Thursday, July 5, 2012

The jig is up



First off, a big old tip of the hat to Roger for driving some media today and a kudos to local realtor Marko Juras for telling it like it is in the media.

Roger's making waves, with questions on radio via twitter and graphs being used on a national real estate blog--though the author doesn't give credit where credit is due, which I'd like to say I'm surprised at but I'm not, which is one of the reasons why I have zero respect for the "fool."  

Regardless, Roger's graph below spells it out, Victoria's listings are higher than they've ever been. 

If that graph doesn't tell you enough about the Victoria market, perhaps this will:


No wonder buyers are sitting on the sidelines. 

57 comments:

Animal Spirit said...

Awesome post HHV. Thanks Roger and Marko for working with the media on the story.

The median price drop will shock the average viewer, BUT it is likely the result of a change in distribution of houses selling instead of an actual change. My data show little change through this winter and spring.

My data don't, however, show the impacts of the CMHC and OFSI changes - which will pile on the local consumer sentiment.

Leo S said...

Year over year comparisons of a single month are essentially meaningless. June 2011 was a high point at $569k. One month later the median was $535k. A certain Mr. Turner might breathlessly announce that kind of drop (That's 72% on an annual basis!!!!)
but I think we know better.

It is coming down, but not quite so drastically. 6 month rolling average shows about a $25k or 4.4% drop over the last year. 12 month rolling average shows a 3.1% drop in the last year.

Roger said...

HHV,

Garth didn't have to acknowledge the source of the graph in his blog. I email him graphs, stat data and articles periodically and leave it up to him to do what he chooses with it. My only goal is to get the facts out there so that folks can make informed real estate decisions.

HouseHuntVictoria said...

Roger, I can understand your point, but I still think Garth should give credit, or at least acknowledge that the work isn't his own.

HouseHuntVictoria said...
This comment has been removed by the author.
Roger said...

Leo S,

As you stated rolling averages smooth the monthly data and are better for analysis purposes. In the past I have tried 3, 6 and 12 month averages. I found three was still too "noisy" and was affected by seasonal boundaries. Using twelve month averages short term trends were not evident. Six months seemed like a reasonable compromise for showing RE market trends. VREB does this calculation too but only on their average sales price data, not median price. They do not graph this stat or median prices.

Year-over-year and month-over-month comparisons of median and average data can be misleading. But that is what VREB likes to do when it reinforces their point of view. In their recent press release they compared sales in June with May and last June. But in the radio and TV interviews their president only wanted to talk about the slight median price drop from May to June. The media however saw the stats in this table and focused on YOY comparisons.

Leo S said...

Yeah for a news story where there's no time to explain it works. Doesn't really matter in this case because the overall point is the same.

Just Jack said...

The tale of two cities or at least general areas.

Oak Bay with 100 listings and 21 house sales in June has the lowest months of inventory. Here are the MOI's for the different hoods in the core districts.

5.7 for Victoria
4.8 for Oak Bay
5.3 for Esquimalt
4.6 for View Royal
4.8 for Saanich

Not to bad really, some wiggle room on prices for a buyer, but the sellers still holding strong.

8.9 for Sooke
6.0 for Langford
7.2 for Colwood

Definitely a weaker market in relation to the core. These are prime hunting areas for deals.

Property weaklings in these outer areas of the real estate herd, such as estate, divorce and "foreclosures" are carrion for the land hawks (preditoriois domesticus).

DavidL said...

From the previous thread ...

@Leo S wrote: As for not being able to time the bottom. I wouldn't be so sure.

I agree. Just about everybody knew that it was a good time to purchase between 2001 and 2005. With the relatively low interest rates and low prices - anywhere over that four year span was a good time to buy. Not surprisingly, with all the selling and resale transactions - real estate grew between 10 to 20% per annum.

Compared with ten years ago, incomes have stagnated, unemployment is higher, government deficits are bulging, markets are capitulating, mortgage payments are an record highs, and real estate evaluations are slipping - and people wonder if it is still a good time to buy?!

SilverSurfer said...

Very happy to see you around again Roger. And as always, thanks for your intelligent contributions.

Leo S said...

@Just Jack. Thanks!

