Monday, August 30, 2010

Sneak peak @ August sales

While the business writers over at the Times Colonist wait until the VREB releases their August Victoria real estate market story pre-written for them, readers of HHV get a sneak peak at what can only be described as a "a dreadful month for real estate sales in Victoria." (Double-Agent's words)

Marko Juras, local REALTOR®, gave us the month-to-date numbers current to August 30, 2010, leaving two business days to process any weekend completions and finalize the stats:

MTD August
2010 (2009 in brackets)
Net Unconditional Sales: 396 (764)
New Listings: 877 (1,094)
Active Listings: 4,254 (3,509)

Double-Agent continues to provide us with fantastic graphs so we can visually see the proverbial cliff at which the Victoria market finds itself perilously perched upon:

Sales and Active Listings, by Week

Active listings volume grew in the final week of August while sales volumes tapered off to ensure the the VREB will have to go all they way back to 1978 to find a comparable monthly sales volume statistic in an effort to reassure home buyers and sellers, despite the rash of price reductions and stale listings, the Victoria market remains balanced and poised for a comeback this fall and into 2011.

New and Active Listings Volumes, by Week

Typically, the Victoria market experiences a sales and listings volume decline, usually beginning in July and continuing for the remainder of the year. Despite the spin we will soon be hearing from the usual suspects, there is no statistical proof to the assertion that market activity picks up in the fall from the late summer. The image above shows us that new listings are slowly tapering, as they always do, yet total active listings volume remains stubbornly high. Properties are sitting on the market longer, and this time it's different, as would-be sellers aren't taking their homes off the market in any great volume to try again in the spring. Everyone knows prices are falling, buyers and sellers, the race down appears to be on.

Now, despite what our good friend Fred may claim over at his place of real estate statistical dreamland, the graph above clearly demonstrates Victoria has fallen into firm buyer's market territory. Sellers who want to sell must drop their prices. Sellers who have to sell must drop their prices and pray. The few buyers who are active are likely low-balling like crazy and praying the market rebounds in the spring.

We'll likely see a finalized sales volume number near 450 with single family average home prices near $600K and the median price near $550K. It's getting ugly out there.

Friday, August 27, 2010

How REALTORS® help linked to an interesting article in the Toronto Star on Monday. In preparation for the looming communications battle between the Competition Bureau and the CREA, they've decided to strike preemptively with some never-before-seen-in-Canada ugliness. Now I know a lot of you are thinking to yourselves "HHV, why would you subject me to this ridiculous bombardment of nasty REALTOR® propaganda?"

It's simple: first, don't click on the link if you don't want to see the crap in the first place, but second, and far more importantly, we need to see that the CREA, and the REALTORS® who support them, don't respect their consumer group enough to advertise with any semblance of truthful intelligence. Take the video above, do the CREA really believe that speaks to any of us? Sure it's funny to see a pyjama-clad fat man put the beats to a shoddy tear down under a downtown Toronto? flight path - as if their consumers couldn't figure out buying that sh&thole was a bad idea in the first place - thanks for the added value! Not.

It's this kind of nonsense that leads to the bad reputation the REALTOR® groups must contend with in the first place. Furthermore, any argument that there is competition in their market in the first place doesn't hold water. As long as the CREA and their member organizations enforce the closed nature of the MLS® there will never be open competition in the real estate marketplace in Canada.

Until I can employ a REALTOR® to list my home on the MLS® for a flat-fee and then have them walk away from the rest of the buying and selling process, the CREA is limiting my choice as a consumer. There may be varying degrees of service built into the REALTOR® monopoly, and I may be able to negotiate commissions with some individual REALTORS®, but the monopoly still exists: the vast majority of buyers will buy using a full-service REALTOR® believing their service is free, those same REALTORS® will guide their clients away from low-commission or no-commission listed properties - a practice which their industry guidelines strictly forbids but rarely, and never with any significant consequence, enforces.

