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.
32 comments:
Wow, if there was any doubt that rag was just a shill for the RE industry it is now completely gone. What a joke!
It is improving!..for bears
Funny, no author listed on the article...
The original article from the Conference Board is not as upbeat as the Times-Colonist: Metropolitan Housing Starts: Metropolitan Monthly Monitors: August 2010
I think that as long as the average price of a home is greater than the median price, the marketplace is performing in an orderly manner. Only when the average price of a home gets closer to the median do we have the makings of a dysfunctional marketplace. The last time the average came close to the median was in the condominium market in the mid 1990's during the leaky condo scare. At that time the average and the median were about 8% difference between them. That was as close as we got to a "bubble" bursting in the last two decades due to lack of consumer confidence.
So in my world, the closer the average and the median come, the more likely is the chance of a dysfunctional market and possibly a "bubble" bursting. This month the average condominium price is 7.4% greater than the median. In September 2009 it was 13.4%. In September 2008 it was 15.7%
Interestingly enough, that even during the height of the leaky condo scare there were more condos being sold then than there are today.
Condominium sales are down 40% in the core municipalities from this month to September 09 with Condo prices rolling back to the same price level as 2009. That certainly is not a "bust" in prices, but its far from the double digit gains that were in past years.
As for houses in the core districts. The average is some 6% over the median price. Sales are down 50 percent and prices have rolled back to a gain of 7 percent over September 2009 which is down from the 15% gains we saw in the past.
The market is cooling, but how low will sales have to drop, before the marketplace becomes shallow and dysfunctional? Or are we destined for a orderly liquidation of homes at gradually lower and lower prices?
I think that as long as the average price of a home is greater than the median price, the marketplace is performing in an orderly manner. Only when the average price of a home gets closer to the median do we have the makings of a dysfunctional marketplace.
Perhaps you could elaborate, because on the surface this makes no sense at all. The average price can be radically affected by changing only one datapoint, wherease the median is much more resistant to minor changes in a few data points. The rolling average could oscillate wildly from month to month while the median will change much more slowly. Therefore, attaching any significance to the relationship between the average and median doesn't compute.
Perhaps we should invite ChrisA back from Vibrant Victoria to comment on this. He seems to have pummeled HHV into submission!
BnF,
Are you really that immature?
JustJack said: "Only when the average price of a home gets closer to the median do we have the makings of a dysfunctional marketplace."
I think this is too broad of a statement, and probably should be paraphrased or have limited context attributed to it. I say this because you could have both average and medium moving down by significant ammounts while keeping the delta between them the same and still have the makings of a horribly "dysfunctional" market... Of course perhaps the disagreement may stem from how dysfunctional is defined.
Keep up the great work on your posts though JJ, I very much enjoy reading and learning - so thanks.
Cheers,
Mr.4AM
ChrisA quoted from a 2005 OECD report.
Here's what they had to say in 2010:
"The Bank of Canada may have fuelled the run-up in Canadian house prices with loose monetary policy over the course of the last decade, the Organization for Economic Development and Co-operation says. In its annual review of the Canadian economy, released today, the group notes the increase in house prices, along with the price-to-income ratio, since the late 1990s, with a time out starting in June 2008 when costs fell, but only briefly. Some markets, the OECD says, are still overpriced despite the recent softening in the market, though real estate is expected to soon cool further.
"The price of an average home recently reached five times average household after-tax income, which is 35 per cent higher than the long-term average of 3.7," the OECD says."
Emphasis mine.
Apparently they're quite comfortable using a price to income metric as a passing reference to current market conditions.
I've never claimed to be a stats expert or an economics expert. Heck, I've never claimed to even have anything more than a rudimentary understanding of either. But to suggest I'm making sh&t up and using unacceptable measures is utter crap. Banks and the OECD make reference to these measures, I've repeated them only in passing reference to current market conditions. I'm only using them where banks and the OECD have.
@ Just Jack wrote: Or are we destined for a orderly liquidation of homes at gradually lower and lower prices?
I expect that this is what will happen. I have friends who are currently selling (and after a few months of waiting) appear to be finding buyers. Some people think that it is still a good time to buy, so I think that the decline will not be that fast ... it will just continue dropping for a long time.
@ Bubble 'n Fizz(le) wrote: The rolling average could oscillate wildly from month to month while the median will change much more slowly.
