Wednesday, June 2, 2010

CREA puts a fork in it

Story here.

You know they're sh&tting over in the CREA headquarters when after one month of declining sales volume they soften their yearly projections. This isn't like 2008 over again, it's something new, it's happening fast and that panicked feeling in the head office is flowing out into the streets.

If you're out shopping for a home in Victoria right now and you pull the trigger you must be one of the most impatient persons around. It's literally like watching the shop keeper put out the "on sale" sign but rushing to get to the till before he's had a chance to lower the price.

67 comments:

Claire said...

Here we go!
http://www.cbc.ca/money/story/2010/06/02/crea-housing-forecast-2010.html?ref=rss

bullbear said...

The 'appearance' of an uptick in average SFH prices and sales lately is predictably panic marketing from developers (especially higher end which skews averages), as well as many well-off buyers simply trying to beat the HST. 'Case-Shiller' would show a drop in Victoria SFH May price. But be prepared for fixed rates to keep trending down 'til Autumn. Doubtful there will be any further variable increases 'til then either. At that point, gov'ts will be inclined to pull all possible levers to fend off deflation and we could enter a new secular bear market in bonds, with rates heading back to a more historical average.

Just Jack said...

Median Asking Price Expectations for house in the urban municipalities for the months of:

March 2010 $632,450 or $292/sq.ft.
April 2010 $642,450 or $303/sq.ft.
May 2010 $638,450 or $296/sq.ft.

April, May and June are typically the better months for sellers and their expectations. This May the expectations of sellers is characterized as stable to a very slight decline.

Greed is slowly being replaced with fear in the pool of sellers. A seller perceives the real estate market as it was 6 months ago. Changes in the last 2 months have yet to play heavily in their minds. Visual clues, such a lawn signs, are an important signal to sellers and buyers, especially if a good portion of them remain on the site with words such as reduced or new price on them.

Actually, the real estate board should instruct its members to remove the signs immediately after the sale completes in order to lessen the negative impact on buyers and sellers.

Just Janice said...

I woke up this morning and thought it was Christmas when I saw the headline...

Skeptic said...

More on the CREA forecast revision..

Gregory Klump (alias, "Klumper the Pumper) has never had one forecast that stood the test of time. The latest one is no exception.

Group cuts forecast for Canada house sales, prices

The Canadian Real Estate Association cut its 2010 forecast for resale house prices and sales on Wednesday, saying sales in British Columbia were not as strong as expected at the start of the year.

The industry group said it now expects the average national price to climb 1.6 percent to C$325,400 ($309,905) in 2010, a big drop from its previous forecast of a 5.4 percent gain.

CREA said it now expects sales in British Columbia to fall 5.9 percent this year to 80,000 units from 85,028 units in 2009, while prices in the Pacific Coast province are seen up 2.3 percent at C$476,400.


We can expect things to be much worse if CREA is already predicting a sales downturn. Stay tuned for more nonsense from Cameron Muir, the BCREA pumper. He is revising last months forecast right now.

NanHousing said...

a

Skeptic said...

TC revises yesterdays story for today's print edition. Slightly dropped from headline ..

Real estate market cools - Sales down, but listings up in Greater Victoria

Sales declined and the number of listings swelled to more than 4,500 last month as Greater Victoria's real estate market continued to cool.

Properties listed for sale climbed by nearly 300 during May from the previous month while the number of homes sold through the Multiple Listing Service totalled 695. That's down from 756 sales in April and 789 in March, according to the Greater Victoria Real Estate Board.

A slight price decline hit townhouses, which had an average price of $430,713 last month, down from $449,556.


Hmm.. A 19K drop in town home prices is a slight drop? I hope we see the same slight drop every month.

NanHousing said...

They are also changing their tune North of the Malahat, from Nanaimo Daily News:

"The good news for sellers is offset by a rise in housing stock and expectations of higher interest rates, which together are expected to cool that price rise

"What this becomes is a more balanced market," said VIREB president-elect Jim Stewart. "We haven't seen it this month but we'll (soon) start to a trend that houses will stay on the market a bit longer."

"Prices are up but the rest of the year I don't think it will climb, because of (rising) interest rates," said realtor Sue Ghose."

Quite a change from what is seen in the Times Colonist which says lots of selection is good for buyers and the prices will be pushed up.

By the way the MOI for north of the Malahat is now 6.5+. The last time sales were significantly lower were 2001.

JustWaiting said...