@DavidL I suppose it depends on how "timing the bottom" is defined. I would say timing the top at a point where waiting was a better option is a success. So calling top a year or two before is close enough if you end up being able to wait out the real top and then wait out the drop.
Timing the bottom within 6-12 months before the actual bottom is a success (and possibly even better to buy then rather than at the absolute price bottom, since inventory will slowly decrease as the bottom approaches).

Leo S said...

@JustJack

Is it possible to differentiate between east, west, central, and north saanich? I would expect they would be quite different, with east probably in highest demand.

Just Jack said...

The sales to new listings ratio for houses in the core districts in June stood at 174 sales in the month to 363 new listings. That made the odds of selling your home in June at 48 percent. It took a little over a month or 34 days to reach the mid point.

Compare those numbers during the Gold Rush days of real estate in June 2007 when the sales to new listings ratio was 290 sales to 321 new listings or a 90 percent chance of selling and it only took 21 days to sell half of the homes.

This illustrates the change in the market place for houses. That the downturn in our market is demand-driven and not due to more people wanting to sell. This is likely why our prices have been "sticky" on the way down. While there is weaker demand there has also been very little pressure on the vendors to sell.

Now, if we were to see the number of new listings rise substantially, then we would experience a quick and large correction. But as it looks now, property prices are just deflating.

In my opinion, the median or average days on market has to skyrocket from our current 34 to over 60 maybe as high as 90 days to trigger a collapse in prices. And at this time, that just does not seem to be happening.

patriotz said...

@Leo S, @DavidL

It's not about timing either the top or the bottom, it's about determining what price makes sense and buying when you can get that.

Trying to call market movements is speculation, determining the right price is value investing and these are completely different things.

Leo S said...

@patriotz. Good point. The right price is more important than whether we are at a top or bottom.

But I don't believe that there is no way to predict market movements. The market behaves like a random walk in the short term, but overall direction is still influenced by fundamentals and can be predicted to a certain extent. The problem we've had in the past (and likely still do) is not enough access to information, and not being able to predict the extent of outside intervention (interest rates, mortgage regulation changes).

DavidL said...

@Just Jack
In my opinion, the median or average days on market has to skyrocket from our current 34 to over 60 maybe as high as 90 days to trigger a collapse in prices. And at this time, that just does not seem to be happening.

I agree. West of the Pat Bay highway in Saanich, the days on market metric for many listings has been rapidly growing this spring. Whereas a year ago, properties often took 3 to 6 weeks to sell, now there are many places listed for 3 or more months. From what I can tell, the prices are beginning to crash in the Tillicum and Glanford neighbourhoods.

Interestingly, some Cadboro Bay and Ten Mile point listings are languishing as well. However the downwards pressure on prices hasn't really started happening there (yet).

DavidL said...

@patriotz
Trying to call market movements is speculation, determining the right price is value investing ...

Agreed - however many people who purchase a house or apartment are not considering their home a value investment (emotions override logicical analysis.)

patriotz said...

Many? I would say just about all of them. That's why there are bubbles and busts - buyers are concerned only with perceived future prices rather than value at time of purchase.

AandJ said...

All this talk of timing reminds me of this great post from 2009... http://househuntvictoria.blogspot.ca/2009/04/timing-market.html

Leo S said...

It is an interesting post. There isn't really anything incorrect in there. The graph's price projections didn't come about, but they are labeled as BCREA forecasts, not from this blog.

The only prediction there is that the correction was one year old and would extend 6 or 7 years, to about 2015. All still matches up so far.
I think the only difference is that the bubble is not actually in house prices, but in monthly payments.

Neat read though. That was before I discovered HHV. I was mostly on PrairieBoy's blog until he bought shortly after that time.

patriotz said...

Notwithstanding the title, that post is really more about value than timing, i.e. it's based on fundamentals.

It does predict that the downturn will take about as long as the upturn, but it doesn't say "buy at date xxxx" rather "buy when buying is cheaper than renting".

Leo S said...

Very few sales so far this week have showed up on my PCS..

JustWatching said...

Leo S,

I agree sales are down this week. I have 790 listings on my PCS accounts and only 19 sold this week.

New listings still coming at the normal pace.

Introvert said...

