homes. Bubbs has been smokin too much of the buds.

Just Jack said...

Bubble 'n Fizz(le) said...
"...interest rates to remain low..."sold" signs everywhere...open houses packed...prices up significantly year-over-year...bidding wars for anything decent under $700K...retired or soon-to-be-retired people from across Canada looking at Victoria as a beautifully scenic place to live with the mildest climate in the country...basement suite bears stil waiting for the crash. The more things change in Victoria RE, the more they stay the same."

I see B&F is off the meds again.

S2

Dave said...

Animal Spirit, what the Province should do is shake up the management of some Ministries. These places are loaded with idiots who shouldn't be running anything more than paper route. Real leadership is sorely lacking.

They should get rid of all the 'policy' departments because the last thing we need is more 'policy'.

They should get rid of all the 'HR' people because it is a toothless role in the public sector. An HR person has no power or ability to influence career progression. It's a contrary role in a union environment.

I think now would be a good time for the entire public sector to undergo a zero based budget. We need to start with a fresh pad of paper and decide what we want to achieve and the best way to go about doing that. We would probably find that our public sector could be half the size it is and be more effective.

Vic said...

More trouble at BM, ole Len can't pay his private jet bill of $3.5 million, times are tough man. No worries though, the banks will overlook any other real estate developers who can't pay their bills when the buyers dry up. The price drop has to have them crapping their drawers with all the "pent up" demand.


I see Carla is trying to show the hardships of the bidding war game, another tough situation for the desperate sheep. Too bad she missed the major point that bidding wars aren't normal market occurences, the same with the emergency interest rates. Soon she will be doing articles on the fools who got sucked in and paid the $50,000 or more over ask and want their money back.

Vic said...

"They should get rid of all the 'HR' people because it is a toothless role in the public sector. An HR person has no power or ability to influence career progression. It's a contrary role in a union environment."


Very true Dave, there are so many variables. Sometimes your advancement can be hindered by seniority or wether or not you are in the old boys club. 3 month job reviews seems like a total waste of tax payer money when most of the time the person is most likely doing the job to satisfactory levels. HR people are usually overpaid book worms who don't know what real work is like.

Vic said...

Talk about misleading headlines :

In the Globe :

"Bankruptcies fall as recovery firms "


On CBC website:

"Bankruptcies up 25% in 2009"


I guess we can see who is Harpers back pocket.

Dave said...

Vic, I don't agree with your market assessment. Victoria prices are quite volatile month to month because the market is diverse and volumes relatively low (say compared to Vancouver). There really wasn't a 3% drop. Rather, it was just a statistical anomaly.

I think the direction of the Vancouver market is a good second sober assessment as to what is likely happening in Victoria. Last month, Vancouver prices were up 1.5% and sales volumes were strong. Like Vancouver, volumes were strong in Victoria. So, I would expect to see a strong bounce in prices in March for Victoria.

think said...

B&F you are full of B&S and Dave I don't think you understand fundamentals. Look at the sales/listing ratio - there is much more inventory coming on than selling - this is what matters. That means supply outweighs demand and we all know what eventually happens in this situation. It takes time for the inventory to build up to a point where prices really start dropping, and the spinning of the numbers becomes impossible. Sales numbers are typical for Feb as they were in Feb 2008, what is different is the loads of inventory piling on (more than typical for this time of year). And the first few days of March show this trend continuing - tons of new listings for VIctoria AND Vancouver - in fact here are the Vancouver numbers the last 2 days:

802 listings/339 sales

that is 42% ratio - that is bear and if it continues for March things will shift in Vancouver too (olympics are over - guess how many people will be dumping the rental units they were holding now that they finished over charging people to stay during the games).

Victoria - already seeing increasing inventory for 2 months - now we have total active listings of 3280. In my opinion when we hit over 3800 listings prices will really start to drop. Based on my calculations/predictions of new listings/sales for March we should hit 4000 listings by the end of the month. **POP**

Vic said...

Dave,

The problem with the "statistical anomaly" angle is then October to December 2009's 3 month rise was an anomaly which no one and their dog could claim so how can this be any different ? It can't. Sales in Victoria may be small versus Vancouver but it is within the historical ranges. As well this was a huge increase in sales from a year ago so that also rules out an anomaly.


As well, the 3 month drop from December is the first time since last April the market has dropped more than 2 months in a row, that's very telling.

Higher than usual sales and a price drop is what it is, a sign the market here is exhausting itself and only the fools in bidding wars in the $400-600,000 range are holding up this market.

omc said...

Just a couple of points;

* The sales are not up for the month of Feb, they are up over last year but down as compared to a 5 year average.


VREB is aware of this and mentions the olympics as a reason that sales were a bit off. Supposedly people were watching the olympics instead. They certainly didn't mention the weather, which was amazing. Much better weather than normal.

Just Jack said...

