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.
January 2012 (last week's numbers)
Net Unconditional Sales: 154 (52)
New Listings: 497 (228)
Active Listings: 3428 (3,358)
Sales to new listings ratio: 31%
January 2011
Net Unconditional Sales: 339
New Listings: 1,187
Active Listings: 3,283
Sales to new listings ratio: 29%
Sales to active listings ratio: 10.3% or 9.7 MOI
Hi, Leo S here. I've offered to prepare some of the regular stats-related updates for HHV to save him the work. The blog remains HHV's, and I intend to keep my remarks to a minimum. However in the future I would like to resurrect Double Agent's charts of this kind of data (active listings, sales, inventory, MOI), which I found very helpful. Thanks to HHV for keeping the blog going.
146 comments:
Welcome Leo S to the role of stats lord!
So 2200 Kinross has officially sold for $525K. It was assessed at $644K.
To me, this is a deviation from the normal as it is on a big lot in Oak Bay, albeit in the Henderson Flats. Nonetheless, 18.5% below appraisal is a substantive drop.
9620 sq foot corner lot on Kinross and Eastdowne.
Long time reader and first time poster, I have enjoyed everyone’s opinions and different thoughts on the market. I have been renting and watching for three years now so that tells you what I think. What has made me post is that I’m tired of hearing about buying a house in Oak Bay. Sure Victoria has some problems and to be honest with you I personally would only buy in the Oaklands area. I think the reason for the high taxes is that the city is left holding the bag in regards to the homeless population.
But what I would really like to bring up is Equimalt, which in my opinion has some nice areas, the problem being that the nice areas are close to the bad areas (and everyone goes to the same stores). I personally think the Rock Heights, Sacs point and Kinsmen Park (certain parts) are nice neighborhoods, have relativity low crime and are somewhat affordable.
I realize Equimalt is teetering on the brink of bankruptcy. Thoughts?
Welcome, not-oakbay. Esquimalt has some gorgeous areas, for certain. As does Victoria, Saanich and the Westshore - we are all different and different neighbourhoods appeal to different people, which is terrific. If you want to hear about other areas, make your voice heard (as you are). I am pretty sure JJ and alexandrahere have spoke about E-town glowingly before.
I talk about Oak Bay as that is where my kids all attend school and I cannot bear moving them again, so I am resigned to the high-priced real estate here. But I do love it here.
I don't know much of the financial issues with Esquimalt and I agree that there are some shadier areas there.
On Esquimalt and Oaklands:
The good pockets of Esquimalt might eventually overwhelm the bad parts (like parts of East Vancouver did), but questions remain about how long this will take. For me, I'm still not 100% comfortable - others probably are though.
What strikes me about Oaklands is how it seems to have become a sacrificial neighbourhood for the City. So many duplex and double-home (literally 2 homes on a single 135-foot-long lot) have been approved and built on Empire, Capital Heights, and Mt Stephen avenues, that you wonder what’s going to be left of the single family homes in 10 years. There’s also no grass or trees left on these lots.
What’s City Council thinking?? They have to have more rules about good design, eg., limiting townhouses or condos to certain streets, maintaining green space, and keeping the SFHs to other streets. Now all that development just seems so random. As mentioned by not-oakbay, the City's homeless issue seems to affect tax rates.
Re: 2200 Kinross
I went to the open house and thought that it was overall quite ok. I'm crossing my fingers that this price point will set a trend.
Thanks Leo for doing the market update today! Appreciate you volunteering. Anyone else interested in contributing feel free to send me an email.
"What strikes me about Oaklands is how it seems to have become a sacrificial neighbourhood for the City. So many duplex and double-home (literally 2 homes on a single 135-foot-long lot) have been approved and built on Empire, Capital Heights, and Mt Stephen avenues, that you wonder what’s going to be left of the single family homes in 10 years. There’s also no grass or trees left on these lots."
What’s City Council thinking?? They have to have more rules about good design, eg., limiting townhouses or condos to certain streets, maintaining green space, and keeping the SFHs to other streets. Now all that development just seems so random. As mentioned by not-oakbay, the City's homeless issue seems to affect tax rates."
A lot of homes in this area are total dumps. I am surprised people even live in some of them. I would personally take a brand new well designed duplex next to me than a run down 1920s or 1950s house.
SFHs are not being replaced by SFHs because of economics. For a builder to make money in the Oakland's area on a solid SFH he or she needs to sell for 860k to 900k. Probably not going to happen.
Much easier to sell 2 duplexes for 500k - that is what people can afford (relatively speaking).
SFH so far this month running at 608k average...areas like Fernwood continue to be very strong.
Condo average running at 314k.
“I would personally take a brand new well designed duplex next to me than a run down 1920s or 1950s house.”
The key is “well-designed”. There's also Choice #3: Let home owners refurbish their own houses instead of speculators and builders. There's plenty of people that would rather pay $500k for a solid 50s SFH and a $100k renovation.
Builders don’t have to take over entire neighbourhoods. Assign 1 or 2 streets in Oaklands for duplexes and condos. Keep the rest SFH zoned.(By the way, I don't live in Oaklands)
If builders run out of streets, then move on to another suburb or town. Victoria is too small to support all the builders that want to live here and make a profit.
"Let home owners refurbish their own houses instead of speculators and builders."
I don't think you've ever been through the process of trying to upgrade an older home with the City of Victoria :)
PS. I don't think you understand the municipality of Victoria. They do the exact opposite of supporting builders. You should try building a home in Victoria. The fees and the process the city hits you with is insane. They will make you replace the entire sidewalk, curbs, and make you repave the road at your cost on a SFH home.
What you speak of, duplexes, etc. that has to do with City Planning. It has nothing to do with supporting builders or developers.
