Wednesday, September 22, 2010

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. 

87 comments:

a simple man said...

MOI over 12 - that says it all.

Double Agent: Have a relaxing holiday. Your contributions will be missed.

HHV: Thank-you for providing this terrific blog. I can't tell you how much I have appreciated it.

HouseHuntVictoria said...

Via VancouverCondo.info

Flaherty says he's unconcerned with recent slowdown in expensive markets like Victoria:

But Flaherty, in Calgary to deliver a speech on Ottawa's proposal for a national securities regulator, said he believes the housing slowdown is a sign that consumers are being more careful about financial risk-taking. He hinted the federal government wouldn't shy away from additional mortgage restrictions, if needed.

"I, for one, am not particularly concerned about the softening we've seen in some markets in Canada in residential real estate," Flaherty told reporters, noting that Ottawa has twice tightened mortgage rules.

The most recent changes, which took effect in April, made it more difficult for some Canadians to qualify for a mortgage.

"This is entirely intentional, to tighten the market, so that we avoid the excesses that we've seen in other countries," Flaherty said. "If we have to do more, we'll do more."


Is he suddenly going Conservative on us?

HouseHuntVictoria said...

[sarsasm]Another signal that house prices have no where to go but up[/sarcasm]

Just Jack said...

While not the most reliable metric, the days-on-market indicator has now moved up close to 60 days. Since most listing contracts are 90 days long, the agent is going to be under more pressure to bring in an any offer or chance losing the listing and the advertising money spent.

On the same note, the number of expired listings in the last 90 days has doubled from this time last year as well.

The market is going south along with our weather and the market is correcting for past excesses. The kids are back in school and parents have an opportunity to look around at homes for sale but things have continued to deteriorate. So it looks like the fall market may be in the sewer this year. That brings us to the winter market which is shaping up to be a nuclear winter for real estate.

Dave said...

All the more sales for next Spring.

a simple man said...

Dave;

What do you base your comments on? Do you have any data to present that it will turn around in the spring? If so, I am listening.

Deanna said...

Thanks to Double Agent! I always look forward to the graphs.

Lina Zussino - MortgageAlerts.ca said...

As a local mortgage broker I'm still getting lots of inquires and questions from active buyers.

There are certainly a lot of buyers in the market however with all the negativity and sales states I think maybe just maybe buyers have ganged up and are holding out to get these unbelievable house prices to drop.

HouseHuntVictoria said...

"I think maybe just maybe buyers have ganged up and are holding out to get these unbelievable house prices to drop."

Lina, thanks for your comment. Always nice to have professionals in the industry offer their front line views on what they see happening out there.

Dave said...

Asman, no data. Just looking at the glass as being half full.

a simple man said...

No problem, Dave - so am I!

Phil said...

"I think maybe just maybe buyers have ganged up and are holding out to get these unbelievable house prices to drop."

Kind of like they've been doing in the states for the last 3 years...;)

kabloona said...

Lina, any predictions on the magnitude of a price correction you think will be required to lure buyers back into this market? Thanks for your input....

mln said...

12 months of inventory!?

San Diego got up to about 15 MOI in late 2007 I believe.

omc said...

This MOI thing could get interesting. Some of the reports I read predicted a faster closure of the fall market as a sign of the market softening. With listings staying so high, I wonder how high (MOI) we could go come November.

My PCS has shown some sales in the last few days; I would expect around 325 sales for the month.

Gordon Head renter now said...

Lina,

You are correct. I sold back in May 09 (sold in a day to a young couple who "had to have the house") and have been renting ever since and. I renew my mortgage application every 90 days and yeah, like your clients I am holding out for these unbelievable housing prices to drop (as they are now). I was laughed at by my family friends for bailing on my 700k home (that I'd owned for 14 years) being told I'd never get back into the market and if I did, I'd be downgrading.

Thanks HHV for this great site. Double agent your graphs and insights are spot on. Marco I'm glad you got your time on A-channel. You are ahead of your time with your marketing approach and your time will come. It did for 1% realty and they were scoffed at years back. Now look how mainstream they've become.

Marko said...

The market is very tough but resilient to real price drops so far (vs. overpriced and then price is dropped), SFH average is going to be likely over 610k for the month. I am not seeing any "deals" out there either. All my buyers are definitely doing diligence and taking their time.

Some home owners and builders are still playing difficult, and my buyers' are simply walking away.

I had a client interested in a house with poor access to the back yard, impression we received from listing agent/builder was that it was not going to be addressed....fair enough....onto the next house.

Alexandrahere said...

Hi all...So far this week I have had 19 sales of SFH. The criteria: Vic,Esq,OB,SE&SW, min 2 beds 2 baths from 375K to 775K. The average price being $565K. This is a large increase in sales as in the previous two weeks there were only 17 sales combined.

Just Jack said...

Another shift that I am seeing is that although median prices are higher this year than last, people are getting more house for their money.

In the urban core the median over the last 60 days has gone from $564,500 to $585,000. An increase of 3.6 percent. But the size of the typical home being bought has increased from 1,992 to 2,100 square feet. The price per square foot has therefore dropped from $283 to $279 or a drop of 1.4%. So, you are paying more for house today, but you're also getting more house.

