MLS numbers courtesy of the VREB via Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.
Month to date March 2011
Net Unconditional Sales: 119
New Listings: 279
Active Listings: 3,638
Sales to new listings ratio: 40%
March 2010 totals
Net Unconditional Sales: 789
New Listings: 1,719
Active Listings: 3,712
Sales to new listings ratio: 46%
Sales to active listings ratio: 21% or 4.7 MOI
In the last week of February, we witnessed 173 sales. Many people felt February sales volume, especially in the last week, would have been impacted by the snow we had. If that was the case, wouldn't it have made sense, at least a little bit, that sales would have carried over into the following week and caused a "bump"
in the data? If so, that bump wasn't very evident in the first week of March.
I've made some projections for sales and listings volumes for March data which you can see in the following graphs.
Month to date March 2011
Net Unconditional Sales: 119
New Listings: 279
Active Listings: 3,638
Sales to new listings ratio: 40%
March 2010 totals
Net Unconditional Sales: 789
New Listings: 1,719
Active Listings: 3,712
Sales to new listings ratio: 46%
Sales to active listings ratio: 21% or 4.7 MOI
In the last week of February, we witnessed 173 sales. Many people felt February sales volume, especially in the last week, would have been impacted by the snow we had. If that was the case, wouldn't it have made sense, at least a little bit, that sales would have carried over into the following week and caused a "bump"
in the data? If so, that bump wasn't very evident in the first week of March.
I've made some projections for sales and listings volumes for March data which you can see in the following graphs.
I won't be at all surprised if my March projections are off by 10%-20% when the final numbers come in, especially on the total active listings numbers. It's a steady as she goes kind of first week in March 2011. It's just one week, built on just two months, but I still don't see the kind of sales volume spike we'll need to create any upwards pressure on prices. Of course, to the opposite, I'm not seeing the listings volume pressure building up yet to create significant downwards price pressure either.
If you're out there shopping, and can't convince yourselves to keep renting, take your time shopping. There's certainly no reason why you should feel compelled to act fast in this market.
80 comments:
Just Jack from previous post:
"It seems to me that most of the prospective purchasers are out looking for deals. Perhaps that's why you see almost 30 percent of the sales below their assessed values.
Exceptions such as Fernwood exist, but I think that's just a matter of people trying to move up the housing ladder from a condominium. The prices in Fernwood are a short term fad that will reverse itself quickly.
Back in the days of conservative Canadian banking, this Fernwood bubble would not have been so dramatic. The bankers were not shuffling the risk off to CMHC, so they had appraisals done. Now you pay $675,000 for a hundred year old home on busy Fernwood street or $581,000 for a home with very little yard space on a dodgy part of Haultain and no one questions the price.
We are so American.
I only wish that it would be the banks that would wear this housing disaster rather than the taxpayer. From what I see in the outlying neighborhoods and in the weaker market segments, the correction in prices has the potential to be massive and quick.
People who bought in the last three and four years will be reluctant to sell their homes at a loss. But there are many times more people who have owned for a decade or more and will be willing to drop their price to get out of this market and possibly rent back their home.
Half a million in cash is worth more than half a million in equity."
One of the most eloquent pieces of writing I've seen yet on the current state of the Victoria housing market.
When the housing market in England fell apart a few years ago I asked a friend who was living there at the time what happened. He said simply, people just stopped buying. I'm wondering if the same thing may happen here but with a slightly different result. It's mainly a lack of work or other loss of income that makes people desparate to sell. The level of unemployment that would be needed for a mass housing sell off is unlikely to happen here in the first instance and a substantive change to investment vehicles is not in the cards (some correction due to the "black swan" type of event might still be possible). What is more likely is that people will hunker down and continue to make their payments (in the case of generally younger buyers) or simply decide not to sell but to just stay put (in the case of generally older owners). While there will always be those who have to sell because of a move, life style change (nice way to say divorce), etc., the number of people in that situation will likely not be enough to cause a shift in the market. Possible?
The shift in the market will be measured by what is selling when the market is shifting.
Sure, some people with keep paying their mortgages because then can afford to and it's in their best interest to continue to do so. Some people will not move.
But there will be some people selling because of debt, death and divorce. Buyers will decide what they are willing and able to pay. Buyer's determine the prices in must sell situations.
China's coming collapse: The Middle Kingdom's prosperity is an illusion. And when China finally falls, we'll all feel the pain.
Even H.A.M. is fueled by a credit bubble.
Well, if people just stopped buying here, as they did in England, the result will be the same. It can't be anything else - prices are set by supply and demand.