"You should try building a home in Victoria. The fees and the process the city hits you with is insane."
It's true, I've heard of huge barriers - someone needs to streamline the system!
I don't think the process will ever get streamlined. It is only getting more and more complicated every year. Now the City of Victoria has plumbing, electrical, and building inspectors. The amount of inspections you need signed off is pretty crazy. I find it mind boggling that the building inspector can't look at the drain tiles and sign them off.
You also need to have all homes engineered - even spec homes. The building inspector can't make sure the trusses have been secured properly?
Add in HPO, warranty company inspectors, WCB clamping down on teardowns, etc...
The way things are going new SFH in the core will only be for millionaires...
A $100k renovation means $100k cash. Not too many people can pull that off.
On the other hand, most flipper and spec renovations are very poorly and cheaply done. If you replace the work, you're paying for it twice, plus the flipper profit. But as long as people keep buying them, there's little incentive to do better. Certainly, the hurdles the city throws under people's legs when they so much as patch up a hole in the drywall isn't helping.
hurdles are the same for builders and homeowners. May as well get what you want and hire a builder to build it for you with your specs rather than a spec house.
Might be streamlined at some point. There are anti-red tape initiatives at the federal and the provincial level right now. Maybe it will come to the municipalities as well.
The extra $100k can be borrowed via home improvement loans as well.
We know if you want something done right you have to do it yourself. We also know government policies steer people's behaviour. People avoid pain and frustration. So they should make it easy to do what is optimal and throw hurdles towards the options that are lazy.
"But as long as people keep buying them, there's little incentive to do better."
That's exactly it - developers get high prices for junk because people are willing to pay high prices for junk.
Red tape and the City have nothing to do with it. Houses can only sell for what people are willing to pay, period. You think Montreal doesn't have red tape?
2638 and 2636 Shelbourne seems nutty expensive. Two teardowns on a busy street, trying to sell for almost $80,000 more than the places on Scott St around the corner?
These places are soooooo tiny! Where do you think the resale will go on these places?
http://www.realtor.ca/propertyDetails.aspx?propertyId=11085489&PidKey=-1265543565
That's quite funny. I always hear the ads for Kettle Creek Station and was thinking the prices are pretty low.. Now I know why.
Wonder who is buying these? You'd think the young singles would be far better off in a downtown condo, and the young families of langford would want something 3 times that size.
My thanks to HHV as well for keeping the blog going and to all the contributors for making it an interesting blog to frequent.
Even though I share the bearish outlook on housing of many on this blog I became a homeowner because spousal pressure outweighed my market views :-)
Even though I am a homeowner I'd still like housing to come down in price, so it was more affordable for more families.
I heard the dumbest ever comment on housing the other day. It was from someone who flips houses. The comment was:
"If the market had kept going the way it was supposed to this house would have been worth over a million by now"
Apparently the market is "supposed to" go up by 10+ percent every year and it is a big anomaly when it stops!
It was pretty clear that this fellow expected housing to start shooting up in value again in the near future.
"You'd think the young singles would be far better off in a downtown condo, and the young families of langford would want something 3 times that size."
I agree with Leo. Seems like these places are aiming between two different market demographics so I'm not sure it will attract either the singles or families. For me, if I'm going to drop $510/sqft it's going to be for a modern condo with the amenities of downtown rather than out in the woods.
As Leo and MD80 said on the Kettle Creek Station developments - no target market in mind. The main bedroom boasts a walk-in closet but the house IS a closet!
Note that KCS was created by none other than Les Bjola of Turner Lane, the guy who was Len Barrie's development manager at Bear Mountain - he fasttracked Langford approvals processes there. Bjola is also the same guy who got an award from the Langford mayor, was president of West Shore Chamber of Commerce, and developed Colwood Corners.
Search "bjola" here:
WTFLangford
Anyone know how KCS is doing, sales wise? I guess most of their places are of the bigger variety than that "Coach" style and still somewhat cheap, so maybe they're doing ok.
Off-topic anecdote: I have a friend that bought in KCS quite awhile ago, he got a great deal. His house is fairly nice, but both neighbours are quite close, and the livable space isn't huge. He very much lives the bachelor style though, so the mood and ongoing construction suit him fine. With what I've seen, I can't see it being great for young families though.
A little anecdote regarding Kettle Creek. I know someone who bought one, lived in it for a year and realized he didn't like it. If I recall it took awhile to sell. It's Whoville.
Kettle Creek - trailers on a lot. Will be a bad scene there in around 10 years - think cheap rentals in Langford.
I think Kettle Creek station will be a train wreck in ten years. A lot of these developments look nice when they are first built.. and can even be of high quality build.
But when you go for the low end of the market, you get a different class of people living there. In ten years I expect to see the chain link up, pitbulls in the yards, and the old cars on the front yards. And everything suited out/rented out with cars everywhere.
Then declining maintenance on the houses and yards. Because the people will not have the money to do the repairs.
I was walking through Westhills last month and I could not believe how bad the areas looked that were completed a couple years ago.
And the homes are really not that cheap, once you choose your options and such you are looking at 400,000$. Which is about 10 times the median income in Victoria.
Just saying hi. Great blog talking about some truths and some Bearish opinions...
everybody wants to move to Victoria for the always-mild weather.
Myth #47
The only thing this weather does is reinforce that I would never move anywhere else :)
I have already shoveled 7 neighbours' walks and one elderly neighbour's driveway.
Decades of experience in the snow belt of Canada and the finely-honed shoveling skills learned make me a popular guy on the block.
See - us rental folk actually care about our neighbourhoods, too.
The only thing this weather does is reinforce that I would love to live here.
I love this weather. Rather this than rain any day.