As a buyer, I would like to choose the option of buying without using an agent. Right now, if the property I want to buy is listed with a REALTOR® I have three choices: hire a buyer's agent, enter a dual agency agreement with the listing REALTOR® or walk away. Considering 90%+ of all homes are bought and sold through the MLS®, how do these restrictions on consumer choice equate to an open and competitive market?

Canadian real estate consumers suffer from a strangle-held, archaic and anti-competitive listings system, held under the guise of a bullsh&t argument about what constitutes agency between sellers and the agent who lists a home on the MLS®. I'm not holding my breath that the outcome of next April's court challenge will break this monopoly, but the next 8 months or so sure will be interesting for us market watchers regardless.

Tuesday, August 24, 2010

Projection: August 2010 sales volume worse than July

H/T to Double-Agent for graphic
I know, I know, ballsy projection on my part eh? The trend continues.

Required further reading. H/T Skeptic

From the article: Real-estate agents talk about the three Ds: death, debt and divorce. These are the forces that push owners to sell.... once Labour Day passes, people who put their plans on hold during the summer will begin to move forward. Owners may list their house or condo because they have a new job in another city or they need more space. The opportunists who were looking to take advantage of [the] “just craziness” in the spring are gone. [Agents are] being called to evaluate lots or properties in preparation for a fall listing. “They’re coming to the market for a reason, not just to cash out,”

Required further-further reading

From the article: Canada's economy would sustain damage as the wealth effect shifts into reverse. Still, a correction is the solution, not the problem, and preferable to allowing the bubble to persist. Ottawa's activities during the recession spared us greater misfortune, but we have yet to pay the bill. It's in the mail. And it's going to sting. (emphasis mine) 

Wednesday, August 18, 2010

Open letter to Dr. Kieth Martin, MP, Esquimalt - Juan de Fuca

Dear Dr. Martin,

I'd like to take a moment to respond to a letter you would have received back in June of this year from Shayne Fedosenko, a Pemberton Holmes REALTOR® from their Sooke office. In case you missed it, I've linked to it here, as reprinted on the Pemberton Holmes Facebook page.

Apparently, Mr. Fedosenko, an individual who makes his income from helping others buy and sell real estate (in economic terms a rent seeker), is feeling great concern about the current state of the Victoria Real Estate Board's market territory, in which your constituency falls. He opines that it is not the HST - a tax shift that ultimately benefits his personal business model - that is to blame, but instead feels the new restrictions on how mortgage lenders calculate secondary suite income as it is used to qualify for mortgages has reduced the amount of money available to would-be buyers looking to purchase homes with suites.

He makes several deeply distressing claims: the first, that mortgage amount qualification used to be calculated along these parameters:
"This is the way that it used to be: you could take the suite income, say it was $1200/month and they would add it to your mortgage qualifications as a $200,000-$250,000 increase in your qualification amount, now what they do is take the amount of the rent: $1200 /month, multiply it by the 12 months in a year and add it to your income, making only an extra $ 40,000+ to your qualification amount.
In the past, before the current government allowed the Canada Mortgage and Housing Commission to liberalize mortgage insurance products, lenders would not have lent to the extent that Mr. Fedosenko suggests is appropriate. Canadian banks would only lend so that total debt servicing did not exceed 35% of household income. Historically speaking, this translated to home values in the Victoria area growing steadily with inflation along the lines of household income so that an equilibrium of home price to income ratios did not exceed 3.5 to 4 times annual income. Whenever home prices did exceed this equilibrium, like the run-ups in prices that ended in 1981 and 1994, the market would naturally correct back to this equilibrium, usually over-correcting for a short period of time first.

Currently, the Victoria average home price to income ratio as calculated by the Royal Canadian Bank's annual affordability survey pegs the home price to income ratio exceeding 7 and nearing 8. This is unsustainable and not good for the community nor the country. Simply put, mortgage debt obligations are robbing local families of the ability to spend money in their communities on the things that many of their incomes depend on. The Government of Canada must take the correct actions, and they did, through restricting taxpayer exposure to the excesses of the real estate market.

