Monday, November 14, 2011

Monday market update: steady as she goes

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.

November 2011 (last week's numbers)
Net Unconditional Sales: 200 (90)
New Listings: 369 (201)
Active Listings: 4,265 (4,503)
Sales to new listings ratio: 54%

November 2010
Net Unconditional Sales: 479
New Listings: 722
Active Listings: 3,723
Sales to new listings ratio: 66%
Sales to active listings ratio: 13% or 7.7 MOI

For almost 3 months we've been averaging 15 unit sales per day. Which is remarkable considering this time of year is not prime buying, and therefore selling, season. Weird. Demand is exceptionally low comparatively to the past decade, but perhaps 15 unit sales a day is "the floor"? Or maybe that should read "the norm"? And if that's the case, wouldn't you shudder at the thought of being one of the 1200+ licensed agents in this town trying to feed your family and put all kinds of iGadgets under the tree in just 40 short day's time?

Despite the still-high number of active listings out there, I'm not sure what's uglier: the quality of offerings or the prospects of trying to sell them quickly for "expected" prices?


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

Here's a request for someone with access to the data and with charting skills. Could you create a chart showing a "normal" growth in prices (3% pa?) since the median or average price for SFH in 2001. Then stick a dot showing the price today. People can then figure out "if I buy today at price X and then there is a horrible drop in price to Y, at what point will my price Y (again growing at 3%) intersect with my 2001 growth line?"

Does this make sense?

The idea is to see how long a person would have to hold after a price drop in order to "break even". Please, please, let's not get into a discussion of lost opportunity with the deposit, etc. etc.

Leo S said...

This isn't quite what you wanted, but I think you can get similar info from it.

The big assumption is where you want to start drawing the linear extrapolation from. A few posts back someone said that from the heights of the last boom (1994), the current prices aren't that far off what one might expect after inflation. You wanted to start the line at 2001, which is after an extended period of stagnation and one could argue that real estate was undervalued at that point.

So where to draw the line? The chart I made last year shows the difference in linear projections depending on how much data you include. If you do the whole time series, we're about 16% above the trend. If you take the average to 2005 we're about 30% above, and if you consider any run up after 2000 to be a bubble, then we're 35% overvalued.

Even at only 16% overvalued, it would take 7 or 8 years of flat markets to intersect the linear growth line.

Zidane said...

Leo, that's great, thx a lot.

Leo S said...

The data for that chart is here in case you want to do your own trendlines.

Alexandrahere said...

Google in: "big issues in Toronto Condos" Really interesting. They say these "glass tower" condos are going to start failing big time in some cases within 5 years.

HouseHuntVictoria said...


Leo S highlights some of the problems with using an inflation graph to chart where housing prices should be. I get that it's very tempting to want to see where prices should be, but an inflation chart is highly problematic for a whole slew of reasons.

If you look at the US version, from 1900-2011, where is the average "housing inflation" line going to fit? Do you simply start at 1900, line up the other end at 2010 and then extend?

If you had access to 100+ years of Canadian/Victoria house price data, and then put in a CPI trend line, I'd wager that you'd see housing has lagged true inflation over the long term. Does that mean homes are undervalued?

Inflation and the rising price of a home (or falling for that matter) are two different economic effects and one should not necessarily track the other all things considered.

While price to rent and price to income ratios are not perfect, they're better valuation measures than inflation, whether you choose to use CPI as your definition or an arbitrary and not necessarily true statement like house price increases "normally" are 3% per year.

It's too bad Ben over at the Economic Analyst locked down much of his graph work or I'd link to some good ones that show you what I mean.

JustWatching said...

Leo S,

Great charts. One can easily see two prior corrections. Accounting for inflation the one in 1981 took 11 years to recover and the other in 1994 took 9 years to recover.

And then you have the recent boom that started to correct in 2008 until the feds dropped the interest rates to historical lows. If the economy starts to improve and interest rates rise things will get ugly. In the previous boom bust cycles owners had some equity as a buffer but today's 5-10% down crowd will be in for a rude awakening.

riley said...

If we somehow could assume a constant 3% inflation rate since 2001, the following graph shows how long it would take in a 50% off scenario to get your money back.

Zidane said...

Riley, so what you are saying is that if there were a 50% drop, you'd draw a line out for 180k (that's the line from point Y) and it would take until 2037 to get back to X?

riley said...

