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: 570 (433, 281, 152)
New Listings: 1385 (1066, 760, 465)
Active Listings: 4274 (3997, 3908, 3832)
Sales to new listings ratio: 41% (41%, 37%, 33%)
Sales to active listings ratio: 13% or 7.5 MOI
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
209 comments:
1 – 200 of 209 Newer› Newest»Average prices and median prices are skewed higher by the million dollar plus sales and only offset by a small margin by the sale of cheap dilapidated single family houses. A better average is calculated by removing the top 15% of high priced houses and removing the bottom 15% of low priced sales, then taking your averages and medians from the remaining sale prices. It's a lot more work to calculate, but it gives a better picture of what is happening in the average 'family home' market. Real estate agents hate this technique during a downward cycle because it gives a realistic snapshot of the true market for the 75% of home buyers who are middle class and it gives better trend data in a more timely manner.
Now if we could just get the raw sales data, we would really understand the market - think of the analyses we could do!
SFH Average for March = 640,553
SFH Median for March = 558,500
People are way over analyzing numbers, assessments, etc.
The statistical numbers swing from month to month. In reality, the market has been relatively flat for the last 2 years.
500k this year buys you a similar home that 500k bought last year.
7.5 MOI? in March? Oh my.
True Marko - I think we can all agree that the market has been relatively flat for the past two years (I would argue down slightly, but...). However, I believe that the market is about to, or is in the process, of falling hard. These statistics would give us early evidence, but not in the form we are fed them now.
If we didn't over analyse, we wouldn't be the interesting bunch that we are. Without over-analysis, we'd be left chatting about the opinion stuff like everyone wants to live here, property values can only go up, buy now before the HAM discovers Fernwood etc... sorry, couldn't resist attempting to inject a little humour. #goesbacktolurkinginhisparentsbasementwearingunderpants&eatingfrootloops
"However, I believe that the market is about to, or is in the process, of falling hard"
I doubt it.
570 sales is not the end of the world.
April 2011 = 574 sales
May 2011 = 572 sales.
We've now had a very very slow market for 22 straight months (the last decent month was April 2010) and prices haven't moved.
Using averages, medians and re-sales all are good for looking at the general marketplace.
If you want to be more specific, then you have to zoom into a particular type of home using its physical characteristics like age, house size, lot size, location, etc. And that provides the best indicator of how your specific sub market is doing.
As a prospective purchaser, you have to make some decisions on what type of property you want to purchase. What are the physical characteristics that you are looking for in a home.
Someone who is just looking at price has a tendency to overpay for a property and may be disappointed in their purchase.
So, decide what you want in a home. For example, a pre 1930 built home having between 1,500 to 2,500 finished square feet on a 5,000 to 8,000 square foot lot in the urban Victoria core districts. And how much work and money are you will to spend on the home after you buy it. That's an informed purchaser.
Then you can determine the price range that is the most comfortable for you - not what others are paying.
Then you just have to wait for prices to come down to that level. Then you can determine the strategy on how you want to bid on the property depending on how much you like the home.
Start your bid at the low end of the range and barter up to where your comfortable.
Go in with a full market value offer and walk if its not accepted.
Or you can pay over market value because its the perfect home for you. Just don't expect the bank to bankroll your irrational exuberance. But if you have deep pockets - go out and buy that million plus dollar home.
For prices to decline, inventory has to be high for a long time - like 22 months.
The urban Victoria home market is not under duress, houses are still selling well.
Different story when you get 10 miles out from the downtown core. There you have high inventory, slow sales and months of inventory approaching a year or in the case of the islands 2 years. But still the prices are not collapsing even in these areas - why not?
Because value is relative. While the core is still strong, the outer areas, like Sooke or Salt Spring are still influenced by Victoria sales. And by extension Victoria sales are influenced by Vancouver sales. When these central markets tip over, then everything goes ker-plop. And that could begin with a flop in the condominium market in Vancouver.
Its very possible that a severe drop in condominium prices in Vancouver could sink our market. Because its all about location, location, location.
Oak Bay is better than Sooke and Shaughnessy is better than Oak Bay. No market is an island.
22 months of low, low sales - how much longer can the dyke hold?
I am betting this spring may be the burst. A lot of people are living above their means and when the tide goes out...
If someone begins to miss mortgage payments today, it usually takes 3 years before the chartered banks take possession and the house is sold. Credit unions are quicker to move to a conduct of sale and if you were unlucky enough to take your brokers advise and went with "Bob's Bank" then Luigi will be at your door this afternoon.
"22 months of low, low sales - how much longer can the dyke hold?"
Well, in 1991 there were 9,241 sales. Then sales fell off the cliff for the next decade with a low of 5,255 in 2000.
Average SFH Price 1991 = $191,775
Average SFH Price 2000 = $251,398
Also, it seems if you got your insurance with Genworth instead of CMHC then they will move quickly to get conduct of sale.
Genworth (a private company), unlike CMHC, has a small stake in the sale of your home. Around 10 percent of the mortgage, they have to eat if the deal goes side ways. So, they have their own agents working the deals, to get a higher price. But mostly its a lower commission.
I've never found this to really work well. Genworth will net more, but the house will sell for less.
As for CMHC, you have a government bureaucracy looking over the sale - How the hell can that ever work out well.
But the financial realities of today are far from those of the 90s.
There is not much gas left in the tank and all the stations are becoming dry as well (CMHC).
The housing crunch coming is well-covered by a new article on the economic analyst site:
http://theeconomicanalyst.com/content/credit-tightening-and-end-canadian-housing-bubble
The trigger post 1991 was leaky condominiums and the BC Economy. BC was closed for business. Native land claims stagnated development and the government was to busy dealing with fantasy gardens, bingo halls, back yard decks and fast cat ferries.
There were more people leaving BC and Victoria than moving here.
Last week for SFH in Vic,OB,Esq,SE&SE with a min of 2beds & 2baths priced between 375K and $775K the avg sale price was 591K and the median was $558K. There were 31 sales. Since mid June 2009 within the identical criteria this was the 2nd highest week in terms of sales volume. The highest was the week before lastat 36. Two other weeks tied with 31 sales.
Avg sale prices within this criteria have basically been the same since mid June 2009.
My inventory for SFH at the beginning of the 2nd week in Jan 2012 was 246 and at the beginning of this week it was 323. So over a period of the last 12 weeks, the inventory is increasing by approx 6.5 houses per week.
March sales volumes since 2006
http://i.imgur.com/D9UoC.png
Speaking about condominiums...
Despite an article written by Landcor, condominiums in Victoria have not gone "pop". That is in downtown Victoria and newer condos. Those have remained steady.
But, if your in an older condo such as 11th floor suite on Yates in the Regency. Then prices are only up 15% from June 2005 and its going to take you a longer time to find a buyer too.
If you live in a newer complex but on the outskirts of Victoria, say in the Gorge area around Tillicum, then your suite has only appreciated 10 percent since March 2005. That's seven (7) years ago. Great investment - duh!
So its not working out so well for most condominium owners who thought buying a condominium would be their first step on the property ladder to a house.
But that's what happens when you have a glut of condominiums for sale. The market place gets tunnel vision on one small niche market, why the rest of the marketplace goes to hell.
Just Janice here:
The thing with housing is that:
a) you can be highly leveraged so even if you only make 10% on the total price, you're return might be greater than 10% - if you paid cash then yes you only made 10%. Assume a $200,000 condo, you put down $10,000 (5%), if you can sell for $220,000 (note I'm assuming no transaction costs, which is certainly not the case) and if your mortgage payments are what your rent would have been you will have turned that $10,000 into $30,000 over that seven year period.
2) You have to live somewhere, either you are paying rent or a mortgage. The cost of owning is simply the cost over and above what it would have cost to rent the same place.
I will note that leverage is a complete m***er f***en wench when you have depreciation instead of appreciation at work.
CFA Joe said...
2 years ago, I had a friend who was late on his mortgage payment with RBC for a few months. Was out of work, underemployed, etc. It was a CHMC mortgage. They got a lawyer out of Kelowna(distance keeps you more objective) that basically called the mortgage for 400k (actually gave them 30 days to pay it). Try get another mortgage after RBC calls the loan; not going to happen. Luckily they sold the house quickly and that was that.
Make no mistake, the bank can call the loan very quickly, not 3 years later.
The Greater Victoria market for SFH seems to be at a stage of near equilibrium where prices fluctuate within a plus or minus 10% range. It has been this way for almost 3 years. The only thing that will drive prices lower than this equilibrium margin will be significant changes in one or more of these four criteria:
1. loss of confidence in the local market for any reason; eg: economy or jobs
2. dramatic change in demographics
3. month over month continuous increase in unsold inventory; eg: if herd mentality causes everyone to try to sell at the same time.
4. Mortgage interest rates increase significantly, and/or dramatic changes in eligibility rules.
None of these things is likely to happen in 2012, so SFH prices will likely continue to fluctuate within the lower end of the margin of equilibrium. But, with bond yields increasing, expect to see higher interest rates beginning in late 2012 and into 2013.
It is highly unusual for a chartered bank to get conduct of sale in 30 days. Actually pretty well impossible. Because there is a 30 day redemption period.
They may have given him a notice to pay in 30 days, but the process usually takes 6 months to one year. Then comes the time to sell the property. For example 855 Craigflower was listed for 390 days. The person was served a notice in October 2009 and the property sold just last month.
