Tuesday, August 21, 2012

Market update; day-late, dollar-short

MLS numbers courtesy of the VREB via Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.

August 2012 month to date  (previous weeks in brackets)
Net Unconditional Sales: 254 (15375)
New Listings: 620 (397, 207)
Active Listings: 4834 (4834, 4836)
Sales to new listings ratio: 41% (39%, 36%)

August 2011
Net Unconditional Sales: 542
New Listings: 1200
Active Listings: 4944
Sales to new listings ratio: 45%
Sales to active listings ratio: 10.9% or 9.1 MOI

Almost 13 unit sales per day on average in August. It's F'ugly out there if you're trying to sell your home. I imagine more than a few listing agents are telling their clients "it'll pick up in September." Will it? One had better hope or one had better drop their price if one is trying to get a home sold.

SFH MTD Average = $591,274
SFH MTD Median = $539,000

Condo Average = $342,538

147 comments:

Leo S said...

Listings are on pace to match last year (factoring in the mysterious end of month bump we always see, Marko, any word from the VREB on that?).

This is quite the disaster for sales though if we end up in the low 400s.

Might toss some lowballs around this fall. Really though, after seeing a few places and getting some expert advice on what it would cost to fix them, there is still very little that we actually want to buy in our budget (under $550k). Might end up moving to renting a nice house and give it another year to play out.

jesse said...

September is always busier, but usually because Realtors are back from vacation. Historically, sales do not bounce too much in the fall.

Alexandrahere said...

Within my criteria of SFH in Vic,OB,ESQ,SE&SW, having a minimum of 2 beds & 2 baths and priced between $375K & $775K the Avg sales price so far this year (2012) is $541K, in 2011 it was $561K and in 2010 from Mid July to end of Dec was $562K. Last weeks Avg was $544K.

Just Jack said...

Yesterday it was Oak Bay that showed how house prices are rolling back in the once "not in my neighborhoods."

Today its Fairfield. After 102 days on the market starting at $759,900 a recently updated character home on Moss just sold for $680,000. Which is $5,000 less than what the home was bought for in May 2007 less the cost of the renovations.

If prices can fall in Oak Bay and Fairfield, prices can fall anywhere.

Leo S said...

@dasmo
I think it helps to invest in what you know. Say you are an IT person and know about servers etc, You know what companies are respected, what are purchased, what will be purchased, you are probably already reading news about them etc

Yes, very much this. One of the most important things I learned in the first year dabbling in investing. If you don't know the company, don't invest. Like all the people that bought Blackberry after it dropped 75% because it was "cheap", while for anyone in the technology sector it was obvious that they would keep dropping.
Overall moving away from individual stocks though. I know just enough to be dangerous to myself there.

As for the League financing, there is a discussion going on at VV here.

Just Jack said...

Not all real estate has appreciated. Demand for housing is selective. For example if you had purchased a new single wide manufactured home on First Nation's land around Central Saanich in 1992 for $81,000, you would have sold this pristine condition home, this week for $102,900.

Why so little? With such low interest rates there is no need to buy so cheap. Most people can afford more, so they don't look at manufactured homes.

So, what happens when the micro condo's come down in value. Then, there is no need to buy a micro condo when you can afford a 2 bedroom.

And what happens when home prices come down, then there is no need to buy a condominium when you can afford a starter home.

And what happens when million dollar homes in Oak Bay come down in price. No need to buy homes in Fairfield or Fernwood when you can afford to live in Oak Bay.

koozdra said...

How could one go about finding out the prices houses are selling for?

Just Jack said...

At this point, I doubt that people would be buying one of these condominiums at fair market value. In order to get the deal, you will have to pay the developers full list price. I am amazed that no one at VV has brought this up.

There is no such thing as a free lunch.

If the amount of the mortgage is under 80 percent, in most cases,there is no need for an appraisal. The contract price is used or the broker just finds an easily coerced appraiser. Done everyday in Victoria.

Leo S said...

How could one go about finding out the prices houses are selling for?

If you have a PCS account with a realtor it will tell you the sale price.

Also eValueBC will show some recent sales of properties.

As for more in-depth information, you will need to be either an insider or have a connection like JustJack. So far we haven't heard how JJ gets all the info he has :)

dasmo said...

Sounds "too good to be true" They should just have fantastic prices for these first units. Simple, straight forward, and they would sell. But in the end I think they overpaid for the land... To me it is a big risk that you might be living in a construction site for 15 years. And even then, the location really doesn't offer the benefit of condo living for another couple decades as the Westshore "core" fills out and a proper rail link is built to connect it to the city proper. The units should be priced accordingly. That ol' island highway is about to get even busier and it stands between you and your cheap milk at the Costco. The only benefit I could see to buying here is if the units are substantially larger than downtown Victoria condos and thus more "family" oriented.

DavidL said...

This post on VV seems to explain League Financial's unusual mortgage.

Just Jack said...

When it comes to pre-construction sales there is no steak to buy.

You have to sell the sizzle. The better the marketing, the better the sales.

The bet is that they can draw off enough of the marginal buyers from other complexes where those prospective purchasers have not been able to get CMHC approval. And with the recent changes made by CMHC, there should be a good number of them.

These prospects will pay over market value, just so that they can get into the game. You don't have to give them a better price. As long as they feel that they are getting something for nothing, most will bite.

Just Jack said...

A few years back, there wasn't many condominium complexes in this unnamed small town in BC . When the complexes began to be built, the few developers worked together to determine pricing. They agreed to price their small town condominiums located at the outer edge of the market area at downtown price levels. As long as they controlled the supply, then everyone made good money, because the buyer had to pay the price.

However, these condominiums at the edge of the greater area should have sold for less than similar downtown suites. And that is why the re-sales that are happening today are so much lower than the original contract prices in this once small town located at the edge of a downtown core.

To anyone active in the real estate business, this was obvious price fixing.

DavidL said...

@JustJack

A small town with 30,000 residents?!

Dave said...

Re: League
Sounds like an interest-free second mortgage. No different than borrowing a down payment from relatives, except that now they legally have an equity stake in your home. They benefit initially from sales momentum and being able to charge more for the units. Knowing full well they will give much of it back as many of their sub-prime ‘partners’ skip out over the years under falling prices. It’s good for the market as a whole, as these projects add enormous supply whilst taking away demand from Victoria’s resale market, thereby improving affordability.

