The market's falling in Victoria. Sales are way down and prices are slowly starting to recede. But this isn't like 2008. And I can't say with certainty that it will continue to play out like 2008 did, with a substantial correction over a short period of time.
Here's why:
These are the numbers for SFH purchases in September 2010 and 2009 excluding waterfront and acreages:
- there's only 6.7 months of inventory - just barely into buyers market territory
- Days on Market is just over a week longer - hardly cause for concern for most home sellers
- Average prices are roughly the same - not enough to make people trying to sell feel like they're losing money, yet
- Unit sales are down 20% and falling fast
- Over half of all listings put on the market remain unsold
- Yet prices are up 9% year over year
- And the homes that sell are still selling 16% faster than they did last year
Don't get me wrong, things are ugly in our market, but the inputs still look fairly stable: employment is steady, incomes are steady and interest rates are steady. In my opinion, what's happening in our market is people are getting better quality homes for the same money as a year ago. This is next to impossible to quantify in data, but if it's true and the trend continues we'll start to see more homes selling for less as the upper end of the market pushes down. But it's going to take more time than six months to reflect in the numbers and I don't see it as cause for a wave of panic selling, yet.
108 comments:
Genworth allows the rental income for non-authorized suites.
So. . . if a the property is located in Victoria, we can use 100% of the gross rents and add it to income, if the file is 80.1% LTV and greater.
If the file is conventional LTV, 80% and less, you can apply an 80% offset from the rental income.
Property need to be located CMA of Victoria.
Accompanied with today's low rates this makes owner occupied with rental suites extremely affordable.
Take a look at these two properties:
457 Constance in Esquimalt asking; $530K sold for $505K
542 Meredith in Tillicum area of SW asking $530K sold for $505K.
Both are about the same distance to downtown. Constance is very close to the water.
But somehow Meredith seems to be the much better buy.
What do you think?
"Accompanied with today's low rates this makes owner occupied with rental suites extremely affordable."
Ummm maybe this makes it easy for your aveage joe to get a huge pile of debt. But affordable not so mucn.
The real estate market is entering a fundamental transition. This transition is fueled by expanding debt loads, employment uncertainty, and re-evaluation of real estate as an investment medium.
As discussed in this blog, mainstream media (MSM) and even by Flaherty and Carney, the amount of personal debt amassed is at an all-time high. Even slight shifts in interest rates can cause some mortgage holders sink from swimming to drowning. Throw in the recent survey results that 59% of Canadians are living paycheque to paycheque, 50% save less than five percent of their income and another 40% don't bother saving money at all. Employment patterns are changing with layoffs (or attrition through retirement) by government, manufacturing and high-tech industries being replaced by lower-paid positions in the sales and service sector. Salaries and wages have stagnated and are nowhere closed to matching inflation. Even the most ardent real estate enthusiasts are no longer considering flipping real estate to make a fast tidy profit. Investment money is moving away from real estate into equity and bond markets.
Trying to predict what will happen during a transition is next to impossible. When things looked dire in 2008 - changes in government policy, "stimulus money", and "emergency interest rates" floated a sagging real estate market - allowing further real estate speculation. Mortgage eligibility changes in April 2010 and HST worries have helped dampen the market again. No matter what government might do to change their policies - the huge personal debt loads, wage stagnation (or reductions) will persist beyond any short-term market transition. These factors will continue to drag down the real estate market for years to come.
Rich Man, Poor Man, Beggar Man, Stat Man
Quick unscientific look at homes for the first time house buyer, middle and upper incomes.
Last 100 sales in the urban core municipalities. Prices were ordered from lowest to highest and then broken into three groups. The starter house owners assigned homes 1 to 25, the middle income were homes 26 to 75, and the rich were homes 76 to 100
Starter homes prices ranged from a low of $368,000 to a high of $475,000
The median was 431,500 was higher than the average at $428,594.
The middle income had prices ranging from $476,000 to $717,000.
The median was $560,000 and the average was slightly higher at $571,333
And the upper income group. Prices started at $718,000 to a high of $1,170,000. The median was $799,500 and the average was significantly higher at $853,320.
So it looks like the starter home buyers are easing up in their purchases, the middle income are a little bolder, but cautious in their outlook and the upper income group is skewing the overall numbers by pushing the overall average up in Victoria.
Yep, it sure looks as if the government jumped the fence onto the bear side. In addition to the various mortgage rule changes this year to make it harder to qualify for a mortgage such that Canadians don't foolishly get themselves over their heads with debt (oops, too late!), Ottawa ponders further tightening of mortgage rules.
Apparently debt being 146% of disposable income tied to mortgages & HELOCs is a bad thing - who knew?! LOL... but don't tell that to Victoria/Vancouverites. You can't put a price or debt ceiling for living in the 'Best Place on Earth' right? I bet this story has realty boards shaking in their boots.
Imagine, the government wants to stimulate the economy with near zero interest rates for prolonged periods of time, but also try to avoid a USA style real estate collapse by controlling consumer mortgage spending. (good luck with that!)
If they proceed with additional mortgage tightening rules this will eventually lead to a bear orgie when interest rates eventually explode to the upside while strict (normal!)morgage rules remain in place.
So if real estate declines right now, bears win. If real estate starts to recover to the upside, government likely intervene and push it back down and bears win. When interest rates eventually skyrocket beyond government's control - bears will party like it's 1999 or should I say like 1981.
Rejoice!
Mr.4AM
Here's something worth trying ... Enter in your financial details and see how much you can borrow for a mortgage. Make sure you choose a variable rate mortgage and a 35-year amortization:
ING Mortgage Calculator
http://www.ingdirect.ca/en/tools/calcs/Borrowing.html
I find that I can borrow about 7½ times my family income. Change the mortgage to a 5-year fixed at 6%, and I can borrow only 5 times my family income.
How much are you comfortable borrowing?
Hey who knew we could afford a million dollar home! Isn't free money great?!
@ Leo S wrote: Hey who knew we could afford a million dollar home! Isn't free money great?!
