Monday, September 26, 2011

Monday market update, it's ugly

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.

September 2011 (previous week's numbers)
Net Unconditional Sales: 352 {237} [126] (51)
New Listings: 1,065 {810} [502] (186)
Active Listings: 4,745 {4,738} [4,689] (4,590)
Sales to new listings ratio: 33% {29%} [25%] (27%)

September 2010
Net Unconditional Sales: 395
New Listings: 1,211
Active Listings: 4,323
Sales to new listings ratio: 32%
Sales to active listings ratio: 9% or 10.9 MOI

We're likely to break 400 sales by month-end, maybe even hit 430ish. Which is better than September of last year, but only marginally so. It's not been a good month no matter how you spin it. Take a look at the rest of the decade (h/t Just Watching for updating the graph):


EagerBuyer(Not) said...

Next week VREB and its agents will once again announce that it is time to buy. Sales are up year-over-year and the SFH average for September has jumped to over 650K. Mortgage rates are at all time lows and the current high inventory means there is a good selection for buyers.

Lets not forget that everyone wants to move here and that includes foreign buyers. Buying real estate in Victoria is a good investment; just look how well it has performed in the last 10 years. There is still time to buy your dream home before all the boomers arrive.

So pick up the phone and call now before its too late....

Leo S said...

3256 Linwood is somewhat tempting. The house is placed in a bizarro location at the back of the lot, so no one wants it. 123 days on the market... how low will it go?

JustWatching said...

Leo S,

The house on Linwood is 85 years old and has a poor layout. 475K is way too high for this one.

MLS Listing

Small bedrooms. No dining area other than kitchen. Narrow living room. Upstairs master bedroom with no shower or tub.

Floor Plan - pdf

Buyers should run from this one!

omc said...

Gotta say I agree with JustWatching on that one; turkey of a floor plan. No dining area? Also notice that the extremely poorly laid out downstairs bedrooms don't even have a closet. They shouldn't actually be called a bedroom by the realtor's own rules. you need a closet and a window min to be called a bedroom.

As I looked at the photos my mind was filling in the cold draughts and damp moldy smell as you walk from room to room.

What's that rumbling sound? A bulldozer? (they actually use excavators now a days to knock houses down)

Just Jack said...

The Linwood property seems to have had a second floor addition some time in the past. The home was not purposely built as a two level home. This generally leads to an awkward interior floor plan layout and a less desirable exterior visual appearance from the street (curb appeal).

If you have a long list of properties to see, then homes like Linwood are scratched off the list without having stepped through the front door.

So if your selling this home, you would set up the appointment as the last home to see late in the day around dusk. And the homes you show your client before this one should need a lot of interior repairs. You would be selling this home on its low price in relation to its size for the neighborhood, rather than on its appeal from the street.

When pushing for closure on the deal, have the clients seated in the best room of the home (likely the kitchen in this case), don't discuss price while the client can continually glance up at the outside of the home. If its a sunny day talk with the clients on the rear patio, but with their backs to the house.

Marko said...

Month to date..

SFH Average = $642.5k
Condo Average = $330k

Just Jack said...

Would someone from Iqualuit, think Saskatoon a paradise?

This morning I was speaking with someone who moved here from California. She's not too impressed with Victoria this morning.

Its all relative. And if you have rich relatives all the better.

MC said...

You bet its all relative. Many Islanders may not find the prairies that beautiful. Having grown up in the prairies, I find them gorgeous and they definitely hold a special place in my heart. The grey weather here is something I am still trying to adjust to; at the same time, there is rarely a day when I don't pass something in Victoria that makes me say 'wow, that is beautiful'.

I wonder how many native Islanders don't see the same beauty in things that I see since they have been here their whole lives.

MC said...

Also, I always wondered why a high number of Saskatchewan/small town people moved to Edmonton and really like it there. I thought the City was not that attractive (minus river valley and university area). Was it because there was so much more going on there than back 'home'?

Phil said...

By the way, it's 22'C and sunny today in Saskatoon. Hmmmm.

a simple man said...

MC - you are right - there are gorgeous places in the Prairies. Ans Phil, you are right, Saskatoon has had a gorgeous past week. Sept is a nice time in 'toon town. From November on through April, not so much.

Anton said...

I have lived in Saskatchewan. I don't miss thinking I could die if the car heater or air conditioner stops working. Hats off to all the folks living on the Prairies though. Without some Canadians living there that land would have been claimed by another country by now. I miss the people more than the place.

CanSpeccy said...

I would like, if I may, to ask a word of advice.

There is a house in Oak Bay I should like the first refusal on should it come on the market. I think it would counterproductive to approach the occupants, who are cranky and barely coping.

What I would like to know, therefore, is what if anything, I can do, to obtain early notification should the property be listed.

Suggestions would be much appreciated.

Alexandrahere said...

In the past few months I have visited three cities that aren't far away from Victoria and all having basically the same climate...i.e. Vancouver (Commercial Drive area), Seattle, downtown area and Portland, downtown area.

