Monday, September 13, 2010

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.

46 comments:

Marko said...

Double-Agent, would you mind if I used your graphs and sent some to my clients to give them a better understanding of the market?

HouseHuntVictoria said...

As an aside, site visits and page views to this little blog have jumped over 30% in the last 3 months. Do you think more people are starting to pay attention to the market?

Double-Agent said...

Marko,

Feel free to pass my graphs on to anyone that might be interested.

Readers can repost on KIV, Vibrant Victoria or any other blog they wish. I suggest that you post that HHV's blog is where the originals and commentary can be found so readers know the context.

Dave said...

We went from 10 to 13 people, which is 1 per month.

HouseHuntVictoria said...

From the No sh&t Sherlock news:

59 per cent of Canadians would have trouble making ends meet if they missed a paycheque.

"We were surprised that people were that close to the line,"

"Of those surveyed, the younger workforce felt the greatest pinch. "

Reid said...

BC in 2013?

WSJ Article

a simple man said...

more from the news, along the same line as HHV:

The number of Albertans behind on their mortgages has risen dramatically in the past three years with the province sporting by far the highest rate in the country.

According to data as of June by the Canadian Bankers Association, there were a total of 500,429 mortgages in Alberta, through banks belonging to the association, and 3,707 of those, or 0.74 per cent, were considered to be in arrears of three or more months.

In June 2007, only 0.14 per cent (659) of a total of 458,044 were in arrears.

By contrast, the CBA data shows that across the country 0.42 per cent, or 17,090, of mortgages were in arrears of a total of just over four million in June of this year.

Meanwhile, a major national survey of working Canadians, released today, shows that employees continue to live paycheque to paycheque. They are concerned about how interest rates and the economy will affect their personal finances and retirement.

The 2nd annual National Payroll Week Employee Survey, conducted by the Canadian Payroll Association, found that 59 per cent say they would be in financial difficulty if their paycheque was delayed by a week.

Read more: http://www.timescolonist.com/business/Mortgage+arrears+soar+Alberta+consumers+live+cheque+cheque/3517631/story.html#ixzz0zRaChNzI

Bubble 'n Fizz(le) said...

As an aside, site visits and page views to this little blog have jumped over 30% in the last 3 months. Do you think more people are starting to pay attention to the market?

The really important metric is unique visitors. If simpleton visits your blog 50 times a day that's 50 site visits and page views, but only one unique visitor.

Just Jack said...

HouseHuntVictoria said...
As an aside, site visits and page views to this little blog have jumped over 30% in the last 3 months. Do you think more people are starting to pay attention to the market?"

Not only starting to pay attention to the market but want to hear less spin and more truth. Thanks for being here HHV to help spread the truth.

S2

patriotz said...

The number of Albertans behind on their mortgages has risen dramatically in the past three years with the province sporting by far the highest rate in the country.

That's because Alberta RE prices peaked in 2007. Mortgage delinquencies are a result of falling prices, not the other way around as many believe.

think said...

lots and lots of new listings on my PCS today, but as usual no sales...

Mingoman said...

Ever seen house market fall this far?

http://www.zerohedge.com/article/67-phoenix-homes-are-underwater

Bubble 'n Fizz(le) said...

Mortgage delinquencies are a result of falling prices, not the other way around as many believe.

To a certain extent it's a chicken-and-egg argument. In the US, there are a small number of "strategic defaults" by people who want to walk from their house because it's under water, but by far the prices are dropping because people defaulted when they couldn't refinance at a rate they could afford (due to tightening credit), and the banks put the properties on the market at fire-sale prices just to get them off their books. It is well known in the US that the bank-owned properties are holding prices down.

In Canada, the consequences of defaulting are more severe than in the US (where first mortgages on principal residences are "no-recourse"--all you lose when you default is your credit rating). hence, strategic defaulting in Canada isn't really feasible--if the bank knows you can pay you can bet they'll come after you if you default. As for refinancing risk--banks will refinance regardless of the market value of a house, and with the government holding rates down people will continue to carry their loans. QED!

themoose said...

These are some great statistics about Victoria. The way I see it is until Toronto or Vancouver real estate weaken, Victoria will hold it's own. If you believe in that thesis, then you might as well watch China. Until China cracks, the wheels will keep on movin... Is China in a housing bubble, who knows. We might have to wait for years if not a decade to find out.
As long as Toronto, and Vancouver real estate is reliant on immigration. Then it's all up to the BRIC nations to guide our future real estate prices.