Agreed - however many people who purchase a house or apartment are not considering their home a value investment (emotions override logicical analysis.)

Perhaps it's best not to let emotions override logical analysis, but emotions probably should not be rendered irrelevant.

Liking very much where you live has non-monetary benefits.

In my opinion, 100 percent logical analysis is best left for mutual funds, stock purchases and the like.

Homes are emotional things. It would be unacceptable for me to live in a house that I detested but got an amazing deal on. And this would be the case for most.

I can, however, imagine that for some--perhaps for the majority on this blog--perceived (future) monetary benefit might be worth more than non-monetary ones. And I think that's valid.

a simple man said...

The flip in 2213 Windsor finally sold. First on the market at $1,085,000 plus HST and how sold for $825,000 with seller paying HST.

Ouch.

patriotz said...

Liking very much where you live has non-monetary benefits.

It certainly does. That's why I rent where I do.

LeonMaynard said...

Simple Man gave the details on the sale of 2213 Windsor, so I checked a bit more into this house. The final listing price was $899,900; therefore, the buyer negotiated a further 8.32% price reduction after the owner had already reduced the asking price by a ~quarter million$$. Big price drops for a totally rebuilt and raised house with 100% new everything plus a new full height basement suite (but not called a 'suite' in Oak Bay.

In other words, this house sold for about $75,000 more after the total renovation that it would have sold for if absolutely no renovations had been done.

No bidding war on this house, just lot of reno work for nothing. What a devastating loss for the person who paid for the total reno. Ouch is right!!!

patriotz said...

Wow. BC Assessment for 2213 Windsor is $831,000 - which would be for the property pre-reno - and it sold for less.

Unfortunately they don't tell us what the previous purchase price was.

Marko said...

"In other words, this house sold for about $75,000 more after the total renovation that it would have sold for if absolutely no renovations had been done."

2213 Windsor Rd was purchased for $550,000 April, 2010.

"Wow. BC Assessment for 2213 Windsor is $831,000 - which would be for the property pre-reno - and it sold for less."

When the home was purchased the assessment was $606,000; therefore, BC Assessment of $831,000 would be post-reno.

Let's not get too excited, the sky is not falling yet.

LeonMaynard said...

2213 Windsor is a devastating loss for the owner who did the reno, regardless of the April 2010 purchase price.

This "never occupied" fully reno'ed house has been empty and under re-construction since April 2010; that's about 28 months of mortgage payments on top of the high reno costs. Just the purchase costs plus the 28 months of mortgage costs plus the line-of-credit costs plus property taxes are probably in the vicinity of $4,500 per month equals $126,000 for 28 months. Then add the full reno costs at $100 per sq ft equals $237,400.

Total is about $363,000; then add purchase price of $550,000 equals a total of $913,400.

Now consider the owner was tied up with this project for a couple years of his time that was wasted.

Sorry Marko, but the sky is falling.

Leo S said...

In localized areas :)

Marko said...

I know a number of builders who bought properties after April 2010 and sold subsequently for profits in excess of $100,000.

You win some you, lose some. There is obviously a ton of risk being a builder/developer right now.

Who thought the 834 Johnson would be an immensely successful project given it was lunched April, 2009? In fact, the majority on here predicted it would never get off the ground.

I sold the second to last developer unit on Friday. Just one left out of 115.

Building/renovating/developing/etc., is stressful in any market. If the market is hot construction costs explode upwards, if the market is down then construction costs are down but it is difficult to sell, etc., etc.

Marko said...

and sometimes you also need luck on your side.

Watching and waiting said...

this ad popped up on my PCS account for 587 Oliver St along with a 55k price drop after 78 DOM:

"If you are watching this listing the time is NOW.We are in the Final week of the SALE. Listing will be cancelled July 16/12."

Thanks goodness I have another 8 days to decide.

EagerBuyer(Not) said...

^^^^ You will have a little longer than that. After a few days it will be back on MLS as a "new listing".

EagerBuyer(Not) said...

LeonMaynard,

You can add property transfer taxes of 9K and real estate agent fees of 25K to the loss calculation. And the price included HST at 12% which was included in the sales price (according to the listing) so that is another bunch of lost money.

