or a long, drawn out correction looking something like the current US version?
There isn't a "current US version". US markets have varied greatly in speed and amount of decline. Miami, for example, lost 40% in the first 2 years and the California markets were not far behind. As will Victoria and the rest of southern BC. The prices are just too high and there are no rabbits left to pull from the hat.
BTW I expect a long-term slow decline after that due to macroeconomic and demographic trends.
1) First 10% slow: 5 mo's (May-Sept) - Anxiety/Denial phase + listings have not been up for very long time yet, so not enough desperation + summer time = buyers on vacation.
2) Next 15%-20% faster: 4 months (Oct 2010 -Jan 2011). Multiple reasons: Many listings on for long time = lowered price changes. All time record listings in y/o/y compared to last ~5 years now fully evident. Interest rates slightly higher + HST full effect = catalyst. Likely stock market crash a la Q3 2008 = buyer jitters w/smaller downpayments due to losses + panic acceleration by sellers.
3) Next 10-20% slow: Feb 2011-Feb 2012. Market could be down 30-35% already, so 1 year+ for the next 10-20%. Most of the specinvestors are gone from the market, panic sellers gone.
These are pure guesses, not a lot of research went into the above :)
really hard to know...but we are here to speculate.
I am really enjoying that we are now talking about how it will look and not if it will happen...although my smile does not last long as I know good people will also get hurt by this correction...such a duality.
I agree with Mr. 4am that the initial fall may be 5-10% and will last until Oct-Nov. Slower sales over the summer and denial by sellers will drive this.
However, I would expect another 5-10% to fall off from Nov through Feb with those that have to sell decreasing prices.
I would expect the big drop to happen next spring, during the usual spring listings rush. Maybe 10-15% by summer/fall.
There's a lot of moving pieces here including the broader economy, interest rates, unemployment rates, rental rates, foreclosure/bankcruptcy rates, the exchange rate, vacancy rates, etc. As a result there's a lot of uncertainity going forward as to how exactly things will unfold. What's obvious is that prices are overvalued, have been since about 2005 and will correct. I'm guessing the correction will take us back to 2001/02 prices (corrected for inflation) and will take about 8 years to unfold with the first 2 being the most dramatic and the last 6 slowly eroding real prices by way of year-over-year price stagnation.
I can't see unemployment in Victoria falling to lower than 6% over the next 3 years. I also can't see real wage increases over the next 3 years. I think vacancy rates will continue to rise and exerting downward pressure on rental rates. As interest rates rise and mortgages come due for renewal, or as people lose their jobs or are unable to make as much money as they used to, more homeowners will have difficulty making their payments and foreclosures/forced sales will continue to increase the amount of inventory available on the market.
I think their might be some creativity on the part of CMHC emerging at some point and we might see a "Making Home Affordable" program...as a result how the correction unfolds might be muddled with. In reality this will just shift the costs of the correction away from the banks and onto the shoulders of homeowners and tax payers.
Just thought I'd share that the movie "COLLAPSE" has been posted on Youtube in 8x 10 minute chunks.
This is a film that in very simple language explains what will occur in our world in the next couple of years that will affect the way we all live for decades to come. I know of at least a dozen well respected analysts that agree with this guy's predictions (whose previous ones have all come true), so learn from his message.
Also, it's not a long rant about gloom and doom, it's also a message about education, hope and inspiration. Our world is on the verge of very radical change, learn how to transition through it with a smile on your face :)
Mr.4AM
PS. This documentary may be copyrighted so it may not last on Youtube for many days. Watch it soon if you want to see it.
"Canada should raise interest rates "without delay" and let economic stimulus measures expire to avoid inflation, the OECD said in its annual forecast Wednesday.
The Organization for Economic Co-operation and Development recommended the Bank of Canada continue to raise rates to more normal levels over this year and through 2011."
The downward demand driven correction in prices that happened in 2008 would be my guide. When prices were declining at a rate of 2% per month.
Of course this 2008 correction was mostly felt by realtors because of the drop in sale volumes and respective commissions and those sellers under duress to sell, as in corporate and government relocations and court ordered sales.
The Canadian market was not allowed to progress (CMHC goosing the market) to the point where the profile of the typical seller became one motivated out of forced circumstances to affect a sale as opposed to fishing for the highest price.
If not for CMHC our market may have mirrored Seattle where prices are 30 percent lower than the summer of 2007 rather than 20 percent higher today. To me, the affect of CMHC's lose lending policy that brought forward future demand will be reversed and our prices will become more aligned with other cities. Because of the affect of bringing demand forward, I would guess that the rate of decline to be more than the 2 percent per month of 2008.
Unless, the government intervenes Victoria's sales volumes in 2011 may be the lowest in 25 years with under 3000 house sales a year. A market dominated by estate and court ordered sales.
As in the USA, the affect of the "baby boomer" in real estate has run its course. The boomer's buying habits have changed from being a net buyer to being a net seller of real estate.
The next 25 years will see the reverse of the last 25 years as sellers increasingly outnumber buyers.
Statistically speaking, the first time buyer of today may be paying 7 or 8 times gross income for a home. But their children in the next decade or two may only be paying 2 or 3 times their income. Of course, McWendys could be paying their part time staff a $100,000 a year then, but most will find it difficult to pay the $20,000 property taxes for a 25 year old condominium in Humboldt Valley.
The remarkable recovery in Canada’s resale housing market is cooling, as increasingly expensive properties and the promise of higher mortgage rates force out buyers.
Prices are at all-time highs, but the number of homeowners looking to sell has created a glut of inventory. At the same time, anticipated higher mortgage rates and stricter qualification rules threaten to price more people out of the market, ultimately driving prices lower as fewer buyers compete for what’s available.
There is noting anywhere on the Internet, including Garth's websites, Wikipedia, etc. that says he is a financial advisor.
Actually he does mention it on his blog once in a while. He keeps it very quiet though, which is precisely why I think he is unethical. Given the nature of his writing, he should disclose the fact that he does actually make money managing people's investments.
Proof: From his email to my brother: I charge just 1% for assets under management - no consulting fees, no cost for a financial plan, no trading charges, just 1%.
Sadly I do not know a fee-based planner in your area, but should you like to work with me when you are ready, just let me know. As I said, I have many clients in the area.
Garth
His reply to my comment calling him out also acknowledges it: http://www.greaterfool.ca/2010/03/25/urgent/#comment-67467
Like you say, wikipedia doesn't mention it. I guess I should add it to give people all the information before they think Garth is out to help them just because he's being nice.
Some interesting or not, stats from the first of the month.
603 residential properties were listed for sale in the Greater Victoria areas.
162 listings expired or were cancelled since the first.
And 240 properties sold.
So about one-quarter of the properties listed may be cancelled or expire. Does this suggest the level of sellers motivation? Could these numbers be interpreted as 60 percent are wanting to make a deal and 25 percent are just wasting the agent's time and money with unrealistic expectations?
And if 25% of list prices are not reasonable, what kind of affect does this have on months of inventory and sales to new-listings ratios. Will an increase or decrease in cancelled and expired listings be a forerunner of a change in the market?
Could an increase in sales occur along with a decrease in price as the pot of sellers become more motivated and the unrealistic sellers leave the marketplace?
This is what I'm suspecting is happening. While our sales to new listing ratio has fallen, prices have remained sticky. If we remove the unrealistic sellers, then our sales to new listings ratio would show "more" balance. Assuming 25% of listings are unrealistically priced, that would mean that our unadjusted sales to new-listings ratio may have to fall to 0.15 or 0.2 before we start seeing front page head lines in the media. But if you are a home owner thinking of selling this may be too late, as you would end up following the market down.
Oh well, everyone can't be a real estate tycoon, most have to be fodder.
Has anyone else notices a substantial increase in price changes in the past two days? Post Victoria Day price adjustments...and the MSM and banks finally coming out and admitting there is a "small" problem.
I think the people who cancel listings are just in denial. They may claim they were just fishing but deep inside they really want out of the place they are in. Why go through the trouble of putting the house up on the market with the real possibility it might sell and you have to move. These people are more at risk of coming back during the fear stage later on. Just an opinion.
A 10% drop per year for 5 years would put real prices back to where investment makes sense again.
1982 had a few things different: 1) interest rates were high so Joe Howmuchamonths were priced out without steep price declines. 2) Not that many people bought at high prices so a return to lower prices didn't cause significant pain enough to change government policy. 3) The rise in prices was so steep and fast I bet a lot of people just shook their heads. The whole thing started and finished in a few years.
The only way prices correct as fast as '82 is if there are significantly fewer buyers appearing over the next years. We got a taste of it in 2008, when prices dropped at a rate faster than any other city on the continent, until interest rates were halved over a handful of months.
I think 5 years to see 80% of the price correction is most likely, assuming interest rates remain low. If interest rates start heading higher I think we'll get to that point even quicker.
I remember 2008, when the Vancouver MOI climbed up to 25 months in a relatively short-time frame. It took a couple of months to climb and stayed high until interest rates plunged to record low-levels.
I think we'll be like Phoenix or Las Vegas — roughly 2 years of steep decline and then either a small bounce or just a levelling off to a more moderate downward trend.
Part of that is because I think that once construction jobs disappear (and after their EI runs out) young people will move away in droves, especially those who moved here from small towns where they have a support network and the cost of living is lower overall. A declining population will mean declining demand, which will slowly push prices ever lower in the years to come.
My median listing price index shows a monthly median listing price decline of 2.54 percent from March 1 to today, so I'll go with that value for short term (4-5 months) median price declines.
Thereafter I'll not forecast because (a) forecasts are inevitably wrong; (b) after a 10% price decline there will be huge lobbying for housing support programs such as expanded home buyer programs, longer amortizations, lower interest rates and the sort - and it is anyone's guess what programmatic measures the federal government will actually take.
I ended my guesses in Q2 of 2012, but should have probably ended them sooner.
I think the vast majority of people (including most here) are totally underestimating the massive macro-economic financial armaggedon that is brewing out there. If this scenario plays out more or less as detailed (so far it's been very much on track), there will be a global SHTF via currency crisis, break outs of civil revolution (i.e. Greece) in wester countries , if not also another major inter-country war (i.e. North Koreaor Iran), food crisis, collapse of import/export markets, and the list goes on.
If you think this ain't gonna have an impact on the local economy then you haven't been watching our loonie fall 8 cents in 3 days because of what's happening on the other side of the Atlantic Ocean.
With this in mind, my predictions for Victoria real estate were likely overly optimistic after Q2 2011.
patriotz - in most cases the programs won't work, however since there isn't a direct link to companies that will go bust as the market goes down, there is more opportunity to pump the market (as was done) so it doesn't go down further.
Besides, some will believe that it will work and politically the optics are good for the governing party to look like it is doing something.
Of course that's the point, for the government to appear to be "doing something".
Any government program that attempts to prop up prices will simply result in a lower bottom eventually, because more houses will be built than if the free market were left to itself.
Currency trade is all relative, yes the Canadian Dollar has fallen compared to the USD, but it has strengthened against the Euro. Notice the pattern in the image below.
With the troubles in the EU, investors are once again making a flight to quality, which means the USD, this has pushed up the demand and therefore the value of the greenback. The Canadian Dollar is seen as strong and stable too, so no doubt there has been buying up of our dollar as well, just not on the level of the USD.
Nothing out of the ordinary really. The same pattern can be seen by looking at the yields of US treasuries.
Based on the relationship between average home prices and incomes, and their outlook, Canadian home prices are unlikely to undergo a U.S.-style correction. Warnings of a U.S.-style home price correction in Canada are unfounded. Such warnings are typically based on a limited analysis of the historical relationship between national average home prices and income which ignores Canadian housing market cycle dynamics.
The national price has been skewed upward recently by price increases in British Columbia (Exhibit 5), while national income since the year 2000 has been growing at a slightly faster pace compared to the province.
As a result, the price to income ratio for British Columbia has deviated considerably further from its provincial long-term average compared to the national ratio.
But Klumper the Pumper says BC is not in a bubble...
However, the relationship between average home price and income in British Columbia may have changed in recent years due to international immigration and positive net inter-provincial migration. Much of the migration to the province from elsewhere in Canada refl ects moves by people aged 55 and over (Exhibit 7). An increase in higher-priced home sales in recent years purchased using wealth, not income, would cause the average price to be skewed upward. This may have caused the price to income ratio in recent years to rise significantly above its long-term average.
Just Janice - As an economist would you care to comment on the CREA economist's report?
The pot of prospective purchasers is finite. Propping up current prices by government stimulus packages only pulls future demand forward, leaving a dearth of future buyers to support a larger inventory of homes.
Most of us understand that the Canada Pension Plan, as it is today, can not support the number of retiring boomers at the standard of today's retirees. Much the same is for real estate, the current prices can not be sustained at this high level because the future is made up of fewer buyers and more sellers for the next 25 years.
The market will be turned upside down. What you thought were good purchases will turn out the reverse. Large McMansions will be almost unsaleable. As prices come down, small condominiums will become unsaleable unless they can be rented. Older revenue properties, especially apartment blocks, will fall into disrepair and will be seen as a liability rather than an asset.
People will leave the urban core, because of high taxes and low services, leading to inner city decay.
There is a site that shows how to see if someone is licensed to sell investments or act as a financial adviser. I didn't find anything when I looked....
Robert, there is nothing normal about an 8 cent move in a mere 3 days. I could have made the same point with a different currency. It used to be that the major currencies moved 1/10th of 1% in 1 day on average. These 3 days showed 26.7 times (2,670%) more volatile than that (!!), and I believe higher volatility in currencies is still coming, hence my use of the words 'currency crisis'.
Also, one could argue that the Candian dollar is not so strong or stable, and the USD even less so.
Let's be clear and dispel assumptions, the recent rush into the USD wasn't a flight TO quality, it was a flight FROM high risk and loss of confidence in the Euro. That does not automatically translate into the USD being strong or stable, because watch how much faster people will flee the US dollar in the not so distant future (a few years at most).
There's no real quality left in any major fiat currency. I continue to believe all the major fiat currencies are on their last legs and the acceleration of volatility is the proof in the pudding.
As an economist would you care to comment on the CREA economist's report?
Well I don't work as one, but I'll comment.
Increased prices without corresponding increased rents are not sustainable. Regardless of how much supposed wealth migrants are bringing into the market.
As an economist Mr. Klump understands who signs his paycheques and is acting accordingly, although somewhat myopitically. After all he might have a hard time finding work with CREA goes down in flames given his track record.
Also understand that economists do not all subscribe to the same models and analysis - and as a result may come to a different conclusion based on the same data. Right now, I'd say that Mr. Klump's model is based on false assumptions and is likely to fail in the face of unfolding realty.
I generally do not subscribe to conspiracy theories, however, I believe the current economic context is very unstable and likely to have lasting and largely unforeseen impacts. Believing that Canada is somehow immune or unique and therefor resistant to the larger factors at play is pure fantasy. The recession isn't over yet, its just taking a breather. I do think the US is closer to being on the road to recovery than Canada is and that much of the damage in Canada is yet to come.
An increase in higher-priced home sales in recent years purchased using wealth, not income, would cause the average price to be skewed upward. This may have caused the price to income ratio in recent years to rise significantly above its long-term average.
Absolutely, the move up home buyer is jockeying for a better home, using the paper wealth (bubble bucks) built up in their previous homes. And as long as there are sufficient first time buyers entering the property ladder, the longer this move up market will continue.
But the first time buyer is a finite market with limited funds, big mortgages and a higher sensitivity to interest rate changes. As a group, they can be tapped out of the market quite quickly. Without this lower rung buyer, the market is left to devour itself for a time. So, I would watch for the anomaly of the "move up" market and the condominium market to move in opposite directions with condo prices falling and upper income homes increasing. Clearly, this movement in opposite directions can not continue and would be a precursor to a price drop in the move up market.
The marketplace would be reacting like a slinky toy cascading down a flight of stairs.
“all the major fiat currencies are on their last legs” ..you may want to reconsider some of your currency beliefs. Granted you’re not alone, everyone always jumps on the reflation bus (especially near peak stimulus), usually hoping for the return of their assets. Couple considerations: M3 money supply is now falling 10% annualized. Incredible when you consider zero rates and the largest fiscal stimulus in history is presently peaking. iow, major currencies from here, should strengthen for years. Obviously, anything valued in those currencies will fall in price - including all commodities, equities, RE. Far more net money/credit continues to be destroyed. Further stimulus attempts at reflation (as Japan has tried unsuccessfully for two decades) take more than a year to ‘hit the ground’ from when they're passed. Moreover, most central banks are already caught in a zero-bound liquidity trap. Besides, you can already see the pendulum swinging with countries like the UK drastically reducing their deficit and cutting 300,000 civil servants in new austerity measures. iow, countries are already seeing the futility of more fiscal follies.
I was on Twitter today and saw a link to a blog written by local realtors. The latest post is the most honest analysis of the Victoria real estate market I have ever seen by an agent.
Please drop by and leave a comment if you agree with their post. We need to support someone who is willing to be candid and does not republish VREB spin!
Currently across all of our VREB service area, we have about 650 more active listings (4,407 this year) compared to last year, and we have for the month of May reported 383 fewer sales compared to last year (496 this year).
These are very big differences during what we consider the busiest periods of the year. We may see a bit of a spike in reported sales over the next few days as many contracts tend to become unconditional near the end of a month, but there is no doubt that our board will be reporting a dramatically lower sales results in their next press release.
Obviously they will try to give it a positive spin, but the number of sales don't lie. Prices will be affected if the number of sales remains at these levels for some time, as there will always be a good number of sellers that have to sell, regardless of price, and they will just continue to drop their prices until somebody buys it.
Bloated levels of household debt threaten to dampen Canada’s economic rebound as consumers focus on paying their bills rather than spending freely.
Household debt has more than doubled from 1989 levels and now stands at a record $1-trillion – or $1.47 for every dollar of disposable income. With the Bank of Canada expected to raise interest rates, perhaps as early as next week, vulnerable Canadians could soon find themselves emptying their pockets to cover higher interest payments.
“The high rate of household indebtedness is a source of risk” to the Canadian economy, the Organization for Economic Co-operation and Development cautioned in a report Wednesday. It noted that household debt has swelled further in recent months – an unusual development. People usually save during recessions.
Not much real estate chat over on KIV lately. Why not post that blog article that Skeptic linked to over there. Most KIV readers don't seem to believe "bears" because we are not professionals. Maybe a "professional" analysis will get them thinking and stop some from making a bad financial decision.
P.S. I would do it myself but I don't have an account.
Off the top, we are Realtors, so I know that we are often viewed as the evil cause of all grief in Real Estate.
One of your members was so kind to insert a link to a recent blog post on our blog, and if you want to follow the link in his post. I am not here to promote us or to repute anything I stated in the post.
Just wanted to put a little perspective to what occurs in many instances, and personally I blame the large media outlets for this.
Often times we hear, view or read something and it starts to live its own life, good or bad, but often not substantiated with any facts.
Let me give an example, every year we go to one of the worlds largest real estate conferences in the USA.
During these meeting we meet with agents, brokers and lenders from all over the world.
It is amazing to hear from the people in the industry what is and what isn't happening. Stockton California, was is major trouble with 3 out of 5 houses sold between 2000 and 2008 either in foreclosure. 60 minutes did a big piece on how the town was in so much trouble....
It created the impression that all of Californiawas in trouble, not so quick now.... San Fransico, Santa Barbara, San Diego and much or Orange County had issues but not anywhere near those reported in Stockton.
What we are seeing now here in and around Victoria is a little bit the same. We have a big issue with reported and unreported over supply of Condo's, it does not take a lot of brains to see that. It is almost impossible to miss all the holes in the ground, and nobody is working them.
At the same time we are selling very specific types of properties faster than they come to the market.......
It is too simple to predict doom and gloom or recovery accross the board. Clearly we are facing a bunch of big issues in the Greater Victoria Area, but according to the rest of the world we are the place to be, so people will continue to come.....
Time will heal many of our current problems in real estate and the rest of our economy, but there is no denying, the two are very closely related. You can't have a great local economy and not also have a booming real estate market.
AS we all know Statistice do not always tell the real story. Somebody on this blog referred to Vacancy rates as reported by CMHC are stats from a very narrow segment of the rental market, so be careful in relying on them.
The same applies to current listing and sales stats as produced by VREB, CMHC, BCREA, and any of the real estate companies.
They only report stats from the MLS system, which for things like 90 % of re-sale property is fine.
The many developers that sell a few properties with the use of the MLS system, but the majority of their inventory as well as sales are never part of any stats that you and I will commonly see reported.
Privacy laws now prevent us to be able to get a complete picture on the market from registrations at the land titles office....
Thank you for noticing our post. Good luck with your blog, and we are always happy to talk honestly about real estate and how it affects us all.
Paul and Linda, its always good to see realtors perspective on things. To be honest, despite your post being long it didn't really say anything. Everyone on here knows that real estate corrections vary by city, and that not all listing are on MLS.
Are you telling your clients that real estate prices are at historic highs, and out of line with rents and incomes?
Are you telling your buyers that inventories are growing to above normal levels, and advise they wait to see how the market reacts to this?
It left me feeling like that 1970's Wendy's commercial
"Where's the beef"
The professional worlds seem to be broken into two camps. One camp uses analysis and statistics to support their opinion. The other is anecdotal and simply say I have 20, 30 years of experience, so trust me.
You look across the table from each of them. One is young and has an Apple notebook with Dora stickers on it, and stumbles on some of your questions; the other is in their early 50's, well dressed and has perfected responses to your questions. Answers that are just unclear enough that you can interpret them to match your thoughts.
Should a realtor be an expert on real estate and an expert on marketing?
In my opinion, it is unreasonable to think a realtor can be an expert on both. Nor is it necessary for them to be an expert on both. Just like a car salesman doesn't have to know how to make a car in order to sell them. I think that's why a lot of us have problems with the posts of agents that visit the site. They can not take off the marketing hat.
If you want to know about the real estate market ask an appraiser. If you want to sell or buy a home, get a realtor.
Oh dear, that is some realtor biased view!! Oh the delusion!! We have issues and they have everything to do with the price of the said properties. They are at all time highs. No, Victoria is unlikely to go through a Stocktoneque crash but what would a 30% drop (comparable to Seattle) do to your innocent FTB?? According to the rest of the world, we might be the place to be (subjective) but we are also one of the priciest cities in the world (objective). www.demographia.com. The fact of the matter is that Victoria just doesn't have the economic fundamentals to support the prices of its houses over the long term. This will end badly.
I must admit, I am a bit addicted to my PCS service these past few days. So many corrections, and not weeny little ones any more; most are in the $50k range all the way up to $150k. What is almost more interesting is the ones that manage to sell, they have healthy price corrections AND they get far below asking. If this isn't a correcting bear market, what is?
We tell our clients to proceed with caution. If you want to buy a condo, and do not need to sell first, wait, until the dust settles, there are many more reductions to come.
If you are moving up in the market, from a condo to a house, sell NOW, because if anything the condo market will be hardest hit for the next few years.
if you are moving lateraly it will make little difference.
If you are downsizing, selling now and renting for 6 to 9 months might be a good idea.
If you plan on investing for revenue, make sure you can somehow add value and revenue to the property (legally).
we have outlined these steps in the post that your fellow member referred to in his post. Again I am not here to sell you anything but to give some perspective.
Happy hunting and live a pfanntastic life Peter and Linda Pfann.
Correcting market is correct, but keep in mind that this time of the year we often see people put properties on the market with a wish to sell, not always a need to sell.
So by the end of June middle of July you may find the inventory of single family homes dropping off substantially and become much more balanced.
Condo's however (new and resale) will see substantial adjustments for the next 6 to 9 months until we see some stability between supply and demand, as wel as some consistency in our economy and provincial politics.
Very recently we have seen most of not all newly announced single family homes sell out in new developments before a fountation was poored so we can not paint all types of property with the same brush.
the PCS service gives you a good perspective on the searched properties, but as is can give a bit of a distorted reflection on the market.
You can only see so much of it in these searches as the results are limited by a maximum number of properties reported as well as by the earch criteria. any (even minor) reporting or notation difference in the method and one or a bunch of properties are not reported.
