Sunday, February 26, 2012

Animal Spirits and burning down the house



A guest post from Animal Spirit:

Many of the readers here know of my like (my better half would say addiction) for numbers, especially for experimental data analysis. While the numbers, the ups and downs of house prices, my chastising Marko for his use of the mainly meaningless average, my great thanks for Reid for unknowingly starting our family on a very good financial plan due to his writings on the blog a few years ago and Roger’s spreadsheets are all interesting, the bubble is not really a numeric event, it is instead a human behaviour phenomena. Ergo my alter ego ‘Animal Spirit’.

Animal spirit is a Keynesian term which Wikipedia states: “ describes emotions which influence human behaviour and can be measured in terms of consumer confidence”. Further, in 2009, Akerlof and Shiller published the book “Animal Spirits:  How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism”.  



Robert Shiller then paired with Karl Case in a 2010 publication to attempt to understand the U.S. housing bubble development and bust. Given that multiple major national newspapers, magazines and television stations that had previously been promoting housing as a great investment and buying choice have recently published substantive negative stories may affect confidence in the Canadian residential real estate market, this led me to the following excerpt from the link above:
“It may be in these changes (changing perception and changing information), more than in the quantitative expectations that we have recorded, that most explains the major trends in the market. Figure 16, which gives a scaled count of news stories with the term “housing bubble” in it, shows the major change in public thinking that began around the time when the housing boom of the 2000s first became apparent, and has grown steadily ever since. The story of a housing bubble is an invention of our times, an invention that is spreading to capture more and more of our thinking, and to create a fragility of expectations that was unknown in times past. 
By the time of the 2006 survey, just around the time of the peak in prices, some new themes became commonplace in answers to the question as the event that changed the trend in the housing market. Answers included “reality adjustment of the market,” “fewer speculation buyers,” “media hype of housing bubble,” and “overheated market.”

By the time of the 2009 survey, when the market was starting its sharp recovery, the answers included even more references to speculation and bursting bubbles. People have not forgotten about their newfound knowledge of bubbles. As of the 2009 survey, we could not find any optimistic new themes that indicated a positive major turning point in the market, and are left with the suspicion that the turn upwards in home prices is supported more by the government’s short-term support of the housing market rather than any new speculative enthusiasm.”
How might this apply in Canada now that our national right wing magazine for the masses is publishing pictures of a burning house on its cover (h.t. patriotz, through vancouvercondo.info). Got any good links to sites discussing media impact on consumer behaviour (or a cheap blue bridge)?

Animal Spirit (currently changing from a halibut to a phoenix)

150 comments:

CFA Joe said...

Great post. I would like to add that the housing bubble IMO was precipitated by 9/11. In all seriousness, Greenspan WOULD NOT HAVE LOWERED those rates to emergency levels to "restore confidence" after those fateful days. As a result, the housing bubble spurred out of a total random act. If this act didn't happen, MBS's and the rest of the leverage that it spawned would have been immaterial. Great investors recognize when a bit of luck is involved and don't overexpose to assets that aren't based on fundamentals. Housing for the past few years just doesn't make sense.

patriotz said...

"h.t. patriotz, through vancouvercondo.info"

I got it from vw right here on this board (as I noted on my own post on VCI, but not noted by the moderator who put up the image).

And h.t. to you as well for your data gathering and analysis.

Just Jack said...

Animal Spirit wrote

"the bubble is not really a numeric event, it is instead a human behaviour phenomena."

Exactly.

And I love the video choice.

Thanks for guest posting Animal Spirit. And thanks to HHV for keeping this blog going. I think many are going to need this blog even more now as the market changes.

S2 (JJ's better half)

Marko said...

Monday, February 27, 2012 8:00am

MTD

February 2012 2011

Net Unconditional Sales:

424 488

New Listings:

1,096 1,276

Active Listings:

3,754 3,714

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

Marko said...

SFH Average = 601k
SFH Median = 543k

Condo Average = 314k

a simple man said...

Can this Feb match last Feb for sales? Luckily there is an extra day this year.

Median bumping along ahead of last month by a fair margin ($18K).

But, the emotions will soon rule. In the past two weeks there has been a palpable shift in the media with respect to the bubble. the uninformed masses are now being informed. Will they notice or will they just pay attention to the press releases for the new iPad III?

Humans are a funny bunch, but that is what makes life so awesome!

Have a great week, all.

Fiduciary said...

I recently decided to switch rental condos: I took a step up the chain to a nicer, bigger unit, for more money. From my immediate experience it looks like the condo rental market is quite hot when nice units are involved. Within four hours of posting the listing on craigslist/usedvictoria our landlord had someone booked to see it, and by the time the viewing rolled around 24h later there was another person viewing too. Is that normal, or is that hot? Seemed like there was a lot of interest in the unit we rented too, even though it's expensive.

Leo S said...

I won't repost this one since Animal Spirit's post is still fresh.

Here's the data with the other weeks

February 2012 month to date
Sales: 424 (311, 179, 80)
New Listings: 1,096 (818, 557, 245)
Active Listings: 3,754 (3676, 3629, 3539)
Sales to new listings ratio: 39% (38%, 32%, 33%)

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

Speaking of a hot rental market, I guess there's no need for all those pre-buy condo investors to dump them on the market for a loss this year after all...
http://www.timescolonist.com/business/Greater+Victoria+rental+vacancy+rate+eases+rents+higher/5856369/story.html

February 27, 2012 9:26 AM

Leo S said...

That article doesn't support the statement. Vacancy rates are up. In a hot market it would be the other way around.

As for rent increases, that's one of the effects of rent control, it smoothes out rent increases. During hot markets it limits rent increases, with the effect that during slower times the rent continues to increase rather than staying constant.

dasmo said...

