Sunday, June 20, 2010

Real real estate investing

And not of the "fantastic opportunity" says the real estate salesperson kind either.

In my usual Sunday evening round-up of all things real estate related on the interwebs I came across this dandy piece of writing in the Globe and Mail. In my mind anyway, it's a must read for everyone watching the market.

Here are the key points:
  • Listings are up, sales are down, and even the always bullish industry executives are predicting lower prices in the coming year.
  • “Real estate is the drunk driver on the economic highway” Tom Barrack, the CEO of real estate investor Colony Capital
  • Residential real estate markets can be volatile: the cycles are generally long while memories are always short. The most recent trend, up or down, is assumed to be sustainable
  • Buying decisions are often steeped in emotion and based on non-economic factors
  • Houses are easy to borrow against - high potential for overindulgence
  • Leverage is involved - real estate prices are sensitive to changes in interest rates. Purchases are often financed up to 90 (or more) per cent with debt, so mortgage payments are a key factor in determining prices
  • For almost 30 years, we’ve been in a bull market for interest rates and with every tick down, property values have gone up. Given that we are somewhere near the end of the rate declines, investors have to recognize that a huge tail wind is swinging around
  • The farther prices stray from their fundamental value, the bigger the downturn will be
  • House owners deploy a strategy that is at the core of hedge fund investing – buy long-term assets with short-term financing
  • If the continuing income from a real estate investment is barely covering expenses, and the long-term supply and demand outlook doesn’t justify current prices, then I am flat out speculating. When I’m ready to sell, I’m betting a greater fool will pay me an even more uneconomic price

54 comments:

msr said...

I saw an ad in the TC for Zen Victoria. Their pitch was a condo downtown for $178K or so. From this, they offered monthly mortgage rates for owners and investors(20% downers) and they even estimated the monthly rent to be $900-$1200/mo.

Now, if the $1200/mo rate was for the $178K condo then we might be working back to sustainable rent/price ratios. But then I realized it was likely for the $900/mo unit.

So I went to their website(zenvictoria.ca) and looked up the smallest/crappiest unit I could find. Fuck. 311 sq ft. A small bachelors unit and they think this is worth $900/mo?

Floor plan at: http://www.zenvictoria.com/floor_plans/204.pdf

JustWaiting said...

HHV - I miss the old format. Hyperlinks were much easier to see (blue not black). Scrolling is poor on Firefox due to background image.

Anyone else feel the same??

Muriel said...

I noticed the poor scrolling (also on FF), but didn't know why it was.

HouseHuntVictoria said...

JustWaiting,

I'm not too particular on the design, although I wanted a wider page design to accommodate images better.

I've changed the link colours to make them more obvious.

I also use Firefox, what scrolling issue are you talking about?

What are your screen resolution settings? The only scrolling I need to do is vertical, and it works for me as before.

I want to fix this for you, so the more info you can give me the better.

Muriel said...

HHV - it is vertical scrolling that I'm talking about. What I notice is that on the new front page, it's much slower and more jerky for me to scroll down the page now than before. This doesn't apply to the comments page, just the new front page.

Rhino said...

SFH Under 800K: 'Victoria, Victoria West, Oak Bay, Saanich East'
June 13-21

New Listings: 30
PC: 36

Sold: 12
OM: 13

HouseHuntVictoria said...

Thanks for the stats Rhino.

This morning two new condo listings popped into my PCS, one at $218K the other $205K... both in Victoria proper and both with significant updates to make them more attractive. Apparently under $220K is becoming a more competitive initial pricing zone. Six months ago, units like these would likely have listed closer to $250K.

HouseHuntVictoria said...

Another interesting read over at Housing Analysis, including more discussion of the lead post here in the previous one there. Central1 report here (PDF).

think said...

Month to date stats June 21

sales 410
new 1002
total 4535

sale/new ratio 41%

Trend continues. This is totally a bear market. Sales are really dropping off a cliff. Wondering if we'll have much over 600 by the end of the month! Wow.

Reid said...

Chinese have announced they will eliminate the yuan peg to the US dollar over time. This decision will led to higher cost of Chinese imports which will help drive up inflation rates in Canada (unless Cdn $ appreciates more against US $). Higher inflation rates will force the Bank of Canada to raise interest rates faster and higher which will help drive down housing prices.

Good news for bears

Alexandrahere said...