We don't always agree ... but in this case I do. The median appears to be more representative of the trend in prices. However, neither the mean nor median are particularly representative as they do not address the wide range (deviation) of selling prices.
I think that Alexandrahere suggested a few weeks ago that a more accurate way of tracking would be to evaluate certain types of homes in specific neighbourhoods. For example - tracking the sales of all three bedroom, two bathroom 1970's homes in Gordon Head.
One things for sure ... realtors/media/doomsdayers/etc. can spin the stats however they want.
Look at the way both are derived. One is the average. The other is the mid-point.
The average being above the mid-point is showing that people are making reasonable offers for the typical home. When the difference between the average and the median grew to 15% or more, prices were going up. It indicated a healthy confidence in the market and vendors were not accepting low ball offers. The average price was higher than the mid-point or typical property.
If the average was below the mid-point then the market would be under duress with low ball offers being accepted. It may also mean that there is more activity in the lower price range. The same amount of sales but with starter homes getting the crap kicked out of them while the move up market may still be, which again is indicative of a weakening market. You lose your first time home owners - who are going to buy the middle income homes?
We saw this with the home on Admirals that sold for 200K. If properties below the mid-point are getting bitch slapped, then the average drops closer to the median price.
In a nut shell, after years of the average being 13, 15 and 20 percent higher than the median, it is now, at 8%, beginning to converge. That in itself tells you something has substantially changed in the marketplace.
Quite true, not one metric provides a clear answer. All have to be looked in relation to each other. And even then, with the correct stimulus they could have different outcomes.
A couple of years ago, if the BoC said that interest rates would go up a quarter point, people would get off the fence and buy. Today, I think the opposite would happen, people would hold off from buying.
Same stimulus - different outcome.
The tricky thing is consumer confidence. Is there anyway that this can be teased out of the data?
Looking at how average prices are changing in relation to the typical property, may be one way. Especially when the volume of sales has fallen so dramatically.
When the average drops closer to the median, all that shows is that there are fewer really high sales prices skewing the average. That may well be a harbinger of a crash, but I don't think that's proven. I think the huge drop in sales across the board is a much better indicator.
It may also mean that there is more activity in the lower price range.
That's all it means. It means nothing about whether the market is going up or down.
We saw this with the home on Admirals that sold for 200K.
That sale meant nothing. It was a tiny teardown on less than 2000 sqft of land. Cheap because it's crap.
HHV, you capitulate on VV, then come here to continue to claim you were right? You were not right, and it is dishonest for you to attempt to defend your ideas here after bowing out on VV. I don't think I'm going to pay attention to you ever again, you're not worth it.
Just Jack, I can't think of any reason why median prices exceeding mean prices is a sign that a bubble is about to collapse, or that the market is dysfunctional. Typically mean prices will exceed median prices because the distribution of house prices has a "long right tail," that is, there are houses that sell for millions more than the median house, but there are no houses that sell for millions less than the median house. Flipping that relationship would be unusual, but I don't see why it'd be a sign of a poorly functioning market nor a signal prices are about to fall.
If the steady state for the last half dozen years has been that the average is 15% or more than the median. And now it has dropped to 8% its just one of those things that make you go...
hmmmmmm
When I looked back over the years, the only time that I found this to have happened was in the condominium market in the 90's when the leaky condos were scaring off buyers. Maybe it is just an anomaly. But I'm thinking that it's showing a change in buyer's habits. A reluctance to buy more expensive condominiums. Possibly, a weakness of confidence in buyers. Maybe a desire to buy a more affordable condominium that can be paid of in less time.
Time will tell.
I agree with you Chris, the long tail will skew the data, but WHY has it changed so drastically of late?
The condominium market was the closest we came in the last decade to a bursting bubble. It wasn't a "bubble" but it did show a change in buyers confidence in purchasing condominiums.
If the extreme right tail disappeared. Could that mean million dollar homes have stopped selling. Isn't that suggestive of a weak confidence in the market. And what would you expect that would do to the mean and the median? Would they start to converge?
I have never seen the average below the median. But I've never seen a "bubble" burst either. But I bet the stats were really really wonky when it happened.
@Chris
You enjoy this article from last Friday's (Sept. 17, 2010) edition of the Financial Post:
We are not as predictable as economists think we are
btw - if you read the thread at VV, HHV did not capitulate, instead he gave up on arguing against Chris. Removing oneself from a debate does not mean the other party is right.