Chartered banks, generally do not foreclose quickly as they don't want to be perceived as the "bad guy". Of course in the meantime the bills were continuously adding up. I would guess that on average another $100,000 is added to the outstanding mortgage before the home is eventually sold in a foreclosure.
I also suspect the lawyers like to drag it out a bit too. But that's a nasty statement to make about lawyers.
Excellent point Just Janice, and that's is a major reason why prices have gone nutty.
The more you leverage, the riskier your investment should become. This would make those that are normally risk adverse to drop out of the market.
But, risk didn't increase - it stayed a ZERO. People who wouldn't play the lottery because they felt it was too risky were diving head first into real estate.
"when shoe shine boys buy stocks"
Now, that some bad stories are hitting the news, the risk adverse people have pulled back from buying, hence the lower volume of sales. That leaves most of the prospective buyers of today being risk takers and that's why you see nutty things happening in Vancouver.
year - SFH sales # - avg price $
1991 - 5,496 - $191,775
1992 - 5,103 - $222,415
1993 - 4,220 - $246,727
1994 - 3,608 - $256,025
1995 - 3,117 - $241,942
1996 - 3,812 - $241,910
1999 - 3,639 - $248,921
1998 - 3,145 - $246,018
1999 - 3,288 - $249,930
2000 - 3,220 - $251,398
2001 - 4,096 - $259,138
2007 - 4,464 - $565,904
2008 - 3,355 - $583,701
2009 - 4,117 - $580,748
2010 - 3,236 - $629,925
2011 - 3,069 - $613,839
Don't see how these numbers tell us anything trend-wise. Without knowing sales/active listings, they're basically meaningless for their predictive value, no?
The number of sales have to be in relation to the number of listings. ie months of inventory and then overlayed with the economy ie recession or expansion.
And then you would have to allow for lags, unemployment and consumer confidence.
hmmmm. yup agree with you there HHV.
Major shifts in demographics?
- Soylent Green
I thought the VREB release was pretty balanced this time... although I had to laugh at this quote:
"She also believes sales activity was affected by poor weather and many families travelling over the two-week spring break. "REALTORS® tell me many clients took the time for family vacations," Crabb adds."
Yes, unlike last year, when spring break did not exist, it's really putting a dent into sales.
Five years ago today, HHV wrote the following:
Here's a serious question that demands a serious answer (and I ask all the bears that read this to really take an analytical look at our bearishness): are we fooling ourselves? Could it be that our wishful thinking has deluded us into believing that the downward correction is coming a lot sooner than it is?
Apparently, yes: the bears were fooling themselves. And their wishful thinking was delusional.
Fast forward to today. Just Jack writes:
When these central markets tip over, then everything goes ker-plop.
More wishful thinking?
Oh, and one more thing. What ever happened to the European debt crisis we used to hear so much about? Oh, yeah...that's right...Europe is just fine. No meltdown. Oops, guess a lot of people were wrong about that one, too.
Vancouver Island Board is showing a -8% drop in average price over last March and a -10% for median price. Sales down -22% from last year.
http://www.vireb.com/assets/images/pdf/03-mar_12_sales_summary.pdf
Just Jack,
It may very well take a year to get foreclosed on, but they decided to move the house and be done with the ordeal. RBC's lawyer was quite appeasing after they told them they had it listed and were going to pay them back. It wasn't technically a foreclosure but if you get served a demand letter, have little income, what choice do you have really. All I know, RBC wouldn't entertain becoming current on payments, they just wanted their money, all of it. Looking back it was probably wise they sold when they did (2 years ago). At least they got out even. God help those that are under water on a house and have to go through he same thing.
@Introvert, OK, I give up, you win.
Introvert is quite right.
Five years ago the median price for a home in the urban core was $519,500.
Now 5 years later its $582,500.
And the typical condominium 5 years ago fetched $262,750 in the city. Today that typical condominium goes for $280,000.
Which begs the question. Who would be better off today?
A person who bought 5 years ago?
Or the person that continued to rent?
"@Introvert, OK, I give up, you win."
Famous last words?
Then there was Yale Economist, Irving Fisher in 1929:
"Stock prices have reached what looks like a permanently high plateau."
Successful speculators think they know what's going to happen and they make big bets on their hunches. That's why so many of them go broke.
An, if any one did know what's going to happen, they'd have got all the money by now.
An important question those considering investing in real estate should reflect on is how a miscalculation will affect their personal welfare.
Someone buying for cash will not be ruined even if prices fall. That is why most home owners with considerable equity do not sell their home simply because they think prices are about to fall.
But someone buying with little or nothing down at a time when price to income ratios are exceptionally high needs to think about what will happen if their income dries up or if they are forced to relocate following a fall in house prices.
Well CFA Joe, Canadians are pretty nice people. We want to pay our bills and we say thank-you a lot.
And so are your friends.
Because they could have stopped making house payments, buried their salary in tin jars, cranked up their credit cards and continued to live in the home maybe for another 6 or 12 months for free and then declared bankruptcy.
Because when you are looking at half a million dollars in debt to pay off - the average Canuck just can't pay that off in one lifetime.
Are you Len Barrie Just Jack?
the new way of reporting on vreb is muddling the matter.
introvert says "Five years ago today, HHV wrote the following:
Here's a serious question that demands a serious answer (and I ask all the bears that read this to really take an analytical look at our bearishness): are we fooling ourselves? Could it be that our wishful thinking has deluded us into believing that the downward correction is coming a lot sooner than it is?"
Introvert's response "Apparently, yes: the bears were fooling themselves. And their wishful thinking was delusional."
It appears, Introvert, that your hindsight vision is 20/20. Wish we all could be so insightful.
I think the moral of the story is that the bears are wrong until we're right.
In the case of the housing bubble we can see on many measures (price/income, price/rent, gains vs inflation etc) that this rise in house prices is not due to a fundamental change in value for housing. This is due to an unprecedented credit expansion in Canada that will have to come to a screeching halt at some point. When will that happen I do not know. For as long as credit is still expanding (thanks to risk free loans a la CHMC) then this bubble can remain inflated. As soon as there is contraction then watch out! There many examples of both credit contraction (US,Ireland,Spain) and continued credit expansion (Australia, France, HK) in the world which support this.
I only see it as a safe bet to rent if it's genuinely cheaper than owning (all costs considered, minus principal contribution). Then it doesn't matter if prices remain high, it's still a better choice.
The real decision comes when we need a bigger place and have to decide between buying and spending something like $2k on rent.. Without more declines it would be a tough call.
"I only see it as a safe bet to rent if it's genuinely cheaper than owning (all costs considered, minus principal contribution)."
Principal contribution isn't a cost, it's savings.
But the opportunity cost on the DP and accumulated principal is a cost. It's foregone interest that you would have got if you weren't applying the principal against the mortgage balance.
Which means that the total interest cost (cash+opportunity) actually remains the same as the mortgage is paid down.
Your central point is of course right. If renting is cheaper than buying, the renter is coming out ahead of the buyer every month, provied rents don't go anywhere. Which they haven't.
The supposed gain of the owner from appreciation is contingent on selling at a gain, and the possibility of getting that at any future date is unknown.
And the fact is that someone who bought 4 years ago made the wrong decision, because someone who had rented a comparable property and then bought today would come out ahead on a cash basis. No ambiguities or contingencies.
They made the wrong decision if they need to sell now and bought with making money in mind. If they love their house and enjoy their life and are not under a terrible financial burden then they haven't really chosen poorly.
"And the fact is that someone who bought 4 years ago made the wrong decision, because someone who had rented a comparable property and then bought today would come out ahead on a cash basis. No ambiguities or contingencies"
On a cash basis, maybe (although it depends on the property)....how about on a lifestyle basis?
If you measure the outcome of financial decisions in something other than dollars, you can argue that nobody ever makes a bad choice.
The person who bought 4 years ago is behind in dollars from someone who buys today. It has nothing to do with when either of them sell the house.
"....how about on a lifestyle basis?"
What lifestyle advantage does an owner have over someone renting an identical property, except perhaps being able to have a pet?
On the plus side, as a renter I get someone else to perform many of the chores I had to do myself as an owner.
But as I said, you can use intangibles to make a case for paying any amount for anything.
Yesterday I showed a rented waterfront property. Approximately $1,000,000 and rented for $2,300. Obviously way way cheaper to rent.
However, the minute you walk in you realize it is a rental...the kitchen was the original 1960s and it got worse from there. Obviously the tenant is not going to invest in renovations; whereas, I think if it was an owner living in it it would have been significantly updated and the spectacular view would be that more enjoyable.
It is really rare to walk into a nice well kept rental (in terms of upgrades and maintenance) and say "wow, this is a nice home."
What is available for rent is typically an inferior product.
On a cash basis, maybe (although it depends on the property)....how about on a lifestyle basis
Since I started renting my quality of life has been better than ever. I have far more expendable income, more time to spend with my friends and family and am in the shape I was in when I was 20 y.
Sure, the walls are not a colour I would pick and the countertop is laminate, but I have learned over the years that those things really don't matter that much.
Ironically, my friends that own homes and have the granite have both parents working and they are seemingly always stressed - and their waistlines are expanding. Their kids are semi-orphans and craving attention - we regularly have a gaggle of latchkey kids running around our house.
Renting has given me a lifestyle that I could not have owning, given the current conditions.