Happy house hunting, and thanks for reading. Peter and Linda Pfann.
Cool so we have a group of people that feel that things are going to be really bad, and some that think that things will run its course.
The beauty of opinions are exactly that, they are opinions. no point in getting rude about it.
the fact that I am a Realtor and deal with buyers and sellers in our local market all the time and that I am willing to share some of their perspective and their perspective does not mean I am right or wrong, it is just that, opinions.
History also offers us some perspective, and that local real estate history has shown us that even at the worst times the Greater Victoria sees a lower degree of impact and decline than most. while at the same time during the boom years we do not appreciate as fast or as high as some.
Is there a possibility of a total collapse of real estate values in Victoria? I suppose so, however it would require events well beyond the control of any local, regional and or national entity. But they could happen, the fall out would be huge on all levels of society, so at that point property values or even the concept of buying and selling would likely be of such low priority that we will not be talking about houses but survival on more essential levels (food, life and living).
If the past is any indication of the future, we have been due for a correction, but in all honesty and without trying to sound like a sales person but somebody with a house, and investments in real estate. I can't see a total collapse as some of the writers are indicating.
Personally I would like to see more affordable housing and more sustainable and containable housing growth.
If and when the political will actually gets their mind around something we can achieve a great deal so I still have faith that some day homelessnes in our area will be a thing of the past, it would not take a lot of money, just a lot of political pressure.
Thanks for taking the time to post your opinions on this blog. I was the one that found your blog and made the initial comments.
It is good to have different opinions on the Victoria real estate market posted here. Most of the readers are "bearish" on the Victoria real estate market and expect prices to drop in the coming months as sales slow down and interest rates increase.
I hope you continue to post here. Sometimes the discussion gets a little heated but the majority of posters are courteous and respectful in their replies.
Good to see some relatively balanced comments by RE Agents here. Unfortunately some of the statements given don't hold much weight:
i.e."You can't have a great local economy and not also have a booming real estate market."
huh? so by this logic (which is the what is good for GE is good for America argument), Texas, which economically did very well over the past 10 years should have seen the same price increases as elsewhere in the U.S. They didn't - why? controls on speculation.
Victoria is not the only place reporting lower than expected real estate sales this month. Calgary is also experiencing the same thing and prices are expected to nosedive according to Bob Truman, a Calgary realtor.
Not much real estate chat over on KIV lately. Why not post that blog article that Skeptic linked to over there. Most KIV readers don't seem to believe "bears" because we are not professionals. Maybe a "professional" analysis will get them thinking and stop some from making a bad financial decision.
P.S. I would do it myself but I don't have an account."
Now that it is really starting I just don't have it in me to post over on KIV that it is really starting. Why point out to people that some of them are going to get really hurt in all of this? Trust me. No one thanks you for that.
"This is so true... when real estate and construction make up a large portion of the local economy. Thanks for the giggle."
Real estate and construction have a large trickledown effect. If people aren't building, buying new homes, or moving up in the market a lot of business suffer....furniture, appliances, material sales, manufacturing, rental shops, dealerships (people aren't buying huge trucks where all the profit is), etc.
In my opinion, for construction it looks really bad going forward. Lot prices are ridiculous, and there aren't any new lots being developed for obvious reasons - you can't make money blowing up a mountain, putting in services, and selling lots for 200k - case and point - Bear Mountain. If new and resale homes prices fall there will be absolutely zero profit margin driving residential construction down.
Big development has already taken a big hit and with the Falls, Bayview etc... I don't think anyone is going to be rushing to bring any more high end condo units to the market like noted by the realtor.
I think a drop in real estate prices would have a negative impact on the economy in Victoria; however, if you have a cushy secure government job than this would be to your advantage.
The KIVers that don't buy or those that sell now will be thankful by Xmas. Of course all the "happy owners" will go into denial and dump on the messenger.
I guess you have been burned in the past so you tread lightly now. Can't fault you for that :>)
Marko - guess what - in a lot of places a housebuilding boom essentially fed itself, creating more boom as carpenters, developers, REagents and mortgage brokers built houses for each other.
What it did was violate the fundamental ecological law of sustainability - i.e. the population of houses couldn't keep increasing forever and therefore a point was reached where the whole scheme collapsed. Same will happen here to the luxury condos. Yes, builders, brokers and the like will be affected, however their run over the past 8 years was never sustainable.
"carpenters, developers, REagents and mortgage brokers built houses for each other."
You put carpenters and developers in the same category with REagents and mortgage brokers which I like to clearly separate.
Carpenters and developers at least create something that is usable; whereas, Reagents and mortgage brokers just flip paper and fuel a paper economy which cannot be sustained.
Keep in mind other professions have been running scams just as big as or bigger than lets say, Realtors commissions.
One example, and I have many, Optometrist for years have been selling prescription glasses ($15 cost) for $500 or more....why do you think they are always so keen to sell you a pair when you go for an exam? Disclosure: I own shares in Coastal (www.clearlycontacts.ca)
TD Bank is on pace to make $5 billion this year. Canadian banks will be approaching $25 billion in profit this year. Isn't this a ridiculous amount? Disclosure: I own shares in BMO and TD
People question why solid carpenters are making $35/hour but few seem to question why an investment banker is building an $11 million dollar home on Beach Drive.
I can't help but think of the present housing psychology as a formula.
Value a person sees in a home + Belief that home will cost/be worth more next year = what they are willing to pay.
Once part of that equation changes... it's a rockslide of a twist.
Value a perosn sees in a home - Belief that home will cost/be worth less next year = what they are willing to pay.
It seems to me that once the hill has been crested there can not be a plateau.
It sadly looks like there has to be two drops. The first we are in with prices just running out of steam. The next will be the tough one... when the money generated by the constant increase drys up and people loose their livelihoods.
Ya know... I hate booms. Most people just want to put their heads down and work their lives in return for a home and family. Booms are all about people that would rather play number games.
when the money generated by the constant increase drys up and people loose their livelihoods.
Money isn't generated by the constant increase, which is why the bubble eventually fails. It's just a Ponzi scheme where the returns from the earlier entrants are at the expense of the later entrants.
Funny thing Marko, when I was in construction lots never cost half as much as they do now. Amazing how houses were worth 1/2 as much only 4 years ago. Last time I looked Langford was full steam ahead in the development process. Construction will slow down big time for a while because the low interest rates have used up all of the future projects.
BTW, $35/hr is crazy for a carpenter. Experience, education and responsibilty doesn't support that. Don't bother arguing, at bear beers when this is all over I will gladly put my TQs on the table.
This is that "realtor" guy again. Just wanted to share something with you. it the link works, it will give you access to a pdf file with an historial overview of real estate activity as reported by the Victoria Real Estate Board of multiple listing service average and median sales prices in the Greater Victoria area, starting in 1988 to date.
Have a look and give me and this very interesting group your feedback and interpretation on price increase trends as well as price decline trends in the past, present and future in and around Greater Victoria in relationship to "A Simple Question".
Well, I don't know how different it is now. Different from the early 80s that is. We have extrememely high prices that irrationally far out strip economic fundamentals. And we have interest rates set to increase. In the next year we are predicted to see a 3% increase, which is a 27% increase in mortgage costs, far FAR greater than what triggered the 80s crash.
The realtors are trying to to push the 90s style correction where prices stagnated and inflation caught up as the only scenario (as the link shows). The economic conditions point to a drop, and the banks agree.
Between 2000 and 2010, inflation (i.e. wage increases) has been somewhere in the neighborhood of 2%in Canada.
It is well documented that since 1900, housing as an investment has provided a return of approximately 0.5% after inflation.
If housing prices had been allowed to continue on the long term trend generating a net after inflation return of 0.5% and using 2000 as a base (just before the CMHC started exposing Canadians to 35 year, 5% down, mortgages and insurance on all residential properties), current average house prices in Victoria would be somewhere around 310k. (243,455 compounded @ 2.5% for 10 years).
With an average family income of only $60k in 2010 in Victoria, 310k for an average house is still regarded as EXTREMELY expensive for housing at roughly 5x the average family income, but is probably representative of Victoria as a "Premium" place to live in Canada.
However, at $624,000 and 10x average family income, house prices are double what they should be. The CMHC made it too easy to borrow large quantities of money and now the average family will probably have to pay 2x the up front price and probably make 3x as many payments over the life of their mortgage.
Buying a house in 2010 in Victoria or Vancouver = voluntary slavery for life.
Many people seem not to understand the long term implication of a high asset price when you have to use leveraging to buy it. In particular, I think that many people in the business (Realtors et al.) do not understand it. Prices are so out of whack with income in this city it's beyond my grasp.
My annual salary is a fair bit above the average family income in Victoria and I would not be willing to spend more than 5 times income on housing. It's crazy, especially considering the quality of house that you get. If I apply the max I would be willing to pay, to the Vic market, I would live in a shag (that is what 400-450k gets you). I rather have a more rewarding life style than that thank you very much.
If we get a 15 % correction from current numbers, prices will still be in the range of 7 times average income. I am not going to stay in Vic long enough to buy here anyway but I find it truly fascinating to follow this market because of how outrageous it is.
OMC, Not sure what I have to do to give you a different perspective of what the facts say.
This is 22 years of continues local real estate activity covering a variety of of property types.
It is all that we have on our system. it may not make you happy, but it is not "cherry picking".
If you want to go back further and review the real collapse around 1980 to 1983 in most of Canada, you are correct we do not have those numbers on the system because they are pre computer era, and nobody ever converted the data for it to computer use (in our board at least).
But even if we did include the collapse of the late 70's and early 80's values, sales numbers and construction has since recovered and surpased and out paced those previous highs by huge margins.
Not to forget that we had 20% + interest rates, double digit inflation accross the board and an economy that was going "nuts" around the world.
Not just a bunch of crooks stealing from everybody and finding a way to get some aid money as well, becaus times are so bad.....
If we want to complain lets do so in the direction where it belongs, big money stealing (both corporate as well as government) from the rest of us the little guys.
One thing that is so missing in Canada is a real independent consumer advocacy orginazation, not attached to politics, government or the corporate world.
most of the big stuff we all get upset and vent about is being ignored and nothing happens. So we get to only see action and reaction when we complain and vent to each other..... I think the Romans called that "divide and conquer" I guess history does repeat itself.......
My conclusion on the "Simple" question is this.
IF, and I am not yet totally convinced this is the beginning of a major adjustment. But lets for the moment say it is the beginning of such decline.
I think this decline to a new balance will last about 2 to 3 years and will be have a few property types bucking the trends. In addition I predict it to be a soft landing situation, as seems to be the type of decisions most levels of government and commerce are making.
We can argue about all kinds or minor side issues and nit pick about definitions but in general the biggest risk area in our local housing stock and its values are without a doubt the condominium market in most local areas around Victoria.
Other concerns in the housing market for individuals include lease hold properties nearring their end of lease term period (less than 25 years remaining becomes almost impossible to finance.
the trend towards reducing communitng times by home owners, may create inventory surplusses in the more rural areas currently used by many commuters.
The rapid greying of our population and the changes in needs for housing, services and the availability of those types of housing and services.
The book bust boom and echo a number of years ago indicated many of these issues, and a few more, it is very obvious that times are changing more rapidly than most are willing to accept....
Happy changing you all, and live a pfanntastic life Peter and Linda Pfann.
Thanks, Pfanns. I agree that there are a lot of people that do want to divide and conquer.
Just like nay other profession, there are individuals with good and bad ethics. Often times I think the perception is that realtors will paint any scenario as a good time to buy or sell and that has hurt their credibility.
The saying "It's impossible to get a man to understand something when his paycheque depends on him not understanding it." says a lot - I think may well-intentioned realtors don't want to see the big picture, so ignore it or do nto really try to understand what is unfolding - to their eventual peril.
That said, there are good realtors, too. I think we can all agree on that. Ultimately, we are all trying to make a living, and those who do that honestly deserve our respect.
I very much appreciate respectful dialog with realtors and I appreciate your input.
you are correct that paying more for housing than what works for you is the right thing to do.
I sometimes feel that I need to defend our business and industry. Not that I agree with everything our industry represents, and in fact for the past 26 years I have been a bit of a rebel in our business trying to change things from the inside (not that easy to re-invent the old boys and girls club)
I do want to point out and I am sure you are all aware of this that market value of any commodity traded in a free market is not determined by its traders (realtors, stock brokers etc.)
but by buyers, sellers and those that finance the transactions.
Not sure if we even legally could attempt to control pricing or values without breaking a number of laws (agency, competition act, and a variety industry related acts like the real estate services act to name one.
So although I understand your point about the high asset price and its relationship to income and basic common sense to not over extend yourself, I am not so sure that we "the people in the business" have any real influence over it.....
In fact I am pretty much convinced that we "the Realtors" have much less influence over property values than for instance the banks and lenders.......
As most buyers that are in need of financing anything to buy, will often buy up to and sometimes over the realistic afordable level of monthly payments that their lender will allow....
The reason why CMHC changed the rules a number of times over the past few years, is that initially they wanted to allow more buyers to enter the market (based on pressure from the lenders).
when CMHC realized that this was going to blow up in their face, they reversed a number of their new options and have now further changed the rules and require much more compliance to realistic rates and qualifications.
I am not trying to wash our industry from any responsibility, but in all honesty our influence is much smaller than most people think.
Although it is next to impossible to predict exactly how much prices will fall in Victoria over the coming years from my perspective there are two major driving forces behind the future price declines: - Lower borrowing capacity - Financial difficulty facing existing homeowners
The first force is the one that has driven the market over the last 20 years and there is lots of data to support what will happen here. If we assume five year mortgage rates rise to 5.5% by the end of 2011 (aligns with most economists bond yield forecasts), then the average family will see their borrowing capacity reduced by about $100,000 over March 2010 levels. Given that people prior to April 19th were using VRM’s to secure higher borrowing capacity and people were able to borrow substantially more if acquiring a home with a suite, I would estimate the “average” buyer in Victoria could be looking at a $150,000 reduction in their borrowing capital by the end of next year.
Using a $570k medium SFH price as the recent peak (average of the last five months), this would imply that a rise in five year mortgage rates to 5.5% could result in a 26% reduction in housing prices by early 2012 (always a time lag from rising interest rates to impact on actual prices – most sellers are slow to recognize these trends). Now if discounted five year mortgage rates rise above 6%, things are almost assured to get ugly. IMO, the only way these price reductions can be avoided is if the government changes the borrowing capacity rules for mortgages (which you would think they would avoid given that they just made changes on April 19th) or somehow incomes increase.
The impact of existing homeowners in financial difficulty is too hard to predict or forecast, but it is reasonable to assume that the higher interest rates climb the bigger the impact. If a large number of homeowners need to or are forced to sell their real estate and the buyers are not there in volumes (as they have been recently with these emergency interest rates), it will drive prices down below the borrowing capacity level discussed above. This is what happened in 1981 when interest rates rocketed and people simply could no longer afford their homes. I think this factor will become significant if and when interest rates exceed 6% as prior to that many people can reluctantly cut their spending and sell other assets to keep their homes and we need lots of people listing their homes to see a material impact on the market.
In summary my prediction for SFH price declines is highly dependant on what happens to interest rates, but a decrease of 30% and even 40% is possible if discounted mortgage rates climb above 6%. But I think it will take at least two years for us to get there.
I feel like you are making me sound like an exremist, where as I am one of the more modererate on this blog. I do get a bit hot under the collar with the industry and what I feel is its intentional misleading reports though.
The Facts:
Lets look at a gordon head box. The affordability level was at 17%, but rates went up to 21%. The change in mortgage carrying cost was about 18%. That is the same as a 2% increase now a days due to ultra low rates and monster balances. Try it your self with the average buyer having a $600k mortgage, and then increase it by 2%. The BoC and the banks say to expect up to 3% more for the prime rate in the next short while. That is an increase in payments of a staggering 27%. Some how house prices that are way too high will not be affected?
It would take me only a few minutes to enter the data from the 70s to 1988 into that chart; if it was to the realtor's advantage they would have. It shows the correction that that is predicted by most economists and the banks, a drop.
One thing in this town to watch is rental stock. If we get an over supply of rentals on the market due to condos being switched to rentals or simply an out migration of people, many current SFH owners counting on suite $$$ will be stressed. So many of the new buyers only were able to buy in because of secondary suites.
SORRY omc, I did not feel like you where attacking me or the industry, so sorry if I offended you.
your calculations are off course spot on.... ther is no doubt in my mind and many with you that we are at a major affordability cross road.
It would appear to me we all agree on it
The other part I am not so sure off is not so much the values, the payments, the rates etc. it has more to do with the sense that lenders will never want to end up owning more real estate than they absolutely have to, without getting a payment stream from it.
CMHC can only cover so much and as such once we are seeing the number of defaults on mortgages increase to the degree that banks and CMHC start owning more than what they can or want to, do you not expect some major intervention to soften the impact you so clearly and accurately indicate?
I saw the after math of the 80's collapse, and it took CMHC more than a decade to recover after the market had long bottomed out, I am pretty sure they do not want to go anywhere near thos types of situations ever again.
Happy hunting, and sorry about making it sound like I attacked you not intended, this is way to much fun .....
"Not sure if we even legally could attempt to control pricing or values without breaking a number of laws (agency, competition act, and a variety industry related acts like the real estate services act to name one.
So although I understand your point about the high asset price and its relationship to income and basic common sense to not over extend yourself, I am not so sure that we "the people in the business" have any real influence over it..... "
This does not make any sense. The price increases are due to policy (mostly what I think of as lax lending criteria) that was invented to prop up the market to unsustainable highs. Someone will pay for it at some point. If prices don't correct "the people" will pay for it since they are committing a much larger amount of their income to shelter. If cost for shelter increases by a large amount, at some point (a long ways) down the road, people will have to pick up that slack (by lowe living standard or reduced wealth). If you are buying now, you are borrowing from the quality of your future.
Then your life is not so pfanntastic anymore, is it?
One problem with any data from the past is that it's broken. No fault of the data, but we've seen the all of the variables around the data change over the last 10 years.
If lending conditions stayed stable since 1970 then I'd put a good chunk of weight on the data information and throw in a bit of baby boomer drop off into the equation. Lending didn't stay stable so each change means the data is now comparing apples to oranges, then to pears, then on to bananas.
As mentioned by others, we're all caught in the middle of the games of kings and housing is just one small piece of the mess.
One more small rant on any data. Somewhere all data has become suspect in my opinion. It's become an easy way for powerful people to make a killing.
Find out what data people use to make financial decisions. Then put half your money on the line and the other half into lobbying to have rules changed to open that area up for greater growth. People will believe they are still playing by the historic rules, but really it's a whole new short term game.
I'd guess the data is probably OK. The main issue appears to be interference from interest groups (as Inglishmagor suggests).
I think that Pfann could be right and we might see a soft landing. The government and other interest groups are likely trying hard to achieve this to avoid economic chaos (noone wants CMHC to pay a lot of money). Governments put all these stupid incentives in place to have short term fame for a strong economy - not just recently but rather over the last 10 yrs - and now they have to deal with the repercussions. Who knows what we see. I would bet that we see more gov intervention once we start seeing a troubled housing marked since they are scared about what happened in the US and don't want to see anything like that here. But that could mean a long inflation driven down turn.
In addition to data (this is the mathematician in me speaking):
The biggest problem IMO with the data is the interpretation and the spin that is put on it. Many people are challenged by looking at a simple graph. Now try to get them to understand long term trends, rolling averages, means, medians, confidence intervals,...
It does seem that condominiums in the core municipalities are getting their butt kicked. Although the number of sales are up nearly 30 percent from April, prices are down 6 percent.
Compare that with houses in the core municipalities. Sales are down 13 percent but prices are up 5 percent.
FYI condominium sales constituted 46 percent of the house/condo market.
To me, this appears that condominium owners are trying to off load condominiums quickly. And the detached home market is showing a "move up" market.
Obviously, you can not have condo prices continue to decline and the price for detached homes increase. You are simply stretching the elastic band to tight. As condominium owners are falling behind in their ability to buy a house. There does seem to be a feeling of desperation in not being able to buy a house, despite the increase in house listings. I suppose, people are fearing that if they don't move on to a house NOW, they will not be able to with the coming higher interest rates.
So, again we are back to an irrational market motivated by fear. The other thing is that some of these listed higher end homes are - vacant! Where did the people go? It seems that there is just a lot of shuffling around, as one previous poster said, its a game of kings.
It's a strange world, when people are willing to pay most of their entire life time income to buy a roof over their heads. That is a massive miss-allocation of income as people continue to underestimate the risk of holding real estate.
If we have a decline of 20 to 30 percent in prices, I think you will see people walking away from their homes and declaring bankruptcy. That's when things will really start to rock.
Someone will pay for it at some point. If prices don't correct "the people" will pay for it since they are committing a much larger amount of their income to shelter.
But it's "the people" who are responsible for the high prices in the first place, because they don't have to buy.
Buyers aren't victims, they're the cause of the problem.
"Buyers aren't victims, they're the cause of the problem."
Of course they don't have to buy but they will if the incentive is deceiving enough. Hence the tremendous success of government prop up in the last decade. The average buyer will not understand long term implications of their actions. In addition, you may not like calling a buyer a victim but if there are enough of them, you can bet your house that the government will treat them as such. Could gov be successful in "rescuing" them? Who knows. If the US is any indication then not and it will just defer the problem.
interesting - the number of homes listed 450-500K on the market has almost doubled (28 to 54) since May 1. Since this is the low end of SFH on the market (and the sector that was previously selling almost as soon as listed), the impact of the April 19 changes for qualifying to CMHC might be occuring. This would mean that a portion of entry level buyers have disappeared.
I'll let others fill in from there.
Patriotz - on your post above, I disagree - a large portion of recent buyers acted fully logically based on psychology, peer pressure and trends. What I feel that you miss is that people only view the economics as a small part of the equation in their decision. This is unfortunate of course.
Placing blame on the individual for following the herd is neither compassionate nor helpful. Significant blame (and legal retribution) should instead be placed on the brokers, REagents, CMHC, politicians, developers and the like who pumped the system so much that a huge number of people are going to be permanently indebted.
"Placing blame on the individual for following the herd is neither compassionate nor helpful."
Maybe, but it makes me sick that my taxes are going to be paying for their mistakes for the next couple of decades. If more of the herd had done more research into the realities of the housing bubble they would not have bought and prices may have stayed at a level that could be supported.
As it is there is going to be a crash and the government is going to owe the banks an obscene amount of money via the CMHC. The herd blew it and I don't feel any compassion for them or their granite counter tops... Sorry.
Phil - I feel a lot of compassion for those who purchased recently and who aren't speculators or investors. If it weren't for a friend letting me know about the Cheap Realty blog a few years ago, and then learning about finance, economics and the housing bubble/crash from Tanta and Calculated Risk, then when we would have likely purchased when I got a permanent position.
It is the education provided on-line that saved (I project here) me from basically going under water on a 50% overpriced Fernwood bungalow. Good friends of mine have bought. Do I hold their decision against them? No. Will I have compassion for them and others in their situation when (if) prices come down? Definitely yes.
Do I have compassion for the brokers, developers, etc? Definitely no. Do I think their should be culpability for the politicians who gave in to the lobbying to open up the market to American sytle mortgages? Yes.
It's easy to blame the herd mentality. It's also easy to overlook that we are a herd. That's why our entire society rests on the structure of a hierarchy. The sad part is that those in charge haven't been looking out for herd as a whole.
a large portion of recent buyers acted fully logically based on psychology, peer pressure and trends.
There's an oxymoron for you.
Is it some kind of secret that prices in Victoria, and elsewhere in BC, are just as inflated as were the most expensive parts of the US (you know, that place you can see across the water) before the bust? Is is some kind of secret that Seattle never got anywhere near as expensive as Victoria is now, and is down over 20% from peak?
There has to be some point where you have to stop making excuses for people being fools.
Aside from the developments where all work has stopped (2 off wale rd in Colwood, one @ colwood Corners for example) We all have read about Bear Mountain, Bay View and The Hudson.
Reflections still owns a good number fo the suites and has rented a number of them (hoping that things will blow over, The Falls are in the same position. Aquatro in the Lagoon area is in trouble from all the signs and lack of actual progress. That is just a few.
