REALTORS® cave

Recognizing they're bringing a butter knife to an aerial dogfight, the CREA (umbrella organization of Canadian REALTORS®) have agreed to step down from the shoving match and accept the fact they've been running the MLS® system in an anti-competitive manner:

In a development that could drastically change the way Canadians buy and sell their homes, the real estate industry has reached a landmark agreement with federal competition authorities.

The legally binding deal will allow for home sellers to pay for only those services they want from their real estate agents. Previously, under the rules established by the Canadian Real Estate Association (CREA), consumers had to opt for an entire slate of services, a practice the Competition Bureau deemed anticompetitive.

Says one lawyer who wanted to access the MLS® system without acting as a full-service REALTOR® for his clients: 

“This is precisely what I’ve been fighting for for the last decade,” he said. “That the consumer and real estate agent get to decide the framework of their relationship without having CREA and their local boards say certain arrangements are not appropriate for MLS.”

It's still early in the big schemes of this new development. But two things remain: the CREA's claims against the Competition Bureau regarding agency weren't strong enough for the CREA to spend money defending and the Competition Bureau didn't feel it necessary to push the CREA to allow non-REALTOR® access to MLS® listings. Simply put, as far as I can tell, you'll still have to use a licensed REALTOR® to list your home on MLS® and that REALTOR® will still have the option of not charging a flat rate or simple MLS® listing fee if said REALTOR® believes they can make a living without offering that basic service. 

Time will tell, along with the details of this new agreement, but I'm not sure this development creates the conditions necessary for drastic change in the way Canadian consumers buy and sell homes.

(H/T Mr.4AM for link)

Monday market update

Numbers courtesy of the VREB via Marko Juras.

Month to date September 2010. (2009 September numbers in brackets)

Net Unconditional Sales: 306 (776)
New Listings: 1,002 (1,129)
Active Listings: 4,181 (3,419)

Price Original = $649,357
Price List = $635,443
Price Sold = $612,296

SFH average days on market = 56

Price changes last week = 203

Sales volumes jumped last week. If the next three days play out similar, it won't be impossible to surpass 350 for the month, perhaps even hit 375. Regardless, this number can only be called disastrous as it is less than 50% of last year's numbers and still marks a 20-year-low for September sales volumes.

Due to the low sales volumes, average price reporting is going to be extremely volatile. In August, $586,000 was likely reported too much as a "drastic drop" without the corresponding explanation "lack of high end sales" skewing the average down. In September there have been considerably more expensive homes selling dragging the average back up - somewhere near $610K. The truth likely lies somewhere in between.

Double-Agent market update

Here are the weekly graphs of market conditions based on VREB data.

Sales stayed in the doldrums with only 67 pending sales reported in the last week. Active listings rose which is not the typical September pattern.

September is shaping up to be a sales disaster unlike anything seen in the last 10 years.

New listings increased which is unusual for this time of the year.

VREB only reports sales and listings on a monthly basis. We calculate a running total of the last 4 weeks every Monday.

The overall months-of-inventory now exceeds 12 which is almost 3 times the level seen in Sept. 2009!! The sales/new listings ratio has also taken a nosedive this month.

Sellers are now under pressure to lower their price expectations if they want to sell. The few buyers out there can take their time, be choosy and can grind hard when making an offer. Under these conditions prices will undoubtedly keep falling for the foreseeable future.

HHV note: The above is quoted directly from Double-Agent's comment in the previous post, the graphs are from his work. Contributions from readers are what make this blog what it is. I'm extremely grateful for the contributions of commentators. 

Times Colonist misleads again

Today's story about housing construction starts increasing is completely out of context with current market conditions.

Sales volumes can only be described as disastrous. Average prices, including average prices for new construction, are falling.

Yet builders started more projects in August of 2010 than in August of 2009 - so "logically," the Times Colonist implies through it's headline: Victoria's housing market improves

Um, no. It hasn't. It's actually getting worse. What happened, and the headline you should have written, is Victoria housing starts increase from one year ago.

Monday market update

Numbers courtesy of VREB via Marko Juras.

2010 (2009 September monthly totals in brackets)
Net Unconditional Sales: 185 (776)
New Listings: 779 (1,129)
Active Listings: 4,214 (3,419)

There are nine business days left in the month. Will sales volumes hit 300?

Prices are falling quickly, although the average price as reported by VREB will likely show a monthly increase in September from August.

Here's a snap shot of price action in September, again courtesy of Marko.

Price Original = $643,469
Price List = $630,605
Price Sold = $606,730

Sellers are accepting offers, on average, 6% below their original price.