Currently the CMHC is as over-extended in the real estate market as the home owners that Mr. Fedosenko purports to be concerned about. This quote is from a news story on the CBC website appropriately titled Michael Hlinka: Is a Canadian housing bubble about to burst:
"The household debt-to-income ratio has remained on an upward trend ... as debt accumulation continues to outpace the growth in disposable income.
But households aren't the only entity overextended. CMHC, which insures these mortgages, has about $9 billion in equity, while it guarantees - get this - $770 billion in mortgages. 
That's more leverage that(sic) we saw from any U.S. bank or lending institution, by the way."
Dr. Martin, I'm certain you will agree with me when I say that the Government of Canada is not in the business of bailing out the poor financial decisions of Canadians. This is a slippery slope that we should not tread towards. What's next? Car manufacturers lobbying to bail out the poor credit decisions of their financial arms when they lend to people that cannot afford to purchase new cars?

The second claim, which to me, highlights the questionable ethics of some members of the local real estate industry, mixes market data in an attempt to obfuscate and confuse readers (in this case you) to believe market conditions are favourable to their (industry's) desired outcome. Normally, this means trying to make buyers and sellers, both real and potential, believe now is always the best time to buy and/or sell a home, activities to which they collect "rent" on. In the case of Mr. Fedosenko's use of market data, with regards to his letter to you, he is trying to convince you that current market conditions are much worse than they actually are in an effort to have you take action on an issue in the wrong direction.

Mr. Fedosenko claims that "Last month [May 2010] there were 300 home sales on the Lower Vancouver Island with 4700+ listings." According to the data published by the VREB, there were 671 home sales in their reporting area, that is more than 140% higher than claimed. Now initially I thought Mr. Fedosenko may have been referring to single family homes with his 300 number. But it turns out that number doesn't match either as there were actually 364 single family homes sold in May 2010.

Mr. Fedosenko also claimed there were 4700+ active listings at that time. While his numbers still don't match May's VREB reported number (just over 4500, it wasn't until the end of June 2010 that listings peaked at 4700), at least they come within 5%, an understandable error.

Mr. Fedosenko's opinion also differs from the one given by his real estate association's current president, Randi Masters, who noted that current sales volumes "reflect a return to these historically average levels compared to the significantly higher levels seen between 2001 and 2007 when we had a very active market." Masters suggests the market is now balanced, Fedosenko claims "Hundreds of foreclosures [are] coming, about 75% of the home owners could not qualify to buy their own houses (especially with suite)." 

Mr. Fedosenko also makes incorrect claims regarding suite vacancy rates. He writes: "Please note that there is a zero vacancy for suite rentals right now in this area." CMHC does not track secondary suite rental vacancy rates. However, their reported vacancy rates for the Victoria area show an over 100% increase in the amount of vacant units, which by the end of 2009 was 1.4%, after several previous years at approximately 0.5%. While we don't know actual numbers, it stands to reason that secondary suite rentals would have followed a similar trend.  

I understand Mr. Fedosenkos' concern for home owners, the local real estate market and the impacts valuation changes will have on the economy. I've been writing on this very subject, much to the chagrin of many local real estate industry actors, for several years now. I am deeply troubled by the extent to which certain actors will go to maintain the unsustainable market status quo and do further damage to the financial well being of Victoria area families. The writing was on the wall years ago; all you had to do was look to see it. The current government chose the wrong policy options in 2006/2007 and extended mortgage insurance to people who would otherwise not be able to over-extend themselves because the banks would not lend to them.

This is Canada's version of a sub-prime mortgage crisis. Any attempts to prolong the real estate market at current price levels will only deepen the impact of an unavoidable market correction. We should have learned from the experience of our American cousins. The current government allowed similar activities to occur in our mortgage and real estate markets that will have profound financial consequences for Canadian households and the broader Canadian economy. We need only look south of the border again now to learn a new lesson: four years after their market began its much needed correction, no government intervention has been effective in preventing catastrophic financial losses for banks or homeowners; instead, government actions simply "doubled down" on the debt loads and will lead to higher taxes and restricted economic growth over the long term further hurting households and the broader economy.

