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.
February 2012 month to date (previous weeks in brackets)
Net Unconditional Sales: 311 (179, 80)
New Listings: 818 (557, 245)
Active Listings: 3676 (3629, 3539)
Sales to new listings ratio: 38% (32%, 33%)
February 2011
Net Unconditional Sales: 488
New Listings: 1276
Active Listings: 3714
Sales to new listings ratio: 38%
Sales to active listings ratio: 13% or 7.6 MOI
Sales finally heated up a bit last week and we're now at the same sales/list as last February. Listings rate is trailing a bit but we're heading for a near as makes no difference repeat.
Marko Juras reports that SFH average is running at $615K, while condo average is $300K.
160 comments:
i just heard today that there are still people trying to flip houses in Victoria.... wonder how they are doing.....
I would think that in a flat market PTT, real estate commissions and closing costs would eat up any profit unless you added some real value with the reno (more than new paint and granite counters!). Then again maybe some people are suckers for that new granite!
Speaking about renos, I saw this on Times Colonist
"Gradual makeover uncovers impressive architectural details hidden by years of poor renovations"
http://www.timescolonist.com/life/at-home/life+charmer+with+video/6174824/story.html
I can't even imagine which house in the city has good renovations.
here is an idea for flippers. Take pictures of everything you do when you start to rebuild a flipped place. Take pictures of when the wall is bare, when you put in insulation, vapour barrier, etc. Take photos of drain tiles going in and plumbing being done. Take photos of the trades trucks that did the work, etc. Present this photobook to prospective buyers. Then they know what they are getting.
I know a couple of guys who constantly flip houses in Victoria about every 2-3 years, and claim proudly they will "flip houses forever". Obviously such statements are an indicator that they've been successful so far, and I must admit, given it's a 2 person team with practically no outside help and how extensive some of their renos are, they do a pretty amazing job - at least by my standards; but hey, I can barely paint a wall without leaving streak marks, so what do I know?
I warned them just before they bought their last house recently that the market could turn at any time or that interest rates will eventually go up though not likely in 2012.
I'm guessing they'll get away with one more flip. After that, the next one may do them in financially.
This is primarily because they keep doubling down with each new flip. Whatever profits they made in the last flip, they sink nearly all of it in buying a bigger or more expensive house in better neighbourhood.
Anyway, to each his own. It's not my place to talk people out of their dreams, even less so if they've only tasted success.
But I can see the train wreck coming a mile away. They are super nice people and I'm not going to rub it in their faces when the market eventually turns, but man that's going to be one long lasting painful lesson.
When you are looking to buy it's very irritating dodging the flips. They take a $400K house and slap some crap on it to sell it for $650K. They never do a good enough job for you to not do anything to it. Especially because they will never do a fence ore landscaping as those are "money losers". Luckily they are easy to spot because they will have a hot tub, fresh paint, granite counter tops but a falling down fence and a run down yard...
Dasmo, you forgot about the bark mulch to cover the weeds!
lol..nice one. Fresh bark mulch is a sure sign of a flipper!
$10,000 for people purchasing their first home in BC - and needs to be a newly-built house. Falcon says the hardest thing is getting the downpayment.
Nope - hardest is losing a house that you couldn`t afford in the first place and hard is watching the govts dollars disappear in a correction.
fools.
It will be interesting to see if the govts $10 k can save the condo market from what was almost certainly a decent decline. It just might.
omc - I think it will certainly wring out those last few buyers that didn`t come out during the recent 2.99% mortgage offers.
I also imagine we are going to hear a lot of whining from the people that did buy in the past year who missed out a $10,000 windfall.
I might be over simplifying a bit, it could simply be some sort of bridge towards the HST being removed. In that case the condo buyers in Langford wouldn't benefit.
Almost all developments include NET HST so the $10,000 tax credit I see as standing on its own - pretty sweet deal for first time buyers!
This is going to help out some of the developments in Langford in my opinion.
"one-time refundable personal income tax credit worth up to $10,000."
I've read this again and I've started think is this really a $10,000 windfall or just a $10,000 tax credit which would amount to a lot less than $10,000? Can anyone clarify?
It's a tax credit. You save $1500 in tax. Don't spend it all in one place:)
Meanwhile the feds might be tightening credit again soon. One hand giveth while the other taketh away.
No, that's $10,000 (maximum) actual cash back.
But once you've bought your shiny new house or condo, what would it sell for to the next buyer without that $10K?
Who is getting the actual benefit from this credit?
It’s a personal tax credit that depends on your 2012 income. See document from Ernst & Young
“The budget also proposes a number of new personal tax credits, as follows:
First -Time New Home Buyers’ Bonus provides a refundable tax credit of up to $10,000 for first-time buyers who purchase qualifying newly constructed homes prior to 31 March 2013. The refundable credit will be equal to 5% of the purchase price of a home to a maximum credit of $10,000, and will be phased out for net incomes in excess of $150,000, and is eliminated completely for individuals earning $200,000 in net income and families earning $250,000 net.”
So you actually get $10,000 back versus reducing your taxable income by $10,000?
The document describes it as a tax credit against your 2012 income tax (not cash back). But it's best to ask an accountant or Ministry of Finance to be sure though.
Yes refundable means that even if you paid no income tax you get a refund. There will be interesting financing arrangements made on this deal for sure. You sign over the refund and it counts as a down payment etc.
Good point - the key is "refundable" (which also directly reduces the BC part of your tax).
The supply of land for sale in Victoria shot up with the budget. Falcon is selling out many of their core buildings and land. Some incredible locations along the harbour, but even the less desirable stuff like the parking lot behind the parliament will make for incredible condo high rises.
The supply of land for sale in Victoria shot up with the budget. Falcon is selling out many of their core buildings and land.
This is bad policy, in my opinion. Yes, the government can make some money today by selling this land, but when the government needs land for some future project, it will likely be buying back some of the same parcels at 1.5 or two times the price that it sold them for. Very short-sighted.
But, the budget must be balanced at all costs by the next election for there to be any credible chance of winning reelection...
I agree, Introvert. Do not sell off assets like land to balance the books.
But if prices are going down as predicted by many on this blog wouldn't this make sense? Sell high, buy low?