A Modest Proposal

Sometimes or what seems most of the time, the market behaves contrary to logic. The fundamentals that most of us write about are only vague "rules of thumb" and are at best ranges using past nebulous market criteria. While all markets tend to return to equilibrium, the time lag to do so, may be weeks or even decades.

Some, like myself, believe that this market has been out of equilibrium for the last 25 years! That the baby boom was an anomaly that had to run its course through the housing market and we have just started to swing back to normalcy. And baby, do we have a long way to go.

I can see some bureaucrat come up with the model that will, through property taxes, remove the profit incentive of owning a home. Afterall, why should the average Joe profit through appreciation, when in a bureaucrats mind that appreciation has been caused by the governments stewardship. Higher property taxes will therefore eliminate profit and put the money into the hands that created the nations wealth - the government. If you have to pay $25,000 a year in property taxes, that will severely cut into the amount of mortgage you can take on and by extension the price you will pay for the home. It would also bring together the haves and have nots in our society, making people "more equal". Grandma's house would be taxed away, but she would now have guaranteed subsidized housing in a care facility.

So maybe in a decade or two, your children will only be paying two times their gross income for a home. But most of your kids will elect NOT to buy as the taxes will wipe away any profit incentive, other than paying down the mortgage.

Real Estate is the last DEEP pocket of the people and it will and most likely should be taxed away. Of course this would only be a temporary measure, much like income tax, and we would be able to wipe out the debt quickly and forever. A more simplistic society where we no longer have to worry about acquiring assets. One where the retired baby boomers can once more feel proud and productive in our society by freely giving their wealth, through efficient taxation, back to the people that originally created the wealth for them.

Note: the author is not affiliated with any New World Order, unless such order wishes him to be, and such order is willing to pay a signing bonus and not have the author ride a goat - no matter how attractive said ewe might be.

Ryan said...

I wonder if they would've credited the Olympics if sales had been up. It saddens me that idiots with an obvious agenda and a history of wrong predictions get quoted as experts, when I could do a much better job. It's like the pundits who comment on daily stock market moves and take whatever the market did, whatever major announcements came out during the day, and draw a causal link between the two.

If I were a market pundit, there would be much better headlines. "Sales down in February due to shorter than average month", "TSX drops as Canadians sell stocks to buy tickets to Gold Medal game", "House prices fall as Haiti and Chile earthquakes remind BC residents they live on a fault line."

Four Leaf Clover said...

I have found the comments on this blog very interesting.

When someone commented on property taxes, it reminded me of a Co-Op resort property on Saltspring Island that actually charged each owner twice (in the same year) for their share of property taxes for that particular year.

Yes, how insane is that when people are forced to pay property taxes twice in one year. Is it any wonder that the Shares in that particular property sit on the market for years and years and years.

Animal Spirit said...

Dave @6:30 a.m.

Thanks for your comments. I'll choose not to respond to the content of your post as my original post addressed only that there were going to be cutbacks and that good people were going to be hurt.

I'm curious why you chose to extrapolate in the way you did. Was it to get an emotional reaction, or was it based off of personal preferances, or something else?

Animal Spirit said...

Ryan @2:08 - Vancouver Real Estate Board had almost the exact same listing and sales profile as Victoria and spun it as the Olympics bumped the sales signficantly.

Was up in Whitehorse in January - exact same house price increase profile as Victoria. Nope, this isn't about the weather, not about the Olympics, not about anything but people feeling they have to buy with interest rates low and everyone else buying.

Economically - an imperfect market - not based on fundamentals at all but behaviour, animal spirits. Made worse by lack of transparency on the part of the agents for buyers and sellers.

Dave said...

Animal Spirit - I'm curious why you chose to extrapolate in the way you did. Was it to get an emotional reaction, or was it based off of personal preferances, or something else?

Why? Because I want to see taxpayer money spent well. As you say, 'good' people will lose their jobs. I have no faith that management in government is capable of identifying the 'good' or 'bad' employees. Rather, their objectives in downsizing or cutting budgets will be making themselves look good. Having an efficient and effective workforce isn't even on the radar.

Is that emotional, personal preference or something else? I have no idea. I am not a psychologist. But, I do know that what I say is true.

We also need to cap the growth in health care and education spending. Their portion of the pie can't keep expanding.

I personally think it is time to tear the whole thing down and rebuilt from the ground up. Provincial Ministries are dysfunctional organizations. In the business world, such organizations have to change or go bankrupt. In government, they get rewarded.

Maybe this will all just fix itself when all the boomers leave the workforce.

Dave said...

Animal Spirits... a quick example to illustrate my point about efficiency.

The productivity numbers just came in for the entire US economy today. Year over year, productivity is up 7% while the cost of labour for business dropped 6%. In contrast, our civil service spending will be higher this year in BC and likely no change in productivity.

Marko said...

I couldn't agree more with Dave. I know a couple of people in high positions in government and their lack of intelligence and critical think skills is astonishing.