I implore you not to encourage further exposure to the grave financial risks inherent in the Canadian real estate market for either the Canadian government or Victoria and area households through excessive and unsustainable debt. If you feel compelled to further investigate real estate related issues, I encourage you to read up on the Competition Bureau's upcoming tribunal challenge against some of the Canadian Real Estate Associations' business practices that they (Competition Bureau) have deemed anti-competitive.

Thank You,

House Hunt Victoria

To the readers: if you are as concerned as I am in regards to this issue, please feel free to cut and paste my letter above or write your own letters to your local Member of Parliament. Here's their contact info:

Esquimalt - Jdf   Hon Keith Martin

666 Granderson Rd
Victoria, BC  V9B 2R8

Victoria  Denise Savoie
970 Blanshard St
Victoria BC  V8V 2H3

Saanich – Gulf Islands  Hon Gary Lunn
9843 Second St
Sidney, BC  V8L 3C7

Monday, August 16, 2010

Mid month numbers

Courtesy of Marko Juras and Double-Agent in last post comments.

Sales for the last week jumped to 108 from the anemic 78 in the first week of August.

Sales [volumes] can vary from week to week so we [Double-Agent] calculate(s) a rolling average based on the last 4 weeks of data. The current level sits at 113.

Extrapolating we should probably see about 420 sales for August. This is the worst level of sales in this decade!!

New listings are on the usual, seasonal downtrend. Active listings have dropped slightly but remain stubbornly high.

The overall months-of-inventory (MOI) has been climbing over the last year and will probably be close to 10 by the end of the month.

Prices are already dropping and this trend is suspected to continue in light of all the recent media attention.

You can clearly see that 2010 has had the worst June, July and August sales in 10 years! This defies the HST tax myth being pushed as the reason for low sales. Sales were at 10 year lows before the tax went into effect.

Friday, August 13, 2010

Market tracking

When I started this blog, I was interested in individual properties - namely 2 bedroom 2 bathroom condos priced under $250,000 and 3 bedroom 2 bath (minimum) single family homes with suites priced under $425,000. I'd chart sales, listings and watch individual properties. Units sold quickly, usually under 30 days, and usually sold for close to asking price, sometimes more, sometimes less, but usually not too surprising.

As time went on and it became clear to my wife and I that we'd be waiting and not buying in this market at that time, my market tracking morphed from individual neighbourhoods and unit-types to a more market-wide approach. I think there's some validity now that the market has turned and is headed down to start tracking individual property types in individual neighbourhoods. We're still not buying anytime soon, but I think we need to more closely watch what a three or four bed two or three bath house in Gordon Head (or insert your neighbourhood here etc) is priced at and sold at for the remainder of this year if we're to get a better understanding of the market shifts.

If we're going to do this right (and one of the reasons why I picked the Gordon Head neighbourhood to profile) we'll need to have a decent sample size of similar product. Back when it was a new neighbourhood, many Victorians would have said Gordon Head was "cookie cutter." We now call them Gordon Head Boxes. The houses aren't really the same, but they're similar enough that we can get a good sampling for our market tracking exercise.

Take this listing for example: MLS® number 282024. It's a standard 4 bed 3 bath Gordon Head Box without a suite, likely why it's priced ($568K) below the neighbourhood average. It's likely slightly bigger than it's competition at 2300 square feet, but a few hundred square feet can easily be eaten up in poor layout, so I won't be too quick to judge this one without having stepped inside it. It's been on the market for 18 days and hasn't had a price reduction or accepted offer yet.

Here's another example: MLS® number 279093. Again we have a 4 bed 3 bath Gordon Head Box, doesn't have a suite, is a few hundred square feet smaller than it's competition but has the same 7000ish square foot lot. It's priced at $599,000 today, but it was originally priced at $629,000 and has been on the market for 79 days.

Both of these homes are priced above assessment, but within eight to ten per cent. It will be interesting to see if they sell, what they sell for, or when the owners decide to not sell and take them off the market.