EagerBuyer(Not) said...

Vancouver newspaper headline reads Buyers Can Again Make Low Ball Offers As Home Sales Hit 10 Year Low

LeonMaynard said...

587 Oliver - what a great deal next week after the listing expires! Any potential buyer reading that ad would just wait for the listing to expire then knock on the door and negotiate a private deal with the owner.

Just Jack said...

The seller still may have to pay a commission to the listing agent even if the listing has expired.

Marko said...

Monday, July 9, 2012 8:00am

MTD July
2012 2011
Net Unconditional Sales: 120 523
New Listings: 306 1,374
Active Listings: 4,827 5,094

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

Marko said...

"The seller still may have to pay a commission to the listing agent even if the listing has expired."

The buyer could also be on the hook if they have signed a "Exclusive Buyer's Agency Contract" with their buyer's agent.

EagerBuyer(Not) said...

Don't even consider signing an "Exclusive Buyer's Agency Contract". If you meet an agent that asks you to sign one of these just move on. There are lots of good agents that will take you on as a buyer without one.

Sure there are clauses in the contract that talk about protecting buyers interest. But commission is the agent motivator and we all know how money affects judgment and relationships.

JustWatching said...

Here is a Globe and Mail article that talks about the possibility of a Victoria bubble.

Housing bubbles: Messy and unpredictable

Bubbles are as difficult to define as they are to spot. However here are a few definitions: Unsustainable patterns of price changes; deviations in prices that can’t be explained by fundamentals; and the mass refusal to acknowledge reason. We often don’t know with certainty that a bubble has existed until after it has burst.

During the 2008-2009 financial crisis, Canadian house prices fell by only 8 per cent – and then recovered by 2010. House prices have doubled since 2002, with annual growth of 5 per cent above consumer inflation. Vancouver, Victoria, and Toronto rose at much faster rates. With the current high prices in these cities – even with some recent weaknesses – have they been experiencing bubble-like symptoms? By two conventional metrics, the answer is yes.

The first measure is the price-to-income affordability index: The average house price relative to average disposable income in that city.....Over the past 25 years, the ratio in Canada has been about 3.5 times, but has recently been 4.5 times – almost 30 per cent higher. Since 2007, this ratio has grown faster in Canada than in almost every other major developed country. Recently in Toronto and Victoria the ratio was over eight times, and in Vancouver, despite recent price drops, about 10 times.

The other measure is the price-to-rent index, which is analogous to the price-earnings ratio for stocks: how much it costs to buy a house relative to annual rents (rents are like the earnings one could derive from owning a stock). Since 2007, this ratio is up 20 per cent, which again is among the fastest in developed countries.

JustWatching said...

Lots of real estate news today.

Mortgage rules change today, but about half of Canadians don’t know it

New mortgage rules could make switching or refinancing tougher

Ottawa’s new mortgage policies will soon tighten the leash on borrowing and the impact on home buyers is being hotly debated.

But existing home owners, particularly those with large amounts of debt, should also be paying close attention because the next time they go to change their mortgage, they could be in for a surprise.

DavidL said...

... and here's an article from CBC ...
Stricter mortgage rules come into effect today
The limits on Canada's insured mortgage market are now back to where they were in 2006 before the Harper government started tinkering with the rules to allow more people to qualify.

When publicly funded media talks about the tinkering done by the Harper governemnt - you knw that the sentiment is changing!

girlseekshouse said...

A house on Cameron St in Fernwood just sold for $460k, $15k over asking.

a simple man said...

There will be people who will overpay in any market.

Anyone who has not seen this coming has not wanted to believe it or were blissfully unaware.

CS said...

The G&M article linked above by JW also states:

"According to recent analysis by the Economist, Canadian house prices are overvalued by 32 per cent relative to income, and by 76 per cent relative to rents, for an overall average overvaluation of 54 per cent compared with long-term averages. Only a handful of countries such as Belgium, Hong Kong and Singapore were more overvalued."

Which makes my prediction of a 40 to 60% correction seem reasonable. Although Victoria is more overvalued than most places and markets tend to overshoot -- LOL.

Which means that anyone who considers this a buyers' market should take account of the potential capital loss when calculating affordability.