Just Jack said...

I suppose all of this would appear on the title to the property.

Good luck in trying to get a better deal by changing lenders at renewal time.

patriotz said...

No different than borrowing a down payment from relatives, except that now they legally have an equity stake in your home.

What's different is that the same party you're "borrowing" the money from is the same party who's selling the property to you.

If you are selling a condo that is really worth $300K, what's the upside and downside for you to selling for $400K and taking a $100K 2nd? For the buyer? For the actual lender?

The seller isn't actually lending you money, just inflating the sale price (on paper) above market. We'll see how quick the banks are to catch on to this - given that their role in this is making an uninsured mortgage loan I think they'll give it a bit of scrutiny.

totoro victoria said...

"For example if you had purchased a new single wide manufactured home on First Nation's land around Central Saanich in 1992 for $81,000,you would have sold this pristine condition home, this week for $102,900."

The question is whether you are buying the chattel (the mortgage) and paying pad rent, or the land in the form of a lease.

Leased lands and mobile homes depreciate over time as their term shortens. Cheaper to buy in initially and maybe good for some but not the same as freehold.

totoro victoria said...

Sorry - chattel should be mobile not mortgage.

Leo S said...

The seller isn't actually lending you money, just inflating the sale price (on paper) above market.

How do you know the condos are being sold above market value? The way I see it they are being sold at market value but the developer is co-buying the unit.

patriotz said...

How do you know the condos are being sold above market value?

Because if the seller could sell outright for the same price they would. There would be no downside for them from future price declines. Everybody on this forum knows that prices are already declining - but Joe Buyer might not.

I've seen this movie before, this kind of "deal" became common south of the border in 2005/6.

Leo S said...

Everybody on this forum knows that prices are already declining - but Joe Buyer might not

And perhaps neither does League financial..

DavidL said...

I suspect that League Financial fully understands the current market conditions and is hedging their bets. If the resale market goes up, everyone comes out ahead. If the market goes down, League Financial won't lose with the 10% to 25% loan coming due. They will be receiving a future payment based on todays "value".

Just Jack said...

The lease term doesn't shorten for pad rentals in manufactured home parks. Manufactured homes are fixed to the ground and are not moveable property like fridges and stoves.

In the Lekwamen park, off Admirals road, the homes are on perimeter concrete foundations and are built to California earth quake standards, unlike the houses that all of us are living in right now.

And they are financed with conventional financing by several of the Chartered Banks.

Yes, there are some older parks still around that allow children. However, the newer parks mostly have age restrictions with sidewalks, tree lined streets and underground services.

And lastly they are not called mobile homes. They are manufactured in a factory and trucked to the pad rental site where most of them have remained undisturbed since the 1970's. Because they have to be trucked from the factory, the construction standards are superior to stick frame housing. The factory construction also maintains higher quality standards of materials and labor in building them.

Just Jack said...


When you go back and look at appreciation in home prices during past boom cycles, manufactured homes on rental pads also appreciated. But as I have said, this boom has been different because of cheap and easy credit. Manufactured homes did not appreciate as much this boom cycle because first time buyers could buy new houses. This wasn't possible in past booms when interest rates were a lot higher.

And that will likely make the correction more interesting than in past cycles too. Ironically, the manufactured home may actually retain its value while stick homes depreciate. Or not.

info said...

Victoria is the second most bubbalicious city in Canada (price to income ratio and price to rent ratio) behind only Vancouver.

Vancouver house prices have dropped 20% since May 2012.

In 08-09 prices dropped 15% in 6 to 8 months and were headed much lower. We all know that it took and unprecedented emergency intervention to stop the crash. There will be no similar intervention this time.

Victoria could easily see a price decline of 15% over the next year. That might be quite conservative. That 15% added to the 10% already achieved, will make approx. 25% with more to come in the following years.

The new OSFI rules that will be enforced in October will have a dramatic effect on prices. Two major sources of stimulus will be removed. Zero down (cashback) mortgages will be a thing of the past. As well, banks will not be able to allow self employed applicants to obtain mortgages without proof of income. With such reckless lending, it is interesting to hear some people still contend that our banks are conservative, etc. They were recently downgraded, but let's not get into that right now.

As for interest rates, they will likely be moving higher soon, crushing affordability. If they remain at emergency low levels then that will mean that our economy is in rough shape and that will naturally drag house prices down. Either way, prices will drop.

How low will prices go? Well, similarly bubbalicious cities in the US such as Miami, Phoenix and Las Vegas lost up to 85%.

Renters and savers will finally be rewarded.

totoro victoria said...

"The lease term doesn't shorten for pad rentals in manufactured home parks. Manufactured homes are fixed to the ground and are not moveable property like fridges and stoves."

Manufactured or mobile homes are chattels. In order to mortgage them you need to get a chattel mortgage. There is a whole body of law on this.

As for FN land, this is something I know a fair bit about. Pad rental and lease are different ways of securing tenure.

The first is a monthly fee that you never pay off (ie. it is rent) and the second can be fully pre-paid and sold to a third party.

FN land transactions do not reflect market conditions for fee simple except during the first twenty-five years of the term or so when the land values appreciate.

In the case you are discussing with a mobile and pad rent the mobile is a depreciating asset.

totoro victoria said...

wow - info - you sound just like an oracle.

renters and savers will finally be rewarded. well, maybe.

Mindset said...

Victoria could easily see a price decline of 15% over the next year. That might be quite conservative. That 15% added to the 10% already achieved, will make approx. 25% with more to come in the following years

Not sure we will see that fast of a melt, but with the current slowdown, who knows? It definately is off 10% already, and from what I have been hearing it's very slow out there.

I wouldn't be surprised if the resale value of my house drops 15% in the next two years. It's funny, saying that on this blog a year ago would have spurred multiple comments about how it's different here or how interest rates are the only driver of price.

I agree with info on this; if you are sitting on the sideline in a nice rental with some cash and/or the ability to get a mortgage under the new rules, I'd definately sit a little longer.

Monthly payments are important, but the total amount you pay is really important.

Leo S said...

I wouldn't be surprised if the resale value of my house drops 15% in the next two years.

