Wednesday, June 20, 2012

30-year death

Old news by now thanks to the interwebs, but the 30 year amortization is expected to end, when we're not sure yet, but the announcement will come tomorrow.

As LeoS correctly pointed out in comments on the prior post, this means:
  • payments will rise 12.5%
  • max qualifications will drop by 9%
  • and 40% of the folks who took out mortgages last year would be in different products than they chose
Is this significant? Only time will tell, but I'm guessing it'll be slight, much like previous changes to amortization amounts had little impact on the market.

More concerning should be the signal this sends to the buying public. The Bank of Canada is warning on debt levels to the point of being ignored and so is the finance department. Canadians have shown a remarkable ability to ignore economic sense and continue to spend their way through the most troubling financial times we've seen since the 1930s. 

145 comments:

Introvert said...

Prices are high because demand/supply is higher relative to most other cities.

Leo S,

Why is "demand/supply" higher in Victoria than in most other cities?

Leo S said...

Why is "demand/supply" higher in Victoria than in most other cities?

Because your aunt is coming?

It doesn't matter.

JustWatching said...

The last time Flaherty changed the rules was January 2011. They gave 2 months for the new amortization rules to come into effect. August 21 will probably be the cutoff this time given this precedent.

The mortgage brokers are already howling just like last time.

Globe & Mail article

“All of these things might precipitate the housing market downturn that the government wants to avoid,” Jim Murphy, CEO of the Canadian Association of Accredited Mortgage Professionals, said in an interview.

"The data we have has shown that Canadians are acting responsibly," he argued, adding that Mr. Flaherty said just three months ago that no new rules were coming.


Will these changes have much of an effect?

CIBC economist Benjamin Tal said these changes will have a greater impact on the market than the last round did.

“The move from 35 to 30 years was very different than from 30 to 25. It’s not linear -- 30 to 25 is much more significant,” he said.

Leo S said...

"The data we have has shown that Canadians are acting responsibly," he argued, adding that Mr. Flaherty said just three months ago that no new rules were coming.

Can't say I blame him. The last times there was plenty of warning. Constant talk about the rules being changed. This one was completely out of the blue.

I didn't see one hint anywhere that this was coming, and Jim did say he didn't see the need for immediate action, and instead wanted to wait and see. Especially with the OSFI regs already coming...

Roger said...

Leo,

I think Flaherty found that OSFI was backing off too much from their initial draft guidelines. Also the Fed may extend the zero interest policy until 2015 so something had to be done to cool the market down.

In the last post you posted that this would have a big effect on purchasing ability. Here are some mortgage comparisons with the old and new rules - click here

On a 500K mortgage the payment jumps by $259 when the mortgage amortization changes from 30 to 25 years. In order to keep the same payment the mortgage amount has to drop to 448K.

So... buyers that were trying to get the biggest mortgage possible, based on their income, now get 10% less money to spend. Will house prices drop?

Introvert said...

I wrote:
Why is "demand/supply" higher in Victoria than in most other cities?

Leo S wrote:
It doesn't matter.

Really, Leo S? I have to say that is the lamest non-answer I've ever read on this blog.

You spend a fair amount of time crunching numbers and producing quality graphs, so I'm more than a little surprised at your flippant answer to my legitimate question.

Wow. I'll have to remember to pull out the "it doesn't matter" response to future questions posed on the blog.

Leo S said...

Last time they shortened amortizations it didn't have an effect on prices.

But last time interest rates were still dropping. Now they are flat.
Last time the banks reacted by advertising skip a payment options for their mortgages that offset the loss of affordability from the shortened amortizations.
Last time we still had gifted down payments from the banks, this time OSFI is getting rid of those.
Last time we had 90% refinances and 80% HELOCs....

All these little changes might just add up to something.

Leo S said...

Really, Leo S? I have to say that is the lamest non-answer I've ever read on this blog.

Demonstrate why it matters then.

All your questions leading people to whatever point you're trying to make. Just make your point already. By the way, if your point is "it's nice here, people want to live here" then don't bother, you've said that many times, and it still has no influence on absolute prices. Like I said, we know that Victoria will always be relatively high compared to many Canadian cities.

Mindset said...

This is an interesting turn of events. Anything that drives the monthly costs up drives RE prices down. The correlation is strong between these two factors.

I'm guessing that this will be marketed as another good time to buy because 'we are not going to see today's amortization periods again for a while'

As a counter-message to the potential RE propoganda I would like to add that 'we are not going to see today's RE prices again for a while' either.

When anyone advises you to make a decision because things are changing it's important to weigh the pros and cons. Especially with any investment as sizable and long-term focused as a Real Estate investment currently is.

Roger said...

The timing of this announcement means there might not be much affect on sales. Last time it was in January just before sales start the upward sales cycle. This time we are in the summer, after the spring peak, when fewer people are buying and many are on vacation. In a few days it will be gone from the news and out of mind for many.

Just Jack said...

This change in the amortization period may provide a good stress test of the market. If there is no significant change in values, then prospective buyers may not be pressed to their limit in price.

In contrast, if there is a substantial change, then buyers are most likely at the breaking point in affordability.

This is only a guess on my part. But if I were an analyst for OSFI I would be watching this closely.

Introvert said...

Like I said, we know that Victoria will always be relatively high compared to many Canadian cities.

Leo S, I'm asking you: why is Victoria relatively high-priced compared to most Canadian cities?

Leo S said...

Leo S, I'm asking you: why is Victoria relatively high-priced compared to most Canadian cities?

I already answered that. You thought it was a flippant non-answer. It wasn't.

What difference does it make if its the weather or the old people, or something else?
It would be interesting to know exactly what causes it, but likely it's not any one thing, and just a combination of the factors we all know about. Unless you have some new revelation, all we can do (and have done many times) is speculate.

EagerBuyer(Not) said...
This comment has been removed by the author.
patriotz said...

Why is "demand/supply" higher in Victoria than in most other cities?

Since it is a fact that prices are farther out of proportion to rents in Victoria than in almost any other Canadian city (Vancouver being an obvious exception), and it's also a fact that Victoria is one of the slowest growing metros in Canada, the obvious conclusion is that demand to buy in Victoria is being driven not by need for shelter but by the belief that prices will keep going up no matter what.

In other words it's a bubble.

Just Jack said...

Any answer as to why Victoria is more expensive than another city would have to address the differences in a complex mixture of economic, political, geographic and social characteristics between the two cities.

A complex equation that requires extensive research to be undertaken at various pubs over an extended period of time.

a simple man said...

New mortgage regulations come into effect July 9th, 2012. Very fast.

Leo S said...

More details on the changes and possible effects thereof.

- 30 to 25 years.
- Max refinancing dropped from 85% to 80%
- Max insured mortgage dropped to 1 million from no limit
- Max gross debt service ratio set at 39% and TDS at 44% (not sure what they are now).
- All this comes into effect July 9

Someone is in a hurry...

Leo S said...

At the same time, OSFI releases their final guidelines today.

Still a little murky when those are coming into effect. They say "Full implementation of Guideline B-20 by FRFIs is expected by no later than fiscal year-end 2012, with the relevant public disclosures beginning in Q1, 2013."

Which is a ways off. However they also state that "However, where possible, FRFIs should comply with the principles and expectations set out in this Guideline as of the date of this letter."

Lenders are already tightening in advance of these guidlines, so the exact deadline is likely not that important.

totoro victoria said...

