Monday, January 3, 2011

And we're off

It's 2011. But real estate is still backwards thinking in this town so let's have a last look at December 2010.

MLS numbers courtesy of the VREB via Marko Juras.

December 2010
Net Unconditional Sales: 349
New Listings: 522
Active Listings: 3,252
Months of Inventory: 9.1
Sales to new listings ratio: 67%
December 2009 totals
Net Unconditional Sales: 453
New Listings: 480
Active Listings: 2,557

Percent changes
Net Unconditional Sales: - 23%
New Listings: + 8%
Active Listings: + 22%

December 2010 was a flat month. I suspect very little change in reported pricing. Bring on the spring market. And the inevitable listings rush. If this is to be a bear year we should see new listings outstrip sales 4 to 1 from January to July. We'll need total active listings to jump above 4,000 very quickly. I expect flat reported pricing for the next 4 months.


Marko said...

It is different here ;)

Marko said...

Link doesn't work...just look up

"The Canadian housing bubble and crash that never happened came close to being true
By Jay Bryan, Postmedia News "

HouseHuntVictoria said...


Read this piece by Ben at Financial Insights, he takes good ol' Jay Bryan to task.

[BTW, I'm sure you already have ;-)]

Travel Girl said...
This comment has been removed by the author.
Travel Girl said...

In that article mentioned above, they really have their heads in the sand. Are they actually unable to see the bubble here or just not wanting to believe it?? From the article:

"A bubble, unlike a normal price cycle, is a rare phenomenon that occurs when overoptimism and price excesses last so long and become so extreme that a large number of people begin to believe that prices can only go up, never down."


"In Canada, nothing remotely like this happened. True, the rock-bottom interest rates we used to fight the recession did cause a brief boom in housing sales, but that's normal."

Ummm, yes it has, do they think these prices are normal?

Aston said...

Jay Bryan has declared the housing bubble scare over. All hail Jay Bryan!

I'm sure he'll be looking to distance himself from that piece later this year.

Just Jack said...

During the early 1980's run up in prices baby boomers were entering into the market for the first time thereby stimulating demand for dwellings for both home occupation and speculation.

In that market the price to income ratio was rising AND so was the the ratio of rent to mortgage payments. People were spending more and more of their disposable income on houses and the rising interest rates were making the homes less affordable.

This current market boom was also initially baby boomer driven and then strengthened and continued on by the subsequent generations demand for housing and for wealth accumulation through speculation.

During most of this run up in prices the price to rent ratio has been increasing BUT the rent to mortgage payment ratio has been kept within an acceptable range by lowering interest rates and looser lending policies that were designed to bring our standards more in line with American lending practices. This kept housing costs (mortgage payment to income levels) within an affordable range and had the irrational affect of increasing prices while sale volumes fell.

Yet this market is under stress. Lower sales volumes suggest that fewer buyers qualify for homes as a greater percentage of disposable income is now needed.

The rent to mortgage payment ratio, like in the 1980's, is now widening and home affordability is leaving the comfort range. We are now back to a 1980's style market as both price to rent ratios are rising AND affordability is dropping. The short term and short-sighted solution in the past was to drop interest rates and lending standards to stimulate demand and prices. That policy is no longer effective as it now fails to cause an increase in prices.

Rising prices were once the stimulus of demand. Today rising prices are reducing demand and lowering economic activity. It is far better for an economy to sell three houses for a million dollars, than just one million dollar home. There is only one cure for an overpriced commodity whether it be houses, cars or beenie babies.

We've taken this economic horse to the water hole too many times. It's time to cull the herd, because only with lower prices can we stimulate economic activity through larger sale volumes. Some will be economically devastated - but most will survive.

Alexandrahere said...

Hello all, my stats for the week of 27 Dec - 02 Jan.

SFH Min 2 beds & 2 baths priced from $375K - $775K in the areas of Victoria, Oak Bay, Esquimalt, Saanich East and Saanich West.

New: 2
Sold: 7
P/C: 1
OM: 21

Two homes went for under BC assessment. Average Sold Price: $581,714 and Median Sold Price: $567,000.


Minimum 2 beds priced between $360K and $675K.

Areas: Victoria - most areas
Oak Bay - all areas
Esquimalt - all areas
Saanich East - most areas
Saanich West - Gorge, Tillicum, & Interurban

New: 2
Sold: 4 townhouses & 2 apartments
P/C: 4
OM: 28

One townhome went for under assessment and both apartments went for under BC Assessment.