Likewise ... but I would be paying it off until I'm almost 80 (you do the math!) Frankly ... this kind of easy credit scares me.
The difference of just a few percentage points (from variable 2.35% to fixed 6%) is profound. Using the mortgage calculator, I can see that if interest rates rise to 6% (not an implausible in the long term), that I can *just* afford the house currently live in. Bump the interest rate to 8%, and I just can't afford my own house.
So what happens when interest rates rise, someone needs to sell their home - but nobody can afford the mortgage? Hmmmm ...
There is more to borrowing funds then a mortgage calculator and rates.
TOTAL debt service ratios play a huge part in how much money one can borrow. So does your beacon score.
Put it this way - your beacon score is your financial health. If it's low, good luck at borrowing funds no matter how much equity you have or how much money you make.
Zero debt, high beacon. I don't think we'd have trouble getting qualified for close to that kind of money. That doesn't mean that it isn't pure insanity.
good effing god - we'd qualify (secure work, high beacon, zero debt, good downpayment) for a 765K house with the 5 year variable (or 120K lower with the 5 year fixed.
Payments would be around $2250 / month (or double our current rent) - until rates rise.
Well, if you have bought at your maximum affordability with a 35 year amortization, you have to hope interest rates never go to 8% during any of your renewal dates in the next 20 years. Because in order to keep the same monthly payment as you have now, you will have to pay down 20 years of the mortgage.
A 20 year gamble that you will not have to renew your mortgage at more than 8%.
That is really risky.
Ask yourself how plausible is it than interest will rise 3.5 percent in the next 20 years?
Of course this is scare mongering on my part, but its meaning is to show the risk of financing a property over a very long time using short term rates.
"There are old pilots and there are bold pilots but there are no old and bold pilots."
Ask yourself how plausible is it than interest will rise 3.5 percent in the next 20 years?
Whatever. We'll be fine. By that time the house will be worth 3 times what it is now.
If I'm reading Carney right, there is more mortgage approval tightening coming in the next month or two.
Are we reaching the point that enough credit has been soaked up in the world economy that traditional theories of Economics are once more valid.
Last month the stock market increased while real estate decreased. Assuming a finite amount of money in the world, is the money flowing away from real estate to find a new home in the stock market?
Have the front end wave of baby boomers realized that glass door knobs cannot be readily exchanged for food, gas or heating oil with out dipping into the line of credit.
That cash will be king for the next decade.
That a half million in your hand is worth more than a half million in equity in a West Coast cabin?
Will estate agents be served crow?
is the money flowing away from real estate to find a new home in the stock market?
I don't think so... Any money "flowing" out of US real estate now is at a huge loss for the investor. I think most of the stock market action now is just the big boys (Goldman, etc) playing around with the govt money they were handed. Don't forget Paulson's bailout was open ended.
Interest rates will go up - no doubt. I've asked the same questions as well.
Taking that into consideration I have a spread sheet that assumes rates going up in the next five years and what payments you will be faced with when rates increase.
I do suggest these adjustments to be taken into consideration while on a five year term if is what someone chooses - a fixed rate. That way the shock has already been absorbed.
"Inflation Hedge Strategy."
1407 Richardson just sold for $379,000. Assessed for $466,000. Having been through the home I think this was a good deal for someone wanting the location. The lot/yard is bigger than most SFH homes in Fairfield.
MArko
Quite the listing history for that half duplex on Richardson.
Wowsers starting off at $549K after a couple of price reductions and 146 days later the property sells.
This half duplex has appreciated 159 percent since the original purchase in May 1997 which is right on track with the median increase in prices of 153% for all homes in the urban core.
So even though the property was ridiculously over priced, contrary to most professional opinions, the property did not suffer a lower price than market value at the time of the sale. It just cost the agent more money to market and the seller lost time. And possibly the lost opportunity to sell when prices were slightly higher than today if they had been more realistic at the start.
Canadians are polite people, and do not make offers unless the asking price is reasonable.
Why do so many people put so much faith in these assessments rather than their own intellect?
I think the assessments worked against this property.
So I'm going to chalk this one down to a rookie assessor and a Vendor who never appealed their taxes.
@Lina Zussino
Thanks for reminding people that not everyone is eligible for such huge loans and that factors such as beacon score, credit history, and current assets/debts are also considered.
I also think that you are providing a valuable service to your clients by showing them what will happen as interest rates climb. I know a number of people who cannot afford even a small increase.
Do you find many clients coming in for mortgage renewals who purchased during 2006 through 2008 who opted for no money down and 35 or 40 years amortizations?
I googled "inflation hedge strategy" and got Greg Williamson's Blog. He's the founder of Canada Mortgage Direct, and was Canada's Mortgage Broker of the year 2009.
Although he spends some time ridiculing Garth on his blog - not cool. Unlike myself, who doesn't ridicule Garth's blog - I ridicule him for being plump, wearing lifts in his cowboy boots his fixation with Grizzly Adams and living east of the Rockies. Its kinda like the TV series Gunsmoke you're expecting James Arness and get William Conrad.
I really don't get what Williamson is saying. Especially the increase in monthly payments in year five in relation to year six of $921. Why would the payment go up, when the interest rate is the same? Isn't he comparing two different mortgages with different amortizations?
But hey, I don't know. But I'd like to know more about "Inflation Hedge Strategy" Can you give us an inclination of how it works?
HHV, good blog post. I agree with most of what you said. September was a bad month, but things are still holding up. Look at how long inventory has been high in the Okanagan and how long their prices have remained 'sticky' on the upside. Victoria has a long ways to go before hitting their numbers and I think an even longer way to go before we could see any significant correction.
Sales will probably be low over the Winter, but a new market will start fresh come Spring. April and May of 2011 will be the bell-weather months to tell us where the market is headed.
IMO... I think house prices will remain flat for quite a number of years. We will have little blips of activity both up and down in that period and I think we are in one of the down blips now.
I agree with part of what you say Dave. For the time being (say 5 years) prices will probably stay flat, but this is barring any changes in the variables at all. I think there is probably near zero chance of prices going up in the next few years, but I think there would be a fairly good chance of some negative news on the economy or such that could smack prices quite a bit.
