Monday, January 30, 2012

Monday market update


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: 328 {240} [154] (52)
New Listings: 978 {717} [497] (228)
Active Listings: 3551 {3456} [3428] (3,358)
Sales to new listings ratio: 33%

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

Thanks to Leo S for keeping up with the Monday market updates over the past two weeks. 

Daily sales volume is low, at roughly 11 units per day. Strange times in the Victoria marketplace. Will all the bubble talk in the media lately keep buyers on the sidelines? Will it lead to a "rush to the exits" by the specuvestors? January is nearly done, it's safe to say that January 2012 will post slightly better numbers than 2011, though of course that's all relative. When you compare a Pinto to a Gremlin performance-wise you still end up with a poorly performing vehicle no?

120 comments:

jesse said...

Dudes, you're peaking.

Deflationary environment is deflationary. The Victoria market is as close to the purest example of "bated breath" I've seen.

a simple man said...

Jesse - can you expand, dude?

Just Jack said...

Year over year prices for January are down, both for detached homes and condominiums.

The median price for a detached home in the core districts is down from 619,950 in 2011 to $589,000 in 2012 or roughly 5 percent. There is currently some 5 months of inventory of detached homes in the core areas.

Condominiums in the core municipalities also slid in price from $288,250 to $269,500 or around 6.5 percent. There appears to be some 7.5 to 8 months of condominium inventory for condominiums in the core.

The sample size for January is typically at its lowest level in the year, which may lead to anomalies in the calculated medians. However, the long term trend does seem to support lower prices for both detached homes and condominiums in the core municipalities.

Will the ultra low interest rates stabilize home prices? Or do we just have too many homes for sell in relation to too few buyers?

The biggest threat to the housing market is the increasing vacancy rate, rising unemployment and net outflow of people from the cities.

"Build it and they will come."

Stop building and they will leave.

Leo S said...

Sales are about even, but it looks like listings will be down about 10% over last year. I suspect that our inventory will soon match up to what we had last year, and the year will play out approximately the same.

Some recent strength in price/assessment ratios for SFHs both the low and high ends. Partially this is due to dropping assessments (mostly in the low end), and partially this could be due to the winter bump (or lower interest rates). Price/Assessment for the under $550k is at 95.81, up from a low of 91.67 in December.

For the over $550k, we are above 100% again, at 102.61%

The average drop is somewhat misleading as always. The lower end is selling at over double the rate of this time last year, while the higher end is about the same.

caveat emptor said...

"Net outflow of people from the cities"

I'll buy vacancy rate and unemployment both increasing but it is tough to picture net outflows from the cities when BC's population is still increasing.

http://www.statcan.gc.ca/daily-quotidien/100526/dq100526b-eng.htm

Immigration is a big contributor to our projected population growth. Immigrants move to cities by and large.

Certainly there is no reason to expect the popultion of Victoria or Greater Victoria to grow quickly (it hasn't on average in the past), but an absolute decline in numbers would be very surprising.

You could imagine Victoria hollowing out like some American cities, with folks fleeing the sketchy core and heading for the burbs. The data doesn't support that happening here though (at least not yet). Vivctoria city is only growing slightly slower than Greater Vic

a simple man said...

Walk downtown - we are being hollowed out now. The number of boarded up businesses all of a sudden is unbelievable.

I just can't begin top suggest that the economy is healthy here.

Any small business owners care to chime in?

nan said...

@ simple man: agreed. I was dt with the wife over the weekend and it seemed like one out of every two businesses in the core was either closing or moving. That and virtually every store had some if not all its inventory on sale, some up to 70% off. This is a pretty bad time of year for sales, given its the saddest time of year for most (xmas credit card bills, weather, nothing to look forward to but work until easter, etc) but even then, things look grim out there. I wonder what Victoria's locals are spending all their money on? Oh...wait.

Just Jack said...

In the long run population should increase in the cities up to about 2030.

But, as has happened in the past, a weak local economy will have people leave Victoria. That's the cycle of boom and busts. People have moved from rural BC to the cities for jobs. When the jobs are gone, so go most of the construction trades.

In my opinion, one of the things Victoria will have to face in the future is the large number of vacant houses and condominiums. We have too many dwellings for the size of our population. I believe that we will have a glut of condominiums for a decade or more after the market corrects.

dasmo said...

Habit coffee is abuzz, Ferris's still has a line by 6:00, The Italian Deli still has 5 on staff behind the counter at lunch, People are even going to movies at the Odeon. A number of shops have moved...to other downtown locations. Sure you might have to bring a zombie bat with you and a strong will to not give away all your spare change but downtown is far from hollowing out.

a simple man said...

Not talking about the places that are still open, but rather the places that have closed.

Chris said...

BC’s population growth is slowing. The Capital Region as a whole only gained 0.7% last year - less than the Okanagan and on par with Nanaimo. If you take out Langford, many areas in the Capital Region show no growth. In fact Saanich, Central Saanich, and Esquimalt all lost people last year. To put in perspective, the province next door as a whole, grew by 1.6% last year compared to our 0.96%.

http://www.bcstats.gov.bc.ca/data/pop/pop/mun/SubProvincialEstimates_Current.pdf

Introvert said...

Victoria will always have a healthy population; Fort McMurray, for example, won't. When the oil is all gone in 20 or 30 years, it'll be a ghost town. Does anyone live in Fort Mac for its beauty?

Victoria seems pretty stable. For example, the U.S. economy melts down in 2008, causing interrelated economic trouble for the entire world. Fours years later, in 2012, a SFH in Victoria's core still costs $589,000. You'd think if our prices were going to crash, they would have done it by now. Pretty stable.

Now go ahead and tell me that Victoria cannot sustain these prices, that the crash is imminent, that this spring will be very interesting, that blah, blah, blah...