This is true Marko, the quality of average rental just doesn't compare to the quality available of what one can buy; however, patience can still get you a pretty decent rental place. It took me 3 months of looking until I found the nearly new looking rental place I'm at that doesn't look like a rental. In part this is because the landlord used to live in it as his home in the not too distant past - and that helps too.
The other thing that helps is not wanting to rent basements if you can afford it. Rarely do basement suites not look like a rental property, even if they've been recently renovated. As we all know, house architects in the not too distant past, did not envision people living full time in a house basement. Initially it was a just a place for storage, post WW2 it became popular to use it a place to stick those couple of extra freezers and line the walls with shelves to stock canned goods, later an area for laundry machines was also frequently added, then some men started using them as workshop areas if they didn't have a garage, and later it became popular to renovate them and use them to hide, I mean, let one of the kids live down there or set it up as an entertainment / play space. Only after that did the dual family pay cheque no longer suffice and the idea of increasing family budget by renting 1/2 the house commence en force.
Laslty, if you can afford to live on the upper floor of a house, then your chances of renting a home that doesn't look like a rental also increases significantly.
1251 Glyn price just dropped about $300K,
Typo, price more realistic, or trying to start a bidding war???
Dave #1
"Looks like a rental" - it really depends on the landlord and the tenant in question. Our last property manager didn't really "do anything" in regards to maintaining the landscaping or painting of the exterior of the house. As tenants we felt we should keep the lawn mowed but anything over and above was a bit much. The interior was OKAY but not great - the wall oven is straight out of the 70's. Overall we didn't really care as we liked the property and could see ourselves buying the place at some point in time. In fact the more it "looked like a rental" the better as when it came time to sell that feature could knock some serious dollars off the price tag and would allow us (after we bought) to make the upgrades we liked - likely for less than what they would add to the purchase price. Further, renting gave us an opportunity to occupy the property - to know all of it's features and warts - and gave us an opportunity to advance an offer to purchase privately after a few years. Again, my sense is that this did indeed save us some dollars.
So looking like a rental isn't neccessarily a bad thing, particularly if you can rent a place - figure out if its really worth the price tag - and then make a move on more favourable terms.
In general right now renting is cheaper than buying - there's not much of debate to be had there. However, its not universally cheaper than buying (it depends on the specific property) - and there are "lifestyle" advantages either way that individual preferences may value differently.
In economics - people don't make mistakes, they do what makes them happiest given the information they have at the time they make the decision and allocate their resources accordingly. Just because you'd make a different decision, doesn't mean somebody else has made 'the wrong' decision - because for them, in their situation they did whatever gave them the most satisfaction. For some this means renting, for others buying....c'est la vie.
I'm an owner and here are some of my 'intangibles' (Note - not a bear, nor a bull - but I have 20/20 hindsight on what the market does..)
1) According to my current amortization schedule, I'll be mortgage free in 10 years. I like that. When you rent, there will always be rent to pay.
2) Been in my current home 6 years. Based on prior costs and anticipated future costs, prop tax, maintenance etc. will be cheaper than rent (for the house size/neighborhood I want).
3)We like to travel and rent out our home while gone. It provides nice cashflow.
4) We've done a bunch of upgrades to our liking. like for example a large kids playground in the backyard and a new kitchen.
5) I like knowing that a landlord cannot dictate if I have to move-out. That may be a rare occurrence, but I still like having control of that.
6)We have a suite than when we choose to use it, covers alot of our costs.. in fact when we're mortgage free, it will more than cover prop tax, maintenance etc..
7)I have a certain amount of pride in the ownership. It's a big financial step and it took perseverance and discipline to save the down payment and at the end of the day was a financial goal I am proud we achieved.
So there you go, can't put a dollar amount on any of it and I'm sure renters have their own list, but sometimes you see this blog mocking the intangibles but to me, they are very real. :)
5 years ago someone purchased 210 Irving Road in Fairfield for $886,000. The home at that time was 5 years old. Fast foward to today, just sold for $1,160,000.
Better off renting for last 5 years?
One key difference here is that no one is inferring that it's a mistake to be renting. Especially right now. I am motivated to "counter post" here because it is inferred that it's a mistake to buy altogether. Intangibles are part of it. Buying a home is not purely a capital asset
Marko,
wrt 210 Irving Road, hasn't the seller done any work on the house during the past 5 years? It is hard to compare without that info, from money investment point of view.
But if you can afford it, the enjoyment of living in a house you love and adore everyday cant be measured by just money.
@patriotz
"you can use intangibles to make a case for paying any amount for anything."
True, but not unreasonable. The important questions are how much one must for a particular intangible and whether that is a reasonable price?
Retrospectively, the price can be determined, and currently, most property owners are happy with whatever they've paid for whatever intangibles ownership has brought them.
The challenge is to assess whether the future cost will be reasonable. I maintain that the future cost cannot be estimated with any certainty, which means that anyone buying into the property market should carefully evaluate the potential downside, which will vary according to income security, possible future need to relocate, and the size of one's mortgage.
"...$886,000. The home at that time was 5 years old. Fast foward to today, just sold for $1,160,000.
Better off renting for last 5 years?"
Keep in mind, many buyers were locking in at around 6+ percent five years ago. Once you account for all the extra expenses of owning and transaction costs, I still think the renter would come out ahead for that example. I'll crunch the numbers if I get a chance.
As for Irving.
One sale does not make a market.
but
using 500 sales to determine a median price does.
Why would a buyer have locked in at 6% 5 years ago? The interest rate wasn't 6% even if you went off published rates. The posted variable rate was 4%, and of course you would get a discount.
The diff in prices is $274k. Some how you are going to get $40k of expenses extra per year by owning rather than renting? Sorry that is complete BS. If you bought back in 2005 you are doing fine with a SFH. Past perfomance doesn't equal future however.
omc, you simple need to look up past fixed mortgage rates.
http://www.buyric.com/news/files/2011/03/1-BCREA-1-and-5-Year-Mortgage-Rate-Forecast-for-2011-2012.jpg
I know people who locked in near 8% then, as they were less than prime borrowers. Most locked in since they were worried rates would rise, which is always how it plays out near the top.
"5 years ago someone purchased 210 Irving Road in Fairfield for $886,000. The home at that time was 5 years old. Fast foward to today, just sold for $1,160,000.
Better off renting for last 5 years?"
Probably better of renting in that case I'd say. I mean that is only 5% anuual increase. Not that much. Since you are cherry picking one house. If you had put 886k into KO, it would be 1,579,559 today. That is before dividends. Dividends would have amounted to 179,303.
Is a house a bad investment? Could 179k cover rent? (about 3k/month). My hindsight vision is also 20/20. Very impressive.
sorry 2007, and the extra costs for owning would have to be $54.8k per year.
The question is still; is now a good time to buy for you personally. I would do your own calculations and try to avoid the dogma that both bears and bulls put out. If you want to buy there is lots on the market, you can be picky and have negotiating power. Live in a decent, stable rental; I don't see any down side to renting for a bit longer.
Oh and I did not even account for interest payments, property tax, maintenance, transaction cost,...
I doubt someone who bought a $886,000 house in Fairlfield was a subprime borrower...More than likely they got a 4.5% rate.
a simple man said: "Ironically, my friends that own homes and have the granite have both parents working and they are seemingly always stressed - and their waistlines are expanding. Their kids are semi-orphans and craving attention - we regularly have a gaggle of latchkey kids running around our house."
Clearly your friends bought houses they cant afford, regardless if it is over-valued or not. Please don't make buy verse rent too general. If own a house would reduce your life quality, that means you cant afford to buy, then don't buy even if the house is "under-valued". If you can afford to buy (without changing/impact your life style), and found a house you love, then buy, it is that simple :-)
Of course, if you are buying a investment property (not to live in yourself), that would be a different story.
"KO, it would be 1,579,559 today".
Sorry, should be 1,355,026. Math is still hard for me ;)
Phillip, I just did look up past interest rates. As I have already said, the posted variable was about 4%. That is what people took out back then. If you went fixed the discount was at least 1% back then and that graph didn't show this. The current 5 year is 2.99% and that graph doesn't show this either, it shows it as over 5%.
I don't care what the sub prime market did.
dasmo, are you seriously trying to tell me someone (David Dodge?) borrowed money for the Fairfield house at the Bank of Canada overnight rate?
If you bought back in 2005, the typical price for a home in Victoria was $390,000.
Today it's $582,500.
The increase in equity over seven years of almost $200,000 is very impressive.
Not so impressive if you had bought 5 years ago in 2007, that's only an increase in equity of $63,000 for the typical home.
Also, long time renters and long time owners are of two types of personalities, not just money.
Kunwak, Your calculations are off.
You would have paid 180,000 in rent
Assuming 0% down and a 4.5% 5 year fixed rate they would have paid 182,000 in interest payments
They sold with a difference of + 274,000 from what they paid
Minus 28,161k in taxes over five years (probably less since values went up over that time)
let's assume the spent the rule of thumb 1 % of the value of your home every year in maintenance which is a total of $44,300.
Subtract the $2000 difference in rent vs interest.
So in the end they made $199,539 on their $108,000 paid in principle over 5 years. an 84% gain....
Your KO example doesn't work because they didn't buy the house with 886K in cash. You tell me what bank would have lent you 886K to buy Coke stock? Plus you would need to factor in interest in those calculations as well...