This is what scares me.
OMC, I think there is still room on the upside. The affordability numbers support it and income growth is strong.
That said, I actually think there is still a little bit more downside risk right now, but not by much. I think we are pretty close to what I think is the median price for the impending flat market.
I think that those with confidence to buy during the down blips will be well rewarded. Those who did in late 2008 / early 2009 did quite well. You could find all sorts of deals in that short period. If my theory is correct, then I think this December will probably be a good time to pick something up. I predict that a year from now, a few of you will be kicking yourselves.
Wouldn't it be great, if we could buy mortgage insurance for ourselves. So when renewal time came the insurance company would pay the mortgage payment difference. Of course certain restrictions would apply, but it would reduce risk.
How much of a premium would you pay today to protect yourself for an increase in your mortgage payments 5 years from now?
**Entrepreneurial opportunity here**
@Dave "income growth is strong."
Source?
Jack, that insurance is called a longer term mortgage. The price is the difference between each term.
Leo,
http://www.bcstats.gov.bc.ca/pubs/pr_eet.asp
3.7% growth Year over Year, which is almost double inflation.
For me the problem is one of selection.
The homes in my comfortable monthly mortgage payment range are not an improvement in what I have now. If property values remained constant but the selection increased that would be good. So 12 months of inventory would be good for me as I would end up with a better home at the same price.
What's the interest rate on a 35 year term in Canada?
RBC has a posted 25 year fixed rate at 8.25%.
You would probably be the only guy in Canada looking for a 35 year fixed term if you actually wanted that.
@Just Jack wrote: What's the interest rate on a 35 year term in Canada?
In 1969 you could get a 25-year fixed rate mortgage for 8.5%. Oh jeez - that was more than 40 years ago! ;-)
When I purchased my house in 2002, I initially took a 3-year mortgage with ScotiaBank as they offered an "accelerated" mortgage option that offered a form of "inflation hedge strategy". The offered a variable rate mortgage but allowed fixed payments that were based at 6.6% interest. They guaranteed that even if the variable rate exceeded 6.6%, that the payments would not change. If I recall correctly, the actual variable rate fluctuated from about 3.4% to 5.2% - so essentially, we paid a "little extra" every two weeks. The "extra money" paid could be used to offset any missed mortgage payments.
I wouldn't want a new payment. I would only want the difference paid.
If you started your mortgage off at $2,500 a month, then at renewal time the payment went to $2,800 then the insurance would make up the $300.
Of course, the restrictions would be tough, you could not have a HELOC, nor increase the principle, or default on any payment.
Weird if the bank offered the insurance. Can you see two departments of the bank duking it out on your renewal rate. The insurance department wanting the loans officer to knock off a half point on the renewal rate.
If CMHC did it, then they could double dip in fees and add portability to the mortgage.
Good lord, this actually could benefit the consumer!
- Not a chance this will ever happen in Canada.
-Hey Obama do you read these blogs?
@Just Jack
Interesting idea with the mortgage renewal insurance.
The "hardest time" to pay off a mortgage is traditionally in the first 5 to 10 years. Over this time, the expectation is that wages/salary will increase (with inflation and career advancement) so that fixed payment amounts become easier as you progress forward in the ammortization schdule.
However, wouldn't a cheaper solution be just not to max out your credit, live within your means, have a little extra in savings - so that you can handle a bump in the financial road of life? No insurance required ...
So if I follow this right. You had a variable that ranged from 3.4 to 5.2, but paid monthly on 6.6%. The difference could be applied to a missed payment or against any time the variable went over 6.6%. Looks like pretty low risk on the bank's side and a benefit to you.
What happened three years later at renewal time? Obviously you would have to start over with the current rate, so this is probably only offered on the short term. Because it would be pretty nice to do this over a 10 year or more term. But that is getting risky for the bank.
I like it, as I'm assuming any difference is being used to reduce your months of amortization. And being free of mortgage payments is the goal.
@ Just Jack wrote: Looks like pretty low risk on the bank's side and a benefit to you. What happened three years later at renewal time?
They offered me their worst renewal rate for a 5-year term ... so I got a nice variable rate from ING at Prime - 0.8%
I like it, as I'm assuming any difference is being used to reduce your months of amortization. And being free of mortgage payments is the goal.
Absolutely! The funny thing was that when I set up the mortgage with ScotiaBank, I asked for a 17-year amortization (it worked well with my budget). They were unsure how to deal with this as it was apparently so rare that someone wanted less than 25 years. Three years later when I transferred to ING, I asked for a 13-year amortization. When I renewed with ING this summer, I asked for a 5-year amortization ... and am now calculating 3½ years to a mortgage-free life!
These little bumps in life can be quite magnified by these high home prices. A 1% increase on a $150,000 loan versus a $500,000 loan.
Its a different world today, home buying is risky business especially in the high ratio mortgage market. To me the safest way is to have a 20% down payment and amortize the mortgage over 15 years.
Its what Scotiabank was doing with the accelerated payment plan but on steroids. If at renewal time, the interest rate is higher, you have left yourself some wiggle room to lower your payments by extending the mortgage.
The 15 years is a guess on my part, it depends on your personality and point in life. Are you risk adverse or a risk taker?
If I were 25, I'd shoot the wad and go for it. And stick the bank with a personal bankruptcy. I mean if they are stupid enough to lend a 25 year old $600,000 then they or CMHC can wear it.
If your 50 with a family, and have a couple of the kids that are about to go to college, I think you're going to avoid the street that 25 year old racing down, and pray that he doesn't date your daughter.
Young and in debt for a million bucks is cool, old and in debt not so much.
Thanks Dave. Oddly enough during the real estate boom of the first half of the 2000s wage growth was almost zero after inflation. During the "great recession" suddenly wage growth is strong? Weird.
In the City of Victoria some 415 condominiums are for sale today.
