Friday, July 16, 2010

One of these economists is not like the others

Adrienne Warren from the Bank of Nova Scotia says real estate is in for a soft landing. Douglas Porter from the Bank of Montreal says real estate is in for a soft landing. Pascal Gauthier from TD Bank says all is calm on the real estate horizon. But thankfully the Globe and Mail, perhaps Canada's Only Balanced Source of Real Estate News Reporting™ provided an alternative viewpoint from David Rosenburg, who used to work at a big bank's investment arm and now works at Gluskin Sheff + Associates, who don't appear to have much financial interest in real estate:
"The Canadian housing market at one point during last year's parabolic surge in sales and pricing got as much as 20 per cent overvalued. In recent months, demand has weakened under the weight of eroding homeowner affordability. At the same time, the rush of new construction has elevated the supply side of the equation. and so what falls out these shifting demand and supply curves is a reduction in prices - the long awaited correction is here. Remember - excesses in one direction are generally followed by excesses in the other direction. And bubbles never correct by going sideways. In a nutshell, there's more air to come out of this Canadian housing balloon."  
There you have it. An independent financial expert has stated the Canada-wide real estate market is in a bubble. Victoria is only amplified exponentially. We've got the listings volume. We've got the drastic reduction in sales volume (June 2010 was an 8-year low for home sales and over 30% down from June 2009). It's inevitable that the rest of this year will play out with consistent and perhaps drastic price reductions. It's also inevitable the Victoria Real Estate Board and their friends at the Times Colonist will issue press release after press release proclaiming entry-level condominiums as the number one choice for buyers looking to get into the market or downsize in this decade's Best Home Buying Opportunity Yet™.

20 comments:

Just Jack said...

Are we looking at a soft landing or a hard fall?

Well, in Victoria we are not seeing panic in the streets. Hoards of people are not listing their properties. So, at this point I am not seeing a "glut" of homes in the core municipalities, which would be required for a hard fall. The data that helps support this statement would be:

A balanced market has between 3 to 6 months of inventory with generally stable prices. No fear and No greed.

In the Victoria Core, there is a 4.6 month supply of homes, and 5.4 month supply of condominums. Far from being a glut.

In the Westshore there is a 7.7 month supply of homes and 11.6 month supply of condos. Definitely a glut being seen with slow sales and increased listings.

The Saanich Peninsula has a 6.3 month supply of homes and an 8.4 month supply of condos.

It looks like the market is contracting from the outside districts into the city core. So you can see that while Victoria is a balanced market, the market is moving steadily towards a glut.

If you live in Victoria, there is still time to sell. If you live in Sooke .....? All I can say is that you should have stayed to finish grade 12.

Now personally I don't really like Bare Mountain. I find that there are three things wrong with it.

Its
over priced
over rated
and
over here

So how is it doing. 9.1 months of house inventory and 10.8 months of condo inventory.

Robert Reynolds - GBA said...

I feel like we are at the top of a roller coaster, just peering over the drop. There was so much anticipation as we made the long climb up, and now that we are at the top there is nothing to do but hold on tight and scream all the day down.

Just Jack said...

In Victoria city proper, the median or typical asking price is $599,000 which gets you a 2,000 square feet home on a 5,800 square feet lot. The bad news is that it was built in the era of vacuum tubes, black and white TV, rotary dial phones and Truman was president.

The good news is that is was built in a time when radios and TV's lasted 30 or more years, phones worked when the power went out and Harper had not been born.

Mr.4AM said...

Funny analogy Robert. I'll be the one standing just outside the roller coaster, enjoying a cold can of POP and watching the specuvesters screaming throughout the ride.

On a bit of tangent, April 26, 2011 - That's the date the Canadian Real Estate Association and the Competition Bureau will duke it out over MLS.CA. Wish it was sooner, but at least the date is on the calendar now.

Mr.4AM

HouseHuntVictoria said...

