Thursday, January 20, 2011

The buying consensus

Look, if you absolutely must buy for the first time, right now, for whatever reason, you should be pricing in 2011 changes today. If you can't get a deal like that, you should be really, really, strongly inclined to walk away until you can.

With the mortgage rule changes, even focusing entirely on the periphery, pundits are saying that price declines across the market of 7% (that's seven percent) are completely reasonable.

If you're buying an average condo, your final price should therefore be: $301K x 0.93 = $280K

If you're buying the average town home, your agreed-on price should be around: $434K x 0.93 = $403K

And if you can still get qualified for one of them old-fashioned 5% down, 35 year amortization, 7% cash back mortgages, you might be able to successfully bid on an average single family home in Victoria for: $647K x 0.93 = $601K.

My advice is worth what you paid for it (in case you're scratching your head, you paid nothing, so it shouldn't influence you in any meaningful way).

41 comments:

Mark said...

Some high-end B.C. rural waterfront properties see substantial price drops

Read more: http://www.vancouversun.com/business/Some+high+rural+waterfront+properties+substantial+price+drops/4140062/story.html#ixzz1BgP69qOT

“Rich Albertans and other wealthy buyers who traditionally bought up B.C.’s recreational properties are increasingly looking south to places like Arizona and Nevada, where prices are often much lower following the U.S. real estate meltdown.”
“People are definitely looking south.”

DUH! It's what I've been saying forever....why the hell buy anything here when you can live someplace warm for a fraction of he price!


http://www.vancouversun.com/business/Some+high+rural+waterfront+properties+substantial+price+drops/4140062/story.html

Mark said...
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Mark said...

With the mortgage rule changes, even focusing entirely on the periphery, pundits are saying that price declines across the market of 7% (that's seven percent) are completely reasonable.

If you're buying an average condo, your final price should therefore be: $301K x 0.93 = $280K

I say start @ 10% minimum!

Marko said...

Was just at City Hall in Vic and now they are requiring professional engineering for a simple spec home and an on-site inspection by engineer for joists. Add another $1,000 to building a simple home that wasn't there 5 years ago!

Bubble 'n Fizz(le) said...

Prices are not set by government loan policies, they are set by supply and demand. To the extent that governent loan policies might affect demand, sure, there could be some impact. But you might as well take the BC assessment and calculate the purchase price as some percentage of that. It doesn't make sense. The fact is, you can't calculate fair market value with the % key on a calculator. You have to look at the market, and if you think prices will drop, you'll just have to wait. No one is going to discount the price of their house because you think values will drop in the future.

omc said...

People who can't afford to be in the market tend to take as big of a mortgage as they can. This is a fact. Flaherty even admitted as such when he decreased the amortization from 40-35 years. When you decrease the amount these people can take out as a mortgage, you decrease the amount of demand for the types of houses these people buy. As you said; supply and demand. No part of the market is an island; if one part drops it affects all parts. Based on this, many of us are expecting the market to correct a bit when the changes come into effect. Note; we are only expecting the market to correct.

This is what HHVs post is about; if you can't get a really good deal right now, wait.

the gov't policies have everything to do with market demand. Again a direct quote from Flaherty "longer amortization only brings higher house prices".

omc said...

Marko,

I know why the city is doing this. There has been some pretty bad failures in houses built in the last 3-4 years in town, especially those built on sloping land.

Lina Zussino - Victoria Mortgage Broker said...

@ Mark With the mortgage rule changes, even focusing entirely on the periphery, pundits are saying that price declines across the market of 7% (that's seven percent) are completely reasonable.

I agree 5-7% max. is more realistic.

Marko said...

"I know why the city is doing this. There has been some pretty bad failures in houses built in the last 3-4 years in town, especially those built on sloping land."

Engineering has always been required on homes with concrete walls higher than let’s say 5-6 feet which is typically all houses built on a slope, so that is not the reason. City wants to mitigate liability. It is getting to be pretty ridiculous, city wants on-site engineer for pre engineered products. I.E. If you go buy a $1000 glass railing at Home Depot it comes with engineer stamps, but the city wants you to higher an engineer on top of that ($700 - $1,000).