The lowest price condo is in an adult (55+) care facility home for 560 square feet of peaceful space for a measly $89,800 or roughly the amount of your OAP cheque each month. The kicker is that you have to be over 55 and that on top of your strata fee of $230 you pay another $1,300 in service and food fees. Valet parking is available for your walker.
The top end is at $4,200,000
FOUR MILLION TWO HUNDRED THOUSAND DOLLARS
I'm assuming this includes HST and a small Central American country.
The "best" deal on a price per square foot basis is in the Stadacona Village complex in Fernwood. At $135 per square foot for 960 finished floor area. But bring your cheque book. The building has some unresolved "issues" and bank financing may be difficult. Unless you go to Luigi's Savings and Loans where the mortgages are backed by your life insurance policy.
The worst deal on a price per square foot basis at $1,035 per square foot is:
You guessed it
$4,200,000
FOUR MILLION TWO HUNDRED THOUSAND DOLLARS.
So what was the highest price per square foot ever paid for a condo in Songhees. Well that was $664 per square for a 2000 square foot penthouse in Shutters or $1,300,000. But the last BIG condo that sold was the Penthouse at Shoal Point. That sold for $2,750,000 including HST for 3,816 square feet or $720 per square. The condo was listed for sale for 8 EIGHT years and rumor has it that Greece was the down payment.
The monthly assessment for this property is about the same for the meal and light house keeping costs in the condominium in the 55 and older care building.
And that's a wrap from the town where Depends out sells Huggies.
Where the one time Hippies now have Hip replacements. And the smell of denture cream is an aphrodisiac.
Gooooooooood Night Victoria
The Inflation Hedge Strategy is ideal scenario for people whom are concerned with potential rates increase and how that would effects payments 5 years down the track.
A quick overview - the assumed rate as one mentioned going up 8% in 5 years.
Take the future payment required in 5 years @ 8%. That is your "shock payment." ( The payment is derived by the assumption we agreed on as to what the interest rate could be at the end of your term. ie 8%)
Take that payment and divide by 5 $400/5 = $80.
Each year add $80 onto your monthly payment after the first year.
"The idea here is to give you a comfort level in taking an adjustable rate mortgage by answering the question in your mind "what if the prime lending rate starts rising?"
You will see with the inflation hedge add-on you increase your payments every year by the amount calculated that would fully absorb your payment shock in the five year term.
DavidL "Do you find many clients coming in for mortgage renewals who purchased during 2006 through 2008 who opted for no money down and 35 or 40 years amortizations?"
There are so many types of scenarios. Rates are at an all time low and people are taking full advantage of it. I do see lots of refinance to secure better rates more than anything.
Just Jack "How much of a premium would you pay today to protect yourself for an increase in your mortgage payments 5 years from now?"
**Entrepreneurial opportunity here**
http://www.nationalpost.com/todays-paper/Your+mortgage+could+working/3577638/story.html
Interesting article. Not the same however maybe as close as you get!
@ Dave
I think there is still room on the upside. The affordability numbers support it and income growth is strong.
I haven't even met a realtor that would make such statement. That falsified re/max report wouldn't even dare say this. I won't even bother to argue this BS. Don't you read the news? The gov't, IMF and OECD all just released reports saying exactly opposite, all with the same concerns.
Okay Lina gotta think about that.
How about this one. Every year you max out your RRSP contribution and apply the tax rebate as a lump sum payment on the mortgage.
At the end of a five year term you have reduced your amortization and have a chunk of cash reserve to cover the increased payment or extend the mortgage out.
If you still have more cash, use a TFS Account.
All of this self insurance assumes that you have extra cash. But if your maxed out now and fully extended, I can't think of anything that can save you if interest rates bounce up one or two percent let alone up to 8%.
At these prices, real estate is a game only to be played by those with deep pockets.
That should knock out the starter condo and homes at $450,000. There pockets are the leanest. Leaving the middle and upper income to duke it out.
omc, what were people saying in November and December of 2008? How many were right in their predictions at the time? Yet, we took out the previous high 1.5 years later. Not many were predicting a turnaround or new highs. I did.
@Dave wrote: omc, what were people saying in November and December of 2008? How many were right in their predictions at the time? Yet, we took out the previous high 1.5 years later. Not many were predicting a turnaround or new highs. I did.
Dave - you seems pretty sure that you know what is going to happen next with the real estate market. I have two questions for you:
[1] What increase/decrease do you predict for the average selling price of SFD in Victoria a year from now.
[2] At what point do you feel that housing prices are no longer sustainable. (Sustainable defined as the average family being able to afford their mortgage.)
Article at Canadian Mortgage Trends:
TD Mortgages To Become Collateral Charges
Effectively, collateral charges allow lenders to change the interest rate and/or loan more money to qualified borrowers after closing, without involving a lawyer. That saves the borrower legal costs if he/she needs to withdraw equity from their home.
In TD’s case, customers will now be able to register their mortgage for up to 125% of the value at closing. Hence, if one’s property value goes from $200,000 to $250,000, qualified borrowers will be able to withdraw most that new equity without refinancing.
"If I'm a consumer and I'm told that I can get more money in the next few years without extra cost, I would think most consumers would find that appealing," says Siegle.
The downside comes at renewal. For consumers who want to keep their options open at maturity, this is an unfriendly change. That’s because TD customers will now have to pay legal fees to switch lenders.
DavidL, nobody knows where the market (or any market) is going to go. If we all knew, there would be no fluctuations in price. I can say that I am sure and confident in my opinions.
As to your questions:
1. Flat (+/- 5 to 10%)
2. Prices are currently within the historic range of affordability. As long as we have inflation and as long as incomes keep growing, price appreciation will be supported. I think that prices stop being affordable once we get outside that range. We are in the upper half of historic affordability so there isn't much upside left to go. But, there still is a little upside nonetheless.
Dave, I'm not sure how you can claim #2 to be true.
HHV, check out page 7.
http://www.rbc.com/economics/market/pdf/house.pdf
Look at apartment affordability. It's almost in the middle of a long term trend.
Wow Dave, do you read the articles you link to. That one clearly states that afford-ability is screwed in this province and we are extremely sensitive to interest rate increases. Kind of what I was talking about in the first place.