Pretty much what I'm expecting and what past affordability would indicate.

I don't see any decline past that without interest rates going up. However it could flatline for years and years after that as interest rates slowly increase again, counteracting income gains.

dasmo said...

Why even propose it could drop up to 85% It just deflates the value of your argument by making you sound crazy. The SFH average at $150k? Don't get me wrong, as far as wishful thinking goes why not shoot for the stars but a mortgage for a SFH of $650/month. What do you propose would make property here go so far under fundamentals? At today rates a drop of 25%-30% would make us roughly on par with rent. There would need to be something extreme to push it lower than that. 10-15% is much more likely (and already here, just not in the stats yet, or perhaps it finally is). My feeling is Victoria has traditionally sat slightly above such fundamentals due to it's special place status. Any long time watchers out their corroborate that?

Just Jack said...

The manufactured home on a rental pad is a depreciating asset. As the improvements age there is a diminished utility. But that doesn't mean that the home on a rental pad gets cheaper each year to buy.

The utility is determined by the cost of replacing that asset with a similar new manufactured home. As the cost new increases, the value of the home on a rental pad will also increase less accrued depreciation.

That is the same as the house you live in today. In 1950, a home cost $20,000 to build. Today that home would cost $250,000 to build.

Each year from 1950 the home has depreciated, but at the same time the cost to replace the home has more than compensated for that loss.

Land does not depreciate, because there is no loss in utility. However, land prices can increase and decrease because of market forces.

The same with leased land and short term pad leases. When their is demand for housing of all types, then an economic benefit flows to the owner of the manufactured home in excess of the cost to replace the home. That is why manufactured homes cost more to buy when they are on a rental pad than in the factory show room. There is a value to that rental pad that flows to the owner of the manufactured home.

This is where a lot of the problems come from when First Nation's lands are leased to non natives. Such as what happened on the First Nation's lands in South Vancouver near UBC. The non natives occupying the land where getting a massive economic benefit because of the low lease rate on the land. And the Natives were getting shafted in what they could charge for their land.

As for leased land with a set lease termination date. There is always a clause to renew that lease. But a chattel mortgage can not be longer than the length of the lease. Since the mortgage in the last 25 years can only be amortized over a shorter and shorter period of time, that should have an affect on the manufactured home's market value.

In summation

Prices for manufactured homes on rental pads may also increase due to market forces of supply and demand. The demand for them, just has not been as strong as other types of ownership such as leasehold condominiums, co-operative condominiums, strata titled condominiums or freehold properties.

But we all new that anyway.

info said...

dasmo

I made no commitment as to how far Victoria house prices will fall.

85% only represents a potential based on other cities.

As far as fundamentals go, Miami, Phoenix, Las Vegas, etc. saw prices go well below what their fundamentals supported. In 2005, nobody would have predicted the extent of the price declines that those cities eventually saw, just like we cannot predict how low Victoria will go.

Nothing crazy about considering factual information from corrections/crashes in other North American cities with comparable incomes, etc. Indeed, Victoria's price to income ratio is currently higher than some of the most overvalued US cities were in 2005 before they crashed.

Mark Carney recently stated that Canadian house prices are 35% overvalued. Considering that Victoria's price to income ratio is the second highest in Canada, and much higher than the national average, it means that he would likely say that Victoria real estate is currently overvalued by more than 35%. If the governor of the Bank of Canada is admitting to a 35% overvaluation, we can probably deduce that the actual overvaluation is more than that.

Let's keep an open mind here and consider all possibilities before we start calling others names.

Leo S said...

Nothing wrong with comparisons, but there are big differences between Phoenix and Victoria. A more valid comparison would be places like San Francisco (-45% peak to trough) and Seattle (-31%).

I wouldn't rule out that magnitude of decline, but only if a normal decline of 10-15% triggered a wave of foreclosures which drove the market lower than fundamentals would otherwise indicate. I wouldn't give that scenario a high probability of happening though.

dasmo said...

I wasn't name calling just pointing out the ridiculousness of the comment. no offence to you personally ;-) There are extreme reasons for those extreme declines in those areas. Like this

You can't really compare those scenarios to here. Even Bear mountain isn't that bad!

totoro victoria said...

Just Jack - not really wanting to get into a big debate on mobile homes - I only know the FN mobile home market well and not the off-reserve market. On reserve there is not always an automatic lease renewal clause. Many of the old 99 year leases say no such thing and instead the lands revert - or land and improvements.

happy renter said...

TD matches RBC's mortgage hike:

http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/td-raises-3-year-mortgage-rate-to-match-rbc/article4493309/

Just Jack said...

How about a quick look at the re-sale market for strata condominiums in the urban core districts.

There are around 716 pre-owned condominiums for sale in the urban core with some 77 sales in the mid-month to mid-month last 30 days. During the same period 178 condominiums were added.

That makes the inventory for used strata title condominiums at 9.3 months of inventory and the sales to new listings rate at 43%.

So we have lots of inventory and no shortage of listing coming onto the market which suggest that inventory will continue to remain high for the immediate future.

What about prices?

What I like to look at, is the repeat sales of condos that have been listed in the last 30 days and also sold in that same July 15 to August 15 time period.

There were 11 of them.

One sale in Mermaid Wharf showed an 8% increase in price from its previous purchase in 2009.

One showed a 5% decline from its previous purchase in 2007.

A third showed a 6% increase from its previous 2007 purchase.

Another increased 7% from its previous 2007 purchase.

Of course this same time period in 2007 was very active with twice as many sales occurring. (164 versus 77). The median condo price rising from $273,000 back then to this month's $292,500 or once again 7%.

So there you go, the appreciation for pre-owned condominiums bought this month 5 years ago appears to be a total of 7 percent.

And these are freehold condominiums!

Just Jack said...

Your right, there is no automatic lease renewal. The very very old 99 year leases are gone forever. I don't think that a new 99 year lease is legal in a contract anymore.

But there is generally an option to renew in a lease, that doesn't mean that the lease will automatically be renewed. The lease terms just have to be re-negotiated between the two parties.

I don't think I would ever sign a lease without an option to renew. The option may never be picked up by either party, but at least that reduces a conflict by a third party that may want the property. Because then the third party would have to buy my option.

And that's gonna be very expensive.

neo said...