Just Janice said..

I woke up this morning and thought it was Christmas when I saw the headline...

Was it this headline? :>)

Scan of TC Business Page

NanHousing - Looks like VIREB is saying the "boom is over"

Robert Reynolds - GBA said...

I love the TC spin on the headline

Real estate market cools - Sales down, but listings up in Greater Victoria

Sales down is bad for RE, BUT listings are up is is good right? we want up... wait you mean up is bad?

I like how they try and make the rise in listings into a silver lining, even though it is a negative.

NanHousing said...

but (bt; bt when unstressed)
conj.
1. On the contrary: the plan caused not prosperity but ruin.
2. Contrary to expectation; yet: She organized her work but accomplished very little. He is tired but happy.

Real estate market cools - Sales down, and contrary to our expectations, listings are up in Greater Victoria

Even then is is awkward, implying that when sales are down, listings are supposed to be down as well, which makes zero sense.

I think someone needs to go to grammar school.

Just Jack said...

In my opinion, most if not all of our increase in the number of listings is due to the drop in the number of sales. It does not appear, to me, that there is a panic of home owners to sell. So what we are seeing here is a demand-driven downturn. Not the popping of a bubble.

That doesn't mean that we could not see panic in the streets in the months ahead as the motivation of the sellers change. The last three years has been flat, down and up which is not good for those who bought, refinanced or added to their lines of credit and are having a difficult time making payments. People are finding that with all the additional charges, they now owe more than the market price of the home and can no longer finance themselves out of debt at the higher interest rates.

This results in an increase in court ordered properties for sale, marriage and partnership problems.

So the trend is for fewer sales and more motivated sellers. I think, eventually, our market will turn to one dominated by distress sales. Initially these low priced sales will show up as anomalies in the marketplace. If you have enough of these low price sales they become the market as these are the only properties that are being purchased by the fewer buyers.

So, in order for our market to go "bubble" we will need to see not only an increase in listings, over that of a demand-driven downturn, but a change in seller motivation as well.

We aren't there yet, but I don't think it will take us long to get there. As in the USA, those cities that had the highest price to income ratios, fell faster than others. Especially in cities that were dominated by retirees with marginal industrial or commercial enterprises that could have helped to offset the loss of construction related businesses.

When I look at who owns what in Victoria. I see that a good portion of home owners in Bear Mountain are in constructed related businesses. I'm thinking that is going to be our "ground zero" for houses.

Phil said...

Don't worry, our local rag isn't the only paper printing RE forecast nonsense.

Check out this Forbes article on the great housing recovery forecasted for the US from 3 years ago. Unbelievable that people aren't being sued over stuff like this:

Forbes 2007 forecast

Alexandrahere said...

Vancouver average house prices were down in May by $48,536K from April.

One blogger on Yatter Matters says, "he is hearing from bankers that many realtors are commenting that things have turned dramatically in terms of activity in the past two weeks"

CD said...

Does anybody know any realtor's locally that will just list a house on mls and/or offer reduced services?

I have a friend that is interested in selling a place. But is leaning towards FSBO.

maniac78 said...

Phil why do you think op-ed piece writers and economists should be sued for their opinions? Are you against free speech?

Phil said...

Maniac - where did it say that was an opinion piece and/or a paid advertisement?

Most of us agree that newspapers are walking a fine line publishing their pump articles and re-hashing real estate board statements word for word.

Should they be accountable when it all turns bad?

patriotz said...

Predictions and forecasts are opinions by definition. The future is unknown.

maniac78 said...

Wow Phil you have a very strange view of the world. Interestingly enough you are a hypocrite since you've made predictions, published them online and have been wrong. Go hang yourself immediately please. Geez. Hey do you use a financial adviser? Did they make some wrong calls just before the crash? If so can I assume the lawsuit has already been filed Phil?

Phil said...

"you've made predictions, published them online and have been wrong."

Um, really? Where did I predict something and was proven wrong?

Alexandrahere said...

I personally get very angry when I think that so many realtors have sold so many tiny junk box; cardboard condo's to rather innocent young individuals and couples.

I remember reading in the paper, maybe a year ago? ....when the Times-Colonist had a pic in the paper of a young couple that had just purchased in the Juliet. The paper seemed so "happy" for them that they were able to "afford" to squeeze themselves into this. They weren't able to afford the extra cost of a parking space though...I think that was something like an extra $40,000K.
extra. Because of the downturn in condo prices; the one % and the 2 %, lawyer fees, moving fees, and the eventual real estate&lawyer fees & the 1% and the 2% all over again when they would like to move "up"-perhaps because they are now expecting a child? .... Forget it! It will be 20 years before they will be able to get out of that mess. And the realtor goes to bed and the editor goes to bed....and I weep for them.