I think these changes are for the better. Knowing that we have been on a long ride up and prices will likely fall this will stop some of the marginal borrowing that could lead to negative home equity.

As for the effect on prices, we will see pretty soon. I just don't know.

Fiduciary said...

This is an honest question, not rhetorical:

To those that don't know what effect these changes will have on prices, what is the scenario where this doesn't lead to a drop? From the CBC article, 40% of new mortgages are amortized at 30 years, so if all these people now need 25 years, and because of the debt service rules they can't just take on more debt...how can people afford to pay current prices? Seems to me it's a relatively straightforward "prices must come down due to these changes", but I think I'm oversimplifying my analysis.

totoro victoria said...

The scenario that does not lead to a drop - not sure. It will affect the ability of some individuals to qualify and will likely impact the term available for those who don't need CMHC insurance too.

That said, the last reduction of term did not result in a price drop. I suppose because interest rates were also lowered. I'm not sure if interest rates could get any lower now.

I think that forecasting the impact on the market is less certain in a very low interest rate enviroment, but most likely will impact pricing negatively in the long-run.

A rise in interest rates will likely have a far greater impact on pricing as this directly impacts consumer confidence. Term and HELOC limits are less direct - everyone understands interest rates.

omc said...

Yesterday the US fed did another round of quantitative easing. The european mess isn't going any place good. The world economy is likely already in another recession. Low interest rates are here to stay, and in fact there is a very good chance the BoC will lower the over night rate 25-50 basis points as things get worse. The TO market is already nutty, and if they have to lower rates to stimulate...

CS said...

"Low interest rates are here to stay".

Which implies weak future demand for RE.

mrmike said...

What about people who are already pre-approved? do they have to buy before july 9?

CS said...

Introvert, the reason prices are so high in Victoria, Oak Bay anyhow, is the wildlife.

Everybody in OB loves birds and feeds them tons of stuff. Much of it goes to the rats, of course. I reckon one of those 20 pound bags of peanuts makes about forty new rats. The conversion ratio is probably a bit lower for squirrels.

And Oak Bay has no policy on rats so we can have as many of the furry little critters as we like.

Then there are the deer. Oak Bay has no policy on deer either, so we have herds of them. Apparently it's not Oak Bay's problem and the person from the Province who deals with such things said we people are occupying what used to be deer habitat and so we should be content to share it with them now.

So if you come to OB, look forward to replacing your landscaping often or spending a few thousand dollars on a fence. In the Uplands, you'd probably want a stone wall not a fence, in which case the price tag could be upwards of a hundred Gs. But there's some status to a stone wall.

Then there are the bunnies. There used to be some black ones with babies in our garden., The were really cute, but a neighbor's dog killed them. Still we have plenty of wild ones and folks feed them too.

And did I mention dogs? Everyone seems to have a dog or three, and they have a lovely time in Uplands Park, Willows Beach, etc. leaping around being so affectionate to everyone, strangers included. And then people put the poop in plastic bags, in case you wondered what those packages discarded in the bushes might be.

Just Jack said...

Historicialy, people that are pre-approved before the implementation date are grand-fathered under the old regulations. Those approvals are usually good for 90 days. So, if your are pre-approved today, you have 90 days to find a home. (BUT - CHECK WITH YOUR FINANCIAL INSTITUTION OR BROKER) as I was wrong once in 1993 and it could happen again.

Interesting to see if there is a flood of pre-approvals.

Leo S said...

What about people who are already pre-approved? do they have to buy before july 9?

Yes. Pretty certain as that is how it was in previous changes.

CS said...

Continued near zero interest plus tighter mortgage lending rules suggest that the GOC and the BOC seek to provide economic stimulus without fueling a further rise in RE prices, i.e., they want productive investment in pipelines, tar sands, the tech sector, etc., not in unproductive consumption.

JustWatching said...

Follow up to Leo S comments,

The July 9th date is the cutoff. By this date buyers must have a signed purchase and sale agreement and applied for CMHC insured financing. However, subject clauses do not have to be lifted. Any deal signed in this period must close before the end of the year.

Buyers of condos that won't be built until 2013 or later better must have a CMHC insurance application in place already or they will be stuck with the new rules.

Here are the links to the finance department press release and FAQ

A discussion of the new rules is taking place on Canadian Mortgage Trends

Looks like this announcement was coordinated with OSFI. They announced their new mortgage rules

There is not much wiggle room for banks and some strict enforcement. The following are of note:

- Property appraisals are conducted by bank on-site inspection, property appraisers or automated computer analysis. Banks are required to use more than one.

- Cash back mortgages are still allowed but may not be used towards the downpayment. Buyers without 5% are not able to buy.

- The source of down payments must be verified and "gifts" must have a letter indicating that it is non-recourse with no strings attached.

- Co-signers must have a thorough credit check, provide income verification and a net worth statement. They must also be advised of legal obligations.

- HELOCS and reverse mortgages are limited to a maximum .65 LTV ratio. Anything over this amount must be an amortized loan. This will affect those buying homes in the USA using their house as
collateral.

- Low credit score applicants (sub-prime) limited to .65 LTV.

- General tightening of all documentation for applicants including income verification, credit history.

All this will undoubtedly have an impact and cool the RE market.

patriotz said...

From the CBC article, 40% of new mortgages are amortized at 30 years

"New mortgage" does not mean new owner. If an existing owner trades up or down, or refinances, that's a new mortgage.

Which makes the 40% figure a lot more scary than at first glance.

JustWatching said...

mrmike and just jack,

Pre-approval letters mean nothing in terms of getting CMHC insurance.

If you don't have a signed purchase and sale agreement and a CMHC mortgage insurance application in place by July 9th you get a 25 year amortization. This is spelled out in the FAQ link in my previous post.

Only 18 buying days left under the old rules. My guess is that we will see more deals fall through due to financing in the last 3 weeks of July. Buyers with pre-approval letters signing a deal after July 9th will find they can't get the loan based on the terms set out in their old pre-approval letter.

I suspect most banks will only issue pre-approval letters after today based on the new rules to avoid problems with customers after July 9th.

JustWatching said...

patriotz said "New mortgage" does not mean new owner. If an existing owner trades up or down, or refinances, that's a new mortgage.

Not all of your statement is correct. If an owner moves the loan to another bank to get better interest rate terms and does not increase the mortgage amount that is not refinancing as far as CMHC is concerned (see FAQ)

If the owner trades down that is also not considered refinancing. The bank may charge a penalty for reducing the loan amount.

If the owner tries to increase the loan or increase the amortization period that is refinacing.

This was all clarified by CMHC in Jan. 2011 when the last changes were made.

Introvert said...

I already answered that. You thought it was a flippant non-answer. It wasn't.

It was, actually. Because below is your non-flippant answer. Thanks.

It would be interesting to know exactly what causes it, but likely it's not any one thing, and just a combination of the factors we all know about.

And I guess because of that combination of known factors, Victoria is "different."

Oh, pardon me. It's not different here.

EagerBuyer(Not) said...

The new rules will hit Vancouver hard. Quite a few of their sales are over one million. After July 9 buyers will have to put down at least 20%. Banks will not be able to pay CMHC .5% to insure low LTV (less than .8 LTV) mortgages like they are able to do now.

patriotz said...

If an owner moves the loan to another bank to get better interest rate terms and does not increase the mortgage amount that is not refinancing as far as CMHC is concerned (see FAQ)... etc.