So what is an additional 100 square feet (think of a 10' x 10' room) worth? If the typical lot value is $325,000, the residual value of a 2,100 square foot home is roughly $125 per square foot. That would make an additional 100 square feet worth (on a depreciated cost) around $12,380. If we net out this difference, would that mean that a similar 1,992 square feet home would sell for $572,500 or $8,000 more (1.4% more than last year) and not the 3.6% shown in the raw data?

hmmmmm

I suppose the point that I'm trying to express is that there are hidden price reductions. Just as a developer throws in granite counter tops or upgrades appliances to make a sale. The re-sale market does a similar unapparent price reduction by getting more house for the same price.

I have too, too much time on my hands.

think said...

Double-Agent - you will be very missed, your stats and graphs have been excellent and I've learned a lot from you. Enjoy your holiday.

Mr.4AM said...

Here's a PCS look at all properties in Fernwood April to Sept 2010. Not much selling lately, eh? ;-)

Mr.4AM

Mr.4AM said...

If you want to be able to read the picture in the above link you can zoom in by holding down CTRL key and then scrolling up with your mouse wheel.

Just Jack said...

All of us, by now, should realize that the Westshore is in deep do do. Yet, when I look at the median from a year ago it is up $43,700 or 9.6 percent.

I say what? Sale volumes have crashed - yet prices are up????

A closer look shows that the typical home being bought today is much bigger than last year. Your paying more today but getting 283 square (think basement recroom) feet more of a house. So today you would be paying around $217 per finished square foot as opposed to last year when you paid $226.

So first we had the drop in sales, then the increase in inventory, then decelerating of the rate of appreciation, now sale concessions.

Marko said...

Seeing 60+ sales in the last two days.....

HouseHuntVictoria said...

Marko,

I wonder what's causing the sudden activity? Is it abnormal to see uber low sales and a flurry of activity all at once?

Marko said...

I don't know to be honest, 30/business day is not really supranormal, around or slightly above normal.

Some big sales thought, 911 Linden Av. just sold for $817,500 and a condo downtown just sold for $800,000. Pushing the averages up both for SFH and condos.

Core areas are performing really well this month versus the westshore.

Alexandrahere said...

Double Agent....if you haven't left yet....I wish you a great time in the sunshine. We'll miss you for sure. (But don't feel guilty or anything about it)

think said...

911 Linden started at $989,000 and dropped to $889,000 and is assessed at $868,000, and they just took an offer of $817,000... I don't know anything else about this property but my sense is that the sales now are occuring because people are willing to take lower offers. Prices seem to be coming down a lot so I am surprised it is not more obvious in the average price. It seems to me that only 700,000 plus homes are selling and the average and lower end of the market is quiet? Anyone else notice this? This is probably just the last few move up buyers buying before the winter. The market is done and prices will continue to come down over the next many months.

Mindset said...

JustJack - In the urban core the median over the last 60 days has gone from $564,500 to $585,000. An increase of 3.6 percent. But the size of the typical home being bought has increased from 1,992 to 2,100 square feet.

Nice point and analysis Jack. I have been seeing the same. Sure houses are selling in traditional price ranges, but wow, the houses are getting a lot nicer, and bigger. Homes that need a bunch of work are sitting, the inventory that is moving is better quality. This is the opposite of the spring, where crap was demanding a premium.... Wonder what the crap would sell for now per sq/ft? I would say that quality is also skewing the accuracy of the averages.

DavidL said...

@DoubleAgent

Enjoy your time south for the winter. You excellent stats and charts will be missed. I hope that you resume them when you return in the spring...

omc said...

Some early morning bear news

HouseHuntVictoria said...

omc,

thanks for the link. 62% of voters in the online poll think Canada is in a real estate bubble.

This is a good read too.

Aston said...

Anyone remember what the MOI was during the last dip in 2008-2009? (Not a rhetorical question, I'm just curious to know.)

msr said...

Aston,

IIRC, I think Vancouver got up to 20 or 25 MOI; atleast for condos.

HouseHuntVictoria said...

Aston,

I'm not positive, but I think we're in near-record territory right now. New condos had crazy MOI in the last drop in 2008, but SFH remained under 10 IIRC. I think we're seeing market-wide near-record MOI right now, but expect the SFH number to be 20%-25% less, at least, and I'm just edumaguessing here.

Just Jack said...

In my opinion, home prices are contracting from the outer districts back to the urban core. Its like watching a movie in reverse of the ripples from a stone dropped into a pond.

So, let's get on the bear bus and head off to Shawnigan Lake. Of course sales have dropped off a cliff in these outlying areas so the use of medians and averages are, at best, sketchy. But, we do have re-sales of the same home and this should give a reliable and reasonable view of the market.

And that brings me to the recent sale of a property on Millicent avenue that recently sold for $513,000. Which is pretty good cash, but not in the eyes of the seller who bought the property in June 2007 for $540,000.