NanHousing said...

A realtors job is to simply look for a suitable house for their clients and handle all transaction and negotiations facilitating a purchase.

Their job has nothing to do with making sure their clients are financially literate. It is people's own fault for not doing their own due diligence.

It is the same if I go to Future Shop and buy a new TV. I can be dumb and sucked into buying expensive warranties/cables.

The sales guys could care less how I pay, they simply want to facilitate my transaction (getting my money and providing services/products).

They have no idea if I just spent my paycheque for rent and food or if I am dipping into a LOC that I will never be able to pay back.

Animal Spirit said...

Alexandrahere: "And the realtor goes to bed and the editor goes to bed....and I weep for them." That is the basic problem - the realtor and the editor are in bed together and enjoying it. That is until one tells the other that he is married and then the other mention something about STDs and multiple partners and then all hell breaks loose.

Had a great time filling out an on-line survey of the TC a few days ago. If enough of us answer the survey, then their statistics on satisfaction on business reporting should be quite interesting.

Alexandrahere said...

I find most intellectuals just like to impress others with their never ending wordiness. Usually they don't have a pot to pee in.....pardon the expression.

I have made an awful lot of money in real estate....being smart and making calculated decisions.
Many, many people in the past say that I would be an excellent realtor. But sorry, I couldn't sleep at night knowing that with my "professional" help that I had lead another little lamb to slaughter.

And as for those people in future shop......well thats another story.

Marko said...

"I remember reading in the paper, maybe a year ago? ....when the Times-Colonist had a pic in the paper of a young couple that had just purchased in the Juliet. The paper seemed so "happy" for them that they were able to "afford" to squeeze themselves into this. They weren't able to afford the extra cost of a parking space though...I think that was something like an extra $40,000K.
extra. Because of the downturn in condo prices; the one % and the 2 %, lawyer fees, moving fees, and the eventual real estate&lawyer fees & the 1% and the 2% all over again when they would like to move "up"-perhaps because they are now expecting a child? .... Forget it! It will be 20 years before they will be able to get out of that mess."

I remember reading the same story. I believe they paid $254,000 and I believe it was 636 sq/ft condo, both UVIC grads. It was a presale condo it is unlikely that they used a realtor.

- 636 sq/ft condo is a solid size, but then again I am from Croatia where 6 people would live in this square footage.

- Parking spot? Do you really even need one? For example, I work the at Jubilee, my girlfriend works at the Ministry of Health. From the Juliet she would have a 2 minute walk; I would ride my bike 10 minutes to the Jubilee. I currently have a Honda Civic because I have multiple jobs but if I was just working just at the Jubilee I would most certainly sell it.

- Never assume just because someone is young that they can't afford real estate. For all you know she is a nurse pulling in $70,000+ and he has an engineer and pulls in $70,000+ as well. They could have both attained these professions by 22. I graduated from Vic High (as bad as it gets) in 2004 and I know 10 or so classmates that had high paying degrees by 23 (pharmacist, computer science, nurse, three guys finished engineer)...Etc

I know it is hard to believe, but someone people study hard, work hard, and with a bit of luck have money.

WiseInvestor70 said...
This comment has been removed by the author.
WiseInvestor70 said...

http://tinyurl.com/lzpzk

Alexandrahere said...

Marko....try selling that 600SF condo with no balcony and no parking spot (and probably now no possibility of buying one)to a buyer.

And as I recall these people were just eking by as it was.

There will always be university grads and adult children with supportive well to do parents etc out there whom really can "afford" to eat up the loss. Perhaps you are one of them.

I am referring to young people who don't have that kind of family support or education and will never have those kinds of jobs. When you live in a city that greatly depends on tourism, then you have many service delivery jobs, i.e. the housekeepers, waitresses, store clerks etc. Do these diligent full time workers need or deserve less in terms of shelter?

Rhino said...

"try selling that 600SF condo with no balcony and no parking spot (and probably now no possibility of buying one)to a buyer."