Unless you're a Scotiabank economist, a shift to lower demand will result in a lower price. Exceptions occur, but they are do to irrational exuberance (see Bob Rennie marketing plan for the Olympic Village)
There are always reasons for people to sell. If demand drops off, then supply builds at the expense of falling sales. The difference is motivation. The majority of sellers are now "highly" motivated to sell, and may only get one offer in three months. Which was the case in our last market trough in the late 1990's. Several people I know bought a home in Victoria, because their offer was the "only" offer on the property.
BUT or as my wife says calls me BIG BUTT
The huge difference between today's market and yester years is the dreaded home equity line of credit (HELOC).
Never have so many, owed so much to so few.
To all of us pining to buy in Oak Bay.
Buyer beware.
Get an archeologist to buy you dinner today - apparently in Victoria they can afford it.
The whole archeological study smells of corruption to me. I've only heard of these being performed on waterfront lots. Why only waterfront? Could it be that the cost of the study is in relation to the value of the lot? You're more likely to get paid the $600,000 fee for a lot worth an unimpaired million that a regular $350,000 lot.
Limitations have to be imposed on these studies. There are too many people being paid tribute.
IMO if oil breaks $120, the cost of living will rise to the point where people will curtail spending. Combine this with the new 30 year mortgage rules and higher interest rates and you have a material change to ones ability to afford Victoria housing prices. This will reduce the demand for houses unless prices come down to offset higher costs. Just look what happened in the spring of 2008 before the economic meltdown - people stopped buy houses in May 2008 (not in Oct 2008) when gas prices hit $1.50 per litre (now I suspect you will see $1.50/litre at $120-125 a barrel).
Fuel costs have a big impact on peoples lives, not just the $90 to fill your gas tank - twice a month or the $1000 to fill the oil tank - two or three times a year, but the cost of strawberries from Mexico and frozen spinach from China.
I believe that back in the 1970's the oil embargo was thought to have triggered a real estate market crash. It's possible for the $1.50 a litre gas price could stop people buying because it is the opposite of the wealth affect in home price appreciation.
The small group of people buying today are the marginal buyers. They may have loads of equity in their homes, most likely flipped a home or two in the last five years, or have started on a career in a high paying jobs that are dependent in some degree on construction or real estate. That's about to end.
In a market contraction, these people will be hurt the most of all. The majority will find themselves owing more than their home is worth and will not be able to take advantage of any "deals" in the real estate market of tomorrow.
That leaves the market to tumble to the lowest common denominator of purchaser that can qualify for a mortgage. And those are the buyers that are priced out of the market today.
The pendulum swings both ways.
Re: Monthly graph of sales.
If 2002-2008 were unusual in terms of housing activity it would make more sense to view these graphs going farther back to get a better idea of how current activity is. Then again I'm not sure of that data is available.
Re: Oil
For the US:
$120 a barrel wouldn't be that bad for them.
I wasn't following the market that closely in May of '08, but do you really think the gas price and housing market was causation?
Dave3
Dave3, if you remember back to the spring and summer of 2008 a lot of people I know were freaking out. Not only did gas prices skyrocket, but food price rose dramatically and surcharges were being applied all over the place. Everything was going up in cost (even though we offically still has 2% inflation). At this time 5 yr discounted mortgage rates were more like 5.5% to 6% and real estate prices were at peak levels. The number of buyers at this time (June - Sept 2008) went way down over the earlier five years which set us up for real price declines when the economic crisis hit that fall.
Remember in early 2008 unemployment was not an issue, people were getting raises and felt secure in their jobs. If history repeats itself again I assume the reaction will be similar or worse. The only positive of today over then that could support buyer demand is interest rates are still substantially lower.
Causation between gas prices and house prices? Really tough to say. Most of the times someone tries to figure out what the "trigger" for the drop in real estate was - after the drop has happened.
Real estate prices are so dependent on public confidence. Right now, we see a confidence in people who are buying real estate. But the numbers who are not confident have been growing since the peak in sales activity in 2007.
So you have to wonder not only how the general public would be affected by higher fuel prices but more specifically what would change the perception of the 4 percent of the population who are actively buying and selling real estate today.
That could be anything from tougher mortgage regulations or being nickle and dimed at the gas pump. Put pictures of car line ups and gas shortages on the news and you spook a nation into a recession.
I know when I last filled up, for $90 *&$%# bucks, I put off getting my hair cut that day, and decided not to go to Costco to look at light fixtures. A week later, I got a haircut and went to Costco - but the initial shock put me off, for awhile, to make another purchase. It has changed my driving pattern - I do not use the car for trips under two miles. I just pop onto the bike and take my "Man Purse" with me shopping.