I hate the friggin' snow. Luckily I live in Victoria where many years I don't see so much as a dusting of the stuff, and when I do it's usually only a couple days per year. It's nothing but a hassle when it does snow, but I can deal with the small amount of time we actually have any.
I hate the friggin' snow. Luckily I live in Victoria where many years I don't see so much as a dusting of the stuff, and when I do it's usually only a couple days per year. It's nothing but a hassle when it does snow, but I can deal with the small amount of time we actually have any.
I hate the friggin' snow. Luckily I live in Victoria where many years I don't see so much as a dusting of the stuff, and when I do it's usually only a couple days per year. It's nothing but a hassle when it does snow, but I can deal with the small amount of time we actually have any.
A Simple Man: Thanks for shoveling those driveway/walkways for people. I know they must sincerely appreciate it. Somehow I knew you were a winner of a guy!!
Anyone else having trouble with their PCS this morning....mine is down. Thanks.
thanks, alexandrahere. My mom raised me to really care about those around me and to serve the community whenever I can. So I do, and I teach my kids to as well.
My PCS is up and running.
everybody wants to move to Victoria for the always-mild weather.
Myth #47
Well, it ain't always mild, but it's still the mildest medium-size city in a snow- and cold-ravaged northern country called Canada.
The only thing this weather does is reinforce that I would love to live here [West Palm Beach, FL].
Well, why don't you? Take a hike.
Lots of Canadians yammer on about wishing they lived in warmer climes, and about what great deals there are on property south of the border, but when it comes to actually moving out of Canada or buying that second home in Arizona, almost nobody does.
The fact is Canadians generally like to stay in Canada (and run their mouth off about living elsewhere).
I like the snow. it is quite a visual treat. I wouldn't want weeks of it but a few days is a nice change. I say that as someone who installed four snow tires (on rims) in the dark this morning and drove the Pat Bay Highway to work.
I thought I'd share a real estate anecdote. I recently spoke to a person who's elderly parents have moved from their local waterfront home into a senior's residence. The house is now empty. I asked if it would be sold and they said yes but they want to wait until the market recovers. I didn't say anything but it was clear that they felt that the current flat market was a temporary (few months)dip worth waiting out with an empty house. I wonder how many other potential new listings are being delayed for the same reason?
Esteemed economist Nouriel Roubini "a.k.a. Dr Doom" says a Canadian housing bust is not in the cards.
A few excerpts:
He may be known as Dr. Doom, but when it comes to Canada’s economic outlook, Nouriel Roubini is surprisingly optimistic.
Though he concedes that “there is some frothiness” in the Canadian housing market, Roubini, who was one of the few analysts to the foretell the collapse of the U.S. mortgage market and the bloodletting that followed, says a significant correction isn’t in the cards on this side of the border.
He estimates that Canadian house prices could correct by as much as 10 per cent, a relatively bullish prediction compared to those who warn of a possible 25 per cent hit.
“If [a 10 per cent correction] were to occur, some pain would occur, but it [would be] manageable,” he said. “I don’t think that the bubble is so severe that you will have a real huge housing bust as long as the economy continues growing at reasonable rates.”
Yes Roubini is great, and there's fodder for both the bulls and the bears in the story. It reinforces the view that real estate is going down, it's just a matter of by how much, and for how long.
“Roubini flagged rising household debt as a potential trouble spot ... No country can be complacent in making sure that excessive debt of the household doesn’t create excesses and weaknesses in the financial system,” he said. “Everything is interconnected.”
The Business Week version:
Canadian Economy to Be Hurt by Europe, U.S. in ’12, Roubini Says
“I don’t think that the bubble is so severe that you will have a real huge housing bust as long as the economy continues growing at reasonable rates.”
This is reasonable until you realize that the economy is heavily reliant on consumer borrowing and spending. This will eventually come an end when interest rates rise or we just get tapped out. As a resource-based economy and all the news about turmoil in the global economy I wouldn't be betting any money (or a house) that our economy will continue at any "reasonable rate".
but when it comes to actually moving out of Canada or buying that second home in Arizona, almost nobody does.
Lots of retirees are doing exactly that. Pick up a nice big place with a pool for 100k in phoenix and spend the winter there.
Nationwide 10% means 20%+ in Victoria. Remember that many places in Canada are not overvalued at all compared to historical averages.
Leo S - that is exactly what I read as well. Its different here.
Spent the day sledding with my daughter. Lots of fun, lots of smiles from the other adults. I only ran across one grumpy Victorian. Seems he lives near Oaklands school and doesn't like the kids sledding down Ryan Hill, he says he's going to salt the hill tonight so the kids won't have a place to play tomorrow.
He's probably right to do so as a home owner along the street. But its just so sad that he believes his enjoyment is more important than so many others.
"This is reasonable until you realize that the economy is heavily reliant on consumer borrowing and spending."
Which in turn is reliant on rising RE prices. Eventually this machine must go into reverse because prices can't rise indefinitely.
I am mystified as to how Roubini can be so sanguine about Canada when the numbers look uncannily like the US in 2006.
Lots of retirees are doing exactly that. Pick up a nice big place with a pool for 100k in phoenix and spend the winter there.
I highly, highly doubt it. Can you offer some support for this theory?
I'm pretty bullish on Victoria in the medium- to long-term, but I do think Vancouver is currently in a bubble--no question.
Hundreds of teardowns each selling for $1.2M = bubble!
Victoria is not even close to this level of bubbly.
Roubini is just another US economist that doesn't realize that our ever rising real estate and "better banking fundamentals" are all backstopped by the CMHC (taxpayer), and when our ponzi scheme collapses Canada doesn't have the luxury of holding the worlds reserve currency like the US does.
I highly, highly doubt it. Can you offer some support for this theory?