"I expect the average vacancy rate to fall roughly 0.5 per cent by next October, from 2.1 per cent to 1.6 per cent," said Travis Archibald, CMHC senior market analyst. "Our last set of forecasts predicted that the average vacancy rate would fall from 1.9 per cent in October 2011 to 1.4 per cent in October 2012

A healthy vacancy rate is 3%. Victoria has been a hot rental market for as long as I can remember.

a simple man said...

I read that for last Oct it quadrupled from previous years

"The capital region's apartment rental vacancy rate rose to 2.1 per cent in October from 1.5 per cent in the same month in 2010, Canada Mortgage and Housing Corp. said Tuesday.

It is the second consecutive year that Victoria's vacancy rates have eased after four years of being stuck at 0.5 per cent."

chris said...

Don't worry Dasmo, I often have problems with grade 8 math on a Monday morning too.

2.1-0.5/0.5 x 100 = a 320% increase in Victoria vacancies in 2 years.

dasmo said...

I didn't do any math? What doth thou speak of?

Leo S said...

Don't worry Dasmo, I often have problems with grade 8 math on a Monday morning too.

2.1-0.5/0.5 x 100 = a 320% increase in Victoria vacancies in 2 years.


Simple man is correct. 0.5% to 2.1% is an approximate quadrupling in vacancy rate.

chris said...

Yes dasmo, it's apparent you didn't do any math before writing "Speaking of a hot rental market,...."

What you must have meant was, "I guess many of the pre-buy speculators will begin dumping them for a loss this year now that the vacancy rate has quadrupled since they bought them."

chris said...

I looked at some open condos for entertainment purposes on the weekend. The cheapest one I viewed, four hundred forty thousand, 1970 building. Wouldn't trade my rental condo of a thousand per month for it. In other words, the rent I would decide to live in above said place, would be less than $900 per month. Monthly payments to buy it at list price = $2900 (25yr). The principle portion being $940 of the $2900. I left wondering, "Would one ever see that principle portion again if they paid today's price? even if they're really healthy?"

Fiduciary said...

Chris, how big was that condo, and how big is your current one? The condos I was running mental scenarios on buying were in the $350,000 range, built last year, and a bit under 1000 sq. ft. The only condo in a 70's building I could see selling for that much would be gigantic, top floor, etc.

dasmo said...

I was showing that our vacancy rates are tight here in general, citing the article for the figures. Since there are calls that a perfect storm is afoot, and me being the Halibut of the group, I have to point out the signs of fairer weather. Sure our vacancy rate is going up (as expected, there are a lot of condos being built)but we are still extremely tight. That's why I noted that 3% is considered "healthy". Even if our rates rise by another 90% and we land at a vacancy rate of 3% we are light years away from the debacle that is Las Vegas which is around 16%! That would require a 1390% increase in our vacancy rate. Hard to argue the perfect storm is afoot then....

dasmo said...

I would recommend using tools such as these to calculate mortgage payments

http://www.canadamortgage.com/calculators/amortization.cgi

One thing to note is that mortgages front end load the interest payments so they look worse in the short term. In the end game most of your payment is principle.

That said...

If you are only paying $900 a month in rent and don't have $50k or so saved up for a down payment I don't see a strong reason for you to buy either.

chris said...

It was around 1000 sq feet, ours is a bit under. Wasn't top floor or corner and you looked straight into another building. I think it was in Oak Bay boundary, so at least while paying $3000 a month to live there and losing another $3000 a month in falling prices, at least you would be able to tell people you live in Oak Bay.

You would have to understand how CMHC surveys. Victoria has an incredibly high percent of multi-unit houses not included. Their survey is all we have to go on, but the real vacancy in Victoria is much higher than 3%.

What if I have over a million saved up, then is it smart to buy? And I'm paying a $1000 for rent. The $900 came from what I would be willing to pay per month to live in the 440,000 listing.

Paula said...

Great post, Animal Spirit.
It's also interesting reading articles from 2005-2008, eg., this one from the Seattles Times:
Seattle Housing Outlook 2006
" 'Seattle has never been a market that's prone to price drops,' said economist Matthew Gardner of Gardner Johnson, a Seattle-based land-use-economics firm. 'The way it works is, prices climb, plateau, stay there and then climb again. You might see an area where there was a short-term drop but not an across-the-board drop.'
Gardner predicts Seattle-area home prices will soften but not sink."

Leo S said...

@dasmo. Absolutely agree. Relative to other places rental market is still tight. Relative to how it used to be in Victoria it's much healthier now.

Just Jack said...

The vacancy rate for Victoria is slightly above the national average of 2.5%.

But what is a really really bad vacancy rate anyway?

Well that would be Windsor, which has 9.4%

So, is 3% good or not so good?

For a very very long time our vacancy rate was never over 1 percent. Which meant that we had a lot of single people moving to Victoria.

My suspicion is that Victoria is either having a net loss of single people or more people are doubling up to split expenses.

Just Jack said...

A 3 percent vacancy rate would probably mean that you would a good selection of 1970's style apartments to rent. You would also see for rent signs on some buildings that, in the past never had to advertise a suite for rent. Like some of the rental buildings in Oak Bay.

Or another way of putting it, would be if someone got off the bus at 9:00 today, they would be able to find, rent and move into an apartment before the end of the day in Victoria.

A 3 percent vacancy rate, most likely indicates one of our weakest city economies in the last two decades.

So the solution to affordable housing is simple - wait.

a simple man said...

have you seen the TC homes section from this weekend that highlighted the garden suites going in? I think these will also pull tenants away from Condos. They are new and many are really attractive - plus you get a yard, which for many is a bonus.

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

The media was crazy back then. Everything stoked the flames, from HGTV to Mike Holmes. Certainly house prices can go down. They have! In vic the median went down something like 5% from 2010 to 2011. This is why real estate is a risky investment. It's always a long play, and a single share is at least 5 times your annual salary. Plus, real estate is also a liability. You have utilities, taxes, maintenance etc. If you wan't to invest and play the market, go with stocks...