Re: China's coming house collapse. Well, that was pretty scary. Can we somehow force every RE-spinmeister in Victoria and Vancouver to read it?
On a more positive note, we're more and more convinced we are going to wait it out!
@ Craig and Waiting, regarding finding good rentals.
When I am looking for a rental, each day I check Craigslist, Used Victoria, UVic off campus faculty housing, kijiji, My Ideal Home, and the Times Colonist classifieds. We have in the past put ads in the Times Colonist describing ourselves and what we need, and once got a superb rental that way, before they listed it publicly.
The last two places we have rented we found via Craigslist and Used Victoria. I almost didn't inquire about the house we just rented because the rent was so low, $2300, for the house, more than 3000 sq. ft. six bedrooms. But, that sometimes happens. When landlords want to be picky about tenants, and want stability, they sometimes offer reasonable rent, and then they can pick and choose their tenant. So, amazed at the quality of the house, we put in an application the night we saw it, and were accepted.
It really does vary, and you really do have to be willing to be patient and inquire about/look at everything you think might remotely be acceptable. We have now rented four houses. The first we found in one day (we saw 8 places that day - were in town for a short period and needed to find a place fast). That one we lived in for three years, and then bought from the owner.
When we had child four, that house was too small. We sold it and rented again. That was the one where they called us, responding to our Times Colonist ad.
The next house took more than a month to find. We looked at twenty different places, and I was in despair. But we did find one we could live with eventually. It has been a compromise, but livable. That's where we are now, James Bay. House is in good shape, just a little small for us.
Finally, the place we just rented in Royal Oak. I had been looking also about a month, but hadn't seen much that even seemed remotely suitable. This was the fourth place we actually went to see, and it was the right one.
Yes, patience, and persistence, are the keys to getting good rentals. That, and being good tenants with good references. We have also always had great landlords.
Just Jack: re: I"ve only heard of these being performed on waterfront lots".
Both the Tsartlip and Songhees bands have land claims over most of Oak Bay. The Songhees band claims most of the waterfront because that's where their settlements were. They were instrumental in getting the Province to enact protective legislation. Unfortunately many people in the know about the regulations quickly cover up anything they find because they know the cost. If the province really wanted to help the bands they would fund the cost of the digs so that individual property owners wouldn't be stuck with such a huge bill. Mayor Causton didn't mention it but he paid several thousand dollars in fees for a small hole on his own property.
http://www.timescolonist.com/business/home+construction+starts+slowly/4406343/story.html
New SFH prices are almost at all time highs in my opinion - construction starts down huge!
Lot prices and the costs of construction have really made it difficult for builders.
There are currently two, yes two, lots for sale in Victoria, one on Pembroke (needs 40-50k in site prep) and one on Irving road.
Demolishing an older home has also becoming expotentially more cost prohibitive in the last 4-5 years.
Good points above, but you are missing the real driver behind RE markets tanking, which is investors moving from being net buyers to net sellers.
These are the people who are in RE solely for the money and will get out once the appreciation ends.
For the most part owner-occupiers are simply bystanders.
I would think that there would be a temporary panic among "short term" investors. The condominium market is probably infested with them. So, I am expecting a BIG spike in condo listings to happen.
In the urban municipalities there are about 500 houses for sale as opposed to a little over 600 condominiums. When panic sets into the short term investor I'm guessing condominium listings to be more than twice the detached house listings.
And falling condo prices do affect single family home prices. This is a real estate market and what happens in one sector affects all others from town homes to waterfront and from Shawnigan Lake to South Oak Bay.
The baby boomers are panic sellers. They have a lot to lose being so close to retirement. They can't wait for prices to return, as in past cycles, to current values 15 years from now. They will do - what they did in the stock market - run for the exit doors.
One of the most eloquent pieces of writing I've seen yet on the current state of the Victoria housing market.
and now we can't shut him up as he shares his incredible knowledge...
"Well, if people just stopped buying here, as they did in England, the result will be the same."
Great bit of insight... How about "if people just went crazy buying as they did in (insert city) the results would be the same."
If something happens then a result will happen... WOW thanks for the insight!
Welcome, eatme.
Just Jack is a valued member here. Your insults only prove your level of integrity.
Clean it up or go elsewhere.
"Just Jack is a valued member here. Your insults only prove your level of integrity."
Not sure where integrity comes into play... Sorry for expressing an opinion on somebody's comment. I'll refrain and start to mirror all of the bears proclamations so I'll fit in and won't be censored!