I'd be curious to know what average days on market is now: 61 says Marko. Correct me if I'm wrong, but that seems to be around a 100% increase from one year ago - I was wrong, as per Marko, 51 DOM was average September 2009.

Real estate freefall

It's not very often we get to compliment the local news on a real estate story. Today we can. This was balanced, honest and had enough different viewpoints from a variety of sources to actually be called news. House Hunt Victoria commentator and local REALTOR® Marko Juras is featured, including a plug for his new 70% cash-back to buyers business model and his very realistic advice for would-be homeowners with no money.

Does "seasonal adjustment" have any place in real estate stats?

I received an e-mail from a concerned reader regarding the Canadian Real Estate Association's most recent claim that sales volumes are up across Canada, led by BC and Ontario. Alarm bells went off immediately when I read BC as we already know that Victoria's sales volume number for August is a 20-year-low. How could that mean that sales were up from July when sales were actually down almost 20% month-over-month?

Are sales booming in other parts of the province? No.

How could this possibly be reported as a positive statistic?

Enter seasonally adjusted data, defined as:

Observations over time (time series data) modified to eliminate the effect of seasonal variations.

Time series data is exactly what we get each month from the VREB: monthly sales statistics. Seasonal variations in the case of local real estate pertain to changes in inventory levels (total active listings, sales volumes and new listings volumes) caused by the seasonality of the business.

Is real estate a seasonal business? We know that Victoria has a pronounced spring buying and selling season as represented by decades of sales statistics. You could make the argument that there is seasonality to the business, much like tourism, because there are months that are traditionally more busy than others.

We also know that when you compare data from say, August 2009 (the month) and August 2010, you're dealing with data from the same month and effectively the same season. Do you need to seasonally adjust the data? No. How about July 2009 with July 2010? No. July 2010 with August 2010? If you believe the summer begins or ends in August, maybe. But really, no.

So why would the CREA and BCREA report sales statistics this way? Because it puts a positive spin on a very poorly performing real estate market.

Different months out-perform other months. You can compare one month to the next, one month of a given year to the same month in previous years and sub-sections of data (e.g. April, May and June) from one year to another. I'm not a statistician or a math whiz by any stretch of the imagination but from a cursory glance I just can't see why you'd want to or need to seasonally adjust real estate sales volumes/dollar-amounts unless you are purposely trying to employ a statistical trick to make data appear favourable.

I know there are several regular commentators here that know far more about stats than I, so I'll ask them to weigh in on this issue in the comments.

Sales volume falls off a cliff in September

Month-to-date sales statistics, courtesy of Marko Juras, REALTOR®:

September 2010 (2009 September totals in brackets)
Net Unconditional Sales: 118 (776)
New Listings: 466 (1,129)
Active Listings: 4,181 (3,419)

Double-Agent's graphs:

Sales to new listings ratio in the first 13 days of September 2010 is 25%. Typically this number has been above 40% for each month this year. We may yet get there. Current average price, if it holds, would set a new record for Victoria at $658,329. It's important to understand this number is basically meaningless because of the extremely low sales volume. Much the same as last month's SFH average price, when used alone, is basically meaningless, although it pointed to a continued downward trend in prices. We know from aggregating 20 or more pending sales that the homes that are selling are not selling for asking price, but we also know that very few homes, and especially very few of the low-end homes are selling.

Over the coming weeks and months we will hear from the usual sources (defined as those who make a living directly off real estate transactions and products) that a buyer's market presents a great time to buy a house. I'd like to say that a buyer's market usually provides a better opportunity to purchase a home without the added pressure of a seller's market, but do not kid yourself for one minute thinking that the market today presents a great buying opportunity. Affordability still sucks, prices are still grossly inflated against incomes and rents, and the current market conditions are only beginning to seep into mainstream thought - as in you're only starting to hear about the dearth of sales at dinner parties.

When you go to a dinner party and the consensus opinion around the table is you'd be crazy to buy a home, prices have been falling and there's no end in sight, I know three couples who have lost their shirts in real estate etc, there's your buying opportunity.

For now, buyer's market and seller's market are just marketing speak. It's a spun way of telling you where months of inventory stands. Under four months of inventory is considered seller's market territory. Prices usually rise. Between four and six months of inventory is considered a balanced market. Prices will usually bounce around but remain mostly flat. A buyer's market is when we have six or more months of inventory. At the end of August 2010, the VREB area reported over 9 months of inventory. Prices should fall for as long as this number stays higher than six. Why would you buy today when prices will likely be cheaper tomorrow? The usual suspects will tell you that you have no way of knowing for sure that prices will be cheaper tomorrow. You can say sure, but the likelihood of falling prices is far greater than rising prices.