Paula said...

"Everything stoked the flames, from HGTV to Mike Holmes."

How true - those shows contributed so much to the psychology of it all - on TV 24x7, repeating the same mantras to buyers and flippers over and over again - making them think it's perfectly normal to demand granite countertops and basement suites ("if everybody's doing it on Property Virgins and Income Property, then I should too").

It's not surprising that the Canadian & Ontario gov'ts funded those shows - keeps everybody spending.

Marko said...

Looks like 1960 Cochrane is being flipped.

patriotz said...

"This is why real estate is a risky investment."

It isn't really. RE is the least risky investment apart from fixed income. By that I mean it's easy to determine what price makes RE a good investment.

A risky investment is one for which the earnings going forward are uncertain. The stock market is far more risky.

RE isn't risky, it's bubbly, which means that there are often a lot of people who are willing to pay too much for it. But that does not pose a risk to the rational investor.

dasmo said...

I agree patriotz...Risky is probably not the right word. the comparative risk in the stock market is you can turn your cash into nothing. I guess I just look at how I've done with stocks being relatively diversified and it hat investment has performed much better than real estate. mind you I haven't put as much into it because if it's risk. My point is if you are playing the market it's better to do it when you can diversify and put a smaller amount in at a time. Plus holding a stock doesn't cost you anything.

Investing in a home however is one of the best things you can do ;-)

Leo S said...

Sometimes it pays to be patient. 862 Phoenix sells for 98.6% of asking after 162 days on the market. 100 years old, $20k over assessment, and decorated by Johnny Depp on acid. But heck, it sold.

Phillip said...

On the somewhat amusing front, Canadian owners are trying to pawn off their american shacks to other canadians

http://victoria.en.craigslist.ca/reo/2869149784.html

Phillip said...

This may be part of reason -
http://www.theglobeandmail.com/report-on-business/economy/housing/home-prices-fell-in-december-in-most-us-cities/article2352381/

“If anything, it looks like we might have reentered a period of decline as we begin 2012.”
“Homes are the most affordable they've been in decades. And mortgage rates have never been cheaper.”
and yet they fall extraordinaire!!

Just Janice said...

Another bear bites the dust... It appears we will be joining the 70 percent, the vast majority of whom rent from the bank. We've negotiated a private deal with our landlord to buy the place we rent. We feel we are getting a good enough bargain and will be going for a 10 year rate...I am still a bear on real estate, but feel the context is okay in this particular situation.

commuter12 said...

Just Janice I believe you can still get 5 year 2.99% mortgages right now. If you pay like you're paying the ten year rate but take the 30 year amortization you've got maximum flexibility. 2.99% is pretty damn close to variable rate.

Leo S said...

Congrats Just Janice. Moving without moving, that's always convenient. :)

I'm curious as to why you went for the 10 year. Do you think a big rate jump is coming? I found this article on 10 year terms from a couple months ago very interesting

a simple man said...

Congrats, Just Janice. May your home be blessed with happiness and health.

Introvert said...

Another bear bites the dust... It appears we will be joining the 70 percent, the vast majority of whom rent from the bank. We've negotiated a private deal with our landlord to buy the place we rent.

Oh but renting is so amazing ... why would one ever want to buy?

And renting is cheaper than owning, says patriotz, so you're obviously making a huge mistake!

Leo S said...

And renting is cheaper than owning, says patriotz, so you're obviously making a huge mistake!

Egads! What is this contradiction?

It's almost like rent vs buy depends on many individual factors and is not a black and white issue! Heresy I say!

Introvert said...

Fresh start in Garden City

Here's an article in today's TC about a couple of tech entrepreneurs who decided, for reasons of lifestyle, to relocate to Victoria from Calgary. Happens all the time, folks.

Think the Colwood Crawl is bad? There are at least 15 Colwood Crawls in Calgary, every day. Terrible traffic. There's a permanent layer of smog blanketing the city that can be seen from a distance. The grass is brown all winter long. Flowers don't grow until June. The whole city moves "at the speed of business," which, unless you love business, really sucks. Houses are built entirely too large and all look the same. Calgary's lifestyle is so crappy that Calgary has to offer high-paying jobs just so people will move there. Calgary's new slogan: "Come for the jobs; stay because of inertia." Or maybe: "Come and make your killing, then move somewhere nice."

a simple man said...

The text from the Macleans article on the housing bust.

Good arguments. I am sure those two guys from Calgary are renting in Victoria, because they are well-informed.

However, limiting their client base to those companies that bring in more than $10M per year may have their sign disappear quickly from behind the Starbucks on Cooke St.

Phillip said...

“relocate to Victoria from Calgary. Happens all the time, folks.”
The stats are not jiving with your claim Introvert

2011, Quarter 2
All western provinces, except British Columbia, had higher population growth than the national average. Alberta and Saskatchewan were the only western provinces with positive net interprovincial migration in the second quarter of 2011. In the second quarter of 2011, British Columbia posted net international migration of slightly more than 9,500, the lowest second-quarter level since 2004. The province posted a slightly negative net interprovincial migration. British Columbia has not had negative net interprovincial migration in a second quarter since 2003. The province’s largest net interprovincial migration outflows (-1,200) went to Alberta.

2011, Quarter 3
For the first time since 2001, British Columbia posted losses in its third-quarter migration exchanges with the rest of the country (-700). Alberta posted the largest gains in interprovincial migration flows in the third quarter of 2011

Phillip said...

The latest 4th Quarter is not out yet so I could only control-C & V, Q3 & 4.

Phillip said...

The miraculous thing about Calgary with cheaper homes and much higher salaries is its prices keep falling.

Rhino said...

Introvert,
Thanks for the link. That is good news, we really need more smart young business savvy (i.e. not gov't middle manager types) people in this city.
But how does sky high real estate prices attract people like this?
In my line of work, I see many more people (especially young people) leaving for Calgary than coming the other way. At this stage in their life they want to make and save some money, not spend it all on housing.
So while all the things you say about Calgary are true, it doesn't change the economic realities of the 2 cities.

caveat emptor said...