Here's one just like those two that sold recently: MLS® number 279899. After 30 days on the market and one price reduction, this property, not too unlike the above examples, originally listed for $585,000 sold for $560,000, almost 11% over the BC Assessment value. For this neighbourhood and this property type in today's market conditions, this one sold fast and for agent's-commission-close-to-asking. If I were the old owners of this house, I'd be happy with the deal I got.

Here's another relative comparison with an entirely different outcome: Originally listed at $590,000, MLS® number 279060 took one drastic price reduction to $550,000 and 55 days on the market to finally sell at $533,500, 10% below original list and about 1.3% below assessed value. It's bigger than any of the other houses in our comparison and it has a two-bedroom suite. I chose to highlight this one because it's the polar opposite of the previous sale and I think it's a good indicator of many sales to come for this property type in this neighbourhood. 

So what do you think? Can we glean any market tracking insights by comparing similar properties within the same neighbourhood? Can we use this kind of analysis to better judge market conditions or is this isolated sub-set just too small to get a true sense of market activity and value?

Monday, August 9, 2010

Market setters

Only homes that sell within a given month set the market for that given month. Over time, the market setting forms a trend and perception becomes a big factor in future market setting. Last month, July 2010, was a big month for setting both a declining market (-5.3% in SFH average price) and perception (the cat is out of the bag).  

There are two simple types of sellers in the local Victoria market right now: those that WANT to sell and those that NEED to sell.

Let's take a look at these two types individually in an effort to better understand their positions.

I want to sell my home.
There's all kinds of reasons for wanting to sell a home: to return to renting, to buy something different, to move across town closer to work etc. But the underlying factor that differentiates a want to sell from a need to sell is financial circumstance. Financially speaking, the want to sell types do not need to sell. Nothing catastrophic will happen if the want to sell doesn't make a move. These people may tend to have a realistic outlook on their home's value, understand the market forces at work and are financially organized and patient enough to not make rash decisions in the sales process. The few buyers left in the market are likely being steered away from homes owned by these folks as the deals may be harder to negotiate/close. Simply put, the want to sells can, and very likely are, being picky in the process.

I need to sell my home.
I've lost my job. I'm getting divorced. I'm being transferred at work. When I bought my home a year ago I thought I could afford it, turns out I can't. My parent(s)/in-laws have passed on, I need to sell their home to get cash now. These folks may prove more emotional, less rational and more attached to their perception of their homes inflated value. But it won't matter. These homes may be more neglected, less appealing to a broader range of buyers and likely more difficult for agents to show (though they'll be forever dubbed as "good bones," "sweat equity options" and "fixer-uppers"). Simply put, the need to sells are home ownership situations undergoing various degrees of distress.

Need to sell homes will set the market. 
Only homes that sell will set the market. Only need to sell homes have to be sold. These won't sell fast. Nor will they sell for the home owners' perceived market value. Over the coming months, stories of distressed sales, "haircuts" and "thank goodness we got out just in time" will creep into the public real estate mind.

On the way up, it was greed and the want to sells that set the market. On the way down, fear and the need to sells will drive market prices. Ultimately, the buyers will decide what fair market value is. There are few buyers and lots of homes. Even the buyers ignorant of the true state of the real estate market will be smelling blood. Low ball is the phrase of today. Below assessment will be the phrase of the near future.

This downward market setting is only getting started.

Monday market numbers, courtesy of Marko Juras, REALTOR®:

Net Unconditional Sales: August 1 - 9 = 78     August 2009 = 764 (total)
New Listings: August 1 - 9 = 240                  August 2009 = 1,094 (total)
Active Listings: August 1 - 9 = 4,282             August 2009 = 3,509 (total)

Friday, August 6, 2010


It's a powerful word that blame. It implies that things aren't always as they first appear. It suggests some outward, untoward force may be the root cause of an issue, or somehow be responsible for adding to an outcome.

You'd have to be living under a rock in Victoria right now to not know that home prices are falling fast - or you'd have to not care. It's quickly becoming an issue for real estate industry associations, like the ones that represent REALTORS® or the builders of the products they sell. These are government policy savvy organizations; organized, collaborative and intelligent. They know how government works and they employ people whose primary responsibility is to lobby government to adapt policy and legislation to make it easier for them to conduct their business. Fair enough. It's a time honoured tradition in our system of government.

