Wednesday, May 9, 2012

$858.29

Eight hundred fifty eight dollars and twenty-nine cents. Sounds like almost enough to buy a flat screen TV on sale doesn't it? It's also about enough to make a monthly lease payment on a new hybrid SUV if that's your desire.

It also happens to be BC's average weekly earnings. Surprised? I am.

Quick math: $858.29 x 52 = $44,631.08

When you double that, you get $89,262.16. That'll qualify you for a 30-year mortgage of almost $485,000 at 3.2% provided you have no other debt and $20,000 to put down.

The mortgage payment eats up $2,000 per month of your pre-tax $6,866.32 average household income (I've just doubled the average weekly earnings, this isn't a real number). This income will typically be hit by a 30%+ income tax rate or so, but I'll round it down to 30% to keep the math easy.

After income-tax income is around $4,800 per month. Which means the bank is qualifying you at almost 42% mortgage to after tax income for your shelter debt costs alone. Add taxes, maintenance and utilities, and you're definitely above 50% of your available cash going to the roof above your head.

Prudent lending? I'm left hoping that people are smart enough not to put themselves in this position. Unfortunately, the debt data doesn't support my hope.  

189 comments:

Fiduciary said...

HHV, while I think your argument is sound, it's inflated a bit by what I believe is an exaggeration when you use the marginal tax rate when you should have used average tax rate (http://en.wikipedia.org/wiki/Tax_rate#Average). I just did my taxes, and even though I'm personally above the average income figures above, my average tax rate was under 20%. Marginal was over 30%, sure, but not average. It won't change the numbers that much, so your argument is still sound, it will just lend more reality to the situation.

Just Jack said...
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dasmo said...

A tax calculator on $44,631 salary comes up with $37,014 after tax income so that times 2 is $75,262 or
$6,222 / month so more like a 32% ratio.

I need to split my income....

Mrs. W. said...

...but if you're looking at 2k in rent in costs anyways (which in Victoria is pretty much a given for a house, and if your double income chances are you need a house) then does it really matter? (the short answer is that it depends)

Of course, the kind of house that buys is fairly debateable...

Just Jack said...

You can just manage the debt load at 32 percent, but really you should be at or below 20%. And typically, during a real estate trough, that is what happens. People spend between 15 to 20 percent of their average income on housing.

So by waiting for homes to come down in price, you don't lose anything. Because if you buy at the trough you will spend less of your disposable income on a mortgage and pay off the mortgage faster than someone buying today.

dasmo said...

So JJ, you are predicting that interest rates will stay around 3% and house values will slide to early year 2000 levels?

Marko said...

The average individual will not being buying a home nor is currently.

I think we go the way of Europe where we see more and more families living in condos, etc.

Just Jack said...

So Introvert, in all that I wrote where did you read that.

dasmo said...

(I'm not Introvert JJ) 15-20% of the income amount we were talking about is a payment of under $950/month at 3.2% interest which is a 195K mortgage (over 25 years).

Just Jack said...

If we go the way of Europe, should I learn to speak Portuguese, Italian, Greek or Spanish?

Just Jack said...

Sorry, Dasmo I'm skimming again. No insult intended to you or Introvert.

I don't know what interest rates will be, or what family incomes will be or what house prices will be.

Just that during the troughs in real estate, people commit far less of their income to housing. And rents tend to be higher than mortgage payments as it is more difficult to save up 10 to 20 percent for a down payment.

All those incentives that drew in too many buyers have to be unraveled.

The number one problem with sustaining current real estate prices is that too many Canadians own their homes.

What is the value of something when almost everyone owns one?

Marko said...

Home ownership in Singapore is 89% -> http://www.singstat.gov.sg/stats/keyind.html

Nancy said...

I lived in Paris for many years. Yes the Parisians do live in apartments but in the "burbs" they live in houses just like the rest of us.

Also the "condos" that the Parisians live can be very very large not like the little tiny boxes they have been building in Canada. Masny apartments were actually built for families and not 500 sq. ft. Many were of course built well over 100 years ago and built well.

Of course young people and students live in small "studios".

PD said...

Supply tells the entire story about which way condo prices are headed.

‘Canadian condo craze' gets crazier

“Overall starts have now increased in seven of the past eight months, playing into concerns that the condo market is headed for a serious correction as developers continue to build. Canada now has the highest stock of unsold condos since the early 1990s, Mr. Holt said.” (Scotia Capital economist Derek Holt)

patriotz said...

Nice to hear people using cities on the other side of the Atlantic or Pacific oceans as models for Victoria.

How about the other side of the strait?

dasmo said...

I thought you thought I was Introverts Sock puppet lol

True, too many 400 sqft jobs for families to move in. the stage is not being set for that outcome.

from personal experience 25-30% is not a large financial burden. Rule of thumb is 1/3 so I can more likely see prices land slightly pushing that than being greatly under.

Just Jack said...

Not calculated the same way Marko.

Singapore has a higher density than Victoria. In the last 12 months Victoria had 663 condominiums sales. Singapore probably did that in one afternoon.

Just Jack said...

Could the government sell CMHC to the Chinese?

Last year CMHC made 1.5 billion. Could we sell CMHC for 15 billion to the Chinese?

They wouldn't have to change the stationary.

Just Jack said...

Singapore has a population of 5,183,700 and only 1,146,200 dwellings. That's 4.5 people per dwelling.

While Victoria has a population of 80,017 and 47,691 dwellings or 1.68 persons per dwelling.

Even bubbly Vancouver clocks in at 2.1 persons per dwelling. Toronto comes in at 2.36. The average for BC is 2.26

Do you think, that we just might have too many dwellings for our population?

Leo S said...

The average individual will not being buying a home nor is currently.

The ownership rate is 70% in Victoria. Not only is the average individual buying a home, but even those 20% below average are. Of course they are buying condos not houses for the most part.

Just Jack said...

The average person has already bought a home. The people buying today have bigger deposits or buying with cash. A lot are also dependent on selling their home before they can buy the next own. Otherwise they could face becoming an unintended landlord.

That doesn't make the market anymore stable, it just means that a lot of people have been shut out of this market. That's likely why sale volumes are so low.

The average person, just has to wait for prices to come down.

There is nothing "average" about this market. Eventually, the re-set button will be pushed.

Fiduciary said...

Marko's comment was probably stressing the "individual" aspect. The average individual, on their own, doesn't own a home. The average household, however, does. The point here is to take average household income as the measure of affordability to compare to housing costs.

nan said...

@ Leo S.

Contrary to popular belief, 50% of people are actually "below average".

patriotz said...

Contrary to popular belief, 50% of people are actually "below average".

Only for some property with a normal distribution. For example, a good deal more than 50% of people have below average incomes.

Leo S said...

@nan I don't see your point...

nan said...
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nan said...

My point is that it is impossible for only 20% of Canadians to be below average.

Which after reading your post a couple more times probably isn't a point I needed to make.

Just Jack said...

The average household already owns a home. In order for the average household to sell their home, they must sell their home to another average household that already owns a home or to an above average household that does not own a home.

So you have average households who own houses buying above average houses and above average households who don't own houses buying average houses.

Which means average households who own homes can buy homes, but average households who don't own homes can't buy homes. Unless that home is a condominium and then the average household would not be buying the average home, but a below average home for an average household.

Who's on first?

Marko said...

The last few buyers I have represented this year mostly buying average homes 450-650k...

House: Masters degree & solid trade
House: Two bachelor degrees
House: Business owner; 5+ employees
House: Ph.D. & Masters degrees
Condo: No degree, 80k/year+ income
Condo: Two bachelor degrees
House: Masters & bachelor degrees
House: Long time builder

I don't think the average Joe is in a good position to buy anymore.

You really need two solid professions (which are typically associated with university education) to drop 600k on a home. There will be those who can afford and those who will need to make due with a condo or similar. That is just reality; I don't think prices will roll back so the average family can afford a nice home, on an 8,000 sq.ft. lot in Oak Bay or even Fernwood. The average family will need to adjust expectations unfortunately.

My girlfriend and I both have solid masters degrees and we are living in a 530 sq.ft. condo for the time being. Would I rather live on the waterfront in Oak Bay? Yes. Is that reality? No.

PD said...

“I don't think prices will roll back so the average family can afford a nice home, on an 8,000 sq.ft. lot in Oak Bay or even Fernwood. The average family will need to adjust expectations unfortunately.”

I think it’s far more likely prices will roll back, and the remaining families still won’t be able to afford a nice home. Why?
- real wages and growth are falling ( gdp has contracted so far this year)
- unemployment is rising
- credit is now contracting after ten years of loosening
- rates have nowhere to go but sideways or up after years of trending down
- years of low rates has led to oversupply of homes
- the stuff we export from our ports - timber, metal, food, energy - is now falling after ten years of reaching for the sky
- governments are now cutting
- 60 cent dollar ten years ago, now par
- demographics reversing
- interprovincial migration now negative after ten years of inflows
I know I’m missing some...

Introvert said...

I don't think prices will roll back so the average family can afford a nice home, on an 8,000 sq.ft. lot in Oak Bay or even Fernwood.

I fully agree.

