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.
47 comments:
TD was predicting a correction in 2006 when Carl Gomez was involved in their analysis. They got it right back then, but there are no brownie points for calling something THAT far ahead.
This time TD's analysis seems to jive well with other reports out of the banking sector, enough for me to believe that they know something we don't, like say lending will be curtailed regardless of interest rates. There. I said it.
These kinds of storys make bank presidents nervous. As Jesse indicated I can see lenders silently tightening up their lending policies.
Sure CMHC is on the hook for most of these loans, but it still takes up bank personal's time running down the defaulters.
One thing I can see are lenders pulling back to 75 percent financing if its not insured.
left a little space above for comment deleted.
^ spam
Banks have the homedebtor pay for all foreclosure proceedings. For banks since their headcount is relatively fixed they don't want too many foreclosures that would swamp their employees, but at the same time their arrears department is a profit centre...
The big problem I see is the gap between loan approval criteria for low ratio and high ratio loans. If prices do fall more, many low ratio loans become high ratio and would need to qualify at the 5 year rate. I expect the government will demand there be smooth transitions from low ratio to high ratio going forward.
Off topic, but it drives me nuts that so many real estate agents capitalize every word in their listings. For example, "Private South Facing Deck with Hot Tub. New Oak Flooring, Lots of Large Windows." Is this a clumsy attempt at emphasis (emphasizing everything!)? It makes it so hard to read!
This morning's listings finally tipped me over the edge I guess.
What do you all think of 331 St. Charles St., which is new to my PCS account this morning? I don't think I've seen a house that looks that reasonable for that low a price in that location yet this spring/summer. (I'm in absolutely no danger of even attempting to think about buying for real, but am just curious if others think this might be a "good deal" -- if such a thing exists at the moment.)
The St. Charles property is in a good neighborhood but a bad location.
On one hand you get the bragging rights for living in Fairfield and near the water. On the other you have to deal with the traffic from the shopping plaza and people using St. Charles as a main road.
The last home to sell like it, was 411 St. Charles which sold for $595K, but it was on a much bigger lot. So at $585K it looks reasonably price. Not a deal, but reasonable for today's market.
As for re-sale. Homes on busy streets get nailed in a housing recession. Almost to the point that they are unsaleable. Of course that's an over statement, but its something to think about. Because the biggest thing that makes this home attractive is its price. And that's how subsequent buyers will think as well - it will always be the price. Add a high turn over of owners along the street and it may not be something to have as a owner occupier.
Buying the home as a rental might be another choice. But it would take a serious drop in price and costly house upgrades to give you a return on your equity.
But, it will most likely sell close to list price. But don't worry you'll get another crack at it, in three years.
I'd agree with JJ - it's a reasonable deal in this market.
But this market is totally unreasonable. It's so skewed at the lower prices that it's downright screwy. You could buy St Charles for 585k, or for a meagre $115k more you can have 3000+ sq ft and an indoor pool amongst the glitterati at 964 Carolwood Dr. Or, for $115k less you could have had a 1200 sq ft p.o.s. at 995 NICHOLSON St.
The more you spend the more you save and the deals don't start until you hit higher numbers. Maybe a big part of the reason we see the average going up against in spite of obviously worsening market conditions?
Bingo,
For just a $115,000 more or about $500 more a month you can have a lot more house.
And that's a sign that the market has run its course as buyers are tapped out in monthly income with fewer and fewer left that can push another $500 a month.
It also seems that prospective buyers are into location rather than the size or quality of the house. I suppose a lot of them believe that it is better to buy the worst house in the best location.
Which was true - ten years ago when prices were going up. Now that's the worst thing you can do.
The best locations also have the highest land prices - and that's whats going to tumble the most.
You'd be better off to buy in Sooke, where the market is already into its correction, than buying at the top in Fairfield with a correction yet to come.
And it will come.