This is a relatively new bear blog and I've been reading the same arguments, made with the same level of predictive confidence since about 2005 (VHB etc.). I've been a bear and question the price levels but bears have been consistently wrong for years so I tend to question the "all knowing" comments. The slags against the "vested interests" predictions are funny because those people have a great track record compared to bears.
Sure, EatMe is coming on a little strong, but his point is valid.
EatMe - as I said, welcome.
Your comment at JJ did not add anything to the discussion - it was just a personal hit that was uncalled for.
I agree with you in regards to all-knowing comments - none of us really know for certain. But we speculate with what we believe is the truth, which is increasingly hard to come by in the mainstream media.
Certainly the interventions introduced by the Govt during the last recession prevented the housing crash here - or delayed it, as we mostly believe.
We mostly represent a group of people who believe that housing prices are out of touch with incomes in Victoria.
Just be respectful and put forth your arguments in a cogent manner.
Wow Marko, you’re right about the “construction starts down huge!”
Statistics Canada released Victoria’s January residential and non-residential building permits this week.
Victoria $millions
Nov 2010 122.4
Dec 2010 78.1
Jan 2011 45.4
Spec houses in View Royal going for over 800k, yet huge slowdown...
Hmmmm.....
Thanks, Frannie.
That is priceless information for someone who has never lived in Victoria and only visited a few times.
We have owned and sold three times in different countries and are currently buying an apartment in abroad. But Victoria looks ready for a huge correction so we'll bide our time for a year or two.
After a short time looking for rentals, I'm struck by how few newish homes there are. I'm not a big fan of the heritage houses and many of the rest seem dominated by suites.
We'll keep slogging though. If anyone has a nice house for family of five, one cat and a dog between Oak Bay and Cordova, rent to about $3000, let me know.
For new house prices, looks like the only two cities falling faster than Victoria, are Windsor and Charlottetown.
New Housing Price Index
If that link above doesn't work, Google 'statistics canada the daily' and New House Price should be the second link down.
I'm being heckled!!!
My own personal heckler!!
I have only 5 minutes on this blog to make a fool of myself, you have the rest of your life.
“construction starts down huge!”
Which is probably worse for sales than oversupply. Half this city it seems is employed in construction/real estate.
@ Just Jack wrote: My own personal heckler!!
If only we could all be so lucky! (Thought to self: Bubble 'N Fizz doesn't seem to be playing in our sandbox any more ...)
A friend of a friend of mine is a carpenter (builder). This is the first time in quite a long while that he hasn't got another project in sight after the current one is (almost) finished.
They are in their early thirties with two young children, first and 2nd mortgage payments and two car payments.
I'm afraid they are going to lose their home. They have a suite but have difficulty in keeping renters.
How many others are in this scenario?
As for HHV or anyone else on here being "wrong":
The collapse of the global credit (including housing) bubble is in process, just because it hasn't completed yet, nor is it unfolding evenly and at the same time in every part of the world - doesn't mean that if someone predicted it a few years ago that they were wrong. In fact they have been spot-on. Bravo to everyone who, in 2005 or so, said this global bubble was unsustainable. We in Canada (and Australia) just have to be a bit more patient to see it fully unfold here, which has been suggested to be, at least partly, due to commodity demand from places such as Asia, which of course are now slowing down as well.
Looking through Craigslist and Usedvic there are a lot of rentals out there - prices seem to be coming down. I notice many one bedroom basement suites for $750.00 to $800.00 - less of a "mortgage helper" than in the past few years when they seemed to be in the $1,000 range on average.
I've read this blog for the past couple years and the massive collapse in prices has always been just around the corner.
I'd love to see some of the regular contributors make some predictions on when exactly the collapse will take place, maybe something that could be revisited and compared to reality, rather than the same old ambiguous foreshadowing?
"I'd love to see some of the regular contributors make some predictions on when exactly the collapse will take place"
Nobody can predict when a "collapse" will occur. Heck, a lot of economists and financial analysts making a hell of a lot of money get it wrong all the time. Why do expect so much from anonymous posters on a blog? Whats your perspective, Do you think the market is undervalued?
to Evan
As far as your “when exactly” - with rents a third the cost of owning (and falling), do you really care what year home prices reach realignment? I secretly hope it’s 2020 ‘til I’m tempted by the taxing and tiring again.
OK Evan - I foresee a 10% drop this year and a 10% drop in 2012.
Really impossible to make an accurate prediction, but I will do so for public record since you asked. If I am wrong, please feel free to tell me I do not understand market dynamics when it comes to RE - I will agree.
But I also agree that renting is really cheap living right now!
Also, HHV has been really neutral in terms of the collapse lately.
I read this blog almost daily and don't find it's about a crash right around the corner.