After, as Just Jack put it, "the reset button" is pushed, prices will not go back to the year 2000 + inflation. As if life and predicting the future were that simple!

It's so cute what people hope for.

The sad reality is that even after a "correction" (whenever that will come...) Oak Bay will probably still be prohibitively expensive for most families. The same goes for Fairfield, Fernwood, Cadboro Bay, and a handful of other very desirable neighbourhoods.

Leo S said...

My girlfriend and I both have solid masters degrees and we are living in a 530 sq.ft. condo for the time being.

Right, now think about that for a while. When the DINKs pulling in $100-$200k/year are living in a mini condo, what do you think the picture looks like for the average joe? And yes, they are buying, we know that from the overall stats.

Just Jack said...

Did the average family ever afford a nice home in Oak Bay on an 8,000 square foot lot?

Most of Oak Bay has always sold for a premium. So has Fairfield, Rockland and James Bay.

While the working class neighborhoods of Fernwood, Hillside, Sears, Mayfair have been first time to middle income neighborhoods.

If you want middle income, then you would have to go to Saanich East or Bear Mountain.

Nothing has changed, the homes are the same as they have been for 75 years, providing the same utility. The homes haven't grown bigger or better they're your grandpa and grandma's house just with a new coat of paint over the lead.

Only 2 to 3 percent of the population are buying homes and they are not representative of the population. 97 percent of the population are either not interested in real estate or are priced out of the market.

My bet is on the 97 percent.

Now, if you have been bank rolling your money when the correction does come, then you will be in a very good position to jump an income group in the market place.

Maybe its not so far fetched that your first home might be in Henderson or North Oak Bay.

And I certainly wouldn't buy anything until what happens to CMHC is determined. There is a chance that the government will sell it off and who ever buys it will be very heavily regulated.

Say bye, bye to cheap rates and fees. High ratio insurance will be so expensive that few first time buyers will be able to afford it. And that means we will go back to the 1970's when you had to save the down payment.

How long will it take the average family to save 20 percent to buy a $500,000 home? And that is likely how long our market will be in its trough.

Leo S said...

Did the average family ever afford a nice home in Oak Bay on an 8,000 square foot lot?

No. This is just that old strawman argument we've heard a million times, and it is wearing thin.

Leo S said...
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Leo S said...

And I certainly wouldn't buy anything until what happens to CMHC is determined. There is a chance that the government will sell it off and who ever buys it will be very heavily regulated.

Possibly, although it may not necessarily make a difference. Australia sold their counterpart to the CMHC back in 1997 and it's been private ever since. Their interest rates are also much higher than ours and yet they still have a massive real estate overvaluation, very similar in many cities to what is going on here.

CMT says: "Analysis of the Aussie experience (as reported by Bloomberg) concluded that Australian homeowners pay “relatively higher margins on their mortgages than do Canadians”

Just Jack said...

Now how about this week's million dollar sales.

Like the bidding war on Island Road that sold $200,000 over asking price in 7 days for 1.9 million. Previously sold in 2009 for 2.1 million.

And that Lands End property that went for a cool three million, previously went for a hot $3,550,000 in 2009.

Why are there so many million dollar homes selling? Because relatively speaking they are good deals in today's market.

If you have some serious coin, burning a hole in your pocket and your not worried about losing a million or two in the next few years. There some magnificent homes for sale.

Just make sure to get it CMHC insured.

Marko said...

"Right, now think about that for a while. When the DINKs pulling in $100-$200k/year are living in a mini condo, what do you think the picture looks like for the average joe? And yes, they are buying, we know that from the overall stats."

The overall stats show that 22.52% of buyers in Victoria are buying with less than 20% down.

There is this notion on the blog that masses are buying with 5% down and I don't see it very often.

Leo S said...

The overall stats show that 22.52% of buyers in Victoria are buying with less than 20% down.

And how shall we judge this number? Is it high, low? How does it compare with places that have seen significant declines?

The number alone means nothing. Given have seen very strong price appreciation in the last decade, that number seems high to me.

dasmo said...

JJ, the market has been flat for across the board for a bit (despite the small spike in the 2011 stats). Why would that be different for the upper end? Everyone can agree we aren't rocketing upwards right now.

Introvert said...

Just Jack,

Would you be willing to tell us a little more about your situation? If I recall correctly, you currently rent a house in South Oak Bay near Willows Beach.

Are you content to rent forever? Under what conditions (personal and market) would you buy a house? Have you ever been a homeowner? And how long have you been doing stand-up comedy?

patriotz said...

"The overall stats show that 22.52% of buyers in Victoria are buying with less than 20% down."

Of course, because the great majority of buyers (in Victoria and everywhere else) already own and are moving to another property. And almost all of them first bought when prices were much lower.

"There is this notion on the blog that masses are buying with 5% down"

It is FIRST TIME BUYERS, who are crucial in supporting the market, who predominantly are buying with low down payments.

Phil said...

"I don't think prices will roll back so the average family can afford a nice home"

Maybe not... Guess we'll just have to keep renting it. And going on vacations and eating out with all the money we save versus "owning".

Just Jack said...

The most simplistic answer may be that there is a greater supply of million plus dollar homes than demand.

Except for being waterfront or water views, the reason for being million dollar plus homes is most often house size.

A typical urban Victorian family lives in a home between 1,500 to 2,500 square feet and pays about $560,000 in the core municipalities.

The rich and (in)famous typically live in homes that are larger than 3500 square feet.

There are some 294 homes for sale in the Victoria core that fit into the 1500 to 2500 square foot range. And last month 78 of them sold. That's a very respectable 3.8 months of inventory. Nicely fitting into the balanced area with stable prices.

Now, how about the uber riche. 68 listed with 10 sold. 6.8 months of inventory.

Definitely there is more pressure on the expensive homes to make concessions in price or terms relative to middle income family housing.

These numbers were done on the back of a cigarette package and are a subject to sampling error. Especially at what size a home becomes a million plus home.

For Canadians size does matter. And bigger is perceived as better. The Europeans may run around and say it doesn't - but secretly they want a bigger one too.

And what Canadian wants to bring a date home and show her his kitchen, only to hear

"Well, its kinda cute"

nan said...

@marco my wife and I have 6 degrees (She has three and I am working on my 4th, all in finance) and a combined income of 170k, which will increase shortly. The new average IS 2 degrees- university is the new highschool. Education wise, you have maybe 2 on you list that are above average. We rent.

a simple man said...

Nan - my wife and I are similarly educated, but in a different field.

We rent as well.

I really am bewildered at how people buy at these prices. However, there is stress all over Oak Bay. We have heard of 2 new marriage separations this week alone. And one from last week that want to divorce but were told by an accountant they could not afford to. Lovely.

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

The pressure is not just coming from the top of the food chain, but also from outside.

In the outer area of Colwood a 25 year old middle income house sets you back some $420,000 today. And here is the same home's sales history over the years of the housing boom.

$210,000 April 1999 up 100%
$211,000 May 2002 up 100%
$269,000 Jan 2004 up 56%
$369,000 Feb 2006 up 14%
$419,900 March 2007 up 0
$420,000 May 2012

It seems reasonable, to me, that houses in the core are about 10 percent over valued today in relation to the outer areas and upper income homes.

It will be interesting if we get a rush of listings, a dearth of sales or a combination of both in the coming months.

And I am 6 degrees away from Kevin Bacon and my wife thinks I'm cute. (what the hell does that mean!)

Marko said...

"@marco my wife and I have 6 degrees (She has three and I am working on my 4th, all in finance) and a combined income of 170k, which will increase shortly. The new average IS 2 degrees- university is the new highschool. Education wise, you have maybe 2 on you list that are above average. We rent"

Straigt off Human Resources and Skills Development Canada.

"Meanwhile, the percentage of individuals with university degrees rose from 10.9% in 1990 to 20.9% in 2009."

A two degree household is not average.

Marko said...

"However, there is stress all over Oak Bay. We have heard of 2 new marriage separations this week alone. And one from last week that want to divorce but were told by an accountant they could not afford to. Lovely."

and I showed 6 houses in Oak Bay to a couple from Edmonton and 4 didn't have a registered mortgage....must be lovely to live in Oak Bay with out a mortgage.

Irving said...

March's index, however, found Vancouver and Victoria, once two of Canada's hottest markets, showing some take-back. The index slipped 0.1 and
0.7 per cent respectively in the month.

That means Victoria is now at a -8.7% yearly pace for new home prices.

Marko said...

"It will be interesting if we get a rush of listings, a dearth of sales or a combination of both in the coming months."

New listings for March & April are down from last year and down over 20% from 2010 and in line with historical norms.....so not sure where this rush of new listings heading into summer will materialize from.

nan said...

@ simple man: well I can offer you 2 insights:

I use a simple example to explain house price increases to my staff at work: just look at the interest rate, mortgage amort and dp requirements to prove out the max mortgage amount at the average income 10 years ago compared with today. House prices are startingly close...

People will generally spend what you give them: in the same way that someone making 60k per year will find a way to spend 60k per year, someone who can borrow $500k will find a way to bid up a house price with it.