In the real world these people wouldn't be allowed to operate a forklift at Slegg Lumber.

omc said...

Dave,

I don't understand your logic concerning healthcare and boomers retiring. We have more elderly people than ever before who live far longer with many more choices in intervention than ever before. This is what has pushed up healthcare costs, and I don't understand how adding more demanding elderly people will some how make things all better.

Bdub said...

Just Jack,

Pretty swift.
However, before we start raising taxes to keep homes prices down, I suggest that the poorer homeowners could start selling their children to the wealthy as nourishing and wholesome food. The extra cash gained could be used to pay the mortgage: and housing remains affordable.

Vic said...

Garth's new post on Victoria, the reality hits home, read'em and weep bubbs,the party's over :



In Victoria, as I mentioned, sales catapulted by over 50%. At the same time listings actually dropped from year-ago levels, to about 3,300 homes, from 3,800 in ’09. And the average price also took a hit, from $644,000 down to $620,000. That’s 3.7% in a month, or 45% on an annualized basis.

So, what gives? Both cities have been real estate honeypots. Both saw massive sales gains last month. But in one place listings and prices soared while in the other listings and prices dumped.

Of course, real estate is a local asset, and there can be lots of reasons – from weather to property tax changes – that affect prices. However, in house-crazy Victoria people have simply hit an affordability wall. Prices have been pumped so high so fast that the average family can no longer afford the average home.

Victoria is not an international destination, does not have a massive inflow of population and is, sadly, a government town in a new era of restraint. In other words, no flotilla of dripping-rich Chinese immigrants is going to rescue people from the housing trap they have set for themselves. Prices are coming down.

Just Jack said...

Thanks Bdub

But my child rearing years are nearing the end. The only thing I want my wife to give birth to is a 45 foot sailboat. Yet, I do have an extra kidney which should be worth about the same as a one bedroom condo in Esquimalt. Although, for Esquimalt a lobotomy would be preferred.

But in all fairness to Esquimalt (I lived their once)

I had a shooting in my hood yesterday. So do you think the person who bought the house a few steps down the road for half a million in January is re-thinking that location, location, location thing?

And I liked the typical Canadian response made by the news - that its a good thing that the killing was not random! Well that alone let me sleep a little bit better knowing only specific people are targeted.

Dave said...

OMC, I was referring to the civil service, not health care costs.

My point was that I think a lot of the problems with our civil service are within the boomer generation, who have been in government for too long.

Gen Exers are more practical and like efficiency. Once they take over leadership, we have a chance for improvement. Or maybe, they will continue doing things the way they are done now. Only time will tell.

Vic said...

"Gen Exers are more practical and like efficiency. Once they take over leadership, we have a chance for improvement."



That's uncanny, I used to say that same thing 25 years ago,"when those old goats retire or kick the can, we'll run this ship the right way.", lol. Funny how history repeats itself.


But then again I'm in the final year of qualifying for the "boomer" tag so maybe my era is the leader of this new regime...hmmm. ;)

Just Janice said...

There's no gain to be had in beating up the public service - BC has one of the leanest public services in Canada and most public servants I know work very hard for their organizations. I know good managers and a I know less than good managers in the public service. They do the best they can with the resources they have and are genuinely interested in making BC a better place. Many would earn more in the private sector and many have highly advanced degrees. After meagre to no wage increases for a decade they had a 10% increase over four years - it didn't keep pace with inflation. Now once again the public service is looking at another contract with 0% in wage increases, and a strong likelihood of layoffs (so much for the security of the public service - the frequently sited reason for accepting somewhat lower pay). The workloads were already demanding and are about to get heavier. Sure some might have been overpaid (generally these aren't the positions that require university degrees and several years of experience though) and sure there is always room for improvement - but cutting the organization that was responsible for spearheading many improvement initiatives might prove to be short sighted.

There's also no gain to be had in intergenerational bickering over what one group had that the next didn't. Each generation does the best it can with the hand its dealt. It's never all downsides, nor is it all up sides. I'm a fairly firm believer in a broader karmic balance and that each generation has a tendency to reap what it sows.

In terms of healthcare costs its a devilishly complicated issue that good minds have taken years to understand and the bottom line is taht the solution is going to demand thinking that is outside the box and will require investments now to pay off later but the solutions are limited by the context of the system - which might limit the ability to sufficiently resolve the problems.

In terms of the deficit - I'm not a pure deficit hater, it depends on what the borrowed money is used to buy. If it is spent on assets that produce (at a rate that is greater than the interest on the borrowed money), then it might be the right thing to do. If it is spent on consumption goods, then it is likely just bringing forward demand and handicapping future growth. Going into debt might be the smart thing to do (ie. a student who earns a much higher income as a result of taking a student loan and getting a degree) - or it might be really dumb. It depends, its not black and white - just as the decision to buy a house or determine if a market is in a 'bubble' is very contextual.