Requiring engineering for a spec house on a flat lot is something recent. I think the city inspector should be capable of checking to see that basic joists have been installed correctly, otherwise what really is his or her purpose?

HouseHuntVictoria said...

Something some of you may not have noted: I opined my "advice" to first time home buyers. I'm not saying the market will do anything drastic, I'm not predicting a collapse this year. I'm just saying that if you're a FTBer who is about to get hit with 7% claw back in the amount you can borrow, you'd better find a deal you can make for 7% less to compensate. That doesn't mean that I think sellers are going to start accepting 7% less for their properties. But if the demand dries up, and they have to sell, many of them may start accepting less out of necessity. That's how markets work.

Just Wondering said...

Regards the engineering requirement, there are three common pre-engineered components in most houses (spec. or otherwise). They are trusses, TJI's and microlam beams. Each of them comes with it's own engineering but all three components can be bought from different suppliers. This means three different engineers, none of whom have looked at how their product works with the other two products. I've seen some very nasty details with girder trusses putting point loads on TJI's and beams that weren't designed for point loads, etc. So I can see the reason for the engineer and many other municipalities already have that requirement.

phil said...

Just looking on mls, I was somewhat surprised to come across foreclosures this early in the decline.
#286347
#287051
#286790

a simple man said...

7% until human emotion takes over...I agree with HHV, and BnF, though. Offer what the house is worth to you, not what the buyer wants. You hold all the money in the transaction and ultimately the power to buy or walk. Remember that.

Introvert said...

Just looking on mls, I was somewhat surprised to come across foreclosures this early in the decline.

Phil, foreclosures happen even when real estate and the economy are booming. Fewer, of course, but they still happen.

omc said...

I don't know if I would call this early in the decline. Most people here are looking at entry level homes in the core areas, and it may be true that those prices are still up there. As you have probably heard other parts of the market are already down quite a bit.

Also, these foreclosures could easily line up with the 40 year/zero down crowd that was buying at the peak 2 years ago. i would expect a fair # from that crowd coming up in the next year or so, they were given mortgages based on nothing and would not be able to sell if anything at all happens.

Marko said...

"So I can see the reason for the engineer and many other municipalities already have that requirement."

I guess all of them do now! Engineer is important, no doubt, but you could also make a case for an electrical engineer to look at wiring diagrams, etc. Few more policies and you are looking at a spec home costing 500k to build.

We had to change the design of the railing from ProBuilt glass system to Probuilt picket system (city wanted onsite engineering of the Probuilt glass system even thought it comes with stamps and Slegg has been selling for years).

Most people on this blog would say that new houses are built poorly and that p. engineering should be required for more things. However, when the final price tag is suggested people get up in arms about how unaffordable a new home is.......

My conlcusion it is not going to get any cheaper to build going forward.

Leo S said...

The under 550k sfh market in the core areas is just totally dead for sales. In dec to the 21st there were 14 sales. This month so far there are 2.

nan said...

If people can't afford things, prices go down, including contractors' wages. The trucks I see out there at nearly every construction site cost 50-70k each. I'm pretty sure most of those guys could survive on half of what they are charging now if they didn't have a choice. And guess what - soon they won't.

Taigaa said...

I also am seeing almost no sales. 2 sales so far in January for the areas of Royal Oak, Broadmead, Mt Doug, Cordova Bay, Northridge in the rpice range 0 to 750k.

Animal Spirit said...

Marko - which areas have most of the sales? are they out in Langford, or higher end properties - or condos?

Marko said...

Fairfield very strong - 11 sales so far this month including 5 SFH and only 19 on market total now. Rest of the areas are kind of like meh....Fernwood only 2 sales this mont....only 8 sales over 1 million so far this month. Three sales on pender plus boat house sold downtown all under 250k which is pulling the SFH average to around 615k or about 20k on average below asking; however, surprising still a number of places going over asking price.

Leo S said...
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Leo S said...

16 sales for the month in the 550 to 900k range in the core.

So the upper range isn't quite as dead as the lower.. Don't have the comparison to december.

(areas are: 'Victoria, Victoria West, Oak Bay, Esquimalt, Saanich East, Saanich West')

Leo S said...