ChrisA,
I'm not claiming anything except that you're not accepting what I had to say at face value: which is professional organizations use the metric in the same manner I do. Good riddance.
Yikes. They're reslly putting the boots to HHV over at VV. He's looking pretty bruised, what with him denying he said this and that, and then having this and that dug up from his recent sermons and thrown right back at him.
I bet they're all real estate agents and mortgage brokers over there, and that's why they're beating up on poor HHV. Yeah, that must be it.
Is buying real estate in Victoria more or less risky than a year ago?
This is one tough question to answer. I've heard the argument of rising interest rates, but that's true at anytime. So what makes up risk? How do you measure it?
When you bet in Vegas is that risky?
How about speeding in a car?
Is a career selling illegal drugs risky?
What do these and other risky things have in common with real estate?
I suppose risk has something to do with probability of things going wrong. In Vegas the odds are in favour of the house, so if you play long enough you'll lose. The same with speeding, do it once - no problem. Do it everyday - its an accident. Drugs, too long in the business either the cops will get you, or more likely your competition will turn you into just another water soaked sneaker on the beach.
So time is a factor of risk. The longer you are exposed the greater the risk.
Of course the bigger the bet, the higher the speed and the bigger your drug operation is, will also affect risk.
That would make high ratio financing over 30 years - risky. But, you can reduce your risk by paying off the debt faster by making additional payments. But how likely is that with interest rates so low. After all, you have to payoff a $100,000 to reduce your payment by $400 per month. And if you are maxed out on your monthly payment, how likely is it that you can make an extra payment or two each year.
And I think, that is what is wrong with this marketplace. Buyers are not factoring risk into their decision making process. We have gone for so long with out a kick in the pants sustained market correction, that buyers consider real estate to have little to no risk and are pushing their exposure out to the limit of the mortgage amortization period.
And, I think, that is why today's market is at a greater risk of defaulting than a decade ago. That enough people are stretched to the limit, and past, of affordability having traded away the ability to reduce their debt for granite counter tops and heated towel racks.
This exposure to risk, translates into forced sales by the banks.
And with today's low sale volume, it doesn't take many forced sales to change the marketplace.
Hmmm ... methinks there is a concerted effort to make HHV and other bloggers on this site look like fools. There are increasing attempts to "paint" bloggers here as radicals - and thereby negate their point of view.
I believe that it is extremely important to avoid personal criticisms, as it undermines the standard of dialog (and the range of valid viewpoints) on this site.
HHV - I want to thank you for putting up with the playground taunts and name calling. Keep up the good work! :-)
@ Just Jack wrote Is buying real estate in Victoria more or less risky than a year ago? ...
Very nicely put! Too much easy credit, too much consumption, too much debt ... it is going to catch up with some people very soon.
Its common - those who think independently and/or choose to disagree with the status quo tend to get ostracized irrespective of whether their viewpoint is factually correct or not. This is compounded when the majority in a group are emotionally or financially attached to their particular viewpoint.
When it starts to become obvious that a particular world view may no longer hold, then the inevitable anger is often directed at those with opposing views. Like a stage of grieving.
Perhaps my views that RE current prices are unsustainable are incorrect. Perhaps not. I choose to think indpendently and question any information presented to me, particularly from either an unknown or vested sources. That a larger group of people are now intellectually attacking those who share my views is likely a good thing for my interests. It is good secondary anecdotal evidence that the market is starting to fall.
Chris
I'm of half a mind to think - that given your very high level of knowledge of stats canada data, mortgage systems and analysis - that your work is paid for by another party who has interest in the market and is intentionally wishing to have uncertainty created about the direction of the market. If so, please state your source
Just Jack,
There's heated towel racks?
I know what I'm getting Mrs HHV for her birthday!
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. click here
September is shaping up to be a sales disaster unlike anything seen in the last 10 years. click here
New listings increased which is unusual for this time of the year. click here
VREB only reports sales and listings on a monthly basis. We calculate a running total of the last 4 weeks every Monday. click here
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. click here
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.
Guys, thanks for the support. I'd say I'm frustrated, but they're just a bunch of faceless pseudonyms like me, so in the end it matters not.
The real estate market has slowed to the point that sticking around Victoria in the rain doesn't seem like a good idea this winter. So my wife and I have decided to become snowbirds and head to the US for some R&R.
This will be my last post until next April. See you later...
You will be very missed Double-Agent!
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