Now, all properties will correct in price, and if you are contemplating buying in the immediate future, you should be thinking house - not land. Because you are going to be living in that house for a long time before prices recover. And you don't want to end up raising three kids in a 1,000 square foot home in Fairfield. Or watching the person with less experience than you getting the promotion - because you can't relocate with your upside down mortgage. That would just be sad.
Forget making a killing on real estate. That's over. Think of comfort and who is going to buy the home when you decide to sell in ten years. Because a decade from now "baby boomers" are not going to be buying homes. It will be the kids raised in the 1970's and they are not going to want "character" homes. They'll want the Brady Bunch house with shag carpeting and wrought iron stairway railings.
God help us all.
Tripped acorss an interesting factoid over lunch, thought I would share:
http://tinyurl.com/6aj3h6c
Wonder if this is because we are more tapped out already? Or if we are more responsible and this is positive as the short article suggests?
Thoughts?
I mean born in the 1970's - not raised. The generation that remembers Teenage Mutant Ninja Turtles, Power Rangers, Animaniacs. The generation that consider Star Wars toys antiques.
The baby boomers had Wally and Beaver in "Leave it to Beaver" The bust generation had Marcia and Greg Brady. I actually liked Zena the warrior princess until it was getting pretty obvious about her and her side kick, Gabrielle. At least I still had Tinky Winky in the teletubbies.
So 1627 Hybury is a new listing. Again.
But the killer app is this: $688,888.
A Chinese buyer is reaching for his wallet as we speak.
Ouch, that's some price. I suppose that's why they have the Hail Mary pricing with all the eights.
Seems like a flip gone bad. Might be a contender for the rental market if it doesn't sell close to asking price.
If you can't sell it - rent it.
Thanks for your opinions on the St. Charles house -- all good stuff to know!
@Just Jack wrote: They'll want the Brady Bunch house with shag carpeting and wrought iron stairway railings.
Hey, where's my astroturf?! And remember, Mike Brady was (apparently) and architect ...
http://www.1164.com/burbank/bradys/index.html
@JJ
Oh, I hear you about Xena!
But what does that mean about my housing preferences? Maybe I'm destined to live in a yurt.
Can someone check what 976 Dunsmuir Road in Esquimalt sold for? I've been tracking the unrenovated 2 bedroom bungalows in the area since last September (there's a lot of them in the neighbourhood.) In those 9 months, they've gone down around 40-50k.
Thanks.
$352,000
2857 Dewdney Ave just dropped $100,000 to $649,000
So far this week within my criteria and all in the 4 core municipalities, I have 5 condo's and three townhouses sold. 7 out of the 8 have gone for below BC assessment.
In the same areas, I have 16 SFH sold, and 7 of them went for under assessment. Most notable is 2493 Sinclair. It sold for $708K and is assessed at $902K.
wow - that's quite the change on the amount selling below listing alexandrahere.
I'm seeing a lot more low end listings stalling on the market, and also very little traffic at open houses. The low end interests me, because it basically represents lot value - if these start going quite a bit below assessed, everything else takes a haircut.
Are others seeing the same?
The neighborhood rumor on Carolwood was that it and the house across the street were safe houses for Tibetan monks. Some think the next Dalai Llama was hidden there. The house apparently is in a state of cosmetic disrepair. Agent says there is an accepted offer on it.
Bitterbear
@Bitterbear
Interesting since I would think that the next Dalai Lama hasn't been born yet ...
An interesting article in the New York Times on why the US economy has been so slow to start to recover:
We're Spent
"Now, the economic version of the law of gravity is reasserting itself. We are feeling the deferred pain from 25 years of excess, as people try to rebuild their depleted savings. This pattern is a classic one."
Trilobyte...yes a seeming feat of metaphysics, but the Dalai Llama has said he might choose his successor during his lifetime in order to maintain order and protect the institution from political interference by China.
Happy renter, I don't really agree with that analysis.