But this is just disingenuous and misleading. By taking advantage of the misconceptions and misinformation surrounding the newly rolled-out HST, Royal LePage agents remove themselves (and by default all other real estate transaction services actors) from having to do anything about the situation. Blame the government. Apply pressure for policy changes (this is step one in what will be a long series of real estate market bail-out requests, mark my words). Maintain the industry status quo.

Home prices are extremely high. Home ownership levels have never been higher. Prices are now falling because extensive supply outstrips weak demand. Prospective buyers move to the sidelines because, hey, the longer they wait the cheaper the house gets - it is a no-brainer. Agents have a tough time making a sale. They want us to believe its not their fault and they want us to believe their commissions aren't out of line.

Here's the thing though. The HST is ultimately good for all independent business people as most agents are. They are now able to write-off the full 12% portion of their sales taxes paid against the full amount of HST sales taxes they collected (previously, they could only write-off the 5% GST). In the past, they just paid PST out without collecting any and didn't have a corresponding tax write-off. This occurred throughout the entire real estate industry. Simply put, the HST has decreased the business operating costs for agents, lawyers and builders alike. These are the groups that would have, should have and very likely were supporting this tax policy change in BC. And now they are crying foul.

Government didn't educate the people about the tax, instead letting the naysayers have a free run with all kinds of negative information - some true and some false - leading to widespread confusion amongst the public. Tough sh&t, I say, for the business people who have done a poor job of educating their clients on the changes, despite VREB president, Randi Master's claims to the contrary:..."we have tried so hard to get the message out." Cry me a river. I don't recall seeing the special advertisement in the Times Colonist titled The HST and resale homes, what you need to know, do you? The VREB has nothing about the HST effects on the resale market in the two most logical places here or here on their website. Try harder guys.  

The only rational reason I can think of why industry actors didn't want you to understand the HST effects, was an effort to effectively garner a 7% increase in pay without disclosing their costs went down (it's not actually 7%, it will be all over the map depending on the business volume and operating costs etc, but operating costs decreased across the board for these business people because all of them benefit from new tax write-offs on the operating side of their balance sheets).

So to all of those agents, builders, lawyers, inspectors and appraisers out there who want to cry foul over the HST miss perceptions: shut up, drop your fees or spend the difference educating YOUR clients about why the HST doesn't impact your product. Don't expect my tax dollars to do it for you.

The last point in my rant goes like this: I don't actually care what Royal LePage agents say they believe their clients think about the HST. I want to hear whether or not prospective home buyers believe the HST impacts the resale market, how and why. Where's that supporting evidence? They couldn't even drum up an "agent's friend" to give an anecdotal piece of "prospective buyer" BS evidence to support their claims for their press release. And once again, the Times Colonist didn't bother to make a phone call outside the VREB office either. This whole issue is trumped-up poppycock.      

Monday, August 2, 2010

July sales volume sucked

July sales data (unconfirmed) via local REALTOR® Marko Juras:

July 2010
527 Net Unconditional Sales
1,119 New Listings
4,477 Active Listings

July  2009
933 Net Unconditional Sales
1,357 New Listings
3,632 Active Listings

Net Unconditional Sales volume plummeted 44% from July of 2009 and is down 16% from June 2010. The number of new listings however dropped 18% from July of last year, although it matters little to the overall picture at this point as Total Active Listings remains high at 4,477, 19% higher than one year ago.

July 2010 vs (June 2010)
SFH: $615,004 down from $649,280 or a 5.3% drop
Townhouses: $420,578 down from $429,549 or a 2.1% drop
Condos: $322,905 down from $331,131 or a 2.5% drop

July 2009 (YOY % change compared to July 2010)
SFH: $563,282 (+8.5%)
Townhouses: $443,109 (-5.1%)
Condos: $328,441 (-1.7%)

Sales and listings graphs courtesy of Double-Agent: