Monday, April 30, 2012

A day early: April stats


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.

April 2012 month to date (previous weeks in brackets)
Net Unconditional Sales: 564 {417} [265] (145)
New Listings: 1372 {1050} [698] (377)
Active Listings: 4393 {4307} [4230] (4116)
Sales to new listings ratio: 41% {40%} [38%] (38%)

April 2011
Net Unconditional Sales: 574
New Listings: 1577
Active Listings: 4561
Sales to new listings ratio: 36%
Sales to active listings ratio: 12.5% or 7.9 MOI

These numbers will, of course, change as there's still 24 hours of sales input time left. 

Average SFH price sits at just under $630,000 this month. Naturally, this was driven up by a larger volume of $1M+ home sales than in recent months--though you can make the same argument for any segment of the market in the spring time here. 


168 comments:

Marko said...

2724 Scott St went in a bidding war for $440,000....

Last sale, 2009/02/13 for $415,000.

a simple man said...

I personally vow to never, ever be involved in a real estate bidding war.

I have told every realtor I have ever worked with that from the outset.

patriotz said...

What I find interesting is that a property in a desirable part of Victoria is only up 6% from the depths of the financial crisis 3 years ago.

After PPT and sales commissions the owner is about flat on the purchase price and has lost a lot of money compared to someone who has rented a similar property.

If that's how the fashionable areas are doing, what about the rest? 2012 is not looking to be a good year.

dasmo said...

Buyer pays PTT, but yes pretty flat. I don't think they lost anything over renting. Interest they payed was probably about $1250/month assuming they put little down. They broke even on the affair. You really need to stick with a house for a while since the bank front end loads interest. The longer you are in the more your payment is going to principle. 2012? flat....

a simple man said...

But the owner paid the PPT on the front end, then the realtor, and lawyer fees on both sides, plus the taxes and maintenance.

Doubtful the owner would come out ahead of the renter on this one.

dasmo said...

nope definitely not ahead. It's been a solid choice to rent for years. It was really only a bad move from 2003 to maybe 2005ish.

Mindset said...

I personally vow to never, ever be involved in a real estate bidding war

That's smart. Human nature being what it is. We all make bad decisions when we feel like we could 'lose' something.

Can you imagine what the new or used car market would be like if you had to leave an offer on the table for a car overnight?

I have personally walked on RE deals when I felt like I was being pitted against another buyer. And to be honest, sometimes I had to wonder if there even was one with how secretively these encounters are often managed.

It's good to remember that leaving an offer on the table for too long can give the seller and selling agent confidence to farm around for offers, and draw you into the multi-buyer situation you are trying to avoid.

If I had to buy in todays market, I would respectfully leave an offer on the table for 2 hours when the buyer is available to review it (after work), with a friendly door open for the seller to come back to me later if I haven't purchased something else already.

If nothing else, its always nice to maintain some power and dignity in a transaction North of a 1/2 million dollars.

omc said...

I think marko was trying to show that some parts of the market are still over heated. I would consider february 09 to be pretty much peak prices, with an average decline of 10% since then.

Where the heck is Scott street any how? Fernwood? Maybe the buyer is from out of town and was confused where they were. Fernwood does sort of sound like Hollywood. They might be disapointed when they find out the neighbour didn't use to front the band Hole, but is in fact just a burned ut junkie.

Introvert said...

I have personally walked on RE deals when I felt like I was being pitted against another buyer.

And to be honest, sometimes I had to wonder if there even was one with how secretively these encounters are often managed.


Marko, is there a way to tell, after the fact, whether there were multiple offers on a sale?

patriotz said...

". I would consider february 09 to be pretty much peak prices, with an average decline of 10% since then."

Not at all, prices early 2009 were the lowest at any time since mid 2007. Likewise for every other major market in Canada.

The peak for Victoria was June 2010, and yes I think today's prices are about 10% off that.

Mindset said...

Marko, is there a way to tell, after the fact, whether there were multiple offers on a sale?

Sellers’ REALTORS® are obligated to advise buyers’ REALTORS® of the seller’s decision in writing, if they are asked to. Seller’s REALTORS® are not obligated to disclose any information about other buyers’ offers nor the seller’s reasons for dealing with a particular offer. -- From the Vancouver Real Estate Board Web Site.

As far as I can tell, Fred from the corner can make a verbal offer for $10, and you have multiple offers on the table.

LeonMaynard said...

The owners of 2724 Scott St took a beating if they only sold for $440,000, if they bought in January 2009 for $415,000. After realtor commission, legal fees, mortgage insurance, moving expenses, and all the other transfer fees and taxes, the owners must have lost about $20,000 after owning for the past three years.

Forget about SFH statistics that are skewed by sales of over a million because this real-world example proves that real estate has been a dog for the past few years.


Marko said...

2724 Scott St went in a bidding war for $440,000....

Last sale, 2009/02/13 for $415,000.

HouseHuntVictoria said...

Was the Scott street house an example of overheated or underpriced? I'm guessing the seller wanted a quick sale Anand the realtor set up the bidding war by pricing it below FMV.

patriotz said...

Feb 09 Teranet was 132.480, Feb 12 Teranet (the latest available) is 138.470, i.e. it is up 5% over the last 3 years.

This house went for 6% over the Feb 09 price.

I don't see anything hot about that selling price, given that there is a lot of evidence that prices in central Victoria have held up better than on the outskirts, i.e. you'd expect the price to outperform Teranet which is based on the whole metro.

Note it was listed for $424,900 - the listing was still up yesterday and I grabbed a copy. Looks like an intentional under market listing to me.

Marko said...

Tuesday May 1, 2012 7:55am:

April April

2012 2011

Net Unconditional Sales:

586 574

New Listings:

1,470 1,577

Active Listings:

4,638 4,561

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

a simple man said...

I am surprised the active listings went up that much from yesterday.

At any rate, high inventory.

7.91 MOI.

And how did the $118B bailout all of the sudden disappear form the news? That is a big issue, I would think.

a simple man said...

More on over-bidding houses. I wish there was a law that you could not get more for your house than you advertised it for. That way people would price their homes at the price they want, not underprice to try and spur on a bidding war.

The last house we bought was during a housing craze in the prairies. We offered $10,000 less than asking on the house and wanted a home inspection. Our realtor was uncomfortable and said he had not even written up an offer with conditions including a home inspection in 6-7 months. I insisted. The sellers said they were insulted by the offer and that the listed price was a starting point for bidding.

We bought it 24 hours later for $10,000 off list and with a home inspection. Was a terrific house. Wish I could have moved it here instead of looking at all these crumbling Oak Bay houses.

patriotz said...

". I wish there was a law that you could not get more for your house than you advertised it for. That way people would price their homes at the price they want, not underprice to try and spur on a bidding war."

No, people would list the house at a price way above what they expected to get, because they wouldn't want to run the risk of listing below market.

The current system may not be perfect but I can't see anything better.

Introvert said...

But Windsor's rent/price and income/price ratios are sound!

happy renter said...

The Globe and Mail's new Home Buying site, launched today:

Home Buying

happy renter said...

^^And the headline story from that new site:

Ready to be bold? Sell the house and rent.

dasmo said...

Interesting. Perhaps all the competition for good rentals will drive the rents up? and the cycle goes on....

happy renter said...

What are the rules in BC about rent increases? How much are landlords allowed to hike the rent each year?

a simple man said...

Rate of inflation plus 2%.

http://www.rto.gov.bc.ca/content/rightsResponsibilities/rent.aspx

a simple man said...

No, people would list the house at a price way above what they expected to get, because they wouldn't want to run the risk of listing below market.

But then their houses would not sell and they would be forced to bring the prices to reality.

patriotz said...

"Perhaps all the competition for good rentals will drive the rents up?"

What happens to the house that they just sold?

patriotz said...