Maybe the price in the future will be lower, maybe higher. The problem with selling assets to cover up a hole in the budget is the hole will still be there next year, unless steps are taken in parallel to also address the shortfall. Governments do not have a lot of leeway to rapidly increase taxes or reduce spending, so I wouldn't expect the situation to magically resolve itself in the future.
"Who is getting the actual benefit from this credit?"
I agree, it's supposed to be 5% of sale price, up to $10k, which works out to 5% on $200k, so those benefiting most are new condo builders. (buyers aren't going to gain much in a flat or down market, and new houses or condos are typically more expensive than existing)
Claiming that budget will be balanced with one-time asset sales is highly disingenuous.
If any consumer does that it's a sign of severe financial distress, but our government wants a pat on the back for it.
Canadians expected to work past 66
So I guess instead of hippies with dogs we'll have those broke boomers on the streets of Victoria asking for spare change. After all they're coming here to retire..
likely be buying back some of the same parcels at 1.5 or two times the price that it sold them for.
Ye never know what the future might hold. If we were to follow say Orlando or Osaka's path (not sure why O's came to mind), the Liberals might look brilliant buying it back for 20 cents on the dollar.
Ye never know what the future might hold. If we were to follow say Orlando or Osaka's path (not sure why O's came to mind), the Liberals might look brilliant buying it back for 20 cents on the dollar.
Yeah, the BC Liberals might look brilliant one day--but I doubt it!
Take the land behind the legislature, for example: who thinks that in five or 10 years it could be purchased for less than it could be sold for today? Seriously.
From Kevin's MLA website:
Kevin received his Bachelor of Arts from Simon Fraser University and his real estate sales and mortgage brokers diploma from the University of British Columbia.
First, with only a "BA from SFU" what the hell does this guy know about finance, economics, or anything someone in this position should know about?
Second, the guy is a real estate agent. With real estate agent & developer buddies.
Is anyone really surprised?
B.C. First-Time New Home Buyers’ Bonus
This is a new temporary, one-time refundable tax credit for first-time home buyers who purchase a newly-constructed home. The credit is 5% of the home’s purchase price, to a maximum credit of $10,000. This credit is income-tested, in that it will be phased out at a rate of 20% of net income in excess of $150,000 for single individuals and at a rate of 10% of family net income in excess of $150,000 for couples. The credit applies only to purchases where a written agreement of purchase and sale was entered into on or after February 21, 2012.
"the parking lot behind the parliament will make for incredible condo high rises"
Not without major protest. There should have be a "view corridor" behind the parliament buildings so you can see it's profile nice and clear. This lot's destined for low rise...
"This credit is income-tested, in that it will be phased out at a rate of 20% of net income in excess of $150,000..."
Well I guess Jim Pattison won't be getting his 10 grand.
This kind of talk, the goal being to make people think that this handout to developers is some kind of favour to the middle class, would be funny if the whole thing weren't so disgusting.
Yes Patriotz, the provincial govt has learned well from the feds and the CMHC!
This refundable tax credit is NOT a tax refund. Most tax credits are non-refundable (Fitness, Arts (new this year), disability, etc). You can only take your tax to zero and no more. All "refundable
means is you get money back, even if you don't pay any tax (like the GST Tax Credit). But its definitely a tax credit NOT a deuduction. It will save most people 1500 on federal tax plus provincial tax so like 2,500 or so.
The 'bonus' is designed to bring FTB into condos and lower end homes - and basically operates as a subsidy for developers.
Interestingly, it will logically draw the same buyers away from resale and not do anything to produce chain move-up events. The impact therefore will likely be: (i) dollars for developers (good lobbying has occurred): (ii) a few more rush builds to complete before next April; (iii) reduced demand and therefore prices for re-sales.
ouch.
"This refundable tax credit is NOT a tax refund. Most tax credits are non-refundable (Fitness, Arts (new this year), disability, etc). You can only take your tax to zero and no more. All "refundable
means is you get money back, even if you don't pay any tax (like the GST Tax Credit). But its definitely a tax credit NOT a deuduction. It will save most people 1500 on federal tax plus provincial tax so like 2,500 or so."
I talked to a few people today and I think you are in the wrong.
Marko,
It's like the 10k renovation home tax credit of a couple years past. It wasn't a 10k deduction or grant.
I've talked to qualified government employees I know and I am hearing that this will be applied against tax payable.
One of my clients called the ministry today and they confirmed it?
I could be wrong........
To clear things up:
Here is the Ministry of Finance fact sheet on the 'bonus'
The budget document shows a cost of $24M for this
From an internet search: "As a quick reminder, tax credits directly reduce your tax liability on a dollar-for-dollar basis. In contrast, tax deductions reduce your taxable income (and thus result in a fractional decrease of your tax liability)"
Marko appears to be right - up to $10,000 in taxes payable deducted, not $10,000 in taxable income, CFA Joe not, and I don't have a clue about stuff like this. Except Marko owes me a beer.
Its a refundable tax "credit", not grant, not deduction. Pretty simple! Lucky if you get 2.5k MAX back on this. Work in the field.
CFA_Joe - can you provide a link to back up your statement? All that I have found (and linked to) says fully refundable, even if the amount refundable goes beyond the amount of income tax paid.
Note the difference in language between tax credit and tax deduction. You may be conflating the first with the second.
This is the key "The bonus is equal to 5% of the purchase price of the home (or in the case of owner-built homes, 5% of the land and construction costs subject to
HST) to a maximum of $10,000.
So, at 24 million and $10,000 a pop, the budget forecast is for 2,400 new homes to be sold and ownership taken between now and March 31, 2013. To only those who have never owned a house before.
Any over/unders for the budget on this next year?
http://youtu.be/1q3pEEZj96Y -> 4:18 seconds in.
I was just reading up on the US $8000 tax credit for first-time home buyers that was introduced in 2008. Interestingly, this "credit needs to be repaid in equal installments over 15 years", rather like the Canadian federal RRSP Home Buyers' Plan.
I wonder if by the BC Gov is planning the same thing as in the US ... requiring the tax credit to be repaid?
You mean changing the law after the money has been paid out requiring people to pay it back?
I really don't think so. That would make Gordo look like Abe Lincoln.