Good morning everyone. Some stats from last week, 14 June - 20 June

These stats are for homes/condos in Victoria, Esquimalt, Oak Bay, Saanich East and Saanich West.

SFH Min. 2Beds;2baths $375K to $775K

Sold: 12
New: 30
OM: 7
P/C: 59 - 14 were relists or BOM

Some notable solds were:

1929 Leyns: $799K Sold:$667 -$132K
4504 Limerick: $900K -$723K -177K
896 Violet: $569K - $487K - $82K
929 Rankin: $597K - $525K - $72K

Some notable reductions were:

244 Richmond: $879K - $759K -$120K
1261 Palmer: $639K - $529K - $110K
4373 Emily Carr:$839K-$759K - $80K
3527 Richmond: $639K-$564K -$75k
1272 Kings: $579K-%514K - $65K
3126 Wascana: $519K - $479K


All homes sold for under list price except 2536 Prior sold for $8K over list.

Condos

Min. 2bds from $260K - $625K

New: 15
Sold: 9
OM: 6
P/C: 15 - 2 of them re-lists

Some notable price reductions:

108-1501 Richmond $369K - $319K
304-2605 Windsor $479K - $429K

Double-Agent said...

Think already provided the Greater Victoria stats this morning. Here is a bit of an analysis..

For the period June 1-20 (14 business days). June 1-13 (9 business days) is shown in []

MLS Sales - 410 [284]
New Listings - 1002 [716]
Active Listings - 4535 [4513]

Totals for May 2010
MLS Sales - 695
New Listings - 1621
Active Listings - 4521

Totals for June 2009
MLS Sales - 946
New Listings - 1436
Active Listings - 3794

Projection: Lowering my earlier estimate of June MLS Sales from 690 to 650. New Listings are also slowing down. Active Listings may reach 4600.

Comments: May was a soft month for sales and June will be a repeat with sales slightly lower than May but way down from June 2009. Price reductions will continue as sellers chase the market down. VREB spin machine will require extensive repairs for July 2 press release.

Just Jack said...

What the buyers and sellers finally agree on, broken down into 3 tiers.

224 Victoria condo sales over the last 90 days.
The typical or median condo being a 950 square feet condominium that was exposed on the market for 33 days and sold for $305,000.

Ground Tier Sales
90,000 to 270,000
No sales of time shares. A couple of sales were of buildings needing repairs low 100K area. The low end sales really starting at the $160K mark for ultra small suites or dodgy areas.


Median price $225,000 for a 750 square foot condominium that was exposed on the market for 30 days

Middle Tier Sales
270,000 to 340,000
Median price $303,000 for a 970 square foot condominium exposed for 21 days on the market


Upper Tier Sales
340,000 to $975,000
The median price is $420,000 for an 1100 square foot condominium that took 54 days to sell.

Other factors affecting value would be the location of the condominium, age, condition, amenities and the color of the agents eyes.

Double-Agent said...
This comment has been removed by the author.
Double-Agent said...

These charts tell the story...

Sales in June have been dropping every week. So have new listings. Click here for chart

Active listings are approaching the peak for this year. Click here for chart

Months of inventory (MOI) continue to climb while Sales to Active Listings ratio keeps dropping. Click here for chart

With buyers moving to the sidelines price reductions become the norm as sellers chase the market down.

Alexandrahere said...

HHV and all: I also use firefox and I am not experiencing these problems. Not getting any background images and no problems scrolling.


Just wondering, does anyone track Langford and Colwood listings? I rarely look at those listings but would be really interested to know some of the stats there. Anybody?

think said...

Thanks again for the charts and analysis Double-Agent, always great!!!

Just Jack said...

So, as a home owner - How rich are you?
That is to say, in relation to other homeowners - are you keeping up with the Joneses?

For the last 60 days in the urban core municipalities of Victoria, the three tiers of home prices were:

Ground Tier or the poor home owner.
$335,000 to $554,000
The typical home being $495,000 for a small 1600 square foot home on a 6,500 square foot lot. At these prices expect your neighbour to be parking his car on his front lawn after a night at the Esquimalt Inn. And a lot of Costco and Home Depot packaging scattered in the back yard.


The middle Tier or honey we're just making it as long as you don't get pregnant again or we'll have to have junior bunk with foreign students.