Clearly your friends bought houses they cant afford, regardless if it is over-valued or not.
For most of them, it is not the mortgage itself that is putting them under, but the fact that everything else is increasing in cost so rapidly that they are stretched. That and the fact that many are naive to how much owning really costs apart from mortgage. They are no longer naive.
I could buy today, but for me I would rather wait while my money grows and buy something that *I* believe will be cheaper in a couple years. Seems the worst-case scenario for me is a flat market and best case is saving hundreds of thousands. And with a great quality of life, why rush?
“I could buy today, but for me I would rather wait while my money grows and buy something that *I* believe will be cheaper in a couple years. Seems the worst-case scenario for me is a flat market and best case is saving hundreds of thousands. And with a great quality of life, why rush?”
Sure there is no rush, but if one is renting for the reasons of "less responsibility, less maintenance work, free up more time to spend with family, etc", why would they ever want buy?
My last 2 weekends and next:
Saturna Island, Mt Washington, Tofino
My friend with a house:
Renovate bathroom, renovate bathroom, renovate bathroom.
Sure there is no rush, but if one is renting for the reasons of "less responsibility, less maintenance work, free up more time to spend with family, etc", why would they ever want buy?
When the owning price is cheaper than renting. Then I can hire people to do the maintenance work and I can maintain my quality of life - that is paramount. The goal lines change every couple months and I re-evaluate at regular intervals.
dasmo, your calculations are off. How about those realtor fees? Let's assume:
$6000+(.03x1,060,000)=$37,800
So in the end they made $161,729 on their $108,000 paid in principle over 5 years.
The $108,000 principle works out to $1,800 per month over 5 years. Let's assume (totally randomly, I admit) a 5% annual return on $1,800 monthly contributions over 5 years. Plug whatever values you want into a compound calculator and you get the cash savings invested. In this case it's worth $122,400 after 5 years.
So the $161,729 house balance is still a decent 38% return but quite shy of your 84%.
Five years is such a short time. The real magic happens over a longer period when the renter's investments continue to compound as the home-owner's principle stagnates.
My last 2 weekends and next:
Saturna Island, Mt Washington, Tofino
My friend with a house:
Renovate bathroom, renovate bathroom, renovate bathroom.
That one's actually a toss-up for me. Adventuring is nice, but ephemeral; a new bathroom makes you feel good for a long time, and probably makes for a decent return on investment when the time comes to sell.
Hey, to each his own...
The real magic happens over a longer period when the renter's investments continue to compound as the home-owner's principle stagnates.
I posit that the majority of renters aren't prudent investors/savers. Whereas half the time total fools make at least some money on real estate.
arrhhg realtor fees left out! Now my entire point was useless, lol.
we do hire professionals for house maintenance work most time, but you have to spend time to understand the issues and solutions and spend time to find good people, and spend time to inspect the work, and time to monitor your house, ... etc. It is a given that one will have more work to do (physical or brain) and less time to spend otherwise owning a house than renting, so no need to use those as reasons for renting over owning, unless you never want to buy.
Dasmo, I agree, I just put some numbers out there without too much concerned about a real comparison. That was kind of my point. Hind-sight comparisons are worthless to me.
I also don't think your 0 down/ infinite leverage is not a meaningful comparison. For simplicity it may be best to look at no leverage. Of course, if you leverage very aggressive you may have a high return but you also take on an amount of risk.
"a new bathroom makes you feel good for a long time"
Too many choices to respond to that one.
How about - "how many people on their deathbed say - I wish I had had a better bathroom"
I'm an owner and here are some of my 'intangibles'
Which are not intangibles except for #7 and to a degree #4.
You enjoy the advantages you have because you bought your house at a reasonable price, i.e. it's about money.
I should point out again that that the bears are not people who are against buying. Buying a house was the best financial decision I ever made.
We're just against buying at today's prices.
"Adventuring is nice, but ephemeral"
Sorry - can't leave this one alone.
Is spending quality time with family "ephemeral"?
Whereas half the time total fools make at least some money on real estate.
And which half are we looking at going forward?
Re: 210 Irving. Very nice house indeed. Gorgeous really. Four years ago I sold my home in Esquimalt for $700K and you probably would only get $625 for it now. So that home in a prime location selling for $886 was a good buy. Also, if you read through the listing info, you will see that the lower level has some very nice accommodation i.e. Nice bath, Bedroom and Rec room with bar. This level could have very easily been rented out at $10K per year with a profit of $50K per year over the five years. Just a thought.
So the bottom line is the price/money, not because which type people (renters or owners) have better life quality. You can enjoy your own quality of life, but no need to use it to judge others, please.
Updating a bathroom in the home should add value to the home. But not on a dollar for dollar basis and not forever.
Depending on the age of the home it could add nothing to almost the full cost of a reasonable renovation (no gold faucets please). If you're replacing a bathroom in a home of less than 10 years there will be no significant increase in the value of your house.
But an older home will have a larger return on the cost of the renovation. But rarely can the full cost of renovation can be recovered.
And its best to make those renovations within a few months of when you are about to sell. Because there will be no significant increase in your home's value if the bathroom addition was 10 or 20 years ago.
So, that roof, bathroom and kitchen renovation that you did 20 years ago, may now only add negligibly to the value of your home today. Maybe 5% over the value of an identical home that has not been renovated.
Yet, renovations are much more expensive than putting a washroom in a new home, and may cost you 2 or 3 times over new construction which most people put on their home equity line of credit.
"don't put all your eggs in one basket"
your own quality of life could be a trip to Tofino, or a new bathroom, whatever you do to make yourself happy, that is your own business. But you don't know what others enjoy the most, so no need to compare/judge.
Al - you're sounding judgemental.
I can't believe people are even debating the Irving example...if an approximately 200k net profit in 5 years living in a newer home in a very nice area is worse then renting then I don't really see how buying would ever make sense.
Which part?
Whatever decision you made should be: that is best decision for you and your family at that time, not because others who made other type decisions are living a worse life. We are not kids, should have passed that silly judgement stage (I am better than you) already.
Al, if I have said anything that offended you please accept my apology. It was never my intent. Rather I was responding to Marko's comments on the "On a cash basis, maybe (although it depends on the property)....how about on a lifestyle basis?" comment.
I was trying to illustrate what I have seen in my social circle - that while renting my quality of life has never been better and that many of those who own around me are suffering and their quality of life is as well.
@ Dave #1.
1251 Glyn has now subdivided. The new lot is for sale for $339,000. The dramatic price shift, $729k to $429k, occurred after the property was split into two.
a simple man,
No I am not offended. I just think we probably should leave "which life style is better" out the discussion, as that is really two types of life style and enjoyed by two types of people, so no point to point fingers at each other for that.
Lets focus on the real issues here: market and price, and good/bad areas and houses. Thanks.
Just Jack: A perfect example of a renovation not being a good choice were the kitchens/baths done with the European cabinets in the 80's. The cream ones with the in-line wood pulls. Nothing looks more outdated than those, well, maybe harvest gold shag carpets. Many of the 70's and 60's cabinets still look acceptable with a good coat of white paint, updated stainless pulls along with new countertops and backsplash.
Alexandrahere - or, put new doors on the boxes - many of the cabinet boxes in older kitchens are of outstanding quality and often with a new door you can get the best of both worlds.
Marko, all you have to do is crunch the numbers and you will see the owner is not much ahead if any. We're also not sure how much they invested in the property. It looks like lots of updates - countertop sinks, suite in basement, deck/landscaping?
The monthly interest portion alone in 2007 would be far more than the house would rent for. Plus you have to account for the renter having the down payment monies in a mediocre investment - 5 year GIC @ 5.5% in 2007.
RE 210 Irving being a great buy then. I think that it was a fair buy then because of it's intangible great location. It's assessed now is at $894,000 which was probably less 5 years ago. It also has a small lot at 3350 sq feet. I think it's more that the new buyers are overpaying slightly for the benefit of not having to lift a finger after buying, that it's across the street from Gonzo beach and not to mention the neighbouring homes are either tear downs for $650k, or being renoed into multi million dollar abodes or already have been.
Alexandersaid “This level could have very easily been rented out at $10K per year with a profit of $50K per year over the five years.”
I believe the description said along the lines "could be made into a suite" in other words they hadn't rented it out. Marko posed the question "would the owners be better off renting last 5 years?"
Besides if you have ever rented a suite in your house you will have a new appreciation of the soundproofing code for designated rentals.
Phillip here is the revised numbers:
You would have paid 180,000 in rent
Assuming 10% (88600 ) down and a 5.5% 5 year fixed rate they would have paid 205,817 in interest payments
They sold with a difference of + 274,000 from what they paid
Minus 28,161k in taxes over five years (probably less since values went up over that time)
let's assume the spent the rule of thumb 1 % of the value of your home every year in maintenance which is a total of $44,300 (unlikely because the home was almost new when bought).
Subtract the $25817 difference in rent vs interest.
Subtract realtor fees $6000+(.03x1,060,000)=$37,800
So in the end they made $137922 on their $196,600 in principle over 5 years. a 30% gain....
$88,600 plus assuming by some miracle you could add the $21,600 / year in the 5 year GIC at 5.5% would have made $46,378 or 23% still not as good.
"Better off renting for last 5 years?"
I think the question is really - will the new buyer be better off renting for the next 5 years? - forward looking not past.