HouseHuntVictoria said...

@Introvert,

Q: Which housing markets in Canada suffered from "interrelated economic trouble" caused by 2008 economic events?

Suggested response: "Many of them for a few short months, Victoria included, until gov't stepped in and propped up through extraordinary measures--measures which are now appearing economically exhausted and have weak political appetite to continue/expand."

Your answer?

Phil said...

Introvert this keeps coming up. The Canadian housing market will crash as soon as the government stops doing this.

Adjusted to the size of the US that was a 700 billion bank bailout. It worked so well I have no doubt they will do it again. It will be a long, painful decent as long as we have governments that are willing to bankrupt themselves to try and re-inflate the false economies of '02-'08.

Paula said...

Articles today about what's been propping up the market:
Canada Facing Subprime Mortgage Risk
or
Canada's US-Styled Loans

"Banks and other lenders are becoming 'increasingly liberal' with mortgages and home-equity credit lines that don’t require individuals to prove their income, according to documents obtained by Bloomberg News under freedom of information law from the Office of the Superintendent of Financial Institutions.

'It just speaks to the general easing in lending standards, which has contributed to a booming housing market,' said David Madani."

Chris said...

Speaking of crash, it looks like Canadian Business mag’s other prediction China unravels is coming true this past week

Sales in Beijing fell to zero during the holiday, the first time in three years that no sales were recorded for a week, the Beijing Morning Post newspaper reported yesterday, citing data from the local government. Average home prices dropped 23.6 percent from a year earlier as of Jan. 27, it said.

dasmo said...

It's not all bad news for the housing market here:

"Microsoft Corp. has hired 14 people for its new Victoria game development studio and is already working on its first product.

Robertson said staff levels will rise to 75 by year-end and there is a three-year target to employ 150"

If there is an animal between a Bear and a Bull I'm it right now. Maybe a Halibut. It's flat and it has both it's eyes on one side of it's face.

Leo S said...

If there is an animal between a Bear and a Bull I'm it right now. Maybe a Halibut. It's flat and it has both it's eyes on one side of it's face.

Haha. Sign me up. HouseHuntHalibuts.com

MD80 said...

We can all come up with anecdotal evidence (businesses thriving or boarded up) to debate Victoria's economic health.
How about we take another look at this CIBC Canadian Metropolitan Economic Activity Index that Chris posted a few weeks ago. It ranks Victoria 20th out of 25 cities and includes population growth, unemployment, housing starts, and business bankruptcies among other measures.

Chris said...

CMHC backing fewer loans Jan 30, 2012 – 7:13PM ET

Canada Mortgage and Housing Corp. is cutting back on mortgages it insures as the Crown corporation edges closer to a $600-billion cap imposed on it by the federal government, the Financial Post has learned. A CMHC spokesman confirmed that it had approached a number of lenders at the end of 2011 about reducing its "bulk or portfolio insurance"...something that would create greater risk for taxpayers should the housing market collapse.

Things could get interesting.

Animal Spirit said...

January stats on a listing price and listing price to histogram are looking very similar to January last year. Been some sales well above assessed value, and some major update places at 20-25% below assessed. Nothing much to see in the numbers quite honestly.

From a sales price to assessed price ratio, the numbers are back around where they were in August. Is this a month blip with the speculators coming to sell, or a change to a bit more of a sellers market? Don't know yet - numbers are so thin that there will be a lot of noise disturbing any real trends.

That said, the bearish stories in the media are quite something. My bets are that Harper pulls the plug on the market - it has to go down sometime, people were conned into thinking the economy was good (it wasn't, people just bought more and felt good about it for a while until debt did them pay) and the risks in keeping it going are far too high.

Will it be the year of the friendly dragon, or a fire breathing mean spirited one?

Or Eric, the halibut animal spirit.

vw said...

http://www.nytimes.com/2012/02/01/business/economy/home-prices-decline-again.html

“…down by 3.7 percent from November 2010, worse than the 3.4 percent annual decline seen in October.”

“Despite continued low interest rates and better real G.D.P. growth in the fourth quarter, home prices continue to fall,” David Blitzer, chairman of the index committee at Standard & Poor’s, said in a statement.
“The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand.”

Just Jack said...

And here's the rub for CMHC. They need to increase the insurance fees or at least maintain the volume of new mortgage insurance to keep themselves operating in the black.

In my opinion, restricting investors from using CMHC and capping the size of the mortgage are prudent measures that CMHC should follow.

A new mandate should also be adopted by CMHC such as.

"Helping Canadians to purchase their first home"

rather than the current one

"we are the whore of the government"

caveat emptor said...

Population trends:
According to the BC stats data posted by Chris every CRD municipality save Oak Bay grew between 2008 and 2011 (Oak Bay declined by 16 people!). Most of the growth was slow, though Victoria proper had a decent 5% growth over that period. This was in a period where the economy was far from strong and several of Victoria's key industries (tourism and government) were down.

My point is not to argue that Victoria will have high poulation or economic growth. Most likely it won't. But a decreasing population is unlikely until Canada's demographic trends reverse (eventually Canada's population is projected to decline).

I would agree about a possible glut of condos in Vic (that will take a while to absorb). I don't think there will be an excess of SFH's in the core anytime soon. As soon as there was any kind of excess, prices will dip to the point that people that were priced out of the core before will move in.

a simple man said...

But if the outlying areas take a big hit in prices first (as is happening), those people can't afford to move into the core, even at the reduced prices. And the cycle continues.

Just Jack said...

Its the economy that plays the pivotal role in a city's population, not demographics.

The same demographics are happening in every city in Canada, but obviously some having been loosing population to Victoria over the last decade. Most of the loss has been coming from the rural areas of BC, as people move here for jobs.