The developer @ Bay view said on the new the other day (rather casually) that oh they had miscalculated the demand for the larger sized suites and where discounting 2 or 3 DOZEN of their suites by 50% and by the looks of it, those are 36 suites that are not on the MLS system. Who know how many more they still have, on the mls system right now there are 19 for sale with an average price of about 670K guessing that the ones they are talking about are bigger than the ones on MLS. Say average 800 K and they dropped those by 50% x 36 that is a wipe out of over $ 14,000,000 Pretty sure they did not do that for fun ;0). and how do the few peopel that did pay full price feel about that exactly..
This is where it gets scarry as these things start living a life of its own and mushroom thru the rest of the regional market.
Many regular people will get hurt along the way for no real fault of their own, all they wanted is a nice home/suite and live a comfortable life.
Those that have bought in condo buildings in the last 2 to 5 years with financing, are facing a potential whipe out of much if not all of their equity and reserves over the next relatively short time.
Many will have to refinance now or in the near future and are likely to see higher rates and lower if any equity in their properties.
Potentially even loosing their home all together.
Forget about who is to blame for a moment, just think about the emotiotional impact, the personal drama and loss.
These are very real and personal traumatic situations in which many good people are going to get hurt and affected for the rest of their lives.
The sentiment that I read in many of the posts here and elsewhere is that we like to point fingers to someone or some thing as being to blame, and yes in order to fix something its important to know where to start with possible fixes.
Much more immediate and more important is how do we get to a point where we can prevent those most affected regular people (home owners) from getting hurt, and prevent it from happening to others in the future.
Most people that we work with on a day to day base are just like you and me, they don't buy or sell with making money as the main reason for the move.
Some much more important reason is typically at the core why a move is being made, many of which are traumatic. Death, divorce, loss of income, transfers, age related changes in needs, a need to sell to pay for high cost of medical or care expenses, just to name a few.
We had conversations with many of our clients back in 2007 suggesting for our clients to adjust their thinking and expect a 4 to 6 year roller coaster period, we are now in year 3 and we really have not seen any significant reason to change our predictions
It is clear to me that we are seeing the market place adjust and correct to a more affordable level, and that is a good thing in the long run. It is my hope and wish we can make it a soft landing rather than a sudden crash and burn.
Nobody benefits from a real collapse (par from a few real sharks)
My questions to you all is; how do we fix it.......?
As the old saying goes, when we point one finger, ther are 3 pointing right back at us.....
Coming up with solutions is much more difficult and requires a shift in thinking towards creativity, breaking new ground and adding value to the future of the community.
Live a Pfanntastic Life, and happy hunting for solutions Peter and Linda Pfann
Your insight and frank discussion on the local condo market is much apreciated. I had assumed the condo market was shaky, but not that bad. I think we all know people who will be hurt when the market corrects. As someone with a young family, I know many other young families that are already in trouble. The best quote I have seen is from a Vancouver bear "housing bubbles hurt families".
We got into this mess by following the rest of the world's lead. I remember reading a report aimed at Americans investing in Canada; it stated that you should avoid any investments in real estate as we had not had our market correct yet. Having borrowed buyers from our future markets, with affordability levels equal to the prebust days of the 80s and interest rates that can only go up I cannot see a soft landing. No one else has.
At the start of the bubble I was in university, so we never got a chance to buy a house. My family is now well within the top 5% of earners in the country but some home owners treat us like we are lower class as we rent. Government policies to maintain unafordable levels hurt families like ours.
Ya know what I think....let the market run it's course. IF people get hurt it will be because they bit off more than they could chew. It was basic math when they applied for their ridiculously low variable rate mortgage with 5% or less down.
Fact is and this is FACT....the MSM, Realtors, Mortgage Brokers Bankers etc who all had a vested interest/stake in the market continuing to climb to these absurd unaffordable levels were preaching the same BS....."It's Victoria, RE will never go down, get in now or be priced out forever. Everyone wants to live here" Give me a break!
As for the speculators and we all know there is a whack of them out there.....screw them!
I'm sick of this Realtor and all the rest of them. At least this one sees the forest through the trees and isn't entirely speaking out of his ass.
A big correction is necessary and the quicker the better I say. Affordability needs to return to Victoria.
Enjoy the rain folks! I bet there are a few people from Alta and TO wondering what the hell they were thinking retiring here right about now hey? Same ones that bought those units in the Falls and Bayview for 50% more than their neighbours LOL!
I think Phantastic boy is looking for us all to do a group hug or something and solve the world's problems. Ain't going to happen as most of the people here that have their sanity and are actually intelligent enough to know this has all been one giant Ponzi scheme created by your fellow realtors etc will finally be vindicated. Empathy? Sympathy? Please, these idiots that are going to lose their houses because they couldn't afford them in the first place (not including those that lose their jobs of course) deserve it for being stupid!
Go back to putting 25% down to buy real estate. This idea that everyone entitled to own a house has caused most of the problems. I blame government meddling in the market through the CHMC. Now it's too late the bubble is blown up. They are hoping to deflate it slowly.
"Many regular people will get hurt along the way for no real fault of their own, all they wanted is a nice home/suite and live a comfortable life."
Actually most of the buyers I know were happy to boast about how much their homes were worth and how I was a fool for not buying. Seems like they were interested in a little more than just a "comfortable life".
I agree with a lot of what you are saying, but I think we should all avoid calling a group of people demeaning names - it doesn't lead to any constructive dialog that could provide all of us better understanding - this includes the realtors better understanding the sentiment of many in regards to their pressure tactics.
I have had a few different realtors, and they were very different types of people. My realtor here is a very nice person, almost to a fault. My last realtor, well, less so.
I do very much agree that the united front of "it is different here" and "buy now or be priced out forever" etc. has really hurt their credibility as intelligent people listen to this and think, "Wow, this is your job and you really don't get it, do you?". or maybe they just get the part of it that lines their pockets (some).
At any rate, all professions, trades, job etc try and put the most positive reflection on their product...some may misrepresent this to a degree where the actual situation gets cloudy...these people that blur the truth will be the ones looking for another job soon enough as people remember if they have been taken for a ride, especially if it was the biggest purchase of their life. Those who were forthright, had their eyes open to all changes, and honest will be respected, trusted and will retain their jobs.
Ultimately, though, if we sign the dotted line to buy a house, it is our decision to do so, no-one else's.
so if somebody asks for direction, solution or assistance to solve a big issue, your solution is to let them suffer because somehow they deserved it.
To me there is little point or benefit in some of the hostility, anger and personal attacks.
I gladly offer my perspective and honest personal responses to postings here. I love a good debate, but let's keep it constructive and courteous.
Just sharing my experiences, stories and perspective as a Human being with a real estate license and having lived in and around Victoria for the past 20 years or so
Live a Pfanntastic life is a way for us to remind people to live life to the fullest.
my personal pespective on 2 totally different markets
born & raised in the Netherlands, where the fast majority rents rather than own real estate, and although there are many incentives for people to buy real estate (including 105% financing and 50 year amortizations) it is nowhere near as common to own versus to rent. The standard of life and incomes in Europe rivals anything in North America, but home ownership is not as high a priority as it is here, for whatever reason (buying new cars and wearing designer clothing appears to be a higher priority)
Now I would argue that a lot of this difference between societies has a lot to do with generations of people wanting (or being told to) to work towards the American Dream of a house with a white picket fence.
In Holland the majority of residential Real Estate is owned by pension funds from either government and or large corporations. there is also a significant percentage of some form of subsidized housing in one form or another. People tend to treat their "rental" home as theirs for life, and do not move as often as they do in North America. Buying real estate in Holland is as easy as it is here and property values follow the open market very closely, although there are more government controls for example entry level homes being made available homes only to those with lower incomes (not to speculators).
Not to defend Realtors but lets take a closer look at what a typical realtor looks like
It appears that a lot of people give us Realtors entirely to much credit for having any direct or even indirect influence on what happens in any market
Here is a profile of the average Realtor. It takes a max of $3,000 & about 6 month of study to become licensed, all multiple choice assignments and exam, that teaches about calculators and law, noting about houses (one chapter) or business (let alone controlling the market).
Once Licensed we are to attend 18 hours of mandatory education every 2 years (mostly stay out of trouble stuff).
The average realtor in BC sells less than 8 properties a year and last for less than 3 years in the business. There is very little if any real "business" training or education for realtors, (based on these averages many realtors do not qualify for a mortgage ;o)
Today there are approx. 1,300 active members at the Victoria real estate board & approx 12,000 realtors across the province.
The majority of agents in the business are coming from a different career and relatively few have ever owned or operated a business prior to becoming an agent.
Although all listings are with the agency an agent is with, it is mostly viewed as an independent busines by each and every agent under the umbrella of the agency.
A problem with some realtors is that they know enough to get themselves and sometimes their clients into trouble, but often not enough to keep their clients or themselves out of trouble.
As in Many other industries we are mostly self governed under the ministry of finance by way of the real estate services act.
most realtor related disputes are solved at the respective real estate board, a real estate council hearing and or binding arbitration.
Our errors and insurance fees are relatively low at $ 500.00 for 2 years, (indicating that we are at least in the eyes of insurance companies a low risk)Lawyers and Doctors (also mostly self governed) will often pay as much as $ 500.00 per month in liability insurance.
Again, the reason I am sharing this is not to excuse bad realtors and or bad actions by good realtors. I am just trying to indicate that we do not (as a Group) have the incling, ability and or savy to do half the things we are being implicated with doing...
By the way the assumption that we benefit from ever higher property values are not entirely correct. sure we might make a few more doller on a higher priced sale..... But if it causes grief, and or agony, we will never work with those clients again.
For most established agents it is very much about what is right for the client and their situation in their life and not about the quick sale (although it is often the result).
We (as most in and around any business) benefit most from a healthy and active market with balance and stability at any price point.
I hope that gives a little perspective on who and what "realtors" are as a group.
The image created by ads from CREA, press releases from boards, companies and various other entities, portraying to be representative of the industry, but I can assure that most of the people I know as Realtors complain bitterly about the nonsense they are putting out, and we write to our boards, CREA etc all the time to make them stop the BS.
So far we that do, are still considered the complainers and rebels, but we know how much time and effort it takes us every day to deal with correcting the garbage they put out, and this keeps us doing it.
In fact agents, talking frank about our industry run a risk of being reported, fines and reprimands for violating a bunch codes, rules and regulations.
We are supposed to all agree or shut up....... I guess, we might be in trouble (oh well).
The Govt and CMHC didn't do this on their own. The scumbags above all played their part in leading the sheep to slaughter.
The difference is that the "scumbags" are all profit-making business and are doing what all businesses are supposed to do, maximize profit. You can't expect them to act any differently.
Only the Government has a duty to look after the public good.
But the ultimate blame lies with the public at large. They wanted inflated RE prices and that's what they got.
Peter&Linda Pfann: "It is my hope and wish we can make it a soft landing rather than a sudden crash and burn."
Do you think that a soft landing will be better than a hard one? Markets that remain inefficient are a net drag on long-term economic growth. I'll take the "ripping off the BandAid all at once" option, thanks.
I hear you, and yes for the economy ripping of the bain aid would likely be better, but likely more painful and cause more problems for individuals (and I personally focuss more on how thing impact individuals than large groups).
however I would agree with you that as a whole we would likely be best off if we could flick a switch and move the elevator to whatever floor we need to go down to, and start anew with hopefully a whole bunch of lessons learned to prevent a fast repeat.
As I am writing this, I start thinking, that a fast decline would possibly benefit the real predators more, as in those type of situations cash is king, those with the cash pick up the pieces and reap the biggest benefits....
As you can tell I am on the fence on this one. but would lean towards a soft landing given the likely alternatives and real human trategies that will follow (not that a soft landing will be without problems, but I am guessing fewer than a fast collapse.
That did not really answer you, but I think it illustrates that there really is nothing simple about any of this is there.
OMFG how do I block this Phanntastic guy? What a bunch of drivel....
Mark,
so if somebody asks for direction, solution or assistance to solve a big issue, your solution is to let them suffer because somehow they deserved it.
HUH??? what does one have to do with the other? These sheep were brainwashed by people just like you! Were you warning your clients of an impeding disaster in the housing market? I highly doubt it and in fact firmly believe you were preaching the same hype that the majority of realtors were preaching for the past 7 yrs!
Just because you now have openly come out and questioned the markets continuing to go up (all after the fact and stating the bloody obvious) gives you Little credibility in my books.
I will be the first person to step up and help someone that needs it. Advice? I have lots of it and in fact have been giving it for quite some time regarding housing. Guess what, nobody was listening. Why? Because of the HYPE and BS that your "profession" (I use this term very loosely) were spewing.
5% down and 35-40 yr amortization @ 1.75% on a 600k + home in Victoria is stupid, irresponsible and deserves to be bitch slapped! How many realtors, mortgage brokers, bankers etc gave their clients "advice" to spare them any future pain that most of here knew was coming?????
I rest my case. No not all realtors are scumbags but any realtor that was telling folks that Vic is different, that it's great investment, that prices will never come down, that everyone wants to live here etc etc etc.....should be held accountable.
I am holding your profession as accountable as the dumb ass Government types that thought creating a "false economy" was a good idea.....It was nothing but smoke and mirrors.
Your touchy feely crap about solving this problem is nothing more I suspect than an effort to generate some business for yourself.....kinda the good cop in the good cop bad cop routine IMO.
I ain't buying and I'm surprised others here aren't seeing through your BS.
Take a deep breath, slowly exhale and try to relax. There is no need to make personal, caustic attacks on other posters.
Peter has come here to give us his point of view in a constructive and courteous manner. Maybe with a little more flourish than we are used to but pleasant none the less. Please try to treat him and the rest of the posters on this blog with the same respect we show you...
I was the one that found his blog and saw that he was one of the only realtors in town that was admitting that sales are down and that the market is cooling off. I posted a comment on his blog and a link to HHV and he has decided to join the discussion. His analysis of the condo market has been very interesting and I appreciate reading comments from someone in the industry.
As you and the other readers know I am a confirmed bear and very skeptical of most claims made by professionals in the real estate industry. Many deserve criticism but let's not tar everyone with the same brush.
By Allison Jones, The Canadian Press ADVERTISEMENT
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Mark, I am sorry I upset you so much, not sure why but that is okay.
With all due respect you do not know me or know what and how I work and or advise my clients, so to judge me personally in the manner in which you do seems not only in-appropriate but not called for.
But is not about you or me, or realtors it is about regular people without any primary objective of profit or gain being swept up in the troubles caused with over supply, greed, poor planning and timing.
This is the 4th time I have now personally seen this type of cycle occur and every time it is the innocent guy that gets hurt the most.
Nobody feels sorry for the big developers and builders that keep on building as if there is nothing wrong or to worry about hoping against better knowledge.
My hope is that we somehow find a way to stop repeating the same thing all over again on the next waive
Sorry if I have offended you in some way, it is not intended. trust me just giving a little perspective and honest "open minded" constructive dialogue.
So if you don't mind Mark, can we stop the silly personal attacks and move on, I am not your enemy, in fact I think we both basically want the same thing.
A better more afordable balanced housing environment for a larger proportion of the population (at least that is how I read the context of this blog).
"that a fast decline would possibly benefit the real predators more..."
Well possibly but it's not necessarily true that buying something for a low price is predatory. And a huge decline would not benefit banks, probably in aggregate the worst "predators" of the lot.
I think it's a mistake to socialize the losses when the gains have been privatized. If you want to truly "heal" a society there needs to be pain. The predators are the means used to return the market to normal and aren't necessarily the devil incarnate. I'm not sure who's causing more of the problems: the predators or those who think more debt is the answer. Take away the latter and the former starve. Perhaps they deserve each other.
If you like to base the biggest financial decision of your life on facts instead of rhetoric you might want to read the latest post on AmericaCanadaBlogspot.com
As usual Jonathan Tonge lays out the facts on the Canadian real estate market.
Sharp leaps in inventory in all cases proved to be devastating for the housing market. They are strong signals for a market peak as home sales quickly fell thereafter (making the spread even wider).
What has occurred in 2010 to listings is simply unheard of. The slope of the new listings line is incredibly steep. The only year somewhat comparable was 1989.
The real estate boom is over in Canada and a correction is underway NOW.
DejaVu - its May 2008 all over again. I predict prices in Victoria will keep dropping at 2% a month just like they did in 2008.
Okay let me clarify the term "predator", in the context of my statement.
those people and companies (from anywhere in the world) with bundles of CASH and buying anything (not just real estate), waiting in the wings for those desperate to sell, and have the patience once they own it for markets to rebound which occur often as fast as they collapse and then cash in with huge profits.
By the way, that has supposedly already happened recently when the entire Hudson development was rumoured to have been sold at a massive discounts.
There are people in this and other blogs that refer to " a return normal" which seems to imply that what we have today is abnormal or a-typical.
It may be many things, but the current conditions are part of a very typical cycle in real estate and society. Sure there may be a few twist and turns that appear to be different this time around. But over the period of time that I have researched business, market conditions and real estate in particular you will find a number of 7 year cycles, a few 10 year cycles going back to the early 1900's
The current cycle (and I know some may dis-sagree) started after the last serious adjustment in and around 1995 and came to an end in 2008, and then locally (and in most of BC) sputtered and gave the impression as if we where in a recovery and the start of a new cycle, but for those with a bit of insight, many knew that we where on borrowed time between 2009 and today.
I believe our "correction" was delayed due to the huge amounts of money poured into province by way of the Olympics and the buying of labour peace by the province.
that may have given many the impression to many that we had been saved from the problems felt very hard elsewhere.
By the way it is also the reason why I think we will are more likely to have a soft landing, as now the rest of Canada is feeling the recovery, many are now able to sell where they are and consider moving to paradise (which is where we live regardless of the price we pay for it)
this may be a bit of a simplification, I know that, but you get my drift.
Enjoy your weekend, and have a little fun with your family and life in general, and thank you for the interaction.
These people are less pejoratively known as "market makers", and they do a favour to the sellers in down markets, who otherwise would have to sell for less, and the buyers in up markets, who otherwise would have to buy for more.
I'm a bit concerned with the term "predator" because it implies nefariousness. patriotz is right -- who would buy from these poor sellers at the depths of despair if not the predators?
Again, I disagree any sort of culpability be given to those looking for good investments. My offering a low price for a property is not the problem; it's the fact that someone made risky or unhedged choices and has to liquidate. Life isn't fair and unfortunately I can never be sure if a sad-sob seller story is actually true anyways. That is, while a family may be in ruins there could be details that precipitated the situation that would make a buyer less sympathetic. I just don't have any way of knowing and can't go through life assuming perceived morality deserves a premium.
With real estate there is usually no direct interaction between buyer and seller; offers are typically presented through a Realtor. So relatively few emotional negotiation "tricks" can be used by me or the seller directly, unless they are passed on by the Realtor to elicit a sale. So who's the predator in this case?
Would it be more moral if I make a low offer and have it accepted at a foreclosure auction?
I am not too sure of what I think of the predator thing. I know what is happening down in the states right now withinvestors buying up foreclosures. What's the difference with sellers that don't need the money selling at these prices? I feel that the retirees taking this type of money from working families is predatory.
VREB likes to claim that everyone is going to move here and keep the market bouyed, but their own recent surveys dispute this. There are virtually no outside buyers in our market now,it is all locals. Prices are far too high for people to afford to buy here and CREA data shows that Canadian vacation properties are down and dropping. Why would anyone buy vacation or retirement type properties in this market, set to drop, when the rest of the world is on sale.
That the economy is rosy and we are so confident in the future is an outright lie. Many of us on this blogg are in positions to know how shaky things are. Have the realtors not seen a newspaper or looked at the stock market?
The end of the month data is coming on tuesday? It should be interesting how they spin them.
I'll bet on both, with a short sharp correction followed by a drawn out slump. This is the great unwinding of the Boomer era. In order to reduce the real value (and cost) of social program entitlements such as (OAP,CPP,Medical,eldercare) the government has been furiously devaluing our currency. How do you do that without printing more dollars? Easy, you reduce lending rules and issue CMHC a blank cheque and the banks get to print "future" dollars using the loose fractional lending laws to increase the money supply without actually printing more money. All they do is adding zeros to some electronic transfers and voila, everyone has lots of money. I was having an interesting discussion with a senior partner of a local Realty firm and he basically admitted as much. Property purchase prices only increased when the banks and finance companies were able to hand out cash like candy floss. Are realtors responsible for this dismal mess? Of course not, but like dealers in a casino, they facilitate the gaming of the public don't they. A few simple rules to tighten things up and restore some integrity to the buying and selling of homes: 1) 25% down, 2) 1 to 5 income to maximum mortgage ratio (1 year earnings x 5 equals total value of mortgage), 3) Real estate agents are barred from trading in the market - you want to speculate, sell stocks not homes., 4) High frequency flips and multiple home purchases are heavily taxed. CMHC, which was a post WW2 incentive program for returning veterans, is phased out so that the private equity market bears the risk. Meneer Pfann must admit that the Dutch have had some experience with "Economic Bubbles" themselves, whether tulips or townhouses.
Pfans - with all due respect, I think that your definition of 'predator' is misplaced. Most of those who have felt the market was unbalanced and beyond what could be supported by fundamentals have been waiting on the sidelines, and many have been building what might be downpayments to be used when the market once again bears some relation to the underlying fundamentals. As result many will have cash and be in a position to buy when others will need to sell - out of job loss, mortgage renewals at a higher rate of interest, or for some other reason. By your definition these patient, rational individuals are predators. You expect us to have sympathy for those who will be caught up in the correction - and to a degree we do but only to the extent that many were victims of low levels of financial literacy and unscrupulous banks and realtors who failed to sufficiently educate and serve their clients. But our sympathy is limited as this market has left many of us shut-out or having to delay our home purchase by many years - all due to the irrationality of the market that has been fueled by low interest rates and realtors.
How do you 'fix' the market - quit manipulating it to the point where its broken! Quite socializing the losses and force banks to make sound lending decisions based on the risks their client's present, oh and maybe start providing some financial education to those who are participating in the market. A financial advisor would be sued for behaving as many realtors do!
okay for the final time; my interpretation of predetors is not about "john and mary regular " getting a good deal .... that is just the way it is and part of the ups and downs
Its the events like the gift to lee khah chek (not sure about the spelling) getting the False Creek Lands back in the late 80's for twenty cents on the dollar and then getting the Province to foot the bill on the site clean up.
It is a forestry company getting 1000's of acres for a song, and the CRD having to buy some of it back (at market value) to give you some examples.
These lands where owned by you and me, we paid for them in the form of some tax or an other......
Those are the "preditors" I am talking about.
My first few years in real estate where in the recovery years after the big collapse of 1980.
We had foreign money buying up the West End of Vancouver, Whistler, Nanaimo, the Malahat, many prime pieces here in Victoria literaly by the bus load.
CMHC was sending out packages and auction invitations to Japan, Germany, the rest of Europe and the USA, for thousands of properties from small to in some cases entire mountains in whistler.
"Canadians Need not apply, was more or less the attitude, not that they where not allowed to buy, it was just hard to get access to all the information etc.
We had Japanese Buyers coming on property shopping trips for a week at the time, go home and send in offers on multiple properties.....
Special seminars and workshops where put together to foreign investors many of which in Japan or Europe.
BC and CMHC was having a " Province Wide Garage Sale" for about 3 years.
My point, did any of you get an invite...... ?
Other question, did any of you buy then during the early 80's, why not? Prices did go down up to about 60% in some cases (not so much on the Island) so again why did you not buy then?
how about the smaller melt downs in 1991, 1996 and more recently 2008 (about 10% in less than 6 months. Did any of you buy then, and why not then?
Waiting for the Big one?
Is this a group that is hoping for a 30, a 40, a 50 of higher % melt down? If so, it would mean very few locals would or could be buying including those now waiting for such a collapse. we would all be scrambeling for survival and looking for a new job or cashflow elsewhere......
because such a collapse, particular if it happens just or mostly in BC, will recreate this very "garage sale" situation very easily and the real "big boys" (see I am not calling them predators anymore) will be buying up the province (whats left of it by then)
Most of the people on this blog are very smart and clearly have a great grasp of the issues and complexity of market movements up and down.