Buying a house is taking on a debt load that will last a very large part of my working life. A large part of this blog is about analyzing if the numbers making sense on a long term scale. Over the last few years the numbers have not made sense, money gained has been about speculation rather than home ownership.
It really depends on what your goal is. If you want to leverage and flip then you have been winning and hopefully saved enough to cover any future loss. If you just want to purchase a home to live in for the next 20 years, have a vacation once and while, expect at least one multi month negative life event, and save for retirement... then things haven't been so smooth for many years.
"I read this blog almost daily and don't find it's about a crash right around the corner."
Unfortunately you're one of the few who get it. It's not about predicting a crash, it simply states the truth: housing in Victoria is over-valued when compared to rents and incomes.
I challenge anyone to prove this statement wrong.
"A large part of this blog is about analyzing if the numbers making sense on a long term scale."
This is exactly the consistency with this blog. And this blog has also maintained from the beginning, that if you can afford to buy, can see yourself owning for 7-10 years, and can afford interest rate increases in the next 5 years, then today can be a very good day for you to buy.
"If you just want to purchase a home to live in for the next 20 years, have a vacation once and while, expect at least one multi month negative life event, and save for retirement... then things haven't been so smooth for many years."
No Sh&t. And this is what the eatMe's, Evan's, Introverts and BnF's most often refuse to acknowledge, that for a great many people currently inactive in the local market, the past 3-4 years have been dangerous times to buy.
For those who don't follow Ben's blog.. I found the latest entry a very nicely balanced view of the question of buying right now: Here
Anyone have an idea whether the 35 year mortgage buyers have to close by the 18th, or is it have a pending offer?
If the former, then we could see a decline in sales in the next few days as the pushed forward buyers are satiated with their Fernwood bidding wars. If the latter, then we'd might see the effect at some point just after the 18th
"I foresee a 10% drop this year and a 10% drop in 2012."
So we will see the SFH average in Victoria be at around 540k by end year? Fair enough.
I am curious as to why people on this blog are so focused on the market as a whole?
From what I have seen it is far more important to have foresight when purchasing or developing a property.
A good example I like to use is Chard Development downtown. He has built 3 successful buildings through a variety of different markets while all other developments have floundered including the Bayview, Falls, Hudson, etc.
The834 is 75%+ sold out and they haven't finished pouring concrete yet - the guy had the foresight to realize that the 1 bedrooms units in the Juliet were moving much better than the two bedrooms so he designed the834 accordingly. Yes, people on this blog will say you can't live in 530 sq/ft - but you cannot deny the sales in the building.
Today I looked at two condos with a client, both sellers bought in 2007, same month, for a price of $27x,xxx. One is listed at $34x,xxx and the other at $27x,xxx with comparables in each respective building going for similar amounts.
Similarly if you bought a high end home on Bear Mountain in 2007 you are probably 5% down, if you bought a home with suite in Fernwood you are up 10-15%. Same market.
I see potential going forward in homes on 6000 sq/ft + lots in Victoria. An 70-80k brand new free standing 600 sq/ft loft style garden suite seems like a no brainer to me both in terms of generating rent and increasing the value of a property.
Hi Marko;
Don't want a condo. Not interested in a suite - have enough souls living under my roof as it is.
Someone asked me to draw a line in the sand so they could look back and tell me whether or not I had my head down in that sand - I did draw that line for the housing market as a whole.
More specific: Single family home in Oak Bay, down 10% this year, down 10% in 2012.
And there are at least three building lots for sale in Oak Bay alone (2494 Windsor, 2019 Runnymeade, 2285 Woodlawn). I am sure there are more in all of Victoria, so you were wrong in your previous post that there were only two building lots in all Victoria.
From what I have seen it is far more important to have foresight when purchasing or developing a property.
Sure, there are always good buys relative to the market if you know what to look for, but the base level is still important. If the average drops 20% then the set of "good buys" will drop 20% as well (Of course no individual case will match this, I'm talking averages).
He has built 3 successful buildings through a variety of different markets while all other developments have floundered
Not sure what you think building a condo development has to do with buying a single unit of housing. This isn't developmenthuntvictoria.com.
An 70-80k brand new free standing 600 sq/ft loft style garden suite seems like a no brainer to me both in terms of generating rent and increasing the value of a property.
Garden suites are cool for sure... but aren't they limited to 400sqft in Victoria?
@Leo S: Thanks for the link to Ben's blog. That's a great, well-balanced analysis of the benefits of renting and owning right now. I think I'll send it to a few people I know who are trying to figure out what to do.