@ Leo 11:53 AM

Genuinely curious, what attributes do Victoria and San Francisco share, other than longitude ? Population, climate, industry (AAPL, GOOG, BOA, ORCL, Wells Fargo, etc head quarters), etc all seem different to me.

I travel regularly ? (4 times a year) to SF and have never thought, wow, this is a lot like Victoria. Or even a little. Seems like an apples to toasters comparison. I like both SF and Vic, just don't see the similarities.

What area(s) do you mean when you say SF ? I have relatives and friends in SF city, north Bay area, Silicon Valley, not one of those areas seems similar to Victoria to me.

info said...

dasmo

Cities such as Phoenix, Miami, Las Vegas, etc. are very comparable to Victoria.

One similarity is that retirement and tourism are important components of the economy.

The big picture, however, is those cities saw huge price increases based on debt (easy credit and cheap money) just as Victoria did. In Victoria and these US cities, it was not the economy or incomes (the fundamentals) that pushed prices into bubble territory, it was debt. That is the important thing to keep in mind.

Overall, conditions are much the same in Victoria now, or even worse, than they were in the above US cities before they crashed.

* personal debt is at 153% in Canada which is higher than it was in the US before the crash

* our banks still issue 0 down mortgages, we had 40 year ams, we still have liar loans, etc. (reckless lending).

* we have 70% home ownership which is as high as it was in the US before the crash.

* BC has a -9% savings rate

* 30% of BC's economy relies on real estate

* house prices have increased 100% plus in the last 10 years creating a bubble

* price to income and price to rent ratios are sky high

Victoria real estate probably costs more than other parts of Canada because of the weather. The US cities mentioned above share that advantage. That , however, did not stop them from crashing.

Naturally, there are still people out there who think Victoria is different, just as people in Miami, Phoenix and Las Vegas thought they were differnent. That is, until they weren't.

DavidL said...

@dasmo
At today rates a drop of 25%-30% would make us roughly on par with rent. ... My feeling is Victoria has traditionally sat slightly above such fundamentals due to it's special place status. Any long time watchers out their corroborate that?

Ten years ago, when I purchased my house - I put $7000 down and got a mortgage for $210,000. If I had chosen the 5-year fixed rate (of 5.00%) with a 25-year amortization, then my mortgage payment would have been $1,220/month. Add $450/month for "TIM": property Taxes, house Insurance (required for the mortgage) and minimal Maintenance - for a total of $1,670/month. At that time, the house would have rented for ~$1800/month - so in 2002, it was slightly cheaper to own than rent. (Note that most mortgage payers neglect to include TIM, such that rent vs. ownership costs seem much closer.)

Let's compare the same house now ... It's currently assessed value is $480,000. With the minimum $24,000 (5%) down, a mortgage of $456,000 with a 5-year fixed rate (of 5.00%) and a 25-year amortization works out to $2650/month. Add the $450/month for TIM, and the total is $3100. The house would currently rent for $2400/month (up 25% over 10 years) - so current ownership would cost $700/month more than renting.

On the other hand, in 2011 my house was assessed at $510,000. If there were a 30% "correction", the house would be valued at $357,000. With the minimum $17,850 (5%) down, a mortgage of $339,150 with a 5-year fixed rate (of 5.00%) and a 25-year amortization works out to $1973/month. Add the $450/month for TIM, and the total is $2423. The house would still be renting for $2400/month - so with a 30% correction, renting versus ownership cost about the same.

It can be argued that the current 5-year rate is as low as 3.19%, but as the discount 10-year rate is currently 3.99% (while three years ago it was 6.00%) - it is probably fair to assume that over a 25 year amortization, that 5.00% for a fixed mortgage rate is about correct

Mortgage Rate History - Fixed Rates vs. Variable Rates Mortgages
http://www.canequity.com/mortgage_rate_history.stm

Tintin said...

Hi All

I have been following this blog for quite a while now, and it's been fun to see the changes in general sentiment.

Anyway, I am wondering if anyone can comment on the listing practices undertaken by certain sellers/RE agents. Example:
According to a PCS update I receive daily, 1741 Newton Street is for sale for $516,900, previously $529,900 with an advertised assessment value of $508,400. Seems pretty standard.

However upon looking at the BC Assessment website, the current assessment value (2012) of this property is $467,100. If this were January and the new assessment numbers were still fresh, its understandable that people wouldnt have updated their listings. The thing that bothers me is sellers using their 2011 number (if it's higher) 8 months into the current year just to try and hoodwink a potential buyer. I would love to think that said buyer would do their DD on the property and find out the assessment value is lower than 'advertised', but why not just list the current/correct info right off the bat?

MD80 said...

@Tintin
Good observation! However, it looks like there's even more to this story. In fact, this property has never been assessed at $508,400. If you click on the "Tax Data" link on the top of the PCS listing you'll see:
2012 = $467,100 2011 = $472,000 2010 = $450,000 etc.

Either way, this strategy isn't working (90 days on the market) and apparently a reluctance to reduce the price anything more than a few %.

hap pychucky said...

How does assessment play a role in a properties market value in the past?

In Ontario assessment is 10 to 20% lower.

Just Jack said...

The listing information that you get is advertising. It is meant to entice you to call the agent and find out more information. It is not meant to be an accurate depiction of the property. The listing information is just a brief and reasonable summary of the property. It's up to you or those you hire on your behalf to verify that information. And that doesn't mean the agent working for you has to verify that information. Because your agent is there to assist in the sale, not verify information.

If in the course of their duty, your agent finds out contrary information, then they should tell you.

dasmo said...

@DavidL sounds about right. That's why I bought in 2003. It was a breif moment in time were buying was cheaper than renting. That was not the norm but an artifact of the long flatline throught the 90s and rates dropping. Before that time I had calculated it was cheaper to rent and was!

@info did you click on my link? It shows a key difference between the markets you are comparing Vic to. I might add that tech is the number one private industry here, not tourism or retirement services or real estate sales... We are not invincible but we are also not a dessert with huge tracks of unfinished subdivisions radiating around a mono economy based almost entirely on tourism....

Just Jack said...

The assessed value is carved in stone on July 1 of the previous year. Since market value is continuously changing, and for some properties the assessed value is based on legislation and not comparable sales, there may be little or no relation to current market value.