Others seem to just love to blame something or somebody without really any point to it all (greed, spite, anger or envy excluded)
Many also love to nit pick on details and small stuff, but ignore the bigger picture.
Some think it is cool that regular folks are or will loose their homes, just because they wanted to live their dream.
I am happy to participate, and share just not into defending every word or detail all the time.
I will likely get a number of you blast me and or all realtors over this post, fill your boots, (I have big shoulders)
Thanks for posting, we really do appreciate the contrary ideas even if we're ready for a hearty debate :)
Anyways, so the drops of the 80's, 1991, 1996, 2008. I'll give you a quick run-down of why I didn't buy
1980's - Twinkle in my dad's eye. Have you ever tried to fill out the paper work and put that down? Yeah, they don't like that.
1991 - Yay grade 1! Quite frankly, unless your house was a candy store or toy shop I wouldn't have cared.
1996 - Lived in Yellowknife. I even remember Yellowknife having the most expensive real-estate in the country. This was due to the trouble of building. Instead of soil, we had granite and more granite. The golf course didn't even have grass on the fairways.
2008 - I was expecting prices to drop lower and I didn't forsee the emergency interest rates that the BoC implemented. Additionally, I didn't really have the money I felt I need to put a payment on a place.
While I think a short-term 50% drop would require a fairly significant event I don't think it's completely unreasonable given the right time frames.
I have always liked to compare Victoria to places like Winnipeg and Ottawa. So I don't think it's crazy to expect our prices to fall to around Winnipeg/Ottawa. Not huge, plenty of government work, etc...
The only "fix" for the "boom" part of a credit cycle is the "bust" - I don't think there is any getting around it - and it certainly seems to be well on its way. Asset prices have decreased dramatically during previous contractions. The most relevant data would seem to come from looking at the full cycle (60 to 80 years).
"If so, it would mean very few locals would or could be buying including those now waiting for such a collapse."
Correction: including SOME now waiting for such a collapse. I'm not sure buying today at today's prices and being wiped clean with a hypothetical collapse is the preferable alternative anyways.
Thanks for clarifying your "predator" definition because it wasn't obvious. Still, I can't fault real estate sales firms from attempting to get the best price for their clients. If it be wealthy foreigners, I fail to see how getting cold hard cash infusions when the government and local residents refuse to step up to the plate is unpalatable.
So is Canada really the nirvana of the world? We are part of the Planet Earth. Our economy is very much interwoven with many other countries. Are we that much smarter then practically everyone else? Maybe luckier?
Or is there a potential financial disaster lurking just over the horizon, waiting to put us into the real world of true financial crisis? I believe there is. And that disaster is the Canada Mortgage and Housing Corporation (CMHC).
Its Monday morning and VREB has released last weeks sales stats. Not looking good for the press release tomorrow.
Victoria Real Estate Month-to-Date Statistics (as of May 30th)
Total Unconditional Sales: 658 New Listings: 1,548 Total Active MLS Listings: 4,417
Today's sales should come in around 32 so 690 for the month of May. Last month there were 756 sales. How does this stack up to sales in previous years?
So May, which is usually the peak sales month, is down from April and 22% below May last year. Listings have reached 4417 and we now have 6.4 months-of-inventory. Here is how active listings compares to May in years past.
VREB will have a hard time spinning these stats and will try to pump this as a buyers market with low interest rates and lots of inventory to choose from. Will the Times Colonist, reprint this drivel or will they tell their readers the truth?
One can easily see that the market has peaked early this year. As I have said many times in the past I expect 2010 to be a repeat of 2008 with sales dropping off fast and prices trending down.
There's an inherent conflict of interest in the real estate profession, and not just the obvious one about commission structure. There's also the fact that real estate agents get paid when a property is sold, and they need a steady income stream just like anybody else. So even if they know now is a terrible time to buy, most likely the worst in a generation, their only choices are to either continue leading lambs to the slaughter or get out of the profession entirely.
They may tell buyers a little about "corrections" and "softening markets" and "down markets", but there is no way a real estate agent will ever tell someone looking to buy that it is the biggest mistake they will make in their entire life. Nor will they lay out the simple math that a 30% correction when you pu 5% down means you will be $100,000 under water on a $400,000 home. Because while the more ethical real estate agents may say just enough to let themselves sleep at night, the fact remains that if they want to eat they have to keep selling. If they have to choose between their family eating and your family declaring bankruptsy, they'll choose their family every time.
You raise an interesting point. But a realtor can still make commissions, be ethical and deal honestly in a down market by representing only sellers. Telling the truth and being frank with listing clients can help them unload before they lose even more money.
They can use the following approach to genuinely help sellers..
- Set a realistic initial asking price. Chasing the market down with price reductions is a sure fire way to get less for your home.
- Recommending ways of getting the home in tip top shape for sale. Painting, de-cluttering and staging if necessary.
- Preparing a good marketing package: professional photos, Internet & Print advertising and quality feature sheets.
- Personal networking with other agents. Unfortunately most agents just let MLS, PCS and Matrix do the work. This is unprofessional and to be blunt - laziness.
- Following up every showing with a phone call to the other agent to get market reaction. This feedback is passed to the client so any deficiencies in the home appearance can be addressed.
- Using their negotiating skills to get the best deal when an offer comes in. New agents are weak in this area but old hands know what to do in a downturn
My two coppers say: Just as some logical people sell their homes when prices are high they also buy when prices are down. It's simply the old financial rule of thumb: Buy low/Sell High.
Obviously many families can't just pull up roots every 7-10 years and rent for awhile, however they can do this at every 2nd wave. The key in my experience especially for first time buyers, however painful and frustrating it might seem right now, is to wait the entire low phase out and then sit til you see a positive quarter of house price increases-- then jump in. In the meantime save,save,save in order to have a sizable down payment as chances are when the prices are down...interest rates will be up. Just simply KNOW that you are doing the right thing.
Take note: 2009 was just an A-typical blip for the reasons of government interventions etc.
There's an inherent conflict of interest in the real estate profession
No there isn't, any more than there is in the car salesman profession. Real estate agents are paid by the sellers to get the higher possible price. Just like car salesmen. They are not working for the buyer.
I don't ussually make predictions, but I will make one for tommorrow. It looks like we are going to see a double whammy on the local market with this months stats stinking the place out AND popular opinion is that the BoC is going to raise the rates. I predict many price corrections on my PCS.
More agents are admitting the market is slowing down. Check out this blog post by local RE agent Sean Farrell. click here
The statistics from last week lend further support to the trend of rising inventories, which has been expected for some time. That being said, we also continue to notice increased activity in the $1 million to $2 million range, while the $500,000-$700,000 range continues to slow, especially for homes with secondary suites (this due to the tighter lending conditions imposed by the federal government).
It's beginning to smell a lot like '08, all around this town...
Except unlike '08, there really isn't much left to prop the market up...an extension to mortgage terms won't fly, nor will lowering down payment requirements and rates can't get any lower...
Nope there's not much to prop the market up...and even the realtors are coming to that conclusion. It's Phantastic.
Interest rates went up 0.25% this morning, as expected.
Also, from Garth's blog...from a guy named "Dan in Victoria" - wish he would stop by here - he has good posts.
"Well something is in the wind here in Victoria. One of my buddys came by this morning to go for coffee, odd because hes normally flat out. Too busy for that. He owns an excavating company…. dead absoutely dead were his words, nothing coming in. Another fellow I know who is normally busy phoned me this afternoon, Hey are you getting any calls? Another guy I know phoned last week and said he was down to part weeks. And my phone has not rung(for work) in two weeks, that has to be a record I think. Lets see how this plays out going forward. Thats what we are seeing in the trenches here……"
The market is really taking a step a back and with a 0.25% interest rate hike this morning, will eventually take more buyers out of the market (after their current rate holds run out or when they have bought).
According to VREB month end stats, this month we had 695 sales in the board, versus 756 last month and 879 for May 09
Inventory rose from 4229 last month & 3789 May 09 to now 4521 this month.
Those are very significant changes during our typically busiest time of the year.
This months oficial press release has not been published yet, but should promise to be a piece of "Spin Art"
there is no panic as of yet and we may see things balance over the next little while, but clearly we are not just in a little glitch anymore and the next 60 days will be very important for our long term local real estate market and local economy.
With house listing up 20 percent and sale volume down 25 percent, are we running out of buyers at current prices?
The sales to new-listing ratio for the urban municipalities during May indicated a balanced market between buyers and sellers with prices being stable and only slightly higher that May 2009.
Which is not typical for one of the busiest months of the year. When things were really rocking in Victoria that sales to new-listings rate was over 0.9 and annual prices were rising at 15 and 20 percent.
May and June can be the hottest months of the year for real estate with the third quarter usually showing increasing inventory and a lower sales to new-listings ratio.
The trend would normally be for lower sale volumes in the third, fourth quarters. Coupled with weakening fundamentals such as rising unemployment and falling consumer confidence should mean a continuously lowering of prices for at least the remainder of the year.
So, you gotta ask yerself, if there is gonna be more properties to chose from; and prices are gonna be lower next month and the month after that - why yah buyin today?
And if you want to move up in the market. Sell your house and take a long, long closing date with a big, big non refundable deposit. Short the market!
The showers of April were not enough to stop Vancouver’s real estate market flower from wilting. For the two months prior, records were broken as the highest average detached prices were recorded in the Real Estate Board of Greater Vancouver’s history. In May 2010, those records are now a thing of the past as the average detached price heads back to familiar territory.
HI Maniac, You are correct, the rate hike on its own won't have any affect, at least not short term, it is just one more factor that will make many buyers take a step back before doing anything now or for the foreseeable future.
Today we have 15 months of inventory at current sales levels, that is a huge difference from a year ago and compares with pre market adjustment levels from 1995 and 1991 (only 1980 was higher that I recall, when the big axe came down)
I am not looking forward to this for some of our clients that will get caught in refinancing and or substantial equity challenges.
But for the people downsizing, and 1st timers, and as suggested before some small investors, as well as those that can sell now and buy back in later, there will be great opportunities moving towards you like a freight train.
The rebound upwards will show itself very clearly as well once inventory to sales ratio's start getting back to an inventory level near the 8 to 9 months worth of supply.
I know some of you love this for your reasons, I must admit, I see a lot of hardship and problems coming up for many that got caught up in the hype a few years ago and feel bad for them.
Never mind the lay-offs in construction, inspectors, renovation, moving bus, legal industry, and many of the other businesses benefiting from brisk real estate activity (not just price increases)
We don't worry about our practice, people will always buy and sell and seek out those that serve them well, and after this many years we have been fortunate to have established a great report with our clients.
On a side note; in 1995 we had the highest number of realtors ever in the VREB at 1642, by late 1997 we where down to fewer than 800.
Today we are back up at approx 1,300 I bet any of you a nice bottle of wine that by the end of this year we will be down to about 1,000 give or take a few.
Maintain your COOL, "we ain't seen nothing yet" (as the song goes).
Actually the legal services industry is likely to be unaffected by a market downturn and may even experience growth.
Why?
As the market slides downwards and equity is wiped out, people face foreclosures, increased strain and increased conflict. So what is lost in relatively cheap conveyancing work is more than made up for in more lucrative foreclosure and divorce litigation.
Legal services does well when things are booming and it does well when things hit the skids and it does okay most other times.
Now the lawyer/notary who only does conveyancing work, well they might be a different story.
If only large legal firms had stocks traded on the stock exchange - it's one area I'd actually be comfortable investing in.
It was a bleak report with sales down, inventory up and condo/townhouse prices dropping. Single family home average and median did rise however. This was mainly due to high end sales and one 3.5 million dollar sale in Oak Bay. Here is the price breakdown - April in ().
SFH average -646,483 (624,149) SFH median - 594,500 (572,500)
Condo average - 324,005 (340,105) Condo median - 290,050 (305,000)
Townhouse avg. - 430,713 (449,556) Townhouse median - 418,000 (430,000)
There was some great "spin"...
The number of homes and other properties sold throughout the Victoria area softened in May while the choices for buyers increased with a further rise in the number of properties available for sale.
"So far this year sales are running nearly 14 per cent ahead of the first five months of last year
Masters added that further increases in the number of properties available for sale should temper upward price pressures as buyers enjoy a wider selection of properties from which to choose
Randi - Buyers are clearing choosing to move to the sidelines in increasing numbers. Why buy now when price drops are inevitable?
here is a link to all 18 pages of the monthly VREB review.
As skeptic is showing the spin is on.
averages lie, medians (over a 6 months period will give you a much better indication of reality.
This is month 2 or 3 with this very distinct change in market activity and direction, so the next 60 to 90 days will flush out the true market reality with proof beyond the possibility to spin it in to utopia.
Have fun studying the information in the complete release
Take heart people....Most of the "deals" out there, i.e. SFD under $550.00 have now been bought up by FTB's. Loads of those had income producing suits.
So the reason that the average and median prices are up is that now the "not so suite" deals are coming on the market and are being reduced then sold or like many are just sitting there. These are homes that would have been a few months ago priced between $550-$720K. Now they are being newly put on the market, re-listed or reduced to prices between $520K-$559K.
Some examples been posted on MLS in just the last TWO days are:
Savannah SE $569 - $539 Marifield JB $575 - $559 The Rise Vic $565 - $554 Alder SE $579 - $559 Finlayson Vic $619 - $559 5th St. Vic $589 - $549 Myrtle Vic $554 - $524 Kings Vic $559 - $537 Astra SE $579 - $558
Also here are some Fairfield homes that sold in May. The real estate scene is only going to get progressively worse for home sellers.
I see the VREB is now back to reporting total sales over 5 months when there is a downturn. They did this before when the market tanked.
To date this year, sales are nearly 14 per cent ahead of the first five months of last year, said Randi Masters, Victoria Real Estate Board president.
At least Randi had the honesty to follow this with..
“It’s important to note that the first few months of this year were very strong compared to the same period a year ago when the effects of the recession were still being strongly felt.”
This is a choice line...
Higher inventory should “temper upward price pressure,” Masters said Tuesday. Total inventory is up 19 per cent from a year ago.
Uh Randi - I think you will find only downward price pressure in the coming months
The Single Family Home (SFH) prices that are published every month include all categories of house sales. VREB and CMHC also release the SFH prices that exclude waterfront, acreage, duplex, triplex etc. and this is shown in the following chart along with condos and townhouses. Take a look at May 2010 compared to previous months. You will note that typical SFH only increased 10K compared to the 22K reported in the VREB press release.
BTW - I have not been getting much feedback on my recent stat and graph posts. Maybe it is boring stuff to readers and no longer of any interest. Let me know if it is worthwhile to continue.
Thanks for all the stats and reports. It is amazing how one can be so mislead by the way VREB selectively releases stats to the public.
Here are some of my observations after reading this material:
- In May 364 houses of all types sold for an average of 646K. 12 of those houses were waterfront and 20 were acreage etc. The average for the remaining 332 was 609K. So 32 homes accounted for the 37 K difference. Really shows how high end sales bias the stats.
- The 332 houses sold in May is a big drop from the 378 in April and way less than the 445 in May 2009 (25% drop). Inventory has jumped to 1449 from 1256 in April (9% increase) and is also up from 1037 (whopping 40% increase)
- Townhouses had a big drop in May as well. 63 versus 87 in April (28% drop) and 88 in May 2010 (28% drop). Inventory now stands at 349 vs. 318 a year ago (10% increase). Prices have been dropping from a high in December 2009 of 474K to 431K in May.
- The big surprise is in condos. Sales have been steady with 202 in May, 191 in April vs 223 a year ago (9% drop). The average price however dropped last month by 14K to 324K.
Looks like lots of price reductions out there. The new mortgage rules will have an impact on the "suite deals" as well. Under new rules buyers qualify for a much smaller mortgage for homes with a mortgage helper.
Bears just need to be patient. The MSM and VREB are still singing the balanced and stable song but that won't last more than a few months.
I just got a chance to read all the posts from today - been rather a busy day, but I wanted to make sure Double-Agent knows how much I value his posts! I am as bear as they come - enjoying the shift - just been really swamped lately and haven't had as much time to post. But I'm always around :)
I have looked at the Vancouver and Victoria stats and I am noticing a slight up tick in sales (even more so in Vancouver) the past little bit. Does anybody have an idea as to why? Even double agents stats show this increase. May should be decaying not increasing. ideas?
Just a question... Is anyone else surprised we didn't see a price drop for May? I thought for sure we'd see a significant drop in sale prices this month considering how many houses I've seen selling well under asking price and with all the price reductions. Oh well, just have to be patient I guess...
I was shocked as well, especially after reading Vancouver's sales dropped $48K last month.
However, the mean (average) price is highly influenced by very high, or very low sales. Really low is highly improbable in this market, but really high is not. Last month there was one sale of over $3.5 million and a whole lot of $1-2 million. I definitely think that skewed the mean upwards.
However, the median was also up (not nearly as much). The median can be misleading as well, though.
Next month may see a very, very large drop if May's increase was largely a statistical artifact.
Think: My idea as to why prices went up. The median SFD is only $500 less than the record in January.
Price reductions are up. Inventory is up. Sales are down. Perhaps the sellers of more expensive properties that have been on the market for a while are accepting low offers. This would also explain my question earlier about increased sales as well.
What I meant on my last blog....is the price increases are showing average housing were selling in May for say $550 or whatever up from previous month. But and this is a big but.....the houses that were selling before i.e. at slightly less prices were houses that were of much less quality as the ones that sold in May. The May house sales were for houses that previously were selling for say $600 - $700 in Jan, Feb, Mar, April but are now selling for around $550. The houses that sold for $550 in Mar, April and May would now be selling (if they were still available) for under $500K. So.... the average and median prices may be up for May but this is because those houses in previous months would have sold for so much more. In other words what you were getting in Feb for $540K would now go for $499K; and the ones that you have to purchase now for $550K were selling in Feb for over $600K I hope this makes sense to you.
"Last month there was one sale of over $3.5 million and a whole lot of $1-2 million. I definitely think that skewed the mean upwards."
It seems like every month we have 20 to 30 >$1 million dollar sales so how much is the price actually being skewed month to month? Its not like one month we have one sale over a million and the next 25.
177 comments:
or a long, drawn out correction looking something like the current US version?
There isn't a "current US version". US markets have varied greatly in speed and amount of decline. Miami, for example, lost 40% in the first 2 years and the California markets were not far behind. As will Victoria and the rest of southern BC. The prices are just too high and there are no rabbits left to pull from the hat.
BTW I expect a long-term slow decline after that due to macroeconomic and demographic trends.
Seattle Bubble - comparative US declines
1) First 10% slow: 5 mo's (May-Sept) - Anxiety/Denial phase + listings have not been up for very long time yet, so not enough desperation + summer time = buyers on vacation.
2) Next 15%-20% faster: 4 months (Oct 2010 -Jan 2011). Multiple reasons: Many listings on for long time = lowered price changes. All time record listings in y/o/y compared to last ~5 years now fully evident. Interest rates slightly higher + HST full effect = catalyst. Likely stock market crash a la Q3 2008 = buyer jitters w/smaller downpayments due to losses + panic acceleration by sellers.
3) Next 10-20% slow: Feb 2011-Feb 2012. Market could be down 30-35% already, so 1 year+ for the next 10-20%. Most of the specinvestors are gone from the market, panic sellers gone.
These are pure guesses, not a lot of research went into the above :)
Mr.4AM
really hard to know...but we are here to speculate.
I am really enjoying that we are now talking about how it will look and not if it will happen...although my smile does not last long as I know good people will also get hurt by this correction...such a duality.
I agree with Mr. 4am that the initial fall may be 5-10% and will last until Oct-Nov. Slower sales over the summer and denial by sellers will drive this.
However, I would expect another 5-10% to fall off from Nov through Feb with those that have to sell decreasing prices.
I would expect the big drop to happen next spring, during the usual spring listings rush. Maybe 10-15% by summer/fall.
There's a lot of moving pieces here including the broader economy, interest rates, unemployment rates, rental rates, foreclosure/bankcruptcy rates, the exchange rate, vacancy rates, etc. As a result there's a lot of uncertainity going forward as to how exactly things will unfold. What's obvious is that prices are overvalued, have been since about 2005 and will correct. I'm guessing the correction will take us back to 2001/02 prices (corrected for inflation) and will take about 8 years to unfold with the first 2 being the most dramatic and the last 6 slowly eroding real prices by way of year-over-year price stagnation.
I can't see unemployment in Victoria falling to lower than 6% over the next 3 years. I also can't see real wage increases over the next 3 years. I think vacancy rates will continue to rise and exerting downward pressure on rental rates. As interest rates rise and mortgages come due for renewal, or as people lose their jobs or are unable to make as much money as they used to, more homeowners will have difficulty making their payments and foreclosures/forced sales will continue to increase the amount of inventory available on the market.
I think their might be some creativity on the part of CMHC emerging at some point and we might see a "Making Home Affordable" program...as a result how the correction unfolds might be muddled with. In reality this will just shift the costs of the correction away from the banks and onto the shoulders of homeowners and tax payers.
Just thought I'd share that the movie "COLLAPSE" has been posted on Youtube in 8x 10 minute chunks.
This is a film that in very simple language explains what will occur in our world in the next couple of years that will affect the way we all live for decades to come. I know of at least a dozen well respected analysts that agree with this guy's predictions (whose previous ones have all come true), so learn from his message.
Also, it's not a long rant about gloom and doom, it's also a message about education, hope and inspiration. Our world is on the verge of very radical change, learn how to transition through it with a smile on your face :)
Mr.4AM
PS. This documentary may be copyrighted so it may not last on Youtube for many days. Watch it soon if you want to see it.
"Canada should raise interest rates "without delay" and let economic stimulus measures expire to avoid inflation, the OECD said in its annual forecast Wednesday.
The Organization for Economic Co-operation and Development recommended the Bank of Canada continue to raise rates to more normal levels over this year and through 2011."
Read more: http://www.cbc.ca/money/story/2010/05/26/oecd-growth-forecast.html#ixzz0p3HJr5dL
The downward demand driven correction in prices that happened in 2008 would be my guide. When prices were declining at a rate of 2% per month.
Of course this 2008 correction was mostly felt by realtors because of the drop in sale volumes and respective commissions and those sellers under duress to sell, as in corporate and government relocations and court ordered sales.
The Canadian market was not allowed to progress (CMHC goosing the market) to the point where the profile of the typical seller became one motivated out of forced circumstances to affect a sale as opposed to fishing for the highest price.
If not for CMHC our market may have mirrored Seattle where prices are 30 percent lower than the summer of 2007 rather than 20 percent higher today. To me, the affect of CMHC's lose lending policy that brought forward future demand will be reversed and our prices will become more aligned with other cities. Because of the affect of bringing demand forward, I would guess that the rate of decline to be more than the 2 percent per month of 2008.
Unless, the government intervenes Victoria's sales volumes in 2011 may be the lowest in 25 years with under 3000 house sales a year. A market dominated by estate and court ordered sales.
As in the USA, the affect of the "baby boomer" in real estate has run its course. The boomer's buying habits have changed from being a net buyer to being a net seller of real estate.
The next 25 years will see the reverse of the last 25 years as sellers increasingly outnumber buyers.
Statistically speaking, the first time buyer of today may be paying 7 or 8 times gross income for a home. But their children in the next decade or two may only be paying 2 or 3 times their income. Of course, McWendys could be paying their part time staff a $100,000 a year then, but most will find it difficult to pay the $20,000 property taxes for a 25 year old condominium in Humboldt Valley.
Real estate news...
Globe & Mail - Overvalued homes, higher mortgage rates drop hot resale market
The remarkable recovery in Canada’s resale housing market is cooling, as increasingly expensive properties and the promise of higher mortgage rates force out buyers.
Prices are at all-time highs, but the number of homeowners looking to sell has created a glut of inventory. At the same time, anticipated higher mortgage rates and stricter qualification rules threaten to price more people out of the market, ultimately driving prices lower as fewer buyers compete for what’s available.
A correction to the above.
"The next 25 years will see the reverse of the last 25 years as sellers increasingly outnumber buyers."