Animal Spirit said...

themoose - huh? the argument you make makes no sense - Victoria may work similarly to Vancouver, but China as a proxy is more than a bit tangential

bubble - interesting that you seem to know a lot about mortgage finance. the argument you make doesn't hold water. right now the U.S. banks are withholding foreclosures from the market to keep prices high. It isn't a chicken and the egg thing - it is price reductions that cause delinquencies and in the long term foreclosures. Check out calculated risk for more background.

All - there is quite a bit of discussion of this blog on sites like vibrant victoria. We can likely expect more baiting - responding with courtesy is best.

DavidL said...

@ Bubble 'n Fizz(le) wrote: [In the US] the prices are dropping because people defaulted when they couldn't refinance at a rate they could afford (due to tightening credit), and the banks put the properties on the market at fire-sale prices just to get them off their books. It is well known in the US that the bank-owned properties are holding prices down.

This recent article from the LA Times suggests completely different reasons for the price drops and rising delinquency rates: New mortgage delinquencies rise again

DavidL said...

@Reid: Regarding you posting today at 12:06 PM

Which Wall Street Journal article were you linking to? The link you provided doesn't seem to work.

Reid said...

DavidL, here is the website:

http://online.wsj.com/article/SB10001424052748704505804575483844277697242.html?mod=WSJ_hps_LEFTWhatsNews

Hopefully that works. The article suggests the pace of future house declines in the US will have more to do with how aggressive banks are in unloading distressed properties versus than normal supply/demand. Banks have backed off being aggressive in selling distresed properties over past 15 months and % distressed sales have come off because of it despite more and more foreclosures, but that may change as Obama's mortgage policies are not working.

patriotz said...

In Canada, the consequences of defaulting are more severe than in the US (where first mortgages on principal residences are "no-recourse"...

Number one misconception about mortgages in the US. A majority of US states are recourse. Including Florida.

All RE busts have the same root cause and that is prices out of proportion to rents and incomes. Other factors may affect the timing of price declines, but it is the excessive prices themselves that bring on declines.

Mark said...

Someone a while back someone here asked my why I thought interest rates were going higher. My first reaction was to say DUH....are you kidding me?

It appears the experts are thinking/predicting the same thing....

http://www.investmentexecutive.com/client/en/News/DetailNews.asp?id=54891&IdSection=148&cat=148&BImageCI=1

Oh my :(

Bubble 'n Fizz(le) said...

From www.investmentexecutive.com ...

They now see the overnight rate rising to 1.5% by the end of the year, and then holding at that level through the third quarter of 2011, before rates resume their march higher, to 1.75% in the fourth quarter, and 2.25% in the first quarter of 2012.


As someone who lived throught the 15%+ rates of the 1908s, I'm not exactly quaking in my boots!

HouseHuntVictoria said...

BnF,

You clearly don't understand the effects of interest rate changes vis a vis what they do to mortgage payments. It will only take a 3%-4% change in interest rates to recreate the effects of the 1980s high interest rates.

If people who have 5 year terms and 35 year amortizations at current 3.5% rates have to renew their mortgages at 6.5% to 7.5% rates, they will be looking at drastically higher monthly payments in the neighbourhood of 35%-45% increases.

a simple man said...

I think a raise of 1.25% from this spring will have serious implications on a lot of people based on my readings of the Canadian debt level and of the recent headlines that 59% are living paycheque to paycheque.

BnF - are you employed by teh real estate industry?

WiseInvestor70 said...

Should we get one of those guns ?

Just Jack said...

All RE busts have the same root cause and that is prices out of proportion to rents and incomes. Other factors may affect the timing of price declines, but it is the excessive prices themselves that bring on declines.


I would change this to

...the root cause is that MONTHLY PAYMENTS are out of proportion to rents and incomes.

The excessive prices do not bring on a decline it is the inability for people to make the monthly payments that bring on the decline.

The problem is that people have been subsidizing their lifestyle with their home equity lines of credit and the monthly payments have been creeping up on them. If you want to reduce your monthly payment by $400 a month, you have to pay off $100,000 of debt. And that ain't gonna happen unless you sell some of your surplus real estate holdings or "off" your rich granny.