Well I know one couple that did exactly that. 5 bedrooms and a pool for $100k. That's only an anecdote but I don't know that many retirees.
More generally, Canadians are the #1 foreign buyer group in Arizona..
There are tons of stories on Canadians buying in Arizona and the US.
Then there's dozens and dozens of sites specifically for Canadians buying in Arizona. Just about every single realtor there has a section on their site or content for Canadians coming to buy.
http://www.condosforcanadians.com
http://www.arizonaforcanadians.com/
http://canadiansinarizona.net/
http://www.thephoenixexperts.com/
http://canadians2arizona.com/
http://www.canadiansbuyarizona.com
Victoria is not even close to this level of bubbly.
Vancouver is certainly bubbly, but they're also arguably a world-class city. Victoria is a sleepy backwater in comparison. I'd say we were equally bubbly about a year ago, they just kept on going while we already started the decline.
My favourite article ever published reports that the vast majority of Canadians over the age of 45 would not leave Canada to retire.
Maybe we should acknowledge a distinction between purchasing a second home in the U.S. and actually moving there permanently. Perhaps relatively many are purchasing a second home down South, but relatively few are giving up Canada entirely?
I think that few would leave Canada entirely, but may keep there place in Saskatoon and buy a winter home in Phoenix cheaper than buying here.
Maybe we should acknowledge a distinction between purchasing a second home in the U.S. and actually moving there permanently.
Sure. That's why I said spend the winter there.
We just bought a condo in AZ and are going there next week to take possession. It is bank owned but in great shape with a big pool in the complex. Paid $82K, 60% off from the peak time in 2006. We bought it for our son who is in a graduate program there, also for ourselves to go and stay a month or two each winter. But don't plan to keep it after son finishes his study in 2015.
"I only ran across one grumpy Victorian. Seems he lives near Oaklands school and doesn't like the kids sledding down Ryan Hill, he says he's going to salt the hill tonight so the kids won't have a place to play tomorrow."
Bah humbug!!!! What a jerk. I am not familiar with Ryan Hill, but won't that kill the grass too? Are there gardens at the bottom that he is going to destroy too, and then all the greenthumbs are going to come out with pitchforks and torches and demand a cull on sledders?
:)
Sure. That's why I said spend the winter there.
Right you are.
One thing I find funny is how Victorians talk about 600,000$ for a house like it is no big deal.
Yet for your median person who makes 30,000-35,000$ a year after taxes, that is 20 years of income. Assuming they spent on nothing else.
The same people will price shop a computer to save 100$. Because rightfully that is almost a day's labour for them in savings.
Vancouver is even more insane, that same 600k house would be 1.2 million there. And the median income in Vancouver is about the same as in Victoria. So we are talking 40 years of income for the median person.
Of course the excitement is because if they buy in at 1.2 million and the prices rise 20%.. that equity gain for them is 240,000$. An amount that would take them 6-8 years of labour to earn.
Yet for your median person who makes 30,000-35,000$ a year after taxes, that is 20 years of income. Assuming they spent on nothing else.
Yeah but those people aren't buying SFHs. If a single person making $35,000 a year is buying anything, it'll be a lower-end condo.
These days if you want a house, you basically need 2 income earners. Average household income in Victoria is something like $80k to $85k. Now your price/income multiple for the average house is about 7.
Then there is the fact that the average family is not buying a place either. The ownership rate is 70%, so if you discard the poorest 30%, what's the range and median of household incomes that are buying? I haven't yet found a source of that data.. Anyone know where that could be found?
I wonder how important the underground economy is to housing affordability? The reported median incomes are presumably incomes from reported sources. Seems like every repair person or contractor I hire wants to be paid in cash.
Then of course there is the criminal economy. Can you still pay for a house with unreported cash? If so that makes real estate prime for money laundering.
Can anyone explain 4174 Bremerton?
Listed Oct 2010, sold Nov 2010, and yet it just showed up as sold on my PCS today (Date Status Changed Jan 19/12)
Is this just a listing that someone forgot to update over a year ago?
"We just bought a condo in AZ and are going there next week to take possession... but don't plan to keep it after son finishes his study in 2015."
You plan to buy a condo and sell it just three years later? Ever hear of renting?
Well at least there isn't that much downside left in Phoenix.
Ranulf said "after tax" income of $30K-$35K per person, not gross, which I think is right on the ball (especially since it is after-tax income that we have to live on). The gross income for this range of net income is about $38K-$46K per person, which seems about right for Victoria (and two such salaries would probably make at least the average household income - which I've heard is lower than $80k in Victoria).
"I wonder how important the underground economy is to housing affordability? "
Victoria prices are just as out of proportion to rents as they are to incomes, so the "occult income" theory cannot explain the high prices.
Cities which have a significant underground economy have high rents compared to officially reported incomes. Rents in Victoria (and elsewhere in Canada) have not risen significantly compared to officially reported incomes in the last decade.
According to statscan the median total family income in Victoria for 2009 was $77840. I doubt it's over $80k right now.
That's gross income right? Which means after tax you're looking at what, between $60-65k? Closer to $30k/person anyway.
Rather than looking to find a median after tax income for the current 70% of owners, why not look at historical median income, ownership rates, and house prices to see where we're at right now? I guess that's where the rule of thumb of 4x income metric came from. I would be curious to see what the Victoria specific numbers are though.
Get to it LeoS :)
Dave3
Ranulf said "after tax" income of $30K-$35K per person
Oh yeah. Sorry, missed that. So yes, two incomes at that range and a lot of sacrifice could get an SFH.
By the way, for those who haven't read RBC's latest affordability report it's always interesting. Certainly Vancouver is in another league.
I am seeing pretty good activity in the market right now...we will see if February numbers translate.