From a low of $555,000 to a high of $685,000. The typical home being $615,000. Yes folks, at these prices you are nothing special, just an ordinary middle income family, the cog in the wheel that is rarely greased and often overworked. You're the one who gets the $50 fine for no dog license and the $167 fine for talking on a cell phone while driving. Because the cops and SPCA are scared to go into and ticket the first tier neighborhoods. You are the back bone of Canada - that pudgy little sole who can never lose that 20 pounds. Who considers Kraft dinner a major food group for his family and has Dominoes Pizza on speed dial on her cell phone (that's how you got the ticket)

The top tier - yeah baby, your the man. If life is a crap sandwich then your sandwich has more bread and sesame seeds on it than tier two.

From 686,000 to $3,850,000. The typical upper income household spending $805,000 for a 2,750 square foot home on a 10,000 square foot lot. And that will get you into a good neighborhood with lessons on how to fake an English accent. You still have a suite in the basement, but at least you no longer have to bring in foreign students. Your spouse spends more time at work and you wished they spent more time there. Most of your time is spent cleaning the house for guests that never come over. Because your accused of being stuck up by tier two. The cops like to come to your neighborhood, because they like to look through your drawers.


And the creame de la creame, the movers, the shakers - the top 5% of the millionaire club.
1.2 to 3.9 million dollars.

The typical Victoria ULTRA millionaire spends $1,605,000 on 3,600 square feet home on a half acre lot that comes complete with gardeners with fake English accents. Of course none of your neighbors have jobs that are clear on what they actually do. Financier, businessman, Import/Export or the scary little man who justs says "retired" and wont have his picture taken. The cops still come to your home, but now you scare them.

Alexandrahere said...

Just Jack you are just tooooo funny!

Ever been to the Esquimalt Inn thought?

You should go. You might find at least 10 people there at ANY given time. Any five or six of them will be in one group.

Don't know how the place makes it. They don't even have a restaurant attached.

Maybe you should be looking at the Tudor? ahhhh.....no one there either though except some military guys that don't want to go to their appropriate messes.

I know -- the Six Mile!!! Yep thats where they are all at.

you gotta be careful....people in Esquimalt love their neighbourhoods! They have large private lots; are close to the water, have excellent bus service, great bike lanes, have sidewalks and boulevards,close to good grocery shopping and they are closer to downtown than most.

PS I don't live in Esquimalt.

Alexandrahere said...

msr:
I just looked up those zen condo's. Wow they are all bachelors. If I were going to live in something like that.....I think I would make a deal on renting one of those cabin like motel units by the craigflower bridge. Water front and view, weekly sheet and towel changes, fully furnished. Who would buy one of these? Guess the same types as bought into the Mosaic a few years ago. Anyway, thanks for the post.

Just Jack said...

Let's talk about rents. As per CMHC and Carla Wilson the vacancy rate in Victoria is now 2.5%. Thats up from 0.5% several years back.

The 0.5% rate lead to higher rents and now we are seeing rents leveling out, maybe dipping a little as we sit at a 2.5% vacancy rate. The vacancy rate is heading higher and I think at 4% we will see a noticeable fall in rents. If we go to 8% like in parts of Alberta or 13% in Fort MacMurry, we could see significant drops in rents of 20 to 30 percent. But then we would be the Windsor of the West and everybody would want to leave here.

Just Jack said...

Did you know that averaged over the last 14 days there have been 18.5 dwellings of all types sold each day in the Greater Victoria area (including the Westshore and Saanich Peninsula). Compare that with Vancouver City at 144 per day and they think there in deep doo-doo.

Hmmmm, thinks that may you go Hmmmmm.

Maybe we could make Victoria's market it into a movie! Keanu Reeves could play Carla Wilson.

"The Day the Market Stood Still"


-yeah, its a boring day at work.

jesse said...

"Did you know that averaged over the last 14 days there have been 18.5 dwellings of all types sold each day"

I did NOT know that. I eagerly await what lipstick shade VREB will use on their June market report. I'm thinking somewhere between "Wildberry" and "Merlot."

Just Jack said...

How about some meaningless comparisons of the condo and housing market today to what it was one year ago.

For condominiums the volume of sales has dropped 18.5 percent from one year ago. And prices have increased 6.8 percent.

For houses the volume of sales has plummeted 29 percent. And house prices are up 10 percent.

Certainly seems to defy logic as there are fewer people buying real estate, but at higher prices. If this were to continue, the average home in Victoria would sell for a million dollars - but only one would sell each year.