Yes but the article refers to 40% of new mortgages as reported by CAAMP, not new insurance contracts from CMHC. I would think that when CAAMP talks about a new mortgage they mean literally a new mortgage, i.e. a new loan registered against a title.

HouseHuntVictoria said...

Introvert, the question you're asking doesn't have a confirmable-answer. That's likely why you're asking it, so that in the absence of an accepted answer, you can claim "rightness" in the assertion that Victoria is different.

We've debated that question endlessly here for years.

There are a variety of factors at play in Victoria, but the one that stands out for me as being the most significant in terms of impact on price is the low turnover of housing stock in general. The amount for sale at any given time relative to the amount of total housing tends to be smaller than comparable major centers. We also have fewer people choosing to move to Victoria relative to other Canadian cities.

Furthermore, the "luxury" end of the market tends to play a larger role in the mix, and the VREB is one of the few boards that count luxury (think waterfront and acreages) in the mix when reporting their numbers.

Therefore, the mix of houses sold each month has a greater impact on the average reported price...

You can interpret that in any way you choose. An argument could be made that people with money choose Victoria more often than people with none. But more people with money choose other cities more often, so I don't think the argument holds much water.

You could also say that because prices are high here now, and have been for a while, that people with no money don't choose to come here and buy.

Seems to me that more discussion is a waste of time because the discussion will center more around the issue of tautological answers than it will in economic reality.

Just Jack said...

And how about a new sewer system.

That increased the economic activity in our little town and opened up massive areas for development. That brought in a lot of jobs and young families.

That could be one of the many reasons why such a small town as ours have house prices that rival cities that have populations in the millions.

The last time Victoria had a significant building boom was back in the 1970's when Gordon Head was developed.

CS said...

The Dow's off almost 2% today and Goldman Sachs are advising clients to short the S & P. That should boost confidence for folks thinking of investing in a waterfront spread in OB. And newly released data show Chinese, European and U.S. manufacturing activity had slowed further.

But perhaps people who buy houses don't read the financial news.

yogurt said...

Hmph, 1079 Londonderry just sold for $1000 over asking ($88K over assessment) after 6 days on the market. This was the first house we'd actually considered making an appointment to view since moving to Victoria a year ago.

But we wouldn't have met the $600K price tag, in part because the house has a suite we have no use for.

Leo S said...

And I guess because of that combination of known factors, Victoria is "different."

Yes, every city is special.

You still haven't explained why you think this protects us from a price decline (I assume this is your point).

Let's follow your logic for another city.
1. Vancouver is more expensive than any other city in Canada.
2. It is expensive because people have bid up the prices (demand)
3. The reasons behind the demand are many and complex.
4. Since it is expensive, it can never decline.

Same goes for Seattle.
1. It was expensive relative to most cities in the US.
2. It was expensive because of demand, for whatever reasons.
3. It can never decline.

Clearly this argument is bulletproof.

Introvert said...

... We've debated that question endlessly here for years. ...


Dear HHV,

First of all, thank you for your non-confrontational response. I do appreciate it.

If I may, I would just like to point out that although "we've debated that question endlessly here for years," we have also debated other questions--e.g., the timing of price declines--here for years. And yet those questions, when posed (and they are posed all the time), are almost never met with hostile or flippant responses.

Sincerely,
The Troll of this Blog

RealR said...

If I'm understanding these changes correct, someone who took out a 40 year amort 3-4 years ago will have to renegotiate in 1-2 years at a 25 year amort.

This will lead to alot of forced selling in the least affordable cities of Van & Vic. That's a big jump in monthly payment, especially for Vic which hasn't seen any increase in equity to act as a buffer past 5 years. This could quickly get 'amort' nasty.

HouseHuntVictoria said...

"And yet those questions, when posed (and they are posed all the time), are almost never met with hostile or flippant responses."

Not sure I'd agree with that statement. There's plenty of hostility, much of it veiled, whenever someone suggests prices could or should drop substantially. Sometimes those opinions are dismissed with the flippant response of "can't happen here, Victoria is different."

Which is why, invariably, the conversation goes back to the data, because it's the closest thing we have to "fact" in the discussion, no?

totoro victoria said...

In defence of Introvert, house prices have been higher in Victoria than most places in BC other than the Vancouver and suburb areas in my memory.

Why is this? I would guess that Introvert is right: Victoria is a desirable place to live relative to other BC cities which creates fairly stable demand. Mild climate, nice geography, government and the university don't hurt.

As far as other areas in Canada go, it seems to me that it is hard to have a national real estate comparison when it influenced by provincial and other regional factors.

There is an interplay between interest rates and general financing conditions and local economy.

Perhaps we don't have a higher growth rate partly because our house prices are so high!

HouseHuntVictoria said...

RealR, great point!

I'm rounding off here: If someone took out a 40-year $400,000 mortgage in 2008 at 5% fixed, they'll owe a little more than $380,000 in 2013 when they go to renew. Their payments were about $1930/month.

So now they'll be looking at a 25-year $380,000 mortgage at about 3.8% if they go fixed. Their payments only jump by $30/month or so. The interest rate change protects them. If the rate stayed at 5%, monthly payments would have jumped $300ish.

Fiduciary said...

With what RealR and HHV are discussing, could there be some awkward situation where the reduced LTV ratio will hit those people? For example, if the $400,000 mortgage was on a house now worth, let's say, $390,000, wouldn't that person not be allowed to take out a new $380,000 mortgage on the property, because the LTV is too high?

Marko said...

Of note, the VREB REALTOR® Market Survey shows that an average 23% of purchasers in Greater Victoria required insured mortgages in the first 5 months of 2012.

Just Jack said...

I would think that the expansion of our sewer systems led to hundreds of millions of dollars in spin offs for the Greater Victoria Area. A multiplier affect for the communities that probably was only second to the Olympic games.


What would have happened if the sewers were never extended? I suppose our economy would have expanded similar to Duncan, Mill Bay, Shawnigan Lake, Metchosin, Nanaimo?

HouseHuntVictoria said...

Fiduciary, I think the LTV would apply to the market value of the property. That $400K mortgage could have been taken out on a place that cost plus or minus 5% on the $400K (cash backs and 0 downs were available then), but it's more likely that the people put 5% down or so.

I think it's also likely that their property is worth 5%-10% more now. So I'm guessing you're looking at a situation where the banks would auto-assess the value above the 5% threshold needed for insurance purposes.

The real kicker is having to pay the CMHC premium all over again. I bet if you talked to most people they'd have believed they'd never need to have an insured mortgage twice.

Marko, curious, does the 23% insured mortgage number match closely to the FTB number in the survey?

Fiduciary said...

Gotcha, thanks HHV.

Just Jack said...

Just for argument sake, suppose the new regulations reduced sales by 25%. What would that do to our Months of Inventory in the core districts.

Right now there are some 866 houses for sale in the core areas. Last month 176 sold, giving us a MOI of 4.9 and stable to decreasing prices.

If sales dropped to 132, then are MOI would jump to 6.6

That would put us into a bear market.

The Westshore would spiral up to 8.2 months of inventory. Sooke itself would go to 15.5 MOI.

Would our market collapse like a cheap accordion? Would the U-Haul trailers be lined up to the BC Ferries? Would downtown Victoria look like a scene out of Charleton Heston's B movie the "Omega Man".

Probably not. We still have the sewers.

Just Jack said...

As I have mentioned before, properties where most of the value is contained in the land component would experience a fall in prices ahead of the average home.