That trend can reverse and it has in Victoria many times in the past.

One of our greatest real estate booms happened around 1910. When most of Fairfield was built. Back then there were over three hundred realty companies for a population of 46,000. Unfortunately, the belief of endless prosperity and growth was based on unfounded optimism. World War I signaled the end to the great land boom.

From 1921 to 1931 the city's population only grew by 300 people. Victoria did not emerge from its economic doldrums until after World War II.

This is just one example of Victoria's past. And like most of BC it is a history of boom and bust cycles.

The retirement wave has crested in Victoria and those areas which historically have attracted retirees are showing the least growth. Its young families moving here for jobs that are creating the wealth now. And most of those jobs have been related to construction and government.

But young families need jobs.

Housing starts are down and the government will begin restructuring as the demand for workers slows down from the lower economic activity. That means lay-offs. That means U-hauls at the ferry terminals.

Welcome to the wild, wild west.

Introvert said...

Low interest rates may shield housing market from bubble

... a price crash would require “a trigger,” such as a sudden spike in interest rates or a subprime-like serious erosion in mortgage quality. However, the Canadian and U.S. central banks have signalled that interest rates will remain low for the foreseeable future, and the segment of Canada’s mortgage market that is considered high-risk “is still extremely small.”

So, so true. Bad news (for the) bears.

a simple man said...

The economist quoted in that article apparently is currently trying to sell her $4M mansion in Toronto.

Nope, no conflict of interest.

But thanks for bringing this article to our attention.

a simple man said...

and from the paragraph above the one you quoted:

"Nevertheless, economists agree that home prices have become too high, and a slowdown in the housing market looks likely.

“There’s no doubt we’re overshooting,” Mr. Tal said. “The more interesting element of the discussion is, how do we correct?”

Just Jack said...

Actually, I think the opposite will occur.

I think that once the market bottoms we will see people move out of the city. Out of control property taxes, sewer, water, garbage fees along with the costly maintenance for these old homes will have people re-evaluate their life style.

There will be a time when the trend will be for Victorians to sell the war shack, buy a better home in the Westshore and pocket a sizable chunk of cash. Some are doing that today.

This is what happened at the beginning of the current real estate cycle in 2000. And it will happen again.

The next retirement boom may not happen for another 20 years. When those people born in the 1970's reach 55 years old. But they'll want a different kind of home than the retirees of today.

In the future, it may be in the city's interest to pay builders to demolish and build new homes rather than charge development costs. At least that would provide some future economic activity. Heck, how about a land swap with Beacon Hill park. Trade in your Oaklands fire trap for a new town home in the Beacon Hill park development. Premium prices to be paid for those who want a view of the watering can fountain.

Just Jack said...

What crashed the real estate market in the 1980's wasn't high interest rates.

-It was high mortgage payments.

The same thing is happening today. With our high prices and low interest rates the effect is the same - high mortgage payments.

Why it became a crash in the 1980's rather than just a serious correction was that it hit everyone equally. New buyers and those re-financing when their term was up. What a feeling to own a home back then. Your term is coming up in 6 months and you know that you can't make the mortgage payment in 7 months. And you can't sell because the mortgage is more than the projected net proceeds of the sale.

This time it will mostly just affect first time buyers and those who have over extended themselves with lines of credit. Lines of credit that a lot more people will be living on over the next few years.

And it is going to get really hard to sell your home. Longer listing periods and increasing buyer concessions. The market place being dominated by duress sales, such as divorces, estates, relocation and court sales.

The solution to our real estate woes isn't lower interest rates.

- it's lower prices.

caveat emptor said...

"From 1921 to 1931 the city's population only grew by 300 people."

Yet every ten year period in Victoria's short history has shown positive population growth.

For Victoria's population to fall in the near term the economy would have to become uniquely bad here. (i.e the economy falls harder here than elsewhere). If Canada's whole economy goes down the tube that won't do the trick

caveat emptor said...

"Its the economy that plays the pivotal role in a city's population, not demographics."

If the population of Canada and BC continue growing in the near and medium term it would be very difficult for Greater Victoria not to grow unless the economy here becomes uniquely bad.

caveat emptor said...

http://www.bcstats.gov.bc.ca/data/pop/pop/mun/SubProvincialEstimates_Current.pdf

The link that simpleman sent out earlier showed that in 2010 to 2011 Victoria and Langford both made the list of top 15 growers in BC(out of 161 municipalities). Mind you it is ranked by absolute rather than percentage growth so favours big municipalities.

dasmo said...

I'm not so sure of an exodus to Langford. A bike ride or walk to work after a morning stroll on the beach and an evening walk through beacon hill park, picking up an Americano on the way will always have a large appeal. Nothing against langford but geographically it doesn't have these advantages and it will need an economic boom for a commuter rail line to be built to alleviate the crawl...

Leo S said...

And what should be kept in mind is that the real estate system is not rational. Affordability in the US is fantastic. For anyone that can scrape together a few thousand for a down payment, it makes incredible sense to buy now, when you can get a place for 30-60% off at less than 4% for the life of the mortgage.

Buying is just about a no-brainer in the US right now. And what is happening? Continued declines, possibly even accelerating again.

So it's good to keep in mind that just how the market can be irrational on the way up, it can be irrational on the way down. The market does not have to be logical in the short term.

Just Jack said...

You know, our population could go down and prices still go up!

Many towns in BC over the last decade lost population, but prices still went higher.

And there are cities in Canada with a larger population than Victoria and lower house prices too.

I suppose the idea is that if the population keeps growing house prices will stay stable or increase. And that is just wrong.

It's the economy that brings higher prices and increasing population. The problem with a weak economy is that young kids leave to find work in other provinces and young families don't move here. That happened in the 1980's and 1990's in Victoria Throw in expensive housing costs and higher living expenses and you have a net loss in population.