But not really, sales activity drops first and then prices. If you're waiting for prices to drop, before deciding to sell - you're looking at the wrong indicator.

The market is having a demand-driven downturn. The sales to new listings ratio is dropping towards a buyers or bear market, the months of inventory is building with signs popping up and staying longer on lawns. And on a month to month basis property values have started there decline. But it will still be a few months before the general public perceives a drop, and the MSM reports it, as home values quickly roll back to 2009 and 2008 and 2007 levels. These last three years, in relation to previous years, were quite flat which would make the roll back in prices look fast to John Q.Public.

One month your home will have rolled back to 2009 prices, the next month you could be back to 2007 prices. And only then will the general public realize that real estate does not always go up.

Robert Reynolds - GBA said...

I found a cute infographic on Buy vs Rent

Link

If I get time I might try and make a Victoria version, as the numbers are a little out to lunch with our market

Alexandrahere said...

"Washington: the housing market may be on the verge of taking another plunge that could weaken the broader economic recovery."

Interesting article...just google in "May home sales dip as housing market struggles"

Skeptic said...

Longtime readers might remember Helmut Pastrick, the BC credit union's chief economist and real estate pumper. One of his staff just released this report on BC Housing and they are now singing the downturn tune.

Housing Markets Wane in May - pdf link

The sheen is clearly off the housing market, with this week’s release of the MLS® data. As expected, residential home sales in British Columbia continued to trend lower in May. Sales fell for the seventh consecutive month, dipping 6.5% from April on a seasonally adjusted basis.

Since reaching a market peak in October, annualized sales have fallen 30% to 75,500. The markets that led last year’s rise in activity, namely the Lower Mainland and Victoria, are now leading the downtrend.

The recent shift in market conditions in favour of buyers has already led to a dampening in price pressure this year. The average B.C. price level fell 4.7% in May, with price declines recorded in most markets. While a single-period average price level can be misleading, owing to the influence of extreme values and compositional changes in the type of homes sold in any given month, average price levels have exhibited a flat to declining trend in recent months.

Central 1 Credit Union expects the downtrend in sales activity to continue over the summer months, reflecting tighter mortgage insurance rules and a gradual uptrend in mortgage rates.

Skeptic said...

Canadian Mortgage trends has interesting articles on the Cdn. real estate marketplace. Recently they covered a report by TD Bank that had lots of good info on mortgages in Canada. Here are the links.

Canadian Mortgage Trends site

TD Mortgage Primer - pdf

HouseHuntVictoria said...

Jesse has a good analysis of the Central1 report up at Housing Analysis

HouseHuntVictoria said...

Sorry, I broke the link. Trying again: Housing Analysis.

jesse said...

Skeptic, yes poor Helmut used to be the contrary indicator of future house price appreciation. I remember his exuberance in 2008. Prices then fell 15%. His bearish outlook in early 2009 caught me off guard. Prices then rebounded to new highs.

I think his department has published a pretty decent assessment of the current state of BC real estate. But Pastrick's fascinating contrarian superpower has me a bit worried. Maybe price rises are coming...

mln said...

Anecdote from last week: spoke to someone who works in a well-known local realtor's office, they mentioned that "4 out of 5" offers are falling through due to financing, and that if you're planning on selling, it would be better to hold off until next year.

a simple man said...

But, with all the indicators showing s severe decrease in prices over the next year and beyond, this is the best time to sell.

Could it be the realtors are trying to slow down supply?

When the people sell for next year and get 10-20% less than this year, will they feel well-advised?

frustrating.

mln said...

a simple man: I agree, although I don't think that anyone's trying to artificially limit supply. It isn't misleading to say that right now isn't a good time to sell a house... the problem is, will it be better next year, or the year after that?

The pressures put on by the new CMHC rules aren't just going to disappear next year. Ditto interest rates.

HouseHuntVictoria said...

mln said: "It isn't misleading to say that right now isn't a good time to sell a house..." Technically speaking, it may not prove to be misleading, but any agent worth their salt would say "right now isn't a good time to sell and we don't know if next year will be any better either. It may be, it may not. If you want to sell now, clean your place well, lose the junk and clutter and sharpen your pricing pencil because we want to be the most attractive unit on the market.

Just Jack said...

Finally, house listings in Victoria City went over 145. That's the highest I've seen going back to 2005 when I started watching the market.