Mr 4AM, the best part of that date will be the tide of public support for the real estate industry will likely have turned by then if things continue as they are. As prices fall and homes become difficult to sell, John Q Public will be all over the industry to make changes.

Phil said...

Didn't anyone see the business section of the TC today? I'm shocked that got printed, someone (Carla?) must be on vacation!

TC Story

kabloona said...

Phil, thanks for the story from the TC.

:-)

Now starting to see stories like this right across the country. Nicely bearish real-estate piece on the CBC National News just two days ago....person paid "thousands over asking" in a "fierce bidding war" two years ago for a Toronto loft apartment, now she can't understand why it won't sell after 6 weeks on the market...

Gotta love it.

patriotz said...

Did the report say WHY she was trying to sell after just 2 years? Or is that sort of thing considered the norm now?

msr said...

@patriotz,

She wanted a different shade of paint on the walls and everyone knows you can't paint walls after they have already been painted once.

kabloona said...

Here's the clip.....she doesn't indicate why she's selling the loft after only 2 years...

http://tinyurl.com/24rslrl


P.S. you'll have to wait a few seconds for the Crackberry commercial to finish....

;-)

Marko said...

Different viewpoint...

http://www.youtube.com/watch?v=1BIrijGaKm4

Phil said...

That realtor video Marko posted is priceless. I think I just threw up a little in my mouth.

HachiRoku said...

Shamus says "but um...inventory is not going up anymore!"

What planet is this guy on? We've got an epidemic (more of the black plague than the swine flu variety) of "for sale" signs in this town. Reminds me of 2007 when my family and I moved back. Sheesh!

think said...

What a joke that Shamus guy is on youtube - he obviously needs some commissions and is getting desperate so best thing to do is try to scare people into buying because NOBODY is buying right now. Sales are way way down, inventory is slowing but that is normal for this time of year - duh. Serious idiot and really shameful that he would try to push people into buying now when it is the WORST time possible to buy. All he has on his mind is making some money - think about his motivation for that plug - I guarantee it is not to better the lives of others in a selfless way - it is just to make a sale!! The best possible advice right now is to wait and see - we have high inventory and very very low sales (just like this time in 2008) - the parallels cannot be ignored - next logical stage would be prices crashing down to more sustainable affordable levels. This needs to and will occur to restore balance. Another idiotic thing was his interpretation of the fact interest rates have no more room to go down - that they will eventually go up - this fact is true but the correct interpretation is that this means further pressure DOWN on prices - wouldn't you rather buy your house for less money and pay a higher interest rate even if the payments are the same - think about it long term - you are going to be subject to what the new rates are at renewal time anyway - kinda sucks to owe more on the house and get double hit with higher interest rates 5 years later at renewal anyway. Silly, silly, silly! Shamus you should be ashamed of your little desperate rant. (I really enjoyed it though - hearing the stress and panic in the real estate agents voices only makes it more obvious this market is falling apart).

nan said...

Marko's video is awesome - a perfect example of 6 weeks of Real Estate education and the quote: "It is impossible to understand something if your income depends on you not understanding it".

a simple man said...

Unreal video...I feel he really does not have the buyer's best interest at heart.

Ultimately, he is just doing what his name implies (Shame us buyers).

Just Jack said...

While the urban core municipalities are currently experiencing a reasonable 4.8 months of house inventory, the trend is for falling sales.

Home sales in the capital area are down 25 percent from last month and 37 percent from the year before. Basically the property ladder has been kicked out from under the home owner.

Ironically, home owners have seen a slight increase in the value of their homes during the last 30 day period. But this anomaly may be due to a skewing of the median as the "move up" home buyers purchase more expensive home.

Currently, urban home prices are some 11 percent higher than this time last year. The year before we had had a 15 percent drop.

Volatility is not a hallmark of a stable asset. If one is buying equities and bonds, volatility may be perceived as an opportunity. But the stock market is extremely liquid and one may be diversified over many different types of funds. But real estate is illiquid and concentrated in a single asset.