Average consumer debt hits $25,960:
http://www.theglobeandmail.com/globe-investor/personal-finance/home-cents/average-canadians-consumer-debt-hits-25960/article2346243/
Yowza! Too many BMWs Gordon....
In case anyone missed the chek point on cheknews last night (go to cheknews.ca for video) about the civil service. Victoria will see thousands of job cuts over the next 3 years and no subsidies for the Ferries. Great news for the long run but could be a painful few years for some until we get our deficit under control. Along with the hundreds of millions in gov land sales, these will be noticeable changes over the next 3 years.
Victoria will see thousands of job cuts over the next 3 years and no subsidies for the Ferries. Great news for the long run but could be a painful few years for some until we get our deficit under control.
No, bad news in the long run. Besides, when the NDP wins government in a year's time, all those jobs will return.
If the government needs to get its deficit under control, it should begin by raising corporate taxes from its current obscenely low levels (if companies say they'll leave the province, we call their bluff). They might also chisel the gold plates off of MLAs' pensions, claw back the giant wage increases MLAs gave themselves a few years ago, not spend money on stupid things like stadium roofs--the list goes on. This province is woefully mismanaged. But I digress.
Is MLS 304230 a flip?
“when the NDP wins government in a year's time, all those jobs will return.”
So where are we going to get the money to pay for all those gov't job - oh yeah, just increase our tax rates - that'll go over well.
Some people must be too young to remember the NDP-mismanaged $454M Fast Ferry Fiasco, Harcourt's Bingogate, Dave Barrett's use of taxpayer money to buy a potato chip factory (in the Kootenays - it failed) and a poultry factory and a restaurant and BC art (now sitting in storage), tons of government expansion, and then the inevitable job cuts because they can’t raise taxes fast enough. The few times the NDP led this province (80s and 90s), the economy went into the toilet. Talk about making the province go bankrupt. But I guess history repeats itself.
Good stuff:
Bank of Canada issues fresh debt warning
Flaherty in the article from the G&M that I posted above:
"It isn't necessary for everyone to have the most expensive house they could possibly buy, maxing out the potential mortgage they could get from a financial institution. In fact, it's probably easier on people if they do a little less of that and have more cash in their lives and enjoy life a bit more. So moderation in all things."
@happy renter
Thanks for the link. Quoting from the G&M article:
In Thursday’s report, central bank officials said loans backed by homes made up almost 50 per cent of all consumer credit last year, largely to finance home renovations, a surge from 11 per cent in 1995.
Fifty percent of personal debt in a HELOC could mean very tough times when trying to sell in a stagnant or dropping market. If the debt cannot be repaid when the real estate is sold, the remaining debt will have to be refinanced at exhorbitant rates.
^^Just before I read that, I had a conversation with a colleague who bought a house a few months ago and took out the absolute maximum mortgage that he could get. He explained to me at the time that this was a brilliant idea because as he ages, his salary will only go up and so it will be easier and easier for him to pay off the mortgage. I didn't have the heart to suggest that interest rates might go up more quickly than his salary (trust me, as someone who works for the same employer, I can tell you that his salary isn't going anywhere quickly), but I was horrified that he hadn't thought of that himself. There are a lot of people out there who have no clue how to manage their finances and no sense that the current state of interest rates and property values isn't permanent. The conversation that I had with my colleague today was about how he's so broke because of his huge mortgage that his bank balance is negative every month. He's concerned that the hot water tank is about to break and doesn't know how he'll replace it. It was like I was listening to the nightmare scenario that I've always speculated must exist somewhere, but here it was right in front of me. He then told me that he and his wife don't think they'll manage to take a vacation off to island for years to come because of their debt and the cost of the ferry, etc.. "Moderation in all things," indeed.
More from today's G&M:
Canada's Housing Bubble: This time it's not different
"Some people must be too young to remember...Harcourt's Bingogate"
Sounds like you are too young to remember. The actual misappropriation of the charity bingos happened while Harcourt was mayor of Vancouver and held no position in the NDP, while the provincial government - which was responsible for the oversight of all charity gambling - was headed by Bennett and Vander Zalm.
It's associated with Harcourt simply because he was premier when the scandal broke.
"The few times the NDP led this province (80s and 90s), the economy went into the toilet."
The NDP did not hold office in the 80s, which was the worst decade for unemployment since the 30s.
There are plenty of legitimate criticisms of the NDP but don't just make things up.
"It isn't necessary for everyone to have the most expensive house they could possibly buy"
So why is Flaherty providing mortgage guarantees that enable people to do exactly that?
It's so obvious that he's setting himself up to do a Pontius Pilate when things get ugly.
“The NDP did not hold office in the 80s.”
Yep, that was a typo – that’s right, the 70s.
“don’t just make things up”
Not at all. These are the facts:
“Harcourt resigned as premier in February 1996 as the result of "Bingogate", a scandal in which an NDP member, David Stupich, used money raised by a charity bingo to fund the party. While Harcourt had nothing to do with the scandal, he took political responsibility for it.”
http://en.wikipedia.org/wiki/Bingogate
@Introvert
Agreed.
@Paula
You might want to check your facts .. Every NDP MLA present in the legislature voted in favour of the balanced-budget legislation introduced in 1991 (originally inspired by the then defunct Social Credit party).
More historical fun:
http://thetyee.ca/Views/2009/02/04/BudgetBozos/
@DavidL:
Yes check the facts. If you read the whole article, you'll see how the NDP tried to balance the books - by raising taxes - but their spending exceeded revenues.
"In the spring of 1992, mere months after winning election to government with a commitment to balanced budgets, the Harcourt New Democrats repealed the Taxpayer Protection Act.
... Finance Minister Glen Clark told the legislature on April 8, 1992. Clark, who a year earlier had voted in favour of the Taxpayer Protection Act, now belatedly seemed to confess that he hadn't understood what he voted for.
... as Clark boosted taxes by about $800 million annually in his first budget, and then by another $800 million in his second.
Still, despite these enormous tax lifts, government spending continued to climb ahead of revenues."
By the way, I'm not a fan of either the NDP or Campbell - one is tax and spend, the other is cronyism. Either way, we get swindled :)
i am seeing more and more houses on the market - all over 1 million - on the market. everday it seem two houses come on.
now i wonder why are these people selling ... are they getting better homes, downsizing, leaving victoria, getting out of RE., buying cheaper houses ...
hmmm i wonder why there is the huge trend in expensive homes.