Properties like waterfront or acreage. Such as the waterfront property in Sidney along First Street that was bought in May 2007 for $1,450,000. This week it re-sold for $1,180,000.

If James Island is a bit out your price range you could have bought 18 acres of waterfront to subdivide on Salt Spring Island and with a 2,600 square foot home for 1.2 million this week.

And if your worried that your Oak Bay home may have a similar fate, it isn't necessary for you to sell and become a renter and be ostracized by your Lululemon mother-in-law and shun by your spandex friends.

You could sell and buy a single wide manufactured home in Shawnigan Lake for $40,500 and not have to be embarrassed for being a renter.

Just Jack said...

317 properties in greater Victoria will not get CMHC insurance now. That's how many million dollar plus properties are in Greater Victoria today.

Of course only 63 of them are in Oak Bay - but that's a third of Oak Bay's total market.

Now the lenders are going to have to be a little more careful. Before, if they were reluctant to process a mortgage on an expensive home- they could just get the mortgage insured at the bank's cost.

What will they do now, when someone comes in with an offer to purchase for a million plus? I think they'll cut back the loan to value ratio to less than 80 percent even if the buyer's do not need CMHC insurance. And they'll probably need an Appraisal to determine the riskiness of the property. Is it mostly land value? are major repairs needed? whats the re-sale market like for this type of property? Are there many buyers for this type of home? How long will it take to sell the home? What could you expect to get if you had to sell the home quickly - what's the quick sale value?

Maybe, they will just have to go back to the way lending was done a dozen years ago. I think it was called - due diligence?

JustWatching said...

HouseHuntVictoria and RealR,

The owners that are renewing their mortgage are not subject to the new amortization rules. This is discussed in the Finance Dept. FAQ that was issued along with the press release.

Click here for FAQ

Q. I already have an insured mortgage. How will these changes affect me?

A. Mortgage insurance is good for the life of the mortgage. Borrowers renewing their insured mortgages will not be affected by these changes. For example, if a borrower had a 30-year amortization and there are 27 years remaining on the mortgage, the mortgage can be renewed with a 27-year amortization, as long as no new funds are being added to the mortgage.

Just Jack said...

Well Justwatching, does that mean, those with amortizations greater than 25 years will no longer be able to access their home equity lines of credit?

Just Jack said...

Because if it does, then there might be a run on the banks of people with these type of mortgages pulling out as much equity that they can before July 9, 2012.

???

JustWatching said...

Just Jack,

Another interesting twist on the million dollar sale front. By law any mortgage with a LTV greater than 0.80 must have mortgage insurance from CMHC or a private insurer, like Genworth.

Flaherty says CMHC will not insure homes with a market value over $1M. Will the other major private insurer offer the insurance? If they won't all sales over $1M will need at least 20% down and probably much more as you suggested in your post.

This will definitely have an effect on high-end Victoria real estate but will really slam Vancouver where piles of properties are listed over $1M.

Reid said...

Just Jack, many banks now require 50% downpayment on the portion of a house over $900,000 so one will need a lot of cash to buy these expensive homes going forward.

These new rules will have a negative impact on the real estate market, but I suspect the market will be slow to react to the changes.

We sold our house in Victoria earlier this year because we could not take the weather in Victoria any longer; too windy and way too cold in the summer. As I can work from anywhere we decided moved to the Southern Interior where the summers are hot and we can ski in the winter. We are now proud renters and expect to stay that way for a while.

Speaking of slow to react the real estate market here in the Okanagan is very strange as houses under $500k will sell if priced right (6 MOI), but anything over $600k takes forever to sell (12-18 MOI) and over $1 million well there simply is no market (4 yrs plus MOI). The interesting thing is sellers just sit there year after year waiting for the market to return. They are fully confident that everyone wants to move here and the market is coming back. It is very strange. I suspect the million plus homes may just come to a halt now

JustWatching said...

Just Jack,

The whole issue of HELOCs under new and old rules is being discussed here.

Existing arrangements are "grandfathered" with the total of the mortgage and HELOC set at a maximum LTV of 0.8.

New borrowers may not have the sum of the HELOC and the mortgage exceed an LTV of 0.65 but they can amortize an additional amount (i.e. fixed payments & term) up to 0.8 LTV.

The Finance dept. change that lowers refinancing to .80 LTV from the current .85 LTV and the new OSFI rules will stop a number of homowners from using their house as an ATM machine. If the outstanding mortgage balance is about 65% of the market value there is no revolving HELOC possible. The only option is to take out an amortized term loan (i.e. second mortgage) with fixed interest and principal payments with a cap of 80% of market value.

Note that these rules only apply to federally regulated institutions. So a homeowner can go to a credit union (provincially regulated) like Coast Capital and get a HELOC up to .80 LTV just like they could before OSFI changed the federal rules.

No matter who the HELOC is with it cannot be covered by CMHC insurance. That was changed by Flaherty last year.

Leo S said...

Why is this? I would guess that Introvert is right: Victoria is a desirable place to live relative to other BC cities which creates fairly stable demand.

Introvert is most certainly right about Victoria being nicer than the average city. Is there a single person on this blog that says otherwise?
Thing is, the niceness is already priced in. It does nothing to protect against overall declines in the market.

@Reid: We sold our house in Victoria earlier this year because we could not take the weather in Victoria any longer; too windy and way too cold in the summer.

HERETIC! Burn him at the stake! You expect us to believe you moved to a place with that cold white stuff, and even enjoy sliding around on it? Please...
;)

Leo S said...

So a homeowner can go to a credit union (provincially regulated) like Coast Capital and get a HELOC up to .80 LTV just like they could before OSFI changed the federal rules.

I heard somewhere that the provincial regulators may follow the federal example..

Reid said...

LeoS, I have had lived all over the province and I can tell you there is NO comparison between the weather in the Okanagan and Victoria. I could not take the rain, wind and lack of summer. Last summer was the killer. There is little snow that falls in the Okanagan valley any more - the skiing is up in the mountains (kind of like Mount Washington).

Leo S said...

LeoS, I have had lived all over the province and I can tell you there is NO comparison between the weather in the Okanagan and Victoria. I could not take the rain, wind and lack of summer. Last summer was the killer.

I hear ya. I grew up in the Okanagan so I definitely appreciate proper seasons. Summers that are actually warm, and stunning sunny winter days on the mountains. Ups and downs to every place.

JustWatching said...

Globe and Mail has more coverage on today's events.

Mortgage rules to sink home prices, deter use of houses ‘as ATMs’

Mr. Flaherty is "prudently taking out some insurance" with today's move, said chief economist Craig Alexander of Toronto-Dominion Bank, by gently tapping the brakes.

Mr. Alexander says the cumulative impact of both of today's moves by Mr. Flaherty and OSFI should be to reduce house prices by five percentage points from where they otherwise would have been, and sales by 10 percentage points. That takes more than a year to filter through, Mr. Alexander said, and is based on all else being equal.

Robert Kavcic of BMO Nesbitt Burns says the reduction in the maximum amortization period is equivalent to an increase in mortgage rates of about 0.9 of a percentage point.

"As we’ve observed around prior mortgage rule changes, some housing market activity will likely be pulled forward ahead of the implementation date ... with a subsequent payback thereafter. After the 35-year amortization was eliminated last March, for example, existing home sales fell by more than 3 per cent over the subsequent two months."