I worry that we aren't making investments now that will enable economic growth in the future. I worry that we're too focused on all the 'consumption goods' and that there will be a tremendous cost going forward. I worry that fear will crowd out needed innovation and rational decision making. It's apparent in the housing market that emotion dominates - and I fear that emotion will dictate how the government is to behave over the next few fragile years.

In the meantime quit beating up on government workers and boomers - all of us are in the mess together whether we want to be or not!

Dave said...

Janice, you have some good points, but I am not claiming all workers are lazy. I am talking about effectiveness, efficiency and the general management structure of government.

Do we really need to spend $300 million on the Ministry of Community and Rural Development? Do we really need to spend $700 million on the Ministry of Citizen services? Does anybody even know what they do or accomplish?

mln said...

I believe Citizen Services handles the PSECA program, which is aimed at energy conservation in public buildings. Replacing old boilers with air-to-water heat pumps, building envelope upgrades, heat reclaim from refrigeration systems, that sort of thing.

Just Janice said...

Dave -
I suggest you spend some time reading the service plans to determine what the ministries do - and then ask yourself if the activities they provide are "consumption goods" or "investment goods". We might want to focus our attention on the "consumption goods" as areas for consideration in terms of 'wants' and 'needs'. In terms of 'investment goods' we would be short sighted to do wholesale cuts without considering the longer run implications of those cuts.

Government might not be ideally efficient, but neither is the private sector. Actually, given that the government should focus on areas where the market is inefficient, government might well be providing those goods and services far more efficiently than could otherwise be achieved.

Dave said...

Janice, did read the service plans. My question still stands.

Their 'goals' are quite broad and generic and there is no real way of measuring their achievements.

For reference, here they are:
1. Communities and regions are empowered to achieve their visions for the future.
2. Wealth creation from rural B.C. is supported.
3. Communities are equipped with innovative tools that enable them to work toward environmental sustainability.

Seems redundant with other Ministries or levels of government.

Just Janice said...

Dave -
You might be surprised at the actual services those ministries provide to the people of BC - and I would think that while there might be synergies with other areas of government that those services are unique.

Also you need to put the $700 million and $300 million into context. There are about 4 million people in British Columbia, that $700 million is less than $200 per British Columbian, the $300 million is less than $75 per British Columbian.


The core business areas of community and rural development include local government, the ruralBC secretariat, Pine Beetle Response Division and Property Assessment. The vast majority of resources are directed to local government. I note that local government is responsible for delivering a range of programs and services and that promoting economic development in communities and ruralBC is advantageous to the rest of British Columbia. I don't think $200 per British Columbian is really too much to pay for these kinds of things, I know I derive at least $200 in value from my local government each year.

Departments under Citizens Services include BC Stats, Freedom of Information and Privacy, the Government Chief Information Officer, the Public Affairs Bureau (arguably could be trimmed), the Public Service Agency, the Multiculturalism and Inclusive Communities Office, Service BC and BC Online, Shared Services BC and the Workforce Planning and Leadership Secretariat. Citizens Services is also responsible for the administration of more than 30 different acts including the BC OnLine Act, the Business Corporations Act, the Electronic Transactions Act, the Financial Institutions Act, the Partnership Act, the Personal Information Protection act, the Public Service Act and the Repairer's Lien Act to name a few. It's remarkable to think that these things are done for $75 per British Columbian...seems like money well spent to me.

The core review in 2001 largely eliminated many of the duplicated services in Government and the subsequent cuts made our Public Service one of the leanest around. I think there's room for improvement, but I think there's bigger fish to fry.

As much as I'm not a fan of taxes, I'd rather see modest tax increases or other innovations to increase revenues rather than a cut to services, as I really don't think that there's too much fat to be found. Or rather, the fattest parts of this cow tend to also be the most sacred (Health and Education). Or what if they taxed a portion of the capital gain from houses when they are sold??

Just Jack said...

I would go with taxing the capital gain on houses. I think that this is probably the most fair way to attack the problem.

With the graying of the population and increasing costs of government I don't think we can get away without a capital gain tax on real estate. It would probably be more fair, in that the haves are being taxed rather than the have nots. Perhaps if the person buys another home within the year, the property purchase tax could be offset in that way it may be less of a bitter pill to swallow.

Anyway you look at it - the land barons are going to have to pay. If we start to see our political leaders sell off their personal real estate holdings - you can bet this is going to happen.

Dave said...

Taxing housing gains will limit worker mobility, which will hurt small communities and our economy. More taxes on housing increase the price of housing. This is counter to the goal of certain branches of government who are trying to create affordable housing.

That Billion dollars would more than cut our deficit in half. It's a lot of money for questionable services and outcomes.

The Ministry of Forests should deal with the Pine Beetle, not some bureaucrat in a different Ministry.

Multiculturalism and Inclusive Communities Office? Turf it. I seriously doubt it has any effect on anything.