@Paula
My mistake ... I had thought that part 1 of bill 92 (tax freeze) was repealed, but not part 2 (budget balanced over a five year-period). I now see that both parts were repealed.
Over the past 35 years of following politics in BC, I have ranged from feeling somewhat swindled to completely swindled. I think that this is (again) what is happening with the proposed $10K tax credit in the current budget.
@Paula
NDP have a better record for balancing budgets than either the Libs or the Cons. (Granted, they've had fewer opportunities to screw up - though by the same logic, they've had fewer opportunities to succeed as well.)
None of the parties are particularly good at balancing budgets (no party has achieved even balanced budgets 50% of the time), but the fact remain that the NDP has done a better job than the other two. In truth, "Tax and Spend" is a sound byte tossed at the NDP by their opponents and you've accepted it. Honestly, they're all tax and spend - they just have different priorities on who they prefer to tax and how they spend the money.
On average, federal Conservative governments run the highest deficits, while Liberals run the highest deficits provincially. Whee!
http://www.progressive-economics.ca/2011/04/29/fiscal-record-of-canadian-political-parties/
@DavidL, “I think that this is (again) what is happening with the proposed $10K tax credit in the current budget.”
Completely agree. It would be nice if they created some incentives for other businesses for a change. (As Nan mentioned, Falcon’s background tells the whole story.)
(Thanks again for posting all the interesting links.)
@Renter, That blog link is run by United Steelworkers, Canadian Auto Workers, CUPE, and Canadian Labour Congress reps - it's no wonder they've come to that conclusion :)
Also, 'Tax and Spend' isn't a sound bite trademarked by NDP opponents. The term was first used by the NY Times in the 1930s. It's now used by business and economic analysts around the world. I've lived through tax and spend so I know what that's like from first-hand experience.
... Granted, tax and spend is used mostly by politicians (instead of analysts), but the 1990s were a good example of it. Maybe I should have been a politician, but I wouldn't have been able to pick a side :)
Re: Nancy's comment on all the million dollar homes
Millionaire Foreclosures on the Rise
MLS 304858.. You know it's a quality place because they took the time to put a close up shot of a cool car on every TV in the house!
"Tax and Spend" simply means a balanced budget. You know, the government gets money from taxes and spends it. That's what it's supposed to do.
The people who use this term negatively are usually into "borrow and spend", better known as deficit budgets.
All I know is the BC Liberals have f-ed up the province just as much as the NDP of the 90s did, if not more so.
And they won't get another shot at fixing the mess; they're done. It is said that in B.C. we don't elect governments: we throw them out. And it's going to be ugly for the Libs on election day.
@Paula
So numbers lie if they are posted on an economics site run by a left wing think tank? It's still based on the raw data.
Do you also disbelieve everything that comes out of the Fraser Institute or the Manning Center?
Both the left and the right spread propaganda. If you noticed I criticized both. That's why it's important to understand the data and sources behind all claims.
(Tax and spend is simply about paying for new programs and deficit reductions with new taxes. Here's a recent article about it http://www.economist.com/node/21546022 )
Time to get back to the great Victoria real estate debates.
MLS 304792. Not the best time to be selling an over reno'd home. Not a flipper though. Way too much spent on the outdoor fireplace.
^nice fireplace!
Lots of townhomes and condos moving this month.
^relatively speaking in comparison to SFH.
Speaking of fire places, take a look at thelatest Maclean‘s magazine cover.
Regarding the MacLean's article... These messages in the main stream media will continue to shift the sentiment about the viability of real estate. Another six months of negative press, and expect sales to wither.
I am starting to think that one of the Liberals' main election planks for 2013 will be that only they can prevent a US-style RE crash.
And it just might work. Getting re-elected I mean, not preventing the crash. :-)
Immanent crash or no crash this crap is getting ridiculous...
"Regarding the MacLean's article... These messages in the main stream media will continue to shift the sentiment about the viability of real estate. Another six months of negative press, and expect sales to wither."
I think people buying homes at these prices (poor affordability), especially younger buyers are well educated, or savvy and are aware of the media. In the last few months I've had two couples in their mid/late 20s buy a 900k home and 700k respectively. Between the four of them 1 PhD, 1 masters, 2 engineering degrees. Not just education, these are the type of individuals that run their own self-directed RSP trading accounts - you wouldn't catch them in a mutual fund.
The couple that bought the 900k home essentially told me, “Yes, there is the chance our home might be worth 800k in a year but we don't care, we can comfortably afford it, we plan on living in it for at least 10 to 15 years, we want to buy some tasteful furniture, we already have one kid and just don't want to deal with renting."
I honestly don't think I've had a client in the last year that has bought expecting their home to be worth 30% more in 5 years. Most accept the fact that the market could potentially correct 10 to 15%. The key word is potentially.
There is definitely a value derived from owning your own home that is not reflected in financial numbers.
The media might have a few buyers hold off but they will come back into the fray in 4-5 months after everyone comes to the realization that the market in fact is not tanking, which in my opinion it is not. I do about 10 to 15 showings a week this time of year and my feeling is 600k buys you the same home it did last year.
A 5 year flat market, extremely low interest rates, and slowly improving US economy in my opinion will keep the market flat. I think we would need a big shock like 2009 to have the market move down, but we will see.
That was in reference to the Maclean's article...
To further clarify, It's never a good time to panic. Rather it's time to keep a level head. This Blog is far more useful and relevant than these sensationalist articles. Here one can find factoids, data, that data correlated into custom graphs, Bearish opinions, bullish ones, etc.
Over the next few years is when you can pick and choose your opportunity with little competition while everyone else is panicking.
I think people buying homes at these prices (poor affordability), especially younger buyers are well educated, or savvy and are aware of the media.
I just don't see it. Most people still just go out and buy. They talk to their realtor, they talk to the bank, and then they get what they want. I don't think a significant percentage will do a buy vs rent calculation.
I've had two couples in their mid/late 20s buy a 900k home and 700k respectively.
That's fine, but do realize that your perspective is very distorted by seeing that. That is nowhere near the typical buyer, it's a complete impossibility given the household income in this town. Perhaps you are attracting more qualified buyers that are more confident that they do more themselves (pay for less service, not saying they are getting less). Just like the self directed RRSP, they're knowledgeable enough to be confident in a lower-cost option).