First you see a drop in the number of sales - then you see a drop in prices. A 37 percent drop in sales is massive and this will erase that 11 percent rise over last years prices.

We've seen how fast our market can fall. That has been registered in the minds of both buyers and sellers. Real estate has become too risky.

"You gotta rock the coke machine several times before it falls over"

Alexandrahere said...

Good Monday morning everyone.

Here are my stats for the past week of July 12th - 18th. Note: Victoria includes Vic. West.

SFH:--Min 2beds,2baths from $375,000 to $775,000.

AREA NEW SOLD P/C ACTIVE

Vic 7 4 13 105

OB 0 2 5 16

ESQ 4 2 3 43

SE 11 9 15 146

SW 6 2 3 85

TOTALS: 27 19 38 394

Some sales were:
4313 Columbia 559K-480K -79K
828 Hampshire 738K-660K -78K
3527 Richmond 639K-555K -84K

Some prices changes were:
2963 Cedar Hill 525K-439K -86k
975 Taine 500K-395K -105K
3038 Foul Bay 599K-499K -100K
820 St. Charles 835K-729k -96k

CONDOS: Min 2 beds $260K - 625K

Vic: Burnside,Fairfield,Mayfair,Rockland,Sears,VicWest
OB: All
Esq: All
SE: Broadmead,Camosun,CedarHill,HighQuadra,Lakehill, Maplewood,MtTolmie,Mt.Doug&SwanLake
SW: Gorge,Tillicum & Interurban

AREA NEW SOLD PC ACTIVE

VIC 9 4 7 121
OB 0 0 1 13
ESQ 4 0 4 31
SE 8 3 6 47
SW 1 0 0 12

TOTALS 22 7 18 224

Some sales were:

507-11 Cooperage 499K-449K -50K
901-1420 Beach 595K-549K -46K
203-1035Southgate297K-258K -39K

Some price changes were:

204-1037 Richardson 369-329 -40K

#4-630 Seaforth 599K-549K -50K

Alexandrahere said...

This house simply stirs my emotions. It is at 18 Phillion. Originally asking $789 and just went for $600K. Its a 40's built "art deco". The property is on gorge waterfront with a dock for your small boat. It's a class act and will always hold value. It has 1617 sq ft finished on main floor and another 1460 unfinished in the 7' basement. The street is lovely and quiet and very close to shopping of every kind. The garden could be turned into something breathtaking.

Compare it with that junk we were talking about on Foul Bay yesterday. Nobody would really want to move iin until at least $100,000 were spent on it and then look what you get in the end?

Just Jack said...

Well, that property was bought in 1998 for $276,900 which represents an increase of some 323,000 or 117 percent over the last dozen years.

But, how does that stack up with other properties?

Well back in 1998 the typical home was selling for $235,000. Today, that home is now $600,000 or an increase of 155 percent.

So, hold on, whats going on here! Why didn't the property sell for 2.5 times more or a little over $700K?

Well, you are dealing with a property that has most of its value in the waterfront land and very little in the improvements. When prices decline - its the land that is falling in value - not the wood frame house. And there are far fewer buyers for waterfront homes than Gordon Head boxes. Also, this is not choice waterfront property. Of the many types of waterfront such as ocean, river, inlet, tidal, etc. Waterfront along the gorge is low on the desirability scale especially when the property faces north (less sunshine) onto the muddy banks of the Gorge.

In a falling market, you want to stay away from properties with most of the value in the land. That's acreage, waterfront or starter war shacks. Or at least until they bottom out in price.

I think what you are seeing here is a leading sign of a price drop. Properties, like this one, show up as an anomaly in the market place. String enough anomalies together and you have a new marketplace. For example, what do you think this persons neighbor feels has happened to the value of their non waterfront home? Shakes their confidence in real estate.