My partner just found out that she got a substantial promotion that basically changes our financial situation entirely. Her colleagues all had nearly the same reaction to the news: "so you'll buy a house immediately, right?" Although the tide of public opinion seems to be turning a little out there in favour of being cautious in the housing market, there are still a lot of people who have no clue that things might just get messy around here.
@ Rhino - I definitely don't think the market is undervalued. I don't expect anoymous posters to get it right, but if people are convinced that there is going to be a massive and quick revaluation just around the corner, I don't think its too much to ask of them to give us an idea of when they expect this to actually happen.
@ a simple man - thank you. that is all I was going for.
@ HouseHuntVictoria - Take it easy. I didn't 'refuse to acknowledge' any of that. I like this blog (hence reading it for years) and I appreciate the analysis and commentary you provide. I just find some of the people posting make blanket statements and was merely asking for more details. No need to get your panties in a knot.
"Garden suites are cool for sure... but aren't they limited to 400sqft in Victoria?"
Scroll down to page 4 of the PDF file.
"And there are at least three building lots for sale in Oak Bay alone (2494 Windsor, 2019 Runnymeade, 2285 Woodlawn). I am sure there are more in all of Victoria, so you were wrong in your previous post that there were only two building lots in all Victoria."
Where in my post did I say all of Victoria? Yes there are 4 lots for sale in Oak Bay. 2030 Milton is cheapest, 470k + you have to remove the house, only 40 foot frontage...what da?
Also a number of lots in Sannich, 18 is what MLS shows, but at least 12 need buildings contracts.
"Not sure what you think building a condo development has to do with buying a single unit of housing. This isn't developmenthuntvictoria.com."
The consensus on this blog is if you buy right now you will lose big. What I was trying to illustrate with real estate development is three developments that have done poorly, and one that has done exceptionally well because he bought the right property and built the right product.
Buying a townhouse in Happy Valley or an older home on a 6000 sq/ft + lot in Fairfield with a rear lane is two different things with you have some foresight.
My guess is down 10, 15, 10, 5, then flat for 2015. Average 540 end of this year, 460, 410, 390 by end of 2014. That would get us back to 2004 prices. Some argue we’ll retrace to 2000 prices - I don’t see it. Does anyone know what the average house sold for in 2000? I think it was around 250
My apologies, Marko - you stated "There are currently two, yes two, lots for sale in Victoria, one on Pembroke (needs 40-50k in site prep) and one on Irving road."
I assumed all of the greater victoria region, not just the municipality of Victoria - my mistake.
Evan, I would be shocked if there was a crash in the Victoria real estate market. I think most "long" time posters here would suggest the market is more likely to correct over a multi-year period. It also depends how you define crash. To some a 10% decline which I think is quite possible by the end of 2011 would be a crash (like those buying with 0%/5% down in recent years) whereas I would consider a crash to be a 30%-40% decline.
This blog does a very good job of putting some analysis to what has caused real estate prices to get so far overvalued relative to income. I think that information could be very useful to anyone considering a real estate acquisition and any prudent buyer should understand this.
Is it next to impossible to predict the exact timing and percentage decline in a real estate correction, but changes to mortgage capacities do indicate there is a far higher likelihood of prices going down versus rising over the next year, but they certainly do not support a crash as I define it.
I also agree Marko over his comments about what you buy. When we did buy here in the spring of 2009 there was a ton of inventory for sale everywhere and we were able to buy our dream layout in our most desired location. But amoungst this inventory there was still a lot of crap, cheap flips and overpriced homes. My advice is to invest a lot of time in where and what to buy in this market and do not rely on your realtor. I have always taken the approach that I will not buy a house until I know more than any realtor I have met about the location and market where we intend to buy. This takes a lot of time to accomplish, but it has saved us a substantial amount of money and I have avoided a lot of mistakes
Evan, no knotted panties here. Me thinks you read a bit too much emotion into what I wrote.
Comparing this years Victoria Core sales to date with last years we find a drop in sales activity between 12 to 15 percent in condominiums and single family homes respectively.
Prices have been stable with a slight decrease between the two time periods with the typical condominium selling for 2.5 percent less than it did a year ago. Detached homes are only off a marginal 1.5 percent from last years prices at this time.
If, as some say, the new mortgage rules are bringing forward demand, then Victoria is looking at a substantial drop in sales activity after the Ides of March.
Et tu, prices
I wouldn't hold my breath for the mortgage changes to be a big trigger. 35 year ams are gone, only to be replaced by skip a payment schemes. I'm still appalled at that brazen circumvention of the regulations and hope the govt cracks down on it.
@Marko
Scroll down to page 4 of the PDF file.