At a $160,000 you get a house boat? Really, I wouldn't call a converted boat - real estate? The first real piece of real estate doesn't happen until you reach $388K for a starter home on a main drag. Most of the low end homes are about the size of a 2 bedroom condominium.

Not until you reach the 450K mark do you find a home that would fit most first time buyers needs with enough space for a baby or two and without the fear of a head on collision when leaving your driveway. But only one bath and no basement suite. You gotta take turns - besides you're newlyweds, that is until the first day she takes a dump while you're showering.

Character homes with Mickey Mouse alterations and bad paint jobs start at $475K. If you look closely you can still see the chalk outline of Grandpa on the floor where he laid for 10 days because none of his kids called. Happy father's day to you too.

At around the 500K mark you see some garden sheds listed for sale in James Bay area and some houses that are "known" to the police.

The 500K to 600K market is where you have a variety of crack shacks and bob the builder homes fishing for prices.

Its not until you hit about 750K do you find a home that you would not be hesitant to have your mother visit. At least she wouldn't ask if you were doing okay or if you needed money. Just don't let her see the dead rats in the basement.

You will encounter the first of the "hardiplank horror houses" at 800K, complete with all the new irradiated granite counter tops and top of the line faux stainless steel Korean appliances.

Starting at a million dollars or the life time income of an entire village in China do you find the architectural masterpieces from a generation of designers who have perfected the lego block house style.

A little later on into the million dollar range you find the larger character homes that were well known to the navy personal during their shore leave of the first and second wars. Our men in uniform, or as they were more often found - out of uniform in these homes.

Not until we reach 1.5 million do we find the mammoth homes, the all inspiring Mcmansions. The homes that make the statement - I have screwed so many people over that I deserve this home - that is until Revenue Canada finds out.

JustWaiting said...

Just Jack,

Gotta luv your latest writing style. Keep em coming...

kabloona said...

Ha-ha....a houseboat for $160k.

JustJack, I'm just wondering how long it will take for the price of a run-of-the-mill Glanford Avenue crackshack to drop below $400k....

:-)

Mr.4AM said...

Just Jack, nice descriptions, thanks for the laugh :-D
Mr.4AM

a simple man said...

Does anyone know how new construction is doing on Bear Mountain?

Mr.4AM said...

US housing officially enters into double dip recession with a 33% reduction (!!) in sales from previous month. Prices also *still* in a downtrend with May 2010 houses selling for an average price of house prices back in Dec 2003!

And that people, is what happens when the government turns off the stimulus juice.

Guess what they've just done in Canada recently with all the rule changes + HST? It's unquestionably game over for the Canadian housing boom.

Mr.4AM

Just Jack said...

As for Bare Mountain there are 26 new houses (6.5 month supply) listed for sale. Ranging from a low of $600K to a realistic high of million. The middle of the pack home is $700K or $217 per sq. ft. Each builder may or may not include GST of some $35,000 on that price which goes to $84,000 on July 1. Thats for a house in the "REAL" Bear Mountain subdivision, not the wannabees from Grand Prairie at the base of the hill.

Of course the new homes have to compete with the 38 re-sales (4.2 months of supply) on the mountain that start at $525K for a 2 year old home or typically $247 per/sf with no GST or HST to be paid.

So, it looks to me, that builders have priced their product slightly under the re-sale market.

However, when comes to inking deals the re-sale homes out number new home sales 2 to 1. The re-sale homes selling at $228 per sft with the new homes at close to the same rate but for the most part the builders are eating the GST.

In summary come July 1, 2010, the builders are going to have to offer a smart car, 3D TV, tickets to Hawaii or some other incentive to move the inventory. Because there is a heavy price to be paid to live next door to an Edmonton Oiler fan.

Still some coin to be made in the detached house market - but I haven't touched the atomic ground zero of the market - the "Bear Mountain Condo and Time Shares" or how Mr. and Mrs Calgary will have to take on second and third jobs.

That's the Bare Mountain house report.

a simple man said...

thanks JJ - I really appreciate your efforts. I have come to think of bear Mountain as the canary in the mine.

kabloona said...

JJ, thanks for the Bear Mtn update...haven't been following the catastrophe on the Hill that closely since the moderator(s) shut down the ongoing commentary over on Vibrant Victoria.

Guess they just don't feature negative vibes about their erstwhile hero Lenny Barrie....

:-)

Ahh, the West Shore....where City Councillors drop off dead bodies at the local RCMP detachment...

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