Mortgage Armageddon

The graphic above first appeared on HHV in 2009. Since then, interest rates (or "Today" on the graphic) shifted left (or down) while the median price did almost exactly as Reid (the maker of the graphic) predicted: rose to around $550K.

In all the time we've been writing and reading about the Victoria market, perhaps the single biggest correlating factor in local prices has been to interest rates. I'm inclined to believe, that above all else, interest rates are driving the Canadian, and the Victoria, real estate market.

BMO Bank of Montreal released a survey recently that suggests more than half of BC households won't be able to manage their current mortgages if rates climb 2%. I know most of you are thinking rates wont climb 2 % anytime soon; and I am inclined to believe that too; the economy just doesn't appear to be headed in the necessary direction to make rate hikes happen anytime soon. But stranger things have happened and there is a strong possibility given all the noise by "people in the know" lately that rates will rise quicker and faster than expected.

What will might happen when rates do rise? Fortunately Reid gave us another graphic (we used here) last year that shows a pretty good picture of what BMO's survey is warning us about:

Again, you'll have to shift your eyes to the left a bit (or just subtract roughly 1% from the numbers at the bottom), but you can see the cause effect relationship between cheap money, high home prices and stagnant incomes.

I know that a fair number of you will suggest Victoria is insulated because:

• lots of people own their homes outright
• a few people pay cash for houses here
• there isn't much turnover in our market anyway

To that I say it matters not a whit. 

Ultimately, what matters is what the people doing the buying at the bottom  tier of the market can afford. Real estate markets are like a game of Jenga. Remove the blocks at the bottom and the whole thing comes tumbling down quickly. 

If the people doing the buying in the $400K-$500K segment today see $100K disappear in their mortgage qualification amount over the next 2 years, we can reasonably expect to see prices reflect that to a degree. I see no reason why prices would be more sticky when they are falling than when they were climbing--in other words, why would the market reflect falling affordability differently than rising affordability? 

Mar 26: Monday Market Update

MLS numbers courtesy of the VREB via Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.

March 2012 month to date

Net Unconditional Sales: 433 (281, 152)

New Listings: 1066 (760, 465)

Active Listings: 3997 (3908, 3832)

Sales to new listings ratio: 41% (37%, 33%)

March 2011

Net Unconditional Sales: 622

New Listings: 1501

Active Listings: 4100

Sales to new listings ratio: 41%

Sales to active listings ratio: 15% or 6.6 MOI

Looks like both listings and sales are lagging a bit from last year. Sales/new list is the same.

An interesting article this morning from Canadian Mortgage Trends. The CMHC is projecting almost 10 times slower growth in their portfolio in the next 5 years as they've experienced in the previous 5. If their cap is not raised, it will be interesting to see how this plays out for new buyers.

Marko also reports the SFH average is $620K and median is $555K.

Victoria: not even top ten

Money Sense Magazine released their Best Places to Live in Canada list recently. Guess where Victoria landed on that list? If you thought 1st or 2nd, you thought wrong. If you thought 11, think again.

Nope, you gotta slide down further on the chart, past 15, past 20, even past 25, oops slipped at 30, Woah Nelly! looky here, Victoria is the 34th best place to call home in Canada. That's why when we still called the  southern tip of Vancouver Island home we almost always preferred Saanich (15 on the list) to Victoria proper.

The list is telling really. Regina = better. Red Deer too. WTF Fredericton? Even Edmonton, where people die of unnatural causes more frequently than the Oilers lose (not really, but almost), is better. Heck even the town we ended up moving to is higher on the list than any in BC.

I know what your probably thinking: their methodology must be sh&t...

Have a look.

It actually looks pretty comprehensive to me.

Forgive me for adding personal opinion in here for a moment. Since the wife and I headed out almost a year ago for greener pastures, we've come to realize some pretty solid reality:

• Leaving Victoria was one of the best decisions we ever made, wish it would have happened sooner.
• Natural beauty is all around us. Yes, Victoria is certainly gorgeous. But is it worth earning less and paying more to live for? Not at this stage of our lives.

Mar 19: Monday Market Update

MLS numbers courtesy of the VREB via Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.

March 2012 month to date

Net Unconditional Sales: 281 (152)

New Listings: 760 (465)

Active Listings: 3908 (3832)

Sales to new listings ratio: 37% (33%)

March 2011

Net Unconditional Sales: 622

New Listings: 1501

Active Listings: 4100

Sales to new listings ratio: 41%

Sales to active listings ratio: 15% or 6.6 MOI

Lots of bubble chatter in the media and from the banks these days. Looks like the consensus is that there is more mortgage market tightening on the way possibly this week or next. Let's see if it puts an additional dent in an already relatively weak market.

Mar 10: Monday market update

MLS numbers courtesy of the VREB via Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.

March 2012 month to date

Net Unconditional Sales: 152

New Listings: 465

Active Listings: 3832

Sales to new listings ratio: 33%

March 2011

Net Unconditional Sales: 622

New Listings: 1501

Active Listings: 4100

Sales to new listings ratio: 41%

Sales to active listings ratio: 15% or 6.6 MOI

Seems like slow sales to start out the month, back down to under 14/day. While there is always a (re)listing surge at the beginning of the month, do sales usually start off slow?

Mortgage comparison calculator

This is a selfish ask, but one that I hope will translate into a useful House Hunt Victoria community tool.

I want a mortgage amortization calculator (preferably online or Excel-based) that can give me a realistic comparison of cost difference between variable and fixed rate mortgages.

Here's the dilemma: currently we're using a variable rate. The interest rate is stupid cheap. But our bank just decided to offer a stupid cheap fixed rate mortgage product. And Carney is openly musing about raising the BoC prime, though a timeline is unknown.

I want to be able to run a scenario that assumes an escalating variable over a defined period of time. Ultimately I'm looking to have an accurate version of cost differential.

There are all kinds of mortgage amortization calculators online which you can use to compare fixed versus variable. But the comparisons are limited by the term defined. The terms create the inaccuracy in the comparisons because they're based on years, not months.

For example, let's assume that the discounted variable rate will climb from 2.15% today to 3.15% over the next 18 months at a rate of 0.25% after 6 months, 0.5% after 12 months and the last 0.25% (totaling 1%) at 18 months--at this point in time there would be 24 months left in the term. I want to compare this cost experience to a 4-year fixed rate of 2.99%.

We might be able to crowd source this online--I spent about an hour last night playing with a couple online calculators but didn't figure out a system that would give me a result where I was even slightly confident in the results. A step-by-step system might be the outcome I'd need to be able to confidently feel like I've been able to do a cost analysis. Alternatively, some of you Excel wizards might be able to come up with a formula-based method of making these types of comparisons.

If we manage to collectively pull this off, and I'm confident the HHV community can, I'll pin it up on the resource links section permanently and shower the creator(s) with exhaustive accolades that will have even the most arrogant person imaginable blushing!

February data: do you have a sinking feeling?

Simple question: does February single family home price data highlight an ongoing trend or is it an outlier?

February 2012 
Net Unconditional Sales: 497
New Listings: 1318
Active Listings: 3977
Sales to new listings ratio: 37%
Sales to active listings ratio: 12% or 8 MOI

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

Average price
Feb 2011: $610,975
Feb 2012: $579,985
YOY difference: -5%
Difference from peak (August 2011): -11.2%

The shine has definitely come off the Victoria market. Any attempt to suggest the market is balanced isn't supported by the data. Prices are falling - almost 2% per month. On an average property price of $580K, that's over $10,000 per month.