The "why" is the other half of the equation, which I feel can only be blamed on a pervasive lack of basic financial understanding caused by weaknesses in the Canadian education system and faith that "if something goes wrong, the government will fix it".

All I have to say about that is that you can't have freedom without accountability but if you want to run the show, you need to know who votes for you. With the boomers coming of age, there are two options:

1. increase the interest burden on the borrowers (young) to fund the lenders (old) to help fund boomer retirements

2. don't get elected

Irving said...

The rush of listings could come over the summer & fall like 2008.

nan said...

@ marco: I believe your study is Canada centric, not Victoria centric.

Marko said...

"@ marco: I believe your study is Canada centric, not Victoria centric."

Say 50% of individuals in Victoria have a university degree (I doubt it), that would still be only 1 in 4 households have two degrees (one each).

Marko said...

"The rush of listings could come over the summer & fall like 2008."

Or new listings could further slow down over the summer & fall like 2009?

a simple man said...

Say what you will, Marko.

But I have a lot of friends with PhDs that are profs all over Canada. None will consider coming to UVic or UBC to work. They say that they cannot afford to live here on a professors salary.

If that is not a canary in a coal mine, I don't know what is.

yes, I know obviously some profs do live here, but recruiting new ones is proving difficult.

Irving said...

Or new listings could further slow down over the summer & fall like 2009?

We can rule out a 2009 replay as our neighbour’s listings look nothing like that year.
As you can see from the graph, I’m going with a repeat of either 2010 or 2008.

Just Jack said...

I suppose another scenario is that prospective purchasers may see value in areas that they have overlooked. Like Central Saanich, Brentwood, Sidney. A change in buying patterns started this boom when people chose to leave the older homes in the inner city and move to a new home in the Western Communities.

I've seen that pattern reverse with people wanting to move back into the city which has caused the months of inventory to increase in the Western Communities and stabilize the inner core districts.

But if the gap between the two areas gets too wide, you will see the pattern reverse again. Especially for those that do not have to commute downtown and there are a lot of people that never go downtown at all.

Marko said...

"yes, I know obviously some profs do live here, but recruiting new ones is proving difficult."

Right.....who would want to teach at UVIC and live in Victoria.

Irving said...

The 46 who just lost their job at Camosun might want to, problem is UVIC needs to cut staff too.

a simple man said...

Right.....who would want to teach at UVIC and live in Victoria.

Which makes it all that more bizarre that they will not consider here. They all give the same reason - too much money for housing.

It will fall.

CS said...

"Did the average family ever afford a nice home in Oak Bay on an 8,000 square foot lot?

No."

Actually, yes.

In the early 70's a N OB bung went for about twice average family income. An OB lot then cost $8,000, or just over one percent of the current price.

Many of those houses are still occupied by people who bought in that era (the people that, on a different thread, omc indicated should be ethnically cleansed).

That's one reason for the high price in OB, i.e., low turnover. Five of the nine houses closest to us are occupied by widows and they have no intention of going anywhere voluntarily.

But the reason OB will never be that cheap again is that the city has changed. In those days there were many vacant OB lots and Gordon Head was still mostly prime horticultural land.

Today Victoria is larger, so there is greater demand for optimally located property (tree-line avenues close to downtown), which means there is greater segregation by income. OB can only get more expensive, relatively, if not in absolute terms.

Watching and waiting said...

Does the Brix's location constitute "near UVic"?

http://www.usedvictoria.com/classified-ad/Near-UVIC-2-BRM-2-Bath-Brand-New---The-Brix_17288150

$1600 for 695' sq?
They are delusional.

Marko said...

You have units 450 sq.ft. units at the 834 with no parking renting from $1,100 to $1,200. I was surprised. There are 40 units being rented, only one currently on craigslist.

I can see two well-off students splitting that for $1600 per month....it isn't horribly far fetched. For $1400 for sure.

Dave said...

CS, the reason an OB bung went for 2 times income in the early 70's, was 9 million boomers were barely starting to enter their home-buying years. Those same 9 million will now begin to exit their cold dark mansions over the next twenty years. Only two things are certain in life; death and taxes. There's no question an OB bung will once again go for 2 to 3 times income.

You would have to be fresh off the boat to pay more than a thousand for 450 sf. I know several who rent liveable footage downtown for under a thousand.

Just Jack said...

Demand is only half of the equation to prices. Oak Bay has held a premium on prices because there were few alternatives in the past.

But with all the new developments there are some very very nice neighborhoods in Saanich East in subdivisions with custom homes, roads without pot holes and without fender to fender parking along the streets. And the tax rate is lower.

Of the 16 homes that sold over a million in April. 7 were in Oak Bay, 3 in Victoria and 3 were in Saanich East. With the most expensive being not in Oak Bay but in North Saanich. Things are changing.


Besides Oak Bay is too small and difficult to get in and out of. Too far from the BC Ferries. Really if I can afford a multi-million dollar home in Oak Bay, I won't be commuting by car to downtown Victoria each day anyway. Its not the 1980's anymore with the new technology I'm no longer tied to a location, I can run my multi-national business from North Saanich.

If you own a boat (and you should) the best moorage is along Saanich Inlet in Saanich West. Its also closer to your plane or helicopter at the airport too. Actually, because these North Saanich mansions are on acreage - you can have your own helicopter pad. Nicer sunsets too.

Oak Bay is nice, its just so old and tired, and crammed with illegal suites.

dasmo said...

I paid $150/moth for rent when I went to university. mind you my 1 foot window stared straight into a brick wall....

Just Jack said...

You got a window!

happy renter said...

"But I have a lot of friends with PhDs that are profs all over Canada. None will consider coming to UVic or UBC to work. They say that they cannot afford to live here on a professors salary."

I'll back that up with lots of first-hand experience. If the academics who are offered jobs at UVic or UBC have other offers in cities where they can afford to live, they won't accept jobs here. I personally know 3 who found themselves in that situation and opted to go elsewhere. UVic's starting salary for professors is about $69,000. Most new professors are in their mid-late 30s and are coming out of 10+ years of education a)never having made any substantial money in their lives and therefore never having saved a down payment, and b)a lot of them have a lot of debt because the funding that their PhD programs offered them (if any) wasn't enough to live off of. If they have spouses, they are then faced with the (usually grim) prospect of finding their spouse a job in Victoria. UVic cannot (and absolutely does not) recruit the best and brightest because the salaries are too low for the cost of living in Victoria. They end up with the academics who don't happen to have other employment options and so have to move here. Victoria is of course a beautiful place to live, but it is not a great place to live where finances are concerned.

Anton said...

This is an issue in the medical field too. It is very hard to recruit new doctors to this area, especially specialists. Many have huge loans from years of training. The cost of housing is an issue for sure as is better pay in other provinces (e.g. Alberta and Ontario).

CS said...

Dave, I think you'll be waiting a long time to buy a decent property in Oak Bay for under 200K.

And yes, JJ, there are many nice places in East Saanich and on the peninsula if that's where you want to be. But some people still prefer town to suburbia or the countryside.

Furthermore, the Government + University + Jubilee Hospital still have the largest payroll in the capital region, so close to the center is still where lots of people want to be.

I don't see that changing any time soon. In fact the tendency will intensify as the city grows. Oak Bay is the best Victoria can do right now to match Vancouver's Shaughnessy, Toronto's Rosedale, or Ottawa's Rockliffe.

CS said...

But prices at the upper end in OB are coming down. They just took 10% of the asking for this.

Another 90% Dave and it will be almost within reach!

patriotz said...

Say 50% of individuals in Victoria have a university degree (I doubt it), that would still be only 1 in 4 households have two degrees (one each).

That's assuming that one spouse having a degree is uncorrelated with the other spouse having a degree, which it obviously is not.

That is, it's more like 40% of households having no degree, 20 % having one, and 40% having two.

Leo S said...

"Meanwhile, the percentage of individuals with university degrees rose from 10.9% in 1990 to 20.9% in 2009."

A two degree household is not average.


Demonstrating once again how your examples are completely non-representative of the average buyer. For whatever reason you seem to attract clients with higher education and higher income. That's fine, but it says nothing about the greater market. If only 20% of people have university degrees, and 70% own, then you can see that your set of buyers is quite far from the average.

Just Jack said...

10 years ago, the median price for a home in Saanich East was $268,000 and in Oak Bay it was $338,500. In relation to Saanich East, Oak Bay had a 26.3 percent premium in price.

Ten years later, Saanich East is $592,800 and Oak Bay is $740,000. The premium has dropped to 24.8%

So you see it's not intensifying at all.

It's nice to have pride in your neighborhood, and its only human nature to compare where you live to a superior area like Shaughnessy. But I've never heard someone from Shaughnessy compare themselves to Oak Bay.

I have heard people that live in Saxe Point compare themselves to Oak Bay, but then again I don't think you're going to return their compliment and compare Oak Bay to Esquimalt.

Just Jack said...

I don't know where prices will finally bottom out. But if the past is any prediction of the future it will be a lot lower than any of us think.

Introvert said...

That is, it's more like 40% of households having no degree, 20 % having one, and 40% having two.