Phillip
It wouldn't surprise me if there is net migration from Calgary to Victoria even if the overall provincial flow is in the other direction.

The economy is less bad in Victoria than many other places in the BC, so there is less incentive to leave. And of course the lifestyle incentives to move from Calgary to Vic are obvious if you can afford the housing costs and can find or make good work here.

I have spent lots of time in Calgary. It does have its charms (mainly the ability to be in the Rockies in 1 to 1.5 hours).Main thing that annoyed me about Calgary (and Alberta) is the self righteous conservative streak. Also annoying how they call themselves Westerners when clearly they are Central Canadians.

Just Janice said...

Why the 10 year? Our personal circumstances are likely to be vastly different 10 years from now with a vastly improved ability to absorb an increase in interest rates. I see us paying more in the first 5 years and less in the last 5 years - a 10 year at 4 percent gives us stability while we need it.

We will pay more than if we were to continue to rent - at least over the next 10 years. We know that. It becomes debatable after then.

Introvert said...

“relocate to Victoria from Calgary. Happens all the time, folks.”
The stats are not jiving with your claim Introvert


Sorry, I wasn't clear. I happen to know quite a few former Calgarians who have moved to Victoria for reasons of lifestyle. I also happen to know numerous people currently living in Calgary whose dream is to retire to Victoria. Then I read about two Calgary tech entrepreneurs who move to Victoria for the lifestyle, and my experience tells me this phenomenon does happen quite frequently.

By the way, when I read that Langford and Calgary are growing at feverish paces, I don't think, "Wow, those must be great places to live!" I think, "Desperate times call for desperate measures."

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

Introvert, "desperate times call for desperate measures" is what all the bears think when you trot out a story that describes some measure that will help the housing market. You see it as a sign that everything will be hunky dory, we see it as desperate measures. As with everything, it's all a matter of perspective.

a simple man said...

I, too, know two families that moved here exclusively for lifestyle. Both fathers commute regularly to Calgary (every week) for work.

DavidL said...

@Just Janice
We've negotiated a private deal with our landlord to buy the place we rent.

Congratulations! I did exactly the same thing ten years ago - with my wife and I buying the house from our landlord that we had then rented for ten years. Our landlord's investment broker convinced her that he could make her (read: himself) much more money in the stock market than by owning a house. It was obviously a good time for us to buy ...

There is a significant advantage to buying a house you have rented. You are familiar with quirks/idiosyncrasies of the house and are familiar with the pros/cons of the neighbourhood. Essentially, you have had a "try it before you buy it" opportunity.

However, I still suggest that you get a house inspection done before finalizing the purchase. When we did the same, there were no big surprises - with our home inspection uncovering a number of issues that we were already familiar with.

Good luck and congratulations!

Just Janice said...

The building inspection and market analysis was done before the first number was discussed. I feel we have been able to mitigate about 10 percent of the coming correction by circumvent realtor fees and remediation costs. The property is not currently "at it's highest use value" as such there are some opportunities to change that going forward (primarily by rezoning to duplex, tearing down the existing structure and building new).

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

I had to share this since it surprised me so much. Even though Regina's almost half the size, its gaining 719 more people each year than Vic. This could win bets between friends. Check Winnipeg, is it not smaller than Vic? -almost 3 times growth!

http://www.statcan.gc.ca/pub/91-214-x/2009000/t021-eng.htm

Btw congrats JustJanice

Just Jack said...

I know a fellow who leases commercial space in Toronto for a living. He's single and rents a condominium with an unobstructed view of the lake. He's made over $200,000 in the first two months of this year. He belongs to a private gym, just bought himself another BMW, has a gorgeous girlfriend and flies to Europe during long weekends.

Go ahead, try to tell him how much better his lifestyle would be in Victoria.

Leo S said...

From the McLeans article: "By the end of 2010, the average homeowner had just 34.3 per cent equity in their home"

I don't think this is accurate. Perhaps the average mortgage holder? I believe average equity for all home owners is around 60%.

Paula said...

When companies that employ more than 7 people (like Shaw, Telus, Safeway, Westjet, Westfair, Smart Tech, DirectCash, etc) starting moving head offices to Victoria it might make a dent in the out-migration numbers.

DavidL said...

@Just Janice wrote: I feel we have been able to mitigate about 10 percent of the coming correction by circumvent realtor fees and remediation costs.

I wouldn't be surprised. When we bought our home, it cost $800 for the survey and lawyer and about $300 for the inspection. Dirt cheap!

Paula said...

(and congratulations JustJanice!)

Introvert said...

I know a fellow who leases commercial space in Toronto for a living. He's single and rents a condominium with an unobstructed view of the lake. He's made over $200,000 in the first two months of this year. He belongs to a private gym, just bought himself another BMW, has a gorgeous girlfriend and flies to Europe during long weekends.

Go ahead, try to tell him how much better his lifestyle would be in Victoria.


You're right, this guy wouldn't like Victoria. He's too superficial and ostentatious to appreciate Victoria's lifestyle.

reasonfirst said...

Too bad our house prices are ostentatious.

Fiduciary said...

You're right, this guy wouldn't like Victoria. He's too superficial and ostentatious to appreciate Victoria's lifestyle.

Holy Don't Judge A Book By Its Cover Batman!

Anyways, the point is that the lifestyle here isn't for everyone. Everyone has anecdotes on both bull & bear side, but only hard data can override anecdotes.

Leo S said...

That's west coast elitism for you. Anyone that lives differently must be superficial and ostentatious!

Rhino said...

The "lifestyle" for most people is where they have good friends, family, and are able to do work they enjoy and is profitable for them. I know a lot of people who live in the Yukon, and are extremely happy.