US companies are profitable, banks are sitting on a lot of cash and the US has historically emerged from recessions with sharp uptick in growth. Something is different this time, and it's the uncertainty.
The govt has doubled the debt, layered thousands of new and costly regulations over the economy via Obamacare, the EPA, the NLRB etc; and even though entitlements like Medicare and Social Security will be insolvent in a decade or two, Washington is showing no interest in reining in spending that has jumped from a historic average of 18% of GDP to a WWII-beating level of 25%.
In this environment, few wealth creators want to take risks and invest. Govt has grown too big and incompetent, and it has business people hunkered down and waiting out the storm.
Craig - the basic problem that created the financial crisis in the U.S. was the clearly the lack of oversight and sufficient regualation of financial institutions. Since the argument made in your post is essentially saying 'deregulate and then business will do better', can you explain how making the same mistake that caused the financial crisis will solve it?
Thanks.
Craig, I see you've been watching a lot of Fox News. Same talking points.
My sense is that U.S. businesses aren't hiring mostly because there is little consumer demand for products and services right now. With unemployment at 9.5 percent and 20 percent of mortgages underwater, consumers are in no position to spend. Why hire if there's no demand? Better to sit on cash.
I also suspect that many companies have used the recession as an opportunity to streamline their business; that is, lay off workers and rejigger operations so that productivity remains constant but operational costs are reduced. If this is the case, many of those jobs aren't ever coming back.
Lastly, Craig, if the U.S. had no EPA, what do you think would happen? Would corporations decide all on their own to protect human health and the environment? Ha!
Factoid: the EPA was created by Richard Nixon in 1970. This shows how extremely right-wing today's Republican party has become.
Ah yes the so-called "confidence fairy" will increase private spending by governments emanating certainty. In a country with a 2 year election cycle.
Or, maybe, high unemployment is really the problem after all.
"The govt has doubled the debt, layered thousands of new and costly regulations over the economy via Obamacare, the EPA, the NLRB"
You must be referring to the previous administration regarding the debt. As for health care reform, it doesn't go fully into effect for another 3 years at which point it will lower per capita health care costs. The current system is far costlier and very ineffecient. EPA and NLRB? They account for less than 0.3% of the federal budget and have nowhere near the resources to enforce environmental and labour laws. They're hardly preventing US corporations from posting record profits.
"entitlements like Medicare and Social Security will be insolvent in a decade or two, Washington is showing no interest in reining in spending"
Medicare and Social Security are fine. They occasionally require minor adjustments as demographic changes results in changing needs for any given generation of seniors. This will continue to be the case and the necessary adjustments will be made. Previous attempts to phase out and privatize these programs have proven to be hideously unpopular (Bush in 2005, Paul Ryan in 2011). Medicare and SS are here to stay. As for "no interest in reining in spending", please turn on any US cable news channel or google "debt ceiling". It turns out that in fact there is significant interest in cutting spending. In fact, it's all they ever talk about these days.
Perhaps people really do have to pay back all that money they borrowed during the consumer bubble and maybe it really does mean they'll have to spend less and live within their means for a while.
"the basic problem that created the financial crisis in the U.S. was the clearly the lack of oversight and sufficient regualation of financial institutions. "
The US finance industry was highly regulated. The massive asset bubble was triggered when Congress decided they were going to increase home ownership among the poor. Fannie and Freddie took the lead, eventually owning or backing more than half of subprime debt. With these implicit govt guarantees, some banks- not all - gorged on risky debt because they now had a buyer for it: the US taxpayer. And all the while, the Congressional leaders cheerleading this process - Frank, Dodd, Daschle etc - were receiving payoffs in the form of sweetheart loans from Fannie/Freddie and the mortgage lenders they were overseeing. The book Reckless Endangerment by Pulitzer Prize winning reporter Gretchen Morgonsen is out now and it is essential reading.