You can't just cherry pick one desperate piece of data out of a report. You have to take it in context of the entire.
You make assumptions that something is going to happen to make the market tumble, just like 2008. You make assumptions that something will happen (free money) like in 2008 is going to cause a market frenzy in the spring.
I hope you aren't waging your retirement on this nonsense.
Oh well, repeat after me:
It is different here!
Real estate never goes down in Victoria
omc, I made a statement that affordability was within historic norms. I was asked to back that up and I did. All fact.
Sorry, but I don't buy into the 'bubble' theory. Those subscribing to that model should have questioned why it failed two years ago.
There are three variables that go into affordability: income, house prices; and, interest rates.
Let's go with my theory that prices are going to be relatively flat for a number of years. That leaves income and interest rates as the key drivers.
WRT to the first, income growth is strong. See my link.
WRT to interest rates, nobody really knows where they are going. The best predictor of future interest rates are long bond yields. All the long term bonds have low yields which implies that interest rates will remain low for a long time.
Assuming the above (flat prices, rising income, low interest rates), affordability will continue to improve over time. If affordability were to remain constant, then prices would appreciate.
omc, I made a statement that affordability was within historic norms. I was asked to back that up and I did. All fact.
I missed this one. Please show some proof. That article you linked to shows the opposite.
From your article that only deals with prov capitals
Generally, we have dismissed the case of housing
market bubbles in Canada, but the situation in Vancouver is probably the
closest to one in the country. Poor affordability likely contributed to the
steep drop in housing resales since the start of this year in the area (although
other factors have probably dominated).
omc, pick your city. We were discussing Victoria and now you are quoting things about Vancouver. The two markets have diverged. Vancouver has done better year over year than Victoria and the Vancouver affordability numbers look quite different.
For Victoria, the SFH affordability is better than the peaks in 1990, 1994 and 2008. Apartment affordability is right in the middle of historic norms. Look at the bottom right of Page 7 on the link I sent.
Anyone know - if you buy an old house on a single lot, tear it down, and out the single lot up for sale, does HST apply? Can't see to find the answer online
out = put
Dave, I'm not sure how you can look at one chart, that uses one metric (price vs income), that doesn't show a "historical norm" and claim that it does?
Which line is the "historical norm?"
The chart shows current affordability is better than it has been at three or four points in the past, but it also clearly shows it's worse than the majority of points in the past.
Regardless, it's just a chart, it's just one metric, and it really shouldn't be used in isolation to argue for or against future home price changes in any direction, IMO.
Marko, not positive, but I believe the HST will apply to anything new. If a lot is subdivided, the new lot would have HST, if a teardown took place, the new house, which would include the lot, would be HST applicable. Same goes for one of those major reno jobs that change year-built status.
Flaherty and the Bank of Canada have been all over the news lately with threats of further tightening of CMHC rules if the market here doesn't cool further. If we remove more from the buying pool I fail to see how prices are going to go up.
"Marko, not positive, but I believe the HST will apply to anything new. If a lot is subdivided, the new lot would have HST, if a teardown took place, the new house, which would include the lot, would be HST applicable."
I am thinking more along the lines of, tear down an old home, and just put the lot up for sale, without a new home?
Marko, I'd like to see the numbers on that! If that's the case, I have no idea. Probably not, but then, this is Canada and the government did write the tax rules in their favour, so...
For all those who believe the boomers are coming and will save us from ourselves, have a look at this.
@Dave wrote: There are three variables that go into affordability: income, house prices; and, interest rates.
I hate to burst you "optimistic" bubble - but you are missing an important variable: unemployment. If unemployment rises and/or job growth falls, less people can afford either existing or new mortgages. Job growth is stalling, unemployment is rising ... here's today's news:
Job growth stalls as economy slows
U.S. loses jobs for 4th straight month
As I recall;
The former GST, and I'm assuming the HST to be the same, that GST was not applicable on subdivision of less than 3 lots. So, a home owner could cut off one or two lots and not have to pay GST to the government.
But that really doesn't help the buyer of the land, as the home owner will increase his price by the amount of the HST.
So, you have two prices. One lot is $100,000 not including HST. The other lot is $112,000 with no HST applicable. Both net out at the same price to the purchaser of the lot.
You should consult an accountant for clarification of this matter. I am not one as evidenced by my inability to balance a cheque book, which by default makes me an over paid consultant.
Income, house prices and interest rates = monthly mortgage payment.
A car salesman will push the monthly payment rather than the price of the car. The trick is to get the buyer to think "yeah, I can afford that". You can do this by extending the period of the loan.
Same car, two different people.
One buys the car over three years
One buys the car over five years
Is one at more of a risk than the other?
I think yes, because you shouldn't buy a depreciating asset over a long term. Especially, not longer than the life expectancy of the asset. Of course only a fool would finance a new car over 35 years. Because you would still be making car payments while the car was rusting away in a junk yard. Ooops, you didn't buy the car on your HELOC did you?
Does that apply to homes. Well home improvements do depreciate. Technically land does not depreciate because their is no loss in utility. But land does fall in value.
So in a market with financially stressed buyers, you will find the length of time to pay back the loan extended to the far end of the amortization period. To the point that the possibility of becoming "mortgage free" during their lifetime is seriously doubtful.
I believe our prices are decreasing because we have maxed out on both affordability and the ability to pay back the mortgage. That puts home owners at a high risk of default when personal shocks like divorce, death in the family, loss of a job or a tenant, etc. There are also universal shocks, such as the oil embargo of the 70', inflation in the 80's, poor economic growth in the 90's.
The longer your payback period the more at risk you are of a shock occurring. And since the payment and the payback is maxed out, all options are gone.
Of course risk varies from one person to the next. But, if the total cost of the property including interest over the length of the mortgage is more than one-third of your remaining lifetime income. I'm thinking - you're burnt toast.
The boomer wave for Victoria crested in 2007. Since the sale volumes have been dropping and just recently immigration to the CMA has fallen from 3,200 to 2,600.