Well, I'll tell you these "downtown" areas, in my opinion are all far superior to ours. The big one that just slaps you in the face are the sidewalks. The downtown Portland and Seattle sidewalks are immaculate. There is much pedestrian traffic and there are street people. Take a real look when you are downtown here. I cringe to even walk on them. They are filthy and laden with huge black splotches of gum and cigarette butts are everywhere. Portland's downtown has mostly the red brick type squares. There is literally no gum, cigarette butts or other garbage to be seen. What you do see are people cleaning the streets. These people could be city employees or perhaps they are shoplifters doing their time. The few street people you see are no where as intrusive as ours are. The Commercial Drive area of Vancouver is also a delight compared to our downtown. People are better (cleaner) dressed, are more polite and seem to be happier. The sidewalks are twice as clean despite probably 5 times as many well behaved dogs & dog owners.

Victoria has much natural beauty, but we seem to be doing our best to correct that.

What I really find incredible here also is the severely increased float plane traffic. It is one thing to have air travel traffic to Vancouver and other destinations but to have "sky tours" of our city continually landing and taking off from our inner harbour causing intolerable noise and air pollution, is quite another. Why does this city allow this? What is it going to take? A crash into a Fairfield home killing all aboard and all the unfortunates on the ground? I guess so.

Rhino said...

"What I really find incredible here also is the severely increased float plane traffic."

Who cares, its better than spending 4 hours sitting on overpriced ferry/transit supporting hahn's fat salary and pension. OOOO 10 seconds of an engine roaring, life must be so hard.

No city is perfect not Portland or Seattle, just take the good with the bad and try to make it better....or LEAVE.

What Victoria definitely has enough of is old people who complain a LOT. No shortage of that. The only thing worse than the real estate bubble in this city is the old-people-who-always-complain bubble. I really wish that one would pop.

Alexandrahere said...

rhino: I was referring to using the float planes as tour planes....ones that go up circle around the city and then land again. Not transportation.

Marko said...
This comment has been removed by the author.
Marko said...

I've spent quite of time downtown and I've never noticed this floatplane noise problem.

One thing I have certainly noticed in Victoria is people hate development (i.e. condos going up downtown, cutting down a few Garry Oaks to make way for a subdivision) or change of any kind; however, everyone complains about real estate prices...

I know everyone hates developments like Bear Mountain and it is not my cup of tea either but if it were not for development up there where would those two thousand people live? Cause people seem to hate density as well. Many are opposed to secondary suites, etc.

Something has to give...

ArtVandelay said...

BBC Speechless As Trader Tells Truth: "The Collapse Is Coming...And Goldman Rules The World"

jesse said...

Here's what I don't get: sure Victoria is seen as a nice location by many for whatever reason. But why would investors accept such a horrible yield? Why overpay for an all-but-guaranteed poor income stream? It's not like they're living in these places, they are financing renters who can enjoy the city on the (relative) cheap. Is it charity work?

Just Jack said...

Developments like Bear Mountain, cause economic activity and that causes prices to rise not fall.

Henry Ford built cars that his workers could afford to buy. The same with Bear Mountain, a good amount of owners are in the trades too.

So, its a bit a myth to say that development keeps prices low by increasing supply. Development also increases demand and will generate speculation if prices rise rapidly.

Marko said...


The market is only up a small 600+ points since this trader came out on BBC? BNN had a bunch of these guys calling for the Dow to go below 3,500 when the market was tanking in 2009. He must be correct thought...his timing is just a little off like another popular name, Garth Turner ;)

Jesse...I don't think investors are buying up local real estate inventory in great numbers. As for relatively cheap rent? I am still not convinced. Every day I look at new listings coming to MLS and some of the lease agreements are not cheap by any means....

For example 202-1007 Johnson came on market a few days ago for $194,000, 393 sq/ft studio, currently leased for $950/month.

You can buy a pre-sale at the Mondrian on the same block, 403 sq/ft studio, concrete building, for $169,900 Net HST included, rarely do I see this argument of rents being relatively cheap in real life numbers.

From time to time people on the blog people throw out examples of $500,000 condos being rented for $900 - I haven't seen it.

"So, its a bit a myth to say that development keeps prices low by increasing supply."

I disagree. Prices have dropped on Bear Mountain in the last two years yet building lot prices on Bear Mountain have gone up about 20% in the same time period.

You have a huge supply of re-sale homes and no supply of new lots due to lack of development. Is there any other reason home prices would go down and lots up? Supply/Demand does matter.

"Henry Ford built cars that his workers could afford to buy. The same with Bear Mountain, a good amount of owners are in the trades too."

Okay, so some trades persons worked hard and bought homes on Bear Mountain I don't see a problem with that. Not every single trades person drives a F350 with a lift kit and lives month to month...

Marko said...

Looks like the market/HST has delayed some downtown development...

"Dear Marko Juras,

Since our first offering in Victoria over seven years ago, Concert has built an enviable reputation by always delivering on our promises, developing exceptional buildings on time and to the highest level of quality and finish. Astoria, Belvedere, Chelsea and 365 Waterfront are all a testament to this commitment.