An under performing economy also leads to an increase in the size of our households as kids stay at home longer or boomarang back to their parents home.

We are so close to having zero population growth in Victoria today, with what has been considered one of our best economic periods, I am surprised that you can never expect that we could have a net loss in the future.

I also expect the government at all levels to start some serious cut backs. Starting with sub contractors - who are just an email away from being unemployed.

dasmo said...

what Leo said....

caveat emptor said...

Just Jack - "I suppose the idea is that if the population keeps growing house prices will stay stable or increase. And that is just wrong."

Agreed I believe population will continue a slow increase but real estate will fall (at least in real terms).

Your comment that started the population discussion was a claimed "net outflow of people from the cities".

I dispute that a net outflow of people is happening now and don't think it overly likely to happen in the immediate future.

Not that Victoria's population will never decline or can never decline. Rather that so long as Canada and BC are increasing in population the most probable path for Victoria is a continuing slow increase in population.

I predict that when Greater Victoria's 2012 population projections are released the numbers will be greater than 2011. Anyone want to take the opposite side of that bet?

CanSpeccy said...

In the long run, house prices are determined by (a) lot prices and (b) construction costs, unless demand falls so low that new construction ceases.

Assuming that construction costs vary mainly with wages, which seem to be more or less flat, variation in house prices must be determined mainly by land values, which in turn are determined by location, varying currently from around $150K in the out reaches of the Victoria region to $1 million plus in Oak Bay.

Since, according to the BC assessment authority, the value of most Oak Bay houses lies chiefly in the land, it seems that prices at the high end of the range are determined mainly by (i) sentiment, and (ii) affordability. If sentiment turns negative, or if interest rates rise thereby reducing affordability, prices at the upper end of the scale could slump, whereas, at the lower end of the market there is less scope for price declines since most value is determined by the current cost of construction.

Just Jack said...

New home prices are strongly influenced by lot value, construction costs and builder's profit. But, if the economy takes a dump, builders will sell at a loss.

Re-sales of existing homes are determined through supply and demand. If you're buying a 1975 Gordon Head home- why would you care what a new home costs or what vacant land is selling for. Or better yet how would that influence what you bid on a 37 year old home. Or how about if there is no construction and no vacant land sales - would that mean that no one knows what a 1975 Gordon Head home is worth?

Nope, it is just supply and demand.

You just care what a 1975 Gordon Head home can be bought for.

Just Jack said...

I predict that Greater Victoria's population will also be greater in 2012 than 2011.

But I will also concede that there is a possibility that within the next few years there is a reasonable chance that there will be more people leaving than moving to, Victoria. Simply because its happened in the past.

We are not talking tens of thousand of people. We are talking a difference of 1 or 2 thousand people - that's it.

How many people are employed building homes in Langford? With the number of signs on trucks, it feels like half the population is involved in building, repairing or selling homes.

pod_x said...

Houses should be flying off the shelf in most US markets, but they are not. A large part of that has to do with mortgage lending standards. Banks are only giving out "conventional" mortgages, so scraping a few thousand for a downpayment is not an option. Government-backed loans come with very strict rules and appraisals, as do bank loans too. The price graphs and indexes we see are for SOLD prices, and there is a lot of inventory that is poor quality and overpriced. Short sales are a huge gamble and hassle for the buyers. By most accounts, good quality, well priced inventory is moving fairly quickly.

This might be off-topic, but it highlights the fact that when declining housing deep-sixes the economy, suddenly lots of attention is paid to lending standards and appraisals/prices.

Many young American couples who would like to buy a house, cannot. This is as it should be. They need to go back to saving, and in five years, after showing some fiscal restraint and responsibility, they'll be able to buy a house on affordable terms. Assuming prices are back to at best tracking inflation.

Just Jack said...

Here is an example of why the value of re-sale homes are NOT affected by vacant land prices or construction costs.

In March 2008 a house on Quadra street sold for $409,000.

Since March 2008, construction costs and vacant land prices have remained fairly stable.

Today that same home on Quadra Street sold for $350,000. Now, turn the question around. Your a builder and you see that home prices are coming down and you guestimate that by the time you finish building a home in 6 months house prices may be $50,000 lower than the cost you can buy the land and built the home for today.

What would you do?

And what's happening to building starts today?

In a declining market it is re-sale housing that sets the price - not new construction.

Just Jack said...

Here's a good piece of advertising. A condominium on Toronto street just sold for $215,000. And it is currently rented at $1,000 per month.

The advertisement reads why rent when you could buy?

High ratio mortage
$900 a month
$100 a month for taxes
$260 a month for strata fees
$40 a month for maintenance

Monthly cost of ownership
$1,300

Monthly cost at renewal when interest rates are 6%
$2,200 a month.

This is also known in real estate speak "as a great investment" and it is - just not for you.

Leo S said...

Banks are only giving out "conventional" mortgages, so scraping a few thousand for a downpayment is not an option.

I know credit has tightened considerably, but I believe you can still get a high ratio insured mortgage in the US if you are qualified.

Just Jack said...

Meanwhile, up in Shawnigan Lake where they're not making anymore lakefront land.

Who are they?
And did "they" ever make lakefront land?

A lakefront retreat originally listed in June 2010 for $875,000 has just sold for $650,000.

Maybe we don't need anymore land.

The problem is not that they can't make land anymore but "they" aren't buying it either.

Marko said...

"But, if the economy takes a dump, builders will sell at a loss."

Actually, no. They will stop building. My father has been building approximately 2 homes per year for a while....this year he has nothing slated yet. He is not going to build and sell at a loss...what would be the point?