"But then their houses would not sell and they would be forced to bring the prices to reality."

Sure they would have to sell for a realistic price but that's not the same as the listing price. They would just say "all bids considered".

As I said if they could not sell for more than the listing price, nobody would list their house for a given price if they thought that there was any chance that someone would be willing to pay more. So people would always list high.

a simple man said...

This is true, patriotz. but I guess you would go in knowing the upper ceiling, rather than paying 1.1 million for bungalow listed for $700K (Toronto student purchase recently).

patriotz said...

"But Windsor's rent/price and income/price ratios are sound!"

Yes, that's one great advantage to Victoria, no loud humming noises coming from the waterfront.

Irving said...

rents up?

Rising rents require rising demand. New demand primarily comes from adult children leaving the nest and forming households. The first 5 bars in this chart shows declining demand over the next 25 years. Conversely, 10 and 40 years ago we were on the verge of experiencing rising household formation.

LWilliams said...

Great quote today on greaterfool.ca by Zhorgon:

"...I have lost track of the endgame...

What was it again?

Oh yeah, the renter who dies with the biggest portfolio wins?"

Jason Lowe said...

Would you rather rent for $1400 a month, or own something for $1400 per month?
I'm guessing most people's issue is they either have no down payment or too much debt to make payments?
Any way you slice it, it's a good time to rent and a good time to buy.

Mrs. W. said...

Irving -
Demand for rental units could also be driven by household 'deformation' as adult children leave the nest and seniors decide they would rather 'cash out'. I could easily see a world where demand for rental units increases over the next 25 years based on demographics.

dasmo said...

"Oh yeah, the renter who dies with the biggest portfolio wins?"

"You're wrong, it is the man with a satisfied mind."

MD80 said...

@Jason Lowe

My wife and I rent for $1400 including utilities in Fairfield. We couldn't purchase an equivalent place for $1400 (think 2bd character conversion). Or maybe a condo like this one? Strata fees, taxes, utilties, oh my!

Anyway, in our case you guessed wrong. We have no debt and a sizable down payment. Believe it or not there's nothing wrong with us just because we choose to rent.

We're renting because the right house for the right price hasn't come around yet and maybe we're too smart to fall for the simplicity of the "it costs the same to rent vs buy on a monthly basis" routine when only looking at mortgage payments and ignoring all the other costs (at a time of record low interest rates and near record high asset prices).

But go on and assume we're the exception ;-)

Irving said...

MrsW said "seniors decide they would rather 'cash out'

I'm glad you brought up the supply side. You are correct that seniors nearing retirement will downsize or 'cash out' as you call it. The part you overlook is 'what happens to the price of all the 3+ bedroom homes they rush to cash out from?' There's a reason they are called the zoomer boomers.
'The Crash Answer' - investors eventually swoop in once price falls to a level where the price/rent ratio makes sense again. Which is a long way down from here. Those investors then rent them to the declining college-aged group I referenced above.

happy renter said...

"We're renting because the right house for the right price hasn't come around yet and maybe we're too smart to fall for the simplicity of the "it costs the same to rent vs buy on a monthly basis" routine when only looking at mortgage payments and ignoring all the other costs."

Ditto. The bank would let me buy a $600,000 house right now with my down payment and income (I have zero debt), but I choose not to buy because what I'm renting is great for way less money.

Introvert said...

But go on and assume we're the exception ;-)

I think you are an exception, MD80, in the sense that the vast majority of renters aren't debt-free, don't have a sizable down payment saved, and probably live--more or less--paycheque to paycheque.

And of the renters who don't find themselves in the above situation, most of them seem to be regular contributors to this blog!

Jason Lowe said...

@MD80
I agree with you 100%. It's good to be a renter and it sounds like you'd have lots of options outside of Farfield? It's a good thing not to be house poor (personal experience). But if you owned that house from 10 years ago to today, those would be your mortgage payments or less! Unfortunately that may not happen in Fairfield again. It's all attached to the low interest rates..

patriotz said...

"I think you are an exception, MD80, in the sense that the vast majority of renters aren't debt-free, don't have a sizable down payment saved, and probably live--more or less--paycheque to paycheque."

Doesn't that mean that the vast majority of renters have no hope of buying?

What does that mean for the renters who do have a sizable amount saved? What does that mean for sellers going forward?

Jason Lowe said...

Coming from a previous, single home owner; sometimes sitting on the fence can bit you too.
Credit is starting to tighten up a bit, and rates will go up in the next 24 months. Maybe giving everyone, but sellers their wish.
Lower house prices, but higher rates..Catch 22..

patriotz said...

"Lower house prices, but higher rates..Catch 22.."

But the person buying today gets those higher rates on a higher price.

Jason Lowe said...

Lower rates today, lowest ever really..

Irving said...

“Lower house prices, but higher rates..Catch 22..”

And the renter gets higher returns on all the money they’re saving.

“Lower rates today, lowest ever really..”

Hence, the largest bubble ever really..

Jason Lowe said...

Who knows? Vancouver for sure, in my opinion..Victoria is pretty sheltered here. A corection would make more sense.

Phil said...

"Victoria is pretty sheltered here."

Hey, wait a minute. That's what they said in Miami. And Tampa. And Las Vegas. And Phoenix. And Tuscon. And San Diego. And..... They now have the lowest rates in history too and it isn't really helping anymore.

dasmo said...

Miami is picking up. Anyway, Victoria isn't sheltered but it's not LasVegas! Well maybe Bear Mountain is...

dasmo said...

Here is a Fairfield 2bd character conversion for 1400/month mortgage if you have 20% down...less if you negotiate.

Marko said...

Good start to the month, three sales over one million today alone :)

MD80 said...

I'd be willing to bet the monthly mortgage cost on that conversion would still be around $1400 when rates rise. Say to 5%, which would put the price at $288,000 or $81,000 less than today. I'll also save $20,000 or so on that 20% downpayment. It's worth the wait!

p.s you must've missed the memo about strata fees, taxes, utilities, etc that would increase the monthly costs (but are included in rent)

Mindset said...

it's currently estimated that banks are rejecting as much as 20 per cent of the mortgage applications they receive because they're no longer insurable by CMHC ...

the alternative market is harder to monitor and control. It's estimated to represent as much as $200 billion in mortgages now — a big chunk of the domestic market. (That's about the size the U.S. sub-prime market was in 2004.)
....


the cost of any increase or perceived increase in lending risk will be passed along to bank customers... Instead of three per cent, that means more people are paying six per cent for a mortgage.

Starting to feel like interest rate increases could come from the banks themselves increasing their spread on rates, and not just from the BOC (Bank of Canada).

And more and more, it is definately looking like its 'not different here' in Canada. Especially now that we just found out that our bank bailout in 2008 was 10-15% larger per capita than the USA. It was just hidden from us.

Full story that the above quotes came from here

happy renter said...

From today's G&M:

What you can get for $500,000

Jason Lowe said...

I'm thinking we're already past the 2008 U.S. mortgage collapse.
This isn't Miami or Phoenix?

happy renter said...

G&M:

Vancouver Housing Slows to a Crawl

happy renter said...

^^From above link: "The spring housing market has slowed to a crawl in Vancouver, with April seeing the fewest monthly sales in more than a decade and the number of unsold houses piling up.

The Real Estate Board of Greater Vancouver said Wednesday there were 2,799 sales in the region in April, down 13.2 per cent from a year ago and 2.6 per cent lower than a weaker-than-usual March. The spring market is key for buyers and sellers, as families try and arrange summer moves."

WorldtravellerPlus said...

"Who knows? Vancouver for sure, in my opinion..Victoria is pretty sheltered here. A corection would make more sense."

If Victoria is so sheltered then why have the prices gone up so dramatically in the past 10 years. Does this reflect a fundamental change in the value of the asset? Has economic activity taken off in the past 10 years? I would say not.

Jason Lowe said...