Introvert, I don't watch Fox because I don't watch TV. But I do own two businesses and until a couple years ago had planned to set up an office in the US. Not anymore. Not until the govt there steps back from the ledge.
As for the EPA, started with good intentions and now morphed into a political monster. It's declaration that carbon is a pollutant gave it control over 200,000 manufacturers.
One of the great things about the US is the diversity of its states, which gives it a wonderful experimental tool to compare policies. What do we see today? The highly taxed and regulated economy of California is shedding businesses while the lightly taxed and regulated states of Texas and North Dakota create more than half of all jobs in the country and act as a magnet for companies and people seeking work.
This isn't rocket science. The great game is being played out in Europe and Asia as well, with the results clear for all to see.
ex-expat,
I had to read your piece twice because it sure seems like satire. You are aware that the NLRB is currently blocking Boeing -- the US's largest exporter -- from moving into its already-built $1 billion plant in South Carolina because of union complaints in the state of Washington?
Or that Medicare will be insolvent in 2024, five years ahead of schedule?
Or that US deficits from 2010 through 2020 are on average three times higher than the highest deficit ever produced by that donkey Bush?
As for the 'significant interest' in cutting spending, was that reflected in Obama's recent budget, which laid out trillion dollar deficits as far as the eye could see, or in the fact that the Senate has failed to produce a budget for two years, breaking the law in not doing so, or perhaps that the current debt talks aren't even discussing the 900 lb gorilla -- the entitlements?
Here's something to consider: the current interest on the US debt is about $200 billion a year. By 2020 it will be $800 billion, more than the entire defense budget.
The US is completely screwed.
"You are aware that the NLRB is currently blocking Boeing -- the US's largest exporter -- from moving into its already-built $1 billion plant in South Carolina because of union complaints in the state of Washington?"
Ha ha. The NRLB is mediating this dispute and in fact Boeing can open in SC so long as they continue to operate in WA as they've always done.
"Or that Medicare will be insolvent in 2024, five years ahead of schedule?"
No, it won't. You're just dead wrong about that. Adjustments will be made as needed, just like they always have. Their is ZERO political will or public demand to end this program. Not. Gonna. Happen.
"Or that US deficits from 2010 through 2020 are on average three times higher than the highest deficit ever produced by that donkey Bush?"
Really? Perhaps you mean projected deficits. If they never ever raised taxes ever again. Get back to me in nine years.
"As for the 'significant interest' in cutting spending, was that reflected in Obama's recent budget, which laid out trillion dollar deficits as far as the eye could see, or in the fact that the Senate has failed to produce a budget for two years, breaking the law in not doing so, or perhaps that the current debt talks aren't even discussing the 900 lb gorilla -- the entitlements?"
You're all over the place here. The bottom line is that taxes will likely revert to Clinton-era levels during which time the US ran a surplus. The "too much spending" argument is a sideshow meant to distract from the fact that the United States does, in fact, have the resources to operate as a fully functioning first world country.
"Here's something to consider: the current interest on the US debt is about $200 billion a year. By 2020 it will be $800 billion, more than the entire defense budget."
Again with the predictions. You're assuming that absolutely nothing will change politically or economically in the next 9 years. I wouldn't make that bet.
Craig, I will just point out that the Republican Party controlled the House of Representatives and the White House from Jan 2001 to Jan 2003, and both of these plus the Senate fron Jan 2003 to Jan 2007. It's true that some policies previously adopted by the Democrats contributed to the bubble, but the Republicans could have reversed them if they had wanted to, just as they reversed any number of policies that they didn't like. Like Clinton's income taxes.
So what did the Republicans actually do?
Let's hear from the cheerleader in chief
The US housing bubble/bust was in fact caused by a combination of government intervention in favour of home ownership and a lack of oversight of lenders. It's not an either/or thing.
Same goes for our own bubble and all the others.
This isn't rocket science. The great game is being played out in Europe and Asia as well, with the results clear for all to see.