That should read prospective buyers and prospective purchasers. Obviously sellers can't out number buyers as each are necessary to make a sale.
@patriotz
There is noting anywhere on the Internet, including Garth's websites, Wikipedia, etc. that says he is a financial advisor.
Actually he does mention it on his blog once in a while. He keeps it very quiet though, which is precisely why I think he is unethical. Given the nature of his writing, he should disclose the fact that he does actually make money managing people's investments.
Proof:
From his email to my brother: I charge just 1% for assets under management - no consulting fees, no cost for a financial plan, no trading charges, just 1%.
Sadly I do not know a fee-based planner in your area, but should you like to work with me when you are ready, just let me know. As I said, I have many clients in the area.
Garth
His reply to my comment calling him out also acknowledges it: http://www.greaterfool.ca/2010/03/25/urgent/#comment-67467
Like you say, wikipedia doesn't mention it. I guess I should add it to give people all the information before they think Garth is out to help them just because he's being nice.
Some interesting or not, stats from the first of the month.
603 residential properties were listed for sale in the Greater Victoria areas.
162 listings expired or were cancelled since the first.
And 240 properties sold.
So about one-quarter of the properties listed may be cancelled or expire. Does this suggest the level of sellers motivation? Could these numbers be interpreted as 60 percent are wanting to make a deal and 25 percent are just wasting the agent's time and money with unrealistic expectations?
And if 25% of list prices are not reasonable, what kind of affect does this have on months of inventory and sales to new-listings ratios. Will an increase or decrease in cancelled and expired listings be a forerunner of a change in the market?
Could an increase in sales occur along with a decrease in price as the pot of sellers become more motivated and the unrealistic sellers leave the marketplace?
This is what I'm suspecting is happening. While our sales to new listing ratio has fallen, prices have remained sticky. If we remove the unrealistic sellers, then our sales to new listings ratio would show "more" balance. Assuming 25% of listings are unrealistically priced, that would mean that our unadjusted sales to new-listings ratio may have to fall to 0.15 or 0.2 before we start seeing front page head lines in the media. But if you are a home owner thinking of selling this may be too late, as you would end up following the market down.
Oh well, everyone can't be a real estate tycoon, most have to be fodder.
good points, JJ.
Has anyone else notices a substantial increase in price changes in the past two days? Post Victoria Day price adjustments...and the MSM and banks finally coming out and admitting there is a "small" problem.
I think the people who cancel listings are just in denial. They may claim they were just fishing but deep inside they really want out of the place they are in. Why go through the trouble of putting the house up on the market with the real possibility it might sell and you have to move. These people are more at risk of coming back during the fear stage later on. Just an opinion.
A 10% drop per year for 5 years would put real prices back to where investment makes sense again.
1982 had a few things different:
1) interest rates were high so Joe Howmuchamonths were priced out without steep price declines.
2) Not that many people bought at high prices so a return to lower prices didn't cause significant pain enough to change government policy.
3) The rise in prices was so steep and fast I bet a lot of people just shook their heads. The whole thing started and finished in a few years.
The only way prices correct as fast as '82 is if there are significantly fewer buyers appearing over the next years. We got a taste of it in 2008, when prices dropped at a rate faster than any other city on the continent, until interest rates were halved over a handful of months.
I think 5 years to see 80% of the price correction is most likely, assuming interest rates remain low. If interest rates start heading higher I think we'll get to that point even quicker.
I remember 2008, when the Vancouver MOI climbed up to 25 months in a relatively short-time frame. It took a couple of months to climb and stayed high until interest rates plunged to record low-levels.
Wed May 26, 7:34 AM
By The Canadian Press
TORONTO - Four Canadian cities are among the top 25 in the world in terms of quality of living, according to a global survey published Wednesday.
Overall top spot on the list Mercer Quality of Living Survey is the Austrian city of Vienna.
Vancouver is the top Canadian city among 221 ranked this year, sharing the No. 4 spot with Auckland, New Zealand.
The other Canadian cities in the top 25 are Ottawa at 14, Toronto at 16 and Montreal at 21.
Calgary was ranked No. 28 on the overall quality of living ranking but got the top spot on a new ecology ranking.
No American city made the top 25 on the Mercer list. Honolulu had the top ranking in the United States at No 31.
WHAT NO VICTORIA???? COME ON NOW, HOW ELSE CAN WE JUSTIFY THESE RIDICULOUS PRICES FOR RE.....SOMEBODY MUST THINK THIS PLACE IS AWESOME! LMAO!
I think we'll be like Phoenix or Las Vegas — roughly 2 years of steep decline and then either a small bounce or just a levelling off to a more moderate downward trend.
Part of that is because I think that once construction jobs disappear (and after their EI runs out) young people will move away in droves, especially those who moved here from small towns where they have a support network and the cost of living is lower overall. A declining population will mean declining demand, which will slowly push prices ever lower in the years to come.
I have to give this realtor an A for finding a silver lining in the dark cloud of Victoria real estate.
His latest facebook post and video recommends moving up in a down market. At least he concedes that the boom is over.
Moving Up In A Down Market
My Price Correction Service is showing a market that is turning faster and harder than 2008.
My median listing price index shows a monthly median listing price decline of 2.54 percent from March 1 to today, so I'll go with that value for short term (4-5 months) median price declines.
Thereafter I'll not forecast because (a) forecasts are inevitably wrong; (b) after a 10% price decline there will be huge lobbying for housing support programs such as expanded home buyer programs, longer amortizations, lower interest rates and the sort - and it is anyone's guess what programmatic measures the federal government will actually take.
there will be huge lobbying for housing support programs such as...
Such as all the things they tried in the US. How did that work out?
Only one thing really matters and that's interest rates, and they are controlled by the bond market, which cares about inflation, not Joe Homedebtor.
I ended my guesses in Q2 of 2012, but should have probably ended them sooner.
I think the vast majority of people (including most here) are totally underestimating the massive macro-economic financial armaggedon that is brewing out there. If this scenario plays out more or less as detailed (so far it's been very much on track), there will be a global SHTF via currency crisis, break outs of civil revolution (i.e. Greece) in wester countries , if not also another major inter-country war (i.e. North Koreaor Iran), food crisis, collapse of import/export markets, and the list goes on.
If you think this ain't gonna have an impact on the local economy then you haven't been watching our loonie fall 8 cents in 3 days because of what's happening on the other side of the Atlantic Ocean.
With this in mind, my predictions for Victoria real estate were likely overly optimistic after Q2 2011.
Mr.4AM
Loonie falling 8 cents in 3 days, corrected link.
Mr.4AM
patriotz - in most cases the programs won't work, however since there isn't a direct link to companies that will go bust as the market goes down, there is more opportunity to pump the market (as was done) so it doesn't go down further.
Besides, some will believe that it will work and politically the optics are good for the governing party to look like it is doing something.
Of course that's the point, for the government to appear to be "doing something".
Any government program that attempts to prop up prices will simply result in a lower bottom eventually, because more houses will be built than if the free market were left to itself.
RE: Canadian dollar slide
Currency trade is all relative, yes the Canadian Dollar has fallen compared to the USD, but it has strengthened against the Euro. Notice the pattern in the image below.
http://imgur.com/OZQ8a.png
With the troubles in the EU, investors are once again making a flight to quality, which means the USD, this has pushed up the demand and therefore the value of the greenback. The Canadian Dollar is seen as strong and stable too, so no doubt there has been buying up of our dollar as well, just not on the level of the USD.
Nothing out of the ordinary really. The same pattern can be seen by looking at the yields of US treasuries.
CREA's economist and chief real estate pumper, Gregory Klump, released this report...
Relax - It's Just Another Housing Market Cycle (pdf)
Based on the relationship between average home prices and incomes, and their outlook, Canadian home prices are unlikely to undergo a U.S.-style correction. Warnings of a U.S.-style home price correction in Canada are unfounded. Such warnings are typically based on a limited analysis of the historical relationship between national average home prices and income which ignores Canadian housing market cycle dynamics.
The national price has been skewed upward recently by price increases in British Columbia (Exhibit 5), while national income since the year 2000 has been growing at a slightly faster pace compared to the province.
As a result, the price to income ratio for British Columbia has deviated considerably further from its provincial long-term average compared to the national ratio.
But Klumper the Pumper says BC is not in a bubble...
However, the relationship between average home price and income in British Columbia may have changed in recent years due to international immigration and positive net inter-provincial migration. Much of the migration to the province from elsewhere in Canada refl ects moves by people aged 55 and over (Exhibit 7). An increase in higher-priced home sales in recent years purchased using wealth, not income, would cause the average price to be skewed upward. This may have caused the price to income ratio in recent years to rise significantly above its long-term average.
Just Janice - As an economist would you care to comment on the CREA economist's report?
The pot of prospective purchasers is finite. Propping up current prices by government stimulus packages only pulls future demand forward, leaving a dearth of future buyers to support a larger inventory of homes.
Most of us understand that the Canada Pension Plan, as it is today, can not support the number of retiring boomers at the standard of today's retirees. Much the same is for real estate, the current prices can not be sustained at this high level because the future is made up of fewer buyers and more sellers for the next 25 years.
The market will be turned upside down. What you thought were good purchases will turn out the reverse. Large McMansions will be almost unsaleable. As prices come down, small condominiums will become unsaleable unless they can be rented. Older revenue properties, especially apartment blocks, will fall into disrepair and will be seen as a liability rather than an asset.
People will leave the urban core, because of high taxes and low services, leading to inner city decay.
And on the negative side .....
LeoS,
There is a site that shows how to see if someone is licensed to sell investments or act as a financial adviser. I didn't find anything when I looked....
How To Do A Background Check On Your Advisor
Robert, there is nothing normal about an 8 cent move in a mere 3 days. I could have made the same point with a different currency. It used to be that the major currencies moved 1/10th of 1% in 1 day on average. These 3 days showed 26.7 times (2,670%) more volatile than that (!!), and I believe higher volatility in currencies is still coming, hence my use of the words 'currency crisis'.
Also, one could argue that the Candian dollar is not so strong or stable, and the USD even less so.
Let's be clear and dispel assumptions, the recent rush into the USD wasn't a flight TO quality, it was a flight FROM high risk and loss of confidence in the Euro. That does not automatically translate into the USD being strong or stable, because watch how much faster people will flee the US dollar in the not so distant future (a few years at most).
There's no real quality left in any major fiat currency. I continue to believe all the major fiat currencies are on their last legs and the acceleration of volatility is the proof in the pudding.
Mr.4AM
As an economist would you care to comment on the CREA economist's report?
Well I don't work as one, but I'll comment.
Increased prices without corresponding increased rents are not sustainable. Regardless of how much supposed wealth migrants are bringing into the market.
As an economist Mr. Klump understands who signs his paycheques and is acting accordingly, although somewhat myopitically. After all he might have a hard time finding work with CREA goes down in flames given his track record.
Also understand that economists do not all subscribe to the same models and analysis - and as a result may come to a different conclusion based on the same data. Right now, I'd say that Mr. Klump's model is based on false assumptions and is likely to fail in the face of unfolding realty.
I generally do not subscribe to conspiracy theories, however, I believe the current economic context is very unstable and likely to have lasting and largely unforeseen impacts. Believing that Canada is somehow immune or unique and therefor resistant to the larger factors at play is pure fantasy. The recession isn't over yet, its just taking a breather. I do think the US is closer to being on the road to recovery than Canada is and that much of the damage in Canada is yet to come.
An increase in higher-priced home sales in recent years purchased using wealth, not income, would cause the average price to be skewed upward. This may have caused the price to income ratio in recent years to rise significantly above its long-term average.
Absolutely, the move up home buyer is jockeying for a better home, using the paper wealth (bubble bucks) built up in their previous homes. And as long as there are sufficient first time buyers entering the property ladder, the longer this move up market will continue.
But the first time buyer is a finite market with limited funds, big mortgages and a higher sensitivity to interest rate changes. As a group, they can be tapped out of the market quite quickly. Without this lower rung buyer, the market is left to devour itself for a time. So, I would watch for the anomaly of the "move up" market and the condominium market to move in opposite directions with condo prices falling and upper income homes increasing. Clearly, this movement in opposite directions can not continue and would be a precursor to a price drop in the move up market.
The marketplace would be reacting like a slinky toy cascading down a flight of stairs.
Mr.4AM
“all the major fiat currencies are on their last legs” ..you may want to reconsider some of your currency beliefs. Granted you’re not alone, everyone always jumps on the reflation bus (especially near peak stimulus), usually hoping for the return of their assets.
Couple considerations:
M3 money supply is now falling 10% annualized. Incredible when you consider zero rates and the largest fiscal stimulus in history is presently peaking. iow, major currencies from here, should strengthen for years. Obviously, anything valued in those currencies will fall in price - including all commodities, equities, RE. Far more net money/credit continues to be destroyed.
Further stimulus attempts at reflation (as Japan has tried unsuccessfully for two decades) take more than a year to ‘hit the ground’ from when they're passed. Moreover, most central banks are already caught in a zero-bound liquidity trap. Besides, you can already see the pendulum swinging with countries like the UK drastically reducing their deficit and cutting 300,000 civil servants in new austerity measures. iow, countries are already seeing the futility of more fiscal follies.
I was on Twitter today and saw a link to a blog written by local realtors. The latest post is the most honest analysis of the Victoria real estate market I have ever seen by an agent.
Please drop by and leave a comment if you agree with their post. We need to support someone who is willing to be candid and does not republish VREB spin!
Peter & Linda Pfann May Market Analysis
Excerpt:
Currently across all of our VREB service area, we have about 650 more active listings (4,407 this year) compared to last year, and we have for the month of May reported 383 fewer sales compared to last year (496 this year).
These are very big differences during what we consider the busiest periods of the year. We may see a bit of a spike in reported sales over the next few days as many contracts tend to become unconditional near the end of a month, but there is no doubt that our board will be reporting a dramatically lower sales results in their next press release.
Obviously they will try to give it a positive spin, but the number of sales don't lie. Prices will be affected if the number of sales remains at these levels for some time, as there will always be a good number of sellers that have to sell, regardless of price, and they will just continue to drop their prices until somebody buys it.
More real estate news...
Globe & Mail Rising household debt threatens recovery
Bloated levels of household debt threaten to dampen Canada’s economic rebound as consumers focus on paying their bills rather than spending freely.
Household debt has more than doubled from 1989 levels and now stands at a record $1-trillion – or $1.47 for every dollar of disposable income. With the Bank of Canada expected to raise interest rates, perhaps as early as next week, vulnerable Canadians could soon find themselves emptying their pockets to cover higher interest payments.
“The high rate of household indebtedness is a source of risk” to the Canadian economy, the Organization for Economic Co-operation and Development cautioned in a report Wednesday. It noted that household debt has swelled further in recent months – an unusual development. People usually save during recessions.
Olives or S2
Not much real estate chat over on KIV lately. Why not post that blog article that Skeptic linked to over there. Most KIV readers don't seem to believe "bears" because we are not professionals. Maybe a "professional" analysis will get them thinking and stop some from making a bad financial decision.
P.S. I would do it myself but I don't have an account.
Hi HouseHuntVictoria,
Off the top, we are Realtors, so I know that we are often viewed as the evil cause of all grief in Real Estate.
One of your members was so kind to insert a link to a recent blog post on our blog, and if you want to follow the link in his post. I am not here to promote us or to repute anything I stated in the post.
Just wanted to put a little perspective to what occurs in many instances, and personally I blame the large media outlets for this.
Often times we hear, view or read something and it starts to live its own life, good or bad, but often not substantiated with any facts.
Let me give an example, every year we go to one of the worlds largest real estate conferences in the USA.
During these meeting we meet with agents, brokers and lenders from all over the world.
It is amazing to hear from the people in the industry what is and what isn't happening.
Stockton California, was is major trouble with 3 out of 5 houses sold between 2000 and 2008 either in foreclosure. 60 minutes did a big piece on how the town was in so much trouble....
It created the impression that all of Californiawas in trouble, not so quick now.... San Fransico, Santa Barbara, San Diego and much or Orange County had issues but not anywhere near those reported in Stockton.
What we are seeing now here in and around Victoria is a little bit the same.
We have a big issue with reported and unreported over supply of Condo's, it does not take a lot of brains to see that. It is almost impossible to miss all the holes in the ground, and nobody is working them.
At the same time we are selling very specific types of properties faster than they come to the market.......
It is too simple to predict doom and gloom or recovery accross the board. Clearly we are facing a bunch of big issues in the Greater Victoria Area, but according to the rest of the world we are the place to be, so people will continue to come.....
Time will heal many of our current problems in real estate and the rest of our economy, but there is no denying, the two are very closely related.
You can't have a great local economy and not also have a booming real estate market.
AS we all know Statistice do not always tell the real story.
Somebody on this blog referred to Vacancy rates as reported by CMHC are stats from a very narrow segment of the rental market, so be careful in relying on them.
The same applies to current listing and sales stats as produced by VREB, CMHC, BCREA, and any of the real estate companies.
They only report stats from the MLS system, which for things like 90 % of re-sale property is fine.
The many developers that sell a few properties with the use of the MLS system, but the majority of their inventory as well as sales are never part of any stats that you and I will commonly see reported.
Privacy laws now prevent us to be able to get a complete picture on the market from registrations at the land titles office....
Thank you for noticing our post. Good luck with your blog, and we are always happy to talk honestly about real estate and how it affects us all.
Live a Pfanntastic Life
Peter and Linda Pfann.
Paul and Linda, its always good to see realtors perspective on things. To be honest, despite your post being long it didn't really say anything. Everyone on here knows that real estate corrections vary by city, and that not all listing are on MLS.
Are you telling your clients that real estate prices are at historic highs, and out of line with rents and incomes?
Are you telling your buyers that inventories are growing to above normal levels, and advise they wait to see how the market reacts to this?
Ditto
It left me feeling like that 1970's Wendy's commercial
"Where's the beef"
The professional worlds seem to be broken into two camps. One camp uses analysis and statistics to support their opinion. The other is anecdotal and simply say I have 20, 30 years of experience, so trust me.
You look across the table from each of them. One is young and has an Apple notebook with Dora stickers on it, and stumbles on some of your questions; the other is in their early 50's, well dressed and has perfected responses to your questions. Answers that are just unclear enough that you can interpret them to match your thoughts.
Should a realtor be an expert on real estate and an expert on marketing?
In my opinion, it is unreasonable to think a realtor can be an expert on both. Nor is it necessary for them to be an expert on both. Just like a car salesman doesn't have to know how to make a car in order to sell them. I think that's why a lot of us have problems with the posts of agents that visit the site. They can not take off the marketing hat.
If you want to know about the real estate market ask an appraiser. If you want to sell or buy a home, get a realtor.
Oh dear, that is some realtor biased view!! Oh the delusion!! We have issues and they have everything to do with the price of the said properties. They are at all time highs. No, Victoria is unlikely to go through a Stocktoneque crash but what would a 30% drop (comparable to Seattle) do to your innocent FTB??
According to the rest of the world, we might be the place to be (subjective) but we are also one of the priciest cities in the world (objective). www.demographia.com. The fact of the matter is that Victoria just doesn't have the economic fundamentals to support the prices of its houses over the long term. This will end badly.
I must admit, I am a bit addicted to my PCS service these past few days. So many corrections, and not weeny little ones any more; most are in the $50k range all the way up to $150k. What is almost more interesting is the ones that manage to sell, they have healthy price corrections AND they get far below asking. If this isn't a correcting bear market, what is?
in response to Rhino's questions.
We tell our clients to proceed with caution. If you want to buy a condo, and do not need to sell first, wait, until the dust settles, there are many more reductions to come.
If you are moving up in the market, from a condo to a house, sell NOW, because if anything the condo market will be hardest hit for the next few years.
if you are moving lateraly it will make little difference.
If you are downsizing, selling now and renting for 6 to 9 months might be a good idea.
If you plan on investing for revenue, make sure you can somehow add value and revenue to the property (legally).
we have outlined these steps in the post that your fellow member referred to in his post. Again I am not here to sell you anything but to give some perspective.
Happy hunting and live a pfanntastic life Peter and Linda Pfann.
Correcting market is correct, but keep in mind that this time of the year we often see people put properties on the market with a wish to sell, not always a need to sell.
So by the end of June middle of July you may find the inventory of single family homes dropping off substantially and become much more balanced.
Condo's however (new and resale) will see substantial adjustments for the next 6 to 9 months until we see some stability between supply and demand, as wel as some consistency in our economy and provincial politics.
Very recently we have seen most of not all newly announced single family homes sell out in new developments before a fountation was poored so we can not paint all types of property with the same brush.
the PCS service gives you a good perspective on the searched properties, but as is can give a bit of a distorted reflection on the market.
You can only see so much of it in these searches as the results are limited by a maximum number of properties reported as well as by the earch criteria. any (even minor) reporting or notation difference in the method and one or a bunch of properties are not reported.
Happy house hunting, and thanks for reading. Peter and Linda Pfann.
Cool so we have a group of people that feel that things are going to be really bad, and some that think that things will run its course.
The beauty of opinions are exactly that, they are opinions. no point in getting rude about it.
the fact that I am a Realtor and deal with buyers and sellers in our local market all the time and that I am willing to share some of their perspective and their perspective does not mean I am right or wrong, it is just that, opinions.
History also offers us some perspective, and that local real estate history has shown us that even at the worst times the Greater Victoria sees a lower degree of impact and decline than most. while at the same time during the boom years we do not appreciate as fast or as high as some.
Is there a possibility of a total collapse of real estate values in Victoria?
I suppose so, however it would require events well beyond the control of any local, regional and or national entity. But they could happen, the fall out would be huge on all levels of society, so at that point property values or even the concept of buying and selling would likely be of such low priority that we will not be talking about houses but survival on more essential levels (food, life and living).
If the past is any indication of the future, we have been due for a correction, but in all honesty and without trying to sound like a sales person but somebody with a house, and investments in real estate.
I can't see a total collapse as some of the writers are indicating.
Personally I would like to see more affordable housing and more sustainable and containable housing growth.
If and when the political will actually gets their mind around something we can achieve a great deal so I still have faith that some day homelessnes in our area will be a thing of the past, it would not take a lot of money, just a lot of political pressure.
Live a Pfanntastic Life, Peter and Linda Pfann
Peter & Linda,
Thanks for taking the time to post your opinions on this blog. I was the one that found your blog and made the initial comments.
It is good to have different opinions on the Victoria real estate market posted here. Most of the readers are "bearish" on the Victoria real estate market and expect prices to drop in the coming months as sales slow down and interest rates increase.
I hope you continue to post here. Sometimes the discussion gets a little heated but the majority of posters are courteous and respectful in their replies.
Good to see some relatively balanced comments by RE Agents here. Unfortunately some of the statements given don't hold much weight:
i.e."You can't have a great local economy and not also have a booming real estate market."
huh? so by this logic (which is the what is good for GE is good for America argument), Texas, which economically did very well over the past 10 years should have seen the same price increases as elsewhere in the U.S. They didn't - why? controls on speculation.
Sounds like this forecast for Phoenix from 2 1/2 years ago.
What happened next there?
Phoenix forecast for 2008
""You can't have a great local economy and not also have a booming real estate market."
This is so true... when real estate and construction make up a large portion of the local economy. Thanks for the giggle.
"Condo's however (new and resale) will see substantial adjustments for the next 6 to 9 months"
Welcome to the club, your tee-shirts in the mail ;-). And have a Pfanntastic day.
Victoria is not the only place reporting lower than expected real estate sales this month. Calgary is also experiencing the same thing and prices are expected to nosedive according to Bob Truman, a Calgary realtor.
Calgary Daily Stats.ca
JustWaiting said
"Olives or S2
Not much real estate chat over on KIV lately. Why not post that blog article that Skeptic linked to over there. Most KIV readers don't seem to believe "bears" because we are not professionals. Maybe a "professional" analysis will get them thinking and stop some from making a bad financial decision.
P.S. I would do it myself but I don't have an account."
Now that it is really starting I just don't have it in me to post over on KIV that it is really starting. Why point out to people that some of them are going to get really hurt in all of this? Trust me. No one thanks you for that.
S2
"This is so true... when real estate and construction make up a large portion of the local economy. Thanks for the giggle."