Nobody likes a math geek. :)

... close to the center is still where lots of people want to be. I don't see that changing any time soon. In fact the tendency will intensify as the city grows.

Absolutely true. Oak Bay is one of only a few primo neighbourhoods in Greater Victoria and likely will never be affordable to the average joe again (even post-market correction).

As for professors, most don't earn as much as society thinks they earn. Some do, of course. But so many don't. $69,000 a year to start? Yeah, beginning your career at Lakehead University is looking better and better...

happy renter said...

"$69,000 a year to start? Yeah, beginning your career at Lakehead University is looking better and better..."

Many universities that have similar or worse reputations than UVic pay far more. I heard recently that the starting salary at Waterloo is $78,000, for instance.

happy renter said...

From the Globe & Mail's new Vancouver house hunter blogger:

"Hopefully I’ll get to a few properties this week, since I’m not keen to rush in to a decision, get in way over my head, risk the financial security of both my retirement and my children’s future, and make the hugest mistake of my life. But really, with two sets of parents around to eventually bail us out with inheritance, I don’t see the problem with getting in a little over our head now, while interest rates are so low. We can always sell our second SUV if we need a little cash down the road..."

Marko said...

"This is an issue in the medical field too. It is very hard to recruit new doctors to this area, especially specialists. Many have huge loans from years of training. The cost of housing is an issue for sure as is better pay in other provinces (e.g. Alberta and Ontario)."

I started at VIHA in 2006 during my practicum and the 7 intensivists had been there for 3-4 years already...fast forward to 2012 still the same 7 intensivists.

Some specalists there may be a shortage but good luck getting into something like cardiac surgery in Victoria...you'll be waiting for a very long time.

Problem with places like VIHA is people come here as their final denstination and then they stay in their position for 20+ years. Part of the reason I left VIHA.

Marko said...

"Furthermore, the Government + University + Jubilee Hospital still have the largest payroll in the capital region, so close to the center is still where lots of people want to be."

Further to that point, at an organization like VIHA those making over $75,000 has tripled in the last 6-7 years.

Marko said...

"There's no question an OB bung will once again go for 2 to 3 times income."

Great, I'll be living on the waterfront at that point.

Al + TOH said...

I thought professor salaries at University also depend on the field, e.g. starting salary in Eng. faculty could be much higher than what in Math dept. 69K/yr is pretty good for a new full Math professor, associate/assistant profs get less.

People went for University professor positions didn't go there because of money.

TOH

Dave said...

CS, you will be pleased to know I won't be buying OB as it withers. I'd be surprised if I own any Canadian soil again for 20 years. Far better investments and places to live.

Just Jack said...

Well there is no hurry to buy. There are some 113 single family homes for sale in Oak Bay today. Only 38 sold last month.

That's a really good selection to choose from, more than double what it normally is.

But I won't be rushing to buy in Oak Bay. There are a couple of streets in East Saanich that I like that give you the feel of being in the country but still within biking distance to everything.

Nice curving tree lined streets but without the fender to fender cars lining the road like you find in Oak Bay. And a lower tax rate than Oak Bay or Victoria.

a simple man said...

I have to say that as I get out of foot and bike more in other parts of Greater Victoria, I am pleasantly surprised at just how many beautiful, diverse neighbourhoods there are.

Really, there are few that I would not live in.

As far as prof salaries go, they are really out of sync with how much education and sacrifice it takes to get there. I was approached by UVic to join a faculty and it simply was not even a consideration based on the wages they could offer.

CS said...

So according to your stats, JJ, the median house price in OB was $70 K greater than that for Saanich E ten years ago, but $148 K now. That looks like an wider gap to me.

But in any case, my point was that, in a growing city, the best residential property near the core increases in value faster than property of the entire urban area.

Comparing OB and Saanich East is like comparing Shaughnessy with Point Gray. Both are upscale neighborhoods with ready access to downtown without travel on an interurban highway.

The question is how do median prices evolve in such neighborhoods relative to those of the entire urban area.

CS said...

@Dave
"as Oak Bay withers..."

That sounds worrisome, or are you speaking of the inhabitants? But then OBers are apparently no older than residents of most other GV municipalities.

happy renter said...

"69K/yr is pretty good for a new full Math professor, associate/assistant profs get less"

But there's no such thing as a "new full math professor." Everyone who gets a job as a professor has to start out as an assistant professor unless they're moving from a previous position at another university or have some kind of previous professional work experience that would for some reason move them up to the level of associate professor (this would perhaps apply to the law faculty if someone was a lawyer for a long time and then became a professor). The only way to make it to associate or full professor otherwise is to put in time with your teaching and get a lot of publications under your belt so that you can achieve tenure after 5 years and then maybe a promotion to full professor another 5 years after that. So you're looking at a bare minimum of 10 years on the job to reach the base of the highest rank. I'm not sure what the base salary for full professor is at the moment, but trust me it isn't spectacular. And it takes most people a lot longer than 10 years on the job to get there, too.

In some fields new professors might be able to talk UVic into paying them more than $69,000 to start, but for the vast majority, that's what they'll get paid. And again, that's after 10+ years of (usually expensive) education.

Leo S said...

Great, I'll be living on the waterfront at that point.

Why is that such a fantastical concept? Assuming you can keep growing your earnings you probably could be living on the waterfront.

LeonMaynard said...

Heads up kids. Take it from an old guy who has been involved with owing houses in Victoria since 1969; Prices go up and then they come down; sometimes they come down fast and other times slowly.

Here is what I've been involved with in Victoria. In all cases the selling price was simply due to market increases without any renovations.

In 1969 you could buy a nice 4 bed 2 bath bungalow for $22K and sell it in 1974 for $80K

In 1978 you could buy a nice 3 bedroom one bathroom bungalow with a one bedroom one bathroom basement suite for $50K and sell it in 1981 for $120K

In 1984 you could buy a nice 3 bedroom 2 bath Gordon Head home with full basement and bathroom for $105K and then sell it in about 1990 for about $200K

The 1990's were flat, with minor ups and downs, so was the economy of B.C. but eastern Canada and Alberta had strong economies at that time.

In 2000 you could buy a nice Gordon Head 4 bedroom 2 bath with full basement an a bathroom for $235K and then sell it in 2008 for $600K

My point is that there is always a drop after a surge, sometime there is a rapid drop due to spikes in interest rates (early 1980's) and sometimes the economy causes a slow decline in house prices as happened during the 1990's.

This current market will be significantly overpriced when mortgage interest rates increase or the economy declines; but for now we are at a state of near equilibrium with house prices holding relatively steady since 2008.

The government has very little control over the lowest interest rate. Low interest rates are set by the bond and treasury markets which are simply the government auctioning their debt to the lowest interest rate bidder. If China stops buying western governments' debt you can expect to see rapid interest rate increases. China is still buying western debt, although less of it. If China stopped buying western debt tomorrow then interest rates on mortgages would double next week. It's simple global economics.

SilverSurfer said...
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SilverSurfer said...
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SilverSurfer said...

Thanks for sharing Leon,

"If China stopped buying western debt tomorrow then interest rates on mortgages would double next week. It's simple global economics."

Global economics is anything but simple, even less so in the last 10 years, but I get what you are saying. There are major forces at work that influence the major outcomes.

Unless the Fed monetizes the debt. Then you get low interest rates a while longer, but currency depreciation and in the case of the US, lowered international confidence in its reserve currency status.

Keep an eye on these numbers. China & Japan are 2/5ths of the US Tbill holders, China has pretty much stopped buying Year over Year Feb 2011 to Feb 2012. Japan is in no position to make up for China, if China stops buying. The more QE's, Twists and other financial imagineering the Fed does with the bond market to keep interest rates low and the US currency artificially depreciated while exporting inflation, the less likely other countries are going to continue to hold, let alone buy more US debt. The end of a major currency crisis begins with a lack of confidence in said currency.

SilverSurfer said...

the link for "these numbers" above.

CS said...

@LeonMaynard
"My point is that there is always a drop after a surge..."

And some drops are larger than others.

From the data you present, house prices in Victoria have risen about 27-fold since 1969 ($22k to $600K). But nominal median household income has risen only about seven-fold (I make that claim based on these US numbers), so if the ratio of household income to house prices reverts to that of 1969, we could see a very substantial drop after the current surge. Not that I make any prediction.

CS said...

@SilverSurfer

"Unless the Fed monetizes the debt. Then you get low interest rates a while longer, but currency depreciation and in the case of the US, lowered international confidence in its reserve currency status."

Michael Pettis argues that ending the US dollar's reserve currency status would be a good thing, causing a reduction in US consumption while stimulating US manufacturing. So the scenario you outline might actually be played out.

Presumably a falling US dollar would take the loonie with it. Among the consequences would be higher inflation, which would be negative for house prices not only because of rising interest rates but because of declining disposable income due to imported inflation.

Marko said...

Another large loss on a luxury condo....

506 - 68 Songhees originally purchased for $694,900 + GST in 2007 just sold for 630,000.

Auch.

Introvert said...

Presumably a falling US dollar would take the loonie with it. Among the consequences would be higher inflation ...

Higher inflation? I welcome it! I (debtor) owe hundreds of thousands to the bank (creditor). I gain; bank loses.