Your assessments do not state "market value" they refer to "actual value" for taxation purposes. If you choose to use the assessed values for another purpose - you do so at your own peril.

Leo S said...

@neo. The main similarity I see is land constraints both geographical and legal. There's a good paper out there analyzing the behavior of real estate in land constrained cities like Victoria and San Francisco.. I'll see if I can find it again.

@info. The big difference is overbuilding a dasmo already pointed out. You can't just ignore that.

@tintin. How do you feel the sentiment has changed?

hap pychucky said...

JJ

Actual value can be off substantially in either direction for a SFH (not talking farm or other special properties)?

Leo S said...

@davidl. You're dead on with your comparison. Except most people will just look at the current rate of 2.99% and underestimate the TIM to come to the conclusion that renting and buying is about the same cost. And who could blame them since that's all they will ever hear from realtors or mortgage brokers.

Leo S said...

By the way, for those counting on interest rates normalizing, it's been pointed out before but low rates are actually not out of the ordinary. They were low before about 1960, and for a 20 year period between 1936 and 1956 they were often under 3% for the 10 year bonds.
Wouldn't be at all surprised if a 5 year fixed can still be had for under 3.5% in 10 years.

Just Jack said...

Okay, here is another example. If you have an indoor pool. BC Assessment will value these at full cost. But the market place might discount them by 50 percent before the first person gets a chance to take a swim. Then you are going to be over assessed.

How about, you just finished renovating your home. Well now you would be under assessed.

When was the last time a government assessor came through your home? 10 years ago? 20 years ago? never? So when did the assessor go through the home your looking at buying? Who knows?

At one time, the myth was that the assessments were always 10 percent below market value - not true. Now we find that the current BC Assessment is more than what a property would sell for today - in most cases.

I know people want to find a quick and easy way to figure out what to offer on the home. Looking at the assessments might be the first thing you would do - but if that is all you are relying on, then you could be making a mistake that can be very costly to you.

hap pychucky said...

JJ

Got it thanks.

hap pychucky said...

JJ

One last question. Bank appraisals
when they send someone into your house. Are they realistic or are they on the high side to lend someone as much as possible?

MD80 said...

Wouldn't be at all surprised if a 5 year fixed can still be had for under 3.5% in 10 years.

And you came to this conclusion how? Because it happened once for a period 75 years ago? lol

"There are 2 types of people in this world: those who don’t know where interest rates will be a year from now and those who don’t know that they don’t know where the interest rates will be a year from now."
-quoted from this website where you can see how poorly the experts have fared at predicting interest rates, even in the short term.

I certainly wouldn't be planning my finances around any forecasts!!

Just Jack said...

Bank appraisals should be accurate within 5% of what the home should sell for. The courts allow an appraiser a 10% variation unless there is something very odd about the property. Anything more than 10%, may indicate a serious flaw in the appraisal methodology or an incompetent appraiser.

Its true that brokers seek out, appraisers that are optimistic in their valuations and the appraisers are rewarded with more assignments. But today, most appraisal assignments are contracted through appraisal management companies where the lowest bidder gets the assignment. Generally, that means the appraiser is borderline competent.

The advise that I would give anyone is if you disagree with the appraisal, then you should challenge the appraiser. If you are still not satisfied then you should send a copy of the appraisal to the professional standards committee of the Appraisal Institute of Canada and they will conduct a full review of the appraisal report and the appraiser.

If you are still not satisfied and you have suffered measurable damages - then sue their ass off. The Appraisal Institute does have a fund to pay off damages, so depending on your case, they may just cut you a cheque and then turn around and collect the money from the appraiser plus their costs.

Leo S said...

And you came to this conclusion how? Because it happened once for a period 75 years ago? lol

The point is that many housing bears write as if it was a given that interest rates will normalize soon. As if it was a given that our low rates will not last long.
Garth Turner says this very frequently, and scoffs at the idea that low rates can stay for a long time.

Well Japan shows us that this can happen. Also Canadian history shows us that this can happen. Your "once for a period" is 20 years, and rates were also low for the 30 years before that. That is not an isolated incident. If anything, the high rates of the 1970s and 80s were an abnormality.

I'm not predicting interest rates, just saying that it makes no sense whatsoever to expect a housing crash at the same time as rising rates. If housing declines, rates are likely to stay low or decrease, not increase.

Ryan said...

between 1936 and 1956 they were often under 3% for the 10 year bonds.
Wouldn't be at all surprised if a 5 year fixed can still be had for under 3.5% in 10 years.


I agree with you LeoS, but keep in mind that is a borderline depression for 10 years with many people suffering. For a 5 year to remain below 3.5% is a deflationary decade. That island across the pond you mentioned of 10 times our population density, where they have endured mortgage rates of under 3.5% for 15 years now. Meantime their property values have fallen by up to three-quarters. Their saviour has been a highly productive manufacturing export-based economy. Even I drive a Toyota.

HachiRoku said...

I agree with Ryan...interest rates have been 0% in Japan for 20 years and they have also had 20 straight years of property of declining real estate prices.

My wife and I were looking at a brand new, detached, freehold, 3 bedroom, 2 bath 2 car garage 10 minutes from downtown Osaka last year for $400K. Plus they still have 35 year mortgages or something because the monthly payments were going to be $500.00 or something silly like that.

Remember Osaka is supposed to be one of the most expensive cities in the world to live.

The moral to this story, I think is...no one knows what is going to happen...

...and buckle your seat belt Dorothy 'cause Kansas is going bye bye.

Leo S said...

Old article, but talks about the importance of land use restrictions in real estate volatility.

If true, it doesn't bode well for Victoria or Vancouver.

dasmo said...

Correct me if I'm wrong but didn't Japan more than quadruple it's housing prices in that ten years?

Ryan said...

It looks like Japan's two biggest cities slightly more than doubled in ten years('81 to '91). Perhaps certain areas quadrupled, not sure...

a simple man said...