LeonMaynard said...

Yet more reasons why I NEVER sell property through a Realtor and when buying property I never sign anything without a full review by Mullin DeMeo real estate lawyers. These lawyers have saved my ass a couple time by not allowing me to sign stuff that realtors and sellers' lawyers have prepared and presented as a "Must Sign first" document.
--------------
Marko said...

"The seller still may have to pay a commission to the listing agent even if the listing has expired."

The buyer could also be on the hook if they have signed a "Exclusive Buyer's Agency Contract" with their buyer's agent.

patriotz said...

The buyer could also be on the hook if they have signed a "Exclusive Buyer's Agency Contract" with their buyer's agent.

You forgot to add, "which is why anyone who would sign such a contract needs his head examined".

Introvert said...

From the Globe & Mail article:

Closer to home we have previously witnessed large price drops with slow recoveries. In Vancouver, prices dropped from 1995 to 1999, and it took until 2003 for prices to surpass previous peaks.

So in this case it took less than 10 years for prices to surpass previous peaks? If the same were to be true for Victoria, I'd be fine with that. I'm on a 30-year time horizon with my house.

Hopefully many first-time buyers will look at their situation similarly and not panic. Interest rates are so low right now; just put your head down, keep chipping away at that mortgage (extra payments help) and only worry about prices in the distant future.

And the thing about bubbles is that they always come back. No lessons get learned. What we've seen is that "irrational exuberance" is a recurring phenomenon.

Introvert said...

And even if my mortgage goes underwater (which is quite improbable), I would certainly not hand over my house keys to the bank and destroy my credit rating. Maybe I would if my house were in Kitchener, Ontario, or almost anywhere else in the country. But it's not. My house is in Saanich East. Viewed from any context, it's a desirable location.

Say prices drop a lot. It's quite likely that one day houses in Saanich will be irrationally desirable again, and their prices will rise steeply, as they have in the past.

This is playing the long game--on southern Vancouver Island.

Just Jack said...

So Introvert, your hoping that in a decade from now we will go through another mortgage scam, like the one we have had?

Myself, I'm wondering if CMHC will even exist 10 years from now, or that it will be so crippled with debt that its ability to function will be restricted. For most buyers that will mean 20 percent down payments will be the norm.

If you started today, how many years would it take for you to save $120,000 for a down payment? A hell of a lot more than just today's $30,000.

Just Jack said...

No one is asking you to hand over your keys to the bank when you owe more than your house is worth. But you don't make the market. The ones that have to sell, make the market. You are just a bystander with no affect on prices at all.

The only thing you don't have is the flexibility to move to a better home or relocate for a better job. Then there is the loss of pride of ownership or the ability to pay for repairs like a new roof, septic, etc. Because, people that owe more than their home is worth, don't keep the property up to date.

Then of course, comes the time that you have to move to a old age home. What is your estate going to do with something that has negative equity. They can't sell it. The only thing they can do, is to let it fall into "foreclosure" and put you in a cheap government run old age home.

a simple man said...

Introvert - certainly if you stay put in your home for 30 yrs, you won't lose your investment. But you may forgo the relative financial freedom that you may have had if you waited a few more years when the market approached bottom.

DavidL said...

Between 1994 and 2000, the average house price in Victoria dropped by 2% while the average annual inflation rate of 1.81% compounded into a 11.38% increase over 6 years. If keeping pace with inflation, the average $256,025 house purchased in 1994 should have sold for $285,173 in 2000 - rather than the actual price of $251,398. The $33,775 reduction works out to a 13% drop in the resale price (in 1994 dollars).

If keeping pace with inflation , what should that $575,000 home bought in 2012 be worth in 5 years? It's hard to say - but if it is worth less than $575,000, then the purchaser has had to absorb a pretty big loss ... much like in the mid 1990's.

Check my numbers at:
VREB: Annual Summary of Residential Sales: 1978 - 2011
Bank of Canada - Inflation Calculator

Beckons Attore said...

Oh, these prices don't matter folks. Grow up. Afterall, something is only worth as much as both the buyer and seller think it's worth. If anything other than that we might as well just leave it to lawyers, or real estate lawyers in Kitchener, Ontario to debate on that for us.