Boomers will continue to retire to Victoria, just that there will be fewer and fewer of them each year. Some of the more mature areas of Victoria may see a decline in population as the death rate will continue to increase over the next 25 years.
In TD’s case, customers will now be able to register their mortgage for up to 125% of the value at closing. Hence, if one’s property value goes from $200,000 to $250,000, qualified borrowers will be able to withdraw most that new equity without refinancing.
"If I'm a consumer and I'm told that I can get more money in the next few years without extra cost, I would think most consumers would find that appealing," says Siegle.
Good grief, must we repeat every mistake from the US bubble? The whole idea of "withdrawing" equity is ridiculous. It implies that the borrower has absolutely no plans to ever pay the loan back. So, five years down the road you go to renew and you owe more than when you bought the house. I'm sure there are a number of people who will find that appealing, and those people are morons.
@Ryan wrote: Good grief, must we repeat every mistake from the US bubble? The whole idea of "withdrawing" equity is ridiculous.
I totally agree ... The concept of saving up for something you want appears to be lost in our society. A generation ago, people would borrow to buy a house and possibly for a car - and that's about it!
Now it is all about immediate gratification and conspicuous consumption. Why delay? Don't pay for 2 years! But wait - if you put it on credit, we'll give you another 10% discount! Get the granite and stainless kitchen that "you deserve". Keep up with the Jones's. Freedom 55. Live the "good life" now - you owe it to yourself ...
Queue the TD ad ...
I think they've quit using them, but those Scotiabank ads with the slogan "You're richer than you think" used to annoy the hell out of me. I know exactly how rich I am! Borrowing a ton of money isn't going to make me more rich!
Just Jack "Some of the more mature areas of Victoria may see a decline in population as death rate will continue to increase over next 25 yrs"
Evidence of this is in the many schools that have been closed down in the inner core & new schools being built/enlarged in areas such as Colwood/Lanford etc. where there has been so much growth in terms of large family homes.
However, very recently I see some changes creeping into the more "mature areas".
For example, in the Saxe Point and Rockheights areas of Esquimalt the houses were pretty much all built in the 1950's (Saxe Point) and the 1960's (Rockheights). These homes were initially bought by young couples who were able to buy a new home for substantially less money than they would have to pay for more mature "in town" homes.
New schools were built to accommodate the huge influx of children to the area.
As the children grew up and moved away, most of these homes stayed with the original owners and they retired there. Often they built suites to supplement their retirement incomes, or if they had a corner lot, they transformed their properties into two strata lots.
In the last couple of years though, these people have passed away or have moved to retirement/medical facilities.
Now the homes are being resold and once again are being purchased by young couples having or intending to have children.
In another four or five years I think we will see these schools re-open once again.
Esquimalt (the example) will probably see a fair increase in population as a result.
Also, I am seeing the same thing happening in the Fairfield area. Many of the seniors are selling their homes and once again families are purchasing them.
@Alexandrahere wrote: As the children grew up and moved away, most of these homes stayed with the original owners and they retired there. Often they built suites to supplement their retirement incomes, or if they had a corner lot, they transformed their properties into two strata lots.
I saw the same trend happening in the Gorge/Tillicum area ten years ago. It now beginning to happen in the Wilkinson/Royal Oak area. In another 10 years, we'll see the pattern repeat in Broadmead.
My PCS has been very slow for sales for the past 2 weeks now. I would say it has gotten quite a bit slower this week. All of Saanich east including Broadmead, queenswood, 10 mile, all of oak bay and Fairfield. All houses under $1.3 Mill. I don't have any limitations on the bottom price, but there are no houses under about $500 in these areas.
I am seeing some relists and some true new to markets. If anything is selling, it must be in more affordable areas.
On all high ratio mortgages there is a qualifying rate which is typically 5-5.5%.
Although your mortgage payment is based on 2.30 or 3.49% you must still qualify for a higher rate and your debt service ratio still need to fall in line.
This ensure affordability when rates rise which they will.
Anyone interested in hearing Garth Turner speak next week?
http://www.victoriametro.ca/
It was my understanding that you had to qualify for a high ratio at the posted, unless you went for a 5 year or longer fixed rate. In which case, you qualify for the contract rate.
The new mortgage qualifications went into effect on April 19th, 2010. The are tens of thousands of mortgage holders in Victoria who did not have to qualify under the new rules. These are the people who may find themselves in financial distress when rates increase ...
"My PCS has been very slow for sales for the past 2 weeks now. I would say it has gotten quite a bit slower this week."
I think you will be very surprised by Monday morning numbers. Lots of sales last Thursday & Friday.
Aside from that, a lot of people who have bought on BM in the previous 2 to 5 years are taking hits.
990 Arngask just went for 579k, originally paid 585k with no appliances...
2196 Nicklaus price drop again down to 899k, paid 883k, commission on this one is 7+4%, they will be out at least 50k on this one if lucky, maybe 100k+.
Marko
As I typed the above comment, 3138 Stonegate dropped from 574k to 539k, sold in 2007 for 541k.
Marko
Here is a cute one: MLS 283678
1315 Pembroke
Sept 10 $548,000
Oct 2 $547,700
Oct 9 $547,600
Bet his realtor loves him. Maybe from now on he'll be dropping the price EVERY week by a whole $100.00 til it sells!!
So far this week I have had 20 SFH sales. Out of the 20 sales, 12 have been advertised having suites and two with "suite potential".
Price range for these are between $375K and $775K with a min of two baths and are in the core municipalities of Vic,OB,Esq,SE & SW. The average sale price so far is $553,200.
With similar criteria I have 6 apartment condos and two townhouse sales.
Bob Rennie said this about the Olympic Village
“We have a huge problem with the Olympic Village that it’s not for speculators, it’s for a community of homeowners,” he said. “I’ve lost that buyer who says, ‘I’ll buy it today and over the next two or three years I’ll figure out whether I’m a passive investor or whether mom lives in it or whether we live in it and sell our house.’ ”
So I wanted to try to figure out what percentage of condominiums in the Victoria core are passive investors. I looked at the last 100 listings of non-new condominiums in the Victoria core and found:
That 32 percent of the condominiums on the market today were purchased less than two years ago and 50 percent of the condominiums currently listed had been purchased three or less years ago.