DavidL said...

@Introvert wrote:
Higher inflation? I welcome it! I (debtor) owe hundreds of thousands to the bank (creditor). I gain; bank loses.

You won't welcome it at mortgage renewal time when the bank has raised it rates (because of inflation) and you find you monthly mortgage payment has increased by $500 to $1000 or more.

I continue to worry about recent home buyers who will find more and more of their income going to servicing their debt. With reduced disposable income, this will have a profoundly negative effect on the service industry, retail sales, etc. Presumably food and energy consumption will remain unaffected - but keep in mind that these items have been recently inflating by > 10%/year - already straining the typical family budget.

DavidL said...

@LeonMaynard

Thanks for the numbers and analysis. You numbers match my impressions and experiences.

My father bought his Ten Mile Point home for $32,500 in 1968. In early 1981 he tried selling for $239,000 - just as the bubble was bursting. Not too surprisingly - no sale. It is now worth about $800,000 (a 25-fold increase). According to the BOC inflation calculator, $239K in 1981 would be $605K in 2012 - suggesting that prices are even more frothy now than they were during the bubble 30 years ago.

patriotz said...

"My father bought his Ten Mile Point home for $32,500 in 1968. "

Keep in mind that the one income family was the norm back then. There is a valid reason for house prices to have outpaced inflation until about the mid-1980's. Not since then IMHO.

DavidL said...

‘Clear evidence of a bubble is lacking’—really?
"It’s always difficult to tell whether a bubble has formed until it goes “pop.” This is partly why bubbles, especially in real estate, continue to happen even though you’d think someone at some point would have learned the lesson."
- Finn Poschmann, of the C.D. Howe Institute

Phil said...

"I gain; bank loses."

I guarantee you this will never, ever happen.

DavidL said...

@Patriotz wrote:
Keep in mind that the one income family was the norm back then.

Indeed. His income as a federal research scientist was $12K/year in 1968. He considered a nice $26K house in Gordon Head, before deciding on the $32.5K home (2.7 times his income). And yes, he was the sole provider for his three-child family.

Leo S said...

Price to income can't be assumed to stay the same forever. We are never going back to the ratios of 30 years ago without significant depopulation.

As a town grows into a bigger city and becomes more dense, the price/income for SFH will increase.

The question is, to what level will they increase? What ratio is sustainable for the size of our city?

Here is the price/income for Victoria.

Based on statcan data for victoria income, which is based on very few responses (in the hundreds) so the income figures are somewhat variable.

patriotz said...

"The question is, to what level will they increase? What ratio is sustainable for the size of our city?"

There's another question, namely is it inevitable that Victoria will keep growing at the rate of the last few decades. I can't think of another city of its size in Canada that has less certainty of growth. There is very little that has to be done in the city.

Compare with Halifax which is the same size, is far cheaper, is the economic hub of the East Coast and also a provincial capital.

Marko said...

Interesting sale today...

3647 Vitality Rd

La Happy Valley

$526,115 last year....

Fast forward 13 months,

Resold today for $576,000

a simple man said...

My in-laws in the prairies bought a house 4 years ago in a very small place for $12,000. My brother and sister in law bought in the same hamlet for $12,000.

When my BIL needed a studio for his work, they bought another house across the road off the municipality for a toonie. Needed a little bit of work (<$1000 in materials) to update and repair some shingles/paint but is perfect for their uses.

Different world.

a simple man said...

correction - my BIL and SIL's house was $20,000.

Just Jack said...
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Introvert said...

"I gain; bank loses."

I guarantee you this will never, ever happen.


You are correct. The bank never really loses, but there are ways one can make its "win" less sizable.

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

You won't welcome it at mortgage renewal time when the bank has raised it rates (because of inflation) and you find you monthly mortgage payment has increased by $500 to $1000 or more.

Yeah, and renters who save boatloads of money by renting (all three of you) won't welcome inflation, either: their nest egg/down payment will be worth a lot less.

Leo S said...

their nest egg/down payment will be worth a lot less.

Maybe if you have it under your mattress. Otherwise interest rates will increase along with inflation and so will the returns you make on your money.

DavidL said...

@Introvert
Yeah, and renters who save boatloads of money by renting (all three of you) won't welcome inflation, either: their nest egg/down payment will be worth a lot less.

I'm not sure what I said that made you think that I'm renting. I bought my Saanich West house in 2002. The mortgage, property taxes, ongoing maintenance and repairs are less than what I could rent the house for. This is because I bought at the "bottom" of the market, rather than the "top". Only 15% of my gross family income pays for the mortgage. The mortgage will be paid off in less than three years.

None of this changes my opinion that real estate is significantly overpriced in Victoria. If I didn't already own, I would be renting ...

DavidL said...

@Introvert
The bank never really loses, but there are ways one can make its "win" less sizable.

In the summer of 2009, ING Direct was charging me 1.45% (prime - 0.8%) on my residential mortgage while they were paying 2% on their Investment Savings Account (ISA). These situations are rare - but do happen.

patriotz said...

"Yeah, and renters who save boatloads of money by renting (all three of you) won't welcome inflation, either: their nest egg/down payment will be worth a lot less."

You don't understand that increased consumer price inflation will result in lower, not higher house prices. And a house is what they are saving for.

CFA Joe said...

@Silver Surfer

"China & Japan are 2/5ths of the US Tbill holders"

Nice extrapolation. They are 2/5ths of "foreign" bondholders (as it says at the top of your linked page) not "total" bondholders.

according to this link:(http://www.businessinsider.com/who-owns-us-debt-2011-7?op=1)

China and Japan own 15% of the US debt and the number one holder of US debt is............ the American people themselves. Really China has no control at 8% of total debt and Japan at 7%.

Introvert said...

I'm not sure what I said that made you think that I'm renting. I bought my Saanich West house in 2002 ...

If you go back and read what I wrote you will find that I did not assume you were renting. But thanks for filling me in on what a savvy investor you are.

DavidL said...

@Introvert
But thanks for filling me in on what a savvy investor you are.

Thanks for the compliment, however I would only consider my home an investment if I were planning on selling it. From what I can tell, the best time to have done that was March 2010. I consider my house a rent-avoidance strategy.

However, even after the mortgage is paid: $450 to $600 is required each month to cover the property taxes, insurance and basic building maintenance (no improvements). Home ownership costs much more than most people budget for ...

Introvert said...

China and Japan own 15% of the US debt and the number one holder of US debt is............ the American people themselves. Really China has no control at 8% of total debt and Japan at 7%.

CFA Joe, you are correct.

Paul Krugman explains it very well in a particularly insightful (and I think, must-read) article, Nobody Understands Debt

Introvert said...

... I would only consider my home an investment if I were planning on selling it.

That's cute. And one day I'm sure you will consider your home an investment, unless you plan on dying in it. Oh wait, if that is the case, then the beneficiaries of your inheritance will consider it an investment.

I consider my house a rent-avoidance strategy.

But why would you want to avoid something that is clearly so amazing?

Leo S said...

But thanks for filling me in on what a savvy investor you are.

Haha, hit a nerve did he? That's funny, because unlike many owners that bought before the big increase, DavidL never gloats or tries to make out that his gains were due to some sort of advanced market knowledge.

He bought at the right time and reaped the rewards. That's great.

Leo S said...

But why would you want to avoid something that is clearly so amazing?

Where did DavidL say that renting was amazing?

There's a difference between not selling and buying. It can simultaneously be a good time to keep your house and at the same time be a good time to keep renting. Those two things are not mutually exclusive.

CS said...

They just reduced this by a coupla hundred K.

Looks like it would make I nice hangout for a vampire, although I think it will look better in about 100 years when the stucco's streaked with cracks and stained with mildew and the garden's overgrown, dank and dark.

dasmo said...

chuckle...

Marko said...

Greater Victoria’s unemployment rate dipped to 5.0 per cent in April as construction projects drew more workers into the labour force, according to Statistics Canada’s monthly labour force survey.

Read more: http://www.timescolonist.com/business/Region+unemployment+rate+drops+diversified+economy+cited+hiring+increase/6608919/story.html#ixzz1ud2Q0eOO

SilverSurfer said...

Introvert, I hate to break it to you, but Krugman is the laughing stock of economists - regardless of his nobel prize. Hey if Obama can get one for peace before lifting a finger, you know what those are really worth these days.

Me, an economic ignoramus, could probably rebuttle Krugman's article without having to think too hard.

- Government debt matters, even if it is mostly owned by your own citizens, because as he states, governments rarely pays back debt (mostly just interest on debt), instead they always attempt to inflate it away... at the cost of the middle class! Which Mr. Krugman convininetly left out. Take a look at Japan... 20 years of stock market & real estate decline. Not one, but two lost decades and counting!

- Internal debts matter, because they are paid not to governments, but to private banks! In other words, citizens are needlessly taxed in one form or another, for the profit of private banks that created the $$ out of thin air and then demand interest paid on said debt instruments. This, over the long haul impoverishes nations, even more so nations with GDP declining like the USA. In economics they call this inability of sovereign nations to repay back debt through GDP growth - "the gap trap". The USA is in one right now. They need to grow at 4% per annum to close the gap trap, currently they are at 1.7% and much of that is not real growth, it's stimulous of one flavour or another.