So while properties in Victoria's urban core may have only rolled back a year to September 2009, the outlying areas are rapidly rolling back to 2007 or 2006 prices. And there is a massive amount of listings out there.

Kew... Spirit of the West

These are "The Hounds that wait outside the door"

Alexandrahere said...

Just Jack and others...when you think of the actual loss to those people who bought for $540,000 and sold for $515,000.

Buying costs:

PPT: $8,800
Lawyer: 1,500
Move: 1,200
Misc: 2,500
TOTAL: $14,000

Selling costs:

RE Com: $18,390
Lawyer: 1,000
Move: 1,200
HST: 2,471
TOTAL: $23,061

Add in the interest he would have made minus income tax of $2238 on the difference of sale price minus purchase price of $27,000.

$14,000 plus $23,061 plus $2,268 plus $27,000 equals a total loss of $66,329.

This is assuming he made no reno's to his house and bought no fancy appliances (which people usually do) that were included in the sale of the house. Appliance package alone could easily add up to another $7,000.

These estimates also don't include the extra interest on Mortgage payments he would have made versus staying where he was originally at or any mortgage costs.

Also, most people had RRSP's and other savings (especially back in 2007) and they would have lost a big chunk of that if they had any stocks or mutual funds.

So to say that this "average" couple probably are down close to $90,000 in worth than they were just 3 short years ago, would not be stretching the estimate.

Anyone looking to purchase their first home should make themselves cognizant of this possibility if they dare purchase at the "peak" or "near peak" of this real estate bubble.

Just Jack said...

But hey, I thought we don't have to stop the bear bus at Shawnigan Lake, let's strap a couple of canoes to its under belly and go to the Gulf Islands.


Like a property on Quarry road on Salt Spring Island that just sold for $449,000. Which is 6 grand more that the owners bought it for in May 2005.

How about we throw a six pack of "lucky" in the bus and go to Duncan.
And look at a house on Hilton that just sold for $20K less than it did a year ago.

Its time to face facts. The coal mine Canary is not sleeping -its dead.

See: Monty Pythons Parrot Sketch

kabloona said...

Interesting discussion of the transactional costs associated with buying and selling houses:

http://tinyurl.com/2cs94at

"Our serial money pits - Garry Marr, Financial Post · Wednesday, Sept. 22, 2010

Imagine being so bored you would be willing to spend about $20,000 for a respite from your life.

At least 16% of Canadian repeat homebuyers are willing to pay that price. They are so “bored” with their current home they plan to move, says a new report from Toronto-Dominion Bank....

...The survey looked at people who had purchased a home in the past 24 months that was not their first home, or intended to purchase another home.

The amount of wealth destruction from so much moving is staggering. The average sale price of a home sold last month in Canada was $324,928. Even at a modest 6% of the sale price, transaction costs can easily add up to $20,000....

...Certified financial planner Kurt Rosentretor said one of the last things he would ever advise clients to do would be to frequently move.

“You’ve got real estate commissions to pay, moving costs, land transfer taxes, legal fees. It can be in the tens of thousands of dollars. I can’t see how it’s beneficial unless you really time it right.”

He says he has noticed clients moving more often over the last five years because of the attraction of rising home prices combined with poor returns from stock market investments..."

DavidL said...

@Just Jack

I'm guessing that you are a fellow genX-er who had friends at high school doing Monty Python impressions? ;-)

Monty Pythons Parrot Sketch
http://www.youtube.com/watch?v=4vuW6tQ0218

Lina Zussino - MortgageAlerts.ca said...

As tough as the market is at the moment it's only a matter of time before we sales increase again. Maybe in the spring.

That being said it'd based on the prime rate, as soon as prime starts moving we will see a little more movement. As the economy stabilize and we see more job security things will improve.

In my opinion there should be a correction of at least 10% especially in more prestige places otherwise all us will be starting a new town in Langford. As much as I hate to say it.

Why would you buy a house that is falling apart for 800K, or worse yet the ceiling is not much higher then a short person, when you can get a brand new home with no hassles. Location with great amenities and well, let's hope schools too, out of town.

Another positive is the majority of work in Victoria is either government and IT!!!! Which means work from home - no collwood crawl. I'm surely tempted.

As an active investor, the best thing to do is buy as many condos or apartments - providing you break even or run a positive cash flow. Grab location while you can.

Cash up when all the retirees are looking at downsizing and unable to maintain there beautiful big homes.

After all Victoria is the land of the dead or the newlywed.

Home ownership is about long term, as with any great investment otherwise it's gambling.

DavidL said...

@Lina wrote: Another positive is the majority of work in Victoria is either government and IT!!!! Which means work from home - no collwood crawl. I'm surely tempted.

After the provincial government, the Canadian Forces/DND and post-secondary institutions (UVic and Camosun College) are next biggest employers in Victoria. Very few of these employees can work from home.

As an active investor, the best thing to do is buy as many condos or apartments - providing you break even or run a positive cash flow. Grab location while you can.

Are you are suggesting that even in a market where prices may tumble, that real estate is a preferred investment over a "safe" investment such as ETF bonds?

Just Jack said...