Promoting economic development in rural communities? How's that working? Our rural communities are still shrinking. The forces behind the economy are far more powerful than a bunch of bureaucrats dreaming up press releases and attending meetings. How many of these people actually have formal economics training? Or those, how many in the real world?

I agree that the fattest cow is health care. We can't let those costs continue to grow. We need to make some tough decisions now. Delaying them will only make things more difficult later. I think we should put a 'debt tax' on the boomers and increase their health premiums.

Animal Spirit said...

Just Janice - having worked in industry, two levels of government and education, I would say that in each case there are those who work hard and those who do not. The federal government probably had more slackers than the provinicial government, while the union in education was the silliest of the three unions (teachers weren't allowed to change the time on the clocks - this was a maintenance job :( ).

In industry, the managers were no better than in government - it depended completely upon the individual.

In all cases, it comes down to the ability of the organization to make strategic decisions, for people to actually follow upon those strategic directions (excellent provincial, not good federal) and finally for staff to be empowered.

The company I worked for emploded (yes, the correct term) due to a long-term strategic vision that was no longer operational given changes in society. I have seen departments that are completely decision adverse (and therefore that never actually do anything) and I have seen Deputy Ministers who do a great job at making sure that staff provide the information for decisions to be made (and therefore a lot of positive change is made in a short period).

Leo S said...

@Dave
I think it's funny that just because you don't know what a section of the government does you think it should be scrapped.

The Ministry of Forests should deal with the Pine Beetle, not some bureaucrat in a different Ministry.

And they're going to do it for free? No of course not, their budget is going to have to increase by the same amount that you're decreasing the budget in Comm and Rural Dev.

I'm not saying there isn't money to be saved in the government by working smarter, but the idea that just because something doesn't affect you personally means it should be scrapped is insane. That's sort of the whole point of spreading the burden around to everyone, so it becomes affordable to the group that needs it.


@Animal spirit
emploded (yes, the correct term)

Oh the irony... (you mean imploded)

Dave said...

Leo, look at the verbs used to describe their goals: empowered; supported; and, enabled. Their goals are of a qualitative nature and are not measurable. I'm not sure their objectives are really needed.

Do you think BC really needs a multiculturalism and inclusive communities group? What kind of hippy thinks this stuff up?

Call me a libertarian. The less people tell me what to do and how to spend my money, the more free I am. Taxes and government are tyrannical in nature and they are inherently the antithesis of freedom. Half of efforts of labour are taken from us. From a big picture perspective, it is too much. I am not an extremist and I still believe that we need most of the things government provides. However, I often think government has gone way too far in trying to manage our lives. Can you think of a single thing in our country that isn't regulated by somebody?

Animal Spirit said...

@Animal spirit
emploded (yes, the correct term)

Oh the irony... (you mean imploded)

Excellent! I really shouldn't write when I'm this tired :(

Animal Spirit said...

Dave @8:25 p.m

Can you think of a single thing in our country that isn't regulated by somebody?

1. anything that goes on at night in the West End of Vancouver, high school parties, Sudbury saturday nights or behind the tweed curtains of Oak Bay.
2. Langford development approvals.
3. Don Cherry's rants
4. trolling on blogs
5. hangnails (same as #4 essentially)
6. Any obsessions that Just Jack has
7. Requiring Roger to come back and post more
8. cheap Chinese imports at Walmart
9. pink toy poodles
10. Prior Lake

Marko said...

“I agree that the fattest cow is health care. We can't let those costs continue to grow. We need to make some tough decisions now. Delaying them will only make things more difficult later. I think we should put a 'debt tax' on the boomers and increase their health premiums.”

I disagree with this Dave. I think what makes Canada such a great place to live is our healthcare system. The 5 key principles of our Canada Health Act are Accessibility, Portability, Universality, Comprehensiveness, and Public Administration. By increase premiums you are essentially going against accessibility and the Canadian Constitution.

Secondly, healthcare in Canada is only about 9% of GDP and holding steady, while in the states healthcare is about 15% of GDP. So I don’t think costs are “growing” and that health care isn’t sustainable, because it is and we need to ensure it remains a 1 tier public system.

VIHA has 17,000 employees, the CEO makes $350,000. I am invested in a small company in Vancouver (142 employees – Coastal Contacts) and the CEO makes $900,000. I don’t think there is massive waste in health care unless you consider doing open heart surgery on an 88 year old a waste of money, but that is a moral discussion.

In my opinion, trim the ministry of health to a minimum. Transfer more money to regional health authorities. Trim the CEO, executives, managers, etc. Hire more doctors, nurses and other health care professional and make a radical shift towards more investment in health promotion and education rather than tertiary care.

Dave said...

Good points Marko. These are complicated issues and I am definitely generalizing. I really don't know enough about the health care system and where savings could be had. I do know that health care keeps taking a larger percent of government revenues and I know that isn't sustainable.