Real estate and construction have a large trickledown effect. If people aren't building, buying new homes, or moving up in the market a lot of business suffer....furniture, appliances, material sales, manufacturing, rental shops, dealerships (people aren't buying huge trucks where all the profit is), etc.
In my opinion, for construction it looks really bad going forward. Lot prices are ridiculous, and there aren't any new lots being developed for obvious reasons - you can't make money blowing up a mountain, putting in services, and selling lots for 200k - case and point - Bear Mountain. If new and resale homes prices fall there will be absolutely zero profit margin driving residential construction down.
Big development has already taken a big hit and with the Falls, Bayview etc... I don't think anyone is going to be rushing to bring any more high end condo units to the market like noted by the realtor.
I think a drop in real estate prices would have a negative impact on the economy in Victoria; however, if you have a cushy secure government job than this would be to your advantage.
S2,
The KIVers that don't buy or those that sell now will be thankful by Xmas. Of course all the "happy owners" will go into denial and dump on the messenger.
I guess you have been burned in the past so you tread lightly now. Can't fault you for that :>)
Marko - guess what - in a lot of places a housebuilding boom essentially fed itself, creating more boom as carpenters, developers, REagents and mortgage brokers built houses for each other.
What it did was violate the fundamental ecological law of sustainability - i.e. the population of houses couldn't keep increasing forever and therefore a point was reached where the whole scheme collapsed. Same will happen here to the luxury condos. Yes, builders, brokers and the like will be affected, however their run over the past 8 years was never sustainable.
"carpenters, developers, REagents and mortgage brokers built houses for each other."
You put carpenters and developers in the same category with REagents and mortgage brokers which I like to clearly separate.
Carpenters and developers at least create something that is usable; whereas, Reagents and mortgage brokers just flip paper and fuel a paper economy which cannot be sustained.
Keep in mind other professions have been running scams just as big as or bigger than lets say, Realtors commissions.
One example, and I have many, Optometrist for years have been selling prescription glasses ($15 cost) for $500 or more....why do you think they are always so keen to sell you a pair when you go for an exam? Disclosure: I own shares in Coastal (www.clearlycontacts.ca)
TD Bank is on pace to make $5 billion this year. Canadian banks will be approaching $25 billion in profit this year. Isn't this a ridiculous amount? Disclosure: I own shares in BMO and TD
People question why solid carpenters are making $35/hour but few seem to question why an investment banker is building an $11 million dollar home on Beach Drive.
I can't help but think of the present housing psychology as a formula.
Value a person sees in a home + Belief that home will cost/be worth more next year = what they are willing to pay.
Once part of that equation changes... it's a rockslide of a twist.
Value a perosn sees in a home - Belief that home will cost/be worth less next year = what they are willing to pay.
It seems to me that once the hill has been crested there can not be a plateau.
It sadly looks like there has to be two drops. The first we are in with prices just running out of steam. The next will be the tough one... when the money generated by the constant increase drys up and people loose their livelihoods.
Ya know... I hate booms. Most people just want to put their heads down and work their lives in return for a home and family. Booms are all about people that would rather play number games.
when the money generated by the constant increase drys up and people loose their livelihoods.
Money isn't generated by the constant increase, which is why the bubble eventually fails. It's just a Ponzi scheme where the returns from the earlier entrants are at the expense of the later entrants.
Funny thing Marko, when I was in construction lots never cost half as much as they do now. Amazing how houses were worth 1/2 as much only 4 years ago. Last time I looked Langford was full steam ahead in the development process. Construction will slow down big time for a while because the low interest rates have used up all of the future projects.
BTW, $35/hr is crazy for a carpenter. Experience, education and responsibilty doesn't support that. Don't bother arguing, at bear beers when this is all over I will gladly put my TQs on the table.
This is that "realtor" guy again.
Just wanted to share something with you.
it the link works, it will give you access to a pdf file with an historial overview of real estate activity as reported by the Victoria Real Estate Board of multiple listing service average and median sales prices in the Greater Victoria area, starting in 1988 to date.
Have a look and give me and this very interesting group your feedback and interpretation on price increase trends as well as price decline trends in the past, present and future in and around Greater Victoria in relationship to "A Simple Question".
here is the link
http://www.kaycisco.com/file/df.aspx/shareID7177616/fileID525463169/2010-04_vreb_statistics__historical_medians_and_averages_by_month.pdf
it is at a free ftp service, so you may have to copy and paste the link
Happy Hunting and live a Pfanntastic Life. Peter and Linda Pfann
thanks. Historical data is helpful, but we have never seen this confluence of economic factors at play before.
It is different here and it is different now.
Well, I don't know how different it is now. Different from the early 80s that is. We have extrememely high prices that irrationally far out strip economic fundamentals. And we have interest rates set to increase. In the next year we are predicted to see a 3% increase, which is a 27% increase in mortgage costs, far FAR greater than what triggered the 80s crash.
The realtors are trying to to push the 90s style correction where prices stagnated and inflation caught up as the only scenario (as the link shows). The economic conditions point to a drop, and the banks agree.
If the realtors really don't want to show the truth. The pdf is purely cherry picking years where house prices increase.
Between 2000 and 2010, inflation (i.e. wage increases) has been somewhere in the neighborhood of 2%in Canada.
It is well documented that since 1900, housing as an investment has provided a return of approximately 0.5% after inflation.
If housing prices had been allowed to continue on the long term trend generating a net after inflation return of 0.5% and using 2000 as a base (just before the CMHC started exposing Canadians to 35 year, 5% down, mortgages and insurance on all residential properties), current average house prices in Victoria would be somewhere around 310k. (243,455 compounded @ 2.5% for 10 years).
With an average family income of only $60k in 2010 in Victoria, 310k for an average house is still regarded as EXTREMELY expensive for housing at roughly 5x the average family income, but is probably representative of Victoria as a "Premium" place to live in Canada.
However, at $624,000 and 10x average family income, house prices are double what they should be. The CMHC made it too easy to borrow large quantities of money and now the average family will probably have to pay 2x the up front price and probably make 3x as many payments over the life of their mortgage.
Buying a house in 2010 in Victoria or Vancouver = voluntary slavery for life.
Trevor, I agree.
Many people seem not to understand the long term implication of a high asset price when you have to use leveraging to buy it. In particular, I think that many people in the business (Realtors et al.) do not understand it. Prices are so out of whack with income in this city it's beyond my grasp.
My annual salary is a fair bit above the average family income in Victoria and I would not be willing to spend more than 5 times income on housing. It's crazy, especially considering the quality of house that you get. If I apply the max I would be willing to pay, to the Vic market, I would live in a shag (that is what 400-450k gets you). I rather have a more rewarding life style than that thank you very much.
If we get a 15 % correction from current numbers, prices will still be in the range of 7 times average income. I am not going to stay in Vic long enough to buy here anyway but I find it truly fascinating to follow this market because of how outrageous it is.
OMC,
Not sure what I have to do to give you a different perspective of what the facts say.
This is 22 years of continues local real estate activity covering a variety of of property types.
It is all that we have on our system. it may not make you happy, but it is not "cherry picking".
If you want to go back further and review the real collapse around 1980 to 1983 in most of Canada, you are correct we do not have those numbers on the system because they are pre computer era, and nobody ever converted the data for it to computer use (in our board at least).
But even if we did include the collapse of the late 70's and early 80's values, sales numbers and construction has since recovered and surpased and out paced those previous highs by huge margins.
Not to forget that we had 20% + interest rates, double digit inflation accross the board and an economy that was going "nuts" around the world.
Not just a bunch of crooks stealing from everybody and finding a way to get some aid money as well, becaus times are so bad.....
If we want to complain lets do so in the direction where it belongs, big money stealing (both corporate as well as government) from the rest of us the little guys.
One thing that is so missing in Canada is a real independent consumer advocacy orginazation, not attached to politics, government or the corporate world.
most of the big stuff we all get upset and vent about is being ignored and nothing happens. So we get to only see action and reaction when we complain and vent to each other..... I think the Romans called that "divide and conquer" I guess history does repeat itself.......
My conclusion on the "Simple" question is this.
IF, and I am not yet totally convinced this is the beginning of a major adjustment. But lets for the moment say it is the beginning of such decline.
I think this decline to a new balance will last about 2 to 3 years and will be have a few property types bucking the trends.
In addition I predict it to be a soft landing situation, as seems to be the type of decisions most levels of government and commerce are making.
We can argue about all kinds or minor side issues and nit pick about definitions but in general the biggest risk area in our local housing stock and its values are without a doubt the condominium market in most local areas around Victoria.
Other concerns in the housing market for individuals include lease hold properties nearring their end of lease term period (less than 25 years remaining becomes almost impossible to finance.
the trend towards reducing communitng times by home owners, may create inventory surplusses in the more rural areas currently used by many commuters.
The rapid greying of our population and the changes in needs for housing, services and the availability of those types of housing and services.
The book bust boom and echo a number of years ago indicated many of these issues, and a few more, it is very obvious that times are changing more rapidly than most are willing to accept....
Happy changing you all, and live a pfanntastic life Peter and Linda Pfann.
Thanks, Pfanns. I agree that there are a lot of people that do want to divide and conquer.
Just like nay other profession, there are individuals with good and bad ethics. Often times I think the perception is that realtors will paint any scenario as a good time to buy or sell and that has hurt their credibility.
The saying "It's impossible to get a man to understand something when his paycheque depends on him not understanding it." says a lot - I think may well-intentioned realtors don't want to see the big picture, so ignore it or do nto really try to understand what is unfolding - to their eventual peril.
That said, there are good realtors, too. I think we can all agree on that. Ultimately, we are all trying to make a living, and those who do that honestly deserve our respect.
I very much appreciate respectful dialog with realtors and I appreciate your input.
I also agree that condos are in trouble - there are already major cracks apparent.
Hi Kunwak and Trevor,
you are correct that paying more for housing than what works for you is the right thing to do.
I sometimes feel that I need to defend our business and industry. Not that I agree with everything our industry represents, and in fact for the past 26 years I have been a bit of a rebel in our business trying to change things from the inside (not that easy to re-invent the old boys and girls club)
I do want to point out and I am sure you are all aware of this that market value of any commodity traded in a free market is not determined by its traders (realtors, stock brokers etc.)
but by buyers, sellers and those that finance the transactions.
Not sure if we even legally could attempt to control pricing or values without breaking a number of laws (agency, competition act, and a variety industry related acts like the real estate services act to name one.
So although I understand your point about the high asset price and its relationship to income and basic common sense to not over extend yourself, I am not so sure that we "the people in the business" have any real influence over it.....
In fact I am pretty much convinced that we "the Realtors" have much less influence over property values than for instance the banks and lenders.......
As most buyers that are in need of financing anything to buy, will often buy up to and sometimes over the realistic afordable level of monthly payments that their lender will allow....
The reason why CMHC changed the rules a number of times over the past few years, is that initially they wanted to allow more buyers to enter the market (based on pressure from the lenders).
when CMHC realized that this was going to blow up in their face, they reversed a number of their new options and have now further changed the rules and require much more compliance to realistic rates and qualifications.
I am not trying to wash our industry from any responsibility, but in all honesty our influence is much smaller than most people think.
Happy hunting.
Peter Pfann
Although it is next to impossible to predict exactly how much prices will fall in Victoria over the coming years from my perspective there are two major driving forces behind the future price declines:
- Lower borrowing capacity
- Financial difficulty facing existing homeowners
The first force is the one that has driven the market over the last 20 years and there is lots of data to support what will happen here. If we assume five year mortgage rates rise to 5.5% by the end of 2011 (aligns with most economists bond yield forecasts), then the average family will see their borrowing capacity reduced by about $100,000 over March 2010 levels. Given that people prior to April 19th were using VRM’s to secure higher borrowing capacity and people were able to borrow substantially more if acquiring a home with a suite, I would estimate the “average” buyer in Victoria could be looking at a $150,000 reduction in their borrowing capital by the end of next year.
Using a $570k medium SFH price as the recent peak (average of the last five months), this would imply that a rise in five year mortgage rates to 5.5% could result in a 26% reduction in housing prices by early 2012 (always a time lag from rising interest rates to impact on actual prices – most sellers are slow to recognize these trends). Now if discounted five year mortgage rates rise above 6%, things are almost assured to get ugly. IMO, the only way these price reductions can be avoided is if the government changes the borrowing capacity rules for mortgages (which you would think they would avoid given that they just made changes on April 19th) or somehow incomes increase.
The impact of existing homeowners in financial difficulty is too hard to predict or forecast, but it is reasonable to assume that the higher interest rates climb the bigger the impact. If a large number of homeowners need to or are forced to sell their real estate and the buyers are not there in volumes (as they have been recently with these emergency interest rates), it will drive prices down below the borrowing capacity level discussed above. This is what happened in 1981 when interest rates rocketed and people simply could no longer afford their homes. I think this factor will become significant if and when interest rates exceed 6% as prior to that many people can reluctantly cut their spending and sell other assets to keep their homes and we need lots of people listing their homes to see a material impact on the market.
In summary my prediction for SFH price declines is highly dependant on what happens to interest rates, but a decrease of 30% and even 40% is possible if discounted mortgage rates climb above 6%. But I think it will take at least two years for us to get there.
Pfanns,
I feel like you are making me sound like an exremist, where as I am one of the more modererate on this blog. I do get a bit hot under the collar with the industry and what I feel is its intentional misleading reports though.
The Facts:
Lets look at a gordon head box. The affordability level was at 17%, but rates went up to 21%. The change in mortgage carrying cost was about 18%. That is the same as a 2% increase now a days due to ultra low rates and monster balances. Try it your self with the average buyer having a $600k mortgage, and then increase it by 2%. The BoC and the banks say to expect up to 3% more for the prime rate in the next short while. That is an increase in payments of a staggering 27%. Some how house prices that are way too high will not be affected?
It would take me only a few minutes to enter the data from the 70s to 1988 into that chart; if it was to the realtor's advantage they would have. It shows the correction that that is predicted by most economists and the banks, a drop.
One thing in this town to watch is rental stock. If we get an over supply of rentals on the market due to condos being switched to rentals or simply an out migration of people, many current SFH owners counting on suite $$$ will be stressed. So many of the new buyers only were able to buy in because of secondary suites.
SORRY omc, I did not feel like you where attacking me or the industry, so sorry if I offended you.
your calculations are off course spot on.... ther is no doubt in my mind and many with you that we are at a major affordability cross road.
It would appear to me we all agree on it
The other part I am not so sure off is not so much the values, the payments, the rates etc. it has more to do with the sense that lenders will never want to end up owning more real estate than they absolutely have to, without getting a payment stream from it.
CMHC can only cover so much and as such once we are seeing the number of defaults on mortgages increase to the degree that banks and CMHC start owning more than what they can or want to, do you not expect some major intervention to soften the impact you so clearly and accurately indicate?
I saw the after math of the 80's collapse, and it took CMHC more than a decade to recover after the market had long bottomed out, I am pretty sure they do not want to go anywhere near thos types of situations ever again.
Happy hunting, and sorry about making it sound like I attacked you not intended, this is way to much fun .....
"Not sure if we even legally could attempt to control pricing or values without breaking a number of laws (agency, competition act, and a variety industry related acts like the real estate services act to name one.
So although I understand your point about the high asset price and its relationship to income and basic common sense to not over extend yourself, I am not so sure that we "the people in the business" have any real influence over it..... "
This does not make any sense. The price increases are due to policy (mostly what I think of as lax lending criteria) that was invented to prop up the market to unsustainable highs. Someone will pay for it at some point. If prices don't correct "the people" will pay for it since they are committing a much larger amount of their income to shelter. If cost for shelter increases by a large amount, at some point (a long ways) down the road, people will have to pick up that slack (by lowe living standard or reduced wealth). If you are buying now, you are borrowing from the quality of your future.
Then your life is not so pfanntastic anymore, is it?
One problem with any data from the past is that it's broken. No fault of the data, but we've seen the all of the variables around the data change over the last 10 years.
If lending conditions stayed stable since 1970 then I'd put a good chunk of weight on the data information and throw in a bit of baby boomer drop off into the equation. Lending didn't stay stable so each change means the data is now comparing apples to oranges, then to pears, then on to bananas.
As mentioned by others, we're all caught in the middle of the games of kings and housing is just one small piece of the mess.
One more small rant on any data. Somewhere all data has become suspect in my opinion. It's become an easy way for powerful people to make a killing.
Find out what data people use to make financial decisions. Then put half your money on the line and the other half into lobbying to have rules changed to open that area up for greater growth. People will believe they are still playing by the historic rules, but really it's a whole new short term game.
I have long-questioned whether anyone audits the VREB sales/listings numbers for accuracy as these hold a lot of weight in terms of market sentiment.
There is a major incentive for them to have bias - does anyone know?
I'd guess the data is probably OK. The main issue appears to be interference from interest groups (as Inglishmagor suggests).
I think that Pfann could be right and we might see a soft landing. The government and other interest groups are likely trying hard to achieve this to avoid economic chaos (noone wants CMHC to pay a lot of money). Governments put all these stupid incentives in place to have short term fame for a strong economy - not just recently but rather over the last 10 yrs - and now they have to deal with the repercussions. Who knows what we see. I would bet that we see more gov intervention once we start seeing a troubled housing marked since they are scared about what happened in the US and don't want to see anything like that here. But that could mean a long inflation driven down turn.
In addition to data (this is the mathematician in me speaking):
The biggest problem IMO with the data is the interpretation and the spin that is put on it. Many people are challenged by looking at a simple graph. Now try to get them to understand long term trends, rolling averages, means, medians, confidence intervals,...
It does seem that condominiums in the core municipalities are getting their butt kicked. Although the number of sales are up nearly 30 percent from April, prices are down 6 percent.
Compare that with houses in the core municipalities. Sales are down 13 percent but prices are up 5 percent.
FYI condominium sales constituted 46 percent of the house/condo market.
To me, this appears that condominium owners are trying to off load condominiums quickly. And the detached home market is showing a "move up" market.
Obviously, you can not have condo prices continue to decline and the price for detached homes increase. You are simply stretching the elastic band to tight. As condominium owners are falling behind in their ability to buy a house. There does seem to be a feeling of desperation in not being able to buy a house, despite the increase in house listings. I suppose, people are fearing that if they don't move on to a house NOW, they will not be able to with the coming higher interest rates.
So, again we are back to an irrational market motivated by fear. The other thing is that some of these listed higher end homes are - vacant! Where did the people go?
It seems that there is just a lot of shuffling around, as one previous poster said, its a game of kings.
It's a strange world, when people are willing to pay most of their entire life time income to buy a roof over their heads. That is a massive miss-allocation of income as people continue to underestimate the risk of holding real estate.
If we have a decline of 20 to 30 percent in prices, I think you will see people walking away from their homes and declaring bankruptcy. That's when things will really start to rock.
Someone will pay for it at some point. If prices don't correct "the people" will pay for it since they are committing a much larger amount of their income to shelter.
But it's "the people" who are responsible for the high prices in the first place, because they don't have to buy.
Buyers aren't victims, they're the cause of the problem.
"Buyers aren't victims, they're the cause of the problem."
Of course they don't have to buy but they will if the incentive is deceiving enough. Hence the tremendous success of government prop up in the last decade. The average buyer will not understand long term implications of their actions. In addition, you may not like calling a buyer a victim but if there are enough of them, you can bet your house that the government will treat them as such. Could gov be successful in "rescuing" them? Who knows. If the US is any indication then not and it will just defer the problem.
interesting - the number of homes listed 450-500K on the market has almost doubled (28 to 54) since May 1. Since this is the low end of SFH on the market (and the sector that was previously selling almost as soon as listed), the impact of the April 19 changes for qualifying to CMHC might be occuring. This would mean that a portion of entry level buyers have disappeared.
I'll let others fill in from there.
Patriotz - on your post above, I disagree - a large portion of recent buyers acted fully logically based on psychology, peer pressure and trends. What I feel that you miss is that people only view the economics as a small part of the equation in their decision. This is unfortunate of course.
Placing blame on the individual for following the herd is neither compassionate nor helpful. Significant blame (and legal retribution) should instead be placed on the brokers, REagents, CMHC, politicians, developers and the like who pumped the system so much that a huge number of people are going to be permanently indebted.
Pfanntastic Lifers - any guesses as to which new condo builds/developers are having difficulties?
"Placing blame on the individual for following the herd is neither compassionate nor helpful."
Maybe, but it makes me sick that my taxes are going to be paying for their mistakes for the next couple of decades. If more of the herd had done more research into the realities of the housing bubble they would not have bought and prices may have stayed at a level that could be supported.
As it is there is going to be a crash and the government is going to owe the banks an obscene amount of money via the CMHC. The herd blew it and I don't feel any compassion for them or their granite counter tops... Sorry.
Phil - I feel a lot of compassion for those who purchased recently and who aren't speculators or investors. If it weren't for a friend letting me know about the Cheap Realty blog a few years ago, and then learning about finance, economics and the housing bubble/crash from Tanta and Calculated Risk, then when we would have likely purchased when I got a permanent position.
It is the education provided on-line that saved (I project here) me from basically going under water on a 50% overpriced Fernwood bungalow. Good friends of mine have bought. Do I hold their decision against them? No. Will I have compassion for them and others in their situation when (if) prices come down? Definitely yes.
Do I have compassion for the brokers, developers, etc? Definitely no. Do I think their should be culpability for the politicians who gave in to the lobbying to open up the market to American sytle mortgages? Yes.
sign of the times...
http://propertypricechanges.ca/index.html
It's easy to blame the herd mentality. It's also easy to overlook that we are a herd. That's why our entire society rests on the structure of a hierarchy. The sad part is that those in charge haven't been looking out for herd as a whole.
a large portion of recent buyers acted fully logically based on psychology, peer pressure and trends.
There's an oxymoron for you.
Is it some kind of secret that prices in Victoria, and elsewhere in BC, are just as inflated as were the most expensive parts of the US (you know, that place you can see across the water) before the bust? Is is some kind of secret that Seattle never got anywhere near as expensive as Victoria is now, and is down over 20% from peak?
There has to be some point where you have to stop making excuses for people being fools.
Hi Animal Spirit,
Aside from the developments where all work has stopped (2 off wale rd in Colwood, one @ colwood Corners for example)
We all have read about Bear Mountain, Bay View and The Hudson.
Reflections still owns a good number fo the suites and has rented a number of them (hoping that things will blow over, The Falls are in the same position. Aquatro in the Lagoon area is in trouble from all the signs and lack of actual progress. That is just a few.
The developer @ Bay view said on the new the other day (rather casually) that oh they had miscalculated the demand for the larger sized suites and where discounting 2 or 3 DOZEN of their suites by 50% and by the looks of it, those are 36 suites that are not on the MLS system. Who know how many more they still have, on the mls system right now there are 19 for sale with an average price of about 670K guessing that the ones they are talking about are bigger than the ones on MLS. Say average 800 K and they dropped those by 50% x 36 that is a wipe out of over $ 14,000,000 Pretty sure they did not do that for fun ;0). and how do the few peopel that did pay full price feel about that exactly..
This is where it gets scarry as these things start living a life of its own and mushroom thru the rest of the regional market.
Many regular people will get hurt along the way for no real fault of their own, all they wanted is a nice home/suite and live a comfortable life.
Those that have bought in condo buildings in the last 2 to 5 years with financing, are facing a potential whipe out of much if not all of their equity and reserves over the next relatively short time.
Many will have to refinance now or in the near future and are likely to see higher rates and lower if any equity in their properties.
Potentially even loosing their home all together.
Forget about who is to blame for a moment, just think about the emotiotional impact, the personal drama and loss.
These are very real and personal traumatic situations in which many good people are going to get hurt and affected for the rest of their lives.
The sentiment that I read in many of the posts here and elsewhere is that we like to point fingers to someone or some thing as being to blame, and yes in order to fix something its important to know where to start with possible fixes.
Much more immediate and more important is how do we get to a point where we can prevent those most affected regular people (home owners) from getting hurt, and prevent it from happening to others in the future.
Most people that we work with on a day to day base are just like you and me, they don't buy or sell with making money as the main reason for the move.