4049 BLACKBERRY LANE

Price Original $559,000
Jan 4/11 $549,000
Jan 21/11 $566,000

That's a new strategy. Not only did they increase the price, they increased it past their original asking price after 38 days on the market.
Must be preparing for that buying frenzy!

Animal Spirit said...

or to have a 25K price drop to lure some sucker in at a future open house.

From Marko and Leo's numbers, it looks like the sales are happening in the higher end / desirable areas. This will push median and average up. Reality is that the same houses are probably selling for 5-7% less than last year.

mjr said...

any comments on westshore sales

Inglishmagor said...

Doesn't City Halls demand for an engineer hint at the mold under the carpet? 20 years ago most people built their own homes and a certain quality was just the norm.

In this housing craze there appears to be two new elements to the real estate cycle that prey of each other.

1. The new first time buyers have no clue about real quality. I'm one of this generation, I grew up with computers and have no idea about wood work and plumbing. We have seen on tv what a new house should look like and as long as the surface finish appears nice... we're happy.

2. Sellers know that buyers have a check list they are looking for. Granite counter tops, hardwood laminate flooring, patio, and a suite. These features will fetch pretty close to the same amount no matter what level of cost went into them as long as the outside finish is the same... so why waste money on unvalued quality.

My main point is that a builder builds a house to sell. I'd have to assume City Hall is running into a lot of issues with people that actually wanted to live in those houses.

Alexandrahere said...

Could someone tell me what #202-978 Heywood sold for? It never showed up as a re-list on my pcs but I noticed it has been sold. They were originally asking 400K for that run down piece of junk.

Re: SFH in the core municipalities of Victoria,Oak Bay, Esquimalt, Saanich East and Saanich West. In the $375K to $775K bracket with a minimum of 2 beds and 2 baths, I had 6 sales from Jan 3rd - Jan 9th; 12 sales from Jan 10th to Jan 16th and so far this week, i.e. Jan 17 - Jan 22nd I have 17 sales.

a simple man said...

Lots of activity while people clamor to catch the falling knife.

I have seen some ads already about you have to get in before the mortgage changes! Act now!

Rent is so comparatively cheap right now that I would not consider buying at these prices. Yes, moving sucks, but so does buying a new roof, fixing basement floods and paying property taxes. And I like my gardener - I wave at him as I walk down to the beach with my kids.

Animal Spirit said...

Any guesses how much the botched reno on Scott St. will go for?

Marko said...

#202-978 Heywood sold for $324,900

Alexandrahere said...

Marko: re: Heywood condo....thanks for the info Marko. Apparently, last spring there was an offer of $369K but the vendor turned it down. At least that is what the realtor told me.

Mr.4AM said...

So, did you make $300K net profit in the last 3 months? Apparently that's easy over in Hongkouver right about now.

Somebody email Flaherty with the URL, obviously he needs to tighten mortgage rules further.

Mr.4AM

Marko said...

Land is at a premium. In the Victoria core there are only 29 lots for sale, only about 20 do not require a building contract. Under 400k there is pretty much nothing. Most of the lots are difficult to build on, 1551 Pembroke is a good size and location at 405k but needs about 40-60k of excavating/blasting before you can lay a foundation. By the time you are finished you've dumped 850-900k into a Fenrood home, now throw on HST....

Marko said...

This year has started less than stellar! January is going to be down significantly to all years going back to 2002 other than 2008.

Monday, January 24, 2011 8:00am:

MTD January
2011 2010
Net Unconditional Sales: 233 418
New Listings: 879 1,211
Active Listings: 3,120 2,793

a simple man said...

I expect an increase in sales, and I think we will see that right away, until March 18, replicating what we saw last year with buyers scrambling before "the deadline" but leaving buyers thinner thereafter. Excpe this year it will be two months earlier in the year and before the major glut of RE to hit the market.

What happens after March 18 is important for sentiment going forward.

Leo S said...

And there was much wailing and gnashing of teeth.

So after these new rules come into effect, will a person with a pre-approval for 5/35 still be able to get it until the pre-approval expires? I've heard conflicting things on this. Wondering if the "buyers surge" (if it will even materialize) will stop in March or not until a couple months later.

Talus said...

Even renters sometimes have to try and catch the falling knife.