Thanks! The "plus" properties are definitely at the top of my list for consideration. I totally agree that a feature like that will continue to be valuable going forward. I still think they're in for a correction though.
The consensus on this blog is if you buy right now you will lose big.
There is no consensus on this blog.
What I was trying to illustrate with real estate development is three developments that have done poorly, and one that has done exceptionally well because he bought the right property and built the right product.
Sure. I don't think anyone is arguing that there is a big difference between the value of different properties. I still maintain that the feasibility of a big condo development has no relevance to anyone here though.
The last time we saw a drop in year over year sales activity, similar to today, was 2008 to 2009 when sales activity for homes in the core dropped off 24 percent and houses were selling at 8 percent less than the same time period a year before.
My opinion, is that we don't have enough sales to cause prices to increase and at our current sales rate, the core property values for detached homes are slipping away.
Assuming that the Mortgage changes have not brought future demand forward, even a marginal one percent increase in the interest rate may drop the sales activity by 10 percent. And I think, that would accelerate the fall in prices from Marko's estimate of 10 percent to 20 percent.
Of course this is just the demand side of the equation. If sellers panic and flood the market with listings - all bets are off and the race to the bottom begins.
The previous information was only for the core districts of Victoria, Esquimalt, Oak Bay, Vic West and Saanich.
The Westshore seems to be a completely different market and the farther you go from Victoria's down core the worse the market becomes. For example there are 206 homes for sale in Sooke today, but only 12 homes have sold in the last 30 days. With the sold prices ranging from $285K to $995K. So good luck in trying to figure out where this market is going.
For those thinking that a crash can't happen in Victoria - you should be asking the people that live in Port Renfrew that question. For example a home that is "listed" today for $195,000 had sold back in February 2006 for $250,000. For people in Port Renfrew - the crash has already begun.
JJ - to be fair to Marko, I was the one who forecast to 10% drop in each of the next two years.
Thanks for all of your analyses. I agree that the drop is already happening and moving from the extremities inward.
Sooke MOI over 17. That is hard to ignore.
Take my opinion for what it is worth. I have had a lot of experience buying/selling/renovating properties. My gut feeling says that we are going to get a boatload of new listings in the next few months with very little sales in comparison. Don't ask me why.....I just "feel" it. We'll see. I hate sitting on the sidelines, but there isn't a choice.
@Evan wrote: I'd love to see some of the regular contributors make some predictions on when exactly the collapse will take place, maybe something that could be revisited and compared to reality ...
My prediction is by the end of 2014, the average SFH price will have dropped about 30% to mid-2005 levels (~420K). Prices will stagnate (not keep pace with inflation) thought 2018. The same kind of stagnation occurred during the latter part of the 1990's. I expect a larger correction with condominium prices.
I base my prediction on a modest understanding of economics and about 30 years of observing the fluctuations in Victoria housing prices. In case someone thinks that I'm a "hopeful" bear, waiting for the market to drop - I already own a house with just 3 years left to pay off the mortgage.
My ongoign concern is how a sigificant drop in real estate prices, combined with increasing interest rates and a flat (or declining) economy will: [1] dramatically affect ability to pay off debt, [2] thus restrict non-essential spending, [3] increase defaults, and [4] strain personal relationships. I think that our economy is going to be suffereing for a long time.
You can view historical SFH prices at: http://www.vreb.org/pdf/historical_statistics/YE782009.pdf.
@Leo S wrote: I wouldn't hold my breath for the mortgage changes to be a big trigger. 35 year ams are gone, only to be replaced by skip a payment schemes. I'm still appalled at that brazen circumvention of the regulations and hope the govt cracks down on it.
Likewise, I am also appalled. I promote the idea that the government should immediate change rules regarding CHMC insurance so that only 80% of the purchase price is insured. The bank (or lending institution) would be liable for the remaining 20% of a defaulted mortgage. I am certain that this would make the banks much more cautious about there lending practices.
@Marco wrote: The consensus on this blog is if you buy right now you will lose big.
There are always good deals to be had in any market. ;-)
My apology, to Simple Man.
Credit to you and through you to Marko, who like you, is a valuable contributory to the blog.
Now - where's my heckler?
@Wally wrote: Some argue we’ll retrace to 2000 prices - I don’t see it. Does anyone know what the average house sold for in 2000? I think it was around 250
You are correct that the average SFH was $250K in 2000. (See my link to VREB historical stats 3 postings above.)
I agree that 2000 prices is highly unlikely - but with rising energy and food prices, various wars and unprocessed sewage being dumped off Clover Point (this is a joke, folks!), inflation is going to be hard to predict!