If I have this right...using the 4x rule of thumb would allow your average Victoria family grossing $80k to purchase (or is it finance?) $320,000. If I plug the numbers into a mortgage calculator (I use Invis) then it come up with the same principal value at 5% fixed/25years.
Even with a healthy downpayment of say $80k (and entire year's gross!) they could still only comfortably purchase a $400,000 home. That's still significantly lower than the Victoria SFH average. Does anyone else think the average family should be able to comfortably purchase an average home?
Although it's a crude analysis, I think a 20% correction would help realign the two averages.
p.s. Is the average Victoria family priced out of the SFH market or are they overextending?
MD80 - you have hit on my long-standing thesis.
Similar discussion going on at vibrant victoria.
What would one consider to be an average SFH? (bedrooms, bathrooms size, lot size, etc.)?
It's not about house size or number of rooms. The average house in any market should normally be priced according to the average family that would live in it.
Because we're dealing with averages it's not going to be perfect. Your average family in all of Victoria might not ever be able to afford to comfortably purchase an average Oak Bay home. But as a whole, the purchasing power of an average income-earning family in Greater Victoria should get them something priced close to the the VREB SFH average.
This file by BC Stats shows income by postal code - rather than averages, it gives the # of individual tax filers with incomes in various ranges, eg., >$35k, >$50k, >$100k, etc (along with ages)
Neighbourhood Income and Demographics
It doesn't tell you whether the individuals belong to a 2-income family, but it's interesting to see what the income ranges may be.
@Marko wrote: What would one consider to be an average SFH? (bedrooms, bathrooms size, lot size, etc.)?
I would describe my Saanich West home as very typical:
* 2000 sq. ft. living area,
* 400 sq. ft. garage,
* two floors with split-level entry,
* 4 bedrooms - one master, one large and the other two smaller,
* one 4-piece, one 3-piece and one 2-piece (en suite) bathroom
* 6800 sq ft. lot,
* built in 1979.
From the G&M
http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/our-love-affair-with-home-ownership-might-be-doomed/article2306454/
"In 1975, the average size of a house in Canada was 1,050 square feet. Fast forward to 2010 and new homes being built almost doubled to an average of 1,950 square feet."
"average number of people living in a household. In 1971, it was 3.5; by 2006, that number fell by a full person to 2.5"
" in 1999 the price of a home was 3.2 times income, this had ballooned to 5.9 times income in 2010."
I've always heard 2.5-3x income is a "safe" range. I think for Victoria, historically it is probably slightly above that (say 3-3.5x), but we are way off that benchmark presently and I think it has to come back down.
@caveat emptor
That does support the idea that people should lower their sights. It isn't really reasonable to expect price/income to stay the same if we are comparing a house that is significantly bigger.
1000sqft houses are more in the 400-450k range, so that would be 5-5.5 times family income.
A safe range is if you can pay off the mortgage in under 15 years while keeping your annual payments at less than 30 percent of your gross income. That's more in line with historical norms.
Most of the high ratio buyers of today will never own a home without a mortgage. The odds are vastly not in their favor. And that is the big difference between buyers of a decade ago and today.
Todays buyers can not pay down the debt fast enough over the next 25 or 30 years. The first 15 years being the most crucial.
For most high ratio buyers, an increase from 3 to 6 percent at any renewal time in the next 15 years will force them into bankruptcy.
Some high ratio buyers might make it through the next 15 years - but most are just going to be road kill.
If you look in the USA prices went way up above the long term average of 2.5 times the median male worker's annual pre-tax income. And now they are rapidly returning to the long run average.
Victoria is a very nice place to live in Canada, so 2.5 times is too low. Lets say 5 times the median male worker's income. That would make the median home ~$250,000.
These historic averages take into account things like the bottom 30% in income does not ever buy. Even if houses were literally free, the bottom 30% would not be able to afford the operating expenses. Like if the roof went they are not going to be able to raise 20,000$.
Even if you look at cities in the USA where you can buy houses for like 40,000$, the bottom 30% is still renting. And the market is only the top 70% of income earners.
Just Jack.. that is the right way to look at it imo. Some of those high ratio mortgage holders will indeed be able to make the payments throughout the life of the mortgage.
Their business will expand, they will sacrifice hard to make it, they will be one of the people who advances up the management where they work, a big inheritance.
On the other hand many will fail. Something will come up, like job loss, reduction in hours, lack of financial control with day to day expenses, trips, divorce, disability. They are betting on continued price appreciation to keep refinancing.
Finally starting to see a bit of that winter irrationality coming out! Round about now people get the SAD and think only a house of their own can cheer them up, and to hell with the price. All it took was a couple days of snow to push people over the edge.
Victoria comes in at #20 out of 25 Canadian cities in economic activity. We did beat Windsor. The macro variables used to develop the index are: (1) Population growth, (2) Employment growth, (3) Unemployment rate, (4) Full-time share in total employment, (5) Personal bankruptcy rate, (6) Business bankruptcy rate, (7) Housing starts, (8) MLS Housing resales, and (9) Non-Residential building permits.
"These historic averages take into account things like the bottom 30% in income does not ever buy."
Not "does not ever", rather not at that time. You're missing the point that the majority of the bottom 30% aren't there for their whole lives.
Most households in the bottom 30% are students, singles, single parents, couples with a stay at home mom, or retirees who are likely to have or have had a higher household income - and be house buyers - at some other time.
That's also the reason why you should not expect the median house to be affordable to the median income.
I would think that the more likely reason that Victorians as a group paid a higher multiple of their income to housing was because the other expenses like property taxes were less than other cities in the past.
For the last decade the number of homes has increased more than at any other time in our history - and so have property taxes and utility bills.
Interesting article in Business Week about Canadians snowbirds buying in Arizona.