Since property values are now rolling back to 2008, 2007 and 2006 levels the ability to pay off those $50,000 credit cards by rolling it into the line of credit are disappearing. The LAST thing people do is change their lifestyles, they will run their dozen or more credit cards to the maximum before selling their McMansions. And when they are on this debt train, there are few stops to get off. I was there in the 90's and I don't want a ticket on that train ever again.

Speculators rarely hold property longer than three years, so there ability to pay off debt chokes their cash flow and eventually puts them into receivership.

The more people and companies go into receivership or personal bankruptcy the more cautious lenders become and the more they want to be compensated for risk in the form of higher interest rates. Which again chokes cash flow. And the circle goes round and round.

Alexandrahere said...

"And the silence is the loudest I have ever heard"

snap said...

I recently moved back to Victoria - glad to see this blog is still going. I've been looking at 2 bed and 2 bath condos in the Westshore area (Reflections, Aspen, the group of 4 near LAngford City Hall, Wale Road) and am noticing quite a bit of stock to choose from. Most seem to go for around $1200 and vary from 750 to 1000 sq ft. I'm wondering if I could do better in terms of price. Any thoughts?

DavidL said...

@BnF

The affordability of real estate has always been dictated by the amount that the mortgage holder must pay each month in order to service their mortgage debt. In the early 1980's interest rates were much higher than now, however most people could still afford annual interest rates of about 10%. Once rates soared up to 18%, many people with closed variable-rate mortgages had a very hard time making payments. Many people who recently purchased "upscale" homes in Broadmead and Wedgewood Point had to either sell or declare bankrupcy. This is why there was such a significant drop in the SFD selling price between 1981 at $126K and 1982 at $105K (17% drop in one year). The SFD prices in Victoria kept on sliding down until 1985 (26% total drop):

1978 $63,733
1979 $67,165
1980 $92,033
1981 $126,776
1980 $92,033
1981 $126,776
1982 $105,023
1983 $101,652
1984 $95,568
1985 $93,865

Data source: http://vreb.org/pdf/historical_statistics/YE782009.pdf

Note the dramatic increase in prices during the late 1970's before the peak in 1981 - similar to what has been happening in Victoria since 2002.

Barring a global calamity, forecast interest rates will not be anywhere near the rates in the early 1980's. However, parallels can be made between the early 1980's and now:
[1] Mortgage holders are paying an excessively large portion of the net income to servicing their mortgage debt.
[2] High (persistent) unemployment with a decrease of full-time positions and increase in part-time positions.
[3] Low minimum wage.
[4] Increasing taxation.

The difference between now and the early 1980's are:
[1] Average personal debt levels are much higher.
[2] Amortizations of 35 and 40-years are common (versus 25-year), along with 0-5% downpayment (versus 10%) allowing people who would not have previously qualified to obtain a mortgage.
[3] A SFD currently costs 8-9 times the average family income versus 4 times in 1981 (at the height of the market)

The bottom line ... if mortgage holders cannot make their monthly payments, they must try to refinance or sell. The current increase in real estate inventory and the rapidly increasing personal debt load is indicative of this situation.

Olives said...

Mish comments on the Canadian Housing Bubble today:

http://globaleconomicanalysis.blogspot.com/

Skeptic said...

Olives,

Thanks for the reference to Mish. The comments were really interesting too.

This Globe and Mail article is a bit of a reality check.

Housing market remains vulnerable

Bloated debts and rising interest rates threaten to force a growing number of families to cut back and prompt Ottawa to intervene again to cool down the mortgage market.

Some 7.5 per cent of Canadian households could be “financially vulnerable” by mid-2012 if borrowing keeps up at the same pace and interest rates rise as expected, the report said.

itoka said...

Heard from my nursing friend that her maths teacher at Camosun college today was showing the class a much like this one to illustrate some statistical point and to take the time to tell the class that Canada was in a housing bubble! She apparently went on to say it was all thanks to low interest rates and Canadians taking on too much debt. Brilliant!!

Mindset said...

Looks like CMHC has been hiding high foreclosure rates....

http://watch.ctv.ca/news/ctv-national-news/sept-13/#clip347743

Skeptic said...