However, according to Introvert you can only be happy if you leave within 20KM of the BC legislature. If you hit Langford you have gone to far...your life will be a living hell

Marko said...

Newer homes in the core continue to fetch solid prices....1351 Kings Rd, 1,834 sq/ft, 11 year old home in Fernwood for a cool $735,000.

Phillip said...

Nice house. Not surprising it almost received asking.

I kind of liked 1643 Saint Francis in Rockland for its big yard and view. I was somewhat surprised to see it go for almost 100k under their start price.

MC said...

Forget buying a house, I am just worried about being able to afford to continue driving!

Paula said...

Something's funny about 1960 Cochrane. The flippers are calling it a "masterpiece" but they've left everything unfinished - even tools lying around. The pictures say "we better sell at the top of the market and scram."

(the flips are getting annoying - I like high-end but I don't want somebody to decide for me that I need a useless soaker tub. I've hired reasonable contractors that'll organize all renos and permits that suit my family's tastes instead)

Phillip said...

I was thinking the same thing MC. Anybody remember how high gas went summer 2008? By memory it only hit 130cents a liter.

Leo S said...

@Phillip. I recall $1.55/L. The times colonist said it only went to 1.53/L though.

dasmo said...

I'm curious to see 1960 Cochrane. anyone share a link?
we know it was bought August last year for $490...

Also not a fan of the flips. Someone could have bought this and turned it into a nice home for the family they way they want...

Paula said...

Cochrane is MLS 305047 - it appears in PCS today but maybe it'll only show up in public MLS tomorrow.

dasmo said...

congrats Just Janice! Best part is you don't have to move!

caveat emptor said...

MLS 304735. Is this overpriced by 120K? Relative to the market I mean.

Just curious. I bike by this place. Looks nice and all - but 960K ??

dasmo said...

Nice place with all the check marks but 960K would be overpaying IMO.

patriotz said...

I, too, know two families that moved here exclusively for lifestyle. Both fathers commute regularly to Calgary (every week) for work.

You seem to have missed the dripping irony in these two sentences.

Just Janice said...

304735 is definitely overpriced - it's got the character thing going for it buy 960? We're in the same neighborhood but waterfront and on a larger lot - the house isn't as nice but we paid no where near 960....

vw said...

Teranet for December is out.

month-to-month change:
Composite11 = -0.16%
Vancouver = -0.31%
Victoria = -0.8%
Monthly decline on an average Victoria house = -$4800

vw said...

If interested in a supply/demand comparison last ten years,
see here

caveat emptor said...

article on the teranet release

http://www.theglobeandmail.com/report-on-business/economy/housing/home-price-index-falls-in-december/article2353809/

"Victoria, British Columbia, showed the biggest decrease, falling 0.8 per cent"

Fiduciary said...

I hate to be the contrarian here, but YOY the index is still up 0.32%.

a simple man said...

You seem to have missed the dripping irony in these two sentences.

Nope - I was perfectly aware of it and I point it out to them.

a simple man said...

In the past 24 hours, I have heard of three houses going up for sale after spring break - 2 because the couples can't afford the home anymore and one because of a separation.

Separations, while sad, happen all the time. but hearing twice that the people can no longer afford their homes is shocking. And these are "affluent" people.

Just Jack said...

So, you have decided to purchase a home and you think buying a "foreclosure" at below market value will guarantee that you will be safe from any market correction. So what kind of discount from market value can you expect?

If you live in Langford, it seems some of the homes selling under Conduct of Sale are back to 2005 price levels.

Like the recent sale on Selwyn for $328,000. In September of 2005 the same home was bought for $313,000. Generally, home prices in Langford are only back to second quarter of 2007 levels.

It wasn't too long ago that some of the more bullish of bulls on this blog were pooh poohing that prices would ever go back to 2005 levels.

Well, a return to 2005 prices doesn't seem too unrealistic anymore.

But could prices go back further? This same house was bought new in October 2004 for $290,000.

Anything can happen in a marketplace.

happy renter said...

"but hearing twice that the people can no longer afford their homes is shocking. And these are "affluent" people."

A simple man: was there some kind of change in their employment statuses? Or did they suddenly have some kind of extra cost in their lives?

DavidL said...

@happy renter

Many home owners just simply don't factor in all the costs of home ownership. Property taxes, insurance and basic maintenance (DYI repairs and maintainance) collectively costs about $450 to $600 per month. Many new owners do not factor in these costs when purchasing.

Within a few years, they realize that owning a house is costing then much more than they realize. If they haven't budgeted accordingly ... some end off selling.

DavidL said...

According to VREB, in 2005 the average SFH was selling for $463,399. How much is this worth in 2012?

Using the BOC Inflation Calculator $463,399 is now worth $531,171. (Keep in mind that the BOC calculates that inflation for these seven years has been 14.62% - under 2% per year. Many would argue that the "true" inflation has been much higher.)

VREB's numbers for January 2012 show the average at $567,268 - about 6% more than the inflation-adjusted average for 2005. Prices won't have to go much lower to return to the inflation-adjusted 2005 equivalent.

DavidL said...

Interesting to note that in January 2011, 40 townhouses sold, averaging $444,072. In January 2012 - another 40 townhouses sold ... but this time the price was 8½% less, averaging $406,121.That's a pretty hefty drop for a new homeowner ...

a simple man said...

happy renter - as far as I understood it, it was as David L says - the costs of home ownership just became too much for them. The costs have been marching upward every month, it seems.

And even the folks in Oak Bay are feeling it with some starting to succumb to it.

Introvert said...

VREB's numbers for January 2012 show the average at $567,268 - about 6% more than the inflation-adjusted average for 2005. Prices won't have to go much lower to return to the inflation-adjusted 2005 equivalent.

When one factors in all the complexities related to the financial prudence of buying a house, I bet even economists would be hard-pressed to arrive at any reliable conclusions.