Last person I heard of that bought a house was a young couple with a few kids. Both work part time and were previously living with parents because they couldn't afford the rent elsewhere. Now they have a 100 year old house where they need to rent out the majority to afford it.
I think you can easily get a distorted perception of what people make. Marko you made decent money at VIHA and now more as a realtor. You likely associate with people in a similar income bracket and have others as clients. That's not a criticism, we do the same thing. Then once in a while you're in a situation where you see how many others are making more like $35,000 a year and it comes as a bit of a surprise, because you don't see it every day.
Especially starting out in fields like engineering or government, you make pretty decent money right off the bat but all you see is everyone there making more, so your world view is built up of lots of people making serious money. While those people certainly exist, there are many more that make far less and do actually care about losing $10k on something, let alone $100k. With a 70% ownership rate, those people are also buying and much more likely not to be prepared to weather a downturn.
"Between the four of them 1 PhD, 1 masters, 2 engineering degrees. Not just education, these are the type of individuals that run their own self-directed RSP trading accounts - you wouldn't catch them in a mutual fund."
I had to laugh at this because the scenario that I described above about my colleague who is totally in over his head with his new house, well, he has a PhD. Maybe some people who are well-educated in particular fields are going to be particularly financially astute, but a "good" education doesn't stop you from making stupid financial decisions. I have 2 of the 3 degrees listed above, and so do nearly all of my colleagues, and I know all kinds of people who aren't even remotely financially savvy. Sad, but true. It sounds like your clients are probably exceptional, Marko.
Anecdote from a friend south of the border..
buddy of mine bought a condo recently in seattle.. $469k
the way the math works out though, he pays about $2000 a month mortgage over 30 years
of course, thats about $500 more than my monthly rent
but him and her are both working at microsoft, gravity does not apply
Funny how our perceptions here are skewed. He thinks $469k is a lot for a dual income household at Microsoft, almost certainly pulling in north of $160k/year.
That same couple in Victoria is probably buying a 900k house from Marko and no one blinks an eye.
I know a 200K+/year professional couple who haven't got as clue about money and think they are average.
"In the last few months I've had two couples in their mid/late 20s buy a 900k home and 700k respectively"
I know first hand what starting engineers make on the island. Its nothing that would allow you to buy a 900K home reasonably even if you lived on kraft dinner. I suspect the bank of mommy and daddy had a big role in these purchases.
Macleans has run several real estate bust articles over the last 4 years. I think they are jumping the gun comparing Canada to the US.
I do believe a crash is in our future too, but with interest rates staying low and the CMHC likely to get whatever it needs from the feds it will probably be much more long and drawn out than some of us are predicting.
"I know first hand what starting engineers make on the island. Its nothing that would allow you to buy a 900K home reasonably even if you lived on kraft dinner. I suspect the bank of mommy and daddy had a big role in these purchases."
From my experience the late 20s individual I tend to work with is not the typical late 20s individual - maybe it is because they contact me secondary to my cash back program so they are very savvy to start.
As far as your engineer comment, just because they have engineering degrees it doesn't mean they work in the field. There are people with Fair Realty that have their engineering pinky ring. I've met people in various consulting and financials jobs and they sport the ring. Yes, I am well aware of what the starting salary is for a new engineer without the P.Eng designation...probably around 40k/year?
I think the market is heading the way Europe has been for decades. Poor affordability will continue and a certain percentage of the market will be able to afford and the rest won't.
I don't think the market will correct to appease affordability for the average person. This is a rather unfortunate situation in my opinion but it is what it is. The middle class union individual is unfortunately getting squeezed which is why I decided to pursue a non-union career.
"Between the four of them 1 PhD, 1 masters, 2 engineering degrees. Not just education, these are the type of individuals that run their own self-directed RSP trading accounts - you wouldn't catch them in a mutual fund."
I suggest you read "The Millionaire Next Door".
Many who are good at one thing and and well paid for it believe they are good at everything and correspondingly make the bigest mistakes in the areas of their lives where they are not experts. Doctors in fact have been observed as being some of the WORST managers of their own money.
This is called the "fallacy of association", one that based on your observations and the implications that you think they imply, you are certainly guilty of making, Marco.
Phil, I think you're overlooking that some of the greatest crashes in history are caused by nothing other than low rates.
Poor affordability will continue and a certain percentage of the market will be able to afford and the rest won't.
Affordability will return to it's long-run average of 3 to 4 times income. Always has for centuries, always will. It's one of the most basic laws of economics.
Oops, make that
2 to 3 times income
probably around 40k/year?
More like $50k-55k.
I don't think the market will correct to appease affordability for the average person.
With an ownership rate of 70%, the average person is exactly who is buying out there. Not just the average, but also the 20% poorer than average. So do you expect a big decrease in ownership rate?
"I think the market is heading the way Europe has been for decades."
What's that supposed to mean? Europe has had a permanent bubble with price/rent around 300 or so?
Just like Canada or the US, Europe historically has had price/rent around 150 with local bubbles from time to time. And again just like us, there has been an almost continent-wide bubble post-2001, with many markets having crashed outright already(Ireland, Spain) and others on their way down. And Germany never had a bubble.
Don't confuse expensive shelter (both renting and owning) or a low ownership rate with a bubble. They are entirely different things. For example, Germany has a very low ownership rate, yet the cost of ownership versus renting is far less than it is here (and among the lowest in Europe).
I wouldn't place any bets on houses in the core being 2-3 times income. $150K for a SFH would require a total collapse in which case we should be buying canned food and building shelters.
From Demographia 2012
Historically, the Median Multiple has been remarkably similar in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States, with median house prices having generally been from 2.0 to 3.0 times median household incomes
Always have, always will.
"What's that supposed to mean? Europe has had a permanent bubble with price/rent around 300 or so?"
I've been to Europe 7 times in the last 10 years. I have cousins in Nancy, France; Amsterdam; Frankfurt, Germany; etc. and friends in Milan, Italy. Even in Croatia where most of my family is real estate prices are outrageous compared to incomes. The average person has no realistic chance of ever being able to afford a condo.