Phoenix Housing Rises as Canada Buyers Seek 55% Desert Discount
“There’s an awful lot of rain and dullness in Vancouver from October to April. And it’s cold.”
As we know, Victoria has less rain than Vancouver but in winter it's just as cold and cloudy.
I think for Victoria, historically it is probably slightly above that (say 3-3.5x), but we are way off that benchmark presently and I think it has to come back down.
If prices do eventually revert back to normal levels in terms of income and rent ratios (which I doubt they ever will), then what makes anyone think that prices will stay there? As if some of the conditions that created the price surge in the 2000s won't ever recur?
For most high ratio buyers, an increase from 3 to 6 percent at any renewal time in the next 15 years will force them into bankruptcy.
No it won't. It will force them to sell their home and to instead rent.
Introvert... add our name to the list of 'retirees' who sold our home in Victoria, then...
Live Apr-Oct in the Okanagan and the other six months in the home we purchased in Phoenix.
We know of about a dozen other Canadians in our immediate area that have done the same thing.
Estimates are about 550,000 Canadians winter here in Arizona.
Most we have seen (license plates at events and shopping) or met are from AB, with some from BC, SK, ON and QC.
Love this from the description on 4033 Cedar Hill road.
"Disclosure signed but not filled in .Purchaser to do own due diligence"
So the owner just signed a legal document that is obviously and knowingly misleading. Isn't that fraud?
A large portion of disclosures are signed but cross out (aka not filled in): estate sales, rental properties, POA sales, "where is"/"as is" properties, etc.
If prices do eventually revert back to normal levels in terms of income and rent ratios (which I doubt they ever will), then what makes anyone think that prices will stay there?
I'm sure there will be booms and busts forever. I'm not sure what you're trying to say though. How would the possibility of a future boom affect a buying decision today (assuming we're not at the cusp of a new boom right now)?
No it won't. It will force them to sell their home and to instead rent.
That's what it has done in the past. When your property is appreciating at 10%/year you can very quickly sell it at a profit if you need to. What if the market is flat, or decreasing? Unless you've built up a lot of equity, you will have to pay to sell. Given that you're being forced to sell, it's unlikely you have a few thousand or tens of thousands just lying around to pay off the mortgage. Hence why so many are trapped in their homes in a negative equity situation. Either you keep the place or you declare bankruptcy.
Thanks for clarifying Marco, maybe its was just worded funny
Another point to ponder is Robert Shiller’s comments on Canadian real estate back in 2011. “If oil prices go down, your home price is going to go down with it.
Canada’s robust financial health compared to other nations is largely due to a random run-up in oil prices in the midst of the global financial crisis” (due to ripple effects into other industries, investment, construction and services, and then employment and wages. Also, energy-rich countries can subsidize energy costs so businesses and consumers can spend more money.)
Now with all the uncertainty over Greece, Chinese manufacturing data and weak US demand crude futures are down
It does seem that if you own a condominium or a detached home outside of the 10 mile circle of downtown Victoria, prices have rolled backed to around the first quarter of 2006.
However, detached homes within the 10 mile radius have shown remarkable resilience to price reductions.
Can the inner core areas fend off lower prices? Or are prices in these areas destined to fall also?
With close to 6 months of detached home inventory today in the core districts, will the onslaught of new listings in March and April break this delicate balance?
With close to 6 months of detached home inventory today in the core districts, will the onslaught of new listings in March and April break this delicate balance?
Ummmm, no.
Ummmm, no.
While the number of m's in that um have me almost convinced, maybe you can elaborate on why not?
"Can the inner core areas fend off lower prices?"
Good question. Looking at zillow.com and Seattle trends across different neighbourhoods, the core areas fell about the same % as outer areas over the last few years.
While the number of m's in that um have me almost convinced, maybe you can elaborate on why not?
Hey, I'm just playing the odds.
The substantial bust that most here are hoping for hasn't happened yet (it's not even close).
But...will this be the spring that changes it all? Tune in to the blog in the summer to find out that the answer was "no" and to read: Will this be the fall that changes it all?
"will this be the spring that changes it all? Tune in to the blog in the summer to find out that the answer was "no" and to read: Will this be the fall that changes it all?"
Wasn't last year the worst year for real estate sales in a decade? In a city that's population has grown substantially during that decade.
If you tuned into this blog in January 2011 and took the advise you did yourself a favor, and found out information that is not reported through traditional media.
I don't know why you want to keep mocking that, it just undermines your credibility.
Over the last 365 days, the 10 lowest priced homes sales in Oak Bay had 5 of those sales happen in the last two months. last year there was just one.
What does that mean?
&%$# if I know.
Its just an interesting observation that you can get a home in Oak Bay for under $500,000. The year before there were no house sales under $500,000.
OK, more friendly banter: I don't know Introvert lives, but it's always sunny, real estate always goes up, and Florida swampland is always in style :)
"As if some of the conditions that created the price surge in the 2000s won't ever recur?"
If the government has to pay off the banks with a couple hundred billion via the CMHC they will get out of that buisness and the conditions you speak of will never recur.
If the government has to pay off the banks with a couple hundred billion via the CMHC they will get out of that buisness and the conditions you speak of will never recur.
Yes, if numerous unlikely events occur in succession, you will possibly be correct.
... No different than dot.com, tulipmania, Japan, South Sea Co, roaring twenti...ad infinitum
It's exactly the same! Bubbles and economies are simple, not complex.
"Unlikely events" Have already taken down most real estate bubbles in places like Ireland, Spain and the USA.
Our market is hardly healthy - don't forget the government has already bailed out Canadian RE once with this clever little sucker.
"As if some of the conditions that created the price surge in the 2000s won't ever recur?"