Let's consider:

- house price in 2005
- house price in 2012
- inflation-adjusted house price in 2005
- inflation-adjusted house price in 2012
- mortgage principal in 2005
- inflation's effect on mortgage principal from 2005-2012
- mortgage interest rate
- mortgage term
- mortgage amortization
- fixed rate mortgage
- variable rate mortgage
- biweekly, semimonthly or other
- whether extra payments were made
- rate of return on down payment from 2005-2012 minus inflation and fees had you not bought
-rental market conditions from 2005-2012, inflation-adjusted

Most or all of the above considerations should really be woven into some sort of an algorithmic matrix that somehow spits out some numbers that can be compared to one another so that a truly reliable conclusion may be reached.

Kinda just makes one want to say, "Screw it. I'm buying a house no matter what." (Not saying that's a smart or even justifiable response.)

patriotz said...

The costs have been marching upward every month, it seems.

But as long as house prices kept marching upward the home ATM was open.

Now that house prices have flattened out it's closed.

Another reason why flat tops are not sustainable.

a simple man said...

Yes, the ATM has been shut. I know a family in Oak Bay that are small business owners as well. They only started heating their house during the Christmas season because they had guests. They could not afford to pay the heating bills if they had the heat on. Again, I could not believe my ears.

a simple man said...

the situation in Oak Bay is a lot worse than people suspect. I hear it all around me - people are really struggling. I have said it before, but now it really is becoming commonplace to hear complaints about the cost of living.

DavidL said...

@Introvert wrote: When one factors in all the complexities related to the financial prudence of buying a house, I bet even economists would be hard-pressed to arrive at any reliable conclusions.

I don't think that it is nearly confusing as you make it out to be. Simply put, what it the real cost of renting versus to total cost of owning ... and then how much of a premium are you willing (or able) to pay so that you can own. Additionally, if the cost of ownership increases (rising interest rates, unforeseen repairs, etc.), can you afford the additional cost?

For many, purchasing real estate is an emotional decision. It ought to the a rational decision. No fancy economics required ...

patriotz said...

"I bet even economists would be hard-pressed to arrive at any reliable conclusions."

Nothing could be more wrong. There is massive empirical evidence that price/rent of over 150 (give or take a bit to adjust for local taxation and other factors) is not sustainable in the long run.

There is also massive empirical evidence that house prices must track incomes in the long run.

It's really that simple and people who claim otherwise are trying to run a con job.

dasmo said...

Salaries can rise.

Mindset said...

Salaries can rise? I suppose they could, but they aren't.

dasmo said...

I guess we will see how the Teachers job action turns out.

a simple man said...

House prices are far more likely to drop than salaries increase in this economy.

The writing is on the wall.

commuter12 said...

Yeah I remember how much it used to cost to heat a piece of crap with no insulation so I guess I could see people complaining about it living in an Oak Bay "character" bulldozer friendly home. That's got to be one of the biggest scams ever pulled BTW.

Here's my "character" 1912 death trap with crumbling cast iron pipes, no weeping tile, no insulation, asbestos products of various kinds, years and years of shoddy repairs. Because it's so old it's worth tons of money though!!!! Some people are so stupid.

Marko said...

Thursday March 1, 2012 8:00am:

February February

2012 2011

Net Unconditional Sales:

497 488

New Listings:

1,318 1,276

Active Listings:

3,977 3,714

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

happy renter said...

"And even the folks in Oak Bay are feeling it with some starting to succumb to it."

This will get interesting.

Talked to someone yesterday who bought a house in Oak Bay in April after stretching her finances to the absolute max, but then she just found out 2 weeks ago that she has to move for work. That's gotta hurt like crazy on realtor fees alone.

a simple man said...

Here's my "character" 1912 death trap with crumbling cast iron pipes, no weeping tile, no insulation, asbestos products of various kinds, years and years of shoddy repairs. Because it's so old it's worth tons of money though!!!! Some people are so stupid.

So true. Not worth half the price they are asking.

NewVicResident said...

I lived in a couple of character home in Edmonton AB. When you talk about heating costs it was around $300 per month and we still wore scarves while in doors. I remember that we put towels at the bottom of all exterior doors but that snow would still blow in and then not melt. Despite all of that, I still miss the high ceilings, creaky stairs and floors and the wood trim (although it was just fir). In our first house in the basement I actually built a little timeline of all the things that had happened since the house was built (World War I, World War II, Newfoundland becoming a province...) Its corny but somehow it made it feel more significant living there. In Victoria if your house is pre-1925 it would have been built when Victoria won the Stanley Cup! Not that it justifies the costs and discomfort, but there is something to be said for historical houses...

a simple man said...

Once again, it looks like sales are pretty much a carbon copy of last year, which was a disaster for RE agents here.

Volume a little higher - I wonder if this will continue into the spring (higher relative volumes than last year)?

dasmo said...

My 1933 house is in better shape that a lot of new built's 5 years later. Those true dimension 2 X 12 old growth fir floor joists are hard to beat! So is the clear grain cedar siding.

Another interesting note is I talked to the son of the original builder and it was built in 1933 for $3500. The fire place was a special feature as it cost $300.

Leo S said...

I'm very surprised that listings are higher than last year. I thought they were going to come in lower or the same. Sales/List at 38%, identical to last year.

Leo S said...

3165 KINGSLEY looks very familiar. Anyone know what it was listed for before? Seems like a reasonable deal now... although I think it's right behind some apartment buildings.

Introvert said...

I don't think that it is nearly confusing as you make it out to be. Simply put, what it the real cost of renting versus to total cost of owning ... and then how much of a premium are you willing (or able) to pay so that you can own.

I respectfully disagree. Real cost of renting vs. total cost of owning does not factor in house price increases/decreases, for example. The person who bought a house in 1998 and then sold it today would pocket so much tax-free money; this circumstance is not built into your simple RCR vs. TCO calculator.