I can tell you my friends in Milan both have degrees; both have careers that in Canada would afford them a 600k home. In Milan with their Italian wages they can't afford a 500 sq./ft. condo.
In my opinion Nancy, France is not a spectacular town as I've spent some time there but a 2,000 sq./ft. is very very expensive compared to wages.
"Affordability will return to it's long-run average of 3 to 4 times income"
I 100% disagree with this. Is this some sort of natural law? I really think there is too much demand globally for resources that it won't be possible to build a home that is 3 to 4 times income going forward. If we can't build a home at that ratio and the population is growing something has to give.
Those medians are country wide. That doesn't mean Victoria house prices would be at those levels.
How much per square foot does it currently cost to build in Victoria? Assume you have a serviced city lot with a tear down on it?
When was the last time it was 2-3 times in Victoria?
I know my father's cost is about $120 per sq.ft. on a nicer spec home without forced air and that includes the garage sq.ft.
So 2,800 sq/ft home plus garage = 3,200 sq.ft x $120 per sq.ft. $384,000 give or take.
PS. Note that a 2,000 sq.ft could be over $150 per sq.ft due to fixed costs.
Now add the lot, profit, and HST (or taxes).
The problem is all the fixed costs. As a few weeks ago the Hartland dump won't take lead paint anymore without a Leach Study. A teardown could now set you back upwards of $50,000.
Add all the increasing city service fees (you still need to pay for all new services even if your lot is on a serviced street).
My prediction is with all the environmental regulations and City of Victoria bureaucracy within 5 years you will be hard pressed to find a new SFH home in the core under 1 million.
With oil hitting $110 a barrel I doubt trade prices will be on the decline.
Is this some sort of natural law? I really think there is too much demand globally for resources that it won't be possible to build a home that is 3 to 4 times income going forward.
What you're missing is the demand for resources you speak of, is artificial. It always is at this stage of the rate cycle.
I will make it really simple for any readers who are not as economically savvy.
Price of homes, resources or anything originates from supply and demand. Low rates have a potent effect on both supply and demand. On the supply side, low rates lead builders to overbuild. On the demand side, low rates pull forward future demand. So in summary, low rates lead to periods of oversupply and lack of demand. Always have, always will. Hence some of the greatest price crashes in history follow periods of low rates.
The best real estate investments right now are to own rental units and pocket the yield. Or, international property investments in emerging markets.
vw - I am with you. There will be a return to the long-term mean/median line. Victoria's may be a bit higher than say Saskatoon's, but each city will return to where it has been historically.
Of note, there is generally a deep bounce below the mean/median line on the way down. If you can time it, this is where to buy. Tricky, but not impossible. It is not the stock market - the housing market is measured in months, not seconds, and if you have liquid assets it is easy to jump in when it makes the most financial sense for your situation.
Good luck timing that purchase of a $200K SFH in the core...I think the 2-3 times was based on different interest rates...as far as I can tell we were hovering over 4x income even in the 90's here in Victoria....
Rates have been very low, relatively speaking, for a while now.
Secondly, there are way too many other factors. 40 years ago you could go clear cut (relatively speaking) a patch of land in Saanich and put up houses (of courses, assuming it wasn't agricultural land). Now, Saanich will stall an entire subdivision over one Gerry Oak.
5 years ago you could get rid of a teardown for $5,000...now it might cost you $50,000 for the exact same teardown due to a million environmental regulations.
3 years ago you did not need to hire an engineer to build a spec home in the City of Victoria, now you do. Engineers are not cheap.
Real estate, especially in Victoria, is not UVIC economics 101 - which by the way I did take.
I know a 200K+/year professional couple who haven't got as clue about money and think they are average.
It's very typical for a person to believe their situation is average and representative, whether they make $300k or $30k a year. You're lost in your own world, and surrounded by people like yourself, so it's easy to see why they would come to such conclusions.
dasmo - I agree that our average may be a bit higher than Saskatoon or Windsor, so say a multiple of 4. that would put us around $300,000 for an average home.
The story about the people with advanced degrees was interesting and struck me in two ways.
First, how different their approach is compared to me and my hubby (we also have 2 of those degrees/salaries and self-direct rrsps) – when we were in our late 20s, we didn’t buy the highest end house. Maybe attitudes were different then? - be prepared for anything - multiple job layoffs, family changes (divorced friends have lost $$ changing homes), health issues (friends have to pay for specialized medications). Putting that much money into 1 asset at that age isn’t a great sign (unless you’re independently wealthy).
Second, the story reminds me of a couple of friends with PhDs. They don’t pay much attention to media at all. Back in 2006 they just wanted a nice place of their own to enjoy their retirement, and so liquidated some assets and bought a house in the US sunbelt. They subconsciously assumed (understandably) they could pull the cash out in 15 years. Now their retirement is postponed indefinitely. Bad timing can affect anyone.
"You're lost in your own world, and surrounded by people like yourself"
I guess I am lucky to be their friend :-)
So numbers lie if they are posted on an economics site run by a left wing think tank? It's still based on the raw data.
Exactly!
There is definitely a value derived from owning your own home that is not reflected in financial numbers.
Very true. For some, excellent quality of life means renting; for others, it means owning. For example, some folks (like me) actually like doing improvements and repairs on the house, enjoy mowing the lawn and plucking weeds, and don't mind spending some money on an asset in which they take pride.
Affordability will return to it's long-run average of 3 to 4 times income. Always has for centuries, always will. It's one of the most basic laws of economics. ... Oops, make that 2 to 3 times income.
The laws of economics aren't like the laws of mathematics, where two plus two always equals four. Economics and its principles are always open to some degree of interpretation: that's why we have Keynesians vs. Hayekians, for example. All mathematicians agree on the basic principles of math; not all economists agree on the basic principles of economics. In fact, to me, parts of economics seem like wild guess work.
I wouldn't place any bets on houses in the core being 2-3 times income. $150K for a SFH would require a total collapse in which case we should be buying canned food and building shelters.
Exactly! You're not just an extreme bear: you're certifiably nuts if you think a house in Gordon Head will ever again go for $150,000.
My prediction is with all the environmental regulations and City of Victoria bureaucracy within 5 years you will be hard pressed to find a new SFH home in the core under 1 million.
I would say maybe 10 years, but on the whole this statement rings pretty true.
