Tuesday, February 22, 2011

Stuck in the middle: the Victoria townhouse experience

I've often thought that townhouses have the potential to be Victoria's perfect property for a fair number of people. As time goes on, I'd think more people would be attracted to townhome living. No shared hallways, very little yard work, affordable "full size" homes without the need to suite your house out, certainly these are a few advantages for busy working couples/families and early retirees?

The trouble with Victoria townhomes, especially at the entry level price point, is they're typically old, typically on busy streets or near busy highways, typically have high maintenance/strata fees and typically have restrictive strata councils that make them less appealing than buying an entry-level duplex or house with a suite. Oh, and they're almost always extremely overpriced--I'd say more so than any other product on the market today.

I checked out a couple of open houses the other weekend. The house had a 1 bedroom suite in it, and a smallish 3 bedroom 1 bathroom main living area for the owner to occupy. It will likely fetch around $450,000 when it sells, assuming no structural or significant cosmetic work is necessary (I didn't see evidence of either). I also looked at a townhouse listed for close to $350,000. Both neighbourhoods were comparable, but the townhouse actually had the location advantage.

Let me do a little first time buyer comparison here: assuming a 5% down, 30 year amortization mortgage at 3.49% for a 5 year term.

House
Price = $450,000
Mortgage = $422,500
Monthly payment = $1889
Suite rental income = $800
Taxes + maintenance/month = $300
Total cost to own = $1400/month estimated

Townhouse
Price = $350,000
Mortgage = $332,500
Monthly payment = $1487
Taxes + maintenance = $400 (est $125 tax, $275 strata)
Total cost to own = $1887 estimated

Currently, townhouse owners, and the few people buying them at the entry level, believe you should pay a premium to own a place with no direct claim to land and little ability to influence financial decisions directly affecting your monthly budget (for example, increases in maintenance fees, special assessments for parking lots, siding, roofs etc). It's no wonder then why those townhouse owners trying to sell are having an especially hard time right now.

Here's January's townhouse market snapshot:

Total sales: 38
New listings: 132
Total active listings: 297
Sales to new listings ratio: 29%
Sales to active listings ratio: 13%
Days to sell: 80 (up 116% from January 2010)
Average price: $445,628
Median price: $418,050
Price change year over year: -2%
Price change month over month: flat
Months of inventory: 7.8
  • 42% of all townhomes sold for under $400,000
  • Victoria/Vic West recorded 10 townhome sales (current listings volume make this 5 MOI)
  • Saanich East, Sidney and Central Saanich were the townhouse buying municipalities of 2nd choice, with 6 each
  • SE MOI is about 7, Sidney MOI is about 3.5 and CS MOI is about 3.
  • Saanich West is a different story altogether, recording only 2 sales and having around 20 properties listed making the MOI about 10
  • Langford and Colwood combined had 2 sales, with almost 80 properties on the market right now, they're showing a bare-mountainous MOI of 40. And they're still building out there!
It's a strange market for sure, these Victoria town homes. I desperately want you available listings to be more appealing, but your insane asking prices relative to your demand and your entry level duplex and SFH competition I just can't get past. Lucky for you, all you have to do to make yourself more appealing is recognize that dropping your asking price by 20% or more will bring the buyers shopping for condos and entry level single family homes straight into your empty open houses. 

14 comments:

Just Jack said...

Townhouses make more sense in order to keep young families in the city. But not for developers. More suites means more profit and town houses of more than 1200 square feet are not money makers.

Its just a sign of the success of the real estate sector that micro suites can be sold at all. There sole purpose being to get someone into the market and onto the first rung of the property ladder.

The urban cities are making a big mistake in not planning for young families to stay in the core. This type of planning has killed cities in the USA.

It makes a temporary neighborhood of skybox dwellers not a community with long term roots. And when the bloom comes off the real estate rose, it makes transient neighborhoods with little pride of ownership, empty suites, high maintenance costs and an increase in crime.

Victoria is reaping the rewards of not planning for the needs of young families. Antiques row is becoming filled with for lease signs and closing out sales, and should be renamed. The heart of the city is moving out to the Westshore. The locals dread going downtown to shop and find it easier to go to Wallmart or Costco. Eventually, the government employees will demand that their offices be in the Westshore. And the downtown core will become a place of trinket stores selling stuffy dolls with RCMP uniforms to whatever cruise ship that runs aground.