If VIHA could deliver services for $38 like your glass company, then I would pay their CEO whatever he wants. I can imagine that if government were in the business of eye glasses, the cost per customer would be a hell of a lot more than $38. Does that same analogy apply to other aspects of our health care system? Probably some, which is why I think there are likely areas that we can achieve better efficiencies and costs.

Just Jack said...

The heathcare system protects doctors and nurses by not informing the public.

The next time someone goes to emergency or a check up, they should be presented with a copy of the invoice that the hospital will be presenting to the medical plan. Joe public should read it and sign it showing that they did so receive that level and care - and rate their experience and doctor.

And you should be able to look up the rating of a doctor before you make them your family physician.

Its about accountability and responsibility. If your a lousy doctor then the people will chose another doctor and eventually you will have to find a different vocation.

Okay, thats all you get for 3 cents.

Just Janice said...

Marko and Dave -
Transferring more money to health services (doctors & nurses) and away from strategic planning and broader measures that might reduce the need for health services in the first place is precisely the type of 'sacred cow' I speak of. We don't supply seniors with help with transportation, cooking, and cleaning (all non-medical stuff) so many wind up in assisted or long-term care because their health suffers as a result (expensive medical care). Our system is further constrained by the very structure that is in place - Canada effectively has 11 to 13 different health systems...plus the administration required at the local/regional levels. Further, some innovations (such as partnering with private companies to supply non-medical frills to patients in the health system for profit - ie. partnering with Hilton to create nicer rooms, or local catering companies to provide better food) also aren't allowed, but the profits generated could pump more revenue into the system. Further, using wait times as a means of determining who is most deserving of a surgery at any given point in time might not be the best way to do it. If a person who is 60 (still working) needs a new knee and can't work until it's done, his wait is far more expensive to society than the person who is 60 and retired as he might have foregone income (and foregone tax income) as a result of having to wait. Those lost taxes are a loss to the system as a whole. Further, the best investments in health are likely to be in education, improved standards of living, improved activity levels, etc. - but these aren't politically great investments as there is no ribbon to cut and the payoff might be decades later in a different province (if the person leaves BC).

The health system/problems are exceedingly complex and difficult - simple answers are not the right ones for the long run. Throwing more doctors and nurses might be okay for now but this certainly isn't the answer in the long run.

I strongly believe in a strong health care system that meets the needs of the population in a way that ensures that nobody has to choose between their economic life and their health. But after spending more than a couple years looking into the issues of health care - I've come to the conclusion the the problem is far more complex than what is first assumed.

If you're only taxing the capital gains from housing I don't see how that would impact labour mobility (arguably there could be a credit in the case of a capital loss)...further the taxes on housing are incorporated into the price - so unless housing is perfectly inelastic (ie. the same amount is demanded regardless of price) there would be a reduction in house prices to compensate for the tax and price would remain almost the same. If an increase in interest rates causes house prices to drop, so too would an increase in taxes...

JustWaiting said...

And now we go back to our regular programing - real estate.

I see the president of VREB is in the press again.

Bidding wars take their toll

Randi Masters, Victoria Real Estate Board president, sympathizes and urges the couple to "hang in" because more inventory is coming onto the market as spring approaches.

Also, the ranks of first-time buyers may also thin after new federal mortgage rules come into effect in April, Masters said.


Randi provides free counselling in order to keep the hopper full of FTBs

However, for the longer term, Masters anticipates only modest increases in interest rates, expected later this year.

Was Randi trained as an economist prior to becoming a real estate agent?

Real estate agents are licensed to sell real estate - period. Estimating today's market value and negotiating a deal is all a few months of correspondence school training permits them to do.

Future market predictions, economic projections and financial counselling are beyond their capabilities and anything they say on these topics should be disregarded as drivel.

JustWaiting said...

More on the topic of real estate agents. What does it take in order to lose their license?

Delta real-estate broker Neil Wark suspended after conviction for indecent assault

A bad joke - a six month suspension and a $1000 fine! I bet women feel safe driving around in his car to look at houses.

Double-Agent said...

This was just posted over on Canadian Mortgage Trends.

Cdn. Mortgage Rate Increase Predicted

Fixed mortgage rates should tick higher next week--barring any economic surprises.

That’s because Canada’s 5-year government bond yield is up 18 basis points today, the most in almost five months. (Bond yields guide fixed-rate mortgage pricing.)


Combine this with the new mortgage qualification rules which take effect next month and guess what happens.

c said...

Double Agent--Not sure I can guess what happens based on that info.

Looking at that site, I see that between May and June 2009, a 5-year fixed jumped 0.6%, from 5.25 to 5.85. What happened to house prices following that?

Animal Spirit said...

c - there was lots of discussion about that on this board - what happened is that there was a massive amount of pre-qualifications at the lower rate, followed by a surge in sales for lower end houses. Think that the 5 year fixed then went down a few months later. Steam was already in the market - sales pushed up across all categories and the second peak occurred.