You would have paid 180,000 in rent
Are we talking about renting Craigdarroch castle here...?
will the new buyer be better off renting for the next 5 years?
Indeed...With that buyrent calculator someone posted here the identical listed unit down the hall from me works out to 2.64 multiplied by my rent.
3000/month for 5 years is $180,000, crazy huh? and no that's not for Craigdarroch castle, that's for
a similar property to rent
Thanks Sweetrealtor
I thought it had a larger lot, when I read about it originally.
Our friends rent just down the road and their lot was subdivided also last year. The new house is probably finished by now.
Dave#1
Thanks for the revised numbers Dasmo. A 7% difference is not that bad considering the G in GIC is for "guaranteed".
Oooops, I forgot, real estate always goes up! Nevermind.
I can't believe people are even debating the Irving example
Haha, gotta agree with you there. This was clearly a case where owning is better. There is no serious case to be made that renting beats owning in this case.
Agreed, we've entertained this theoretical exercise long enough. Lacking info, I'll agree the Irving owner likely came out ahead. Please keep in mind if you are someone who's never owned, there are so many more costs than you would ever plan for. I've owned over a dozen times and I know many people who have owned their whole life who still couldn't recite all the expenses. That includes myself - when you own, you don't want to know.
Introvert:
"What ever happened to the European debt crisis we used to hear so much about? Oh, yeah...that's right...Europe is just fine"
Yup the ECB injected a trillion euros, yet they are entering another recession and unemployment keeps rising. Just fine!
http://www.theglobeandmail.com/report-on-business/international-news/spains-debt-auction-rattles-markets/article2391527/
"3000/month for 5 years is $180,000, crazy huh? and no that's not for Craigdarroch castle, that's for
a similar property to rent"
I was wondering also. On padmapper, there are currently 4 properties for rent >2500/month. So 3000 is perhaps quite high...
$1,160,000 for the Irving property is SWEET!
Buyers like that don't come along everyday.
The seller had the blue bird of happiness singing on their window sill that day.
and I thought the $8860/year in maintenance expenses on a brand new house I put into my math was enough to squash the unknown expenses card...
I've owned a 1933 house for almost ten years and put in $37,000 thus far on a new bathroom, fence, patio, shed, 50 year roof, new washer and dryer and outside / inside paint. (some labor performed myself). that's $3700/year in "maintenance"
I think the question is really - will the new buyer be better off renting for the next 5 years? - forward looking not past.
Nobody knows what will happen in the next five years!!!!!!
Five years ago, most on this blog were predicting that a real estate collapse was imminent. The point is: now we can look back and see how wrong they were. Which should then make one step back and say, If I was wrong back then, what makes me so sure I'm right today?
This is why gazing backward is sometimes instructive: because it often forces us to confront our misperceptions--or at least our poor prognosticative ability.
To promote being "forward looking" is to promote an empty platitude.
Yup the ECB injected a trillion euros, yet they are entering another recession and unemployment keeps rising. Just fine!
Yep. Just because the media has moved on to something new doesn't mean anything has been solved.
As for the perceived benefits of renting or owning, there is always going to be choice-supportive bias on both sides. The owners will tend to exaggerate the benefits to owning because they've invested in that choice and want to justify it. The renters will tend to exaggerate the benefits of renting to defend that choice.
So a renter that previously touted the benefits of time and freedom from home maintenance will probably turn around and start proclaiming there's nothing they like to do more than renovate their bathroom after they make the choice to buy. Not a jab at anyone, I can see myself in that situation.
This is why gazing backward is sometimes instructive: because it often forces us to confront our misperceptions--or at least our poor prognosticative ability.
True. Personally we can comfortably look back and calculate that despite flat prices it was financially advantageous for us to rent. So while it is too bad (for us) that prices did not decline more, it worked out either way.
However it is certainly good to keep in mind that the market can stay illogical longer than most people's patience. The market cannot be predicted with any certainty in the short term.
Renovated a few bathrooms in homes I have owned in my time and I have yet to claim that any of them were fun.
Yup the ECB injected a trillion euros, yet they are entering another recession and unemployment keeps rising. Just fine!
But no meltdown! The constant insinuation on this blog was: Europe will go down, bringing the world economy down with it, causing a recession in all industrialized countries, which would obviously pop the Canadian housing market bubble and, ergo, the Victoria market bubble.
And yet, not!
Injecting trillions of Euros, recessions, and so on--that's all just part of good ol' Capitalism.
Capitalism is never "just fine"; it is, in fact, a pretty terrible system. But rest assured: the world will keep muddling along with Capitalism, until something really major happens, like we run out of food or we can't breathe the air.
I am a bit curious about TD's 'mortgage break' they are advertising right now where you can pay a bit more to later take a mortgage vacation. In the commercial I like how the old man gets up at the restaurant and says "I am taking a bill break" and everyone laughs because it is ridiculous - which I am wondering if that's what the mortgage break is. Thoughts?
re:Europe
Introvert, give it time. Portugal may go the way of Greece in Q4 as their loans expire. Also Greece still owes 50% of their debt and their debt interest rates are already rising.
This thing ain't over by a LONG shot! The Euro is bound to devalue some 30% as either the ECB will print or some variation of currency devaluation will be found such that they paper over their problems, only to create new ones of course.
Euro devalue = USD re-values, then the Bernanke will have to print again, bringing more inflation and China, Japan and UK (largest US Tbill holders) to further exit US treasuries, then Fed will have to buy all the Treasuries collapsing the bond market and ending the US hegemony of global reserve currency, and that's when the fireworks will really fly.
2013 will be the year of the Euro collapse (30%) and 2015/2016 is when the fun really starts in the USA and hitting Canada by contagion.
This doesn't even cover the China hard landing occuring right now that may crash the commodity market later this year, or the biggest bomb of all (which has global impact) - that of peak cheap oil. That will happen on its own, or be triggered by war in middle East.
With each passing day the global insanity propagated by the psychopathic kleptocrats only grows larger. If you think this **it ain't gonna blow, one might be suffering from normalcy bias'.
What does this have to do with Victoria real estate? Physically we're on an Island, economically we're part of a highly interconnected global economic system. Loss of confidence in US dollar due to excessive debts & (future) collapsing bond market = interest rates to the moon + high inflation. As the Titanic (USA) goes, so goes Canada.
Something will have to drastically change or something will have to give. No way this escalating insanity will propagate endlessly without major consequences (I'm guessing as very high inflation hits a western nation, we may see increasing civil and foreign wars).
Tick tock tick tock.
Ok, now I'm going back to my rental bunker. We're all DOOMED! I say... DOOMED!! LOL
@Patriotz
"You enjoy the advantages you have because you bought your house at a reasonable price, i.e. it's about money."
Did I? Actually we bought mere months before this blog was started which would lead me to believe the prices were high then too... at least according to bloggers here.
I'm surprised I don't see more conversation about the magical day one can become mortgage free when renters will still have to pay rent. Where's the tipping point? how much money do you have to save as a renter to make up for the money you would save once you were mortgage free.
~and yes I get that generally the opinion here is that homes are bought 5% down, longest am possible etc.. but it's not obviously always the case~
I'm surprised I don't see more conversation about the magical day one can become mortgage free when renters will still have to pay rent
Of course you have to calculate TCO. I'm not saying one way or the other is better, but just saying that your mortgage will eventually be paid off is only looking at half the equation.
One guy dumps all the money in the mortgage and eventually pays it off. The other invests the money and pays the rent from the interest on his money. I'm more of a pay off the mortgage kind of guy too, but there's nothing magical about a paid off mortgage. To get there you neglected other investments, so it evens out.
But, there may not be, that magical day when you become mortgage free.
It is rare that most people stay in one house for 30 years, rare that they do not continue to add to their mortgage over 30 years, rare that they do not use their home equity loans.
A dozen years ago, you could buy a home and have the home paid off in under 15 years.
Because of prices being so high, most of your disposable income is going to a mortgage payment. The ability to make add an extra lump sum payment each year is unlikely for most buyers, as is the likelihood of having any investments outside of the house.
Anyone can buy a house - not so many will ever own their home.
"Anyone can buy a house - not so many will ever own their home."
Really? That seems at odds with what I thought was fact: Many homes in Canada are owned mortgage free.
Personally, I think it's important to stay in a certain house for a long period of time. Transaction costs and liquidity are such that I would not want to commit to buying a house if I only planned to stay in it for a few years. In fact I know several people who made that mistake. It works sometimes, even most times in Canadas recent past but not generally a good idea.
If you are highly leveraged and only plan to stay in a home for a few years and then move on, it could work against you.
“If you are highly leveraged and only plan to stay in a home for a few years and then move on, it could work against you.”
Or, it could work for you if you understand the local market you're in.
If this trend continues, rates will rise this year.
Economy has best job-creation month since recession, adds 82,300 workers
“Regionally, all four Atlantic provinces and British Columbia had a decrease in employment in March”
"Anyone can buy a house - not so many will ever own their home."
According to the VREB Member Buyer survey this year 26.37% are buying with all cash and another 51.65% with a conventional mortgage (20% or more down payment).
21.98% are buying with less than 20% down...where does that put the 5% down?
Yes, I've had the occasional buyer buy with 5% down but I also have had three couples in their 20s this year put down 20%+ percent on homes all over 500k. I know from my personal situation if you have two solid jobs and live within your means you can bank a lot of cash each month to save for a downpayment.
Listing 3 properties in the next month....all no mortgage registered. I think going forward you'll have those who can afford and will probably own and those who cannot even enter the market (especially if rates go up a bit).
Most 20 year olds putting 20% down would be funding from the Bank of Mom.
"cannot even enter the market (especially if rates go up a bit)."
Seems counter-intuitive to me. I think you are forgetting housing is a commodity. When it becomes unaffordable it will always corrects.
"When it becomes unaffordable it will always corrects."
Hasn't corrected in many place in Europe and it is ridicolous unaffordable.
"Most 20 year olds putting 20% down would be funding from the Bank of Mom."
Right......why is so hard to believe that 20s something can have a solid career/income?
For example, take what a nurse makes, multiple it by two, live in a basement suite for 2-3 years....the downpayment can add up quickly.
“Right......why is so hard to believe that 20s something can have a solid career/income?”
Canada's youth face job crunch
It’s tough when you don’t have a job. It’s actually the 55+ parents who are gaining all the jobs, having to go back to work to support their kids.
“Hasn't corrected in many place in Europe and it is ridicolous unaffordable.”
Would you like me to start listing the countries that have corrected and continue to correct in Europe. I might run out of space.
Corrections are never a bad thing Marko. Think about the meaning of the word. It’s the only way we will get back to a prosperous economy. One where we’re not diverting all our capital into non-productive assets. In fact, it’s precisely the solution to the article I linked above.
re:Europe
Introvert, give it time. Portugal may go the way of Greece in Q4 as their loans expire. Also Greece still owes 50% of their debt and their debt interest rates are already rising ... [blah, blah, blah]
SilverSurfer, you're really adept at describing negative global events that may or may not happen.
You are extrapolating the curve way too far out, Marko.
The people you are dealing with represents a very small fraction of the economy. Then you make the mistake that everyone else must be the same.
I don't doubt those numbers from the VREB, but we are dealing with the last few remaining tables of poker players in a championship. Those few players are all flush with cash.
But, there is a massive amount of potential sellers. If, or more likely when, public sentiment changes that will push prices down.
The crash of 1929, was precipitated by a lack of confidence in the market. That lack of confidence was building months before the crash. There was no single trigger event that caused the crash. Public sentiment was just changing, not from the buyers of stocks, but of those who already owned stocks.
The high rollers in 1929, still believed that the market would recover and they continued to buy stocks. But the tsunami of sellers overwhelmed their ability to stop the crash.
"Did I? Actually we bought mere months before this blog was started which would lead me to believe the prices were high then too... at least according to bloggers here."
Was it your first property or did you buy your first property before that?
If it was indeed the first, you were certainly paying more per month than rent until 2008 at least. The present value of that deficit is your loss.
"I'm surprised I don't see more conversation about the magical day one can become mortgage free when renters will still have to pay rent."
You're still paying rent. The rent is being paid by the imputed interest on the down payment and principal payments which paid off the mortgage.
I have enough money in investments to sell them and buy a house free and clear. I don't because the rent I get from the investments is more than the rent I pay for my home.
I had to chuckle at the headline of this TC article.
B.C. business confidence falls off in March survey
Worries about fuel costs among woes for owners
Worries abou...? More like they now know NDP will rule next year.
"The crash of 1929, was precipitated by a lack of confidence in the market."
Great....so now we are comparing a time when 25-30% of the population was in agriculture to 3% or so now....
I know history is important but things have changed a bit.
"The people you are dealing with represents a very small fraction of the economy. Then you make the mistake that everyone else must be the same."
Actually no, certain individuals are making the mistake assuming everyone is buying with 5% down and over leveraging themselves when the stats clearly show otherwise.
Let's put it this way, more people buy with cash versus less than 20% down.
Marko said: "Let's put it this way, more people buy with cash versus less than 20% down."
Really? I don't think the stats back that up and certainly everyone I know that has bought within the last 5 years had less than 20% down.
Maybe I need some more affluent friends!
In the last 6 months I've had 4 buyers buy with all cash (900k home, 600k home, 550k home, 550k townhome) and 3 buyers have bought with less than 20% down (pre-sale condo, langford townhome, 500k home with suite).
Remainder have been the 20% plus down variety.
So stats are in correlation with my business.
Actually, most of the people in the stock market in 1929 were not farmers.
A lot has changed in the world since 1929, except the herd mentality in people. Call it animal spirits if you like.
You are going to be listing 3 homes with no mortgages. If they in turn buy a home of equal or greater value, then they would be paying cash or putting more than 20 percent down on the next home.
If they are not going to be buying or buying a smaller home, then they are betting against the market. Cashing in some or all of their chips and leaving the Casino.
It's the same players at the poker table they're just playing another hand.
There are far fewer players in the casino today, those that are playing have a lot of winnings to bid with. These players will also be the most zealous in their opinion that the market is impenetrable.
They are the choir in the peoples temple of Jonestown.
And just because they are buying with cash, does not mean that three months later they are not going for financing or that they are more frugal than the rest of us.
That doesn't make the real estate market any safer or less safe. It's just an interesting statistic.
By looking at exponential growth of CMHC mortgages, most buy with 20% or less
Here's how I see it. Prosperity is relative. Above a certain base letel, it's meaningless to be wealthy when everyone else around is wealthy as well (this is inflation, of course).
Similarly, the consumer confidence that tends to drive high prices is usually associated with a strong economy. People buy stuff and take on debt when they feel good about their finances. There is certainly a chance of global events precipitating a large crash. There is always that chance. (In the 1980s, on top of energy concerns and the like, there was a small perceived chance of global nuclear war.) Today, the precipitating events would be more likely to be a European default (Greece or another one of the PIIGS), a war with Iran (brought upon by an Israeli attack?), another serious terrorist attack in North America (although that could also lead to spending and growth), earthquakes, tsunamis, etc. Or none of these could happen, the US could create new jobs, and India, Brazil, and other emerging economies could drive a period of solid renewed growth, consumer confidence could go up, those overstretched and tired of traffic in Vancouver could move here and prices could rise again suddenly. It's impossible to know which of these related factors will occur and what their influence will be.
But if anyone is thinking that one of these events leading to a crash will happen that will wipe out Victoria housing while leaving high-yielding investments alone, they're dreaming. House prices dropped very quickly here (within a month or two) in late 2008 when consumer confidence disappeared, but stock markets dropped far faster (within a week). You had to be a savvy investor, and a risk-taker (or just lucky), to do well by reinvesting in early 2009, when the media was forecasting the start of 'the next great depression', decades of stagnations, etc.
So if you're sitting on a pile of cash, either you're making good returns and at risk of a crash, or you're not making good returns. The risk associated with housing is not dissimilar, just less liquid. It's just my opinion, but at this point, the risk of the market seriously 'correcting' itself without a major outside influence (crash) seems remote.
to The DP
I believe it's much simpler than trying to figure out your many listed variables. Bottom line, the advanced countries like ours borrowed way too much money for way too long...aka credit bubble. It's happened many times throughout history and they never end well, to my knowledge. If you have an example where a part of the world has easily escaped debt-levels equalling their growth, I'd love to hear it.
Buyer from US just dropped 2.5 million on a condo at Shoal Point.
Condo average MTD = 408k :)
Will come down....
Here’s today’s TC example of how our Gov is trying to deal with those debt levels I was mentioning
Never easy solutions.
Introvert - i actually agreed with most of your post that looking backward has value...until I got to this:
"To promote being "forward looking" is to promote an empty platitude."
Is Victoria really different?
Right now it is. Victoria's prices have been amazingly resilient.
Not like places say on Pender Island. Like a property on Canal road that sold for $250,000 in 1999 - just re-sold for $220,000. That's right - the entire 13 years of price increases - wiped out.
Or a micro condominium on Johnson that sold in 1993 for $90,000 and has just re-sold for $162,000. As the seller of this condo how great it is to be a home owner.
Now, I'll admit I did do some selectively picking of these examples. There are other properties that have shown significant increases over the same time periods.
But, these examples would not have existed two years ago. They are anomalies in the marketplace. But that's what you would expect when a market is showing signs of being dysfunctional.
Now Victoria is not Pender Island. But neither is Victoria a Vancouver either.
Introvert - i actually agreed with most of your post that looking backward has value...until I got to this:
"To promote being "forward looking" is to promote an empty platitude."
Well, I'm pleased: I lose most people on the first sentence.
This one’s for Introvert
Europe's Three-Year Medicine Is Already Wearing Off
launched last December was supposed to give Europe’s troubled banks and sovereigns three years of relief. But just months later, the medicine is already wearing off.
That’s the problem with trying to fix a solvency problem with liquidity—it doesn’t last. To put it in terms more familiar to a homeowner, it’s like borrowing more money to tide you over when the real problem is you don’t have a job.
No, Vancouver has obscene prices. Try getting a decent SFH west of main for under a million.
Really, really hard to judge what this market will do. I don't see price increases going forward - and on an 'inflation adjusted' basis that means there will be 'real price' declines. That being said, I'm not certain we're in for the kind of correction that I thought was possible just a couple of short years ago.
For one, I don't think interest rates are going anywhere, any time soon.
Secondly, I think the risk averse are locking in for the long term. The debate is now whether to go with 5 year rate or the 10 year rate. The 10 year offers some amazing advantages and offers purchasers a degree of flexibility at the end of the term that could avert disaster.