Exactly, as Kevin O'Leary said on his show last week, when the price of a shoe-box in the sky starts to fall it doesn't touch the sides on the way down. A lot of these tiny units sold in the last few years are to amateur, very unsophisticated investors (speculators). The are the ultimate "dumb money". Once prices start to fall they will all fold like a cheap suit.

JustWaiting said...

Alexandrahere said to Marko,

There will always be university grads and adult children with supportive well to do parents etc out there whom really can "afford" to eat up the loss. Perhaps you are one of them.

Perhaps you unaware about our resident troll, Marko. Marko has been on this blog for sometime and no one knows what his background really is. Sometimes he claims to be a builder living in Oak Bay with a wife that is a a nurse and on other occasions a 24 year old living in his Dad's basement. Young, old, student, builder, developer, VIHA employee, stock guru, entrepreneur - who knows.

But Alexandra, you can be sure he will reply with lots of bravado and plenty of boasting about his accomplishments.

Skeptic said...

Remember last year when you couldn't get a plumber, drywaller or carpenter to do some renos or repairs on your home?

TC article:
End of reno tax credit fuels the black market

Mitchell Lucas dismantles drywall from the old Habitat for Humanity location on Douglas Street as crew member Nigel Bazinet works in the background. Lucas says home-renovation business dried up after the government's tax credit ended. Lucas said. "Usually I don't do this, but I'm doing it now because I'm just taking whatever I can get."

The tax credit was billed as part of the government's economic stimulus plan. It returned up to $1,350 to homeowners on work costing between $1,000 and $10,000 that was completed by Feb. 1, 2010.

For Lucas, it meant a rush of work -- and then a crash.

"Right until the deadline there, we were busy, busy, busy. And as soon as the deadline hit, we had about six weeks off," he said. "Zero work. No calls. No nothing."

It was the longest lull in two years and forced Lucas to lay off three workers.

Mark said...

AS CONSTRUCTION COMES TO A GRINDING HALT....AND IT WILL. THE TRADES WILL BE LEAVING VICTORIA IN DROVES.

WAKE UP PEOPLE THE ONLY REAL JOBS THAT HAVE BEEN CREATED IN VIC IN THE LAST 8 YEARS HAVE BEEN IN CONSTRUCTION. IT'S THESE JOBS THAT HAVE BEEN DRIVING THE "FALSE ECONOMY"

I KNOW LOTS OF TRADES THAT AREN'T WORKING. MOST OF THEM WILL BE LEAVING WHEN THEY FINALLY GET OUT OF THEIR DENIAL.....THE PARTY IS SO OVER!

Alexandrahere said...

Thanks Just Waiting for the tip.

Dave said...

How can a condo not have a parking spot? Isn't that typically a mandatory requirement? I know you have to buy extra spots, but I thought all condos had to include a parking spot.

Leo S said...

1137 Union Rd:

CUTE AS A BUTTON! In this VERY HOT MARKET, this house will not last.

Someone hasn't gotten it... :)

jesse said...

"Their job has nothing to do with making sure their clients are financially literate."

Then they need to remove any mention of the term "professional." To use the term "professional" requires practicing their trade within the confines of ethics and societal benefit.

Mr.4AM said...

Skeptic, that "busy,busy,busy then crash", is another way to describe consuming tomorrow's demand today - brought to you by government intervention. This is pretty similar to the US Cash for Clunker's program. Graph here of what this looks like.

The government in BC basically was on one side of the fence proping up the real estate market with lowered mortgage qualification requirements (5%, then later 0% down, the up to 40 year mortgage), ever decreasing interest rates... and now, they jumped the fence and are on the other side pushing just as hard.

Interest rates have just started to go up, no more house ownership tax incentives, significantly changed mortgage qualification rules to reduce # of people who qualify.

This can only lead to one thing... initial crash, followed by a long downtrend in house values. It's practically a no brainer.

The only caveat to all this is if we see another global downturn that removes the little inflation we are seeing now from the equation and puts a temporary pause on interest rate hikes... but then I would also expect the G20 to go into QE overdrive (2-3 times more than 2008/2009) to combat deflationary spiral... and then inflation risks will be even higher... meaning eventually interest rates would increase upward even faster (i.e. 0.5% to 1% at a time instead of 0.25%).

If there's one thing I've learned from the past ~3 years of watching the markets is that the governments can change the rules at any time, by any amount, and I don't care how big the markets are, or what the fundamentals at the time are are - If you try to bet against the government regulators you WILL lose. Only a question of time.

Mr.4Am

Marko said...