The combined moves, equivalent to hiking mortgage rates by between 1.5 and 2 percentage points, should cut between one-third and one-half of the overvaluation in the Canadian real estate market, Mr. Alexander said.

Mindset said...

VREB REALTOR® Market Survey shows that an average 23% of purchasers in Greater Victoria required insured mortgages in the first 5 months of 2012

Do we have any comparisons of what this looks like in say, Vancouver, Kelowna or Calgary?

I am guessing with all of the wealth in some of the pockets of Victoria, that the dependence on CMHC could be something that is different here?

Iggy_12 said...

I expect that we will see a spike in listings as those that might have pulled their houses off the market waiting for it to go back up, re-list. Or those that might have been planning to downsize next year list now since all of the "experts" seem to be in consensus that prices will drop over the next year.

Just as long amortizations and low rates pulled demand from the future, these changes will pull supply forward.

Iggy_12 said...
This comment has been removed by the author.
Leo S said...

What happened in the Victoria market after the last 3 times they tightened the regulations?

Have a look

a simple man said...

nice graph, Leo.

Makes it really clear with the annotations.

Mindset said...

Cool Graph Leo.

As you have the base graphs already, for interest sake, how about dropping a quick overlay of the BOC interest rates for the period (even just the line trend without normalization of values). From this graph I'll bet it will be pretty easy to see that the RE price returns in 09 were based on government interventions with Interest rates, not some 'magical' new reality that our high RE prices were here to stay.

For some additional context, add a a quick overlay of the TSX history for the same period over your housing market graph. This example will show how cheap credit has had an almost identical impact on the markets.

When you see the correlation between our stock markets and RE, it's no wonder that they are playing with CHMC rules and not the interest rates. That would drive everything down, not just housing.

Leo S said...

@Mindset. Thanks. Here's the average residential mortgage lending rate which I like better than the posted rates, since it is apparently what people are actually paying.

And the graph.

patriotz said...

it's no wonder that they are playing with CHMC rules and not the interest rates. That would drive everything down, not just housing.

Raising interest rates would drive the CAD up, a lot, which is the real reason why it hasn't happened.

omc said...

The best analysis of the rule changes is that it will cause a drop in prices of 5% beyond what what the market would have done before. If this is true, I would expect a drop in the 8% range this year. BUT economists are now talking about the overnight rate in Canada not crossing 1% until well into 2014. It really does look like low rates are here to stay, and they of course support higher prices.

Mindset said...

Interesting second graph Leo. If you put the interest rates on the same scale as the prices (i.e. the trend line was taking upp 90% of the viewable vertical space), it would really drive the point home. The housing prices were coming off hard, the interest rates were dropped quickly, and they came back up.

But as Patriotz mentioned, there were a number of reasons to drop the rates, not just housing.

Although high interest rates would effect the already high Canadian dollar, other important factors there include our economic stability, our financial bailout policies (i.e. printing money) and global commodity prices.

Oil and gold are two commodities with pricing strongly correlated with the currency rates of Australia, New Zealand, and of course Canada.

Our strong Canadian dollar is really hurting us, especially with all of the global wage competition. It's no wonder our response has been movement towards selling raw products (e.g. looking to ship bitumen not oil, shipping whole logs not lumber).

And becoming a nation of commodity exporters is generally not good for an economy. They have a term for it, Dutch Disease

EagerBuyer(Not) said...

Leo S,

Thanks for the great graphs. They are clear enough that even Introvert might be able to understand what is happening.

Roger said...

Leo S - Interesting to see on your graph that the median price has dropped 6% from the peak in May 2010 and is now back to the June 2008 peak.

BTW - Nice job on the charts. Keep up the good work!

VP said...

omc said
It really does look like low rates are here to stay, and they of course support higher prices.

Disagree
LeoS graph posted at 11:37pm ^ show rates are now positively correlated with price. In other words, higher rates support higher prices. It makes sense as such low rates signal how sick our economy is. We should all be praying rates rise, lest we end up Japanese at 70% off.

patriotz said...

It really does look like low rates are here to stay, and they of course support higher prices.

Higher than what? Today's prices? I don't think so.

Note also that US buyers have been able to lock in low rates for 30 years since 2008, and we know how their prices have done.

So it's an open question as to whether low rates can support prices higher than those in the US today.

Just Jack said...

Lower prices and lower rates might just mean more empty basement suites. Now that a detached home can be bought for under $350,000.

As in past market corrections, the vacancy rate will continue to climb.

totoro victoria said...

Speculation is fun, but it is not fact.

What is fact is known for sure. What is known for sure is:

1. we have historically low interest rates;
2. US, Greece, Spain, Ireland have experienced a severe crash in real estate in some regions. Austrian house prices are soaring, as are Estonia's. There is a real housing boom in Lima;
3. The US is our nearest neighbour;
4. The US lending policies were more liberal than in Canada;
5. prices have been rising faster than average for approx ten years here;
6. real estate historically rises and falls and does not do one or the other forever;
7. the rules for obtaining mortgages and HELOCs have been changed;
8. you have to live somewhere.

These new rule changes are good IMO. I think you should have 20% down and not use your HELOC to buy a boat if you don't have significant equity.

I would speculate that this will cause a price drop. To what degree? Not sure, but seems likely that it will hasten the process of gently falling prices, if this is where we are at.

Busting a bubble? I suppose prices could crash, but I just don't know for sure, and I don't believe anyone else does either.

Informed best guesses and personal decisions on housing are where we are always at.

Leo S said...

@Roger. Thanks. Great to have you back. The updated spreadsheet is really nice.

Just Jack said...

You may think that 20 percent down is safe - but is it really?

If you can't make your mortgage payments, that 20 percent equity stake will be eaten up by bank charges very quickly.

And the equity bounces around quickly too as prices fall. One day you have 20 percent equity, the next only 10 percent.

What you really want to do, is not commit so much of your pay cheque to the mortgage. Have other investments that earn you money and at least 3 to 6 months of reserves to allow you to find another job, rent the home, move, etc. etc.

But at this point of the game, you might as well put the least amount of money into a down payment and have a large reserve.
Because, any down payment that you have put on the home will likely be gone in a year or two anyway.

You might as well have burnt the $50,000 down payment in the fireplace.

totoro victoria said...

"You might as well have burnt the fifty thousand".... assuming you buy and have to sell low.

If you buy and hold for ten years I would say this is a different scenario.

BTW 3.79 for ten years is now available.

Just Jack said...

Unless science can figure out how to extend human lifetimes in the next ten years. We weren't built to last forever.

The first of the baby boomers will be 77 years old then with the wave behind them lasting another 18 years.

If your plan was to sell in ten years, then you should have bought into a city with a younger average age.

JustWatching said...

Over on KIV the river of denial is running fast click here

One poster is cherrypicking the stats to make the argument prices are going up.

I don't have an account there. If someone else does could they please post Leo's graph to get the facts out. Here is the link: http://i.imgur.com/HOCyX.png

Antone can easily see that prices have been slowly dropping for two years and are now back to spring 2008 levels. In 4 years there has ben mno overall market appreciation. This is confirmed by VREB median prices and by Teranet (National Bank) which uses resale prices of the same home to get their numbers.

a simple man said...

Wow - the indigogo poster on KIV sounds a lot like totoro here - could be sisters.

Roger said...

Even if you look at VREB's published SFH average price graphs for the last 4 years you can see that prices have risen and fallen back to 2008 levels.