Third, the US actually appears to be crawling out of its economic quaigmire - this mitigates some of the risk of a deep and painful Canadian recession. We're a small open economy - and frankly (all be it I don't know how) we managed to get through the worst of the mess without joining the rest of the world in the depths of economic dispair.
Fourth, unlike their parents, the boomers really didn't have all that many kids. As such, the wealth they have accumulated isn't going to be as shared, as the wealth that their parents accumulated. They find themselves in a position to have kids stay home until 25 or older, to help those kids through university, to help them with a downpayment on a house - all luxuries they themselves may not have had.
Fifth, expectations might have shifted - nobody expects to have a 3,000 square foot house to themselves anymore and there has been an increased acceptance and ability to 'suite' larger houses.
There is a chance that we have gone through an economic, social and demographic transition that might be supportive of higher house prices and rents than what would be called for by classic fundamentals.
This does not mean that prices are not overvalued - they very well might be, however - they might not be AS overvalued as is generally thought around this blog AND the correction is as likely to be a long-drawn-out fizzle as it is to be a dramatic slump.
I really used to think that we'd be in for the drama - now I'm not so sure.
-Just Janice
@Marco wrote:
According to the VREB Member Buyer survey this year 26.37% are buying with all cash
Torontonians and Vancouverites cashing in and then moving to Victoria? I would think it more likely that baby boomers and retirees are downsizing from their large homes so smaller more manageable accommodation.
Why is so hard to believe that 20s something can have a solid career/income?
Paying off student loans and making enough savings for a decent down-payment takes time.
Very well reasoned, Just Janice. I'm inclined to agree.
JJ “the correction is as likely to be a long-drawn-out fizzle as it is to be a dramatic slump.”
Whether we get a Japanese fizzle or an Irish dramatic slump, young Canucks should wait out the fizzle-slump. Better for all Canucks future if we get the slump (unless you’re masochistic), just ask the Fizzlers.
@Just Janice wrote: I really used to think that we'd be in for the drama - now I'm not so sure.
For a while, I thought the economic turmoil would be like a "bandaid" being quickly ripped off - causing intense short-term pain. Instead, it appears that due to political and economic tinkering the "bandaid" is being slowly pealed back such that most people hardly notice.
The current economic "experiment" is resulting in rapid inflation of consumables (i.e. energy, food, etc. cost much more), wages not keeping pace with inflation (even the "devalued" CPI), and it slowly becomes harder to make ends meet as our standard of living slowly goes down.
Just wait until the suppressed interest rates start to climb ...
The OSFI is entertaining the idea of not allowing people to re-finance their homes if the equity falls below the original mortgage amount. Which would mean that buyers would have to come up with cash.
If you bought your home with 95% financing and three years later the home has dropped in value, and you are now upside down in your mortgage, you will have to come up with cash to pay down the mortgage to 95%.
In the stock market, this would be a margin call.
There is probably some good reasoning behind this by the OSFI, like reducing the level of home ownership (which is too high), culling the herd of mortgage weaklings, increasing the amount of mortgage insurance by retiring some of the weaklings high debt. All this would be spread out over the course of the next few years.
I would bet that the banks will use the numbers provided by Teranet to see who gets a margin call.
The estimated proportion of financially vulnerable Canadian households with positive debt was about 6.5% in 2010, slightly above the average over the period
1999 to 2010, and below the proportions in 2000 and 2001.
@ David L
"Just wait until the suppressed interest rates start to climb ... "
Are interest rates suppressed?
Most Western economies are in recession or depression because globalization has put the West in direct competition with the Rest, which has increased unemployment, particularly among young adults, and kept a lid on wages.
The result has been private sector deleverage, resulting in a sharp decline in the money supply -- money being mostly created by banks making loans.
To counteract the decline in money supply, central banks have lowered interest rates and even printed money. Yet still western economies are more or less stalled.
Only if interest rates are held low when credit begins to expand rapidly , will one be able to say that rates are being suppressed.
But is difficult to see how Western economies can resume significant growth, which would drive an increased demand for credit, before there has been further downward adjustment in real wages, since wages of the Rest remain less than one tenth what they are in the West, which means continued off-shoring of jobs.
So my bet is that low interest rates will be around for a while. If this comes to be the general expectation, it will slow the hosing market, as first time buyers conclude that there is no hurry to take the plunge.
I say that interest rates are suppressed because is is easily possible to earn more on a GIC than paid on a mortgage. For example : in June 2010 I was paying just 1.45% on my variable rate mortgage at ING, but at the same time, I could get a 90 day GIC at ING which paid 2%. Currently, I pay just 2.4% mortgage interest, but can get a GIC with Ally at 2.5%. Where's the profit margin?
The CPI in March was calculated to be 2.6%, so my mortgage debt (just $60K left!) is not even matter hinges inflation. Of course, the CPI excludes volatile items such as gas, home heating oil, food and other items whose prices have significantly risen in the past few years. A couple of links...
A great "crash course" on how the CPI and GDP are really calculated:
http://www.youtube.com/watch?v=zPkTItOXuN0
From The Globe and Mail: CPI retooling could result in big savings for Ottawa, business - http://www.theglobeandmail.com/news/politics/cpi-retooling-could-result-in-big-savings-for-ottawa-business/article2335937/
Granted that fixed mortgage rates are set by the bond market and variable track the BOC rate. In reality, I don't have any GICs as my mix of bonds, equities, and dividends pay much better.
In the above post, "matter hinges" = "matching". My Swiftkey X app is being a bit too smart!
@ David L.
"Currently, I pay just 2.4% mortgage interest, but can get a GIC with Ally at 2.5%. Where's the profit margin? "
It must be the volume that makes it possible to match hinges!
Or maybe you're smarter than the bank. Lots of people accept 0.01% on their deposits and then pay at least 3% or 4% for a mortgage.
But pretty certainly the banks aren't deliberately losing money, and in fact they still appear to be in the black.
But that interest rates (largely dictated by the Bank of Canada) are below the inflation rate is a measure of the reluctance or inability of consumers to take on more credit.
If it were otherwise, we would see sharply rising real estate prices and consumer spending as people took advantage of negative real interest rates.
I believe that the banks can still make a tidy profit as the bond rate is always below the fixed mortgage rate. It is just that the bond rate is significantly below the CPI (and "actual" inflation rate). This is what I mean by suppressed interest rates...
@CanSpeccy
I agree with your synopsis of recession and depression with the West and Rest...
Love this...
http://thethirtiesgrind.com/2012/04/02/absurd-vancouver-property-of-the-week-2/
Canadian Banks are making more than a tidy profit...
2011:
Canada's big five banks made a record combined profit of $6.1 billion in the three months ended in November, with the full-year earning at $22.4 billion, a sharp rise over the previous year.
The full-year combined result in 2010 was $19.5 billion, a 15 per cent increase.
The banks benefited from strength in domestic retail banking operations and loan growth.
For the fourth quarter, ended in November, the banks' combined profit rose 36 per cent from $4.5 billion in the same period in 2010.
http://www.cbc.ca/news/business/story/2012/04/06/carney-household-debt.html
A news story about household indebtedness. It also reports on banks being warned by regulators to end the practice of lax application of lending rules. It is interesting that the topic of real estate correction is now frequently mentioned in the media. This article refers to the risk of a correction of "10 to 25 per cent, with some hot markets like Vancouver and Toronto possibly facing an even bigger reckoning." A year or two ago the idea of a real estate bubble was pretty fringe in the MSM. You might have heard or read something about Garth Turner but it seemed to be placed there for us all to have a chuckle. Inevitably it was followed by a quote by someone from the CREA basically saying don't worry be happy. Of course they are still saying that but now they are the comic relief.
Agree, it is interesting. I felt things had peaked late 2007 and already showed signs of softening then but not a word or mention anywhere. Fast forward four years later and now it's the trend in the media. I think the 10% has already happened it just takes a while to reflect in the stats. (I just bought a place for 10% less than what the previous owners bought it for). I guess we will see if the bandwagon effect spreads to the general populous and thus prices. Personally I think people will just not sell because they can wait it out and banks will not force people into foreclosure because that will be bad for profits. Therefore a long flat period of a "buyers market"...
dasmo - what about the group that has to sell? Losses of jobs, divorces, transfers, deaths?
These will be the folks that set the prices.
As an aside - Maybe it is the age that my wife and I are at, but it seems like all of the sudden divorces are as common as Land Rovers in Oak Bay. What is happening out there?
^ I read an article a few days ago that noted the divorce rates in Canada were on the decline.
Maybe they are a lot happier in the maritimes where houses are generally affordable.
True "Forced sells" will happen and they might suffer by it but that happens even now. A "motivated seller" is usually a good sign for a buyer. It's the combination of low prices with quantity, and quality, of inventory at those "affordable" prices that is being prophesied (or fantasized) here. That's what I don't see happening so much. Even in Seattle right now it's not really like that. There are crazy deals but those even flip back to high prices. You can see some on Zillow. A place sells at foreclosure for 149k and a year later it's back on for $490k...
If it does happen it will start a frenzy again because lending here has not shut it's doors like it did down south. Hell, I'll buy another place if prices drop by 30-40%.
lending is shutting down, massively so, by CMHC.
How so?