Obviously, future house prices are unknown, so one can't factor in such variables very easily. However, the person who bought in 1998 and sold today would almost invariably be better off than the person who rented during that time, yet the RCR vs. TCO calculator would have, in 1998, probably suggested that renting was preferable to buying.

Plus, I think there are numerous other variables that ought to be considered within a comprehensive cost-benefit analysis.

Does anyone else agree with me? Or am I wrong and things are, in fact, really, really simple.

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

I sort of see both sides, Introvert. You're right in that the possible gains from real estate certainly factor in to the equation, but because future gains are so uncertain, I think it may be easiest just to lump those in with the other non-tangible benefits of owning. So the simple cost/benefit analysis comes out with a dollar figure of the difference in cost between the two. That dollar figure is how much it will cost you for the set of non-tangible benefits, one of which is the "investment", which could possibly be converted to a tangible benefit at a future date, or to a tangible loss. But because you're trying to put a dollar figure on the future market, I just think it's impractical to try to incorporate that into a formula.

chris said...

I am on the side of
things are really simple in Canada.

As the IMF shows, Canada is the highest. I've done the numbers with CMHC city rents and we have the highest ratio in Canada. Thus the city of Victoria has the highest price-to-rent ratio in the world. To me, that's something simple.

caveat emptor said...

Introvert

I think it IS quite simple that houses in Victoria are at least somewhat overpriced now. I agree with patriotz on that one.

However I definitely agree with you that the cost of renting vs owning is a complex equation and depends on things that are unknowable in advance like future interest rates, future sales price of house, possible unknown serious defects in house, future tax policies of municipality, inflation rates, etc, etc, etc.

One of the benefits of "owning" a house is that it forces you into a saving plan. In my experience most renters don't save as much as a mortgage forces you to. In fact THAT is one of the benefits of renting, you're free to spend the cost difference on other things.

If you are a renter saving a bundle of money and investing it wisely, good on you, but you are a fairly small minority

patriotz said...

"Does anyone else agree with me?"

What you are describing - buying an investment with low yield in the hope of coming ahead from capital gains - is a speculative bubble, by definition.

It's also a Ponzi scheme, which is why all bubbles eventually fail.

Fiduciary said...

As the IMF shows, Canada is the highest. I've done the numbers with CMHC city rents and we have the highest ratio in Canada. Thus the city of Victoria has the highest price-to-rent ratio in the world. To me, that's something simple.

Chris, there's a logical fallacy there. You're using data about a subset to deduce facts about a superset.

a simple man said...

To buy RE in Victoria now witout negotiating a significant discount you sure do need a superset...err, um. ya.

mrmike said...

If you're desperate you might accept a discounted offer. I know when I list in the spring and had a serious discounted offer I would simply say no. Why? cuz I don't have to sell.

Paula said...

"using data about a subset to deduce facts about a superset."

It sure seems like Chris is applying Deductive Reasoning, using IMF data about a superset (World/Canada) to deduce facts about a subset (Victoria): 1) Canada is highest in world, 2) CMHC says Victoria is highest in Canada, 3) Thus Victoria is highest in world.

But that's probably for another blog :)

Leo S said...

The CMHC rental data is also somewhat questionable since it doesn't include a lot of the suites that get rented out. I don't recall the details but its flaws have been discussed on VV.

dasmo said...

Explain how buying a home is a Ponzi scheme?

pod_x said...

I respectfully disagree. Real cost of renting vs. total cost of owning does not factor in house price increases/decreases, for example. The person who bought a house in 1998 and then sold it today would pocket so much tax-free money; this circumstance is not built into your simple RCR vs. TCO calculator.

Take away the oversized and historically unexpected gains over the last 10 years, are they still ahead? If you buy today, and count on future 10% annual gains, that is just speculation that could have easily gone the other way. If buying in 1998 made sense, then that should still hold true today, even absent 10% PA.

You come out ahead on your investment/purchase when you buy it. You don't have to build anything into your calculator besides income, growth, costs and risk. If you're counting on some bubble to come out ahead, you're doing it wrong.

Fiduciary said...

Paula: he's saying that since Victoria is the highest in Canada (the subset), it must be the highest in the world (the superset). This is a fallacy because the fact he uses to establish that Canada is the highest in the world uses the averages of many cities to rank them. If you look at each country in the world, every city isn't going to be exactly at the average. One of those cities may be extremely unaffordable, but offset by an extremely affordable city in that country.

I'm glad you called me on it though, arguing points in a nice, logical fashion is rare enough that I enjoy it. :)

pod_x said...

Explain how buying a home is a Ponzi scheme?

He's not talking about "buying a home", but rather buying an investment (house or otherwise) with the sole expectation of oversize gains. People sell houses to each other, for someone to make money they have to sell at high overvaluation to another person.

There is plenty about a bubble market to make a comparison to a Ponzi. The ones who get in early are the only ones able to get out and make money. Later entrants fuel the profits of those at the top. And of course the prevalence of equity withdrawals to finance further real estate purchases and investments, ie, asset-based lending.

mrmike said...

Sorry to be off topic, but is asbestos listed on the property disclosure statement? Worksafe has really stepped up enforcement.

worksafe

My mother inlaws friend in sooke was just told would cost her 80k in remediation.
Might want to think twice about buying these oakbay shacks, could very well be toxic assets.
Even if not disturbed would you really want to live around that stuff?

dasmo said...

Sorry but it's nothing like a Ponzi scheme. It's closer to a Pyramid scheme but even then it's not the same thing.

a simple man said...

Might want to think twice about buying these oakbay shacks, could very well be toxic assets.
Even if not disturbed would you really want to live around that stuff?


Exactly. When I buy in Oak Bay the renos will most likely involve an excavator (still have to deal with asbestos, though).

these remediation companies will take you rot the cleaners. I heard of a couple saving tens of thousands by buying hazmat suits and disposal bags and removing and replacing their own insulation. Not rocket science, just the fear-factor, but if you protect yourself, it should be a piece of cake.