So why don't developers of large complexes like the Olympic Village just lower the prices until people start to buy?

Mostly, because they don't want the pre-sale purchasers to come back at them with an army of lawyers, they don't want to rob sales from other projects that they may have an interest in, they don't want to be the first to start a race to the bottom, or the political bomb shell that will have the mayors next career begin with the words "would you like fries with that" But mostly because, they don't have to - the average buyer having the collective brain capacity of a jar of june bugs during mating season.

Bob Rennie and his team have spent weeks developing strategies to pull those bent nickles from the buyer's ever tightening grip. Sale concessions are a good way to bribe a buyer. Offer a free upgrade package, a plasma TV, a week in Maui, a Canadian citizenship. Or back end load the deal by buying down the mortgage payments for the buyer's first year. Or bulk sales to private investors by having them buy 6 at a discount, but stipulating that they have to hold the suites until 6 months after Rennie's team have flogged the last suite - probably to someone from Embarras, Alberta whose family tree is a stick.

But my suggestion is to get rid of the over priced staff and hire Mexicans beach vendors to sell the condominiums. Make up fancy brochures with attractive athletic people enjoying a light repase of Sashimi with the back drop of Vancouver's crystal blue tropical waters, palm trees and orange groves.

And SELL, SELL, SELL

DavidL said...

@ Just Jack ^ ^ ^

Just brilliant ... I chuckled all the way through.

Just Jack said...

The problem with a 10% correction in prices is that it ain't much. That's only about 50K. Big whoop, less than 200 bucks a month in monthly mortgage payments. Affordability has eroded a lot more than that with this years buyers paying over $500 more a month than those of a couple years ago. Roll back the monthly payments $500 or $1,000 now that might just do it. But like wouldn't that be closer to $200,000 or 20 to 40% of current prices.

These properties were flogged on monthly payments and that's the same sword they will fall on.

Just Jack said...

I admire people, like Marko and Lina who put their pictures on their cards and sites.

I thought of doing that, but as my wife explained to me. "There are people who have the face for television and then there are radio people - and you darling are a yellow sticky post it note"

Rhino said...

Lina,

Thanks for the input its always good to hear different perspectives. When you say you are buying condos that are cash flow positive, do you mean based on todays variable rate? if so, give some examples of investment properties you have bought in Victoria lately? (not the building just the details of the price, rent etc.)

I have a fair bit of experience on the subject of working remotely. For the last 3 years I have been working from home for one of the biggest IT companies in the world, here in Victoria. The phrase "out of sight, out of mind" definitely applies. The advancement opportunities stopped coming my way, and I fell out of the loop with others in my department. So I actually found a new job and quit last week. If people are thinking about working from home and moving to cobble hill I would just say think very long about it.

Bubble 'n Fizz(le) said...

That being said it'd based on the prime rate, as soon as prime starts moving we will see a little more movement.

Er, what exactly do you mean?

In my opinion there should be a correction of at least 10% especially in more prestige places otherwise all us will be starting a new town in Langford.

So you're going to start a new town in Langford? Have you discussed this with Stu Young?

Why would you buy a house that is falling apart for 800K, or worse yet the ceiling is not much higher then a short person, when you can get a brand new home with no hassles. Location with great amenities and well, let's hope schools too, out of town.

Well, "drive until you can afford it" is not a new concept.

Cash up when all the retirees are looking at downsizing and unable to maintain there beautiful big homes.

Actually, they have "the help" to take care of their big homes.

After all Victoria is the land of the dead or the newlywed.

Oh please, that is such a 1980's cliche!

Home ownership is about long term, as with any great investment otherwise it's gambling.

At last, I agree! Rah rah!

Alexandrahere said...

Just Jack.....why do I like reading you so much? You missed your calling and we are the beneficiaries of that. The Times/Colonist could (as the kids say),sooo use you....but then that would make too much sense.

Alexandrahere said...

Bubble in a Fizzle----I like that one...."drive til you can afford it"...

Mr.4AM said...

Newsflash Lina, it's already dropped 10%... and NO, it's NOT a good time to buy. We have easy 20-30% more to go.

Mr4AM

Bubble 'n Fizz(le) said...

Roll back the monthly payments $500 or $1,000 now that might just do it. But like wouldn't that be closer to $200,000 or 20 to 40% of current prices.

Admit it, that's just a wet dream. Even Garth Turner isn't calling for 40% price reductions, and he's trying to sell his books!

DavidL said...

@BnF wrote: Even Garth Turner isn't calling for 40% price reductions ...

As far as I know, Garth hasn't come out with actual percentage numbers for his declining real estate market predictions. If you have information to the contrary - please post links!

What are you predicting?

Marko said...

"We have easy 20-30% more to go."

Can't see it happening.

Marko

Mindset said...

Marko, others who can't see 20-30%? Care to say why not?

We had a 26% correction here in Victoria from 1981-1986. Is todays market better fundamentally than the 80's? Why?

