Now TD Economics didn't specifically address the Victoria market. But they sure did go after the Vancouver market. They predict Vancouver will suffer a 14.8% drop in market value before the correction hits bottom. Based on the price/income and price/rent fundamentals that's extremely conservative. But let's take them at face value and say their predictions are spot on.
Saskatoon will take an 11.1% drubbing. Toronto 11.7%. Heck, even cities that still haven't recovered from the 2008 correction, like Calgary and Edmonton, are expected to drop a further 6.4% and 6.6% respectively. And cities that missed out on the largely isolated Western housing decade of double digit gains (save Toronto) are still expected to drop anywhere from 5.6% to 8.3%. The Canadian average as a whole will drop over 10%. In case you're wondering, that's pretty significant. Especially coming from one of Canada's largest originators of housing related debt products.
Forgive me, but I'm conjuring this number up on TD's behalf: Victoria will* drop 12.7%. That's $79,900 plus the cost of a family dinner at McDonald's or so.
*we might anyway
And why does TD Economics see falling prices in the near term (heck, for that matter so do the national real estate industry leaders over at Royal LePage)? TD blames:
- an exhausted pool of first time home buyers,
- looming mortgage interest rate increases,
- reduced mortgage originations (those Flaherty rules are having an impact apparently),
- record levels of indebtedness (signs are already pointing to a retrenchment, which occurred exactly at the start of the US housing market collapse too might I add ),
- weak economic outlooks across Canada, and
- supply demand ratios that are already out of whack (Victoria especially in the multifamily dwelling category).
All of those factors are just as real in Victoria as they are in Kelowna, Kingston, Saskatoon, Moncton, Antigonish or Shediac. We don't have an influx of mainland Chinese invading Gordon Head just so their kids can attend Frank Hobbs School (HAM). Nor do tourists spend much money in downtown art galleries anymore, so the local tourism industry isn't making people wealthy as fast as it used to. For that matter, more Victorians are out of work right now than in the last five years; in June 2011, almost three times as many households lost an income than those who went and bought a house.
So TD's got it right: prices will fall. There's not a sign pointed in the opposite direction. The flat-market indicators are nil. Buying incentive couldn't be lower right now in the Victoria real estate market. And yet, I still get e-mails like this one from some well-educated, financially savvy individuals (at least I assume them to be based on their declared education and workplaces):
Hi, I am a first time home buyer. I have used some of your tools on your blog. I like your honesty and opinion. I am still so confused about the Victoria market. Where is a good place to start researching good deals. Is there a real estate map that realtors use to pinpoint properties etc…To which this post is dedicated to as a piece of (hopefully) sober second thought. Look, I've said it here since the beginning: if you can afford it, even when interest rates rise substantially (2% or more), can see yourself living in the place you buy for at least a decade, then give'r. Go get that roof over your head you've been dreaming of. There's nothing wrong with that. But if you can't answer yes, unequivocally, to those questions, keep renting or living in your parent's basement--either way you're saving money. Add the answer to this final question: Can you stomach seeing that home you just bought drop in value by roughly one year's before-tax income (at minimum) in the next few years (or 12.7%)?
If you're set on shopping, I don't know where the deals are right now. I don't believe there are any deals to be had out there to be honest. I too am still confused by Victoria's market. It doesn't make sense. Each morning I wake up thanking the big spirit in the sky for intervening in my efforts to own a home in Victoria. But if you want to start researching, you can dig back through the many posts on this blog; you can get in touch with regular Realtor readers here to get yourself set-up with a VREB Matrix account and start viewing properties in more detail. You can use the map feature on the Realtor websites to pinpoint properties by type and location.
Good luck and be strong. Anyone buying in 2011 is going to need to me thinks.