Sorry, I see your point Zidane. That would be more of a severe double-dip recession scenario where you restart your 3% line after the correction. Otherwise the black dotted line would represent the long-term trend.

Leo S said...

I asked the VREB for older data, and sure enough they kindly replied right away. Here's an improved graph for you with data back to 1960 and normalized.

CanSpeccy said...

Wow, Leo, the improved graph suggests to a naive observer that in the next few years we'll likely see a 30 to 40% drop in inflation adjusted house prices. Although, what that would look like without inflation adjustment is a lot less clear!

Leo S said...

Few comments about how I see that graph.

1. The second two trend lines fit the early data much better. Look at 1960-1973 and how poorly the linear trendline for the entire data set fits.

2. The overall rate of appreciation of housing in Victoria after inflation seems to be between 2.3% and 3%. Probably about keeping pace with wage growth although I don't have the corresponding stats on that.

So what does it mean? Are prices destined to come down by 15-40%? If rates went back to historical norms, I'd say it's absolutely guaranteed. However increasing rates seems increasingly unlikely as the debt crisis continues to spread. The wildcard between 2000-2010 was the massive increase in credit availability. That makes any comparison to history somewhat limited.

Despite the widespread disdain for a "this time it's different" statement, sometimes things actually do change. I wouldn't discount that if rates remain low we might just remain above our historical trend for the longer term.

On the other hand, record low rates did nothing to prevent the US crash, so I'm certainly not counting out a big decline, it just makes the whole picture a lot more uncertain.

Animal Spirit said...

Recognizing that housing bubbles are in some cases local, not national,
this may help inform the discussion everyone has been having above

patriotz said...

"Inflation and the rising price of a home (or falling for that matter) are two different economic effects"

Nor are CPI inflation and wage inflation the same effect. People have gotten to think they are because historically they have tracked each other. But that's looking a lot less likely going forward.

Also you can't postulate low interest rates going forward in isolation. Long term low interest rates mean long term economic stagnation, like Japan, where house prices have been marching lower and lower for two decades.

CanSpeccy said...

"record low rates did nothing to prevent the US crash"

meaning they did nothing to prevent the crash after 17 consecutive increases in the Fed Funds rate (to a high of 5.25% in June 2006) had set the avalanche in motion.

A similar run up in rates now would surely set off a crash here.

Although the Bank of Canada may not wish to raise rates, are there no circumstances under which they would be forced to?

Just Jack said...

A trend that I am seeing is that a good portion of the homes selling today were purchased just prior to our last bust in prices in 1994. I suppose those people that got caught last time don't want to repeat their mistake.

But that's anecdotal, who knows what beats in the heart of Man.

But damn, that's a lot of money to stuff into your bank account today.

Unless you're living in Sooke, where you put that 30 foot boat on your home line equity and now your sailing the wide account-ant-sea, off the shores of bank-rupt-sea.

Too early for Monty.

commuter12 said...

Looking at those charts I see a distinct tripple vortex of doom forming. Very similar to the Nortel chart I saw a few years ago. It always goes the same way. Double M top followed by triple vortex of doom. Get out now bulls!

Just Jack said...

Nice graphs.

Now, let's look at demographics.

How old will the baby boomers be in 2037? Between 92 to 74 years old. A good amount of those boomers alive today will be dead by then.

The last big baby boom was from the end of WWII to the introduction of the birth control pill in Canada. Roughly 18 years.

The introduction of the "pill" cleaved off a side of the graph that is obvious on every demographic graph.

Housing began its start of prices increases around 1971, when the first of the boomers hit their mid 20's. That upward price trend was reversed in 1982 because the cost of real estate became to expensive. So the front half of the baby boomers reaped the benefits while the back half of the boomers paid the higher prices.

Fast forward to the year 2000. The front end boomers start retiring at 55 and are re-locating to where they hope to spend their golden years and begin to drive up prices in those areas. Now, ten years later the back half of the boomers are reaching 55, but can not afford the inflated prices. Soon the market place reaches the point where the birth control pill introduced around 1963 will have a dramatic affect on housing.

In Victoria, we're just a little ahead of the curve than most of Canada, because of our higher average age. That may be one of the reasons why we are experiencing close to historic lows in the volume of sales.