Garth Turner was in town yesterday and made Victoria the subject of yesterday's blog. Interesting read.

http://www.greaterfool.ca/2012/08/23/a-little-fear/

From the comments section:

"I lived in Victoria for 5 years, during which time I had access to selected data about the local residents for a research project. I was shocked at how many house rich cash poor families occupied magnificent properties in Oak Bay, Fairfield and the like. It was obvious that many of them were highly vulnerable to inflation, since fixed incomes were common."

a simple man said...

and average consumer debt is now the highest since 2004.

http://www.cbc.ca/news/business/story/2012/08/23/debt-canada-transunion.html

Storm brewing.

hap pychucky said...

"I lived in Victoria for 5 years, during which time I had access to selected data about the local residents for a research project. I was shocked at how many house rich cash poor families occupied magnificent properties in Oak Bay, Fairfield and the like. It was obvious that many of them were highly vulnerable to inflation, since fixed incomes were common"

That is not just Victoria, any city that has had a major run up will see this. That is when people use their houses as piggy banks.

As long as the economy does not go into a recession and employment stays strong, the house dip should be 10 to 20%. If we hit a recession, it will get very ungly, very quickly.

hap pychucky said...

JJ thanks for the info

hap pychucky said...

Recretional properties are the first sign of problems.


I have been following properties on Lake Cowachin. People still have money to spend on recreation properties this year. Woodland shores lowered prices and only a couple of the lakefront properties left. Less listings for lakefront on mls than there was in the spring. As long as the properties on the lake are priced lower than 2007, there is interest still.

patriotz said...

and average consumer debt is now the highest since 2004.

That headline is misleading - it's the highest TransUnion has recorded, and they started recording in 2004.

I have no doubt it's the highest ever.

a simple man said...

thanks for the correction, patriotz - I agree.

hap pychucky said...

The latest data shows British Columbia as having the highest average debt at $37,879, while Quebec has the lowest at $18,580.

Am I right here the average 2 parent family in BC would have 75k of non mortgage debt? that is really scary, since the average family income is somewhere around 60 to 70k.

hap pychucky said...
This comment has been removed by the author.
hap pychucky said...

Interesting table

http://www.cba.ca/contents/files/statistics/stat_mortgage_db050_en.pdf

People are making their payments

dasmo said...

I'd be curious to see that same chart for the US. It's a mess down there... I know someone who isn't paying their mortgage because a unit next to his sold for much less as it was a foreclosure and the bank dumped it. He figures that's the new value so why bother making the payments?

hap pychucky said...

Not a smart idea in Canada if you have any other assets. Bank will come after you for any loss. In most states you can just walk away with only your credit score impacted.

a simple man said...

Fact of the matter is, as I have commented on in the past, for many families in Oak Bay (not the Uplands or waterfront folks) budgets are increasingly stretched to the breaking point.

Many here are hanging by the thread, living paycheque to paycheque. But inflation keeps marching on. Soon the paycheque won`t cover expenses. And then, this gets a lot worse.

hap pychucky said...

A simple Man

I just read a few of Garth Turners posts, very scary stuff.

Not sure how this is going to turn out. It could be like the US or prices could remain around current levels for a decade. Income, interest rates and employment levels will dictate how this is going to end.

dasmo said...

When the mess began down there, another friend, a builder was doing OK and had 4 houses on the go with 100K LOC to float the construction. If the bank left him alone he could have finished the homes sold them and gotten out fine. Instead, new manager comes in with the mandate to clear the books, cuts his line of credit, can't finish his homes, loses his income, and they took it all away from him. Sold his personal house for cheaper than it cost to build... I don't see that happening here. Here it will only be market forces of affordability and media bandwagon reporting (now in the negative). Theses things won't force regular folks into financial ruin or into foreclosure. So there won't be a flood of properties being dumped on the market. You could really watch the affect of this on Zillow (US MLS) where properties in 500K neighborhoods would sell for 150K and then be back on the market for 450K. I just don't see a Tsunami coming this way.

a simple man said...

Garth Turner has to be taken with a grain of salt, and even he knows that, He is an anchor at one end of the spectrum to give the perspective that was little-heard a year ago.

I have always held a 25-30% correction from peak (Dec 2009). I still believe it to be true. Don't expect a 40%+ correction is in the cards.

Leo S said...

I just read a few of Garth Turners posts, very scary stuff.

Don't take it too seriously. GT is entertaining and provides a good counterpoint to the pro-housing messaging you would encounter from the industry, but he doesn't do any meaningful analysis. He will gather news and present it in an entertaining way, but also often extrapolate it in completely incorrect ways or only consider a quarter of the whole picture.

GT's mandate is to sell his books, and scare people out of houses and into other investments (which benefits him as an investment advisor). He has many valid points, but it's kind of like a mortgage broker talking up houses, you have to understand where the bias is.

koozdra said...

"Assumable 35year amortized mortgage."

This is the second assumable mortgage comment in a listing I've seen in the area.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12145630&PidKey=-2054349179

koozdra said...

Interesting MLS feature I've never noticed before: "Show new listings only". Available on the side bar of the map search.

A word of warning though. This is edited in the last week. I noticed because there is super old listing on kangaroo rd. that pops up. All they did was change the picture.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12267601&PidKey=-1769244820

Leo S said...

I don't see that happening here.

I don't know... This can and does happen all the time here. A motorcycle shop had to close up because their financing for their inventory dried up even though they had always paid up. But suddenly their lender didn't want to extend the credit anymore and they were forced out of business.

Lenders are getting more careful as we speak. Partially in response to regulation (on CMHC and from OSFI), and partially because they are taking on more risk (can't pass it to CMHC any more). More pressure to re-appraise on renewals and for lenders to do their own due diligence. People are getting hit by this for sure, especially those that were marginal borrowers, and now that the market is declining their equity levels aren't there to save them.

Just Jack said...

You don't have to go to the USA to buy cheap real estate, nor do you have to go to Quebec or Windsor.

It's right here in Greater Victoria.

There are some 255 house listings in Sooke with only 17 sales in the last 30 days with new listings being added at the rate of 3 to every 1 sale.

Like when the Swallows come back to Capistrano, the Vultures have returned to Sooke.

Generally, in Sooke house prices are back to 2007 levels. But if you find that less than pristine home, that is vacant and the owners are under distress circumstances.

Then bring on the low ball offers, because chances are you are the only bidder.

And that's how you can buy a basement entry home on a half acre in Sassenos for $302,000. Despite the fact that the previous owners bought the home in 2008 for $390,000.

patriotz said...

In most states you can just walk away with only your credit score impacted.

Only about 1/4 of them. Florida and Nevada are recourse like Canada.

As for mortgage arrears, they remain low until after the market top - because while prices are rising people who can't pay still have the option of selling for cash. This was the case in the US and also can been seen in Canada where arrears have risen significantly in Alberta and the Okanagan.

Notices of default in California

hap pychucky said...

Anti-Deficiency / Non-Recourse States

Alaska

Arizona

California

Connecticut

Florida

Idaho

Minnesota

North Carolina

North Dakota

Texas

Utah

Washington

One Action States

In some states, lenders are only permitted a single lawsuit to collect mortgage debt. This plays out differently depending on the state’s laws. In New York, for example, a lender must choose between the actions of foreclosing on the property or suing to collect the debt. The following states have some type of one action statute:

California

Idaho

Montana

Nevada

New York

Utah

info said...

a simple man

Victoria will lose much more than 15-20% from current prices.

Currently, banks still offer cash back (0 down) mortgages and do not require self employed applicants to prove their income (liar loans). Those two major sources of housing market stimulus will be a thing of the past within 2 months.

Victoria could easily see an overall price decline of 35% plus over the next couple of years and then a slower melting over the years following that.

The unsustainable, bubble house prices of today were brought on by debt, easy money and low interest rates. We are entering a period of time that will bring stricter lending standards, higher interest rates and generally an atmosphere of credit contraction. In other words, lowere house prices for an extended period of time.

If fundamentals such as income, etc. were what pushed house prices to the levels we see today, I would simply state that, but that wasn't how it happened.

The facts that Garth Turner offers on his site, greaterfool.ca, are just that... facts. Indisputable facts. If you cannot see past your dislike for the man, then that is your problem.

For those potential first time buyers thinking of buying in Victoria, now is not the time.
The Globe and Mail wrote very recently that it is not a good time for you to buy. They say that it is better to rent right now and let prices decline until they are affordable for you.

koozdra said...

The article info mentions above:
http://www.theglobeandmail.com/globe-investor/personal-finance/whats-the-rush-first-time-buyers-nows-the-time-to-rent/article4493774/

HunnyD said...

Everybody is starting to recommend waiting. A mortgage broker well acquainted with a friend of mine recently counselled him AGAINST purchasing right now...

a simple man said...

info - we have the same views - just yours are slightly more liberal than mine with regards to the depth of the plunge.

As a prior long-term owner and now a renter, debt-free, a bigger drop will do me and my family just fine.

My wife and I have a level of debt we are comfortable with and when houses appear that are in our chosen area and within our acceptable debt level, we will start shopping. It is closer now, but still 1-2 years away.

Our goal is to have our mortgage paid off in 5 years once we take one out.

Until then we rent and save money every month. Quality of life now is outstanding.

hap pychucky said...

Info obviously you have some sort of personal agenda with your posts.

Renter who wants buy 35% cheaper who knows.

Nobody knows including you where house prices wil be in 1, 2 or 5 year. You only have to look at this blog. For 5 years some people have been calling for a crash with all different kinds of rational.

DavidL said...

One of the things that I find fascinating is how social psychology affects pricing ...

Buyers set the sales price for all real estate. As much as sellers and lenders might want to play with market dynamics, it all comes down to a buyer who is willing to offer a certain amount, and the seller who is willing to accept the offer. Thus if a potential buyer feels that prices are going down, they may make low-ball offers or just abstain from buying. As offers may be far and few between, sellers may be forced to accept a low-ball offer or at least adjust their asking price downwards. They may also choose to take their home off the market for a while.

If a majority of potential buyers believe that the market is going down, then quite simply - the market will go down. This is the inverse of what we have seen over the past ten years where the majority of potential buyers believed that the market was going up - and thus it did. Market sentiment drive the selling price of real estate ...

info said...

hap pychucky

You assume I am a renter. Where do you get your information?

Are you sure I am not a Victoria realtor?

Until now, the Victoria housing market has only lost 10% in price due to the many reasons I have listed in above comments.

Things are changing now. Generally there will no longer be the kind of stimulus provided by the government in this country to create higher prices and keep them there.

As I have said, Mark Carney, the governor of the Bank of Canada, stated that Canadian real estate is currently 35% overvalued.

So you disagree with Mark Carney. In all likelihood, he is understating based on his position. You must think he is a renter too.

hap pychucky said...

As I have said, Mark Carney, the governor of the Bank of Canada, stated that Canadian real estate is currently 35% overvalued.


Please show me this comment in writing that those words came out of his mouth. He may have said Condos in Toronto but no way did he say Canadian realestate as a whole is 35% overvalued.

Oh and btw Mark has no idea where realestate price are going either.

He has been wrong so many times about raising interest rates it is embarrassing.

Leo S said...

The facts that Garth Turner offers on his site, greaterfool.ca, are just that... facts.

The facts aren't the problem. The problem is the 90% which is conjecture and extrapolation, not facts.

Compare the posts from a site where real analysis is done, such as theeconomicanalyst.com and greaterfool and you will see the difference.

dasmo said...

info, you are not talking in facts, but premonitions based on select facts. As Garth does for the sake of infotainment. People are much less interested in level headed the truth lies somewhere in the middle characters...The true "facts" in this regard will only be analysed in a retrospective manner...

koozdra said...

Speculative markets are fuelled by greed and the promise of future price appreciation. As the market declines fear will set in. Real estate is not different.

The problem is people have been convinced by realtors, banks and relatives that buying into the housing market is risk free. Further the government has made it risk free for the banks by insuring all the mortgages.

The lending free-for-all is ending. Where do you guys think that house prices are heading in the absence of extremely loose and cheap credit?

Think about all the financial advisors in Victoria counselling their elderly clients that if you want to see return on your housing investment now is the time to sell. Why is the market being flooded with listings and sales are falling through the floor?

Considering these factors I don't see why people have this false sense of faith in the local housing market. Saying that the market will not crash because it has been called for on this blog in the past is a fallacy called "appeal to tradition". It is not a valid argument against the coming collapse.

happy renter said...