"How can a condo not have a parking spot? Isn't that typically a mandatory requirement? I know you have to buy extra spots, but I thought all condos had to include a parking spot."

City of Victoria changed regulations a number of years ago. I think you only need 0.5 parking spots for every unit or something along those lines.

I agree with this move, we need to encourage walking, biking, etc.

Mr.4AM said...

To further highlight my point above (governments make the markets, not the other way around), see Graham Summer's recent article regarding the trigger for the 4 largest trend changes in the past 5 months in the S&P500. (worth the 5 minute read)

The same applies to real estate. At the moment the Canadian government rules all point to a downward trending real estate market... until they change the rules again at some point in the (distant) future.

Mr4.AM

Dave said...

Marko, I agree. It's a good policy. I wasn't aware that Victoria had it.

It's a big issue in Vancouver and Burnaby when it comes to social housing. Most municipalities mandate that each unit have at least one spot. Two bedroom units typically require two spots. At the end of the day, this adds cost to a development since underground parking is expensive to build. If we want affordable housing, this is definitely an area for savings.

patriotz said...

If people want affordable housing (condos and other purchased property that is), all they have to do is pay less.

The seller's cost for a property, whether newly constructed or previously owned, has nothing to do with what it sells for.

Dave said...

Patriotz, you should try living in the real world.

Imagine if I said that all people had to do to get cheaper cars is to simply pay less. Do you really think Honda is going to sell a Civic for $7,000 because you want them to?

No, the cost of the car is a function of production cost plus profit. Real estate isn't really that different.

If a developer can't make a reasonable return, they aren't going to build. The implications here are obvious.

patriotz said...

Real estate isn't really that different.

Real estate is completely different because it lasts a long time, is financed long term and the stock greatly exceeds the flow. Also renting is an economically practical alternative to buying - unlike for cars. One more thing - you can't move it around.

RE cannot sell for more than people are willing to pay for it. What sets a floor on RE prices is rental value, not cost of building. People will be willing to buy at some multiple of rent. The multiple of price to rent depends mainly on availability of credit. If there's a viable rental market, people will be willing to buy at some price.

If there isn't - well look at Detroit.

That's asset pricing in a nutshell and it also applies to the stock market.

Dave said...

Obviously, there are big differences but the fundamentals remain. Things don't get built in a capitalist system unless there is a profit potential.

For you to say that it has NOTHING to do with input prices is to ignore the entire history of economics and capitalism.

Just Janice said...

Dave & Patriot -
Your're both right. The price of the existing stock is determined by what people are willing to pay AND if the prevailing price is less than costs to build no additional units will be built. However once built the cost to build is a sunk cost and quite independent from the market price. (see Phoenix). The costs to build in such a situation are also likely to fall at some point.

Mark said...

A good post from Garth's Blog....

It actually is different here… a few examples:

1) We’re startng to crash *before* interest rates have risen back to historical norms. The U.S. was crashing as bank prime rates reached 5%-6%, not 2%. This should accelerate the real estate decline in Canada, since interest rates cannot fall to help offset the high prices.

2) Our crash will hit more primary residences. A lot of the houses in the U.S. that people walked away from were investment/vacation properties.

3) Our Government already maxed out on deficits with the $50B “Economic Action Plan”, so incentives like $8000 per buyer seem pretty unlikely when we’re desparately trying to cut spending and raise tax revenues.

4) Our housing industry employees a lot more legal workers than the U.S. industry… so the real estate decline will have a more direct impact on the economy.

5) Because people can’t walk away from their homes (except in Alberta) without having other assets seized and/or filing bankruptcy, more people who were in “normal” financial shape before the crash will find themselves wiped out.

6) Fannie Mae and Freddie Mac are publicly-traded companies, so the crash of the mortgage insurance market has been shared between the shareholders and the U.S. Government. CMHC is 100% Government-backed, so all of the losses will be the responsibility of the Canadian taxpayer.

7) The U.S. housing bubble was one of the first to crash, and wasn’t widely predicted/recognized by economic forecasters until after the crash… the Canadian bubble has numerous pieces of evidence (i.e. other countries’ crashes) to point to, and is starting to get widely recognized now.

8) Similar to #7, the U.S. Government can claim that they didn’t see the crash coming… Harper/Flaherty and friends cannot make this claim, given the overwhelming evidence.

#8 is a big one for me...no excuse for the morons (politicians) in Ottawa and Victoria.

patriotz said...