DavidL said...

@mrmike wrote: Sorry to be off topic, but is asbestos listed on the property disclosure statement?

You are totally on topic! This blogs all about housing in Victoria, and asbestos (often hidden in vermiculite insulation) can be a big problem here. As far as I know, if the homeowner or realtor knows about asbestos, then they are legally obliged to disclose it. Otherwise, no disclosure is required and the home buyer could have a very expensive discovery after purchase. I have heard stories about sellers being willfully ignorant about asbestos (suspected that it could be, but afraid to get confirmation).

I strongly recommend a home inspection prior to purchase, and if in doubt - bring in as asbestos specialist to do an inspection.

About 5 years ago, a friend living near Duncan found their attic was full of vermiculite with asbestos while installing a kitchen ceiling fan. She and her husband did all the remediation themselves: it took two weeks and about $15K. They were quoted about $40K from a contractor, but by doing it themselves - they saved significant dump fees at the landfill.

dasmo said...

sounds like they got burned in a huge way. I just bought a house that had vermiculite. I negotiated another $5K of the price after finding out. Got it sucked out with certificates from Pacific Environmental Consulting and Worksafe BC passing air clarity. about 1000 sq foot attic for $7500 all in. Took 4 days.
http://www.removall.ca/

mrmike said...

She hasn't got it done yet just quotes. Big house and found in drywall\ plaster,flooring, heat ducting. Sooke wont issue a permit until it's passed. 80k before the reno even starts. Surprised they let you dispose of it yourself.

Paula said...

Fiduciary, thanks for pointing that out – the IMF data is based on averages, and one of those averages may include numbers higher than Victoria’s. So the starting premise is the issue. It’s true, the debates keep this blog interesting!

dasmo said...

I didn't do it myself. I used RemovAll Remediation. They were great. You might want to get a quote.

patriotz said...

"Sorry but it's nothing like a Ponzi scheme. It's closer to a Pyramid scheme but even then it's not the same thing."

If you have problems with those terms then you can stick with bubble, which it is by definition.

Bubbles eventually fail because at some point there will not be a greater fool willing to pay a high enough price to turn a profit (inclusive of the carrying loss) for the current buyer.

patriotz said...

"the current buyer"

That should be the current owner, i.e. the seller.

Leo S said...

1242 Astra is in a rush. Dropped 50k in 3 weeks.

Marko said...

http://www.hc-sc.gc.ca/hl-vs/iyh-vsv/prod/insulation-isolant-eng.php

DavidL said...

Surprised they let you dispose of it yourself.

If I recall correctly, five years residents of the CVRD could take asbestos laden vermiculite to the dump for minimal cost, while a contractor has to pay a significant "hazardous waste" fee.

dasmo said...

$100/ton in theory
http://www.crd.bc.ca/waste/hartland/documents/appendixg.pdf
Maybe I should have gotten a Hazmat suit!

Leo S said...

Colleague of mine did it himself when he bought a place last spring. I believe the quote he got was for about 6000 to have it professionally removed, but the building inspector said lots of people just put on the suits and do it themselcesz. So he did and saved the money.

Leo S said...

Want to short the housing market? The Australians now can.

Rhino said...

Its kind of funny how the local govt makes such a big deal of asbestos, like its the plague. But the feds see no issue mining and shipping it to developing nations to use in their new homes.
Its either chicken-little's at the local level or total assholes at the federal level. Not sure which? Both perhaps

DavidL said...

Watch this video (from CBC) about Canada's asbestos industry, and it's pretty obvious who the a**holes are:
Canada's Ugly Secret

Animal Spirit said...

Fire Sale on Victoria Houses

I'm surprised that the VREB February Stats Report
hasn't been linked yet.

"The story continues from last month when the Victoria Real Estate Board reported a relatively stable market when compared to the same time in 2011"

"February’s sale volume was virtually identical to that of February 2011, but the average price softened by 5% for single family homes over February 2011. The average sales price for a single family home in Greater Victoria was $579,985, with a six-month average of $594,027, showing a corresponding decrease of 4.7% over February 2011"

Guess that -5% is stable (6% on median).

Let's see what the talking heads in the media say to 35,000 bigs ones out of the median sales price. Media, median - something is wrong with this picture...

Leo S said...

I prefer this video :)

caveat emptor said...

Back to Sept 2007 prices?

First month with monthly average higher than Feb 2012

DavidL said...

The future of housing? Actually, it might be perfect for a vacation property...

Buying your house from Ikea? Swedish furniture maker launches $86,000 flat-pack DIY home

Just Jack said...

For the urban core districts the marketplace for detached homes has rolled back to 2008 price levels

Here is the year, number of sales and median price for February in the Urban core.

2012
131 sales
$576,900 median

2011
132 sales
$615,000

2010
156 sales
$630,000

2009
127 sales
$504,500

2008
164 sales
$558,950

2007
202 sales
$519,500

2006
170 sales
$467,500

Of course the lower the volume of sales, the more dysfunctional the market becomes. For the last two years the market has been shallow.

As most mortgages are 3 or 5 years, you should look back 3 and 5 years in the data. Those that bought 3 and 5 years ago are looking at an increase of 10 to 15 percent in value. For some that isn't enough of an increase to refinance their homes and pay all of their credit card debts. In the condominium market this may also signal a large sell off of rental suites as people try to solidify their personal economic condition.

People will be cutting back in their expenses and trying to economize. That means a contraction in the economy resulting in layoffs and wage concessions.

And that's what is happening today. The talk about town is about how to save money as well as extending their amortizations.

I think Flaherty may roll amortizations back to 25 years. Because of how shallow the market is, that reduction will have an affect on our prices. It may not be a substantial affect, but it will be noticeable.

There comes a time when their is not enough sales or economic activity in the community to support high prices.