VREB SFH Average Price Graph 2008-2012

This stat has a lot of month-to-month variability compared to median prices because it includes waterfront and acreage which are high priced homes

Roger said...

The sad thing about the next 3 weeks is that a number of buyers will madly rush into the biggest purchase of their life thinking that prices are still going up and that the government is putting up roadblocks.

They will undoubtedly overpay because they want in now and won't take their time to negotiate. One can only hope they don't skip the home inspection.

Taking a 30 year amortization will cost them more interest than if they took a 25 year term. And if prices fall, as chief economists and real estate analysts are predicting, they will have paid too much.

Why? All to get a lower monthly payment!! If you can't afford to buy without cashback bribes, 30 year amortizations and co-signers you really shouldn't be buying real estate.

I agree with totoro victoria that the smart buyer puts 20% down. CMHC insurance can add up to 2.75% to the purchase price of your home.

totoro victoria said...

Just Watching - when I look at this graph by Leo I do not see annual comparisons.

I see month by month comparisons which could be "cherry picked" by selecting one month against another year's month.

There is quite a bit of variation depending on the price of houses sold in that particular month.

Are you stating that cherry picking one particular month in 2008 against another particular month in 2012 is an accurate measure?

If this is the case, I think we should validly compare November 2008 and November 2011. If that doesn't show a huge gain I don't know what does... too bad it is not really valid as a comparitor.

When you look at ANNUAL median house prices year over year this is not the same figure. Here is the link: http://www.vreb.org/mls_statistics/historical_statistics.html#2007

2007 annual median is $490 000
2008 annual median is $517,500
2009 annual median is $505,000
2010 annual median is $545,000
2012 annual median is ?540,000

You can very easily see this progression on Leo's graph.

Leo S said...

I don't have an account there. If someone else does could they please post Leo's graph to get the facts out.

Haha yeah I don't need to be arguing on another board. Was fun for a while on VibrantVictoria because most posters there are not bears, but I think simple man and I wore them out.. :)

The sad thing about the next 3 weeks is that a number of buyers will madly rush into the biggest purchase of their life thinking that prices are still going up and that the government is putting up roadblocks.

Yup. Mortgage brokers are sending out emails telling people to hurry up and buy before the deadlines.

totoro victoria said...

"Why? All to get a lower monthly payment!! If you can't afford to buy without cashback bribes, 30 year amortizations and co-signers you really shouldn't be buying real estate."

I agree, particularly given that CMHC ends up insuring the properties. However, without declaring bankruptcy, the homeowner carries any debt. It think the US system is different?

totoro victoria said...

Roger, I am confused as to why the annual average rather than the annual median would be the reference for house prices. It does not really make sense to me that we would not knock off the high end and very low end properties to get a more accurate measure of the market for the average consumer.

http://www.fciq.ca/pdf/Carrefour/definitions/en/prix_median_a.pdf

Roger said...

totoro victoria,

If you look at Leo's graph you will see that he plots actual median prices as small gray x's. The curve is done as a 6 month running average. In statistical analysis this is commonly known as a "smoothing filter" and is very useful to shown underlying trends in the data. The length of the filter (i.e. 2,3,6,..12) is an important factor. Too short and it still shows "noise" in the data. Too long and it won't show short term trends.

Several years ago I used to calculate charts monthly for this blog. I quickly found out that 3 months was too short and 12 months was too long to be useful. 6 months was a good balance because it showed short term trends in the market and removed most of the monthly noise in the data.

VREB uses a 6 month running average for SFH average prices. They don't do it on median prices, which is a better proxy for market conditions. They also don't graph it every month preferring the monthly SFH average which is the worst of all the stats for meaningful understanding of the market.

If you agree with the argument above you can see that VREB annual median calculations are flawed. The 12 month average of the median for a given year is too long to provide much meaningful analysis. And taking a snapshot only at the end of every year is even less enlightening.

Introvert said...

If your plan was to sell in ten years, then you should have bought into a city with a younger average age.

Over the next ten years, many boomers who have made excellent money in Alberta's oil and gas sector will be looking around British Columbia for a second property or for a place to retire, and many of these folks will seek to own in Victoria.

Personal experience suggests to me that members of this cohort aren't likely to "cheap-out" and buy a house in Langford because they can save $200K. No, they know what they want; and they want nice things. So they'll buy in Oak Bay, Saanich East, and Fairfield--neighbourhoods like that. The feeling among this group being, I didn't work this hard to "reward" myself with a 25-minute drive to the ocean's edge.

Will this group be able to prop up the market singlehandedly? Of course not. But their presence won't hurt prices.

patriotz said...

However, without declaring bankruptcy, the homeowner carries any debt. It think the US system is different?

There is no "US" system, only state systems. In some states (a minority) the mortgage balance is not recoverable from the borrower under certain circumstances. For example in California, the original mortgage at time of purchase is not recoverable, but any new financing such as a HELOC is.

In the majority of states, including Nevada and Florida, the mortgage is a personal debt recoverable against the homeowner as it is in Canada.

You also might like to know that in Spain mortgage debt is not only recoverable against the homeowner but it cannot be cleared by bankruptcy.

patriotz said...

Over the next ten years, many boomers who have made excellent money in Alberta's oil and gas sector will be looking around British Columbia for a second property or for a place to retire, and many of these folks will seek to own in Victoria.

Oh yes, the Rich Albertans. Can you explain to us why the BC markets most attractive to Albertans - up Island, Okanagan, Kootenays - have seen the greatest price declines in Canada over the past few years?

Did you know that people were making exactly the same argument as you in those markets back in 2008 or so?

While you're at it, how's the price of oil been doing lately?

Roger said...

totoro victoria said Roger, I am confused as to why the annual average rather than the annual median would be the reference for house prices. It does not really make sense to me that we would not knock off the high end and very low end properties to get a more accurate measure of the market for the average consumer.

Real estate boards are not interested in producing accurate data for consumers. They have one major objective: to get as many sales as possible so that their agent members can make the maximun commission. Press releases, with accompanying, statistics are just a tool that they use to achieve this end. The raw data is not available for external analysis and their data analysis is flawed as I outlined in my previous post.

Your question about knocking off high and low end properties to get more meaningful analysis is an interesting one. In the case of VREB they publish a more comprehensive report which is not released to the public that breaks down the sales data with much greater granularity. For example they calculate the monthly SFH median and average excluding waterfront and acreage properties. This stat represents the type of house the typical buyer might be interested in. Here is a snapshot from the April report.

Phil said...

And very few Albertans have a share in the profits of oil and gas. Those that do can afford to retire in Phoenix, San Diego or West Palm Beach. Cities where real estate is plummeting and the sun is shining. Unlike our little piece of heaven!

totoro victoria said...

I don't disagree with your take on the RE industry's vested interest in propping up stats in their favour...

But are you saying that the annual median prices published by VREB is incorrect? I don't see that it could be myself, or that a year over year comparison is not a valid measure of market activity.

totoro victoria said...

Also, when I look at that break-down I see that waterfront is removed but high end and low end non-waterfront SFH are classed together. Think the median would a more accurate measure of market change.

Just Jack said...

As for all of those rich Albertan Baby Boomers moving here ten years from now.

They already have moved here.

That's one of the reasons why our prices have gone so high. We are now on the back side of the baby boomer wave of retirees moving to Victoria where each year there are fewer of them moving here not more.

The volume of sales has been going down - not up, since 2007.

Introvert said...