As a result of this reputation, prospective purchasers and Realtors have shown us that they are very excited about the introduction of Era. Including you, close to 1,000 have registered. Our goal when we set out to create Era was simply to provide the best value and affordability of any new downtown Victoria concrete built condominium. We remain committed to that goal and hence we must advise you of our decision to temporarily delay the Preview Opening of Era.

Why are we delaying the opening of Era? While the Era Sales Centre and Display Suite are now complete, the uncertainty that currently exists regarding the HST for new housing has resulted in much confusion in the marketplace. At present, the HST is still in place with no announcement of transition rules that could remove the uncertainty of this extra tax cost for new homes. As such, we have decided to wait.

We are hopeful that the Government will soon provide transition rules that could reduce the end cost of new housing and foster the jobs and economic benefits of a healthy, active home building industry. In keeping with our goal at Era to provide the best value and affordability, we think it is worth waiting for this potential cost saving. In the meantime, we will take this opportunity to work further with our construction suppliers and trades to ensure that we are able to pass along absolutely the best possible prices to Era purchasers.

Era is about time. Thank you for your understanding and patience regarding this delay. We’ll keep you informed and look forward to announcing a new Preview Opening date.



omc said...

I agree with Marko on the rent/own ratios right now. i showed just a while ago that it was cheaper by far to buy a $500k gordon head box at current rates than to pay $2100/month rent in a flat market. At the current rates about half of your interest payment goes to principle, even at a 30yr amort.

It may not be what people on this board want to hear, but it is true. You have to do cold, hard calcs on all the possible outcomes for a decision. You then have to try to figure out the probablities of each out come. I see 4 possible out comes for the next 5 years in RE; bust, small decline, stable and price increase.

Lets face it prices are too high to see an increase, so that leaves you with bust, small decline and stable. I believe that it is most probable that in 5 years RE will be at about the same price, or up to 10% lower. Interest rates aren't going any where soon, so the risk of a bust is lowered.

In 5 years you would pay off just over $50k in principle, so that about leaves you even at a 10% decline. This is of course only works if you didn't have to sell. Selling would pretty much eat all of that in fees and taxes.

Do the calcs yourself before comparing apples to oranges. A 5 year fixed is 3.4%, and if you don't need CMHC you can get very near 2% on a 5 year convertible. The 5 year converts at 3.5%, so you would need a hole in your head to go fixed if you have money. use a 30yr amort, because you get nothing at after 5 years of renting.

Leo S said...

i showed just a while ago that it was cheaper by far to buy a $500k gordon head box at current rates than to pay $2100/month rent in a flat market.

Must have missed that.. Anyway I agree that renting a comparable home to what you would buy doesn't make sense unless there are significant declines coming.

However if you're renting less than what you're going to buy, it's pretty much a no-brainer. Sure you might be ahead buying a 350sqft condo instead of renting the same one on a monthly basis, but who in their right mind wants to live in a condo that small for any length of time? Might be ok as a bachelor pad, but as soon as you have one more person move in you're going to be looking for a bigger place.
So you'll be happy with that little condo for about 3 years, and then you'll be looking to move up. In a flat market you will lose out guaranteed when you sell vs renting for that period.

Just Jack said...

Land value is just one of the many inputs to constructing the home. If you can save on framing or cabinets you can pay more for the land or you can take less profit.

All I'm seeing today with the higher land prices are that builders and the sub trades are making less profit.

As for these price to rent ratios. They're not reliable. For example. The 393 square foot condo rented for $950 per month still may not be market rent. A summer rental suite for a vacationer to Victoria? Or a plethora of other reasons.

The market boils down to economics. We had back to back years of economic expansion driven by housing and low interest rates. A shortage of trades people at the beginning of the cycle led to outrageous wages being paid allowing those workers to buy homes, honking big ass trucks and to speculate in the marketplace.

Now were entering an era of oversupply in the trades with too many homes for such a small town as Victoria.

That 25 year old who bought a condo in the Astoria on a carpenters salary is going to be selling his condo and moving in with a buddy or back to mom and dad's house. Or the young couple who just moved in together and then one looses their job, is going to split up.

And the pendulum swings as our local economy contracts. But a vacationer from Saskatoon will still spend $950 a month on a studio suite for a summer in Victoria. And too many builders will chase too few vacant lots and drive up land prices just so that they can make basic wages.

And I'll keep looking for my purpose built 10 suiter that gives me an 8% rate of return.

Paula said...

Alexandrahere, I agree with your comments on the float planes and the homeless being factors - not just weather - in how potential home buyers and investors see this city and its neighbourhoods.

eg., while visiting friends one weekend in Fairfield we started clocking the loud noise from float planes as they gain altitude from the Inner Harbour. One every 10-15 minutes. On Monday, they were less frequent, probably because of fewer tours.

Downtown Victoria is a great tourist draw but it needs to offer something competitive besides natural beauty to keep people living around it full time.