The costs to build in such a situation are also likely to fall at some point.

Dave's big mistake is assuming that the costs of building housing stock are exongenous to the housing market. In fact they are highly engodenous. In plain language, the cheaper houses sell for, the less they cost to build.

That should be self-evident, given that houses continue to be built just about everywhere in Canada and the US, regardless of market price.

Marko said...

"In fact they are highly engodenous. In plain language, the cheaper houses sell for, the less they cost to build."

This is kind of a stretch.

City of Victoria will likely not drop the cost of your permits by $10,000, and water hook-up won't be $250 instead of $2,600, and to hook up to the sewer won't be $500 instead of $5,000.

City inspector will not be okay if you don't put a rain screen on your house, and if you don't follow all the latest building code upgrades. All of these upgrades cost money.

The wiring for the house, yea, that will get a lot cheaper, you know because we will have zero demand for base metals from China. Same with lumber, if construction is slow in Victoria they will sell it cheaper to us.

Warranty company will sell you a home warranty for $500 instead of $3000 because if it is slow there will be less claims per house?

And your plumber will work for $15/hour instead of $40.

This isn't phoenix were lots are flat and $10,000 and most homes are not prefabricated and dropped onto the foundation here.

The majority of lots left in Victoria (Langford) require $10,000 to $50,000 of rock walls before you even pour the foundation.

Now you might say, stone masons will be cheaper, I will say most stone masons will rather go on welfare than work for less than $15 sq/ft.

90% of builders use Milgard windows. You place an order, and your windows are shipped up from Seattle. Victoria represents such a small market for Milgard that if construction stopped in Victoria I doubt they would even notice, let alone drop prices.

Problem is, when prices do come down. I.E. Concrete is now around $130 per cubic meter down from $190 per cubic meter at the peak, companies struggle. Currently, there are 5 big concrete companies in Victoria and two will likely go under. Prices can't keep going down to, lets say, $80 per cubic meter because no one will be left in business.

If prices falls significantly construction will come to a stop, and if prices drop 30% and you can build 30% cheaper, please give me a call.

Dave said...

Patriotz, obviously there is some elasticity to prices for labour and materials. As Marko well knows and points out, it really isn't very significant. In a down market, your total costs might drop a little but not to the level you seem to think. Phoenix, Vegas and the like are hardly a good proxy for a potential downturn in Vancouver or Victoria. I might agree on some potential parallels in the Fraser Valley or Kelowna, but not in core areas.

Marko, the only point I disagree on are the brickworkers. I say they retire before going on welfare. Isn't that a really old demographic?

Marko said...

Canfor CEO has already made multiple trips to China this year.

If he can get 10 bucks for lumber from China, and 9 bucks for lumber from Victoria, guess where he will sell?

Builders go through lenghts to save money. If Trail Appliances wants $10,000 for appliances, and I can get them online for $6,000 shipping included to Point Roberts, guess what I am doing on my Sunday? Jumping in the truck, driving 5 minutes across the border and saving at least $3,500 factoring in ferry, gas, and storage at Point Roberts.

I really can't see myself getting those $6,000 appliances for $4,000 just because construction in Victoria stops.

Marko said...

"Marko, the only point I disagree on are the brickworkers. I say they retire before going on welfare. Isn't that a really old demographic?"

Yea, I agree. Most of these guys are older and ready to retire. Problem with most new guys is they are inexperience and not willing to work as hard, and switch careers on a monthly bases.

Basically no one is going hungry; therefore, no one is going to do heavy physical labour like stone masonry for cheap. Whereas when some of these older masons came from countries like Portugal things were a little different. You come to a country, you have a shirt on your back, and you don't speak the language, obviously have some incentive to work hard.

patriotz said...

Patriotz, obviously there is some elasticity to prices for labour and materials.

You left out the big one - land. It can go right down to zero. Totally endogenous.

Dave said...

What land? How many vacant parcels do you see in Vancouver or Victoria? Land is a smaller price factor when you densify, so a drop in price has marginal effect.

Don't hold your breath waiting for land to drop to zero. This isn't Saskatchewan.

Just Janice said...

Marko -
You're wrong. Not surprising given that you can't decide who you are.