You didn't notice Lanford blow up over the last 10 years?!
The economy has been booming, and now starting to slow down.
10 years ago you could have bought a house with a suite near the Oak Bay border for $235K. What's that asset worth now? It's not going back down to $235K, that's for sure..

a simple man said...

Jason - we all accept that from 2002-2008 was a time of substantial increase for housing prices in Greater Victoria.

However, this increase will very likely not be replicated in the near future (since late 2008 down 0-10%). Chances are all those folks that you are pre-approving whom have less than 15-20% downpayments may be underwater in a couple years time.

The only real part of the economy that has been booming since 2003-4 was housing and housing-related professions.

nan said...

How many people do you know with that kind of money in the bank? If credit dries up, so does housing. The fact that you think that a 250k drop is too big to happen is irrelevant. Even if housing doesn't go down nominally, I would expect an adjustment downwards by 50%in real terms over the next 10 years.

nan said...

How many people do you know with that kind of money in the bank? If credit dries up, so does housing. The fact that you think that a 250k drop is too big to happen is irrelevant. Even if housing doesn't go down nominally, I would expect an adjustment downwards by 50%in real terms over the next 10 years.

Just Jack said...

Well Jason your guess is as good as any other persons.

But, what would prevent prices to roll back to $235,000 or less?

Especially if CMHC goes the same way as MICC in the 1980's. What you never heard of MICC insurance?

Exactly.

dasmo said...

"The only real part of the economy that has been booming since 2003-4 was housing and housing-related professions." Let us not forget about tech, with the number one spot in dollars to the private sector...
Also, the start of the 10 year run was an under valued position. In 2003 I bought a house that was $100 less/month than renting a lesser place including property tax at 5% interest... If it goes back to those prices again I'll borrow from the mob if I have to just to buy as much as humanly possible. To think, you could actually make money renting out RE!

Just Jack said...

If prices did roll back to 2003 levels, why would you hurry to buy? You could be looking at a decade of flaccid prices.

Why not wait and buy when clearly prices are starting to get hard again. That will save you years of taxes, repairs and rental problems.

Its not like there is going to be a lot of competition to buy. Because a lot of "investors" are going to be suffering from equity dysfunction (ED).

And if high ratio financing becomes too expensive, then most first time buyers will have to save up for their down payment. Usually taking the maximum out of the RRSP of $50,000. That will push first time buyers down below $250,000 for either a downtown skybox or a Fernwood tinder shack. And that will also affect the move up group to the Saanich suite stackers.

I suspect that property values will probably fall to where a hard bodied couple will only be spending 20 percent of the gross pay on principle, interest and taxes. And they will have their mortgage paid off in under 15 years.

In contrast to someone buying today being maxed out at a 40 percent debt service ratio and 30 years of payments for a hundred year old home with a post beetle infestation.

Its a great time to buy!

dasmo said...

"I suspect that property values will probably fall to where a hard bodied couple will only be spending 20 percent of the gross pay on principle, interest and taxes. And they will have their mortgage paid off in under 15 years." ...So you are saying SFH's for 150K? Now I know you are joking around!

dasmo said...

"Saanich suite stackers" did make me laugh :-)

Animal Spirit said...

Any thoughts on MLS 308068? It meets our family needs.

omc said...

@AS

I was looking at properites like that 2 years ago with a friend. I wonder how much that part of the market has corrected, it looks like quite a bit.

The positives are onbvious on that one, and houses of that vintage are pretty easy to work on. I would be very concerned obout traffic noise, and would view it at peak hours becouse of it. Hang out in the yard and decide if your family is bothered by it. That house has the potential to be a bit of an energy hog too. You can't really upgrade the insulation in a vaulted ceiling, so you are stuck with the patchy r12 that that vintage came with. Usually upgrading attic insulation is easy and very effective.

I like the area, but you will end up feeding on to Wilkinson road for your commute. I would do the commute both ways ot peak hours before you consider it, then think how much busier September will be. You would be surprised how many kids are skipping classes or have dropped out by this time of year.

Just Jack said...

It is entirely possible for prices to roll back to the point where a single person with a good paying job, say with the government, could once again buy a starter home in neighborhoods that have always been comprised of young families starting out - like Esquimalt. And not have to spend more than 25% of his/her income on mortgage payments.

And chances are that the market will over correct and prices may fall for a year or two, to the point where only 10 to 15% of income would be spent on a starter home or on the average condominium in town.

Houses again would be homes and not investments or ATM machines.

Marko said...

"It is entirely possible for prices to roll back to the point where a single person with a good paying job, say with the government, could once again buy a starter home in neighborhoods that have always been comprised of young families starting out - like Esquimalt. And not have to spend more than 25% of his/her income on mortgage payments."

And those with two government jobs will be able to buy a 300k lot in Oak Bay and build their dream home all in under 650k because trades will be so desperate for work.

Those working in retail and other low paying jobs will have to settle for homes in less desirable neighbourhoods like Langford.

Dave said...

Re 308068

The bigger they are, the harder they'll fall. If it was me, I'd wait a couple years and get it closer to 400.

Just Jack said...

And that is probably why Victoria is going to be hurt quite a bit more than say Vancouver.

Our neighborhoods have not changed. They are still almost identical to what they were 15, 30 or 50 years ago. Neighborhoods of starter homes for starter families.

While in Vancouver, those old shacks have been crushed by developers to make way for homes built to the maximum house size. Victoria's prices may scream middle and upper middle income - but the homes in a lot of neighborhoods are starters.

Just Jack said...

Victoria has a lot of rentals, so there will always be places to live in town for people in low paying retail and tourist industries.

And a waiter or waitress can always hook up with a young, attractive house owning realtor and therefore get into the market.

I've seen the movie "Flash Dance"

a simple man said...

And those with two government jobs will be able to buy a 300k lot in Oak Bay and build their dream home all in under 650k because trades will be so desperate for work.

Exactly what I have been saying for a year or so!

dasmo said...

"And those with two government jobs will be able to buy a 300k lot in Oak Bay" You will have to beat me and a few hundred others to the punch if it goes there so get your cash ready....

Just Jack said...

Most of the trades will have moved away from Victoria or re-trained for another vocation.

That is after they have eaten up all of their home equity line of credit and declared bankruptcy.

Once you've declared bankruptcy then you've effectively made your mortgage non-recourse.

If things are looking like your going to go down the bankruptcy road, you should start pulling out your home equity and maxing out your RRSP even over contributing every year except in the year you declare bankruptcy.

a simple man said...

dasmo - that is for people that have cash free to do such things and not tied up in falling real estate that is very difficult to liquidate.

dasmo said...

Like I said, get your cash ready! And your canned food and fall out shelter cause it sounds like Armageddon.

Mrs. W. said...

Just Janice here -

Just Jack -
Actually I'd say many homes in Victoria are not "starters" but rather "finishers". The senior couple who don't want a condo - also don't want more than 2/3 bedrooms and a really small lot.

I think in real terms things will correct, which if your paying cash now is bad - you lose a lot of your 'real' money during the correction. However, buying now in anticipation of flat prices with a low down, low interest rates and a long horizon, actually allows in 'real' terms for you to pay most of the money later when it's worth less.

I do think there's room to mitigate a crash to make it feel (at least to Joe Average) less severe - there's "innovations" that could be redeployed under more responsible terms and there's a lot of room for Canadian dollar devaluation.

Ideally we will get to a place where housing is housing again and the values placed on it are grounded by a stable economic relationship with employment, and income. I think a lot of the debate to be had, is "how that will happen" and if it won't, why not?

I for one am not anticipating nominal price appreciation - but I am also a lot more open to the idea of a "silent crash" than I was a short while ago.

Just Jack said...

This market is 90 percent psychological and 10 percent economics. If home owners and buyers get spooked - its a long, long ways to the bottom.

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

I'd put your cash under the mattress then because there will be a run on the banks as they start to go insolvent. They only have 10% actual cash on hand so better get here first!

Anton said...

Cash will be worthless. Best to convert to canned goods and farming implements ASAP.

Introvert said...

This market is 90 percent psychological and 10 percent economics. If home owners and buyers get spooked - its a long, long ways to the bottom.

If it's 90 percent psychological, I wonder why we place such an emphasis on economics on this blog?

And of course the fact that American sub-prime homeowners found themselves suddenly underwater on their mortgages in '07 and '08 was primarily a result of a psychological phenomenon.

Just Jack said...

I think we spend considerable time discussing psychological aspects of the market on this blogg. Economics itself is a social science. In fact "bubbles" are completely psychological.

Trevor_tni said...

Introvert,

I have been lurking for awhile but just wanted to say I enjoy reading your comments. Hope you keep on posting. A lot of the bears here are just dreaming about prices of yesteryear.

Homeowners like you can see the Victoria real estate market with a clarity that renters are lacking.

You have probably built a lot of equity by now because you saw the opportunity at the start of the boom. Do you have any tips for those of us that want to get into the market now rather than waiting??

Just Jack said...

Money is just paper and plastic. Its just more convenient to carry around a $50 bill than 50 pounds of potatoes.

You could try to buy and sell in gold, but you would probably have to convert the gold into paper or coin money to buy most goods. Because how are you going to get change from your gold bar. And gold bars are friggin heavy!

And how are you going to pay for a house? I don't think two train loads of dried pork is going to seal the deal.

Your mortgage payment each month would be 3/4's of a goat and a bottle of dandelion wine.

Paper and plastic will be here forever.

a simple man said...

Trevor-tni;

Why do you assume the renters are an uneducated, unwashed bunch?

Find a house you like, bid 10% under. Never look back.

Trevor_tni said...

a simple man,

I did not say that "renters are an uneducated, unwashed bunch."

But I do agree with Introvert's earlier comments:

I think you are an exception, MD80, in the sense that the vast majority of renters aren't debt-free, don't have a sizable down payment saved, and probably live--more or less--paycheque to paycheque.

And of the renters who don't find themselves in the above situation, most of them seem to be regular contributors to this blog!

Introvert said...

A lot of the bears here are just dreaming about prices of yesteryear.

Pretty much.

Homeowners like you can see the Victoria real estate market with a clarity that renters are lacking.

Some of the renters on this blog do--believe it or not--make very legitimate points. However, talk of a mega-collapse and houses in Oak Bay reverting back to an average of $300K is utter nonsense.

You have probably built a lot of equity by now because you saw the opportunity at the start of the boom. Do you have any tips for those of us that want to get into the market now rather than waiting??

I don't have as much equity as you might presume. I would gladly have bought a house in Victoria circa 2001 but, alas, I was in Grade 12.

I bought in 2009 with around an 18% down payment. I make extra mortgage payments regularly and don't carry any other debt. I love owning and don't resent the property taxes, maintenance costs or weeding the lawn.

Offering advice makes me a bit uneasy; nevertheless, here it is. Don't buy until you have a solid down payment. Make extra payments on your mortgage. Buy a house that you'll stay in for a long time. And contrary to a simple man's advice above, I recommend you buy the house that you love at the cost that it takes to get it (within reason, of course).

The trouble with bidding 10 percent under, vowing never to participate in bidding wars, and generally low-balling is that you'll probably never get the house that you really want. Those tactics are better suited to already-ravaged real estate markets like those in parts of Florida, Nevada, Arizona, etc.

The fact of the matter is, in Victoria good houses tend to draw some level of competition.

Trevor_tni said...

Introvert,

Thanks for the reply. Some good tips and suggestions.

With low interest rates and lots of selection it looks like a good time to buy and build some equity instead of throwing my money away on rent.

And I agree with you that it is better to buy our dream house than trying to lowball. After all the quality remains after the price is forgotten.

patriotz said...

"If it's 90 percent psychological, I wonder why we place such an emphasis on economics on this blog?"

Because economics always trumps psychology in the long run.

Prices of houses (or stocks, etc.) don't keep going up just because people think they will.

Mindset said...

With low interest rates and lots of selection it looks like a good time to buy and build some equity instead of throwing my money away on rent.

Are you tied to the housing market in some way? Your posts read like industry endorsements.

The 'throwing your money away on rent' argument is so '2007'.

I think of myself as a realist, and everything I am seeing indicates that there is an extremely low chance you will build equity in a home over the next few years. Especially if you had to sell it anytime soon.

Buy a house if you need one or want one, but let's not confuse people here by telling them it's going to make money or is a better financial decision than renting. Of course, if you have statistics or information to back your positive outlook please share them, that's the point of this blog.

There are a lot of headwinds against RE these days. Best that people do some homework and check their emotions before making life's biggest purchase decisions.

I don't see Armageddon, but a 4-7% decrease in prices for a few years is not unlikely (a total correction of 20-30% from the peak, it's probably already off 5-10%). I think this is a reasonable correction, and a fairly soft landing.

Just Jack said...

At this point it seems that the amount of the correction is dependent on where you live. If you live outside of the urban core districts then you are taking a drubbing. When you reach the point that commuting to the city is not viable for most people, then the odds of winning the lottery or selling your home seem to be about the same.

But, if you live in some parts of Victoria and Oak Bay, the sun is shining and you can gloat about how much smarter you were than the unwashed masses.

reasonfirst said...

I just googled Trevor tni and got
trevortni.com "Introverts in Network Marketing" - conincidence?

dasmo said...

Agree with Mindset. From a math perspective (if you don't fall for overpaying) it's a wash right now. Buying an equivalent place you can rent will cost you about the same in interest and taxes/upkeep. So it will cost you more in cash flow because there is principle as well not to mention you will now be sucked into buying things like lawnmowers etc. Buy if it works for you and you can afford it and go for 10% off. That is NOT lowballing. It's a normal expectation from an asking price...sheesh. Otherwise feel good if you are renting and saving and enjoying life. We are past the pressure of that being a bad move by a long shot.... However, total collapse? I don't see it.

Phil said...

Introvert, those of us who lived here through the "Crash of '82" know how badly real estate can burn you. Yes, even in *sunny* Victoria.

I realize we won't see high interest rates like that again. Instead we have unsustainable prices in their place. Different symptom, same disease.

Just Jack said...

Here are the months of inventory for April by area

The inner city districts of Victoria, Oak Bay, Saanich, View Royal and Esquimalt have some 728 single family homes for sale. Last month there were 173 sales with a typical market exposure of 23 days. That's 4.2 months of inventory and a very reasonable time to sell.


Next we have the Western Communities with some 657 homes for sale with 75 selling last month and a typical exposure of 50 days.

8.7 months of inventory and 50 days to sell is a "soft" market that favors buyers. You can get some concession in prices and terms. Maybe a Dodge Ram truck thrown in with the deal.

The Saanich Peninsula is much the same with 236 homes for sale and 31 sold last month in typically 44 days. 7.6 months of inventory. Instead of a truck maybe you get the goats and pigs thrown in.

As we go farther out from the core into the Malahat, the number of listings goes to 215. And sales dwindle to 8. 27 months of inventory with a typical exposure of 51 days. Over 2 years of inventory, seems like some of the home owners didn't get the memo.


Then there is Area 51
-the Gulf Islands

-346 homes for sale
-15 sold
-market exposure 217 days
-23 months of inventory
-Silence of the Lambs?

patriotz said...

"I realize we won't see high interest rates like that again."

But an increase in interest rates by the same proportion will have the same impact on prices. That is, from 3% to 6% would be as bad as from 10% to 20%.

dasmo said...

um, nope. 180k at 10% is $1610/month 20% is $2907/month

340k at 3% is $1609/month 9.5% puts it to $2927/month

so interest rates would need to triple over the next two years for the same thing to happen... I'm locked in at 2.99 for five so if the same thing happens they will be back down by then anyway...