Just Jack said...

Just for fun, I thought I would look at the estimated 2009 population for each district and relate it to the number of homes currently listed for sale.

Such as in Esquimalt, with a population of 17,463 people there are 173 houses, condos and townhomes for sale. That means there is a home for sale for every 101 people in that community.

101 for Esquimalt
143 for Oak Bay
175 for Saanich
111 for Victoria
85 for View Royal

The greatest demand for housing is clearly in Saanich. But that makes sense because this is the heartland of our largest economic group - the middle income family where iCarly is the number one TV show watched.

Bit surprised to see that Victoria was so low at 111, but there are a lot of condos in the city. Where the dream of owning a hundred year old character home complete with dry rot, rats the size of racoons and post beetle bugs is the dream. The HGTV, button on the remote is the most worn through of the remote buttons in this town.

Then there is the Western Communities, where they're no longer making anymore land. Actually, I think that stopped about 6 billion years ago, but its slow to get news out there.

109 for Colwood
84 for the Highlands
50 for Sooke
58 for Langford
123 for Metchosin
40 for those that were Sooke but are now Juan de Fuca

Metchosin was a bit of a surprise, but the number of homes for sale is just 35. One of the locals could find a dead bird in their back yard and the fear of Avian flu could double the number of listings by tomorrow.

Sooke and Juanabee Sooke have the greatest selection of homes for sale. If you consider that most likely there are around 2.5 people per household that would calculate into about one in every 20 homes for sale in Sooke. That's about one house for sale on every block in Sooke.

Clearly Greater Victoria is two separate markets and depending on where live you will either be watching Californication or Survival tonight.

DavidL said...

@Leo S
"i showed just a while ago that it was cheaper by far to buy a $500k gordon head box at current rates than to pay $2100/month rent in a flat market."

I must have missed it.

Back on September 15th, I posted:

If someone purchased my $500K home with 10% down, the $450K mortgage amortized over 25 years @ 5% would cost $2617 per month. Property taxes and insurance cost $275 per month - so the cost of ownership (not including maintenance or repairs) is almost $2900/month. The same house could be rented for ~$2100 per month. Renting the same house saves of $800/month, $7200/year, or $180,000 over 25 years.

If the house appreciates in value, then perhaps it does make financial sense to purchase. If the house value remains stagnant or depreciates, then it does not.

OMC then responded:

Your mortgage calcs are way off. The going rate right now on a variable is 2.1%, and at a 30 yr term that works out to be $1,683.81 a month. Of this $778 is interest, the rest goes to principle. Why would anyone one pay 5% for a fixed? There is no real savings to renting right now due to the ultra low rates.

For those interested, the rest of the discussion thread is here.

DavidL said...

@Just Jack

Interesting analysis ... thanks.

DavidL said...

A thought ... when comparing rent versus purchase - consider the interest that the down payment could earning.

For example, purchasing a $500K home with 10% down "ties up" that $50K until the house is sold. The same $50,000 invested in a comfortable bond fund at 5%/year would earn $119,317.75 interest in 25 years for a total of $169,317.75. Even if factoring 3% annual inflation, the future value of the investment would be $80,867.10 (2011 dollars).

Alexandrahere said...

Just Jack: Your stats are missing a key factor, i.e. the ratio of renters/owners in these areas, as well as the percentage of rental units available versus homes to purchase.

In the city of Victoria, 40% own and 60% rent. Within the entire CRD, 66% own and 34% rent.

In 1996 over one in every 6 households were in need of core housing. In other words these people are involuntarily spending more than 30% of their income on the type of housing they need. The homeless aren't included.

The largest number of core need renters live in Victoria. In proportion to total # of renters, Lanford is at 42%, Victoria at 41.6%, Esquimalt 38.9% and Sidney at 36.2%. Can't find stats for Saanich areas.

DavidL said...

@AlexandraHere wrote: ... these people are involuntarily spending more than 30% of their income on the type of housing they need

I'm sure quite a few recent condo/townhouse/house owners would be included as spending more than 30% of their income on housing ...

Alexandrahere said...

One thing about purchasing a home versus renting.....I think it is human nature to spend more on unnecessary items such as eating out, entertainment, vacations, another (or newer) car etc. if you have a little more more money in your pocket. So if at the end of each month you have more discretionary money available by renting than you would from paying on a mortgage, then you will probably spend some of those funds rather than put it into savings. Another point: On the few occasions I rented, knowing that it wouldn't be forever, I lived in very modest accommodations so that I could save more for my "dream home". I would think that most people who are renting and saving for a decent down-payment on a home would be doing the same.

Alexandrahere said...

davidL...true, but they are chosing or "voluntarily" doing so. Whereas the renters that can't afford and probably never will be able to afford a home, HAVE to pay that rent, unless they quit their job and move....thus involuntary.

DavidL said...

Credit markets show slack demand; Is a rate cut on the way?

Just Jack said...

I don't understand how renting or owning affects the ratios?

Because Saanich and Victoria has most of the purpose built rental buildings it should ...? But how about basement suites, which most homes in the new developments in Langford have, affect the rates?

I suppose what I was trying to show was the listings per capita. So Sooke has the most listings per capita and Saanich the least.

Intuitively I thought there would be a direct correlation with prices. But, I didn't find that.
Maybe its more to do with market stability. With the higher numbers showing the more stable markets. Saanich being the most stable, followed by Oak Bay, then Victoria, Esquimalt until you find the most volatility being in Sooke.

Or maybe, it means nothing at all. Breaking down areas based solely on what side of municipal boundary may have little meaning. Because there are neighborhoods in Saanich that I consider on par or better than some areas within Fairfield. And certain areas of Esquimalt that are as desirable as some parts of Victoria City.

But what seemed to be clear, to me, is depending on what side of the Colwood Crawl you are, does separate the two markets.

Building a supply curve, is easy to do, its just what's listed. Building a demand curve of prospective purchasers is the hard part. That's why a quarter point increase in the interest rates can have entirely different affects on prices depending on what other factors are shaping demand. So, a rise in the interest rate could get people to jump into the market or not.

-Carney doesn't pay me enough to figure out this stuff.

EagerBuyer(Not) said...

David L, OMC and Leo S,

If you want to fairly compare rent vs. buy over the next few years use a free Excel spreadsheet called "Wait or Buy". It is listed under the resource tools on the upper right hand side of this blog. You can put in all the variables and get and get some solid numbers.

I think it was written by some guy that used to post on here a few years ago. Seems pretty thorough to me.

Just Jack said...

As for the percentage of home owners to renters, I'm lucky that I don't live in an area with a lot of basement suites. Since I know everyone on my block, the rate of home ownership is 90 percent where I live.

I wonder if all of us, went out and sampled the block we lived on, what percentage we would come up with?

jesse said...

"If the house appreciates in value, then perhaps it does make financial sense to purchase."

Cold water in face time!

There are significant risks to owning including maintenance and forced liquidation in market turns. Blindly comparing monthly payments makes mortgage brokers salivate. They have names for people like this: Joe Howmuchamonths.

Consider that the buy vs rent calculators in the US look silly right now, and many of you are using them like it's some shrewd personal economic life planning tool.

Tell yourself Canada is different. That's all you have.

Leo S said...

If you want to fairly compare rent vs. buy over the next few years use a free Excel spreadsheet called "Wait or Buy"

Sure, but in the end it's still impossible to compare because you have to make too many assumptions. At what rate does the house value appreciate or depreciate? Assumption. What is your return on investment on your down payment? Assumption. What are your maintenance costs? Assumption. Where are interest rates going? Another assumption.

So you can compare all you want, but in the end it's just a gamble on whether your assumptions are correct or not.

That's why we rent far less than we would buy. Stack the odds highly in your favour and unless the world goes completely crazy you come out on top. In the meantime you enjoy life.

Mike said...

Once prices have fallen roughly in half, owning and renting will once again be close. Strange how there are many areas to the south that are still falling even whilst they are cheaper to own. I hear part of the problem is qualifying for a loan.

Alexandrahere said...

What I was getting at Jack is the ratio would be affected by say how many rental units are available in in any one area. Out in Gordon Head for example there are basically no apartment block type rental buildings. So there should be far more house owners there than say in an area that has many apartment blocks such as Fairfield or Vic West or Esquimalt. There would be far more home owners on Bear Mountain than renters (although as you say many of those homes do have suites). So if there were 50 homes for sale in one area where there were 10.000 residents, but 95% of those were already owners, you can't compare it to an area of 10.000 residents where 25% of those people were renters. Am I just confusing myself or you too? Anyway, just a point to ponder. I love all your posts.

Mindset said...

AlexandraHere said: One thing about purchasing a home versus renting.....I think it is human nature to spend more on unnecessary items such as eating out, entertainment, vacations, another (or newer) car etc.

A house as forced savings? Sure, but there are other options. Why not a nice tax-free TFSA properly invested? And if you need it, it's sitting right there?

It's also good to note that a nice dinner out or a bottle of nice wine here or there out of your existing cash flow might just be a good thing. Divorces can be expensive.

Money Fights Predict Divorce Rates

EagerBuyer(Not) said...

This article from Maclean's points out that savers are providing the banks with cheap money to loan to those that want to enjoy the good life.

What’s the use of saving money?

As a renter saving for the future I felt like a sucker after reading this. Maybe OMC is right - just buy a Gordon Head box and live for today.

a simple man said...


Hold steady - the day of reckoning is near. What has been happening is just wrong on many levels and can't last.

EagerBuyer(Not) said...

Simple man,

I no longer believe the day of reckoning is around the corner. The world economy is in bad shape and these low rates are going to continue for years. The US Fed already said no change for 2 years and BOC will just follow their lead. This could be like Japan with near zero rates for a decade.

Even if inflation rises to uncomfortable levels the BOC will ignore their mandate, keep rates low and "save" the borrowers.

Alexandrahere said...

eager buyer not: Even though I don't want to....I agree with you. I believe interest rates will continual to be low for the next 3 years at the least.

christa said...

Does anyone know of websites / blogs that exist for the Nanaimo housing market? I am interested in buying a revenue property.

Chris said...

Low rates are a tremendously bad sign for all assets right now, property included. Is there anyone on this forum who understands why prices fall when rates fall in an already abnormally low rate environment? Every property owner should be praying for rates to start rising, and yet they know not what they wish for.

Russ said...

The BOC and the Fed don't have unlimited power to affect interest rates. Canada, and especially the US govt run deficits which are funded primarily by china in the bond market. I believe that the day is coming when china and others will realize that the US can't meet all it's debt obligations and will stop loaning it money. Or more precisely will only loan money if they receive an incredible interest rate to cover the risk of default.

Rates in Greece are thru the roof, not because the Greek fed wants high rates, but because nobody will lend to Greece without a huge risk premium.

The govt and BOC definately don't want higher rates, but it is possible we eventually get them anyway.

ArtVandelay said...

A great 4 part series on AlJazeera called 'The men who crashed the world'.

The first of a four-part investigation into a world of greed and recklessness that led to financial collapse.

Lots of coverage of the subprime business in the US.

Just on the weekend my wife was told by a real estate agent that we could get into a home for ZERO down. This must still be a common practise.

a simple man said...

Chris - I agree with you. We are in a really bad place financially and this is getting near the tipping point. Three way emergency meetings between the BOC, minister of finance and the PM? BOC chastising the rest of the world to get their houses in order?

This has gone on for too long and we know it can't last.

belland said... me re Nanaimo properties.

Mindset said...

EagerBuyer(not) said: As a renter saving for the future I felt like a sucker after reading this. Maybe OMC is right - just buy a Gordon Head box and live for today.

The last few years have not been about savings in Canada, it's been about spending money we don't have. But if the times do turn significantly, keep in mind what having some extra money and some freedom means and don't underestimate the value of this.

My parents bought a house at the upper end of affordability in the 80's, and were absolutely crushed with debt burden when the interest rates increased and the economy simultaneously dried up.

And for all the folks out there talking like interest rates will stay where they are for years, and that's a good thing? You don't understand what these low interest rates mean. Real, deep and serious economic trouble for a long time. And with Canada showing all the warning signs of taking a significant turn for the worse, the next few years here will be more like the last few years in the USA than you think.

And that's why everyone at the top is so damn nervous in Canada today.

Just like 2002-2005 that were great times to buy a house, today is the perfect time to avoid unnecessary debt.

Phil said...

I believe the market can crash with low rates in place.

As soon as we see a few more foreclosures the CMHC will tighten things up on the banks and it will tip the market. As things get worse they will tighten more and so on.

omc said...

Boy am I ever getting a sense of deja vu here lately. The same arguments we have explored in the past coming back up again. The end is near, just around the corner, china will stop lending to the US, comparisons to the 80s increase in interest rates. We, collectively, have explored all of these and they plain just aren't true. The posters of these comments of course are fairly new around here and of course missed these discussions. This is what this place is for, open discussion and information. That and a counter to the sickening spin of VREB.

As for me, I think it is time to say good bye. I learned a lot and it helped get through the bad times in 2007 and 2009 . I wish everyone the best.

CanSpeccy said...

Massive leverage is always hazardous, especially if your income is insecure and the rate you're paying is variable.

However, Canada's housing market is not bound to follow America's. The US housing market boomed and busted because the US central bank dropped the Fed Funds rate from 6.5% in 2000 to a low of 1% three years later, then imposed 17 consecutive increases, driving the rate to a high of 5.25% in June 2006.

Greenspan's Fed may not have intentionally driven the US property market into a boom-bust cycle, but it sure looked that way. And the result has not been good for the Republican Party.

House prices in some Canadian cities have been driven to what must be something like an all time high relative to incomes, but they are not, I would say, bound to collapse if interest rates remain low.

The question is, then, will rates go substantially higher during the next few years?

If anyone thinks they will, it would be interesting to know what their rationale is for such an expectation.

a simple man said...

omc - you have been a valuable contributor, I am sorry to see you go - hopefully you can drop in from time to time to provide insight.

I will see you on the avenue.

Dochockin said...

There seems to be a single-minded focus on interest rates as the sole determinant for future house prices. I would suggest, especially locally, that rates are only one of a number of forces that are coming to bear on where our housing prices are going to go. Even if rates stay low, we still have to consider factors such as an aging population (whose retirement plans may take serious hits with current market volatility), extremely precarious household debt levels, governments on all levels facing austerity programs (government town), sinking commodity prices, our largest source of tourists in the midst of a middle class meltdown, rising 'cost of living' on many basic items and 2 generations (Xers and Millenials) with generally skewed financial senses.

All these effects (and I've likely forgotten some) at a time of record house prices and I don't see how the next few years can be anything more than a flat market, if not a steady price decline. Especially considering the psychological nature of human interaction with markets.

Obviously some people will make out like gangbusters, some always do. But I think on average, most people are going to be tightening their wallets for the next while. Just because you can borrow it, and just because lots of people have borrowed that much recently, doesn't mean people will continue to be willing to do so.

EagerBuyer(Not) said...


Thanks for all your comments and sharing your ideas.

I am also going to stop posting and reading bear blogs. Low interest rates, government supported home buying and CMHC/CREA/BCREA pushing the market along means resistance is futile. There comes a time when you realize that throwing in the towel is the best thing to do.

Best of luck to everyone...

patriotz said...

"If the house appreciates in value, then perhaps it does make financial sense to purchase."

Tense problem here.

"If the house has appreciated in value, then perhaps it did make financial sense to purchase."


CanSpeccy said...

Dochockin is undoubtedly correct to say that many factors beside interest rates affect house prices. That is why the future remains unknown. There are more factors than one can take account of: earthquakes, tsunami, war, global pandemics, to name but a few that have not been mentioned commonly in relation to house prices.

Interest rates are, nevertheless, an important factor. But, as Patriotz notes, borrowing to buy may pay if prices go up. And it is interesting that currently, some mortgage rates are below the inflation rate (3.7% in the last 12 months, according to the bank of Canada). So in theory, it can pay to borrow -- the more the better!

Some folks will presumably buy with borrowed money in the hope that real interest rates remain negative indefinitely.

jesse said...

"Is there anyone on this forum who understands why prices fall when rates fall in an already abnormally low rate environment? Every property owner should be praying for rates to start rising, and yet they know not what they wish for."

I understand this: an investor will look at future inflation-adjusted cash flows to determine an asset's value. What do they think low rates are telling them about future nominal cash flows?

All I can see here in this argument about low interest rates, ultimately, is that low interest rates produce a bistable state for house prices -- either permanently high (like Victoria) or permanently low (like San Diego or wherever). Doesn't make much sense to me.

jesse said...

"So in theory, it can pay to borrow -- the more the better!"

If that is true, look at the other side. Parts of the US "flipped" to low prices in 5 years, now no length of low interest rate environments can get lenders to lend or people to borrow.

Now we're saying that since equity values are high that it's OK to lend with high DTI. I think many people underestimate how illusory the current house price and income stability point is. If prices in Victoria keel over enough, rates won't matter, it will be about liquidity and solvency.

Paula said...

“Some folks will presumably buy with borrowed money in the hope that real interest rates remain negative indefinitely.”

Yes that’s the scary thing about why people are taking on enormous debt and living paycheque to paycheque.

If the house goes up in value, and there’s a rental mortgage helper, then maybe you’re ahead. But house prices don’t follow average CPI – they’re influenced by demographics, job availability, and government policies.

What pushed prices up since 2006 was a combination of low interest rates (affected by Bank of Canada as well as bond traders reacting to the Greek debt crisis and US economy), CMHC policy changes (due to increasing US competition, they changed to 0 down/40-year mortgages, or 5/35, etc), baby boomers “trading up” for the last time, and stock market and GIC real-return declines (which caused people to think that real estate was the only investment left).

What comes next is anyone’s guess but this housing boom only created an illusion of safety and stability.

EatMe said...

What if we get some confidence back and companies start to hire and expand? Commodity prices go down helping to stimulate the economy and keep inflation low?
Any inflation is kept in check with small rises in interest rates (housing blogs have been talking about interest rates rising since 2005)
Lower Canadian dollar results in improved exports and increased tourism?
The boomers with money continue to retire to the west coast?
CMHC introduces 30 year fixed mortgages!

Alexandrahere said...

omc and eager buyer not; you have been valued posters here on this blog. Hopefully you will re-think your decisions and simply take a breather. I believe people here are just getting frustrated with the staleness of the real estate market in our area. For example: Last weeks stats (Sept 19-25) on my pc i.e. SFH with a minimum of 2 beds & 2 baths, priced between $375K & $775K in Vic, OB, ESQ, SE & SW had 23 sales with Avg Price of $570K.....last year, same week (Sept 20 -26), had 23 sales also with an Avg price of $575K. These are numbers that hardly gets anyone talking in either direction._

DavidL said...

@OMC and @EagerBuyer(Not)

I feel that I speak for many of us "regulars" saying that we appreciate the contributions that you have both made to this blog. Hopefully we will see you back here again sometime in the future.

Leo S said...

It's a veritable flood of capitulation! Despair, oh those who remain. Soon you too shall give up and buy a nice little teardown for a half million. It's the smart thing to do.

patriotz said...

“Some folks will presumably buy with borrowed money in the hope that real interest rates remain negative indefinitely.”

The real interest rate that matters for a consumer is the nominal rate adjusted against household income, not against CPI.

If your nominal income is flat and CPI is rising even a rate below CPI can be too much.

And as we've already noted, that's exatly what we're looking at going forward.

DavidL said...

@EatMe wrote: CMHC introduces 30 year fixed mortgages!

Interestingly, when my father bought his Ten Mile Point home in 1968 - he was able to get a 25-year fixed rate mortgage with ScotiaBank at 8.50%. This fixed rate "saved his bacon" during the early 1980's rate hike. He would have likely been forced to sell if it wasn't for a fixed-rate mortgage.

@CanSpeccy wrote: The question is, then, will rates go substantially higher during the next few years?

As 10-year mortgages can be currently had for 4.49%, I think that lending institutions expect rates to remain low for a very long time. However, if inflation keeps creeping upward, lending institutions will find it hard to make money from their loans, and central banks will be tempted to raise rates in order to devalue government debt.

DavidL said...

@patriotz wrote: "If the house has appreciated in value, then perhaps it did make financial sense to purchase."

Good point!

If your nominal income is flat and CPI is rising even a rate below CPI can be too much.

My income has been increasing by less than the CPI for the past 5+ years. If it weren't for promotions, I would be making less and less $$$ each year.

How about the provincial government's "net zero" mandate that seeks to hold the line on public-sector wages for two years. After a few years, even with modest inflation - public employees will be feeling the "pain".

Just Jack said...

Retiring to the West Coast is not a new phenomenon. It began way back in the 1970's when the baby boom from the Great War (1914-1918) started retiring in the late 1970's. And peaked in the early 80's. People continued to retire here in the 1990's, but more also were dying here too. (or haven't you noticed how many funeral homes are in Victoria) You sold the wheat farm in Chater Manitoba, Battleford Saskatchewan and Cardston, Alberta and moved to the West Coast.

This last wave of retirees began in the early 2000's and probably has peaked now with the number of "moneyed" retirees coming to Victoria declining for the next decade. The success of our real estate market and the resulting high prices has had a direct affect on the number of people that can retire to Victoria now.

As for CMHC guaranteeing 30 year fixed rate mortgages that would be possible if CMHC was trying to help Canadians buy their first home. But that is no longer the mandate of CMHC. CMHC is a money maker and a political instrument of the government. Its there for the protection of the lenders and for the last few years has been an instrument to stimulate consumer spending.

Canadians are just collateral damage. Unfortunately, a lot more people have to sell their souls to CMHC to get a home today than a decade ago. But I don't think that will always be the case. CMHC will have to raise the cost of the insurance premiums with upcoming losses. And that will make people hold back and save for the 20 percent down payment.

phil said...

Holy greenbacks batman! I exchanged some unspent money from California this afternoon. I was expecting less candian. WHoops, our loonie must have done a swan dive. It must be discouraging for sellers, watching not only there home price soften, but also watching the money they may finally recieve tumble in value too.

jesse said...

"The real interest rate that matters for a consumer is the nominal rate adjusted against household income, not against CPI."

Here is the average hourly wage rate for BC households, up about 1.7% YOY to August 2011.

Average weekly earnings are up about 4.5% to June 2011.

Mindset said...

omc said: The same arguments we have explored in the past coming back up again. The end is near, just around the corner, china will stop lending to the US, comparisons to the 80s increase in interest rates. We, collectively, have explored all of these and they plain just aren't true.

You are saying that everything that we are all discussing is false, and then leaving? That's one way to make a point I guess.

Thanks for all the contributions, even if we weren't around long enough to read them all. I've enjoyed your posts.

patriotz said...

"As for CMHC guaranteeing 30 year fixed rate mortgages that would be possible if CMHC was trying to help Canadians buy their first home."

I don't think CMHC has any problem with guaranteeing 30 year fixed rate terms because the longer the term the less risk of default due to rising interest rates.

It's the lenders who don't want to make them, because they run the risk of their borrowing costs going up while they're stuck with getting the same rate on their lending.

In general, the longer the term, the less risk for the borrower and insurer, and the more risk for the lender.

CanSpeccy said...

Someone seems a little upset that I should compare house prices in Victoria with San Francisco, accusing me of making an inappropriate comparison for the purpose of pumping Victoria house prices.

Not so. I have stated here several times, that the future is essentially unknown. This is true of any significant economic process. If it were not, those who knew the future would invest appropriately and soon have all the money. True some people have more money than others, but among those who have devoted their lives to the business of investment even Warren Buffet doesn't have that much of all the money there is.

Anyhow, for those who may be interested in my original point, which was that compared with fairly nice houses in fairly nice places in the US Victoria houses don't seem so pricey, here's what you an get for $700 K in St Luis Obispo, CA, a town smaller than Victoria, and somewhat inland: 2000 square feet, no basement on a 6000 square foot lot. Surely, Victoria offers as much for the money.

CanSpeccy said...

As for the disparity in price between Victoria and Saskatoon, the reasons seem fairly obvious. Victoria is essentially full up except up the Peninsula, which is mostly agricultural zoned, or around the corner in Western community, which is really a different town, separated from Victoria by a tiresome commute.

What's more, Victoria has more ocean front and mountain view homes than Saskatoon and it never gets so cold in Victoria you cannot even skate.