The macroeconomic and demographic factors that created the global RE bubble of the last decade will not reoccur within our lifetimes. The consumer and government debt and population pyramid of today ensure that.
is it me or was this flip house for sale a year ago with the identical wording in the title - did it not sell then?
http://www.usedvictoria.com/classified-ad/BANK-SAYS-ITS-GOT-TO-GO--AWESOME-HOME-_16578969
addendum: it was on Phoenix st in Esquimalt
But introvert - from dec 2010 to dec 2011 the average house dropped 8.5%. So, if I bought a house at $800,000, I would now be down $65,000 in house value and about $14,000 for property transfer tax and maybe $5,000 closing fees for a total loss of $84,000 over the first year of ownership, without getting into mortgage interest etc, which could easily add another $10,000-$20,000.
So, by saving $84,000 we were wrong last yr? Last year was the breaking point. Expect bigger drops this year then the real drop.
So, by saving $84,000 we were wrong last yr?
No, you weren't. But you only saved $84,000 had you not bought, then sold one year later.
In reality, hardly any people buy and then sell the next year. In fact, people sell their home, on average, every seven years. So really you should be calculating what amount of equity you would have accrued had you bought a house seven years ago and sold it today.
Last year was the breaking point. Expect bigger drops this year then the real drop.
How do you know last year was the breaking point? Why must there be bigger drops this year? What leads you to believe "the real" drop is imminent?
By not buying last yr we saved that much off the sticker price.
The market has changed and the populace are now starting to see that housing doesn't always go up. The housing market here is different than in was a year ago and far different than it was two years ago.
This year the drops will continue and then once people see the hard data and know people around then that are losing their homes the borrowing now attitude will be gone along with the allure of owning.
if I bought seven years ago I would be laughing now.
Hey, I did, and I am! Because I sold at the top.
"is it me or was this flip house for sale a year ago"
Yes it's on Arm St and still appears on this site for $585k: ID 441657
So really you should be calculating what amount of equity you would have accrued had you bought a house seven years ago and sold it today.
Who here has been waiting for 7 years? Maybe a couple, but most people are here for 3 or 4 years max. Or about the time it has been flat.
Well I've posted the chart before with the historical house prices and my linear fits to the data. Based on that chart, we look seriously overvalued.
However, jklymak at vibrantvictoria very correctly pointed out that a linear fit does not make sense for data that you expect to increase by a set percentage every year. For example, if we expect house prices to increase at a rate of 3% a year, we would get an exponential graph, not a linear one (compound interest). This is.. well, quite obvious, and I'm embarrassed to have missed it for so long.
So what we really want is an exponential fit, and for clarity we want it on a log scale. So here it is:
Victoria house prices, log scale.
So this makes the situation look much less dire than before. Yes, we are still over the long term trend, and corrections always go further than the trend, but it does make a long stagnating market like in the latter 90s look much more likely.
Of course, this shows that our long term return after inflation is 4% in Victoria. That is crazy high and I don't think it is sustainable, but there it is.
I think most critically, it changes the argument. It used to be that the standard argument for bears is "it's different this time", but based on this data, I think it is turned around. I don't doubt that we are in for continued stagnation and slow decline, but to argue for a large decline would be to argue that it is "different now". In many ways it is, but is it enough?
Thoughts?
3420 Bethune. 1500 sqft, decent looking.
Sold for $360,000, $80k under 2012 assessment.
Leo, lots of great graphs! IMHO, it all depends on if inflation-adjusted 4% is justified. Shiller showed that inflation-adjusted US prices increased 0.4%/yr from 1890–2004 and 0.7%/yr 1940–2004. So that 4% looks a little high.
Also - it's hard to predict the future because real estate cycles develop over many decades and are influenced by changes like the baby boomer bulge, which created a certain type of housing demand (that bulge hasn't changed even with immigration), and in the 1990s North America changed its economy from manufacturing to consumer/credit-driven, resulting in historically unprecedented personal debt that can never be re-paid (in average lifespans).
I haven't seen anyone say it's going to decline exactly like the US, but everyone is saying it's going to decline - it's just a matter of how much and how long.
LeoS - when not including the recent bubble, those PhDs Paula mentioned concluded houses rise at the same rate as inflation over the long run. If they veer from the path for a decade like recent, they then return to the path. Your data only go back to the 60's which is when the largest demographic in history began to effect the market. In other words, over a century of data show that your 4% will not only revert to 0%, but instead fall negative to the inflation rate for years in order to regain it's long run trend - ie. many more years of falling prices.
So that 4% looks a little high.
Yeah. Crazy high. But.. them's the facts. Even as far back as the 60s and 70s it was that or higher. It can't go on forever of course, but that's definitely a "it's different now" type of argument, rather than "the current levels are out of the ordinary".
LeoS - when not including the recent bubble, those PhDs Paula mentioned concluded houses rise at the same rate as inflation over the long run.
Perhaps, on a national scale. But our chart over 50 years looks nothing like that one. It's not mostly flat with a big deviation in the 2000s, it's pretty consistently up with various cycles.
The chart I made is also not an index, but simply home prices. So part of that 4% is just higher expectations of house sizes and qualities.
Leo - what is 4% compounded over the time period of your graph? If, it is 4% greater than the rate of inflation for the last 10 years, then we are what 40-50% overvalued (don't feel like doing math now, need to clean the carpets).
Let's see, on a median of 535,000, that would put actual long term value down around 300,000. Or around what multiple of average family income? Or around what multiple of rent?
"I haven't seen anyone say it's going to decline exactly like the US."
Which doesn't mean anything in the first place, since each US market has had its own path down.
The last US market to start declining was Seattle in mid-2007. Prior to 2008 you used to hear a lot of familiar arguments out of Seattle of how it was special and immune from declines.