Just Jack said...

The whole world went crazy with low interest rates. Even Chemainus condominiums went up as the interest rate went down.

But now, things are different. We still have low interest rates - but property values are rolling back.

Like a condominium in Chemainus, that sold in 2004 for $59,000 and re-sells today for $55,000.

The condo rents for $500 a month ($6,000 a year) or 9 times income. And the condo took 232 days to find a buyer.

Obviously people in Chemainus do not understand real estate.

PD said...

The way I remember it, interest rates fell in half during the eighties, same time property fell in half.

dasmo said...

since we are cherry pickin... Or a friends house mid-island bought in late 2004 for 350k sold today for 445k.

Yes people went crazy, people overpaid. Hopefully sanity will prevail. But expecting to buy a detached home on a good lot in OakBay ever again for 300k is insanity....

Just Jack said...

Interest rates were falling in the 80's, and prices were falling.

Would you buy a new dress today, if it were going on sale tomorrow?


hmmm, I mean chrome mud flaps for the 3/4 ton.

PD said...

All the factors that began B-blowing in 2001 are reversing. I can't think of one that's not. There's no doubt in my mind it will be a full retrace back to the beginning ^ for every area.
Eg. Oak Bay 2001 and 2018 in equal harmony

dasmo said...

well you could wait for the dress to go on sale and miss the prom...or you can rent a dress.

Bitterbear said...

I'm surprised no one has commented on The Bottom Line panel on CBC National two nights ago where all four panelists said housing will go down optimistically by 10-15% nationally and more in some places.

Patty Croft announced she was seriously considering selling her house and renting. Preet Bannerjee said the same about three months ago.

Introvert said...

Like a condominium in Chemainus, that sold in 2004 for $59,000 and re-sells today for $55,000.

Just Jack,

It's Chemainus. It has a population of 3,000. Why are you using Chemainus as an example? Why don't you throw in some stats from Gibbons, Alberta, while you're at it? That'll be useful.

(I anticipate you'll now go look up a bunch of interesting facts about Gibbons and write a really humorous post that may or may not have anything to do with real estate.)

Also, you're talking about a $4,000 price differential in your example. Seriously? Lots of people make $4,000 (net) per month. In a real estate transaction, $4,000 is negligible.

Just Jack said...

Back in 2004, the typical condominium sold in Oak Bay for $320,000. Today it's $345,000

Compare that to Victoria City when a condo was $177,500 to today's $279,000.

Of course the stock of condominiums is different between the two areas. Oak Bay has older condominiums that you stick your grandfather with Alzheimer in while you sell off his Upland mansion.

And Victoria's Humboldt Valley are hard bodied coke dealers who sell to those that just sold off their grandfathers Uplands mansion.

Fiduciary said...

Introvert, I agree with you re: cherry picking. I'd like to see more reliance on the Teranet index for analysis of transaction pairs to eliminate the choice bias, unfortunately that data lags by quite a bit and doesn't go too far back.

Just Jack said...

Introvert, I said the people in Chemainus don't understand real estate.

They believe in this magical thing called a "return on your equity."

- that is so 90's


While in Victoria the mantra is that you have to lose money to make money.

Imagine paying 9 times income for a condo in Victoria and getting a return on your equity when you can buy one for 18 times income and lose money.

patriotz said...

"so interest rates would need to triple over the next two years for the same thing to happen..."

Except people are vastly more in debt today than they were in the 80's.

Trevor_tni said...

Just Jack,

You have some good posts but you do tend to cherry pick the stats sometimes.

Why not pick some of the sales where the owners made a bundle when they sold?

The core areas of Victoria, like Oak Bay, are still a great place to buy. Boomers want to retire here because this is the best place to live in Canada. Anyone buying now will see some decent appreciation in home value if they plan to live in the place for a long time (over 5 years).

BTW - I do like your sense of humour. It makes it easier to wade through the Armageddon posts.

Just Jack said...

Relative to other areas in Greater Victoria, Oak Bay has never been cheap. Back in 2004, the typical home sold for $505,000. While in Langford it was $318,000. A premium of almost 59%

Today Langford rings in at a typical price of $485,000. Oak Bay at $759,000. And the premium is 56%.

Hey, that must mean these areas are connected in a common "marketplace" So if Langford property values fall that would mean prices in Oak Bay would...

And that's why I draw attention to these outlying areas like Sooke, Salt Spring and Chemainus.

Or you could actually believe that general economic principles developed over the last 250 years do not apply to you or your neighborhood.

Good luck with that one.

PD said...

"the best place to live in Canada"

You mean "35th best place to live in Canada"

http://list.moneysense.ca/rankings/best-places-to-live/2012/Default.aspx?sp2=1&d1=a&sc1=0

Mindset said...

But expecting to buy a detached home on a good lot in OakBay ever again for 300k is insanity

So a home in Oak Bay won't drop to 300k, I would agree with that. Well unless those ocean level increases turn out to be true, might as well chuck in an Armageddon statement :)

But it seems that your general feeling is that prices in Oak Bay won't drop at all off peak prices?

Lets be honest, even though there is an occassional outlier, they already have.

I think that 10 mile is better protected than Oak Bay due to the lower sales volumes for those trying to hedge the obvious RE downturn we are in.

Introvert said...

You mean "35th best place to live in Canada"

Well, Victoria was the best in Canada according to MoneySense in 2009. And clearly the Victoria of '09 is so different from the Victoria of today...

Perhaps Jack Knox said it best:

The MoneySense rankings seem particularly sketchy, the bastard love child of a calculator and an Ouija board. Truth is, all rankings are subjective, coloured by personal values and experience.

Just Jack said...

Victoria, got number 1 in bike to work. But they never asked how many actually made it to work!

I think the best way to make sure that we are in the top ten places to live in Canada would be to stop spending money on bridges, roads and sewers and just buy more ad space in MoneySense magazine.

Just Jack said...

I think the last time prices were $300,000 in Oak Bay was around the time of the Common Wealth Games. Of course interest rates were in the low double digits back then.

But that won't every happen again.


I remember sitting on my nana's lap back then and her telling me.

"Jack, one day interest rates will be 3.9% and home's will be 3/4's of a million dollars!"

-just before they took her off to the "home".

The DP said...

There is only one thing that can prop up prices beyond economics - today, yesterday, forever:
DEMAND
Why have prices in Kelowna, Vegas, and other vacation locations plummeted? Because more people wanted to sell than wanted to buy. Until very recently, this was also the case in Vancouver. As a few people have mentioned, Victoria is a mixed bag right now, with prices softer in some locations than others. I don't know if it's the weather, the city itself (size, culture, whatever), proximity to nature, proximity to the US, jobs (probably not), nice community of retirees, etc. - whatever the cause, demand for housing here has been fairly resilient so far.

If you want prices to drop here, your best bet may be to drum up some propaganda to decrease demand. Yell loudly about the homelessness, crime, rain, lack of jobs, no Ikea, etc. Vote for politicians who will cut jobs. Talk about how it's a lousy place for young people and a lousy place for older people too.

Just make sure you don't convince yourself in the process.

Personally, I love it here, have zero regrets (but for the lack of skiing!) from moving here from Calgary. I wish the cities were amalgamated and a bit more business-friendly, but understand why they're not.

Victoria - more expensive than some places in the world, cheaper than others:
http://www.numbeo.com/property-investment/gmaps_rankings.jsp?year=2012

Just Jack said...

Or wait.

Just Jack said...
This comment has been removed by the author.
Just Jack said...

I'm glad you mention DEMAND.

Today 1020 people wanted to sell their condominium.

Last Friday only 12 people did.

Just Jack said...

Well, there is one good ranking system and that would be the population of the city.

Because if everybody wants to live here, then we would be number one.

So, I'm sticking with the Greater Victoria area being number 15 on the list of Canadian cities. That is unless you want to say that 350,000 people can all be wrong?

backinVictoria said...

haha... it's been a while since we've seen someone try to use the "everyone wants to retire here, it's the best place in Canada" line to try to justify why our prices are so out of whack.

Thanks for the laugh Trev.

Introvert said...

Well, there is one good ranking system and that would be the population of the city.

Because if everybody wants to live here, then we would be number one.


By that logic, everyone wants to live in Shanghai.

Just Jack said...

Of those that live in China - that's probably correct.

Although I don't think Shanghai has the largest population.

Just Jack said...

23 million Chinese can't be wrong. Shanghai is the largest city in China.

Introvert said...

23 million Chinese can't be wrong.

One of Shanghai's nine million migrant workers says, "Boy, I came here for the 30-cent an hour work but I'm going to stay for the pristine view of the chemical factory outside my tin shack."

Just Jack said...

Sure, you find the one migrant worker than can speak English.

PD said...

Jack, you crack me up!

The DP "There is only one thing that can prop up prices beyond economics - today, yesterday, forever:
DEMAND"

Maybe I'm being nitpicky, but supply & DEMAND aren't beyond economics, they are the basis of economics.

"If you want prices to drop here, your best bet..."

Some of the labelled bears don't necessarily "want" prices to fall. When it's more economic to own, we own, and vice versa. By doing so, I like to think we help restore society's imbalances, and try to help other individuals make better decisions as well. Whoa, that was deep. Diehard bulls and bears are equally dangerous. The bulls were the ones who recently took us to the brink. Next up, Chicago's NFL team!

Fiduciary said...

Well said PD.

The DP said...

Lots of things determine city size, including history and investment over time. Historically, agricultural productivity mattered a lot, but much less so today (jobs matter more now). Then there are places that are large for no good reason whatsoever; but they are the exception (Vegas...).

But city size and demand are far from equal, which is why prices are much higher, say, in Kamloops (pop. 85,000), than Thunder Bay, ON (pop. 110,000). There are all sorts of potential reasons for this, but it comes down to one simple fact - people are willing to pay more for houses in one place than in another.

And as the map I linked in my last post shows, price/income ratios vary so much around the country and around the world as to be a completely unreliable predictor.

patriotz said...

As I recall a few years back Kelowna had the largest price/income in Canada and lo and behold it now has the biggest RE bust in Canada.

Not a bad predictor in that case. Worked just fine south of the border too.

CS said...

Some pretty definite advice here:

"talk of a mega-collapse ...is utter nonsense."

Phew, it's a relief to know that what happened in the States cannot happen in Oak Bay.

"I realize, we won't see interest rates like that again."

Hey that's good. It means that QE notwithstanding, we'll never have double digit inflation again.

"this is the best place to live in Canada"

Sure, but don't try telling that to a an East coaster.

A house may be an investment but it is an unusual investment in that anyone can leverage practically the whole cost.

That's why, housing can be a disastrous investment. When leverage turns negative, bankruptcy looms.

The possibility of buying with virtually nothing down is new.

In the US is caused the housing market bubble and implosion.

Now can someone give a conclusive reason why the same cause will not produce the same result here?

Bitterbear said...

"Now can someone give a conclusive reason why the same cause will not produce the same result here?"

No.

And that is a point that is being missed here. No one can say there will not be a crash any more than anyone can say prices will keep rising because people's behavior is as irrational going down as it is going up.

What will happen to house prices depends on whether people think it's a good time to buy and that is determined entirely by their perception of risk which is alarmingly easy to manipulate through media be it newspaper, tv, radio or some internet blog. When one loses control of the capacity to reason and suffers the substitution of data and probability for marketing swill and ad hominem, irrationality reigns and prediction is baseless.

I, for one, find solace in the regression line.

AandJ said...

Speaking of rentals. Here is a graph of a years worth of (useless?) data collected from Craigslist.

http://i45.tinypic.com/25fj5as.jpg

It is simply a count of the number of 3 bedroom rental units listed on any given day.

Don't even get me started on how flawed this is - you wouldn't believe the variation depending on the time of day the data is pulled!

Just accept it for what it is.

CFA Joe said...

http://opinion.financialpost.com/2012/05/04/taxpayers-also-victims-of-hot-money-behind-canadas-condo-bubbles/

Heave you seen this article int he Post. This is how RE crashed int he States (the use of derivatives). This is now happening in Canada right under our noses. This isn't going to end well.

Mindset said...

people's behavior is as irrational going down as it is going up

Classic herd behavior, I agree.

But pure emotions aside, the herd does have a budget limit that is set by the economy and lending institutions. And CMHC and the BOC have the ability to run the herd towards RE... and they have been running us pretty hard.

But it's important to note that they are now pushing us in the other direction. Stimulus is turning into cuts and layoffs. Lending rules are shifting from looser to tighter. The expansive 'anything goes' approach at CMHC of the last 3 years is turning into hard limits and increased oversight. 'Spending our way out of the recession' recommendations are morphing into debt repayment and fiscal responsibility recommendations. It's 'different here' talk in the media is even becoming its 'similar here' talk.

And let's not forget that interest rates can only go up.

This isn't about being a bear, its about being aware. Why anyone would want to align with a bear bor bull bandwagon for the long haul is beyond me. Investment outlooks aren't like sports teams, its actually good to switch to the winning team.

And the advice like 'you can't time the market'? Or Victoria will never go down?

Don't turn your brain off. Of course there are good and bad times to invest in RE.

Now is not good. If for no reason other than the herd is being turned.

Animal Spirit said...

CFA_Joe - dear God, if Diane Francis is writing in the National Post about condo speculation flips from abroad and needing to limit foreign purchaers, then something is afoot. If nothing else, the right wing rag is calling the house. What happens when someone calls?

SilverSurfer said...

Introvert said: "Some of the renters on this blog do--believe it or not--make very legitimate points. However, talk of a mega-collapse and houses in Oak Bay reverting back to an average of $300K is utter nonsense."

Mega collapses happen all the time actually. 20+ real estate mega collapses have happened through the world in the last 7 years alone. And these were nominal collapses. The thing about mega collapses is that few if any can see them coming, because they are so far out of the realm of expectation they are regarded as highly improbably and mistakenly impossible. Who expected interest rates to go to ~20% in 1981 killing the real estate market? Who expected the 1987 stock market crash? The 2001 stock market crash? The 2001 9/11? The massive US real estate collapse in 2007? The 2008 global financial crisis? The Euro crisis?

I find people are too hung up on price values - it tells me they either lack imagination or a basis in economics. Very few (mostly young) people really grasp the negative impact of inflation over an extended period - it's like the frog in the boiling pot scenario. For instance, we could see a real value collapse wherein the prices stay mostly flat like they have in the past couple of years, but real value is negative when adjusted for inflation. The thing is, I do believe the inflationary forces are due for a major rip upwards. Sure it won't happen in 2012 and maybe not even 2013, but ZIRP can't last forever my friends, and the central banksters only exit plan is to find another job so the colllapse doesn't happen on their watch.

Austerity has pretty much failed in Europe, although they may keep at it a bit longer. Watch what happens to the French elections. The Markozy reign may be on its last legs. Next stop, ECB bonds or simply more shadow printing (LTROs, currency swaps, IMF bailouts) for a bit longer.

The historical way to end a massive debt crisis is to inflate the debt away. The problem with this is that wages do not tend to keep up with rapid increases in inflation.

The other way to end a debt crisis is for a return to the gold standard - which by the way many central banks around the world are now prepping for as they are net gold buyers since 2010. Too bad Canada has so many mines yet nearly zero gold reserves - if this doesn't change before a global return to a gold standard, our currency will drop like a rock overnight and massive inflation will instantly kill all markets including real estate (excluding possibly our export markets). Haven't you heard? 2016 - it's the new 2012.

Let me simplify my position: If our real estate market doesn't drive off a cliff on its own for reasons many here have stated in the past, then it will be driven off a cliff regardless within 4 years due to macro economic factors.

In the end, insanity never prevails, but for a while it can appear like a 'new normal' and thus tends to fool a lot of people. Take our paper fiat currencies for the past few decades as an example, my generation has not known anything else. The nature of humans is to extrapolate the present into the future, and thus most suffer from normalcy bias when mega collapses do occur. The history of fiat currencies is a very very boring one. Each time, the process repeats itself ad nauseum. Paper (or should I say plastic now), always ends up returning to its ultimate intrinsic value - ZERO (or many zero's if you prefer).

patriotz said...

"Who expected the... massive US real estate collapse in 2007?"

Robert Shiller
Paul Krugman (writing in the NYT no less)
Nouriel Roubuni
Warren Buffett (didn't come right out and say it, but his words and actions indicated it)
Dean Baker
Ben Jones, Mish Shedlock, Calculated Risk and many other bloggers
Many other economists - read archives of above blogs

And every one of them who has commented on the situation in Canada is predicting the same outcome here.

The idea that these busts can't be seen coming a mile away is simply at odds with the facts.

dasmo said...

"Most condo developers may not be involved in this game, but a few – notably developers with Asian and Middle East owners or backers and buildings located in downtown areas – certainly are."
That pretty much says it all in that article...

Bitterbear said...

Thank you Mindset for acknowledging and furthering my point.

I am not an economist (no big surprise there) but I know some things about human behavior.

I watch the media to sort out which way the public is being led about by the nose which is exactly into real estate for some 10+ years now.

But in the last couple years, there has been a more balanced message with RE and it's handmaidens (read Times Colonist)on one side and Jim Flaherty on the other. Flaherty started with gentle reminders to the KoolAid crazed masses about the levels of debt they were accumulating. Now the message is more strident and I am hearing it from other mainstream media money moguls. I'm hearing it now from banks and most importantly I'm hearing from people at work and those sitting in my office chairs. The story is jelling now....I own a house I can't afford and I can't get out of it....my husband lost his job...I have a new baby...my department got downsized...And stress is rampant.

I have a portentous sense that the shift has occurred and we are on the downside now. And the potential for accelerated sledding is certainly there. I suspect the message that Flaherty will start sending soon will be something along the lines of "No need to panic..." When we hear that kind of subtext, panic.

Cheers

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

patriotz I fully agree, I can think of a few more names not on that list. My point was that very *few* can see it coming, but the vast majority do not.

One thing I've learned in the past few years is that when the good times are rolling anybody can predict an upward market. Analysts may tell you X stock will go up by 25%, and if it only goes up by 15% you don't really mind because you're still winning. However, the true test of the quality of an analyst is when during the good times they can predict ahead of time a negative down turn. When such events occur, we quickly find out that 98% of the analysts aren't worth the advice they preach. I'll go one step further, it is also important to distinguish the perma-bear from those that are less attached to the object of investment (be it real estate, gold, or whatever) and recommend to sell it and move on to the next big trend before it becomes common knowledge.

CS said...

@SilverSurfer

"The historical way to end a massive debt crisis is to inflate the debt away."

Or to have a depression, e.g., as at the time of the Great Depression.

Today, inflation seems to be the preferred option of the Nobel-prize-winning economists, but how exactly is that to be accomplished?

At the turn of the 21st Century, it was easy. Drop interest rates and folks would borrow, driving up the money supply and creating a housing bubble as a result.

But now most people want to deleverage and US banks have over a $1 trillion in excess reserves on deposit with the Fed.

Then, after the US housing bust, governments tried stimulus spending, which has brought us Victoria's billion-dollar Blue Bridge and ten thousand similar projects across the country that we couldn't afford in good times.

Now folks realize that stimulus spending means dispensing taxpayers' income on projects of questionable value conducted at inflated prices by contractors with good connections. So can it continue? I have doubts.

Another possibility would be to keep government spending under control, cut taxes and cover deficits by money printing. But for government, giving up tax revenue is, well, giving up. The bureaucracy will fight relentlessly any such a plan, and remember how many votes our "public servants" have.

So those who project continued Japanesification of Western economies, with chronic deficit spending, growing public debt, very gradually declining real incomes and thus declining real estate prices, both real and nominal, may prove to be correct.

Another possibility, I suppose, would be an episode of helicopter money: everybody to get a big government cheque, say, $100,000 on condition that they apply it first to the payment of debts, mortgages, etc. -- this is the debt Jubilee advocated by Steve Keen.

That would be inflationary, both in monetary and price terms.

Trevor_tni said...

Introvert said:

Offering advice makes me a bit uneasy; nevertheless, here it is. Don't buy until you have a solid down payment. Make extra payments on your mortgage. Buy a house that you'll stay in for a long time. And contrary to a simple man's advice above, I recommend you buy the house that you love at the cost that it takes to get it (within reason, of course).

I agree with most of what you say with the exception of the "solid down payment". If a family has a good household income and minimal other debt they could still buy now with little down and make extra payments in order to build up equity quickly.

There are several possibilities that can be employed:

- One is to withdraw funds from their RRSP which is not taxable. The max per person is 25K so a couple could get a max of 50K. This has to be repaid over 15 years.

- The banks, with CMHC's blessing will give you up to 7% cash at closing if you sign a fixed term with them. This can be used as the downpayment. The interest rate is higher but it allows people to buy now.

First time buyers get a lot of benefits and freebies from the government if they buy now.

- BC first time buyers do not have to pay the property transfer tax. On a 500K house this is an 8K saving. This deal might be gone anytime the government needs more tax revenue.

- BC first time buyers get up to 10K as a cash payment (not subject to income tax) if they buy a new home in the next year. Free cash is hard to beat. When the cheque arrives use the money to pay down the mortgage.

- There is a 5K tax credit available to first time buyers when thy fill in their federal income tax form. More free cash.

And interest rates are at all time lows. Buyers can even lock in for 3.99% on a 10 year mortgage if they are worried about rates going up.

In summary first time buyers are getting a deal that their parents could not have imagined. Seems like it is a no-brainer to BUY NOW.

Introvert - You seem to have a lot of financial acumen when it comes to home ownership. Your comments would be appreciated.

Mindset said...

Are you in the RE business Trevor Ini? Should I be looking for your photo on park benches?

BUY NOW!

I undestand opinions, but dishing out generic 'condo-brochure-like' advice, and even throwing in all caps like a slap-chop ad? Cmon.

First time home buyers tend to move and sell a lot more often than mature buyers. People with very small down payments are usually leveraging themselves more than others, and would have a harder time eating the losses if they had to sell, or managing the increased payment when their mortgage renews with higher interest.

The first 5 years of a 25 year mortgage are almost all interest. They will owe pretty much what they do today in 5 years. If interest rates are higher and prices lower (or best case flat), then what? BUY ANOTHER? UPSIZE?

Telling people to buy that couldn't afford a home under conditions except the transition phase that we are in (when it is obviously changing) makes me wonder if you are just a contrarian like Introvert and trying to stir the pot (or maybe you are Introvert?), or if you are just sitting on some 80's condo units that you can't move.

Mindset said...

there are a number of drawbacks to locking in to a mortgage rate for 10 years. The foremost argument against a 10-year term is the premium you will pay for passing on the risk of interest rate fluctuations for 10 years. You should note that your lender takes on more risk the longer the term, and premiums tend to grow exponentially. It is rarely worth paying this premium. Furthermore, the penalty costs associated with breaking a mortgage with a term of 10 years would be very high.

from here

For example, let us consider a $300,000 mortgage, and compare a 25-year versus 30-year amortization period... The total interest saved by going with a shorter amortization period exceeds $100,000

from here

Some food for first home buyer thought.

a simple man said...

Trevor tni - for the first-time BC homebuyers...

What if it is your first purchased house in BC, but you have owned previously in other provinces?

Trevor_tni said...

a simple man,

BC defines a first time buyer (FTB) as someone that has never owned a home anywhere in the world. If a couple buys a home both must be FTB's to get the 10K cheque. For property transfer tax exemption one or both can be FTB's. If only one is FTB then half the tax must be paid. Full details are on the BC gov't. Web site.

The Federal govt. defines a FTB as someone that has not owned a home for 5 years.

omc said...

One thing your are wrong about Mindset is the way a mortgage is paid off. At the current rates about 1/2 of your payment goes to principle from day one. I would encourage you to use some of the online tools to verify this. So yes, after the first 5 years you would have earned some equity.

People here are going to get mad at me, but when I did the rent vs buy for similar houses I found that I am even with a 5% decrease in 5 years. I am not seeing any deals on decent rental housing. It's great if you have a decent rental, but it doesn't seem to be the norm.

Introvert said...

I agree with most of what you say with the exception of the "solid down payment". If a family has a good household income and minimal other debt they could still buy now with little down and make extra payments in order to build up equity quickly.

Trev_tni,

I recommend a solid down payment mainly because it makes one's mortgage less likely to go underwater.

Further--and more importantly--I would submit that the people who are unable (or unwilling) to save up a decent down payment are also very likely the people who will not be able (or have the discipline) to make those crucial extra mortgage payments.

Your list of possibilities shows that there are many good incentives to buy now; nevertheless, those don't change the fact that down payments are important, as things-in-themselves and as indicators of behaviour.

Lastly, I think a 10-year mortgage at 3.99% is very intriguing, indeed.

patriotz said...

"At the current rates about 1/2 of your payment goes to principle from day one."

What happens when they go up?

"People here are going to get mad at me, but when I did the rent vs buy for similar houses I found that I am even with a 5% decrease in 5 years."

No I'm not going to get mad at you, I'm just going to ask you to show us the numbers. Because we've shown that you're behind even with a 5% increase. Remember?

And don't play tricks on us like ignoring ownership expenses or opportunity cost on principal payments.

omc said...

How bout you show us how you are behind with a 5% increase patriotz. I crunched the numbers here's a couple of times for some one buying a regular Gordon head box vs renting because it was easy to compare apples to apples. The rents I could find we're all above the cost of carrying the mortgage plus taxes. No one disputed this. In 5 years you would have aprox $50k payed off. Apples to apples not much work is done to a rental in that amount of time. I would suggest you do a search for the threads I have posted for the exact numbers.

Your statement that you would be ahead renting with even a 5% increase is pure crap. If you bought at $550k, the house would be worth $577k and you would have $77k in equity. I have owned before so I don't see where the $77k disappears to.

HouseHuntVictoria said...

OMC, the challenge with comparing rents today to purchase price 5 years ago is rents have changed. How and where can you find what rent for a BC box in GH was 5 years ago? Even if you take today's asking rent, and then reduce it by 4%/year, you're likely not getting an accurate apples to apples comparison no?

Just Jack said...

BUY NOW.

Trevor, did you just write BUY NOW on HHV?

More and more you are sounding like a mortgage broker desperate for work.

And 3.99 for 10 years. You should be getting 10 years for giving us 3.99.

S2 (Just Jack's wife)

patriotz said...

"How bout you show us how you are behind with a 5% increase patriotz"

Give me the purchase price and the rent and I'll do just that. You're the guy who claims to have all the numbers.

Nancy said...

I have been driving around Broadmead and Gordon Head - I can't imagine what those houses are going to look like 20 years from now.

Will they still be standing?

Nancy said...

I have been driving around Gordon Head and Broadmead....

I wonder if those houses will still be standing in 20 years from now.

Many look like they are on their last legs.

omc said...

It's not just Gordon head that has poor quality housing. I think oak bay takes the lead in that category.

HHV,

I am talking about the present, not past. A decent box in Gordon head will set you back upwards of $550k, the market rent for an entire house is over $2500/ month. The house you buy will be in better shape than the rental. Some are going to point to some ads at $1800, but give them a call and you will find it is a 1/2 house. Common trick. Do the math yourself and don't add in new bathrooms ect, you won't get them in a rental. I have owned before and used to rent a house out with my father before, ain't no way you will be spending more than $75k in 5 years on maintenance.

I am not saying it is right, but I can't see prices dropping until interest rates rise because it makes housing artificially affordable. I don't expect rates to rise any time soon, doesn't matter what the BOC threatens. World economy isnt going anywhere quick.

CS said...

Re: renting versus owning

Don't the costs remain more or less in balance whatever happens to prices and interest rates?

If prices rise, rents must also rise as landlords begin to cash out, and new investment into rental property dries up.

Conversely, if prices fall, investment in rental property will increase causing rents to fall.

The same considerations apply in the case of rising or falling interest rates. An increase in rates will tend to push prices down and thus the return on capital invested in rental property up.

Any difference between the cost of renting and owning must then reflect people's preferences for, on the one hand, liquidity, and on the other hand, for proprietorial control over the property they inhabit.

Dave said...

omc
"I don't expect rates to rise any time soon, doesn't matter what the BOC threatens. World economy isnt going anywhere quick."

True, but the correlation between stagnant world economy and Canadian interest rates will soon decouple. What most do not understand is, it’s the descent of our housing and our other precious commodities that are now causing investment dollars to shift away from our country - the exact opposite of recent years. As this shift progresses, our governments and financial sector will be forced to pay high interest rates to attract foreign capital. As usual, this rate hike gets passed onto Canadian consumers with higher borrowing costs.

To make it easier to understand, if 4 friends all want to borrow a spare thousand dollars you have - named Germaine, Swedee, Canucklehead, and Grecko. Are you really going to lend it to the Canucklehead if you know they’ve been a highfalutin bobblehead for years now?

Just Jack said...

Our market isn't crashing. If you have a home to sell, on average it just takes a little longer to sell than say before 2007.

It's like a crowded Casino hall at the end of the night and the manager, let's call him Diamond Jim Flaherty, has asked people to leave by the exit doors. The doors are a bit bottle necked but if you wait your turn you get out.

However, there are some that are not moving through the exit doors and are still finishing their drinks.

Those would be the ones who will not budge on their list price because it would be an insult to take any less for their property than the number they have conjured up in their minds. Still these lingerers add to the congestion at the doorway.

Now, some of the exit doors are being locked. Let's call them 40 and 35 year amortization periods, CMHC reaching their insurance cap, tighter lending policies, ISFO regulations, etc.

But, as long as there's no panic, things are fine.

-sniff, sniff did someone smell smoke?

Phil said...

You guys are ignoring the elephant in the room. As has been reported CMHC is nearing its cap and will now have it's hands tied. No more hairdressers and baristas buying 300k condos and moving up.

Rates be damned, it's over.

Marko said...

Monday, May 7, 2012 8:00am

MTD

May 2012 2011

Net Unconditional Sales:

140 572

New Listings:

382 1,524

Active Listings:

4,451 4,857

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

Marko said...

SFH Average MTD around 625k.

Just Jack said...

I don't think that the percentage of sold, but remaining vacant condominiums is significantly different than Vancouver or Toronto at 20 or 25%. And that is worrisome, especially as most are studio and very small one-bedroom suites.

That poses a risk to the cities budget during an economic downturn when those empty and usually under foreclosure proceedings units are added to the urban professionals (waiters, web site designers, and sales persons) leaving the downtown core in tough times.

The city should have been encouraging low rise 2 and 3 bedroom family orientated town homes rather than high rise towers of mini suites for investors.

The last one to leave Victoria, please turn out the lights.