Most residential home builders in Victoria are small and have an associated trade (carpenter, electrician, plumber, etc.) or a job in another sector. For the most part no one is forced to build.

From what I've seen in the last year I honestly think we will ever see an affordable new home in the core. The interest we had on 2529 Shakespeare was massive. We had people wanting to see the home after the sale went unconditional.

My theory is that margins are so tight that builders simply aren't building residential homes (down 30% year over year) so you have a situation like right now where you have 3 or 4 new homes in Victoria and Oak Bay combined. Cheapest one is $999,000. If you can bring a decent new home to the market in the core (doesn't have to be Fairfield either) under $900,000 the interest will be there.

The core of the problem is very high lot prices and I don't buy this argument that lots price will be the first to fall.

First of all, there are a handful of lots available. Secondly, you have a certain percentage of the population who have money and want to live in a new home in the core - they will set prices on lots in the core.

I worked with two doctors at VIHA who had Abstract Developments build them 2.0+ million dollar homes.

As much as I wish lot prices in Oak Bay would go back down to 350k so I could build a home to live in for the next 40 years....it won't happen.

Marko said...

down 30% year over year - was referring to housing starts.

Marko said...

Currently there are 2 lots for sale in the City of Victoria and zero in Oak Bay....

There was a FSBO on Woodley (Saanich East) that had a subdivided lot listed for $515,000 and sold it a few days ago without any realtors - that is what I call demand.

dasmo said...

RE: the 80's
Assuming a 20% down payment
1981
100,000 at 17% is $1393 per month.
The median after-tax income for two-parent families with children: $35,000 (current dollars)
So spending 48% of income on house

2011
$500,000 at 3% is $2,379
The median after-tax income for two-parent families with children: $75,600 (current dollars)
So spending 37.2% of income

Theoretically we are close but not the same conditions as the 80's. If anything the obvious fact that there was tremendous potential following the 80's with lower rates and thus the opportunity that existed in the late 90's early 2000's. This setup for such an opportunity doesn't exist right now.

There was more of a 6 year flat line in the 80's after an initial drop. This brings me to my status as a "halibut" when it comes to housing in Vic. We will experience an extended flat line until rents and incomes increase enough that it makes sense to own once again. Plus after these initial pull backs on mortgage rules, They will once again introduce other measures like multigenerational mortgages and other such mechanisms...I don't foresee this creating another boom like we just went through...

I recommend buying if it makes financial sense to you and you have at least 10% down payment in cash (becasue you have been saving your nest egg right?). Take your sweet time, offer 20% less than asking (if it's reasonable to begin with) and don't go over 10% less. During this flat line is when you can avoid the bidding wars etc. You can also have time to really do due diligence. Plus, negotiate before and after the home inspection. Basically have some normality to the biggest financial decision of your life.

Just Jack said...

Back in 2001, when interest rates were 6 percent you could buy a house on Claremont Drive in Broadmead for $380,000.

And today that same house sold for $715,000 with interest rates at 3%.


Things that make you go

Hmmmmm!


So what is different today than a decade ago. Well the bank's have just a collective sphincter clench and realized that house price gains have all been an illusion of interest rates and that their under 80 percent financing is at risk!

And that ain't insured.

And the rush to insure these loans is on, thereby making it very difficult to get financing to buy a home as the banks are gobbling up all the insurance. Which means prices fall. Which means more sphincter clenching and tighter lending guidelines. Which means lower prices. Which means ...

Didn't this happen in the USA not to long ago?

Leo S said...

Actually, no. They will stop building.

Just Jack said they will sell at a loss. That means existing builds will be sold at a loss if necessary during a downturn. Of course no builder would start a build with the knowledge that it would be sold at a loss.

Most residential home builders in Victoria are small and have an associated trade (carpenter, electrician, plumber, etc.)

All of those trades are very much tied to building/renovation activity. Renovation decreases greatly when you can't take the equity out of the house to do it, and you're not renovating to sell.

The core of the problem is very high lot prices and I don't buy this argument that lots price will be the first to fall.

Who's claiming that? Land price is what will fall. As you say, the price of building is somewhat inelastic.

Marko said...

812 Claremont Ave

Sold 2012- $715,000
Sold 2001 - $380,000
Sold 1992 - 269,500

Marko said...

"Just Jack said they will sell at a loss. That means existing builds will be sold at a loss if necessary during a downturn"

Housing starts are already down 30% year over year. There just isn't that many existing builds out there to cause panic selling.

"All of those trades are very much tied to building/renovation activity. Renovation decreases greatly when you can't take the equity out of the house to do it, and you're not renovating to sell."

Most of Victoria is older homes which always need new roofs, hot water tanks, various improvements, etc. I really don't think the sitaution in trades is that bad. My neighbour is a union electrician and he just got work at the shipyard. Previous to that he was in Alberta for a while after he got laid off once VIHA completed their new tower. It isn't like he got laid off last year and couldn't make his mortgage payments anymore....there is work out there.

"Who's claiming that? Land price is what will fall. As you say, the price of building is somewhat inelastic."

The core of the problem is very high lot prices and I don't buy this argument that LOT price will be the first to fall. (made a typo)

Sooo....we disagree. I don't think bare land lot prices are going anywhere. Teardowns might fall a bit in price due to new regulations the City and WCB will have in regards to teardowns and asbestos but bare land supply is not tight - it is almost non-existent.

Just Jack said...

Well the $100,000 home of 1981 is not the same as the $500,000 of today. Neither is your disposable income or living costs as a percentage of your income - they are all higher too.

For the last ten years its been a great ride. If you got behind in your bills, no problem just re-finance the home at a lower rate and pay off those credit cards. Do it again and again and again. Tired of re-financing - then set up a line of credit secured by the home and insured through CMHC.

Back in 1981, it was possible to work yourself out of debt when homes were three times your income.