The level of speculation in the Victoria condominium market would be in the range of 32 to 50 percent.
Good Monday morning all....hoping you are enjoying this lovely Thanksgiving Day.
Here are my stats from last week..4 October - 10 October.
SFH: priced from $375K - $775K min. 2 beds & 2 baths in Victoria, Esquimalt, Oak Bay, Saanich East & Saanich West.
SOLD: 23
NEW: 21
PC: 14
OM: 7
Average selling price: $553,304
Average original asking price: $584,435
The Average house sold within this criteria for 94.6% of the original asking price.
Out of the 23 sales there were 16 advertised having suites and two with suite potential.
Out of the 14 "Price Changes", 10 were advertised having suites.
Out of the 21 "New" listings, 9 were advertised having suites.
CONDOS'
Priced from $260K - $625K with a min of two bedrooms.
Areas:
Victoria - Most (not downtown)
Esquimalt - All
Oak Bay - All
Saanich East - Most
Saanich West - Gorge, Tillicum & Interurban
SOLD: 8 6 Apt's & 2 Townhouses
NEW: 18
PC: 16
OM: 7
The average Apt condo sold for $396K or 93.3% of the original asking price.
The average townhouse sold for $437,500 or 90.8% of the original asking price.
The level of speculation in the Victoria condominium market would be in the range of 32 to 50 percent.
You definition of speculator is based on intention to sell short term.
My definition of speculator is someone who is negative cash flow and can only come out ahead by selling at a suitable gain from the purchase price.
By that definition pretty much everyone who has bought from about 2005 on is a speculator. These are the people who will head for the exits when prices are seen to be falling, or even just flat.
My friend rents at Shutters now and the weird thing is most of the condos just sit empy, people don't even bother to rent them out. A bit strange.
Marko:
It is interesting what you say about the Shutters and Spa. I like to call it the Shudders.
I know the floors in the townhouses had to be replaced about 4 times. Countertops were continually coming and going as well. They had nothing but problems with that place since Day One.
I was mortified at how many times they kept emptying the "lake", swimming pools, hot tub etc. That pool is huge. They kept filling it up then emptying and filling up and emptying. Everything was leaking. I would be afraid to park my car in the underground parking. Water was coming in there from every direction. The landscaping was continually being pulled up and replaced. The units were incredibly humid inside.
I didn't realize though that they aren't being rented out.
Might be because of all the dogs, cat and kids and the noise that comes from it all. Especially by the pool area.
You are right about the quality in the complex, it his horrible.
What I meant to say in my previous posting is a lot of unit are vacant by choice, not because they can't be rented out. Owners for whatever reason just wish not to rent them.
Patriotz, not my definition
I quoted Bob Rennie
An accountant friend and I spoke about the empty condominiums. He explained that Canada Revenue Agency considers the intent of the home owner for capital gains exemption.
Perhaps, your intent was to retire to Victoria in say three years, but seeing that prices were rising you bought a condo now while you could still afford it. That's fine, the intent was for home ownership.
But, if you rent out the condo, then your "intent" may not be home ownership and you would have to pay capital gains tax. And if you were found to be intentionally evading tax, then a penalty as well. There would also be HST issues. Better to keep the condo vacant and pay the monthly assessment, rather than have RevCan bring this up a couple of years down the road.
Because if you keep it vacant, you can explain your intent was to retire in Victoria, but life events latter on made retiring in Victoria impractical, hence the proceeds of the future sale should be capital gains free. The proof of your intent being that you never rented out the suite.
from Garth Turner's blog tonight:
"Sure, you can choose to squander it buying an average Victoria house which will be worth less in a decade than it is now, but a guy who reads this blog can’t be that dumbass stupid. Let me use crayons:
Canadian real estate is where the USA market was in 2006.
Victoria could be the Phoenix of the north.
There is no caravan of Boomers in golf shirts coming over the mountains from Mississauga.
You live in one of the most unaffordable cities anywhere.
The economy is moribund.
Your big new mortgage will renew at higher rates.
Love liquidity, not a house.
If you really need real estate, move to Duncan. (I hear they now have the Internet.)
This will not end well."
Thanks Just Jack for the explanation.
As for Garth's comments. I am really curious why Victoria is always compared to Phoenix?
How come people rarely compare Vancouver to Seattle, or similar equivalents? It seems the only comparison is Canadian city of choice versus Phoenix.
Hmmm....
Garth is coming to Victoria this week. Garth will write more about a city when he comes to sell books. Garth will say anything to make a buck. Garth does ZERO analysis... he uses opinion to back up opinion and throws in comparisons where comparisons don't exist.
I too, like Garth, believe real estate prices are high and over valued in Victoria. Unlike Garth, I wouldn't suggest comparing Victoria to a city that has consistently overbuilt for a decade is a good way to predict future price changes.
Househunt said: Garth is coming to Victoria this week. Garth will write more about a city when he comes to sell books. Garth will say anything to make a buck. Garth does ZERO analysis... he uses opinion to back up opinion and throws in comparisons where comparisons don't exist.
Garth is probably right on some of the broader trends that are coming, and the fact that it was our government that rescued our housing market last crash. I wouldn't throw out the baby with the bathwater on this one.
Ever read the book megatrends? All they did was pull out key future-based statements from a broad array of newspapers and predicted the future with it. And a hell of a lot more accurately than the best minds and math formulas of the day. More and more people are saying Victoria and Vancouver are dangerously overpriced, that’s a trend I've been noticing even with all of the papers afraid to lose realtor advertising.
This is as much about human behaviour as analytics, maybe more. We have demographics, globalization, government policy and recession changes sweeping in. Predicting the future better account for the human reaction to these forces as much as average price trend analysis if they are going to be accurate at all.