I would say that with boomer demographics shifts (retirement spending changes and housing downsizing in our aging population), severe job competition from other countries like china and India eroding our middle class, very significant increases in interest rates expected (doubling... which as an effect on payments 4% to 8% is the same as going from 9% to 18%), and a lot of statistics on housing affordability hitting never-seen highs, this could not only be like the 80's, but worse.

Oh, and during the correction in the 80's, interest rates were reduced from 18% back down to 9%, WHILE THE HOUSE PRICES WERE DROPPING! We can't pull the interest rates down this time.

For those that think there won't be a correction of 20-30%, how about some simple reasons why it won't happen?

omc said...

We don't have an index here, so it is pretty near impossible to tell the actual price decrease. The best we can really do is watch our market segments. In the oak bay $800k range I can securely say that we have dropped at least $100k. Judging from the last flurry of sales I would say about $140k. I can show this with comparable multiple sales.


That is between 12-17%.
pretty close to 20% in my books. Some banks are calling for another 10% next year. The averages mean nothing in this market.

Just Jack said...

If the market drops 10, 20 or more percent, it no longer matters to me. I have moved on to other things that are more important than buying real estate.

Building for my retirement has taken the centre stage and at this point I can only see real estate as a destroyer of wealth. Better to keep it out of my portfolio. Real estate is just too risky. That's a fundamental change for me from last year, even though the prices are about the same.

For me, its all about accessing risk. The price of real estate or how far it will fall is meaningless. As long as real estate carries too high of a risk, then I won't buy. The trend has been established and the economic indicators are in place for a lot of paper wealth in real estate to vanish.

If the consumer of real estate is not seeing double digit increases in annual prices, they become risk adverse which translates into lower and lower sale volumes. Because the only reason why our prices had been going up at 15% a year was because they went up 15% the year before.

Without appreciation the market stagnates, teeters then falls.

Phil said...

Victoria real estate will have to fall about 50% to get back in line with rents. Sooner or later the market will force it to happen, the sheeple will figure it out eventually.

Look at the americans, you can either say "their market crashed" or "a light bulb went on over their heads" and they realized they were paying way too much for a bunch of particle board on a piece of dirt. Same thing happened with tulip bulbs and tech stocks.

Mark said...

Blogger Marko said...

"We have easy 20-30% more to go."

Can't see it happening.

Marko

I sure as shit do...30-40% let's talk in the Fall of 2012

Marko said...

Hey guys,

Super busy today, this cash back thing is turning out to be popular; I will have some time tomorrow evening. I will post a longer posting as to why I don't think we are going to get to a 20 to 30% correction; however, anything is possible.

"severe job competition from other countries like china and India eroding our middle class"

I think this is going to make homes more expensive, not cheaper. Canfor CEO is making 4 yearly trips to China for a reason, not because he wants to keep lumber cheap for us in Victoria.

DavidL said...

@Mr.4AM wrote; We have easy 20-30% more to go

Based on DoubleAgent's data from VREB, the average single family home price in Victoria has dropped from $646K in May to $587K in August (9.13% drop) while the median has dropped from $595K to $549K (7.73% drop).

Re-quoting my predictions from three weeks ago:

[1] I expect that prices will continue dropping quickly through the Spring of 2011.
[2] The rate of decrease will then taper off due to: [a] tinkering with CHMC and other government policies, and [b] speculators thinking that "now is the time" to get back into the real estate market, but then [c] overwhelmed homeowners selling because they are mired in debt.
[3] The market will continue to slowly slide through the remainder of 2011 through 2012 as more owners sell than buy. Inventory will continue to climb.
[4] The "rock bottom" will be sometime in 2013 and 2014 when a balance is achieved by people bailing out of their mortgages by selling (when faces with higher rates at mortgage renewal time) and buyers wanting to get back in the market. The total drop will be about 30% for houses - more for apartments.
[5] The real estate market will be stagnant through 2018 as the North American economy continues be depressed by an over-expansion of consumer credit/debt during 2000-2009 combined with pan-global security and environmental issues.

Leo S said...

Marko, you've made the argument a few times before that prices can't drop that much because we'll hit a wall of building costs, and builders would rather leave the industry than work for less.

Obviously I don't have the building experience to argue price or materials and such, but how do you explain markets where the average prices are a small fraction of Victoria? How come so many cities have the same houses but for half price?

If the market decides not to support these prices, houses will still be built. Money will be saves either in cheaper wages, or cheaper materials, or cheaper interiors or what have you, but houses would still be built. Just look at all the reasonable markets throughout history.


As for houses still being affordable at current low rates so therefore they won't drop; well I would argue it's all down to perception. houses in the states were also affordable, and got ever more so during the meltdown, and yet it still slid down and down. same in japan.. Decade of low rates and still the slide continued. Emotion trumps affordability.
Of course the dominance of emotion makes the whole thing is entirely unpredictable, so who knows, maybe it'll turn around and go back up again.

DavidL said...

@Marko wrote: Super busy today, this cash back thing is turning out to be popular; I will have some time tomorrow evening.

I'm glad that your business model is working well for you and is beginning to pay off.

DavidL said...

@Leo S wrote: How come so many cities have the same houses but for half price?