Today, you are toast at 6 times your income and facing rising interest rates over the next 15 years. You are sunk, finished, road kill and laying in a ditch tits up this time. I wouldn't even try. Take the hit - declare bankruptcy and live in the house till the Sheriff throws you and your flat screen TV onto the front lawn.

After all if the banks were dumb enough to lend you the money when your own mother wouldn't trust you with cab fare.

Introvert said...

812 Claremont Ave

Sold 2012- $715,000
Sold 2001 - $380,000
Sold 1992 - 269,500


Money. Pure, tax-free money.

Marko said...

Sold 2012- $715,000
Sold 2001 - $380,000
Sold 1992 - 269,500

also looks better than if it was

Sold 2007- $715,000
Sold 2001 - $380,000
Sold 1992 - 269,500

We are approaching almost 5 years of flatness.....

An individual who bought in 2007 is re-financing at lower rates.

Just Jack said...

Well the cost of bare land is meaningless to me. I'm not buying bare land. I'm buying an existing house.

Builders can beat themselves up paying half a million for dirt. Heck, let them pay a million for it. They have to pay a high price because there is very little vacant land. Me, I'm not even in the same room with them when they are bidding on land. I'm down the street looking at a house that builders wouldn't consider looking at either.

We are simply not bidding against each other. Sure there are people that want to have a new house and they will pay a massive premium for its virginity. But after awhile that home is not new anymore and that premium is gone. So if you want to pay a hundred grand to be the first to cook naked in the kitchen - that's great just remember to wear an apron when your frying bacon.

Because you'll get burned.

Just Jack said...

Almost 5 years of flatness and it only took 600 billion dollars in mortgages insured by the Canadian taxpayer and the lowest interest rate since Jesus's father got his journeyman's ticket.

And what did we get - flat prices.

Marko said...

If you buy a brand new $60,000 BMW you will get burned.

If you buy a used $8,000 Toyota Corolla you will probably get burned less.

People still buy brand new $60,000 BMWs.

Just Jack said...

No one has ever gotten laid in an $8,000 Toyota Corolla.

So there's the difference, you get burned by both, but you get #$#$ by only one.

Leo S said...

There just isn't that many existing builds out there to cause panic selling.

Sure. No one is suggesting mass panic selling.

Most of Victoria is older homes which always need new roofs, hot water tanks, various improvements

I'd be willing to bet that the majority of renovations are not necessary fixes like that, but mostly cosmetic renos or renos for resale purposes. Hence the massive drop in reno activity during recessions.

Sooo....we disagree.

Not really. There is a difference between the land value of a house that falls, and bare lots, which as you say are few and far between.

Paula said...

The Lincoln Institute found that US land values depreciated more than structure from 1984-2011, even in land-scarce areas like Los Angeles and Seattle. It did a study of 46 US cities.

See the Excel data here (years are listed on left):
US Land and Structure Values

Victoria home prices have always been affected by both local and world economies (great depression, oil and interest rate shocks of 1979-1981, recession of the 90s and associated job losses, etc). The trigger for a downturn has been different each time, and the effects in Canada often lag the US by a few years.

Paula said...

Should have noted above: you really notice the fall in both land and structure values from 2005 to 2011.

Leo S said...

If you buy a brand new $60,000 BMW you will get burned.

I think Just Jack has this right, it doesn't matter to the average home buyer who is buying resale, just like the luxury car market has no effect on the price of a used Civic.

dasmo said...

The situation is different here than the states. We don't have this situation here for example...

http://postimage.org/image/ooialqatj/

The mass building in the dessert is just one of the ridiculous actions that led to the total crash that is happening in the states. Not to mention a ton of option ARM mortgages handed out to everyone and anyone. It's not the same scenario here.
That said the global economy is tanking, house prices are unaffordable, wages are not going up any time soon....
leading to a decline in prices of 10% this year and another 5% over the next few years and then flat for a few and then climbing at a rate of 2-3% for a few and then back to a 4% climb....

So if get your 10-15% of the price now by negotiation and you should be fine right?

Chris said...

Nice find Paula! The data sure show how quickly lot values can fall in half, even in as you mentioned land-scarce cities.

Great discussion Leo, Marko, Jack, et al. I've learned a ton from this blog, and the humour is top notch.

Renter said...

Doesn't look like anyone else has posted this yet:

CMHC curbs mortgage insurance offerings to banks

This may make things interesting.

a simple man said...

Almost 30% of all Victoria income in through a real estate linked profession.

Marko, your Dad stopped building. If everyone has that sentiment, there has to be a drop in the number of folks employed. If 30% of the population is dependent on real estate here and some can't work, they move. Houses flood the market, land prices fall, and contractors start to undercut and charge less, because a little bit of food is better than none.

a simple man said...

I really hate that you can't edit text here.

dasmo said...

it's actually 13% of the population that dependent on real estate industry.

Chris said...

30% of GDP is shocking. Not to mention a painful adjustment when it returns to historical levels (or undershoots to clear the excess).

It's difficult to argue what happens to the land component in a downturn when we have a great past example in the Residential Land Price of Minato-ku (scroll down a little)

Marko said...

"Marko, your Dad stopped building. If everyone has that sentiment, there has to be a drop in the number of folks employed. If 30% of the population is dependent on real estate here and some can't work, they move. Houses flood the market, land prices fall, and contractors start to undercut and charge less, because a little bit of food is better than none."

My father doesn't have a sentiment of don't build he just isn't building right now because we haven't been able to find a project where money can be made despite relatively strong new home prices. His most successful projects have always been when he has taken a risk in a doom and gloom environment. He started a luxury spec home in 2009 during the economic turmoil and I managed to sell it at the right time in 2010. If the right project were to come along he would do a house this year. If he was always worrying about a market correction and risk he would never build a house. Literally, it is always a bad time to build. If the market is booming construction costs are through the roof and if construction costs are low the market sucks.