It is hard to believe that psychology alone will impact house prices much. But many other things could.
In the early 70's interest rates were about 18% and houses in Oak Bay could be purchased for less than twice average family income.
Today interest rates are abnormally low, so house prices are abnormally high relative to incomes.
There is no indication that there will be an interest rate increase in the near future (the US Fed is promising continued low rates for several years) so prices may stay fairly flat for a while -- unless we experience some kind of unanticipated economic shock due to war, financial market chaos, e.g., collapse of the derivatives market, etc.
Another factor to bear in mind is, as Marko points out, land availability. In desirable locations where lots are essentially unavailable, e.g., in Oak Bay, competition will drive prices to a ceiling determined by affordability. On the periphery, however, where an abundance of land keeps lot prices down, house prices will largely reflect construction costs.
And in considering prices relative to incomes your have to remember that not all incomes are equal. In 2005, for example, married couples in Oak Bay had a median income of around $118K versus a provincial median of less than $80K, and the provincial median was I believe higher than in some Greater Victoria municipalities.
“around $118K”
.. so the median Oak bay house will only fall to about 295K (118x2.5), fair enough
“unanticipated economic shock”
....how about an anticipated one like oil going to '08 levels. Correct me if I am wrong I remember prices falling almost 20 percent that year before they slashed interest. I thiink they have run out of that option now.
I think with way things are going in terms of expenses the better question may be "how can this continue?"
Owning a house is becoming less and less attractive and more like a money pit.
Marko - thank you for that estimate - it's more reasonable than I would have first assumed.
“So numbers lie if they are posted on an economics site run by a left wing think tank? It's still based on the raw data ... Exactly!”
The left-wing think tank didn’t present the raw data.
Their graphs are summaries of data from all Canadian provinces 1980-2011. This is some of the raw data they used:
Fiscal Reference Tables
For BC, % years balanced budget or surplus: BC NDP spent 10% years in power in surplus (2000), while BC Liberals spent 50% years in surplus (2004-2009).
Granted, both parties cook the books. But this shows how important it is to look beyond summarized graphs. Every province had different raw data.
@Introvert
Would you consider yourself a Keynesian are a Hayekian?
Fight of the Century
... and being Friday, here's a fun video of ...
The Client and the Realtor
dasmo, as you pointed out MLS 304792: Google street view shows it looking shabby with a "sold" sign out front. It sure is getting tired to see flippers trying to fleece long-term home owners. Maybe the buyers can start a support group and refuse to pay for overpriced renos.
Would you consider yourself a Keynesian are a Hayekian?
DavidL,
That's a great video, by the way. I favour Keynes's ideas over Hayek's. However, I must confess that I don't think Capitalism can continue indefinitely: infinite growth within a finite environment is not possible. Humans, being stupid, will come to this realization only after a lot of really terrible stuff happens.
Paula, Bought in 2009 for $650, They didn't even put a new roof on... Painted stucco, painted inside, new kitchen, blam $799? Good luck with that...
Actually it went for $510,100 in 2009.
my bad, I assumed it sold for the 2012 assessed value. (I alas do not have your powers) $510 sounds better. It will be interested to see what it goes for. $799 is way out of line IMO.
This is pathetic..its Friday night and I'm hanging out in HHV, this is what a new born does to your night life I guess...
HHV / LeoS - I've just sent something to your e-mail
That would be HHV's email. I just have guest post privileges. Looking forward to your post!
"The average person (in Europe) has no realistic chance of ever being able to afford a condo."
That's because in countries with low ownership rates owner-occupied housing is only for those with higher incomes.
That does not mean there is a bubble (although there is in fact a bubble today in much of Europe).
The definition of a bubble is that the cost of ownership is out of proportion to the rental value of the same property.
As I and others have pointed out, the norm in Europe, just like here, is for buying to be cheaper than renting. And the norm is also for RE prices to track other prices (and incomes) over time.
All your "reasons" why RE prices will stay high were made on the other side of Puget Sound a few years ago. The "reasons" are still there but the prices aren't.
"The laws of economics aren't like the laws of mathematics"
Some of them are. Just as you can't create energy out of nothing (i.e. you can't have a perpetual motion machine), you can't create wealth out of nothing.
The wealth that an asset creates is equal to its earnings - rental value in the case of RE. Paying more than rental value for a property and depending on selling for an ever-increasing price to make up this up is a Ponzi scheme and must eventually fail.
The people who sucessfully predicted the US bust used simple metrics based on prices, incomes, rents, and debt. Which are the same metrics used by the people who are predicting the bust in Canada.
new house and new baby? Dasmo, you are getting it all done fast.
"As I and others have pointed out, the norm in Europe, just like here, is for buying to be cheaper than renting."
Maybe in some countries - I'll look into this with some of my family members across Europe. I know for my grandfather in Croatia we are renting a $250,000 Euro condo for $550 Euro per month. So not only is affordability extremely poor due to very low salaries it is also a LOT cheaper to rent and has been for decades.
The sad reality in Croatia is most people wait for their parents to die so they can inherit the family house/condo.
Well, not totally new, he's 2 ;-)
Marko, why would anyone hold a rental condo in Croatia when they could sell for so much?
You would have to rent it for 37 years just to make back that 250k euro. I don't have to tell you what inflation does to money over 37 years.
Makes no financial sense.
Yeah I don't think that owning is cheaper than renting in most countries in Europe. Germany didn't have a bubble but I doubt owning is cheaper. Unlikely given their very low ownership rate.
"All your "reasons" why RE prices will stay high were made on the other side of Puget Sound a few years ago. The "reasons" are still there but the prices aren't."
The prices aren't there because, from a low of low of 1% in 2003, there were 17 consecutive increases in the Fed Funds rate, bringing it to a high of 5.25% in June 2006.
If that happens in Canada, then, yes, the market will collapse as in the US.
Someone mentioned oil prices, but in 2006, when the US RE bubble began to deflate , oil did not exceed $65. When oil peaked at $126 in June 2008, US RE prices had already collapsed.
If that happens in Canada, then, yes, the market will collapse as in the US.
So why has it not recovered now that their interest rates are also at rock bottom? They can get 4% for 30 years.
Also the Seattle market did not collapse as interest rates went up. Not until 2008 did that one fall apart.