- It doesn't matter that the debts owed internally (to citizens) is greater than debt owed externally. It does however matter that externally owed debts, whose yield remains at all time lows, and whos currency value is purposely erroded (the "strong dollar" policy days are long gone), will first result in no more debt being sold - who'd want to buy it? - which then results in Fed monitizing the debt (cuz citizens already in so much debt, they can't buy more), which then leads to a loss of confidence in the reserve currency, which then leads to a global depression if things move too fast or the wrong way.

Secondly, it will eventually cause a flood of said external debt to be dumped on the market if there is a panic. What happens in 5.x Trillion comes home to roost in the USA overnight? Massive inflation is what happens.

Krugman should apply to be on the federal reserve board, because this clown only has one solution to every economic problem - PRINT!! The guy blames the Bernake for the poor economic recovery so far. He said he should have printed *far* more than he did. Even Bernanke thinks Krugman is "reckless". Yes, I know, pot calling kettle black, but really, listen to him talk some time, god help us if he ever is in any position of power, instead of just theorizing what "should" happen. Gold would spike to $10,000 overnight if Krugman was an economic head in the US government.

DavidL said...

@CS
Your link to MLS 304454 at 3335 Midland Rd. in Uplands shows an asking price of $3,595,000. This is still $246,000 more than the BC Assessment value. It should be interesting to see what this Gothic mansion will sell for ...

dasmo said...

I don't know if i'd use such strong words but that article was a little.. suspect. Why bother paying any principle on a mortgage? just keep the house long enough that the debt doesn't matter? Pass it down through a couple generations. The house I'm in now was built for $3500 in 1933. it would have only cost around $30K to still owe that $3500 now... wait a minute!

patriotz said...

"Why bother paying any principle on a mortgage?"

Because the returns are tax free, an outcome of the mortgage interest not being deductible.

Paying off the mortgage on a principal residence is the best fixed income investment you can make.

patriotz said...

Except for paying off another non-deductible loan such as a credit card, off course.

:-)

chris said...

Relax everybody, Victoria has decided to base its economy on building condo towers. It worked for China...oh, wait a minute. If you add up the numbers in this city alone, there are literally thousands of units being built. Move over ghost cities of China! Make way for the ghost ghettos of Victoria. Besides, we need more buildings in receivership to keep the courts busy so I can keep my job.

Marko said...

"Relax everybody, Victoria has decided to base its economy on building condo towers. It worked for China...oh, wait a minute. If you add up the numbers in this city alone, there are literally thousands of units being built. Move over ghost cities of China! Make way for the ghost ghettos of Victoria. Besides, we need more buildings in receivership to keep the courts busy so I can keep my job."

Promontory - 3 year build out, 177 units.

Mondrian - 2 year build out, 93 units.

Era - 3 year build out, 157 units.

Duet - 2 year build out, 90 units.

I am sure we'll be flooded with too many units....we'll have an extra 500 by the time the Era is finished in 2015!

Marko said...

If no one was building downtown then the spin on HHV would be the market will crash because there are no construction jobs.....however, because there is some construction going on the market will crash in 2014/2015 when we have glut of new condos hitting the market.

The deposit structures at these developments are vastly different then they were 5-10 years ago. At the Promontory you need to plunk down a 20% deposit - there aren't that many speculators buying these days.

a simple man said...

and word has it that not many people are really buying these condos these days as well. It will be interesting going forward. It is hard to track the actual sales of these complexes as they are never publicly released and they have a million tricks to make it look more sold that it really is.

a simple man said...

omc - you will not believe it - but my favorite flip on St Anne is back for sale. The new owners lasted all of 5 months in it?

I wonder what happened?

chris said...

a few you forgot Marko,

601 herald, still many unsold
Cherry Bank, many unsold
Oak bay beach, unsold
834 Johnson, many for sale
Oriental 562 Yates, many unsold
Sovereign,
and the list goes on the further you go out...
Martello
Coho
Capital City centre, over 2000 units planned!

Then there's all the specuvestor resales in numerous DT buildings (Falls, Wave, Aria, Hudson.....)

a simple man said...

Aquattro, Bear Mountain, many in Colwood, etc. I would like to see how many will really be for sale in the next three years.

I know this - too many.

Marko said...

I am not going to bother going through that entire list....

Soverign, 36 units in total, 55% already sold and they just started pouring the footings last week.

I live in the 834, the developer has 4 units left...big deal?

601 Herald was 27 units total and if they are about 70% sold how many does that leave for sale?

We are talking a few hundred units.

Aquattro? Not building anymore
Bear Mountain? Not building anymore
Capital City Center - 15 to 20 year build out.

chris said...

Let's add another 133 units (The Union) to the list by next Spring.

"...ceremonial groundbreaking this morning on a $40-million condominium development in Chinatown, despite tepid pre-sales." says timescolonist

http://www.timescolonist.com/business/Developer+gets+digging+Chinatown/6611407/story.html

I wonder how many units tomorrow will bring.

Marko said...

Okay, Victoria will be like the ghost towns of China....

When the 834 was completed 40 owners put their units up for rent and it took a WHOLE two weeks for most of them to be rented out....obviously no one wants to live downtown Victoria.

Even if hypothetically 1,000 units get added to downtown Victoria in the next 3 years it will take downtown Victoria from dead to still dead but less so. We would need 10,000+ units downtown to make it at least somewhat vibrant.

Marko said...

The pre-sale climate has dramatically changed.

When I bought my pre-sale 3 years ago at the 834 they were taking 5% down...(ohhh, yea, and as I remember a few of the HHV contributors claimed the 834 would never get off the ground).....now the Promontory requires 20%, Duet 15%, Era 15%. Credit has tightened up for projects and lenders want large deposits and large pre-sale numbers.

Now throw on top of that min 20% down on completion for inventors, depreciations reports, reserve fund studies, etc., all this new legislation has made investors wary of pre-sales.

Yet there is still demand for well priced product. The Promontory is at 100 out of 177 sold and they are just excavating. Looking at the Promontory and the sales sheet it is mostly end-users buying larger units.

Just Jack said...

If there are sweeping changes to CMHC once it is under the regulation of OSFI, pre-construction condominium sales should be on the hit list.

CMHC accepted the contract price as market value when it came time to finance these skyboxes at completion of the complex.

BIG MISTAKE

The marketing of pre-construction is to keep you HOT, HOT , HOT and not let you
think. The marketing system is set up to make you overpay for a condominium.

I can envision OSFI having these condominiums valued at completion and the lower of either the contract price or appraised value being used for financing.

That's how banks used to finance new condominiums.

That 20% down payment - might not be enough especially when the developer has gotten you to overbuy by 15%.

Also, I can see OSFI wanting to take a deeper look at who bought those pre-sales. How many the agent in Victoria had to buy to get exclusive rights to sell, how many did the agent in Vancouver get, and the agent in Toronto or China. And how many of the initial sales were rescinded the next week but are still called a sale?

There is a lot of bullshit when it comes to pre-sales.

Marko said...

"The marketing of pre-construction is to keep you HOT, HOT , HOT and not let you
think. The marketing system is set up to make you overpay for a condominium."

"That 20% down payment - might not be enough especially when the developer has gotten you to overbuy by 15%."

"There is a lot of bullshit when it comes to pre-sales."

Just Jack, what are you talking about? You are pulling numbers out of thin air.

Overpay by 15%? Have you run an analysis on any of the pre-sale prices right now at the Promontory, Era, etc? On average they are 15% below what equivalent units in the resale market are currently going for in inferior buildings.

I bought my unit at the 834 as a pre-sale for fewer than 200k. The market has been completely flat and based on the accepted offers I have right now on my listings at the 834 I could see the unit selling for around 245k....how did I overpay 15% in the pre-sale?

Yes, people got burned buying pre-sales at the Falls, Aria, and Reflections but if you run an analysis including per sq/ft numbers people were paying it isn't surprising.

And yes, if you bought at the Aquattro you lost upwards of 50%; however, this is only a small portion of the pre-sale market.

Let me give you an example from my building where an investor bought early on in the pre-sale....I will have a few more next week as more sales go unconditional.

#807-834 Johnson Street.

Pre-sale price: $269,900 + GST

5% deposit, wait 2.5 years.

Sold price once completed: $333,000

I would say the return was okay.

omc said...

You're a lucky man simple man; for most opportunity only knocks once.

Gee I wonder what the owners didn't like? Overpaying for a polished turd with a poor floor plan and busy location? Some people are just too fussy!

We should have pool for DOM for that turkey.

Just Jack said...

Yeah, Marko

My point is that developers screw around with these pre-sales. And that eighth floor suite is an example.

As the listing says this unit qualifies for the $10,000 cash back for new condominiums and the price is net HST with the rebate back to the seller. Really - as the "second" owner of a unit you qualify and have to pay HST?

HELLO - its not new - if it was bought previously as a pre-sale! $10,000 cash and HST would not be applicable as it should have been paid by the first purchaser.