My two bits, but analytics is just one tool, and when it comes to markets these days, it's not a very good tool anymore. Did everyone buy their house because of thorough analytics? Nope, most bought on greed and hype with little regard for potential changes like interest rates, unemployment, or equity drops.
Speculative markets are very hard to predict. Remember when Nortel was a strong buy at $75? What is it today, $0.32? The fundamentals in the market changed, and the wheels fell off the bus. Who, really, was predicting it with analysis? The folks complaining about the crazy P/E ratios on tech stocks were probably the bellwethers... which, by the way, is creepily similar to the current crazy Rent/Price and Wage/Price ratios that we all know are out of whack.
"Nope, most bought on greed and hype with little regard for potential changes like interest rates, unemployment, or equity drops
A lot of people buy because they have two kids and they need a place to live, not because of greed.
I agree with the interest rates, who knew that when you bought in 2005 not only was your home going to be worth more in 2010, but you would also be able to refinance at a much cheaper rate.
And who could have possibly predicted unemployment in Victoria climbing to 5.1%
Mindset, agreed 100%, which is exactly why I think it's irresponsible for Garth to make sweeping statements and predictions about the market: he can't predict the future any better than anyone else.
Once in a while MISH will comment on the Canadian real estate market and single out Vancouver as the most overpriced market in North America.
Shedlock is everything Garth wishes he could be.
Garth, being a financial advisor, is in the business of getting peoples' money out of real estate and into more liquid investments, for which he will gladly suggest himself to manage (after all, doing it yourself is certain doom).
As long as you're aware of that while reading his stuff, it's all good. His presentations are certainly entertaining if nothing else. I'll be there Wednesday.
Marko, I agree that we are nothing like Phoenix. However I'll gladly take Seattle as well. They've seen a 20% correction so far, and it doesn't look like the bottom is hit yet. Also, with a median household income just shy of six figures, and guaranteed mortgage rates for 30 years, they're in a far better position to afford those prices than we are.
One more thing. Seattle median SFH price peaked at about $470k. Now they are at about $380k, which is some 30% lower than ours.
In a place where median incomes are 40% higher, mortgages are predictable, stimulus abounds, the west coast air blows just as fresh, and the cost of living is lower.
Obviously no two cities are directly comparable, and no one can predict what will happen, but we don't have to reach all the way to Phoenix to make a convincing case for a large correction.
Source for previous.
Marko Said - A lot of people buy because they have two kids and they need a place to live, not because of greed.
True, but when a purchase is 'guarenteed' to make you money and waiting will 'cost' you money, people buy more than they should, and make the decisions more quickly and irrationally than they should.
Many that invested in the .com bubble were just 'putting money aside for their retirement', just like everyone over the last 10 years were 'buying houses for their families'. It seemed like a rational decision, but let's not forget that we are natural justification machines and tend to find a valid reason for most things we do.
There was speculation driving how much was invested during the .com bubble, and I'm positive the 'you can't lose' vibe of the housing bubble drove how much was invested in real estate over the last 10 years.... whether we had families to put a roof over or not.
I wonder if people in Phoenix and Seattle would compare themselves to Victoria? A lot of people in Phoenix may not even know where Victoria is located.
Victoria has more in common with the Fraser Valley than Phoenix or Seattle, but who wants to be compared to areas in Surrey or Chilliwack.
We are the 15th largest city in Canada. So, on size we should be similar to number 14 and 16, whoever they are?
I suppose we want to tie ourselves to another city and say - see look what happened to them! Except Victoria will have its own type of market correction. Perhaps other cities are watching our correction right now looking to see what is in store for them!
Maybe its Sydney Australia, or a town in the French Alps, or Whitehorse.
Good points with Seattle Leo, I think west-coast USA is a good comparison. The prices came off slower, and didn't drop as far. Seems like a probable curve here.
Something else to add to the change forces we could see in the next year or two. I have been reading articles where a $1.10 Canadian dollar could be coming our way.... which really hurts our GDP and competitiveness as a nation, and ripples through everything in our economy as even our own dollars are used to buy other countries goods (including real estate).
Just jack said - Victoria has more in common with the Fraser Valley than Phoenix or Seattle, but who wants to be compared to areas in Surrey or Chilliwack.
I think everyone is just looking for an example of a city with similar fundamentals that had a downturn so that we can say 'see, corrections happen, even in strong desirable cities', and get rid of the 'this place is different' arguments. I think Seattle/Vancouver is a good comparison, and Victoria/Vancouver follow similar market trends.... thus (if you follow my logic), Victoria/Seattle should be a reasonable comparison.
I know, it's a bit of a stretch, but a lot less so than Arizona/Victoria in my mind. The recent trend in Seattle is also fairly similar to the overall Victoria trend in the 80's downturn.
h-to-Date Market Statistics
Posted by
Oct 12 2010
Tuesday, October 12, 2010 8:00am:
MTD October
2010 2009
Net Unconditional Sales: 161 742
New Listings: 323
1,067
Active Listings: 3,964 3,219
Please Note
•Left Column: stats so far this month
•Right Column: stats for the entire month from last year
Since we are picking american cities to reinforce our biased opinions, I thought I would add my choice.
And the winner is.....
BISMARK, NORTH DAKOTA.
Ya. Bismark is a state capital, the main employer is government and the city is by water. And it's real estate prices are UP 6.5% since 2007. So don't worry home owners, everything is going to be fine. It is in Bismark.
Seriously, I prefer to judge the local market to predict local trends than use cherry picked data from a convenient part of the world to produce an opinion.
I would also say that any comparisons to the early 80's downturn is completely off-base. In 1981 the canadian government, as well as others, were at war with the economy to reel in inflation running at about 11%. They did this with interest rates topping 21%. And there was no government stimulus money. Show me any similarities today to that time.
HappyOwner, enjoyed your Bismarck-Victoria comparison. Just imagine if Victoria prices also averaged 160K. Throw in a discovery of ~200 billion barrels of oil on our doorstep, and we would be identical sister cities.
Just havin some fun.I don't feel a collapse is anywhere near here. Just a mild re-adjustment.
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