I say blanket zone the Uplands for town homes, put in new schools and bring back the corner grocery store. And make Starbucks sell a decent cup of coffee.

Devore said...

Sort of offtopic :) but aren't you making the same mistake I find on so many HGTV shows like Income Property, that is very annoying, and that is rental suite income is not tax-free.

HouseHuntVictoria said...

"And make Starbucks sell a decent cup of coffee."

Let's just ditch those stores and replace 'em with Habits and Fantasticos altogether. That'll bring people back into the core!

The trend away from downtown shopping is more indicative of the increased cost of living than anything else IMO. "Sure would love to support the local guys but sure don't have the money to shop anywhere but Walmart now."

We need only look at the Songhees and the Humboldt Valley developments to see what the future of downtown living looks like: 7-11s and Timmy's in the basements of new "luxury" highrises and empty suites being rented as vacation homes. Sure doesn't do anything to create community or vibrancy.

Heck, it's likely the renters in Cook Street Village out and about during the evenings and weekends that make the village such and enviable place to purchase an overpriced hot beverage and then browse the classic VHS section at Pic a Flic because you're a hipster who still rolls like that.

HouseHuntVictoria said...

"that is rental suite income is not tax-free."

Yes. I don't usually calculate tax on income suites in primary homes because a) many (if not most) don't claim it with CRA and b) the associated write-offs are actually pretty beneficial and make the calculations way more complicated than my lazy mind can handle in a blog post.

Feel free to run the numbers and post the differences in comments if you'd like. I'll wager that the tax issue doesn't change the outcome of the comparison much.

Just Jack said...

Pic a Flic has VHS!

Hey the good thing about VHS with a six year old is that you put it the machine, walk a way, and pour yourself a scotch. No more, "daddy, daddy, the movie hasn't started" or "you have to push play". Except for the occasional "I have to go pee" or "I'm hungry" your pretty well set for the night.

patriotz said...

aren't you making the same mistake.. that is rental suite income is not tax-free.

Yes but if you buy at today's prices you won't have any suite income. Rather a loss, which you can deduct against your regular income.

Income = revenue - expenses

omc said...

I had heard that the townhouses were way up there due to the last round of mortgage changes. I could see similar things happening again. Not that there is any value there already, but some people just have to buy something.

Animal Spirit said...

Got a question about if and when new sales show up in the VREB stats. Over on vancouvercondo.info yesterday, paulb (a realtor/former realtor) said that (at least some) new sales are put into the statistics reports.

Is this also true in Victoria? If so, it could be one reason why condo prices have held so high in relation to what we are seeing in the resale market.

HouseHuntVictoria said...

Animal Spirit, as I understand it, if the new developments were listed in the MLS, they'd be included in VREB's reported MLS sales data/reports/statistics. If they weren't, then they're not.

I figure about 6%-8% of total sales aren't included in the reported data each month because of this.

jesse said...

Sounds like good old price compression to me, and is consistent with affordability being a major driver in the market.

Still, I'd check to confirm these are really comparable.

Reilly said...

@Waiting

I don't think any Canadian should have to be a prisoner from Oct to April - Victoria or Calgary. Minus 15 on the prairies feels the same as zero here due to humidity difference - besides, they get abundant sunshine and plus 15 chinooks in winter. I guess the trend i'm noticing is retirees and Canadians who can work anywhere, are choosing to live the nice half where ever it enables them to afford to escape the other half.

jesse said...

"Minus 15 on the prairies feels the same as zero here due to humidity difference"

LOL sorry not the same at all. If you like gardening and hate snow, Victoria, not Calgary, is the place for you.

Michelle said...

'"Minus 15 on the prairies feels the same as zero here due to humidity difference"

LOL sorry not the same at all. If you like gardening and hate snow, Victoria, not Calgary, is the place for you."

I disagree in regards to the temperature, after being out here (Victoria) for a winter, I would say it feels pretty close in how uncomfortable it can be - and I lived in Alberta for 26 years

caveat emptor said...

"Minus 15 on the prairies feels the same as zero here due to humidity difference"

When I lived in Edmonton I kept telling that to my sensitive perennials.

"Don't worry it's a dry cold - you'll hardly notice it"

Didn't work they died anyhow.