$1800
$1700
$1600

Be careful when you sign that lease. The market is swinging to the renters favor so play hardball.

Alexandrahere said...

Good Monday morning all: Here are my stats for the week of Jan 17 - 23. Average sale prices are higher this week than they have been for the most part since mid July 2010.

SFH: Min 2 beds & 2 baths, priced between 375K & 775K in the core municipalities of Victoria, Oak Bay, Esquimalt, Saanich East & Saanich West.

NEW: 23
SOLD: 18
OM: 9
P/C: 20

Avg sales price: 581K: Med: 610K
Out of the 18 homes sold, 8 had suites advertised and two had "potential". Five of these homes sold for under BC assessment value.

Condo's: Min 2 beds priced between $260K & $675K in Most areas of Victoria and Saanich East, all areas of Oak Bay and Esquimalt and the Gorge, Tillicum and Interurban areas of Saanich West.

New: 22
Sold: 6 Apts & 5 townhouses
P/C: 12
OM: 10

Avg condo sell Price:315k & Med: 307K

Avg townhome sell price: $470K and Med sell price was $490K.

Two of the townhomes went for under BC assessment & one apt.

Talus said...

O/T. Took a tour of The Hudson the other day.

We like old buildings and I like renovations so we thought it would be fun.

We only looked at 2 bed units and the prices were stratospheric!

1000 sq/ft 2 bed loft for $500K

1400 sq/ft 2 bed loft with den for $900K

1300 sq/ft "Penthouse" 2 bed plus den for $990K

Condo fees are $0.39 per sq/ft and that includes your geothermal heat.

We waited a bit in the sales office for our tour guide and filled out the requisite info card (we only left our first names and no other info - they didn't question it).

We were the only couple under 50 in the sales office with 4 other couples well into their 60's (and some clown talking about his plan of renting to long term visiting Lawyers).

Our tour guide, not a agent, was energetic and took us through quickly, showing us whatever we wanted. There was no sales pitch or pressure and she answered all our questions without any hype.

She reported the building to be less than 65% sold with resales now on MLS. (I see 11 units on MLS listed with Jonesco, Pemberton, Re/Max and C21).

Prices have dropped since the initial sale, down $50K on the 2 bed units and $100K on the larger 2 bed plus den units (basically 10% off). The reason cited was pressure from the re-sales.

Occupancy began late last year and there are 1/2 dozen or so occupied units.

On the walk from the sales office to the entry doors you'll see a huge pit to the east which is supposed to be home to tallest building in Victoria (don't know what building that is?).

The entry is wide and open and leads to a bank of 2 elevators. The only elevators serving the building (actually there is a service/moving elevator but not for daily use). If you happen to live at the far end from the elevators you are in for a walk.

The elevator exits onto the floors in a very open area with signage for the floor and it's previous purpose i.e. 5th floor, Rooftop, -Gravel, -Birds, -Flags. Cute.

Inside the cabinetry was "IKEA like". I have installed it before and it is decent, sturdy enough, flat pack cabinetry but definitively not high end.

Appliances were "meh". Euro style counter depth fridge with matching cabinetry door panels. Electric cook top (gas in the Penthouse) with oven below. This made the oven almost sit on the floor - very low.

Washer and dryer in the unit and a decent amount of built in storage.

The floors were laminate and the carpet generic - none of it was protected from the ongoing construction or tours.

Bathrooms were simple, with plain white tiles and very cheap looking glass enclosures on the showers (definitely NOT high end).

The windows in the original Hudson part of the building were unchanged and you could hear a fair bit of the traffic on the streets four stories below but otherwise they looked serviceable and could be opened fully (nice).

The rooftop deck was expansive to say the least. Overlooked by the Penthouse units, the west facing deck has gas BBQ's, deck furniture and plenty of room for a Shriner's Convention.

My final impression was that of a "lower end" house flip. General construction grade cabinetry and flooring combined with very poor quality bathrooms (the shower enclosures particularly) did not impress me.

Conclusion: Cut out the den and you can save yourself $400-$500k but I still don't feel it's worth it.

And while it was very cool to look out at the old Hudson Bay pillars it wasn't worth a cool million.

DavidL said...

@ Talus

Interesting, detailed review of The Hudson. Thanks.