Interesting that the threat of the higher interest rate may have actually 'saved' the market from significant price declines. Realtors, brokers and others used it as ammunition for their 'buy now or priced out forever line'

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

Animal Spirit--I remember the discussion well. I mean only to point out that it's not always easy to "guess what happens" to house prices in Victoria when bond yields come up--as was implied by Double Agent.

Animal Spirit said...

c - very true - the exact impacts of rate changes, increases in listings, increases in sales prices, or a glut of garlic in China are all very hard to predict. Of course there are rules of thumb (supply/demand, effect of prices on demand, etc), but strage things happen under the midnight sun.

This is exactly why when the bubble bursts, we'll all be surprised as to the actual reason. My bet is that all of a sudden buyers disappear for a mysterious reason such as a libertarian karma punshment for real estate agents.

Double-Agent said...

C said,

Double Agent--Not sure I can guess what happens based on that info.

OK here is my guess.

- Those taking on a five year fixed mortgage will have higher payments and will qualify for a smaller mortgage. Anyone who is not pre-approved now will see this happen next week if the rate predictions come true.

- Starting April 19th rising interest rates will result in a double whammy. Banks used to pre-approve variable and under five year fixed mortgages based on the 3 year fixed rate. This will stop with the new rules and they will calculate the maximum loan based on 5 year rates, regardless of term. Many marginal buyers were getting bigger loans based on the 3 year rate. Now they will get a smaller loan and will have less money to buy a property.

- Those buying rental properties, like condos and townhouses, after April 19th will face higher interest rates and will now have to put 20% down instead of 5%. According to Mortgage Trends "CMHC is declining more 95% LTV rental applications than usual. Seems they're already tapering down in advance of the April 19 rule changes."

The rumour going around is that the 5 year fixed rate that will be used to qualify buyers (with under 5 year terms) will be the posted rate. Since this is higher than the 5 year discounted rate one can expect most mortgages in the future will be five year fixed.

In essence, Bill and Mary will walk into the bank or a mortgage broker next month and get offered a smaller loan than they can get now and will pay a higher interest rate. As Reid has shown in the past prices in Victoria are determined by the maximum loan available to FTBs. Sellers will need to lower prices to what the buyers can pay or they won't sell.

Summary - Prices are on the way down Perhaps not in the next month or two but in the second half of 2010. Just wait till HST kicks in and we all have less disposable income. Then Carney will start cranking up the bank rate and the whole interest rate yield curve will go up.

omc said...

I didn't realize how smart the finance minister is until now. By making people qualify under the 5 year rate, he is actually going to pop the bubble and not get blamed. It is going to hurt, but not as much as if he let it go further.

I am noticing good houses in oak bay now coming on the market near assesment.


Another 18 basis points on monday...

I'll try not to do my dance again.

Mr.4AM said...

"Summary - Prices are on the way down Perhaps not in the next month or two but in the second half of 2010. Just wait till HST kicks in and we all have less disposable income. Then Carney will start cranking up the bank rate and the whole interest rate yield curve will go up."

Then after the 2011 interest rate surge..., get ready for the 2012 domino effect of sovereign currency collapses, thanks to the global impact (top X axis) of the derivative alphabet soup (Y axis). (full story here)

By then our BC Budget will look like this.

Mr.4AM

Bob leftcoaster said...

OMC said:
I didn't realize how smart the finance minister is until now. By making people qualify under the 5 year rate, he is actually going to pop the bubble and not get blamed. It is going to hurt, but not as much as if he let it go further.

Yes, this is very political for two reasons.

1. Blame avoidance is important in politics. Last month the Bank of Canada told us that they are responsible for overall economy it was the government who must reign in the housing market. That threw the ball into Flaherty's court. With these new April 19 rules, he's effectively allowing "affordability to erode" as a fault of the recovering economy and the Bank of Canada for forcing interest rate hikes.

2. Getting the majority government in the next election is their first agenda and the baby boomer vote is key. If they had introduced new a new CMHC 10%/30yr rule, house pricing would immediately fall across the board. The boomers would tear the conservatives apart for devaluing their last resort retirement plan which is nothing more than their paid-off house.

Double-Agent said...

Breaking News

Yesterday, I said...

The rumour going around is that the 5 year fixed rate that will be used to qualify buyers (with under 5 year terms) will be the posted rate. Since this is higher than the 5 year discounted rate one can expect most mortgages in the future will be five year fixed.

This has now been confirmed by Canadian Mortgage Trends

The posted rate published on the Bank of Canada site, currently 5.39%, will be used after April 19th to qualify all mortgages under 5 years.

What does this mean for buyers? They have two choices:

- Take a five year fixed and qualify based on the lenders 5 year discounted rate (around 3.8% Friday)

- Take a variable or 1-4 year fixed mortgage and get qualified (based on 5.39% rate) for a smaller mortgage but at a lower interest rate.