The assessed value of the land my single family dwelling (SFD) in Saanich West has grown from $90K in 2002 to $340K in 2009 (378% increase!). The assessed value of the 1979-built house has only increased by $20K.

A few weeks ago, Just Jack posted some example construction costs for various types of SFDs. I imagine that these costs don't vary nearly across different communities in BC or Canada.

Mindset said...

I said - "severe job competition from other countries like china and India eroding our middle class"

Marko said - I think this is going to make homes more expensive, not cheaper. Canfor CEO is making 4 yearly trips to China for a reason, not because he wants to keep lumber cheap for us in Victoria.


Care to elaborate how an eroding wage base equals average home sales and general price stability after a crazy govt-subsidized period of growth reverses? We're shipping whole logs again to China... not making more lumber, much less furniture. We are exporting increasingly mechanically extracted commodities (mostly equipment cost, not wages) using heavy equipment we do not manufacture, at half the prices of two years ago. We are increasingly becoming importers, not growing as exporters. The good middle-class jobs tied to traditional export industries are going away, rather quickly I might add.

Where is all the new money going to come to maintain these inflated average house prices? The few uber-rich created by globalization? Rich Chinese moving to Canada? Another deep round of CMHC subsidies?

I'm always willing to be wrong, but prefer to hear a solid argument before I waver in my opinion.

Marko said...

I feel we are not going to see a correction extend to 20 to 30%; however, anything is possible I suppose. I think the likelyhood of a stagnant 5 to 8 years (i.e. 1990s) is more likely than a large correction.

1/ Population will continue to increase primarily driven by immigration. Immigration criteria and fees are ridiculously high; hence 70%+ of immigrants entering Canada have degrees. You only need to take a few classes at UVIC, or call around for a GP to know what I mean. A portion of these immigrants bring money with them.

2/ "How come so many cities have the same houses but for half price?"

Land cost is a large component of new homes in Victoria. Have you seen some of the new subdivisions in Langford? Blasting, fill, rock walls 50 feet high. Development is super expensive in Victoria because of geographic reasons. It will not get any cheaper going forward.

Also, please give me an example of a new home listed on MLS that is half the price of a comparable Victoria home so I can comment on it.

3/ Income to average price and rent to own ratios. You guys have a point here; however, with globalization I think these ratios are going to change and I don't think we are going to go back to historical averages. The girl or guy putting tires on a Ford in Ontario can't expect to live in a 2000 sq/ft home while the person in the same position in China lives in a 200 sq/ft shack. I don't think prices will decrease significantly because of this. I think prices will stay relatively high, and wages will be stagnant. Homes over 2000 sq/ft will be for the well off.

Also food for thought, I am from Split Croatia, price of SFH around $400,000 - to rent $800/month - average income $14,000/year. Why do you think my folks moved to Canada?

4/ Inflation. I am certainly not buying gold, but you never know.

5/ If real estate drops 15%, pretty much all development will cease, decreasing inventory going forward. How much has real estate dropped so far? And we've already seen a number of builders/developers go under. Construction costs are expensive!

6/ Intangible value of real estate is huge. I know my condo is going to barely break even or be cash negative, I still bought it. There is something to be said about having your own condo, or a home on a patch of land. If you want to paint it purple, you can. You can buy your kids a jungle gym for the backyard and not worry about having to move it if you get a notice from your Landlord.

7/ I've been showing a lot of places in Victoria lately and seriously like half don't even have a mortgage registered when I check the title.

8/ People will slowly adapt in order to compensate for higher prices. Get more education, work more hours, live at home until 30, etc.

9/ I am actually seeing a number of places being sold to out of town buyers. Out of the top 10 sales last month, price wise, 4 went to out of town buyers. Just saw a property I was interested in go to a buyer from Malaysia. I am going to see if I can do a better analysis on this for all price ranges.

I am sure I will have some other reasons as people comment on the ones above.

Also Jack mention that while average prices haven't moved down much, you now get more home with your money. I agree with this; therefore, it will be tough to tell the true nature any correction.

I don't think we'll see decent renovated homes in Gordan Head under $500,000.

I don't think we'll see teardowns on decent 5000+ sq/ft lots going for less under $320,000

I don't think we'll see condos in new buildings downtown going on average for less than $350 sq/ft.

Etc.

a simple man said...

Marko;

Good points....but remember not to try and use too much logic in an asset class that is often largely driven by emotion.

Olives said...

And the most important point of course...

"It's different here"

Just Jack said...

We are about to enter the last quarter of 2010. This is generally a weak quarter for real estate sales with sale volumes dropping by about a third. If the trend continues this year our cumulative sales in the Victoria, Westshore and Peninsula districts for all houses and strata homes will drop to around 800 sales for all types of residential properties. That is near the depth of the recession of 2008 when only 700 properties sold as fear translated into a lack of confidence and people held back in their buying decisions. That was shaping up to be a world wide meltdown.