Avg selling price Apt: $295K
Avg selling price T/H: $392K
Med. selling price T/H: $338K

Well, are prices going to drop significantly this coming year or are they going to remain relatively stagnant?

Alexandrahere said...

Just Jack: Actually the baby boom started in 1946. It was nothing for baby boomers to start buying their first home by the time they were 23 years old. So the baby boomers started coming into the market around 1970.

phil said...

Alexandrahere: True, but the majority of baby-boomers didn't start buying until the late 70s as their peak birth years were late 50s) This age graph shows the cowboy hat shape of the boomer bulge nicely.

Just Jack said...

Back in the 1980's, the typical first time home owners were in their early to mid 30's. Someone buying a home at 23 was the exception and not the rule.

The peak of the baby boom was in 1960. And the birth control pill had a dramatic affect on the size of families, starting in the late 1960's. Before that the only affective birth control was keeping a nickel between your knees, but one could still be encouraged to make change.

The first half of the baby boomers born between 1945 to 1960, had the biggest affect on driving up prices and they would have been 20 to 35 year olds in 1980. By the time the second half of the boomers finished university or a trade school the real estate market run up in the 1980's was over. Giving the 20 year old some time to build up a down payment, I would put the age group that had the most affect on prices in the 1980's in the 25 to 35 year group.

In this market that same 25 to 35 year old group, in the year 2000, were 45 to 55 year olds. Young enough to speculate on a second or third home or an apartment building. Today that group is 55 to 65 year olds and are transitioning from spenders to savers at an increasing rate each year with the peak retirement happening 15 years from now. That 55 to 65 year old age group also has a high mortality rate. If you can make it to 65, you will probably get into your 80's or 90's. The trick is to make it to 65.

Funny things happen when you start to see your buddies dropping like flies around you. You are far less interested in buying real estate and more interested in traveling or buying that sporty car.

The affect is obvious, the trend will be for more listings and fewer sales. Over the next decade or so, as interest rates rise and affordability declines the baby boomer affect on real estate will be unwound.

There will always be demand for housing - just not at 42% or your income. During recessions, that debt servicing ratio levels out around 20% of income spent on housing. But can temporarily drop lower as the market over corrects after a boom.

Sure, a lot of people are hot and horny for real estate today. But so were people to buy Ford Pintos, Gremlins and Pacers. My advice would be for prospective purchasers to get themselves a nickel.

Chickinvic said...

The majority of early baby boomers that I know (born in late 1940s - mid-50s) bought homes in their early 20s. People were married and had kids at that age then. My sister who was born in 1954 (16 years before me), bought her house with her husband in 1977 at 22 years old. My ex's parents (daughter's grandparents) were born in the late 40s and bought their first house around 1969. I truly don't know any older boomers that waited until they were older to buy houses (but I'm sure they're out there).

Mr.4AM said...

Thanks for the laugh JJ. Love your sense of humour and writing style :-D


Just Jack said...

So, why are prices in Victoria not higher?

With the typical Victoria home at $580,000 and money only costing slightly less $500 per hundred thousand, why are Victoria's home prices not higher?

With 20 percent down, that's only a monthly mortgage payment of around $2,250. Surely the average Victoria couple can sell their condo for a nice profit and earn at least $85K between them?

Or can they?

To buy in this market - you have to sell as well. And condos have failed for the last few years to build the necessary equity to buy a home. If you have ever been bitten by the cost of CMHC insurance, you may not be willing to do that again. Because high ratio financing pushes those monthly payments up another $500 a month and your combined income now has to be slightly north of $100K a year.

Sure, when the market was increasing at double digit rates, you could roll the dice and go high ratio financing a second time, knowing that price appreciation and leveraging the asset was in your favor. But with sale volumes down 25 percent and prices unchanged or marginally lower from a year ago, is this the time to gamble your down payment?

And that is the difference now, you are gambling with your money (equity) and not leveraging the banks.

And that's why I think buyers are more cautious today than they were a year ago.

Lina Zussino - Victoria Mortgage Broker said...

Just Jack,

So your advice is to hold onto your nickels and what for the flies to drop, and in the meantime sell them sports cars and fancy vacation destinations packages until property prices drop?

Isn't that what you guys are saying is happening at the moment? Do you except another 15 years of this?

What about technology and sustainable living? How is that going to change and effect our real estate purchases? Where does this play in a part with baby boomers or better yet my generation?