Some much more important reason is typically at the core why a move is being made, many of which are traumatic.
Death, divorce, loss of income, transfers, age related changes in needs, a need to sell to pay for high cost of medical or care expenses, just to name a few.
We had conversations with many of our clients back in 2007 suggesting for our clients to adjust their thinking and expect a 4 to 6 year roller coaster period, we are now in year 3 and we really have not seen any significant reason to change our predictions
It is clear to me that we are seeing the market place adjust and correct to a more affordable level, and that is a good thing in the long run. It is my hope and wish we can make it a soft landing rather than a sudden crash and burn.
Nobody benefits from a real collapse (par from a few real sharks)
My questions to you all is; how do we fix it.......?
As the old saying goes, when we point one finger, ther are 3 pointing right back at us.....
Coming up with solutions is much more difficult and requires a shift in thinking towards creativity, breaking new ground and adding value to the future of the community.
Live a Pfanntastic Life, and happy hunting for solutions
Peter and Linda Pfann
Peter Pfann,
Your insight and frank discussion on the local condo market is much apreciated. I had assumed the condo market was shaky, but not that bad. I think we all know people who will be hurt when the market corrects. As someone with a young family, I know many other young families that are already in trouble. The best quote I have seen is from a Vancouver bear "housing bubbles hurt families".
We got into this mess by following the rest of the world's lead. I remember reading a report aimed at Americans investing in Canada; it stated that you should avoid any investments in real estate as we had not had our market correct yet. Having borrowed buyers from our future markets, with affordability levels equal to the prebust days of the 80s and interest rates that can only go up I cannot see a soft landing. No one else has.
At the start of the bubble I was in university, so we never got a chance to buy a house. My family is now well within the top 5% of earners in the country but some home owners treat us like we are lower class as we rent. Government policies to maintain unafordable levels hurt families like ours.
OMG this Realtor is killing me!
Ya know what I think....let the market run it's course. IF people get hurt it will be because they bit off more than they could chew. It was basic math when they applied for their ridiculously low variable rate mortgage with 5% or less down.
Fact is and this is FACT....the MSM, Realtors, Mortgage Brokers Bankers etc who all had a vested interest/stake in the market continuing to climb to these absurd unaffordable levels were preaching the same BS....."It's Victoria, RE will never go down, get in now or be priced out forever. Everyone wants to live here" Give me a break!
As for the speculators and we all know there is a whack of them out there.....screw them!
I'm sick of this Realtor and all the rest of them. At least this one sees the forest through the trees and isn't entirely speaking out of his ass.
A big correction is necessary and the quicker the better I say. Affordability needs to return to Victoria.
Enjoy the rain folks! I bet there are a few people from Alta and TO wondering what the hell they were thinking retiring here right about now hey? Same ones that bought those units in the Falls and Bayview for 50% more than their neighbours LOL!
I think Phantastic boy is looking for us all to do a group hug or something and solve the world's problems. Ain't going to happen as most of the people here that have their sanity and are actually intelligent enough to know this has all been one giant Ponzi scheme created by your fellow realtors etc will finally be vindicated. Empathy? Sympathy? Please, these idiots that are going to lose their houses because they couldn't afford them in the first place (not including those that lose their jobs of course) deserve it for being stupid!
How do we fix it?
Go back to putting 25% down to buy real estate. This idea that everyone entitled to own a house has caused most of the problems. I blame government meddling in the market through the CHMC. Now it's too late the bubble is blown up. They are hoping to deflate it slowly.
Beagle you nailed it.....25% down 25 yr amortization.
You are conveniently leaving out the rest of the mob that was just as responsible for this.......I will say it again
The Top 4 Scumbags
1. Realtors
2. Mortgage Brokers
3. Bankers
4. MSM
The Govt and CMHC didn't do this on their own. The scumbags above all played their part in leading the sheep to slaughter.
"Many regular people will get hurt along the way for no real fault of their own, all they wanted is a nice home/suite and live a comfortable life."
Actually most of the buyers I know were happy to boast about how much their homes were worth and how I was a fool for not buying. Seems like they were interested in a little more than just a "comfortable life".
Hi Mark;
I agree with a lot of what you are saying, but I think we should all avoid calling a group of people demeaning names - it doesn't lead to any constructive dialog that could provide all of us better understanding - this includes the realtors better understanding the sentiment of many in regards to their pressure tactics.
I have had a few different realtors, and they were very different types of people. My realtor here is a very nice person, almost to a fault. My last realtor, well, less so.
I do very much agree that the united front of "it is different here" and "buy now or be priced out forever" etc. has really hurt their credibility as intelligent people listen to this and think, "Wow, this is your job and you really don't get it, do you?". or maybe they just get the part of it that lines their pockets (some).
At any rate, all professions, trades, job etc try and put the most positive reflection on their product...some may misrepresent this to a degree where the actual situation gets cloudy...these people that blur the truth will be the ones looking for another job soon enough as people remember if they have been taken for a ride, especially if it was the biggest purchase of their life. Those who were forthright, had their eyes open to all changes, and honest will be respected, trusted and will retain their jobs.
Ultimately, though, if we sign the dotted line to buy a house, it is our decision to do so, no-one else's.
Mark,
so if somebody asks for direction, solution or assistance to solve a big issue, your solution is to let them suffer because somehow they deserved it.
To me there is little point or benefit in some of the hostility, anger and personal attacks.
I gladly offer my perspective and honest personal responses to postings here. I love a good debate, but let's keep it constructive and courteous.
Just sharing my experiences, stories and perspective as a Human being with a real estate license and having lived in and around Victoria for the past 20 years or so
Live a Pfanntastic life is a way for us to remind people to live life to the fullest.
Happy Hunting
my personal pespective on 2 totally different markets
born & raised in the Netherlands, where the fast majority rents rather than own real estate, and although there are many incentives for people to buy real estate (including 105% financing and 50 year amortizations) it is nowhere near as common to own versus to rent.
The standard of life and incomes in Europe rivals anything in North America, but home ownership is not as high a priority as it is here, for whatever reason
(buying new cars and wearing designer clothing appears to be a higher priority)
Now I would argue that a lot of this difference between societies has a lot to do with generations of people wanting (or being told to) to work towards the American Dream of a house with a white picket fence.
In Holland the majority of residential Real Estate is owned by pension funds from either government and or large corporations. there is also a significant percentage of some form of subsidized housing in one form or another. People tend to treat their "rental" home as theirs for life, and do not move as often as they do in North America. Buying real estate in Holland is as easy as it is here and property values follow the open market very closely, although there are more government controls for example entry level homes being made available homes only to those with lower incomes (not to speculators).
live a Pfanntastic Life
Peter and Linda Pfann
Not to defend Realtors but lets take a closer look at what a typical realtor looks like
It appears that a lot of people give us Realtors entirely to much credit for having any direct or even indirect influence on what happens in any market
Here is a profile of the average Realtor.
It takes a max of $3,000 & about 6 month of study to become licensed, all multiple choice assignments and exam, that teaches about calculators and law, noting about houses (one chapter) or business (let alone controlling the market).
Once Licensed we are to attend 18 hours of mandatory education every 2 years (mostly stay out of trouble stuff).
The average realtor in BC sells less than 8 properties a year and last for less than 3 years in the business. There is very little if any real "business" training or education for realtors, (based on these averages many realtors do not qualify for a mortgage ;o)
Today there are approx. 1,300 active members at the Victoria real estate board & approx 12,000 realtors across the province.
The majority of agents in the business are coming from a different career and relatively few have ever owned or operated a business prior to becoming an agent.
Although all listings are with the agency an agent is with, it is mostly viewed as an independent busines by each and every agent under the umbrella of the agency.
A problem with some realtors is that they know enough to get themselves and sometimes their clients into trouble, but often not enough to keep their clients or themselves out of trouble.
As in Many other industries we are mostly self governed under the ministry of finance by way of the real estate services act.
most realtor related disputes are solved at the respective real estate board, a real estate council hearing and or binding arbitration.
Our errors and insurance fees are relatively low at $ 500.00 for 2 years, (indicating that we are at least in the eyes of insurance companies a low risk)Lawyers and Doctors (also mostly self governed) will often pay as much as $ 500.00 per month in liability insurance.
Again, the reason I am sharing this is not to excuse bad realtors and or bad actions by good realtors. I am just trying to indicate that we do not (as a Group) have the incling, ability and or savy to do half the things we are being implicated with doing...
By the way the assumption that we benefit from ever higher property values are not entirely correct. sure we might make a few more doller on a higher priced sale.....
But if it causes grief, and or agony, we will never work with those clients again.
For most established agents it is very much about what is right for the client and their situation in their life and not about the quick sale (although it is often the result).
We (as most in and around any business) benefit most from a healthy and active market with balance and stability at any price point.
I hope that gives a little perspective on who and what "realtors" are as a group.
The image created by ads from CREA, press releases from boards, companies and various other entities, portraying to be representative of the industry, but I can assure that most of the people I know as Realtors complain bitterly about the nonsense they are putting out, and we write to our boards, CREA etc all the time to make them stop the BS.
So far we that do, are still considered the complainers and rebels, but we know how much time and effort it takes us every day to deal with correcting the garbage they put out, and this keeps us doing it.
In fact agents, talking frank about our industry run a risk of being reported, fines and reprimands for violating a bunch codes, rules and regulations.
We are supposed to all agree or shut up....... I guess, we might be in trouble (oh well).
Live a Pfanntastic Life
Peter and Linda Pfann.
The Govt and CMHC didn't do this on their own. The scumbags above all played their part in leading the sheep to slaughter.
The difference is that the "scumbags" are all profit-making business and are doing what all businesses are supposed to do, maximize profit. You can't expect them to act any differently.
Only the Government has a duty to look after the public good.
But the ultimate blame lies with the public at large. They wanted inflated RE prices and that's what they got.
Peter&Linda Pfann: "It is my hope and wish we can make it a soft landing rather than a sudden crash and burn."
Do you think that a soft landing will be better than a hard one? Markets that remain inefficient are a net drag on long-term economic growth. I'll take the "ripping off the BandAid all at once" option, thanks.
HI Jesse,
I hear you, and yes for the economy ripping of the bain aid would likely be better, but likely more painful and cause more problems for individuals (and I personally focuss more on how thing impact individuals than large groups).
however I would agree with you that as a whole we would likely be best off if we could flick a switch and move the elevator to whatever floor we need to go down to, and start anew with hopefully a whole bunch of lessons learned to prevent a fast repeat.
As I am writing this, I start thinking, that a fast decline would possibly benefit the real predators more, as in those type of situations cash is king, those with the cash pick up the pieces and reap the biggest benefits....
As you can tell I am on the fence on this one. but would lean towards a soft landing given the likely alternatives and real human trategies that will follow (not that a soft landing will be without problems, but I am guessing fewer than a fast collapse.
That did not really answer you, but I think it illustrates that there really is nothing simple about any of this is there.
Happy Hunting
Pfanns:
Thanks for your commentary, some very interesting insights from the Realtor point of view and I certainly hope you keep posting on this blog....
And I'm a certified Bear.... ;-)
OMFG how do I block this Phanntastic guy? What a bunch of drivel....
Mark,
so if somebody asks for direction, solution or assistance to solve a big issue, your solution is to let them suffer because somehow they deserved it.
HUH??? what does one have to do with the other? These sheep were brainwashed by people just like you! Were you warning your clients of an impeding disaster in the housing market? I highly doubt it and in fact firmly believe you were preaching the same hype that the majority of realtors were preaching for the past 7 yrs!
Just because you now have openly come out and questioned the markets continuing to go up (all after the fact and stating the bloody obvious) gives you Little credibility in my books.
I will be the first person to step up and help someone that needs it. Advice? I have lots of it and in fact have been giving it for quite some time regarding housing. Guess what, nobody was listening. Why? Because of the HYPE and BS that your "profession" (I use this term very loosely) were spewing.
5% down and 35-40 yr amortization @ 1.75% on a 600k + home in Victoria is stupid, irresponsible and deserves to be bitch slapped! How many realtors, mortgage brokers, bankers etc gave their clients "advice" to spare them any future pain that most of here knew was coming?????
I rest my case. No not all realtors are scumbags but any realtor that was telling folks that Vic is different, that it's great investment, that prices will never come down, that everyone wants to live here etc etc etc.....should be held accountable.
I am holding your profession as accountable as the dumb ass Government types that thought creating a "false economy" was a good idea.....It was nothing but smoke and mirrors.
Your touchy feely crap about solving this problem is nothing more I suspect than an effort to generate some business for yourself.....kinda the good cop in the good cop bad cop routine IMO.
I ain't buying and I'm surprised others here aren't seeing through your BS.
Realtors....eeeeeewwwwwww!
Mark,
Take a deep breath, slowly exhale and try to relax. There is no need to make personal, caustic attacks on other posters.
Peter has come here to give us his point of view in a constructive and courteous manner. Maybe with a little more flourish than we are used to but pleasant none the less. Please try to treat him and the rest of the posters on this blog with the same respect we show you...
I was the one that found his blog and saw that he was one of the only realtors in town that was admitting that sales are down and that the market is cooling off. I posted a comment on his blog and a link to HHV and he has decided to join the discussion. His analysis of the condo market has been very interesting and I appreciate reading comments from someone in the industry.
As you and the other readers know I am a confirmed bear and very skeptical of most claims made by professionals in the real estate industry. Many deserve criticism but let's not tar everyone with the same brush.
Harper to cities: Stimulus cash isn't forever
"THE CROOKS GIVETH AND THEY TAKETH AWAY"
Fri May 28, 8:40 PM
By Allison Jones, The Canadian Press
ADVERTISEMENT
TORONTO - Stimulus spending has a firm expiration date and cities can't expect to live on that fiscal shot of adrenaline forever, Prime Minister Stephen Harper told the country's municipal leaders Friday.
"I know that there are some, including some here, who would like all this stimulus spending extended," Harper told the annual Federation of Canadian Municipalities conference.
"People can't live on adrenaline and economies can't live on stimulus. We must return to the black, not drown in the red."
Mark,
I am sorry I upset you so much, not sure why but that is okay.
With all due respect you do not know me or know what and how I work and or advise my clients, so to judge me personally in the manner in which you do seems not only in-appropriate but not called for.
But is not about you or me, or realtors it is about regular people without any primary objective of profit or gain being swept up in the troubles caused with over supply, greed, poor planning and timing.
This is the 4th time I have now personally seen this type of cycle occur and every time it is the innocent guy that gets hurt the most.
Nobody feels sorry for the big developers and builders that keep on building as if there is nothing wrong or to worry about hoping against better knowledge.
My hope is that we somehow find a way to stop repeating the same thing all over again on the next waive
Sorry if I have offended you in some way, it is not intended. trust me just giving a little perspective and honest "open minded" constructive dialogue.
So if you don't mind Mark, can we stop the silly personal attacks and move on, I am not your enemy, in fact I think we both basically want the same thing.
A better more afordable balanced housing environment for a larger proportion of the population (at least that is how I read the context of this blog).
Live a Pfanntastic Life,
Peter and Linda Pfann
Peter said,
A better more afordable balanced housing environment for a larger proportion of the population (at least that is how I read the context of this blog).
Right on the mark. I believe that is why HHV created this blog.
"that a fast decline would possibly benefit the real predators more..."
Well possibly but it's not necessarily true that buying something for a low price is predatory. And a huge decline would not benefit banks, probably in aggregate the worst "predators" of the lot.
I think it's a mistake to socialize the losses when the gains have been privatized. If you want to truly "heal" a society there needs to be pain. The predators are the means used to return the market to normal and aren't necessarily the devil incarnate. I'm not sure who's causing more of the problems: the predators or those who think more debt is the answer. Take away the latter and the former starve. Perhaps they deserve each other.
As I am writing this, I start thinking, that a fast decline would possibly benefit the real predators more
How do you distinguish a "predator" buyer from the other kind? Do he wear a top hat and twirl his mustache?
Or do you just mean someone who won't buy except for a reasonable price? Like us.
How do low prices benefit "predator" buyers but not the other kind?
If you like to base the biggest financial decision of your life on facts instead of rhetoric you might want to read the latest post on AmericaCanadaBlogspot.com
As usual Jonathan Tonge lays out the facts on the Canadian real estate market.
Listings - The 2.1 Tipping Point?
Sharp leaps in inventory in all cases proved to be devastating for the housing market. They are strong signals for a market peak as home sales quickly fell thereafter (making the spread even wider).
What has occurred in 2010 to listings is simply unheard of. The slope of the new listings line is incredibly steep. The only year somewhat comparable was 1989.
The real estate boom is over in Canada and a correction is underway NOW.
DejaVu - its May 2008 all over again. I predict prices in Victoria will keep dropping at 2% a month just like they did in 2008.
Okay let me clarify the term "predator", in the context of my statement.
those people and companies (from anywhere in the world) with bundles of CASH and buying anything (not just real estate), waiting in the wings for those desperate to sell, and have the patience once they own it for markets to rebound which occur often as fast as they collapse and then cash in with huge profits.
By the way, that has supposedly already happened recently when the entire Hudson development was rumoured to have been sold at a massive discounts.
There are people in this and other blogs that refer to " a return normal" which seems to imply that what we have today is abnormal or a-typical.
It may be many things, but the current conditions are part of a very typical cycle in real estate and society. Sure there may be a few twist and turns that appear to be different this time around. But over the period of time that I have researched business, market conditions and real estate in particular you will find a number of 7 year cycles, a few 10 year cycles going back to the early 1900's
The current cycle (and I know some may dis-sagree) started after the last serious adjustment in and around 1995 and came to an end in 2008, and then locally (and in most of BC) sputtered and gave the impression as if we where in a recovery and the start of a new cycle, but for those with a bit of insight, many knew that we where on borrowed time between 2009 and today.
I believe our "correction" was delayed due to the huge amounts of money poured into province by way of the Olympics and the buying of labour peace by the province.
that may have given many the impression to many that we had been saved from the problems felt very hard elsewhere.
By the way it is also the reason why I think we will are more likely to have a soft landing, as now the rest of Canada is feeling the recovery, many are now able to sell where they are and consider moving to paradise (which is where we live regardless of the price we pay for it)
this may be a bit of a simplification, I know that, but you get my drift.
Enjoy your weekend, and have a little fun with your family and life in general, and thank you for the interaction.
Live a Pfanntastic Life.
Peter and Linda Pfann
These people are less pejoratively known as "market makers", and they do a favour to the sellers in down markets, who otherwise would have to sell for less, and the buyers in up markets, who otherwise would have to buy for more.
I'm a bit concerned with the term "predator" because it implies nefariousness. patriotz is right -- who would buy from these poor sellers at the depths of despair if not the predators?
Again, I disagree any sort of culpability be given to those looking for good investments. My offering a low price for a property is not the problem; it's the fact that someone made risky or unhedged choices and has to liquidate. Life isn't fair and unfortunately I can never be sure if a sad-sob seller story is actually true anyways. That is, while a family may be in ruins there could be details that precipitated the situation that would make a buyer less sympathetic. I just don't have any way of knowing and can't go through life assuming perceived morality deserves a premium.
With real estate there is usually no direct interaction between buyer and seller; offers are typically presented through a Realtor. So relatively few emotional negotiation "tricks" can be used by me or the seller directly, unless they are passed on by the Realtor to elicit a sale. So who's the predator in this case?
Would it be more moral if I make a low offer and have it accepted at a foreclosure auction?
I am not too sure of what I think of the predator thing. I know what is happening down in the states right now withinvestors buying up foreclosures. What's the difference with sellers that don't need the money selling at these prices? I feel that the retirees taking this type of money from working families is predatory.
VREB likes to claim that everyone is going to move here and keep the market bouyed, but their own recent surveys dispute this. There are virtually no outside buyers in our market now,it is all locals. Prices are far too high for people to afford to buy here and CREA data shows that Canadian vacation properties are down and dropping. Why would anyone buy vacation or retirement type properties in this market, set to drop, when the rest of the world is on sale.
That the economy is rosy and we are so confident in the future is an outright lie. Many of us on this blogg are in positions to know how shaky things are. Have the realtors not seen a newspaper or looked at the stock market?
The end of the month data is coming on tuesday? It should be interesting how they spin them.
I feel that the retirees taking this type of money from working families is predatory.
It's not predatory at all, because nobody has to buy. Buyers are responsible for excessive prices, not the sellers.
Why should someone sell a house, or anything else, for less than a member of the public is willing to pay for it?
I'll bet on both, with a short sharp correction followed by a drawn out slump. This is the great unwinding of the Boomer era. In order to reduce the real value (and cost) of social program entitlements such as (OAP,CPP,Medical,eldercare) the government has been furiously devaluing our currency. How do you do that without printing more dollars? Easy, you reduce lending rules and issue CMHC a blank cheque and the banks get to print "future" dollars using the loose fractional lending laws to increase the money supply without actually printing more money. All they do is adding zeros to some electronic transfers and voila, everyone has lots of money. I was having an interesting discussion with a senior partner of a local Realty firm and he basically admitted as much. Property purchase prices only increased when the banks and finance companies were able to hand out cash like candy floss. Are realtors responsible for this dismal mess? Of course not, but like dealers in a casino, they facilitate the gaming of the public don't they. A few simple rules to tighten things up and restore some integrity to the buying and selling of homes: 1) 25% down, 2) 1 to 5 income to maximum mortgage ratio (1 year earnings x 5 equals total value of mortgage), 3) Real estate agents are barred from trading in the market - you want to speculate, sell stocks not homes., 4) High frequency flips and multiple home purchases are heavily taxed. CMHC, which was a post WW2 incentive program for returning veterans, is phased out so that the private equity market bears the risk. Meneer Pfann must admit that the Dutch have had some experience with "Economic Bubbles" themselves, whether tulips or townhouses.
Hello All;
Just some stats in my areas of interest.
SFH min 2bd,2bth up to $625K in SaanichEast,Victoria,OakBay&Esquimalt
New Listings 47
Price Change 16
Sold 12
Some of those new listings will be re-lists with price changes, however I caught many of them in my stats.
Condominiums Min. 2bd,2bth up to $625K. Also only in Victoria, Saanich East, Oak Bay & Esquimalt
New Listings 30
Price Changes 4
Sold 4
One condo on Newport in Oak Bay sold for $70K below list price.
Most of the SFH price changes and sales were 25-35K below original asking price.
Sorry those stats were for the last week, i.e. 23 May to 29 May
thanks Alexandra - I really appreciate these kind of stats.
Pfans - with all due respect, I think that your definition of 'predator' is misplaced. Most of those who have felt the market was unbalanced and beyond what could be supported by fundamentals have been waiting on the sidelines, and many have been building what might be downpayments to be used when the market once again bears some relation to the underlying fundamentals. As result many will have cash and be in a position to buy when others will need to sell - out of job loss, mortgage renewals at a higher rate of interest, or for some other reason. By your definition these patient, rational individuals are predators. You expect us to have sympathy for those who will be caught up in the correction - and to a degree we do but only to the extent that many were victims of low levels of financial literacy and unscrupulous banks and realtors who failed to sufficiently educate and serve their clients. But our sympathy is limited as this market has left many of us shut-out or having to delay our home purchase by many years - all due to the irrationality of the market that has been fueled by low interest rates and realtors.
How do you 'fix' the market - quit manipulating it to the point where its broken! Quite socializing the losses and force banks to make sound lending decisions based on the risks their client's present, oh and maybe start providing some financial education to those who are participating in the market. A financial advisor would be sued for behaving as many realtors do!
http://articles.moneycentral.msn.com/Investing/StockInvestingTrading/housing-crash-spawns-big-lawsuits.aspx
http://www.nationalpost.com/news/canada/story.html?id=3040057
Bears, keep sharpening your claws, as the longer it takes to burst, the better it will be. ;-)
http://en.wikipedia.org/wiki/Real_estate_bubble
The SFH stats I reported are houses up to $775K and condos up to $625K.
okay for the final time;
my interpretation of predetors is not about "john and mary regular " getting a good deal .... that is just the way it is and part of the ups and downs
Its the events like the gift to lee khah chek (not sure about the spelling) getting the False Creek Lands back in the late 80's for twenty cents on the dollar and then getting the Province to foot the bill on the site clean up.