Well in Victoria, we have that same lack of confidence as in 2008 but without the world wide economic turmoil. The difference is that 2 years later, as a society, we are deeper in debt and lower interest rates or extending the amortization period is not going to solve the problem this time. We're looking at a decade of belt tightening, foreclosures and asset devaluation. At a time when the back end boomers need cash (not equity) to fund their retirement. Real Estate is not the place you want to be, its expensive to buy, expensive to sell, expensive to maintain and the returns is too low.

If you have just bought a home with 95% financing ask yourself how likely is it that interest rates will hit 8% in the next 5, 10 or 15 years. If you answered yes to any of those times, then you will not be able to make your mortgage payment and you will be forced to sell your home in a time when their will be increasing estate sales as the cash strapped back end boomers and gen xers dump their parent's homes. Real Estate is too risky.

In the coming months there will be a deluge of MSM stories of people losing their homes. And the MSM is going to seek out these stories - because bad news brings attention and attention sells advertising.

The steady stream of real estate gone bad will cause prospective buyers to hold back from buying. Its kinda like waiting at bus stop and the fellow two steps in front of you gets creamed by the bus. You instinctively take 2 steps back from the corner as you re-assess the risk.

The people before you bought a house, try not to be the one that "buys the farm".

Phil said...

Sounds an awful lot like Miami, circa '07:

Miami 2007 predictions

Mindset said...

Thanks for taking the time to reply Marko. Some thoughts.

Marko Said: 7/ I've been showing a lot of places in Victoria lately and seriously like half don't even have a mortgage registered when I check the title.

I sold my last house with no mortage on the title. It was still the market that dictated the price. And actaully, having no mortgage makes the selling price more flexible... it's ALL money in your jeans and there's no 'loss-line' you are trying to stay above. This might be a negative to housing prices.

Marko Said 1/ Population will continue to increase primarily driven by immigration.

What jobs will the immigrants fill if the economy is weak? Take away diminishing high-wage middle class jobs? Where does that leave displaced Joe Average with less skills,and where will he live? The shrinking middle class will not be rejuvinated just by immigration. Its a complex national economic competitiveness issue underneath it all that creates the jobs. We are expected to remain at higher than historical levels of unemployment... no? I know that the govt in Victoria has cut spending like crazy... and they are a primary employer here.

Marko said: The girl or guy putting tires on a Ford in Ontario can't expect to live in a 2000 sq/ft home while the person in the same position in China lives in a 200 sq/ft shack. I don't think prices will decrease significantly because of this.

The population density in China makes it a very different market than ours. And overall their GDP has also been growing like a fertilized weed, very unlike ours. Also, people in new york live in 600 sq/ft condo that costs more than a McMansion on acreage in Saskatchewan. That doesn't mean the Saskatchewan prices should rise. Its about local economics and supply/demand. Last I checked our economics were weak, and supply for housing was high.

Alexandrahere said...

Marko? If you had asked me I would have said skip the condo Marko and go out and buy gold. JMHO.

Real Estate is going down....perhaps more gradually.....and as I said months ago.....it will stagnate for a number of years and people will get bored. The talk around the water cooler will no longer be real estate....gold perhaps though...financials and commodities.

But then, I could be wrong.

Bubble 'n Fizz(le) said...

If you have just bought a home with 95% financing ask yourself how likely is it that interest rates will hit 8% in the next 5, 10 or 15 years. If you answered yes to any of those times, then you will not be able to make your mortgage payment and you will be forced to sell your home in a time when their will be increasing estate sales as the cash strapped back end boomers and gen xers dump their parent's homes.


There are a couple of pretty big assumptions here. One, that interest rates will get up to 8%, and two that your unfortunate buyers have not seen any appreciation in their income in that time. As well, the further out you project the more principal they will have paid down. I'd say predicting disaster 15 years down the road is a major stretch (no pun intended).

Just Jack said...

What does appreciation in the homes value have to do with the monthly payments? Your home can go from $500,000 to $5,000,000, if you can't make the payment - you can't make the payment.

The assumption is that sometime in the next 15 years interest rates will increase from 4 to 8 percent. How much did interest rates change from 2008 were they not 7% then? Don't think its a big assumption.

Mortage paydown on a 30 or 35 year mortgage isn't enough to compensate for the interest rate increase going to 8 percent. You're just basically frigged. Of course you can bail on the home but then you have just paid rent to the bank after netting out sale commissions, repairs, and taxes. But that assumes that prices remain stable.

I think if all of your wealth is in real estate you're going to be hit hard. That will probably be most of the people under 35, but they can take the hit of bankruptcy. The front end boomers 55 to 65 should be fine, if they get rid of their surplus real estate which some are doing now. The middle group that is left is the big question are they going to hunker down and pay off debt or are they going to bail?

How old are you going to be in 15 years? And your parents and grand-parents? In 15 years the YOUNGEST Baby Boomer will be.......60 years old. The largest group of Canadians will have ENDED their real estate buying years. Want to see what most of Greater Victoria will look like in 15 years - go grocery shopping today in Oak Bay Village and see the future. The future of Victoria is pensioners and very large change purses full of pennies.

I think most people want to pay their bills, but when the homes value is 20 percent under the mortgage amount and there are no signs of appreciation in the next decade, most people are going to bail on the banks. Or I should say CMHC. That is after they have cranked up the line of credit to big time numbers.