Costs of building very much so will go down if the housing market corrects significantly. Land is a huge component of the building cost - if housing isn't moving, neither is land - both of their prices fall. The other large component is labour. If nobody is building, nobody is working - but the bills still need to get paid - better to get paid some than hardly at all. The costs of permits and the such may also fall as all of a sudden there are more building inspectors available and the city is facing a different cost structure in issuing such permits - and its better to be selling some permits than none at all. Cost of materials may also come down - particularly if the correction is widespread - if just Victoria corrected - probably no impact on material cost - but when large portions of the rest of the world are also facing difficulties - the price does indeed come down.

Saying it's expensive to build now does not mean it will always be expensive to build.

Animal Spirit said...

Check out the listing at 2825 Fifth Steet (on Matrix, not MLS):
" Currently tenanted month to month. This is a foreclosure.Seller is encouraging your offer!"

hmmm. so tenanted month to month, but the owner couldn't make payments...

(listing at 70K over assessment - even the banks are fishing)

patriotz said...

Don't hold your breath waiting for land to drop to zero.

Didn't say I was. But a drop to 2004 real prices, certainly. The rental yield on the land - which is no higher than any other other major Canadian cities - does not justify even that much.

Land is no more scarce in Victoria and Vancouver than in Calgary, because it costs no more to use (rent) it. That's what scarcity means. For example, you don't see vacant lots with cars parked on them downtown in cities where land really is scarce.

Marko said...

"The other large component is labour. If nobody is building, nobody is working - but the bills still need to get paid - better to get paid some than hardly at all."

I don't think you've ever worked with trades people. Even during severe corrections maybe half the people you call show up. When you ask for a GST number and WCB number, that eliminates another portion. When you ask for a written contract that leaves you with maybe 1 or 2 options.

People will rather go on EI or welfare than come work for cheap.

At the end of the day everyone is getting fed, 76% of immigrants coming to Canada last year had a university degree (versus 42% of Canadians) due to very strict immigration rules.

Your typical immigrant is a doctor or a UVIC prof, not an old school stone mason willing to work long hours for reasonable amounts.

kabloona said...

"Your typical immigrant is a doctor or a UVIC prof, not an old school stone mason willing to work long hours for reasonable amounts."


You are officially delusional, sorry.

maniac78 said...

Most new immigrants go immediately unto the welfare rolls and stay there for a long long time. Immigrants are not counted in unemployment numbers in Canada until they have been here for 10 years or more. Why do you suppose that is? I know in High School in BC they still teach kids that immigrants are the best thing since sliced bread but it's not really true. It's far better to grow your population domestically than to import twenty somethings and older people who have different values, speak different languages, have no western work experience or skills and come from countries with different educational standards.

inglishmagor said...

Marko has a point. The key difference is a correction lasting 6 months vs a correction lasting years. People will take the UI option rather than taking a lower paying job. For the first while it will even feel like a long deserved holiday. It's only 8 months down the road when things really start to look different.

Through the 90's I was in the 18 to 30 crowd. People for sure played the UI game. They also jumped at any work around because it was tough to get enough work to qualify for UI.

Lean years are not a market correction, they are a completely different outlook on the world.

JustWaiting said...

Marko said,

Even during severe corrections maybe half the people you call show up.

The last severe recession in Victoria was in the early 90's. How would you know what a severe correction looks like if you are only 24 years old? Or was your last post made posing as a builder with a wife and kid living in Oak Bay?

I suggest that in the future you post under different screen names like Basement Marko, Builder Marko and Investor Marko so that we know which of your split personalities is making the post.

Mark said...

Regarding Trades and not lowering their prices or preferring to go on UI.....Holy shit man where have you been!

Not 8 years ago I knew a guy that was hustling to get work. Renos, basement suites, anything....and he was doing it for $20/hr He is a carpenter by trade.

Fast forward 8 years and he is now a "developer" gouging the people he builds for living the dream. Hmmmm, this sound familiar? we all know guys like this, don't we?

Luckily this guy went slow and steady, isn't' sitting on 6 empty lots and 4 unsold spec houses. I know he put some away for a rainy day and that's good because there are going to be plenty of those in the near future.

Besides, as a contractor (self employed) which many of these trades people now are, are they even entitled to pogo? I'm pretty sure they aren't. I know a lot of guys out of work right now that are working for a lot less money than a year ago.

Labour will come down considerable and it already has. But who cares because no one will have enough money for renos let alone building a new house.

Silly argument......people take what when they can get when times get tough. To suggest a bunch of dum bass trades are going to get all high and mighty and not undercut each other when they are trying to survive is ridiculous.

Solidarity forever!!!! LOL I think not.