Or was there something else going on with this sale? hmmm.

Thanks for underscoring my point.

dasmo said...

Must I always be the one to remind everyone that tech is the largest employer by dollars in victoria

Marko said...

"My point is that developers screw around with these pre-sales. And that eighth floor suite is an example."

You do realize this was a resale by an investor? Look at the title for #507 in the same building.....

The developer is not involved in resales; you need to get your facts straight.

Also, since you seem to know everything can you give me a few examples of how Bosa, Concert, Chard and other developers screw around with presales?

Marko said...

"HELLO - its not new - if it was bought previously as a pre-sale! $10,000 cash and HST would not be applicable as it should have been paid by the first purchaser."

I don't know what kind of setup this investor had but I know when my father buys building lots he doesn't pay HST (even on lots where HST is applicable), he just defers it until the resale (lawyer fills out some forms on completion).

dasmo said...

for commercial you can defer paying the HST (if you are registered). Perhaps they fan-dangled it buy buying the condo as a revenue property? Maybe the zoning at the 834 is a c something so they could get away with something like that?

Just Jack said...

Your father is deferring the tax.
That's cool, he's eventually paying it.

As you pointed out the developer sold the property to an investor and registered the property at the Land Office at a price of $269,000 plus GST.

Then the investor sold the property to a second person for $333,000.

However, that's not how the listing reads. It says the buyer that bought for $333,000 may qualify for the $10,000 cash plan and pays HST with the rebate assigned to the seller.

The agent selling the property should know that HST and the cash plan are not applicable to the second owner - How could he not. Unless the first owner is still the developer or his agent!!!!!

Which means that the $269,900 original price was not an arms length transaction at all. Which puts suspicion on the price difference between the two "purchases" as how much profit was made.

The point of this thread was that you can't trust pre-sales. And you shouldn't. For example.

You walk into the sales centre and the salesperson says that the complex is selling very fast and that 5 units sold in less than half an hour last week.

What he is not telling you is that his company bought the option on 5 units in order to get the exclusive rights to sell in the complex.

Now Marko, if you are selling your own home or a commercial property that you are a partner in, you have to disclose that to a buyer - right?

Why don't you have to do that with pre-construction sales?

Just Jack said...

You can defer the HST, but you can't pass it onto subsequent purchasers.

Just Jack said...

There are some developers that play it strait.

Then there are others who report all of the sales at full price, overstate room sizes and living area, make a one-bedroom into a two-bedroom. Because they can sell a two-bedroom on paper for more money than they can sell a one-bedroom of the same size. But you won't know till the end that you can't fit a queen size bed into the room - because some developers severely limit your access to the site.

Some accept a 5% deposit and allow you to rescind your offer without penalty in a week. Even though the offer is rescinded it is still calculated as a pre-sale so that the developer can hit the 40% pre-sold number to get funding from the bank.

This may be one of the reason why so many condo towers are being built in Toronto than in New York city today. Can all of those towers really be 40% or more pre-sold? Then there is the Telus building that sold out - but you still can buy units from the developer. How'd dat happen!

Frankly I would not put 20 percent down on a pre-construction complex.

That's a good way to get fleeced. If the deal falls through because you can't get financing - what happens to the 20 percent? Because a contract price does not mean that its a market value. And banks lend on market value (unless its CMHC insured)

Have people made money on pre-construction. You bet they have, great big green gobs of it. And that draws in purchasers today - they want to make their great big green gobs of it too.

If it wasn't for the specter of higher prices when the building is completed, why would you buy one. When you can buy one already built a block away? Then at least you'll know if you can fit your golf clubs into the closet.

Marko said...

"Your father is deferring the tax.
That's cool, he's eventually paying it."

He defers it and pays it after his HST inputs; however, we pass the tax onto the purchaser. For example, buy lot for $300,000 and defer the HST, price finished product at $799,000 + HST.

"The agent selling the property should know that HST and the cash plan are not applicable to the second owner - How could he not. Unless the first owner is still the developer or his agent!!!!!"

Developer was not involved on the re-sale (unfortunately your conspiracy theory is wrong). I talked to a friend (accountant) this evening and it is a bit of a involved scenario (taxes have to be made up on the differential between pre-sale price and sale price, etc.) Moral of story, investor bought presale unit, took a calculated risk, resold for much higher amount.

"Then there are others who report all of the sales at full price, overstate room sizes and living area, make a one-bedroom into a two-bedroom. Because they can sell a two-bedroom on paper for more money than they can sell a one-bedroom of the same size. But you won't know till the end that you can't fit a queen size bed into the room - because some developers severely limit your access to the site."

You do know that all presales have artictechual drawings available with specific measurements? If you go to any showroom (Promontory, Era, Duet) and ask for them they will gladly show you and point out the specific unit on the blueprints.

If people can't realize that a 720 sq/ft 2 bedroom is going to be small maybe they shouldn't be buying pre-sales? Developer isn't trying to screw anyone over. If you go to the Promontory and they have a 723 sq/ft 2 bedroom and a 1100 sq/ft 2 bedroom, logic tells me that the 1100 sq/ft is a bit more spacious.

Limit access to site? Yes, necessary for obvious reasons. My father is a builder and when we pre-sell something we give the buyers very limited site access, image the buyer stepping on a dirty nail, going spetic, and dying? It has happened before, fortunately not to us.

"Some accept a 5% deposit and allow you to rescind your offer without penalty in a week. Even though the offer is rescinded it is still calculated as a pre-sale so that the developer can hit the 40% pre-sold number to get funding from the bank."

Completely false.

"Have people made money on pre-construction. You bet they have, great big green gobs of it. And that draws in purchasers today - they want to make their great big green gobs of it too."

Actually, most recently people have lost tons of money (think Falls, Reflections, Aria, etc.).

Overall, you are completely misinformed when it comes to pre-sales. This is from someone who has bought pre-sales, represented buyers on pre-sales, and has sold a number of pre-sales my father has subsequently built.

Bosa & Concert who put out 3 to 4 towers per year are just out to screw everyone?

A lot of people who bought at the 834 were owners at the Juliet as well, and they already have 3 pre-sales at the Duet from people who bought at the 834.....believe it or not reputation matters in development.

As far as developers skewing sales numbers I follow Chard, Bosa, and Concert closely and I don't think they are skewing sales numbers as you are falsely suggesting.

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

"Some accept a 5% deposit and allow you to rescind your offer without penalty in a week."

Just so everyone is clear....the developer doesn't "allow" you to rescind.

7 days recession period is mandated by the BC Real Estate Development Marketing Act. Pre-sale developments have to follow the act. Pre-sales aren't the wild wild west, there are rules that have to be followed in terms of giving buyers right fo recession, amendments to disclosure statements, etc., etc.

Leo S said...

Developer isn't trying to screw anyone over.

As always the truth is somewhere in the middle. No they aren't "out to screw you over", but they are out to make maximum profit.
That leads to cases where the developer puts beds and other furniture on the blueprints which make the rooms look adequately sized. However the furniture is not standard size, so when the buyer puts their queen into the bedroom there's no space left. (e.g. Olympic Village)

Of course, the buyer should double check all the measurements themselves before buying, but this is definitely a sleazy move. Assuming that the developer is not out to screw you is a terrible idea.

Marko said...

Furniture is never on the blueprints, it is on the floor plans. If you are a savvy buyer or have a decent REALTOR® you will ask for the blueprints. There are PLENTY of traps you can fall into if you don't examine the blueprints carefully, such as buying next to an elevator shaft, bulkheads, etc. Blueprints can give you an idea of where the structural supports are, exactly which windows are opening windows, etc.

Yes, it can be misleading sometimes for the average person but so can going to the dealership and actually thinking that the car you are buying will achieve 6.0l/100km as noted on the window. Will the dealership tell you that in real life the car actually gets 7.0-8.0l/100km? Probably not. I wouldn't really call that the dealership trying to screw you over. The consumer needs to have some common sense.

And yes, every single showroom you walk into their building is "the best," or the "the best value." Extensive research is necessary.

Leo S said...

Developers are not unique in this of course. It extends to everyone involved in the real estate sales business. Not out to screw you, but the number one motivation is making money of course.

The greatest con that the real estate industry ever pulled was convincing everyone they are not like every other group of salespeople. How is it that most people wouldn't trust a car salesman further than they could throw them, and confidently ignore the telemarketers, but at the same time treat the advice of mortgage brokers and realtors as gospel?

It's a brilliant piece of marketing that was pulled off. Salesperson has a negative connotation, so everything was rebranded into professional. Add TM after your name, form an association, and suddenly you're no longer selling people houses, you're advising them on their real estate transaction. You know, just like a lawyer or a doctor, and not at all like Stan from Monkey Island.

Leo S said...

You're right, floorplans is what I meant. Doesn't change the fact that it's a sleazy move.

I wouldn't really call that the dealership trying to screw you over.

This is quite different. Fuel economy testing is federally controlled and it needs to be advertised on the car. The dealership has no control over that. Could they tell you that most people don't achieve those numbers? Yes, but not telling you is very different than actually choosing to post misleading numbers. The fuel economy tests may be flawed, but they are not designed to mislead people into buying and apply to every car equally.