Right, so that's why a country like Germany is basically holding the EU together.. Must be because they have such loose regulations...
God, grant me the serenity to accept the things I cannot change, the courage to change the things I can and the wisdom to know the difference.
Anyone know the name of a good house inspector?
Have made my wife (and myself) long enough, family income has gone up significantly and is now more secure, have significant downpayment built, may be able to buy a house we want in a good neighbourhood at around 4.25 times gross income, what we would like to buy has already come down 10% (at least) and feel that prices may go down 10-20% in the future, but may also stagnate for a while.
Anyone know the name of a sponsor out there who can talk some sense into me?
Are you looking for a crisis intervention team?
The allure is there, lots to choose from, interest rates are low, and most people no longer have "sticker" shock over the prices.
Good Luck.
The low end interests me, because it basically represents lot value - if these start going quite a bit below assessed, everything else takes a haircut.
Definitely the low end has been averaging slightly below 2011 assessments.
The higher end (550 to 900) is still bouncing around 5% over assessment. Fairly sharp dropoff in sales in that range in the past two weeks though.
"have significant downpayment built"
If you have a significant down payment you have the most to gain from a rise in interest rates.
So why buy now?
Hold on to as much of your money as you can. I would'nt blow the whole wad on the down payment. Interest rates are cheap, might as well use them and finance at 80 percent, keeping whats left over in investments. You can always pay down the mortgage at renewal time if the interest rates get really weird on you.
Its just a shame to trade the money making investments for what may be a depreciating asset for the next decade.
Cheap house on Burton Avenue near Sears in Victoria, just sold for $362,000. Livable, but not something you want to take a date home to.
The last home on Burton to sell for that cheap sold back in June of 2007 with the same kind of home but on a smaller lot selling in February 2005.
We are on our way back to 2005 price levels. Or about the time the Feds started greasing the CMHC pig.
I think it's entirely possible for the market to retract to mid 2004 price levels before stabilizing.
"You can always pay down the mortgage at renewal time if the interest rates get really weird on you."
Problem is if interest rates take off the investments most likely will go down too (bonds by definition and stocks usually follow).
The only way to protect yourself from rising interest rates is not to borrow money and not to hold investments sensitive to interest rates.
It's weird that I understand all of the financials (thanks Reid, HHV and others for the series of financial planning posts from last year), most of where to put the investments, probable house costs vs. rental costs, etc.
My wife has a need (i.e. she grew up on a small farm) to get her hands dirty, to plant a garden, to do outdoor work. We have a need to have our daughter run around free. I have a need to call a place home. Since we've been renting for a long time, it would be good to have this.
Haven't been able to find a place to be creative with, to paint walls, to mess around with the garden renting. That's the basic driver - not a financial driver, but a lifestyle one.
More I see what has happened since before the U.S. financial crisis, the more I think that interest rates will stay low and house prices will only drop slowly, evening out to the long-term price trend over the next decade. Stagnation.
Hopefully Marko's stats report will show so few sales this week that supply and demand would obviously intervene.
Yes, a crisis intervention team is needed. Just Jack, help us, please.
Monday, July 18, 2011 8:30am:
MTD July
2011 2010
Net Unconditional Sales: 270 527
New Listings: 763 1,119
Active Listings: 4,856 4,477
Please Note
•Left Column: stats so far this month
•Right Column: stats for the entire month from last year
Animal Spirit,
I'm not suggesting you don't take the plunge, but be prepared for a very different few decades ahead than we grew up to. In real terms, I'm convinced housing will be the most draining investment for at least the next twenty years. The most overlooked factor is contained in this graph from Bank of International Settlements Ageing and Asset Prices.
http://i53.tinypic.com/vf1v9.png
In other words, the demographic tailwinds of the last 40 years are now shifting to double the headwinds for the next.
@JJ,
That house on Burton was a former grow op (small one in the "basement", had no perimeter drainage, and it was tiny too.
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