Deanna said...

maniac said:
"Most new immigrants go immediately unto the welfare rolls and stay there for a long long time. Immigrants are not counted in unemployment numbers in Canada until they have been here for 10 years or more. Why do you suppose that is? I know in High School in BC they still teach kids that immigrants are the best thing since sliced bread but it's not really true. It's far better to grow your population domestically than to import twenty somethings and older people who have different values, speak different languages, have no western work experience or skills and come from countries with different educational standards."

You're delusional. Immigrants have to earn "points" to get into Canada. You get points by speaking the right languages, having skills that Canada is looking for, having high educational levels, and having lots of money. High enough points and they let you in. Probably won't let you work in the area you're trained in (doctors and engineers working as taxi drivers and janitors!) but they'll let you in.

Family members who are already here can also sponsor migrants but they have to prove that they can support that person once they are here. Neither of them can go on welfare roles.

The Canadian government will also invite "guest workers" who don't meet the criteria. Guest worker occupations are identified by industry who lobby the government for the right to bring in guest workers so that they can be paid less than the average Canadian, be treated like crap, and then kicked out of Canada when the business doesn't want them anymore.

The only migrant group likely to go on welfare are refugees - who are fleeing their country of origin due to war or persecution. And only an asshole to the bone doesn't have at least some sympathy for refugees.

Are there some people who game the system? Yes. Are there a high percentage of those? NO.

I recommend that you stop spewing nationalist drivel and educate yourself a little. It's stunning that on the one hand we can read about how "all the rich foreigners are driving up house prices" and on the other hear about "all those awful foreigners sucking on our welfare system". Both are stereotypes. One is grounded in wishful thinking, the other is grounded in racism. Both are pure bullshit. Either may describe an individual but neither describe the group.

Mark said...

Just walked through the Bayview.....

Ok now I see why they dropped the prices by 50% and still too much money.

Nothing special and crazy strata fees, thanks mostly to all the silly unnecessary amenities. I think you get a concierge as well???? For what? THIS AIN'T NYC!

So for a townhouse that was 1 million + now selling for 600k + the monthly strata fees are 750/month. No folks this is not a typo LOLOLOLOL!WTF is up with that? 2Br and den (sorry closet) and 1 parking spot.

We just came home to our wonderful rental (which we suddenly appreciate a whole lot more) and both let out a sigh of relief that we didn't buy into this stupidity. I can't believe how many people did and continue to though.

I think the Bayview will be seeing further price reductions and soon.

Mark said...

A CMP survey in April suggested that 49% of mortgage brokers are considering exiting the brokering industry in the next 12 months. That’s a stunning proportion compared to just 5% who responded similarly last year.

Ya think? Taking about 70% of realtors with them. So I guess we will go back to having an overabundance of bartenders and used car salesmen soon.....

Alexandrahere said...

Good post Deanna.

Glad to see you looked at the townhouses at the Bayview Mark. $750 condo fees....egad!! I looked at a two bedroom condo in "Phase 1" last year. I tell ya there is something wrong with the ventilation system. The halls were hot and the condos were muggy.

Last week we viewed a re-sale open house at the Chelsea on Vancouver St. This 2bd. unit had been "reduced for quick sale" to $599K. You could see into every room from the doorway. It had a tiny kitchen with "marvelous" stainless steel appliances and granite counter tops!! The only real "eating area" were two stools at the kitchen counter. If one of them were being used, you would have to squeeze around it in order to get to the "master suite". There was no dining room. The living room had a fireplace with a TV anchored above and the only furnishings were one medium sized sofa a coffee table and one end table. The small 2nd bedroom (den?) again right off the kitchen as are all the rooms, (no need for wasted hall space here), had the only deck. All this for only $600K. What a deal.

But as the agent said, this couple both work all day, have no kids or pets and they go away on the weekends. So what do they really need other than this? hmmm

Mindset said...

All this talk about people going on UI rather than taking a lower paying job or changing fields is ridiculous. If that is the work ethic of our workforce we are in big trouble. A lot of people are going to have to change fields as one of the biggest housing and stock market booms in history comes to an end and needs to be replaced by something else. Everyone has been spoiled by high real estate comissions, ridiculous investment banking commissions, and guarenteed profitability on the sale of a house. All ways that a fairly regular person could make a lot of money without putting the investment in education or creating a great product with broad demand. If everyone is just going to sit on their hands until the easy money comes back, we're going to have an ugly and painful transition.