Here is a video by a local real estate agent discussing how low sales are causing sellers to panic and out-of-town buyers to sit on the fence. His voice and body language are revealing.

Local Realtor Aaron Hall on Youtube

Comments??

HachiRoku said...
This comment has been removed by the author.
HachiRoku said...

Aaron Hall on Youtube working url http://www.youtube.com/watch?v=3PadnLr7A0E

Mark said...

Aaron Hall says "prices should have gone down already"
Ummmm Aaron they have!
WTF????????

Local buyers are "comfortable" with the prices in Vic?

What a Maroon!

Muriel said...

Article in the TC today:

August real estate sales lowest in past five years


By Andrew A. Duffy

Victoria's real estate market tanked in August, according to figures released by the B.C. Real Estate Association yesterday.

The statistics show the Victoria real estate market hit five-year lows in terms of unit sales and the dollar-volume of sales last month.

reasonfirst said...

I have been wondering what has been going on at Essencia Verde in Cook St Village as things seemed pretty slow. Now I know:

http://tiny.cc/dgpzd

I guess I missed the original receivership story. This one (small but high profile given the location), Bare Mtn, Aquattro...any more?

a simple man said...

thanks Muriel - in fact, in terms of unit sales, we know that last August was the worst in 20 or more years (earlier post on TC article, also see an earlier post with Double-Agent's graphs for Aug sales in the past 10 years).

Sept is shaping up to be worse than Aug.

I also note that Aaron Hall's comments on that video go against the common statement from realtors - that outside money is driving the market.

good day to all.

a simple man said...

thanks reasonfirst...these receiverships are becoming common here in high-end condo developments.

Only question is - who's next?

a simple man said...

Hi snap, and welcome back! I think the majority of us would say don't buy now....you will be rewarded for your patience later.

Alexandrahere said...

The living area i.e. the kitchen, dining and living rooms in the townhouse type condo's at the Essencia in Cook St. Village are very small given the asking price. The rooms also face onto the parking lot of Pharmasave.

This week so far on my pcs reflecting the majority of condo's and houses for sale in the four core municipalities, there have only been three sales. Two of them were condo's priced in the 300K price range and one house in the Glanford area. The house sold for the asking price of $430K and it has a suite.

The volume of new listings and price changes are definitely up compared to the same time in previous weeks and so far there have been very few OM's.

DavidL said...

Courtesy of CREA's spin doctors:
Canadian home sales rise, prices stable

You can just imagine the backroom meeting: "OK people - how are we going to crunch these numbers so we can make a "good news" story ..."

DavidL said...

@Skeptic: Here is a video by a local real estate agent ... his voice and body language are revealing.

Agreed, The voice, eye movement and micro expressions (which are even visible in this YouTube video!) are most telling.

Just Jack said...

Now that real estate is being perceived as having risk, how much risk are you willing to take on buying a home. Simply ask yourself how much can you afford for the home. Most people will use 32% of their gross income - and how long do you want to pay the mortgage - not the amortization period, but how many years do you want to make payments for. For example someone who is 50 years old, may only want to pay for 15 years, so that at retirement their payments end.

When people perceive that real estate has low or no risk, they will go long in their time to pay off a mortgage. The only limitation being the amortization period of 35 years. So in good times people will extend their pay down period to the extreme end. In bad times they will shortened their payback period, like they did in the mid 1990's to about 15 years, because they want to pay off debt FAST.

So, get yourself a mortgage calculator and do the math.

Aaron Hall said...

Well there is a lot of discussion about me here I think that is fantastic.

I work primarily in the downtown core and have not seen any noticeable decline in prices over last year or the past two years. This may be because I study sold prices and do not necessarily pay any attention to asking prices. A two bedroom two bath condo in the Cook St Village is still hovering around the $300K mark. This has been like this for about two years now. If you want to find the big price drops they are there but in the luxury real estate market.

If anyone here wants stats on particular properties let me know. It is public info, you should have it.

The big number that Nay-Sayers should know about is that there has been a 45% drop in the number of homes sold when comparing this August to last August.

I have been hearing about “The Bubble” for over two years, hasn’t popped yet. Time will tell. (PS I sold 5 properties last month with sellers and buyers, all of them local. “out of towners” are nowhere to be seen these days.)

As for the “micro expressions”… maybe you are looking to closely or should turn off the HD ;)