From this IMF chart, Germany, Switzerland, Greece and likely Italy are already cheaper to own than renting.
Canspeccy, it was how fast oil climbed from '07 to $150 Jul/08 that lit the fuse. You can clearly see the crushing point in the Case-shiller graph. What if we double the oil price again in a short period, likely same result. (we were in $70 per barrel months ago, now $110)
Seattle final relented in '08 from oil too.
@chris
Thanks for the great IMF chart. Interesting to see that Canada is listed as the country with the highest house price to rent ratio...
Thanks Marco and dasmo for the details on that flip – crazy asking price. Buyer Beware. (and thanks to everybody here for sharing all your insights!)
Speaking of European property, this 2008 IMF Europe Housing Paper has a good analysis of all the price influences, esp. the chart on p. 13 of the PDF (report p. 11).
My family’s also from Europe and described a few differences compared to Canada & US (as to why Europeans have tended to put money in property and drive up prices):
multiple wars that devalued currencies and led to high inflation (property was the only thing they had left), currency fluctuations (before the Euro) that affected frequently bought goods (clothes, cars) and severely restricted the areas they could buy property, government regulations, and favourable tax rules.
"If that happens in Canada, then, yes, the market will collapse as in the US."
But the Okanagan, Southern Interior and recreational markets all over the province have already collapsed after a peak in 2008.
Calgary and Edmonton are also well below their peak, which was in 2007.
If prices in these markets could fall with declining interest rates, why can't prices fall elsewhere with flat rates?
"Speaking of European property, this 2008 IMF Europe Housing Paper has a good analysis"
Which completely failed to anticipate the imminent RE busts in Ireland, Spain, Lativa, etc.
So what good was their analysis really?
Compare with this: "The global real estate boom is the biggest bubble in history. Prepare for the economic pain when it pops". And that one was from 2005, when the US bust was still in the future.
If you don't recognize the source for that quote, google it.
For sure, the Economist, Shiller, Roubini, and all the people that pointed to the bubble deserve huge respect.
That IMF report, though, wasn’t meant to country-specific busts:
“The objective is to find out what drives house prices in Europe, and explain the large intra-European differences.” (eg., how mortgage lending was liberalized and competitive in some countries but not in others)
The IMF reports that list the risks of real estate in Ireland and Spain are in their country-specific reports, eg., Ireland 2000: "no industrial country in the last 20 years had experienced price increases on the scale of Ireland without suffering a subsequent fall." For Spain, in 2006 they said, “Despite credit institutions’ overall solid position, the increasing size of their mortgage portfolio poses some risks.”
^ should have read:
wasn't meant to "predict" country-specifc busts
(yes we need an edit function)
@Leo S
"So why has it not recovered now that their interest rates are also at rock bottom? They can get 4% for 30 years."
Once bitten, twice shy?
Once there is a shock to the system, the psychology changes. The economy appears to be a chaotic system, settling into a consistent pattern for a while and then, with perhaps only a slight stimulus, jumping to a different pattern. That's why markets are essentially unpredictable. You can have an excellent theory that takes into account a dozen factors, but there are perhaps a hundred other factors any one of which may just tip the balance.
However, some things are more predictable than others. If interest rates rise three of four percent in the next 18 months the Canadian property market will surely fall. Unless .....
@Chris
"it was how fast oil climbed from '07 to $150 Jul/08 that lit the fuse. You can clearly see the crushing point in the Case-shiller graph."
That may have been a factor, but in most markets the inflection in prices came in 2006 before the sharp rise in oil price. Once prices fell, there would have been a sharp change in thinking -- from calculating the capital gain from a tiny down payment to calculating how many times the capital loss might exceed the down payment.
True the inflection in price came later in some markets, e.g., Dallas, indicating that other factors, varying from place to place were at work. Perhaps it was the oil price that killed the market where it had remained strong until 2008. But the financial market melt-down, perhaps partly oil-price-related, was surely a bigger factor in 08?
But if oil price is a critical factor, the present trend could do some damage shortly, with prices now well over $100.00.
However, we have been sheltered in part by a strong Canadian dollar. If our commodity exports slump and the C$ with it, we will be impacted more heavily by a high oil price.
Predictors/economists/analysts can be right once, maybe twice, maybe three times but the odds of being right after making the right call decrease precipitously. Those that eat humble pie (ie. Buffet today) are way more credible. Unfortunately most aren't. Fact is meteorologists are far more accurate than financial analysts because they don't have an overconfidence bias.
Anyone know whether the 2.9% mortgages had to close by Feb. 28, or simply be pre-approved by then.
If the former, the slight bump in sales we've seen the last little while might drop starting Wednesday next week.
All - there is a blog post on the way discussing Animal Spirits, media, market behaviour and houses on fire.
"meteorologists are far more accurate than financial analysts"
Good point. But overconfidence is a prerequisite of successful speculation. It's just that it ruins most before they made a pile and it ruins most who already made a pile.
The Buffet approach is more reliable, but it requires longevity and it helps a lot if you have a decent stake to begin with.
If you had a million and multiplied it 50,000 times you're as rich as Buffet. If you're an immigrant contemporary of Buffet who arrived in the US with a hundred dollars in your pocket and you multiplied that 50,000 times, you are barely a member of the 1%.
Re: energy prices, one factor now is the low cost of natural gas in North America: only one quarter the price of oil on an energy basis. Because gas is not easily transportable, N. America, at present, has an huge energy cost advantage over Europe and Asia, which is said to be a factor in the recovery of American manufacturing.
Personally I like "money loses half it's value every ten years" price of gas is a good example of this. So is the price of gold, and houses....
I was reading Marco's post on the rise in doing business in Victoria over the past 5 years. I set off the warning bells for how precariously we are perched at the moment.
Not only has housing been a big jobs employer, but all the surounding entities have swollen to absorb the money as well. What does the city do when housing dries up? I don't see anywhere in Victoria that has been impoved over the last 5 years, so what is being funded with all the money?
Reading arcitles on failing cities in the US it is hard for me to understand how a city fails. Unless Victoria is using the temporary boom money to bolster their savings for the future, it sounds like a municipal structure that isn't sustainable.
If all levels of government are over sized... tousism down... and housing drying up... would Victoria not have the making for a perfect storm?
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