It is a forestry company getting 1000's of acres for a song, and the CRD having to buy some of it back (at market value) to give you some examples.
These lands where owned by you and me, we paid for them in the form of some tax or an other......
Those are the "preditors" I am talking about.
My first few years in real estate where in the recovery years after the big collapse of 1980.
We had foreign money buying up the West End of Vancouver, Whistler, Nanaimo, the Malahat, many prime pieces here in Victoria literaly by the bus load.
CMHC was sending out packages and auction invitations to Japan, Germany, the rest of Europe and the USA, for thousands of properties from small to in some cases entire mountains in whistler.
"Canadians Need not apply, was more or less the attitude, not that they where not allowed to buy, it was just hard to get access to all the information etc.
We had Japanese Buyers coming on property shopping trips for a week at the time, go home and send in offers on multiple properties.....
Special seminars and workshops where put together to foreign investors many of which in Japan or Europe.
BC and CMHC was having a " Province Wide Garage Sale" for about 3 years.
My point, did any of you get an invite...... ?
Other question, did any of you buy then during the early 80's, why not? Prices did go down up to about 60% in some cases (not so much on the Island) so again why did you not buy then?
how about the smaller melt downs in 1991, 1996 and more recently 2008 (about 10% in less than 6 months. Did any of you buy then, and why not then?
Waiting for the Big one?
Is this a group that is hoping for a 30, a 40, a 50 of higher % melt down?
If so, it would mean very few locals would or could be buying including those now waiting for such a collapse. we would all be scrambeling for survival and looking for a new job or cashflow elsewhere......
because such a collapse, particular if it happens just or mostly in BC, will recreate this very "garage sale" situation very easily and the real "big boys" (see I am not calling them predators anymore) will be buying up the province (whats left of it by then)
Most of the people on this blog are very smart and clearly have a great grasp of the issues and complexity of market movements up and down.
Others seem to just love to blame something or somebody without really any point to it all (greed, spite, anger or envy excluded)
Many also love to nit pick on details and small stuff, but ignore the bigger picture.
Some think it is cool that regular folks are or will loose their homes, just because they wanted to live their dream.
I am happy to participate, and share just not into defending every word or detail all the time.
I will likely get a number of you blast me and or all realtors over this post, fill your boots, (I have big shoulders)
Live a Pfanntastic Life and enjoy your sunday.
Other question, did any of you buy then during the early 80's
Yeah I did, and it taught me two important lessons.
One, buying a house at a sensible price is the most important financial decision you can ever make.
Two, houses will always be available at a sensible price if you wait long enough.
Signed,
The Predator
BTW, how much would the province have gotten for the Expo Lands if Li Ka-Shing hadn't bought? Answer: less.
Why don't you lay the blame where it belongs - on Vander Zalm for selling the lands when there was no reason or need to do so in the first place.
Hi Pfanns,
Thanks for posting, we really do appreciate the contrary ideas even if we're ready for a hearty debate :)
Anyways, so the drops of the 80's, 1991, 1996, 2008. I'll give you a quick run-down of why I didn't buy
1980's - Twinkle in my dad's eye. Have you ever tried to fill out the paper work and put that down? Yeah, they don't like that.
1991 - Yay grade 1! Quite frankly, unless your house was a candy store or toy shop I wouldn't have cared.
1996 - Lived in Yellowknife. I even remember Yellowknife having the most expensive real-estate in the country. This was due to the trouble of building. Instead of soil, we had granite and more granite. The golf course didn't even have grass on the fairways.
2008 - I was expecting prices to drop lower and I didn't forsee the emergency interest rates that the BoC implemented. Additionally, I didn't really have the money I felt I need to put a payment on a place.
While I think a short-term 50% drop would require a fairly significant event I don't think it's completely unreasonable given the right time frames.
I have always liked to compare Victoria to places like Winnipeg and Ottawa. So I don't think it's crazy to expect our prices to fall to around Winnipeg/Ottawa. Not huge, plenty of government work, etc...
"How do we fix it?"
The only "fix" for the "boom" part of a credit cycle is the "bust" - I don't think there is any getting around it - and it certainly seems to be well on its way. Asset prices have decreased dramatically during previous contractions. The most relevant data would seem to come from looking at the full cycle (60 to 80 years).
"If so, it would mean very few locals would or could be buying including those now waiting for such a collapse."
Correction: including SOME now waiting for such a collapse. I'm not sure buying today at today's prices and being wiped clean with a hypothetical collapse is the preferable alternative anyways.
Thanks for clarifying your "predator" definition because it wasn't obvious. Still, I can't fault real estate sales firms from attempting to get the best price for their clients. If it be wealthy foreigners, I fail to see how getting cold hard cash infusions when the government and local residents refuse to step up to the plate is unpalatable.
Americans know a housing bubble when they see one...
Mish posted this on his blog tonight.
Hosed in Canada; Housing Crash is a Given
A Canadian housing crash is a given. The only thing that remains to be seen is how deep the crash is.
.
Toronto Star article...
CMHC: Canada's very own ticking economic time bomb
So is Canada really the nirvana of the world? We are part of the Planet Earth. Our economy is very much interwoven with many other countries. Are we that much smarter then practically everyone else? Maybe luckier?
Or is there a potential financial disaster lurking just over the horizon, waiting to put us into the real world of true financial crisis? I believe there is. And that disaster is the Canada Mortgage and Housing Corporation (CMHC).
Its Monday morning and VREB has released last weeks sales stats. Not looking good for the press release tomorrow.
Victoria Real Estate Month-to-Date Statistics (as of May 30th)
Total Unconditional Sales: 658
New Listings: 1,548
Total Active MLS Listings: 4,417
Today's sales should come in around 32 so 690 for the month of May. Last month there were 756 sales. How does this stack up to sales in previous years?
2005 - 901
2006 - 909
2007 - 963
2008 - 770
2009 - 879
So May, which is usually the peak sales month, is down from April and 22% below May last year. Listings have reached 4417 and we now have 6.4 months-of-inventory. Here is how active listings compares to May in years past.
2005 - 2190
2006 - 2900
2007 - 3462
2008 - 4332
2009 - 3789
VREB will have a hard time spinning these stats and will try to pump this as a buyers market with low interest rates and lots of inventory to choose from. Will the Times Colonist, reprint this drivel or will they tell their readers the truth?
My office analyzes the stats on a weekly basis. Here are some graphs readers might find interesting.
Weekly Sales & New Listings Note that new listings have slowed down while sales have stalled.
Weekly Sales & New Listings - Rolling Average shows market is cooling off early this year.
Active Listings - Weekly Total shows active listings are still climbing but not as fast as previous months.
Sales Ratios Over Last Year reveals that months-of-inventory is rising quickly.
One can easily see that the market has peaked early this year. As I have said many times in the past I expect 2010 to be a repeat of 2008 with sales dropping off fast and prices trending down.
Ozzie Jurock, BC's real estate "expert", jumps on the Vancouver downturn bandwagon with his latest tweet on Twitter.
Markets are a'changing. May Vol off 15-20%, New and active Listings up 30-60%(used condos), prices down from March 2-4%.
http://www.cmhc-schl.gc.ca/odpub/esub/64179/64179_2010_M05.pdf
There's an inherent conflict of interest in the real estate profession, and not just the obvious one about commission structure. There's also the fact that real estate agents get paid when a property is sold, and they need a steady income stream just like anybody else. So even if they know now is a terrible time to buy, most likely the worst in a generation, their only choices are to either continue leading lambs to the slaughter or get out of the profession entirely.
They may tell buyers a little about "corrections" and "softening markets" and "down markets", but there is no way a real estate agent will ever tell someone looking to buy that it is the biggest mistake they will make in their entire life. Nor will they lay out the simple math that a 30% correction when you pu 5% down means you will be $100,000 under water on a $400,000 home. Because while the more ethical real estate agents may say just enough to let themselves sleep at night, the fact remains that if they want to eat they have to keep selling. If they have to choose between their family eating and your family declaring bankruptsy, they'll choose their family every time.
Ryan,
You raise an interesting point. But a realtor can still make commissions, be ethical and deal honestly in a down market by representing only sellers. Telling the truth and being frank with listing clients can help them unload before they lose even more money.
They can use the following approach to genuinely help sellers..
- Set a realistic initial asking price. Chasing the market down with price reductions is a sure fire way to get less for your home.
- Recommending ways of getting the home in tip top shape for sale. Painting, de-cluttering and staging if necessary.
- Preparing a good marketing package: professional photos, Internet & Print advertising and quality feature sheets.
- Personal networking with other agents. Unfortunately most agents just let MLS, PCS and Matrix do the work. This is unprofessional and to be blunt - laziness.
- Following up every showing with a phone call to the other agent to get market reaction. This feedback is passed to the client so any deficiencies in the home appearance can be addressed.
- Using their negotiating skills to get the best deal when an offer comes in. New agents are weak in this area but old hands know what to do in a downturn
Good afternoon all;
My two coppers say: Just as some logical people sell their homes when prices are high they also buy when prices are down. It's simply the old financial rule of thumb: Buy low/Sell High.
Obviously many families can't just pull up roots every 7-10 years and rent for awhile, however they can do this at every 2nd wave. The key in my experience especially for first time buyers, however painful and frustrating it might seem right now, is to wait the entire low phase out and then sit til you see a positive quarter of house price increases-- then jump in. In the meantime save,save,save in order to have a sizable down payment as chances are when the prices are down...interest rates will be up. Just simply KNOW that you are doing the right thing.
Take note: 2009 was just an A-typical blip for the reasons of government interventions etc.
Be patient.....and it will pay off for you.
There's an inherent conflict of interest in the real estate profession
No there isn't, any more than there is in the car salesman profession. Real estate agents are paid by the sellers to get the higher possible price. Just like car salesmen. They are not working for the buyer.
Double-Agent,
Good point, I was only talking about buyer's agents.
I don't ussually make predictions, but I will make one for tommorrow. It looks like we are going to see a double whammy on the local market with this months stats stinking the place out AND popular opinion is that the BoC is going to raise the rates. I predict many price corrections on my PCS.
More agents are admitting the market is slowing down. Check out this blog post by local RE agent Sean Farrell. click here
The statistics from last week lend further support to the trend of rising inventories, which has been expected for some time. That being said, we also continue to notice increased activity in the $1 million to $2 million range, while the $500,000-$700,000 range continues to slow, especially for homes with secondary suites (this due to the tighter lending conditions imposed by the federal government).
It's beginning to smell a lot like '08, all around this town...
Except unlike '08, there really isn't much left to prop the market up...an extension to mortgage terms won't fly, nor will lowering down payment requirements and rates can't get any lower...
Nope there's not much to prop the market up...and even the realtors are coming to that conclusion. It's Phantastic.
Interest rates went up 0.25% this morning, as expected.
Also, from Garth's blog...from a guy named "Dan in Victoria" - wish he would stop by here - he has good posts.
"Well something is in the wind here in Victoria.
One of my buddys came by this morning to go for coffee, odd because hes normally flat out. Too busy for that.
He owns an excavating company…. dead absoutely dead were his words, nothing coming in.
Another fellow I know who is normally busy phoned me this afternoon, Hey are you getting any calls?
Another guy I know phoned last week and said he was down to part weeks.
And my phone has not rung(for work) in two weeks, that has to be a record I think.
Lets see how this plays out going forward.
Thats what we are seeing in the trenches here……"
The market is really taking a step a back and with a 0.25% interest rate hike this morning, will eventually take more buyers out of the market (after their current rate holds run out or when they have bought).
According to VREB month end stats, this month we had 695 sales in the board, versus 756 last month and 879 for May 09
Inventory rose from 4229 last month & 3789 May 09 to now 4521 this month.
Those are very significant changes during our typically busiest time of the year.
This months oficial press release has not been published yet, but should promise to be a piece of "Spin Art"
there is no panic as of yet and we may see things balance over the next little while, but clearly we are not just in a little glitch anymore and the next 60 days will be very important for our long term local real estate market and local economy.
In May, Vancouver detached houses saw a drop of $48K in price...
http://www.yattermatters.com/real-estate/mays-wilting-flower/
Peter & Linda,
Great comments - keep posting..
With house listing up 20 percent and sale volume down 25 percent, are we running out of buyers at current prices?
The sales to new-listing ratio for the urban municipalities during May indicated a balanced market between buyers and sellers with prices being stable and only slightly higher that May 2009.
Which is not typical for one of the busiest months of the year. When things were really rocking in Victoria that sales to new-listings rate was over 0.9 and annual prices were rising at 15 and 20 percent.
May and June can be the hottest months of the year for real estate with the third quarter usually showing increasing inventory and a lower sales to new-listings ratio.
The trend would normally be for lower sale volumes in the third, fourth quarters. Coupled with weakening fundamentals such as rising unemployment and falling consumer confidence should mean a continuously lowering of prices for at least the remainder of the year.
So, you gotta ask yerself, if there is gonna be more properties to chose from; and prices are gonna be lower next month and the month after that - why yah buyin today?
And if you want to move up in the market. Sell your house and take a long, long closing date with a big, big non refundable deposit. Short the market!
Sorry but the rate hike will probably have zero affect.
1) Under the new rules variable rates are not considered anyway.
2) Banks will be upping the discount off prime so it's likely variable rates will not move at all.
3) Bond yields on 5 year bonds are down on the rate hike news since .5 was priced in.
Never the less this market is clearly on a downward slide.
Another agent in Vancouver posts about the downturn in real estate.
Mays Wilting Flowers
The showers of April were not enough to stop Vancouver’s real estate market flower from wilting. For the two months prior, records were broken as the highest average detached prices were recorded in the Real Estate Board of Greater Vancouver’s history. In May 2010, those records are now a thing of the past as the average detached price heads back to familiar territory.
HI Maniac,
You are correct, the rate hike on its own won't have any affect, at least not short term, it is just one more factor that will make many buyers take a step back before doing anything now or for the foreseeable future.
Today we have 15 months of inventory at current sales levels, that is a huge difference from a year ago and compares with pre market adjustment levels from 1995 and 1991 (only 1980 was higher that I recall, when the big axe came down)
I am not looking forward to this for some of our clients that will get caught in refinancing and or substantial equity challenges.
But for the people downsizing, and 1st timers, and as suggested before some small investors, as well as those that can sell now and buy back in later, there will be great opportunities moving towards you like a freight train.
The rebound upwards will show itself very clearly as well once inventory to sales ratio's start getting back to an inventory level near the 8 to 9 months worth of supply.
I know some of you love this for your reasons, I must admit, I see a lot of hardship and problems coming up for many that got caught up in the hype a few years ago and feel bad for them.
Never mind the lay-offs in construction, inspectors, renovation, moving bus, legal industry, and many of the other businesses benefiting from brisk real estate activity (not just price increases)
We don't worry about our practice, people will always buy and sell and seek out those that serve them well, and after this many years we have been fortunate to have established a great report with our clients.
On a side note; in 1995 we had the highest number of realtors ever in the VREB at 1642, by late 1997 we where down to fewer than 800.
Today we are back up at approx 1,300 I bet any of you a nice bottle of wine that by the end of this year we will be down to about 1,000 give or take a few.
Maintain your COOL, "we ain't seen nothing yet" (as the song goes).
I wonder what happened to Think?
All this mayhem and not one post. Think - if you are around enjoy these charts comparing May 2010 to the previous 5 years.
Sales to New Listings Ratio like 2008
Sales to Active Listings Ratio worse than 2008
Months of Inventory in bear territory.
Actually the legal services industry is likely to be unaffected by a market downturn and may even experience growth.
Why?
As the market slides downwards and equity is wiped out, people face foreclosures, increased strain and increased conflict. So what is lost in relatively cheap conveyancing work is more than made up for in more lucrative foreclosure and divorce litigation.
Legal services does well when things are booming and it does well when things hit the skids and it does okay most other times.
Now the lawyer/notary who only does conveyancing work, well they might be a different story.
If only large legal firms had stocks traded on the stock exchange - it's one area I'd actually be comfortable investing in.
VREB report is now out - click here
It was a bleak report with sales down, inventory up and condo/townhouse prices dropping. Single family home average and median did rise however. This was mainly due to high end sales and one 3.5 million dollar sale in Oak Bay. Here is the price breakdown - April in ().
SFH average -646,483 (624,149)
SFH median - 594,500 (572,500)
Condo average - 324,005 (340,105)
Condo median - 290,050 (305,000)
Townhouse avg. - 430,713 (449,556)
Townhouse median - 418,000 (430,000)
There was some great "spin"...
The number of homes and other properties sold throughout the Victoria area softened in May while the choices for buyers increased with a further rise in the number of properties available for sale.
"So far this year sales are running nearly 14 per cent ahead of the first five months of last year
Masters added that further increases in the number of properties available for sale should temper upward price pressures as buyers enjoy a wider selection of properties from which to choose
Randi - Buyers are clearing choosing to move to the sidelines in increasing numbers. Why buy now when price drops are inevitable?
For your reading pleasure,
here is a link to all 18 pages of the monthly VREB review.
As skeptic is showing the spin is on.
averages lie, medians (over a 6 months period will give you a much better indication of reality.
This is month 2 or 3 with this very distinct change in market activity and direction, so the next 60 to 90 days will flush out the true market reality with proof beyond the possibility to spin it in to utopia.
Have fun studying the information in the complete release
http://www.drivehq.com/file/df.aspx/publish/PeterPfann/Pfanntastic/2010-05_vreb_statistics__statistical_digest_(2).pdf
Take heart people....Most of the "deals" out there, i.e. SFD under $550.00 have now been bought up by FTB's. Loads of those had income producing suits.
So the reason that the average and median prices are up is that now the "not so suite" deals are coming on the market and are being reduced then sold or like many are just sitting there. These are homes that would have been a few months ago priced between $550-$720K. Now they are being newly put on the market, re-listed or reduced to prices between $520K-$559K.
Some examples been posted on MLS in just the last TWO days are:
Savannah SE $569 - $539
Marifield JB $575 - $559
The Rise Vic $565 - $554
Alder SE $579 - $559
Finlayson Vic $619 - $559
5th St. Vic $589 - $549
Myrtle Vic $554 - $524
Kings Vic $559 - $537
Astra SE $579 - $558
Also here are some Fairfield homes that sold in May. The real estate
scene is only going to get progressively worse for home sellers.
Earl St. $700 - $685
Fairfield $725 - $678
Joseph $589 - $538
Richmond $619 - $570
Richardson $697 - $678
Irving $785 - $725
Bank $614 - $580
Langham Ct $589 - $550
Terrace $749 - $735
And the condo market? Nothing is selling.....unless they are being sold at firesale prices.
Pitiful cut and paste job at the TC. According to them a sales decrease of 8% in one month and 22% YOY is only a "slight" drop.
Carla the parrot squawks again!
I see the VREB is now back to reporting total sales over 5 months when there is a downturn. They did this before when the market tanked.
To date this year, sales are nearly 14 per cent ahead of the first five months of last year, said Randi Masters, Victoria Real Estate Board president.
At least Randi had the honesty to follow this with..
“It’s important to note that the first few months of this year were very strong compared to the same period a year ago when the effects of the recession were still being strongly felt.”
This is a choice line...
Higher inventory should “temper upward price pressure,” Masters said Tuesday. Total inventory is up 19 per cent from a year ago.
Uh Randi - I think you will find only downward price pressure in the coming months
The Single Family Home (SFH) prices that are published every month include all categories of house sales. VREB and CMHC also release the SFH prices that exclude waterfront, acreage, duplex, triplex etc. and this is shown in the following chart along with condos and townhouses. Take a look at May 2010 compared to previous months. You will note that typical SFH only increased 10K compared to the 22K reported in the VREB press release.
Victoria - Historical Prices - click here
BTW - I have not been getting much feedback on my recent stat and graph posts. Maybe it is boring stuff to readers and no longer of any interest. Let me know if it is worthwhile to continue.
Double Agent....I really appreciate your graphs there is nothing as telling as a big picture at a glance
Love the stats and graphs - that is one of the reasons this blog is great - reliable, accurate local data and analyses.
DoubleAgent,
your posts are most informative. I am just a little inundated lately.
Owners Stop Paying Mortgage ... And Stop Fretting About It
http://finance.yahoo.com/news/Owners-Stop-Paying-Mortgage-nytimes-4276925797.html?x=0&sec=topStories&pos=6&asset=6d3fd4e82c82aaff530195d88ce826b8&ccode=rd
Coming to an overpriced Canadian town near you.....
Double Agent & Peter Pfann,
Thanks for all the stats and reports. It is amazing how one can be so mislead by the way VREB selectively releases stats to the public.
Here are some of my observations after reading this material:
- In May 364 houses of all types sold for an average of 646K. 12 of those houses were waterfront and 20 were acreage etc. The average for the remaining 332 was 609K. So 32 homes accounted for the 37 K difference. Really shows how high end sales bias the stats.
- The 332 houses sold in May is a big drop from the 378 in April and way less than the 445 in May 2009 (25% drop). Inventory has jumped to 1449 from 1256 in April (9% increase) and is also up from 1037 (whopping 40% increase)
- Townhouses had a big drop in May as well. 63 versus 87 in April (28% drop) and 88 in May 2010 (28% drop). Inventory now stands at 349 vs. 318 a year ago (10% increase). Prices have been dropping from a high in December 2009 of 474K to 431K in May.
- The big surprise is in condos. Sales have been steady with 202 in May, 191 in April vs 223 a year ago (9% drop). The average price however dropped last month by 14K to 324K.
Alexandrahere,
Looks like lots of price reductions out there. The new mortgage rules will have an impact on the "suite deals" as well. Under new rules buyers qualify for a much smaller mortgage for homes with a mortgage helper.
Bears just need to be patient. The MSM and VREB are still singing the balanced and stable song but that won't last more than a few months.
Great chart Double-Agent.
I just got a chance to read all the posts from today - been rather a busy day, but I wanted to make sure Double-Agent knows how much I value his posts! I am as bear as they come - enjoying the shift - just been really swamped lately and haven't had as much time to post. But I'm always around :)
I have looked at the Vancouver and Victoria stats and I am noticing a slight up tick in sales (even more so in Vancouver) the past little bit. Does anybody have an idea as to why? Even double agents stats show this increase. May should be decaying not increasing. ideas?
Just a question... Is anyone else surprised we didn't see a price drop for May? I thought for sure we'd see a significant drop in sale prices this month considering how many houses I've seen selling well under asking price and with all the price reductions. Oh well, just have to be patient I guess...
Hi think;
I was shocked as well, especially after reading Vancouver's sales dropped $48K last month.
However, the mean (average) price is highly influenced by very high, or very low sales. Really low is highly improbable in this market, but really high is not. Last month there was one sale of over $3.5 million and a whole lot of $1-2 million. I definitely think that skewed the mean upwards.
However, the median was also up (not nearly as much). The median can be misleading as well, though.
Next month may see a very, very large drop if May's increase was largely a statistical artifact.
But yes, I was very surprised.
Think: My idea as to why prices went up. The median SFD is only $500 less than the record in January.
Price reductions are up. Inventory is up. Sales are down. Perhaps the sellers of more expensive properties that have been on the market for a while are accepting low offers. This would also explain my question earlier about increased sales as well.
Hi people;
What I meant on my last blog....is the price increases are showing average housing were selling in May for say $550 or whatever up from previous month. But and this is a big but.....the houses that were selling before i.e. at slightly less prices were houses that were of much less quality as the ones that sold in May. The May house sales were for houses that previously were selling for say $600 - $700 in Jan, Feb, Mar, April but are now selling for around $550. The houses that sold for $550 in Mar, April and May would now be selling (if they were still available) for under $500K. So.... the average and median prices may be up for May but this is because those houses in previous months would have sold for so much more. In other words what you were getting in Feb for $540K would now go for $499K; and the ones that you have to purchase now for $550K were selling in Feb for over $600K I hope this makes sense to you.
"Last month there was one sale of over $3.5 million and a whole lot of $1-2 million. I definitely think that skewed the mean upwards."
It seems like every month we have 20 to 30 >$1 million dollar sales so how much is the price actually being skewed month to month? Its not like one month we have one sale over a million and the next 25.
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