Hey, if you're gonna go down anyway - go down BIG. I mean at least stick CMHC for no less than a quarter of a million. Anything less and they may think you can pay it back. And buy the way, how long would it take you to pay off a debt to CMHC and have to pay rent for a place to live. Say your $60,000 salary is garnished at around 25% or $1,205 a month and the interest is 5%. That would take you 40 years to pay back to CMHC. That will pretty will frig you out of ever buying a home again!

The magic of this real estate show was to divert your attention with interest rates and monthly payments while hiding your increasing exposure to risk to the point that you are spending too much of your total life time earning capacity on housing.

Ironically, someone buying a home today with high ratio financing may never "own" that home.

Leo S said...

Last I checked our economics were weak

Not really. Sure unemployment rate has risen, but it's still relatively low. Hell of a stretch to call that weak.

Tony Danza said...

If the economy is not weak then why do we still have historically/emergency low interest rates? Is everyone OK with rates jumping back up to 4.75% from the current 1%?

jesse said...

Marko, so Victoria is different because of: immigration, lack of land, ownership premium, and a paradigm shift in valuations. Look south of the line to see how those arguments worked out. The sales #s speak for themselves. Worst in close to a Duncan generation.

Leo S said...

If the economy is not weak then why do we still have historically/emergency low interest rates?

Local economy.

Mindset said...

Leo Said - Not really. Sure unemployment rate has risen, but it's still relatively low. Hell of a stretch to call that weak.

Not when compared to the boom we just went through. Everybody was flat out... unemployment was only people that didn't want to work. Opportunity everywhere. It was an incredible rising tide that floated all boats.

Today by comparison is weak. Don't believe me? Just overlay any of our current economic statistics on a 2006 graph. You pick the industry or metric (well, let's leave precious metals out of it...).

I believe we are talking about current fundamentals and how they will impact housing prices that bubbled up over the last few years in this blog. If the bubble growth era is our timeframe, I stand behind my statement.

Tony Danza said...

Leo how about some numbers to back up your thesis, surely you have some data to support your claim?

Leo S said...

Leo how about some numbers to back up your thesis, surely you have some data to support your claim?

Numbers that the economy in Victoria is better than places like Saskatchewan? I'll let you uncover the obvious.

Just Jack said...

According to the most recent RBC report, Vancouver is not only the most expensive city in terms of income, but has now risen to the most risky city to buy real estate. Finally some economist is starting to write about risk.

Nothing said about Victoria, but we can't be far off from Vancouver.

Buying real estate in Victoria is like playing Russian Roulette, but with an automatic pistol.

Marko said...

Month-to-Date Market Statistics
Posted by
Sep 27 2010
Monday, September 27, 2010 8:30am:

MTD September
2010 2009
Net Unconditional Sales: 306 776
New Listings: 1,002 1,129
Active Listings: 4,181 3,419

Price Original = $549,357
Price List = $635,443
Price Sold = $612,296

SFH Sold DoM = 56

Price changes last week = 203

Marko said...

Price Original = $649,357

omc said...

The update is much appreciated Marko. My impression is that sales are slowing down a bit again, is this correct? i am sure there are many people looking, such as myself, but the better deals on the better houses have already gone. Lots of turkeys and overpriced left. It might be a while until we see another wave of price corrections/sales. Anyhoo, sales around 350-375 and high listings sure will knock the BS out of the VREB prediction.


Leo;

As someone who employs people and is very familiar with the local job market I have to say the local job numbers are very misleading. Professional incomes are 20-30% lower here than most other parts of the country and it is well known that you have to bring your job here with you. There are no jobs here and people don't come here looking for work.

I used to live in Vancouver, and while it is even more overpriced I wonder if it is even more risky to buy in Victoria. The economy here is far less diverse with no ability to absorb a shock if something were to happen.

Alexandrahere said...

Good morning all.

Thanks Marko for your numbers.

For what they are worth, here are my stats for the week of 20-26 Sept.

SFH

Criteria: between $375K & $775K, min two beds and two baths in SE,SW,OB,ESQ & Vic.

NEW: 25
SOLD: 23
OM: 11
P/C: 39

Average sale price within this criteria: $574,826

Some notable price changes were:
4067 Licorice Lane: 679K to 639K
1337 Tolmie: 869K to 699K
2438 Lincoln: 749K to 659K
2908 Hipwood: 539K to 479K
529 Springfield: 589K to 519K

Condos (Apt's & townhouses)
Criteria: $260K to $625K, min 2 beds, 2 baths in
Victoria: Most areas
Esquimalt: All areas
Oak Bay: All areas
S.E.: Most areas
S.W.: Gorge, Tillicum and Interurban

NEW: 17
SOLD: 8 Apts & one Townhouse
OM: 6
PC: 14

Average Apt sold for $$347,125 and the one townhouse for $362,000

Tony Danza said...

So in other words Leo you're full of BS otherwise you'd provide me with your "obvious" proof of how strong the Victoria economy is right now.

I'll take your silence as confirmation of your being full of it.