Read all about it, here:
http://theeconomicanalyst.com/content/credit-tightening-and-end-canadian-housing-bubble
doesn't seem so bad when you read about it here
Mortgage and consumer debt-service costs as percentages of personal disposable income were low and trending modestly downward.
DavidL and all: Looking for a decent GIC rate? Try Achieva Financial....they are the "on-line" bank of a Manitoba Credit Union. Currently I have my 2012 TFSA there at 3.5%. The five year now is at 3.25%...the two year at 2.5%. Seems to be the best deal around for GICs.
Here is what our Bank of Canada Governor said yesterday on the subject:
"We have never been as indebted as we are today as individuals," he said. "We've done analysis which shows that about 10 per cent of Canadians are vulnerable if interest rates returned to more normal levels, which will happen."
http://www.cbc.ca/news/business/story/2012/04/06/carney-household-debt.html
I think the biggest opportunity cost of owning a home now, assuming you have a large mortgage relative to your income, is the inability to save and invest in other assets that will likely increase over the next 10-20years. I can imagine the day when the stock market is chugging along but many recent homeowners missing out because of cash flow constraints of their existing mortgage. I am a homeowner too but my mortgage is such that I can build equity and invest at the same time. I think most people are able to build equity these days, which even if levels off won't be much of an investment over time. I think that the principal payments alone these days are massive. Sure interest rates are low, but the principal payments are all consuming relatively. Just my two cents.
Wise man once said (k it was in Rich Dad Poor Dad) to treat your home as a liability not as an asset. If it takes money out of your pocket = liability. If it puts $ in your pocket = asset. I really think if you treat your house as such, you will make better business decisions when it comes to RE.
^ I read an article a few days ago that noted the divorce rates in Canada were on the decline.
According to Statistics Canada, about 38 per cent of all marriages taking place in 2004 will have ended in divorce by 2035. The total divorce rate was down slightly from its peak of about 41 per cent in the mid 1980s, but slightly higher than the rate of about 37 per cent recorded in the mid 1990s...
The recent economic downturn has proven to be a stressor for families. The higher cost of living means most families now require two income earners to achieve an average standard of living.
Article
Just Janice.
This is the new norm? Care to 'reason' with Introvert on why other countries RE fell with the all of the factors you mention?
Interest rates aside, one thing that is changing is interest in RE as an investment. What effect do you reason that will have on prices?
Loosening and speculation drove prices up, tightening and disinterest will drive them down. And steady Interest rates, shorter terms, and restrictive lending are very different than lowering interest rates, longeer terms and loosening lending. One generates speculation and market hype, the other generates aversion to the market.
We are not in a balanced time of status quo. We are in an unseen time of debt, risk, and impossibly low interest rates.
The day to buy RE as an investment will come again but not now, not even close. Better to buy REITS and avoid the leverage associated with direct ownership at this point. REITS has way more negotiating power and cashflow than you or me. Just can't leverage up on REITS like you can direct RE ownership but maybe that's not a bad thing.
Marko Said, "Well, in 1991 there were 9,241 sales. Then sales fell off the cliff for the next decade with a low of 5,255 in 2000.
Average SFH Price 1991 = $191,775
Average SFH Price 2000 = $251,398"
You are missing some important context on those stats:
BOC Interest Rates in 1990: 13-14%
BOC Interest Rates in 2000: 4-5%
That decade saw an incredible 65% decrease in interest rates. Are you saying we are going to see the same in the next decade?
What about this stat: "In 1990 the total personal and unincorporated business debt was equivalent to 93% of after-tax income. By 2009, total debt was equivalent to 148% of income.”
Or this one: "CMHC insured mortgages in 1990 - 60 Billion, in 2000 - almost 200 Billion, in 2010 - 520 Billion! A 866% increase over 1990 backing levels".
A lot has changed since 1990. But most importantly, a lot of fundamentals have changed since 1990. Lets talk about fundamentals, I think they are key to market predictions.
dasmo said "Personally I think people will just not sell because they can wait it out and banks will not force people into foreclosure because that will be bad for profits."
The Big 5 in Canada might not but Bob's bank out of Fresno sure will.
S2 (JJ's wife)
@Alexandrahere
Thanks for the tip for Achieva Financial. In the past ten years, I haven't put money into GICs for any more than 90 days (useful when markets are plummeting like in late 2008). I prefer to get a better return on my money using self-directed investments.
Similarly, I like saving money by negotiating the lowest mortgage interest rate that I can. Taking time to negotiate the best deal possible can save $1000s per year.
Had to mention how funny it is Garth T always touting stocks. This morning at coffee shop I read an article saying stocks are down 15 something % from last spring. As far as I know thats way worse than home price. Poor Garth.
Chris, which stocks do you refer to? Unlike Victoria home prices, which I assume you're referring to, there are many investing options for the stock market. For example, if you had purchased Boardwalk REIT last spring you'd be up 25%. Better than Victoria home prices, if you ask me.
I plan to look into the GIC tip from Alexandrahere. Unless you are 20 years old and saving for retirement you should have some fixed income investments in your RRSP or TFSA. Bond funds have been losing value of late, so some money in a GIC at 3.25% sounds sensible to me.
Further to MD80, with stocks you can buy or sell incrementally at any time to take advantage of buying or selling opportunities as they arise.
For example, I increased my holdings of stocks during the crash in 2008/2009 and have since taken my profits.
Even if you go all in at the top (as per your example) you can buy more later at a lower price. But of course most stock market investors don't go all in at any one time, they buy at regular intervals.
Try that with RE. Extremely illiquid in comparison. Make just one bad purchase and you've wrecked your financial position for life.
Would anyone be kind enough to comment on current construction costs. In particular, what it might cost to build a 1600 square foot bungalow with an unfinished basement and, say, Pella windows, hardwood floors, with a fairly standard kitchen and two standard bathrooms?
CanSpeccy,
As a rule of thumb, building cost is normally around $175/sqft for a house as you described, could be up to $200/sqft if go a bit more fancier on both materials and style.
RE can be treated and held as part of the investment, but as you hold stocks or fixed incomes, just don't put all your money into it. Even for Garth Turner, he posted twice not too long ago that his total wealth has about 30% in RE (Equity: 33%, House: 30%, Bond: 22%, Preferred shares: 10%, Gold ETF: 5%)
Just out of curosity where would you build a 1,600 sq.ft. bungalow with Pella windows?
Building lots in the core are so ridicolously expensive that I can't see anyone building anything smaller than 2,000 sq.ft., ideally 3,000 sq.ft. or more....and if you build outside the core (Langford or Colwood) putting in Pella windows is kind of like burning money. Won't get a penny back on resale.
How much would a 6500 sq foot lot in Fairlfield go for?
@Chris
Garth was promoting shares into 2009, bonds in 2010, REITs and preferred shares in 2011. All those investments did very well. shortly after he was promoting them. Successful investing is all about getting in early and selling before it's too late.
Many on this blog would agree that from an investment point of view, it's too late to be getting into the real estate market. However, there are many other valid reasons to buy a place to live.
"How much would a 6500 sq foot lot in Fairlfield go for?"
500k and up from there depending on location in Fairfield.
The lot at 1350 McNair selling quickly for $380,000 if further evidence that lot prices in the core are at record highs.
housing down south will draw away investment
Markets in the US are now a good investment. BC better think of something to keep the interest up or the market is really going to tank.
Al,
Thanks for the construction cost estimate.
Marko, Re: "curosity where would you build a 1,600 sq.ft. bungalow with Pella windows?"
Oak Bay. Chiefly, to prevent someone building a monster home next door.
Re: the long-term trend in prices
Globalization is driving wage convergence between the West and the Rest. Wages of the Rest are one tenth to one twentieth of those of the West. So where will convergence see wages in the West? If much lower than they are now, then most property is likely to trend down in real price. Nominal prices may not increase much either since nominal wages are not rising except in the public sector.
There will be divergence in incomes, however, between the 1% and the 99, and between residents of government towns and industrial towns. For example, the highest concentration of the 1% in the US is in Washington DC, which suggests that real incomes in the core areas of Victoria may not decline so much.
In fact, income divergence may drive up real prices of Beach Drive waterfront acreages and other desirable addresses.
So that's my advice, buy downtown waterfront!
Canspeccy said:: So that's my advice, buy downtown waterfront!
Probably not the best idea to only look locally for investment ideas (or Canadian RE at all for that matter, my opinion). There is a whole big world of options out there.
What about buying premium Edmonton land? Government town with a lot more budget, roaring long-term economic prospects, high wage to price ratios, fairly solid rents, etc.
Or, even less local, how about some premium land in Tallahasse Florida? Large capital city, universities, already corrected RE market, etc.
If you find yourself dismissing the idea of an Edmonton or Florida investment fairly quickly and your thoughts quickly come back to Victoria as a great place to invest, then I would warn that you could have a subconscious 'emotional investor' in the drivers seat running off an very small and outdated road map.
Money is hard to make, and times have changed a lot.
Why not start with diverse investment options, and whittle down to a couple you like?
If you did all of this and still ended up at Victoria Waterfront, share your analysis with us. I know I would appreciate the information.
Victoria is not a place to invest in RE. It's a great place to buy your long term home if you can afford it. Personally I think RE as an investment only is problematic in general because it is is also a liability. You can't just buy a place in florida and you on your way to riches. You buy yourself a non living dependent that is an $800, 6 hour plane ride away...
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