Even so far in Canada markets have been very different, Calgary and Edmonton are about 10% off peak, the Okanagan and the southern BC interior are already into a huge bust, and Vancouver and Toronto have not clearly topped out yet.
And I should note you used to hear the same arguments about the Okanagan that you hear about Victoria.
Leo - what is 4% compounded over the time period of your graph?
Well, the average SFH in 1960 was $8796, or $66,338 in 2010 dollars.
4% appreciation over 51 years brings that to $554321 for 2011.
If, it is 4% greater than the rate of inflation for the last 10 years, then we are what 40-50% overvalued
I don't follow. Why would it stop 10 years ago?
I sent Ben @ theeconomicanalyst my data, charts, and thoughts on the matter. Here is his reply:
Yes, the real house price appreciation in Victoria has been mind-boggling. Keep in mind that the Herengrecht Canal data set, which extends back to the 1600s, shows periods of many decades where house prices exceed inflation, only to underperform for equally extended periods of time. House prices will pace inflation....but only in the VERY long term, and only assuming a correct measure of inflation (another topic altogether). The incredible out-performance of RE over the past few decades does not suggest a sustainable trend.
Regardless, I think it's a huge mistake to disregard fundamentals entirely. I'll try to find time this week to create a house price/rent index and house price/income index for Victoria. These indices have an equilibrium point that becomes obvious as soon as they are plotted.
It's also a mistake to plot an income/rent/inflation-adjusted index on a log scale, as every piece of empirical data suggests that these indices have an equilibrium point. They should return zero over time. That they haven't in Victoria only compounds the concern, although I suspect that when adjusted for changes in incomes or rents, it will be a far more stable line leading up to the mid 2000s. To change your perspective on the Victoria market based on what you've outlined here would be, in my humble opinion, a huge mistake. But time will tell.
Carney: US Economy May Never Fully Recover
http://www.theglobeandmail.com/report-on-business/us-economy-may-never-fully-recover-carney/article2310768/
My feelings with regards to where the prices are now as compared to in the past always hinges on income/cost ratios.
In the past it has always been 3-3.5, but is much, much higher now, up to 7 here and 10 in Vancouver if memory serves. Also, 30-40 years ago, these ratios were primarily base don average person income but now it is average household income, which in itself is something that is not often enough discussed.
Prices are simply just too high in relation to incomes.
Australia is now looking like a good place for a winter residence:
Australia Roundup: Oceanfront Homes for 65% Off
From the Economic Analyst:
Canada's "alarming" house price to rent ratios
And this from the Economic Analyst:
House prices crazy no matter how you slice it
Specially crazy in Vancouver, presumably.
“It used to be that the standard argument for bears is 'it's different this time', but ...even as far back as the 60s and 70s it was that or higher.”
Actually it's the bulls who keep saying “it’s different this time” because they claim it's the only housing cycle in the last 120 years that doesn’t include a downturn (1890s, 1930s, 50s, 80s, 90s).
It’s like picking a year, 1974, finding that Kim Dotcom’s girth has on average increased 4% compounding over the last 4 decades, and therefore (a) 4% is normal and (b) it's never fluctuated and (c) it shows that he’ll stay the same (or increase to the circumference of the Earth) without considering how jail time will affect his lifestyle and diet.
The boomer buying bulge started in the 60s-70s, so data has to start before then. Also the IMF and others (who say property is overvalued) plug in other variables like employment, debt, price-to-rent, interest rates, migration, and commodities. That's why the equations are so complex.
Actually it's the bulls who keep saying “it’s different this time”
Whoops, yes of course, bulls. Got my animals mixed up.
Also the IMF and others (who say property is overvalued) plug in other variables like employment, debt, price-to-rent, interest rates, migration, and commodities.
True, true. There are a million variables and many ways that things can still come down hard. However the big change in my thinking this weekend was from the realization that the real estate run-up in the 2000s is not actually unprecedented. I always thought it was way above anything we saw before, but it is really just the continuation of a cycle that has happened several times.
Now, that doesn't make the market any less fundamentally overvalued. But it does make me much less confident that a big drop is imminent. It has been going up for a long time, and boomers aren't yet at the age where they will all start selling their houses en-masse. That could be 10 years out.
I think it was omc that said without a shock like interest rate increases, he doesn't see a big drop. I'm starting to agree with that.
“boomers aren't yet at the age where they will all start selling their houses en-masse. That could be 10 years out.”
I wouldn't be so sure, if you look at Figure 7 (pg 12) in this university study. It shows the crossover ages of each state when selling exceeds buying. I don't know of any study for the provinces, however, interestingly California's (CA in the figure) crossover age is between 60-64. Is it possible the leading-edge boomers of BC have already reached crossover? Most states look to crossover to net sellers from 65-69, including Washington.
Did anyone get out and check out any open houses this weekend? Any comments?
Open houses in Oak Bay - all the re-listed stragglers form last yr.
Checked out 1698 North Dairy. Mostly crap, $30-$50k overpriced.
"With 5% down and income of $2200/month, this house is ideal!"
and
"M2M Notes:
buyer to varify measurements if important Upstairs rents for 1200 Downstairs rents for 800"
Math is hard. I'll be the first to admit that! :)
Monday, January 23, 2012 8:00am
MTD January
2012 2011
Net Unconditional Sales: 240 339
New Listings: 717 1,187
Active Listings: 3,456 3,283
Please Note
Left Column: stats so far this month
Right Column: stats for the entire month from last year
Buying a house is a great goal for the New Year. Make sure that resolution has some back up with a life insurance policy. You can get a quick and easy quote from IntelliQuote in just minutes. Find out how little it could cost to keep (and protect) that home for future generations. http://bit.ly/zaPdxN
Post a Comment