Can you explain to us why the BC markets most attractive to Albertans - up Island, Okanagan, Kootenays - have seen the greatest price declines in Canada over the past few years?

I don't agree that those markets are the most attractive to Albertans.

HouseHuntVictoria said...

^ But what does the data say? I seem to recall it saying that retirees from all over Canada chose the Okanagan and upisland in greater numbers than Victoria.

Roger said...

Just Jack is correct. Most of the Albertans and those from other provinces moved here years ago and newcomers have slowed to a trickle.

Here are the stats to prove it...

Landcor Corporation is a well known and respected real estate analysis firm. They have access to BC land title and assessment data. They produce a number of detailed stats reports every few months.

Here are some excerpts from this one. which was given to CMHC last November.

Victoria owners from outside BC - few new owners

Buyers from outside BC dropping fast in recent years

RealR said...

Just to add to the rich Albertan discussion.
It’s worth noting that lake property there has dropped by a third over the last 3 years.

Sylvan Lake has dropped to $750,000 from $800,000 a year ago. In 2010, it was $1.2 million and it was $1.125 million in 2009.
..and states why
Retirees have scaled back on their local purchases, with many considering second properties south of the border.

I don’t see why the U.S. trend would change until our prices match theirs.

Introvert said...

And very few Albertans have a share in the profits of oil and gas.

Just the $120K+ salary many pulled down over many years.

Those that do can afford to retire in Phoenix, San Diego or West Palm Beach. Cities where real estate is plummeting and the sun is shining.

Certainly, many will look south. But many others will want to stay in Canada, for reasons of proximity to family and plain convenience.

Unlike our little piece of heaven!

True, true. But most Calgarians think it's nicer here than it actually is!

When I visit Calgary I sometimes meet new people. When the conversation comes around to where I live and I say Victoria, they almost invariably sigh and smile.

The grass is always greener (and for Victoria vs. Calgary, this saying is also literally true).

patriotz said...

I don't agree that those markets are the most attractive to Albertans.

So you don't think that the areas most attractive to Albertans are the ones which have the most property ownership by Albertans?

What's your criterion for "most attactive to Albertans"?

Roger said...

totoro victoria said: But are you saying that the annual median prices published by VREB is incorrect?

I assume that they calculate it correctly - it is just not very useful. One statistical point of data calculated every 12 months leaves much to be desired.

As I mentioned earlier 12 month annual averages or running averages do not reveal trends and show the medium-term direction of the market. A graph of running averages (like Leo's) is much better. VREB doesn't publish any running graphs on any of their data.

Introvert said...

But what does the data say? I seem to recall it saying that retirees from all over Canada chose the Okanagan and upisland in greater numbers than Victoria.

I acknowledge the difference between what people ACTUALLY DO and what they say they WILL DO, but I can't resist another chance to bring out:

My Favourite Article Ever Written

Excerpt:
Albertans want to retire in Calgary or Edmonton and their surrounding areas, but next on the list is Victoria," said Di Vito, noting 39 per cent of Albertans wanted to retire in Wild Rose country while 26 per cent would opt for Victoria.

Introvert said...

I'll have to leave it at that. I'm off to Vancouver for the weekend. Toodles.

JustWatching said...

totoro,

Here is my reply to your questions.

Just Watching - when I look at this graph by Leo I do not see annual comparisons.

Who cares about annual comparisons except VREB who uses them in January press releases?

"I see month by month comparisons which could be "cherry picked" by selecting one month against another year's month... Are you stating that cherry picking one particular month in 2008 against another particular month in 2012 is an accurate measure?"

I didn't pick just only two months of data like the KIV poster - that is cherrypicking. I commented on a graph that had years of monthly data and said "anyone can easily see that prices have been slowly dropping for two years and are now back to spring 2008 levels. In 4 years there has been no overall market appreciation."

I think many readers looking at the Teranet and 6 month average median data will come to the same conclusion.

However I can understand that you, as an owner of multiple properties, may choose to believe otherwise.

totoro victoria said...

Just Watching - if you have been reading my posts you will see that I do believe prices will drop. As the owner of multiple properties which are cash flow positive my most priority is making sure we can ride out the drop until ten years from now when we retire.

I have no vested interested in showing that properties have appreciated if they have not. I don't care because I don't refinance and I don't plan to sell for the next ten years.

What I do care about is accuracy. I also care about speculation being presented as fact. I care about people with different views being put down despite facts.

Just as I have learned quite a bit from this site - thanks to all that have posted - I hope that an alternate view is helpful.

I think if you are saving and waiting for a drop, as I have said many times, and you have a big down payment - this is a good strategy.

I have also said interest rates and rental income and cost you would pay to rent have to be factored in. Take it as you will. I really really do not care if anyone buys or not - it is a personal decision which is hopefully coming from an informed point of view.

Paralysis by over-analysis is a character trait to watch out for - I have it.

totoro victoria said...

Also, Roger, thank you for your explanation. Helps me understand why an annual median is only one point of reference. If you are buying now you might need more up to date info.

DP said...

Pick the proud province pilfering piles of people from past popular provinces.

Pardon the Ps, precipitation pangs perhaps `:(

JustWatching said...

I just read an article that focused on the new GDS (gross debt service) ratio of 39%. With the old rules good credit risk borrowers (beacon score over 680) were not subject to this limit. Their only limit was their TDS (total debt service) limit of 44%.

In a nutshell this means the maximum mortgage available to these borrowers will be reduced.

Here is an example from this article

"He added that new rules on the maximum gross debt service ratio to be set at 39% will hamper how large a mortgage a consumer can get. It was 44%.

“What does it mean in real dollars? If I had a client with $100,000 household income, I can no longer use 44%, that’s five grand. In mortgage amount, based on 3.19%, that’s about $90,000 less mortgage they can get,” said Mr. Gaetano."

And what about the new cap of $1M for CMHC insurance. I mentioned that this would have a big impact on Vancouver and high-end Victoria homes. From the same article...

Vancouver sales over 1 million

Just Jack said...

Percentage of residential properties that sold for a million or more in May

2011 (4.5%)
2012 (5.0%)

Just Jack said...

I was wondering why the government picked the date July 9 to implement. That's because this is the day they adjourn for the summer.

Those rats know when to leave a sinking ship.

Just Jack said...

A piece of the Tudor armor fell off this week as a propery on Hazel Street in Oak Bay that sold in December 2011 for $589,000 just resold for $567,000.


Assessed for $645,000 and listed publicly for 18 days at $599,000.

However, the same week, a property listed for only 8 days on Valdez Place sells for the full asking price of $3,295,000 or some $450 a square foot for the 7,300 square foot house. Which is expensive even for modest Oak Bay standards.

totoro victoria said...

According to CMHC’s base case
scenario, posted mortgage rates will increase near the end of 2012. For 2012, the one-year posted mortgage rate is expected to be in the 3.1 to 3.6 per cent range, while the five-year posted mortgage rate is forecast to
be within 5.0 to 5.4 per cent. For
2013, the one-year posted mortgage
rate is expected to rise with interest rates and be in the 3.5 to 4.1 per cent range, while the five-year posted mortgage rate is forecast to be within 5.1 to 5.6 per cent.

http://www.cmhc-schl.gc.ca/odpub/esub/64367/64367_2012_B01.pdf

totoro victoria said...

What CMHC research says - we'll see..


Victoria Highlights
„„The resale market is expected
to return to balanced market
conditions during the remainder of
2012.