Marko said...

"This is quite different. Fuel economy testing is federally controlled and it needs to be advertised on the car. The dealership has no control over that. Could they tell you that most people don't achieve those numbers? Yes, but not telling you is very different than actually choosing to post misleading numbers. The fuel economy tests may be flawed, but they are not designed to mislead people into buying and apply to every car equally."

Maybe not that different? If you read the Real Estate Development Marketing Act there is a lot of provincial legislation...could developers be more honest beyond the minimums of the act? Yes, the dealerships could be more honest on real life fuel economy.

Marko said...

Leo_S, I 100% agree with you on the saleperson comment regarding REALTORS®.

My philosophy is if I am representing someone on a pre-sale (for example) I am hoping they phone me to list the unit if they re-sell it down the road. If I didn't act in their best interest and they bought a crappy unit that is worth 20% less on completion I probably won't be getting a phone call to list.

a simple man said...

"image the buyer stepping on a dirty nail, going spetic, and dying?"

The probability of this is exceedingly small - and this shows that the trades are leaving a messy workplace which is usually a symptom of poor work habits which leads to poor product.

The real reason is that the trades want to be left to do their job uninterrupted and unsupervised from the outside.

Like the time I was getting some drywallers to do a big job for me. I left for 1 hour to pick up materials. The insulator asked, where did all of the acoustic caulking go? I remembered that when I left there were a lot of empty, half-empty and full tubes against a wall that was now drywalled up. I asked the drywallers to remove it - there were 15 tubes of acoustic caulking within the wall. they just could not be bothered to move them. I felt like I was always making "professionals" raise their standards to do the job right. Was one of the most eye-opening experiences of my life. 25% of the trades I worked with were absolutely phenomenal, the others - well, they weren't.

And people wonder why they want to see the site from time to time. And scheduled, controlled visits don't count.

Just Jack said...

Interesting CBC Marketplace show from 2008

http://www.cbc.ca/marketplace/condo_crunch/

Excerpt:

"You may be surprised to learn that the beautiful rooms you see in the model suites are not necessarily like the ones you’ll live in once your building is complete. The den on your floor plans may become a walk-in closet by the time you move in. Your ceilings may turn out to be a foot or two lower than the ones you saw in the model suite when you decided to buy.

As Wendy Mesley reports, buying a condo is fraught with risk for you, the buyer. The developers? They’re pretty well protected."

S2 (Just Jack's wife)

Marko said...

"The probability of this is exceedingly small - and this shows that the trades are leaving a messy workplace which is usually a symptom of poor work habits which leads to poor product."

Let me guess, you work in an office (no offense, I work in an office too)? Reality is, especially in small SFH residential construction trades don't show up when they say they will, sometimes they forget to do what you told them to do, the job site can be messy and typically the general contractor or builders has to deal with it. There is a ton of waste as far as wood goes on all sites. Simple economics, lumber is so cheap that it is easier to throw away a lot of the shorter pieces then to spend time trying to figure out where to use them next.

You have to be extremely nibble building SFH, if you go with the bigger business to do everything you would go massively over budget.

I've worked at VIHA in a union environment and I've worked for my father building SFH homes. If you are exposed to union/government/big company/big institution policies and procedures for a long time the transition to building SFH homes would be shocking.

"And people wonder why they want to see the site from time to time. And scheduled, controlled visits don't count."

If you are building a home and you are paying the bills yes you should be allowed on site. If you buy a pre-sale where the builder/developer is paying all the bills and delivering a final product I don't see why you would need to be one site?

Imagine at the Promontory, 177 units, and invidivual purchasers wanting to go one site?

Just Jack said...

Interesting CBC Marketplace show from 2008

http://www.cbc.ca/marketplace/condo_crunch/

Excerpt:

"You may be surprised to learn that the beautiful rooms you see in the model suites are not necessarily like the ones you’ll live in once your building is complete. The den on your floor plans may become a walk-in closet by the time you move in. Your ceilings may turn out to be a foot or two lower than the ones you saw in the model suite when you decided to buy.

As Wendy Mesley reports, buying a condo is fraught with risk for you, the buyer. The developers? They’re pretty well protected."

S2 (Just Jack's wife)

pipewrench said...

Dasmo,

http://www.viatec.ca/companies/462

Game house Canada is not going to save the market. If your relying on IT to save the day it will not happen. Outsourcing offshore is the in thing to keep within budgets and it will only get worse.

Marko said...

2008 article? The developer can't turn a den into a walk-in closet without consequences and call it a day. I know at the 834 there was a floor plan not as advertised (bulkhead in the living room that ate up about 30 sq/ft) and the payout the developer gave was very large. While the buyers were initially pissed off they were happy with the resolution.

Ceiling height at the Promontory is advertised at 8'10'', Era 8'8'', Duet 8'6''......they can't just drop the ceiling height a foot or two and call it a day.

Promontory showroom is in a mobile structure, Era is in a commercial space, and the Duet showroom is in some 100 year old building...obviously what you see in the showroom is not the height you are getting. In some instances it is lower and some higher.

As I said, you need to do quite a bit of research. Aka, go to a completed building that has ceiling heights of 8'8'' and then cross show that against the numbers at each development.

dasmo said...

Game house is but one of many such businesses that people are not aware of here. I bring it up because it is presented that our economy here is supported by real estate related endeavors when it's simply only a part of our economy and will not evaporate entirely even if the market does tank... The tech industry here is the largest privet sector. I don't say it to save the day, I say it to help people paint a better picture of what's going on...

Leo S said...

My philosophy is if I am representing someone on a pre-sale (for example) I am hoping they phone me to list the unit if they re-sell it down the road.

Makes sense. And I think the disruptive commission model will ensure that that will happen a lot.

Leo S said...

If your relying on IT to save the day it will not happen. Outsourcing offshore is the in thing to keep within budgets and it will only get worse

Actually there is some evidence that outsourcing trends are starting to reverse. Lots of companies have been burned by poor results and difficult communication from outsourcing their software development. It's not all it's cracked up to be.

Leo S said...

By the way it's good to hear about industries doing well in Victoria, especially tech which is my area. I'd rather have a job with high house prices than no job with lower ones.

a simple man said...

I am in need of some tech services and will only look within Victoria for them. I have been told by many that I could get the jobs done much cheaper in the international market, but I really want my money staying local, so I will pay more and I will tell my clients I do so and why. And I like to be able to build a face-to-face relationship with the people I work with.

chris said...

Some of Victoria's numerous tech jobs:

*Home design software engineers
*Underwriting appraisal reviewers
*Toilet repair technicians
*Credit risk senior analysts
*Keep bankers happy home appraisal specialists
*Infrastructure engineers
*Real estate photograph technicians
*Negative return investment analysts
*Urban planning engineers
*Electrical fixture installers
*Reverse mortgage specialists
*Landscaping architectural engineers
*Laminate installation technicians
*Cost overrun analysts

dasmo said...

oh come on...

Leo S said...

Yeah I heard that's why Seattle has declined 30%. No tech sector to speak of...

Marko said...

Monday, May 14, 2012 8:00am

MTD May
2012 2011
Net Unconditional Sales: 286 572
New Listings: 761 1,524
Active Listings: 4,444 4,857

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

Marko said...

SFH average MTD = 652k
Condo average MTD = 331k

a simple man said...

Thanks Marko. Always appreciate the updates.

happy renter said...

"The greatest con that the real estate industry ever pulled was convincing everyone they are not like every other group of salespeople."

My personal favorite is the commercial that is currently airing on TV with a grandpa and his grandson sitting on the front porch. The grandson says something like, "When I grow up, I'll have a house just like you," to which the grandpa replies, "Gee, I sure hope so" and looks really, really worried. Then the voice over comes on that tells you that home ownership is currently being threatened in Canada, but realtors are here to help you make home ownership a reality. That's one of the most ridiculous commercials I've ever seen.

Alexandrahere said...

lll

a simple man said...

Check out this interesting news brief from CTV Victoria on the new changes coming to mortgages.

http://www.youtube.com/watch?feature=player_embedded&v=V_w-BSGtCeM

dasmo said...

Leo, My interventions on the way our economy is painted here are not me saying there will be no bubble burst because of tech. I just wan't to "keep it real" around here. No need to spread fear irrationally based on non factual miss-information. It only give less credibility to the argument.

Alexandrahere said...

Strange: When I first logged on to HHV this morning, the last blog was dated 12May at 6 something am. The comments were from a new blogger saying that he just purchased a home in Esquimalt and they intended to rent it out for two years until they could move here to Victoria.

Anyway, 2nd time I came on (now), the last blog was 14 May @9:27am, and the comment the comment from the new blogger seems to have disappeared. Thanks

pod_x said...

@happy renter

Yeah, those new REALTOR(TM)(R) commercials are pretty bad, not "but Susan researched this" bad, but still bad. There's another one in the series where a young couple is shown in their house they bought without a realtor that is having all sorts of ridiculous problems. All of course inevitable due to not using a realtor and unpreventable without using one.

(Not that I advocate not using a realtor actually, especially for first time buyers, but come on!)