Oh, and when they tell you real estate always goes up, tell them to have a look at prices in Japan since 1991. When they tell you we're not Japan, tell them just last month they were telling you we live on an island with a limited supply of land and an aging population who wants to be here.

Surprise: Times Colonist continues advertorials as news

The last market update by the TC was actually fairly balanced. But it's no surprise that this piece, written by Andrew Duffy, contains no balance and through careful use of non-defined real estate marketing speak and edits, no doubt imposed by the vice president of advertising revenue, manages to paint a rosy picture of a condo market that appears to be on the brink of major change.

The thesis is "Condos drive housing numbers." Now, the piece is actually talking about housing unit starts in the downtown core. So a more accurate title would be "New condo construction dominates downtown" or something along those lines; but when your modus operandi is to convince first time home buyers that it's in their best interests to spend between $300,000 and $350,000 dollars on a 550 square foot 1 bedroom, 1 bathroom condo unit in the core when there are several dozen 800+ SF 2 bed, 1 bath units within a 10 minute walk, you probably ought not to write about more affordable options eh? Regardless, the headline is as misleading as the rest of the article and the condo market is quietly shaping up to be ground zero in Victoria's sales volume decline.

Here's the basic fact: Since May of 2010, sales volumes in Victoria's downtown condo market have declined 52%. August 2010 sales volume was 1 unit less than December 2009 - typically the slowest month of a given year for unit sales.

Look, builders build, it's what they do. Planning to build downtown condo developments takes years. Market conditions change during those years. One need only look at that gawd awful gaping hole in the ground where Radius should be occupied by now to see evidence of building plans going sideways. Speaking of which, we haven't seen a story about Radius in a long time have we? Why is a story about developers very likely  overbuilding again, much like they did in 2007/08, in 2010/11 presented as a "boom buying opportunity" to potential buyers?

"As long as there's housing starts there's construction and employment being generated in the community," he said, noting that with 1,531 total starts in Greater Victoria so far this year -- there were just 488 over the first eight months of last year -- the housing market has to be considered quite healthy."

Unemployment in Victoria has nearly doubled in the past two years. That's a significant increase, despite the "healthy" housing market. Sales volumes have dropped almost 50% from this time last year and 2010 will very likely be the worst housing market for sales in a decade, despite the "healthy" housing market. I'm happy that new construction projects are still being planned and construction is still underway, don't get me wrong, it's necessary to keep people employed and keep the negative pressure up on housing prices so that Victoria may become more affordable in the future. There are many benefits that can be touted -- but market stability is a myth right now. And encouraging first time buyers to mortgage their futures away should be a sue-able offense -- imagine if buyers could launch class-actions against media and pundits for their inaccurate and misleading statements about the local market?

Piling it on

I have to admit, I'm not sure why the Bank of Canada raised the overnight lending rate today, but they did.

I don't see too much optimism in any Canadian markets right now, at least inflationary optimism anyway.

I doubt if variable rate mortgage interest rate changes will have much impact on the local real estate market, which appears to be trending down in both sales volumes and average prices while listings remain stubbornly high:

 h/t Double-Agent for graphs

The gap between variable and fixed-rate mortgages is narrowing. But it matters not really. Public sentiment is what matters most to this market moving forward. If people overwhelmingly believe prices are falling and the bubble is bursting, the pressure to buy a home will change to "What were you thinking buying a house in this market?" Today's interest rate change will likely only slightly impact sentiment, making people believe affordability is getting worse, not better.

What are you hearing at the water cooler and when you drop your kids at school?

"This is bad, very bad"

Another great graph produced by Double-Agent! (check links below for more)

August 2010 numbers are out, courtesy of Marko Juras.

August 2010 
Net Unconditional Sales: 425
New Listings: 956
Active Listings: 4,356

August 2009 
Net Unconditional Sales: 764
New Listings: 1,094
Active Listings: 3,509

Year over year changes
Net Unconditional Sales: -44%
New Listings: -13%
Active Listings: +20%

Month over month changes
Net Unconditional Sales: -19%
New Listings: -15%
Active Listings: -3%

UPDATE
The average price for single-family homes sold in Greater Victoria last month was $586,676 down from $615,004 in July. (VREB)

July 2010 median price was $557,250. Average price declined 5% while median price dropped 2%. Single family home prices are falling faster than many of us bears would have thought.

Double-Agent's graph links:

August sales by year (2001-2010)
3 month total sales (June to August) by year (2001-2010)
August sales, active listings and months of inventory (2005-2010)
August sales and active listings (sales to active listings ratio, by year, 2005-2010)
Sales to new listings ratio, by year (2005-2010)