You would be surprised how people adapt. A framer that has framed 3 houses for my father got tired of lower framing prices and working Saturdays so he took a job with the school board. Drywaller just focuses on renovations; plumber is always busy with renovations and maintenance items.

patriotz said...

"he just isn't building right now because we haven't been able to find a project where money can be made despite relatively strong new home prices."

That's because land (or lot if you will) prices LAG falling house prices. It takes a while for the bare land owners to get the message that the market is going south. So shortly after the top (i.e. right now in Victoria) building drops off because it's not profitable as you say.

But then what happens? Land owners (at least some of them) decide it's better to sell for less than bleed property taxes, construction workers whose EI has run out decide it's better to work for $15/hr building houses than at McD's, and houses start getting built and selling for a lot less.

Which is exactly what's happening in the US.

a simple man said...

I don't think a slow housing economy here can support a 30% GDP workforce.

Leo S said...

You would be surprised how people adapt.

This is silly. What does it matter what your dad or the drywaller across the street does?

30% drop in housing stats means 30% less work in building new homes. No one is claiming that those people are now homeless because they aren't building homes. Some of them adapt, some of them move to a different job, and some of them leave Victoria for work elsewhere.

New home building drops, the rest of the renovation market doesn't just magically pick up the slack. No, less work available means less money being made, it's as simple as that. Less home price appreciation means fewer equity takeouts means fewer renovations.

This is already coming out in the stats as the market slows. In 2010 18% of home owners took out equity. In 2011 it was only 10%. Even at the reduced rate that's 28.5 billion dollars that went into the economy from home equity takeouts. $5 billion of that went into home renos.

Marko said...

New SFHs are only a portion of construction permits.

This argument is just going to get spun in circles...essentially everything is bad for the real estate market whether it be lack of construction or too much construction.

If I come back with there will be 3 cranes up this summer and probably 100 people working at the Mondrian, 100 at the Sovereign, and 150 at the Promontory then I'll get a response that the oversupply of condos will be the end of the market :)

We'll see what the numbers hold this year. Way too much time on this blog today...time to go the gym.

Taigaa said...

Lot prices example: 576 Towner Road in Deep Cove - 0.6 acres, across the road from a beach basically. Listed 266 days ago for 379k, dropped to 359k, sold for 300k, assessed at 447k. What does that tell you about lot prices? Of course it is far out there, but still a far drop below assessed considering all the talk about no lots available.

a simple man said...

Fantastic example, Taigaa.

Do a couple extra sets for me, Marko.

Paula said...

“So if get your 10-15% of the price now by negotiation and you should be fine right?”

Is that 10-15% off assessed value? If only we could predict the future. As you said the US impacted the world’s economy. Then Canada artificially propped up real estate with lower-than-inflation interest rates and CMHC’s 0% down-40 year mortgages. There’s never been so many people that can just walk away.
Price “stickiness” can last for many years before things reach bottom. There's also our aging population. Strange days indeed.
Maybe we should all head for the gym.

Leo S said...

Maybe we should all head for the gym.

Agreed. What this argument needs is more testosterone :)

dasmo said...

I would say yes 15 - 10% off the BCassessment value. Most are over valued IMO. Some are not.

Marko said...

Wednesday February 1, 2012 7:55am:

January January
2012 2011
Net Unconditional Sales: 372 339
New Listings: 1,088 1,187
Active Listings: 3,715 3,283

Please Note
Left Column: stats for the entire month from this year
Right Column: stats for the entire month from last year

a simple man said...

Good bump up in sales - is this the "BMO" effect of 2.99% mortgages?

Leo S said...

Good bump up in sales - is this the "BMO" effect of 2.99% mortgages?

I suspect it might be. What I'm seeing is lots of low end sales while the higher end is more or less like last year. So likely a couple more marginal buyers were able to get in to the entry-level houses.

a simple man said...

Wringing the last drops out of the dishcloth before bleaching.

Nancy said...

Just Jack,

There are also many design stores, decorators, tile stores, kitchen stores. I wonder how these are all going to be able to continue.

We moved here 10 years ago and the growth in this industry is huge.

Now I bet (and I know) many are in trouble.

a simple man said...

Almost 30% GDP for real estate associated industries is huge and acts like a self-sustaining drop once it starts. Will have a lot of momentum as people have less work, move, have less money, etc.

a simple man said...

hmm. Still no vreb release for last month. They must be in full spin cycle in trying to minimize the news of a big drop in average price. Time to educate the public in the danger of using average data. Funny, this consideration is rarely given on the way up.

dasmo said...

Housing bubble aside we aren't that reliant on Housing for employment here:
"Advanced technology is Victoria's largest revenue producing private industry with $1.95 billion in annual revenues generated by more than 800 tech companies that have over 13,000 direct employees. The annual economic impact of the sector is estimated at more than $2.65 billion per year.

Our economy is very diversified here. it doesn't isolate us but it does insulate us.

a simple man said...

I agree that high tech is important here, but that and housing related industries then, by logic, account for over 60% of the GDP here. Combine in tourism, govt and University jobs and it doesn't sound that diversified.

I still find 30% astounding for RE.

Dave said...

Revenue is different than employment.
Dave3

dasmo said...

don't forget to add food products and services, government services, Canadian Forces, investment and banking, online book publishing, various public and private schools, retail, manufacturing, and telecommunications.

dasmo said...

The report did say 13% rely on Real Estate related activity for employment.

a simple man said...

correct dasmo - 13% of workforce and about 29.5% of GDP. Thanks for the correction.

dasmo said...