Olives said...

The property I'm renting for $1,300 is assesssed at $600,000....I'm assuming that's out of whack....

Rhino said...

I rent my house for 1525 a month. The assessment for this year is 582,000. Shocking!

Alexandrahere said...

ChickVic you are correct about the (early) baby boomers. At least in the Victoria area. Pretty well everyone I know of as well in the early baby boom bought their first house before they were say 27 years old. It was very difficult in those days in this city to rent if you had a child. All of those apartment blocks that you see built in the 40's,50's 60's and early 70's would not rent to people who had children. The only other rentals around were mostly rooms in older houses/hotels and the odd older up & down duplex where the owner usually lived in the bottom half. In the late 60's many people bought the little war-time homes in the James Bay, Mayfair, Hillside, and Lyall and Collville streets in Esquimalt. They went for around $4,800 and often the parents and in-laws of the young married couple gave them money to go towards a downpayment as part of their wedding present...the other part of the present being perhaps a new toaster or kettle! Many couples called their "honeymoon" a night at the "Douglas Hotel" and the like. The fortunate ones maybe could go up to Parksville for the weekend. It was a stigma if a girl got pregnant before she were married and in those days probably 1/4 of all marriages were a result of that situation.

DavidL said...

@Just Jack
Love the analysis and humour!

Just yesterday, my father was telling me about his challenges renting a house in Victoria in 1968. He'd previously rented a house in the Gorge/Tillicum area, but the owner wanted to move back in. After six weeks of searching, he could not find anywhere that would accept his young family (wife and three kids). He ended off buying a house on Ten Mile Point for $32K.

If like my sister, you were born at the end of the boomer generation (1960), then by the time you reached 20 - you were shut out of the market by dramatically rising housing prices followed by insane interest rates!

Average Single Family Dwelling prices (VREB stats):
1978 $63,733
1979 $67,165
1980 $92,033
1981 $126,776

Prices slumped for four years, then took until 1990 to match the inflation-adjusted value when the market peaked in 1981.

1982 $105,023
1983 $101,652
1984 $95,568
1985 $93,865
1986 $102,054
1987 $110,135
1988 $127,888
1989 $150,930
1990 $179,149

Just Jack said...

You can measure affordability by the monthly mortgage payment and that has remained relatively stable for homes in Victoria at around $2,500 a month. When that payment goes out of the comfort zone, sale volume drops. When it goes too low, sales activity increases and generally so do prices.

What is hard to measure is "risk" Because everyone is different. Risk when your 25 is different than when your 55. Same income, same house - different risk.

At 25, you drive a 450 hp Corvette while twittering, at 55 you buy a smart car and only make right hand turns.

I think most 25er's are not seriously considering that they will be in the same home, 35 years from now, while most 55ers are. So a 25er is more likely to take on a long exposure in a mortgage, because they intend to dump the property in a couple of years. But a 55er wants to shed that mortgage faster, hopefully by the time the first CPP cheque arrives.

So as people mature they become increasingly more risk adverse. And so do markets. As appreciation vanishes, the only way to reduce your exposure and risk is through mortgage paydown. And that is very expensive, it will cost you a hundred grand to reduce your monthly cost by $500.

So what has to happen, is what is happening now. Appreciation disappears and the 25ers says no way man, I'm off to work in a bar in Australia. Gets into her Vette and passes the smart car with its continuously flashing left signal light, on her way to the airport.

You can buy a house anytime - but you're only 25 once. Better yet, go to Australia, party hard then come back to Victoria and marry the person with the paid off home and a smart car in the garage.

Just Jack said...

Absolutely Dave, the back end boomers were shut out of the market and had to wait till the late 80's and early 1990's to buy. That put them into their 30's for their first home. Throw a divorce, job loss and a recession into the mix and there is the reason why a lot of Canadians only have their home as an "investment". We're living in an era with a false sense of wealth. It's so weird to know people living in half million dollar and more homes, that can't save to pay their property taxes. That won't go to a dentist because they can't afford the bill, yet their home is assessed at over a million. My neighbor had a small fracture in his ankle and duct taped it, rather than go to a doctor - he owns two houses without mortgages!
People that will finance 50,000 for a bathroom addition and won't spend a dime to send their son to university. I met a 92 year old lady that lived in a house without heat for five years. She finally sold it for 1.1 million dollars and went to a nursing home.

Is a home really worth all this?