Either way they are going to be qualified for less than they have been in the past when the 3 year fixed rate was used to qualify variable and under 5 year fixed loans.

Now you might think that there will be a rush for pre-approvals prior to April 19th. CMHC and /or the banks may not allow this to happen and stipulate that all mortgages issued after April 19th must follow the new rules.

Double-Agent said...

Lets take a look at a few examples.

Household income 100K - 8.3K per mo.
Est. property taxes 3K - 250 per mo.
Est utilities 1.5K - 125 per mo.
35K down payment
No other debts

Using the CMHC calculator

At 3.8% maximum loan 534K
- 5 year discounted rate
At 3.6% maximum loan 548K
- 4 year discounted rate
At 3.3% maximum loan 572K
- 3 year discounted rate
At 5.39% maximum loan 436K

So with the new rules the maximum mortgage loan is 534K and the rate is 3.8%. If the buyer opts to go variable at 2.25% or under 5 year fixed the maximum loan is 436K instead of 572K with the old rules.

In Victoria this effectively will mean FTBs will be forced to take on five year fixed mortgages. They will have a higher interest rate and will be qualified for less than under the old rules.

And to add insult to injury mortgage rates are increasing and you can expect the posted and discounted rates to go up next week.

Bears - stick a fork in the market. In a few months it will be done

HouseHuntVictoria said...

Double Agent,

I'm of the belief that the lenders will implement these rules as soon as they understand them. In plain language, these changes will occur long before April 19 (if not now). There is no incentive for them to wait.

JustWaiting said...

Double Agent,

The new CMHC rules also change the percentage of rental income you are able to use in order to qualify for a mortgage.

The old number was 80%; the new number is 50%. So a buyer looking to finance an owner occupied home with a basement suite that rents for $1000 a month will only be eligible to add 6K to their qualifying income vs. 9.6 with the old rules. That works out to a mortgage loan which is 20K smaller.

And then you have the new requirement for 20% down instead of 5% down for rental properties that are not owner occupied. A big blow to the speculators.

In Victoria the high prices have had most FTBs taking out the max loan they could get, with 35 year amortizations and under 5 year terms (variable or 3/4 yr. fixed). The reduced loan limits means fewer buyers with the ability to buy at today's prices. With listings coming on strong price drops are inevitable.

Animal Spirit said...

Is it that the rules will have a much bigger effect in Victoria and Vancouver then, say, Toronto, Ottawa and Montreal? Our house prices are a lot higher here, but our incomes are around the same. What we 'could' qualify for in Victoria will drop signficantly in the future, but there really won't be much of a market effect in the bigger eastern centres.

This leads me to the question: has a political decision been made to hang the west out to dry (there are comparable fewer seats in play in B.C.) while ensuring that the east stays in reasonable market territory. If so, brilliant, however if I were a B.C. politician, I'd be more than a bit PO'ed at the probable effect in a year.

omc said...

It appears that the new rules effect Vancouver and Victoria, but also Trornto. It equally effects any center where the affordability is out of whack. The west is famous for boom and bust.

Things could turn out very well for the financially prudent. If you can actually afford a home; the prices will be down and so will the rates.

Animal Spirit said...

from what I can see, Toronto SFD average is 431K, way below ours which is in the 600s.

JustWaiting said...

Those looking to refinance will also feel the brunt of these new rules. Here are some examples:

- Those that are stretched to the max may not qualify for their mortgage balance if they decide to switch to another lender at renewal time. They will be forced to renew at whatever %rate is offered by their current lender. Lenders may just offer posted rates to fatten their bottom line.

- The new rules only allow loans to be re-financed at 90% loan-to-value. This will slow down using the home as an ATM for automobile and vacation money. A real ding to those over their heads with credit or seeking a flashy lifestyle.

- Those with rental properties that are not owner occupied may have trouble getting refinanced. Banks may not offer automatic renewals if RE prices drop significantly (think small condo box). Re-qualifying with the new 50% gross rental income and 20% down rules may force some high ratio investors to sell if they can't get alternate financing.

- Divorce cases. It will be hard for one partner to continue to live in the family home if they have to pay out the other partner and re-finance.


Conclusion - These new rules are going to pop the bubble. Just be patient and wait a few months till all the pre-approval letters expire. The last of the greater fools will continue to buy at the peak and regret their hasty decision for years to come.

As my name says - Just Waiting...
.

JustWaiting said...

Even more tightening of mortgage rules at CMHC. Stated income or Alt-A loans (known as "liar loans" in the US) have been curtailed in Canada. Fewer buyers as a result.

CMHC Business For Self Stated Income Program Changed

CMHC will no longer be accepting stated income for those who have been BFS** longer than 3 years or are commissioned sales. They have also reduced the LTV from 95% to 90% on the stated product.

** Business For Self - CMHC lingo