„„Average resale home prices are
forecast to remain stable in 2012
and 2013.

„„Housing starts will edge up in 2012
and 2013, but will remain slightly
below the ten-year average.

„„The rental apartment vacancy rate
is expected to move lower in 2012
„„Improving employment and continued positive net migration will support a stable housing market.

„„http://www.cmhc-schl.gc.ca/odpub/esub/64367/64367_2012_B01.pdf

totoro victoria said...

More CMHC data - not accounting for new rule changes that will impact some first time borrowers:


The Victoria CMA economy is
expected to post modest growth
in 2012, which will stimulate local
housing demand through job creation
and income growth, particularly
among first-time homebuyers.
Economic growth will be broadbased,
driven by the business services
and high-tech sector, shipbuilding
activity, post-secondary education and
health care spending, as well as nonresidential
construction activity.

totoro victoria said...

Census results indicate the Victoria
CMA population increased by 4.4
per cent between 2006 and 2011.
People coming from other provinces
and within British Columbia were key
sources of population growth and
housing demand. While moderating
from levels recorded during the mid
2000s, BC Stats projects population
growth and household formation to
remain steady through 2025.

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

Correct - which is why I noted that the data does not incorporate the new rule changes.

We will see if the next CMHC forecast changes as a result.

totoro victoria said...

I would expect data on the economy and population growth with not change. Housing prices may. I found the CMHC best case scenario on interest rates interesting.

Just Jack said...

It is easy to find fault in predictions after the fact. CMHC was working on the best information that they had at the time. As with all predictions you look at the past and assume the same for the future.

For a decade in Victoria, the reason why prices would go up in the coming year was simply because prices had gone up the year before. Double digit increases in home prices created economic activity and a positive feeling for the future.

The same can be said of a declining market. Prices will go down this coming year, because they went down last year. Causing unemployment to rise, vacancy rates to rise and the feeling for the future to be negative.

The only way to turn that around is by the government spending massive amounts on infrastructure expansion (not just replacement). Sewers, highways, bridges, sidewalks, parks, etc. As Jean Cretian said: If you want to create growth in an economy - you hire a lot of trucks to drive up and down main street. That will get people spending again.

But with the world wide credit crunch that is not likely to happen.

Some people have mentioned 7 year business or real estate cycles. If there is such a thing, it probable has to do more with the human psychic than economics.

Maybe Joseph (Genesis 41:54) new about this when he predicted 7 years of famine.

CS said...

If anyone who may have access to the info. would let me know what price 2705 Heron Street went for, I'd be grateful.

Marko said...

Heron went for $750,000.

Renter said...

Wow. Acreages in the Highlands are starting to show up under the $550,000 range. I thought I had house lust under control, but I admit to having a pang when I saw them on MLS.

CS said...

Marko, Thanks very much. Actually, you told me a while ago, but I wasn't sure I'd got it right. 750 is well below assessment but that house had so many problems I thought it would have gone for a lot less.

One round the corner on Lincoln Rd, which is in pretty nice shape is being offered at 16% under assessment, which brought out a large crown for the open house today.

a simple man said...

CS - I was at that open house as well. Great lot, interesting workshop, but a funny layout in the house.

Lots of people looking at it, though.

Leo S said...

CMT has a very thorough look at the implications of the new rules

MC said...

I second that Alberta retirees may want to stay near families but will buy in areas like Phoenix to do their snow-birding -- a bit more of an active and upbeat lifestyle down there than here in nearly dead Victoria!

dasmo said...

It seemed pretty alive on Sunday with Jazz fest, bike fest and jump ship going on. City was abuzz with life! it was nice seeing that Microsoft sign on the walk towards to festival grounds too!

a simple man said...

Have some neighbours selling soon in Oak Bay. They are selling here and moving to Arizona for the winters (bought already) and in a smaller town in BC for the summers.

They say the premium for living here is too much for what you get in comparison.

Much of the people I know from the prairies say a similar thing. The premium here is just too much - or they do not want to leave the community they have created over their lives.

The shine is coming off Victoria, for certain.

About said...

What I've seen..

A ton of friends/family from Vancouver come visit my parents in Parksville and they love it. Her brother and aunt/uncle and 3 sets of friends/coupls have already bought in surrounding areas from Victoria to Qualicum. Her brother traded west van residence for amazing waterfront near ladysmith.

My parents love Victoria too - they are transplanted islanders from Vancouver - love the beauty, love Parksville and have enjoyed the growth as well think Victoria is pretty happening. They are starting to discover further up-island as well.

So as always you talk to some and the 'shine will have come off' and talk to others and they 'think it's wonderful'.

For everyone that dislikes, someone likes. Just how the world rolls..

About said...

Oh and I should say - a number of these people have discovered the US. My dad just returned from Palm Springs Friday. We even spent a month there the last few years. Same with a number of their friends - but no, they aren't buying small town cdn properties and buying in the US as well. In fact, most just prefer to rent down there. At retirement, many just don't want the hassle of cross-border owning.

So again, for everyone that is going to buy down south/downsize the cdn property - someone else is not.

dasmo said...

Without question the shine is on down south because the prices are so low. I also know someone who bought in Arizona to spend a month there every winter... They are not moving anytime soon though...
I have another Friend that is also planning on selling in Oak Bay to move to Nanaimo to a house they will probably rent out for a while first. Cashing in their chips so to speak. But then again they are of that age...

patriotz said...

So as always you talk to some and the 'shine will have come off' and talk to others and they 'think it's wonderful'.

Thinking that a place is "wonderful" and being willing and able to move to it and buy are completely different things.

There are hard numbers for the latter and they show negative domestic migration for BC as a whole. As well, as we've mentioned, a bust up-Island, and falling prices in Victoria.

This is the shine that's coming off - the shine of the dollar.

totoro victoria said...

I looked into buying in Arizona and turned away. Restrictive ownership and tax rules took all the fun out of it. Crime rates are higher than here and you need to purchase medical insurance and you have to travel to get there...

I don't love Arizona enough to put up with the hassle despite the really really low prices right now. Ownership in Canada made more sense for me.

People come at home ownership from different angles. Anectodatal stories are good, but you need to see the stats to understand what the trends are... and may become.

BC Stats predicts continued population growth for Victoria of 1% per year until 2025.

I would guess that the shine is not off Victoria in general - although first time buyers may wish to seek a more affordable market for housing.

Marko said...

Monday, June 25, 2012 8:45am

MTD June

2012 2011

Net Unconditional Sales:

485 618

New Listings:

1,137 1,465

Active Listings:

4,927 5,050

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

a simple man said...

Only people from Vancouver would think that housing was affordable here.

Just Jack said...

Once you get out of Victoria, the prices seem to be a lot better for what you are getting.

And you don't have to go far. Up in Dean"s Park a home that sold back in December 2007 for $800,000 now sells for $725,000. And that gets you an updated custom built home of some 2600 square feet on an acre.

Even a Bear Mountain condo that was bought pre-construction for $462,000 back in 2008 now sells for $335,000.

It seems that the few buyers that are left are concentrated in the core districts. And yes, prices in the core may have come down marginally, but not like what is happening outside of the core.

Which makes you think. Do the people buying in Oak Bay and parts of Victoria know something that the rest of the world doesn't? Or are they just the last of those caught up in the frenzy of real estate?

And those that are selling in Oak Bay - do they know a sucker when they see one - or should they hold out for more money?

totoro victoria said...
This comment has been removed by the author.