@DavidL, CMHC only insures the spread between what the mortgage amount is and what the property value was at sale in cases of foreclosures involving mortgage insurance. There's a bunch of costs the banks assume in these scenarios that aren't insured. All told, they add up to be negligible on the business side of real property lending right now.
The CMHC has outlived its mandate and has expanded outside its original scope. It should be sold off and the risk should be transferred away from the public, who generally don't have a clue there's any risk to them at all and are, in fact, the risk themselves based on their spending habits on real property.
I won't hold my breath on this one. If it ends badly, then there will be changes. Until that happens, the Gov't (doesn't matter which party) will continue to hold the CMHC up as the poster child for prudent financial practices in Canada.
How much is CMHC worth?
If it holds 400 billion in liabilities and only 8 billion in reserve. CMHC is not that attractive of a purchase. In order to make a sale, the government would probably have to continue to guarantee the current 400 billion or substantially increase the reserve for current and future claims.
Maybe the Chinese can buy CMHC. At least they wouldn't have to order new stationary.
An article from the Vancouver Sun that confirms my anecdotal evidence from earlier today that most Canadians still think that things are cheery out there and will be for a while:
Canadians Remain Confident in Housing Market
@HHV
I agree that the CHMC has outlived its' purpose - after all, wasn't it originally set up as a program to help returning WWII vets purchase houses?
In a country where banks are still offering no-money-down mortgages (through cash backs that can be applied to the down-payment), I feel that the banks ought to be carry more of the risk.
@DavidL agreed.
@JustJack, the gov't backs Genworth too, level playing field and all ;-)
I don't think CMHC is worth much based on its capital to liabilities ratio. But you have to look at its ability to generate revenue, which it arguably has in excess. It's just too bad it only works when the market's in its favour.
Is Genworth still active in Canada? I'm probably mistaken, but I thought they pulled the plug on high ratio insurance in Canada?
@JustJack, pretty sure they're still active and fairly certain they face the same restrictions as CMHC when the rules change.
How typically Canadian.
The Canadian government and its taxpayers guarantee the liabilities of an American Corporation so that it can compete on an equal basis with a Canadian Crown Corporation.
Really, Harper has to get a professorship at Harvard for this alone. Maybe Flaherty can carry his books. I think GE owes every Canadian a toaster for this - that's if the USA made any.
Maybe GE can buy the toasters from China and thereby prop up the "surprise" Chinese trade deficit. ;-)
The market will have its way eventually. That means home prices will return to rent levels and do so at the historical average interest rate of 8%. Government intervention (CMHC rules etc) may be able to prolong this process.
You can do the math, it's probably somewhere north of a 50% decline in current values.
Either that or everyone makes double their salary, rents double and we get an inflationary spiral. Then we will get 20% interest rates (ala 1983) and the market crashes 90%.
Prices on the gulf islands are down significantly as well. The assessment on our property dropped 18% over 2010 and many things are selling for well under assessed value.
Impatient as I am to purchase I firmly believe that Victoria will not remain immune to any corrections. However, I'm amazed by the fact that while sales numbers seem to be lower, what is selling (within my criteria) is selling at or over asking price. It also seems that places sit and sit for MONTHS without dropping in price and then sell for close to full asking. Logic and reason just don't seem to apply right now.
Many of my extended family members are from small town, mainland B.C. where prices really started to drop last year and continue to slide. Although they're horrified by the fact that their neighbours' houses are selling for the same prices that they would have fetched in 2005/6, they still think that the Vancouver/Victoria real estate market (it's all one market in their minds) is an enviable thing to get into and that it will never drop because it's just "in such high demand." They've already forgotten at this point that they were singing the exact same tune about the Interior not long ago. Maybe some of the places that are selling at asking after months of sitting on the market are being sold to people moving here from elsewhere who haven't taken the time to assess the local market and still think that it's hot hot hot and that they have to act quickly? I have many friends who say that they've never even thought of looking at how many days a place has been on the market when they're house shopping, for instance! The general public is not necessarily always going to be made up of savvy shoppers. That kind of thing might, for now, explain some of the anomalies that we're seeing.
"If it holds 400 billion in liabilities and only 8 billion in reserve. CMHC is not that attractive of a purchase."
Add to that, CMHC is incapable of failing. Imagine for a moment CMHC told banks it could no longer pay out insurance claims. Do you think banks hedged against CMHC defaulting?
What could happen is CMHC would not issue new insurance and all new MI would be provided by Genworth or other private insurers.
@Jesse,
It was incapable of failing back in the early 1980s when the GoC had to pump $500M into it to cover it's losses.
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