I do have both eyes on one side of my face. Helps in cases like this ;-)

Introvert said...

Employment diversity is less necessary in a place like Victoria: our being the capital (lots of public sector jobs existing in perpetuity) and our university (again, lots of well-paying union jobs that aren't going anywhere) mean that a large portion of Victoria's overall job force is immune to the booms and busts of the business cycle.

This, in turn, means a certain measure of stability for our real estate market. No, our market isn't immune to corrections and declining prices, but I think Victoria may have a greater immunity than most other places.

a simple man said...

Introvert - I tend to agree that we have a larger-than-most proportion of our sector that is public-based (Govt, Uni and Navy). However, govt and navy can have cutbacks. Uni less so, I think.

Marko said...

Would love to see some stats like this for BC Ferries, UVic, etc.

VIHA - Employee Salaries Exceeding $75,000

2004/2005 - 763
2006/2007 - 1,512
2008/2009 - 1,890
2009/2011 - 2,245
2010/2011 - over 2600*

*Estimate - they have a PDF list but don't specify the exact number)

It will be really interesting to see the 2011/2012 numbers given the "0/0/0" mandate. My feeling is it goes up over 2800 none the less.

Marko said...

^Keep in mind that very few physicians are VIHA employees. They wouldn't show up on the list.

CanSpeccy said...

'"But, if the economy takes a dump, builders will sell at a loss."

Actually, no. They will stop building.'

Exactly. So as long as population continues to grow and builders continue to build, it is lot value that determines price, which means that if prices fall, it will be due to a decrease in lot values, as Paula demonstrates with data from the US.

True there are no lots for sale in OB, but there are plenty of clapped out houses selling at lot value, e.g., Devon Road, quarter of an acre in the Uplands with underground services for $799K.

And with lot values up almost 100-fold since the early seventies, whereas building costs are up only two to three-fold, there is plenty of room for lot prices to decline, either the necessary consequence of rising interest rates and declining affordability, or because of a change in sentiment, i.e., when the ordinary non-millionaire decides it would be crazy to borrow much of their life-time earnings to buy an OB lot. At that point, many will do as HHV has done, move to another community, or commute to Victoria from one of the outlying suburbs.

Paula said...

City of Victoria has an employment profile.

In 2003 156,700 people were employed and in 2026 it'll be about 199,900. So in 2012 we’ll have approx 174,000 (13k in the tech sector is 7%).

Also, if you run the numbers for the biggest public & private employers, and consider that 93% of the privates have < 20 people, you can figure that approximately:
30% work in gov’t,education, health, ferries,
30% in services, tourism, food, retail,
25% RE/construction/trades,
8% in business/finance incl. call centers,
7% in tech (where one product sale can be worth lots of $$ but it employs a small % of people.)

Some federal and provincial gov't jobs are being cut due to "fiscal austerity" and BC's $3B budget deficit also caused by the global recession.

Paula said...

^ looks like the 25% estimate for RE/trades may be high (but the Economic Analyst's figure doesn't seem to include trades), so there might be more in government or services.

dave said...

If you can not see from this demographic and this table that colleges and unis are about to undergo widespread cuts over the next decade, you are not lOOking hard enough.

dave said...

Whoops,this was supposed to be the table

http://www.statcan.gc.ca/pub/81-004-x/2010005/chrt-graph/desc/desc-1b-eng.htm

a simple man said...

dave - you are correct - I was not looking hard enough - just supposing.

vw said...

50 from Victoria lose jobs at Canpages

a simple man said...

average price last month = $567K.

a simple man said...

$567K for all areas - $581K for just SFH in Greater Victoria.

a simple man said...

50K drop in the median from a yr ago. That deserves noticing.

patriotz said...

"if prices fall, it will be due to a decrease in lot values, as Paula demonstrates with data from the US. "

That data does not show such a causal relationship. For example, Seattle house prices peaked at $500,792 in 2007Q3 and land value peaked at $330,617 in the same quarter. In San Diego both houses and land value peaked in 2005Q4.

If house prices fell due to falling land values, the fall in house prices would lag the fall in land values, since the land is bought well before finished houses are sold.

vw said...

Wow $51,000 drop in a year (median Victoria house price) is almost 9%....If I did the math right.

CanSpeccy said...

"That data does not show such a causal relationship. For example, Seattle house prices peaked at $500,792 in 2007Q3 and land value peaked at $330,617 in the same quarter. In San Diego both houses and land value peaked in 2005Q4."

The data are certainly not inconsistent with a causal relationship!

If people bid up the price of houses, builders will be prepared to pay more, and in a competitive market will have to pay more, for land to build on.

Conversely, when prices people are prepared to pay for a house decline, the price builders will pay for land must decline also.

patriotz said...

I was taking issue with the claim that falling house prices are the result of falling land prices.

My position is the same as yours, that falling land prices are the result of falling house prices, and I had already made it farther back in the thread.

CanSpeccy said...

"My position is the same as yours, that falling land prices are the result of falling house prices"

I guess its just math. If Prices equal land cost plus construction cost, and if construction cost is more or less constant, prices must vary directly with land cost.

CanSpeccy said...

And as there is virtually no bottom to land cost (i.e., relative to the cost of a lot in Oak Bay) prices are a matter of market sentiment, supply and demand, whatever you want to call it, which means they can vary widely for no necessarily obvious reason.

Vancouver Luxury Realty said...

we are standing on the cliff. one push and we are 25% lower. 5-12 months away. Enjoy.

selling now makes sense.

Vancouver Luxury Realty said...

we are standing on the cliff. one push and we are 25% lower. 5-12 months away. Enjoy.

selling now makes sense.

Vancouver Luxury Realty said...

we are standing on the cliff. one push and we are 25% lower. 5-12 months away. Enjoy.

selling now makes sense.