Ben Rabidoux in Maclean's: Why Canadian Homeowner's are Likely Just as Vulnerable as Americans Were

http://www2.macleans.ca/2012/08/22/why-canadian-homeowners-are-now-likely-just-as-vulnerable-as-americans-were/

Just Jack said...

It takes a buyer and a seller to make a market. I would argue that buyers that are trying to buy a home for a $100,000 these days are not prospective purchasers at all - and they have no affect on value.

The same as a seller who prices their home too high they have no affect on prices either.

Both the buyer and the seller have to be willing to make a deal.



Just Jack said...

Sidney-by-the-sea.

45 homes listed for sale with only 4 sales in the last month. While every time 1 home sells another 3 get added.

That's 11 months of inventory and a sales to new listings ratio of 31%

And what does that mean for prices.
Well, you can now buy a house in Sidney for under $400,000. And that's with a basement and a 7,200 square foot lot.

And so the market crumbles. House prices drop, renters buy, vacancy rates climb, rents fall. More homes go on the market, prices drop ...

And there is nothing in the foreseeable future, that can reverse this trend.

hap pychucky said...

"Considering these factors I don't see why people have this false sense of faith in the local housing market. Saying that the market will not crash because it has been called for on this blog in the past is a fallacy called "appeal to tradition". It is not a valid argument against the coming collapse."

You have an opinion. I personally do not see a crash and see the median house price around 500k (plus or minus 10%) for the next 5 years. I see stable employment in the region, there are 2 big projects that will help (Navy,sewage). There is no land in Victoria, Oakbay and Saanich for SFH rxcept for teardowns. 47% of Canadians are mortgage free (financial post survey 2012). Interest rates will remain low, continued population growth.

I do not see the catylst for a big correction.


koozdra said...

@hap pachuky

Could you link to the article where it mentions the stat you quoted?

hap pychucky said...

http://business.financialpost.com/2012/03/29/survey-shows-47-of-canadian-homeowners-are-mortgage-free/

koozdra said...

How many of these people will want to sell to fund their retirement?

http://business.financialpost.com/2012/05/16/half-of-canadians-plan-to-retire-with-mortgage-survey/

As supply of housing goes up, do you think that prices will also remain high?

Just Jack said...

You have to be a more specific when you say you can't see the median price below $500,000.

In the Westshore the median price is now $455,000. In Sooke the median price for the last 90 days is $375,000.

The core districts of Victoria have held up really good at a current median price of $585,000. Yet Esquimalt is already at $490,000.

But if your talking just about Oak Bay prices stabilizing around $500,000 give or take 10 percent. I can see that happening as it would only be a 30% drop.

patriotz said...

There is no land in Victoria, Oakbay and Saanich for SFH rxcept for teardowns.

That is true for the core area of every big city everywhere. So what has magically changed so that it can prevent falling prices when it couldn't in the past - including in Victoria?

hap pychucky said...

Koozdra

We can throw surveys and expert comments at each other. Neither of us really knows where house prices in Victoria will be in the future.

hap pychucky said...

Patriotz

Never said it will prevent falling prices, it is one item that prevents a crash of 35%. Prices are not going up, they may go down another 10% in the next year to flush out the excess in inventory.

JJ

the overall region which is at 530 aprox.

patriotz said...

Never said it will prevent falling prices, it is one item that prevents a crash of 35%.

Because you say so? How much is Tokyo down from the peak? How does an area being fully built up prevent large price declines?

DavidL said...

From: 47% of Canadians are mortgage free
Among respondents with household income of $100,000, 62% had a mortgage. Among those with household income of less than $20,000, 36% have a mortgage.

How the heck is it possible to have a mortgage when your household income is less than $20K/year! Let's see ...39% of $20,000 is $7800, or maximum $650/month. A 25 year mortgage at 5% interest means you can afford a place costing $85,000. In Victoria, that will buy and outhouse and in Vancouver - well, a toilet seat. And supposedly 36% of people with household incomes < $20K have a mortgage?!

Just Jack said...

Well, what specifically do you want to know about house prices in the future?

Do you want someone to tell you precisely what prices for all real estate will be, on any day in the future? Can't do it.

Do you want some one to tell you where prices will generally be for the residential market in three months from now?

Okay, prices will be lower.


Why?

Think of houses as cans of soup.

We have too many cans of soup on the wall in the store and each day another truck delivers more cans than we can sell. And we can't stop the trucks from delivering more.

As the grocery store owner - what do you do?

hap pychucky said...

Patriotz

It is my opinion which I have stated. I do not have a crystal ball. I own 2 homes. Are they wise investments no. I like them both so I am going to keep them. If prices are 10% more or 40% less in 10 years it will make no difference in my life. I rather not speculate on my lifesyle and see years pass away.

I am just offering an opinion, that is all.

patriotz said...

"According to the 2008 Survey of Household Spending, there were 13 million households in Canada, of which about 65% owned a home (see Data source and definitions). Among homeowners, 57% made a mortgage payment in 2008 and the remaining 43% were mortgage-free."

The distribution of mortgage debt
in Canada


That was 2008, and I'm sure the % with mortgages is higher today. We do know that the ownership rate is up to 70% and I'm pretty sure the great majority of that extra 5% has mortgages.

Frankly I don't trust any survey, but I think the Statscan survey is more trustworthy.

If I can find some mortgage statistics that are based on actual data, I'll post them.

hap pychucky said...

Patriotz


Because you say so? How much is Tokyo down from the peak? How does an area being fully built up prevent large price declines?

You cannot compare Tokyo to Canada. They have a major demographic issue. They do allow people in. There population has not grown and will decline in the future. Canada`s population will continue to grow because of our immigration. Which will put demand on housing.

patriotz said...

"You cannot compare Tokyo to Canada."

Well how about the US then?

Or how about past busts in Canada - including Vancouver and Victoria?

hap pychucky said...

Patriotz

The US crisis happen because the resetting of mortgage rates (arms, low teaser rates that reset higher) left alot of americans un able to pay their mortgages, which set off a major chain reaction.

I have yet to see this event happen in Canada. Canadian are making their payments at this time.

A recession or hike in interest rates would change my view.

hap pychucky said...

Or how about past busts in Canada - including Vancouver and Victoria?

Please show me the previous victoria crash. (something bizarre happened in 81. 80 to 82 no change.

http://www.vreb.org/pdf/historical_statistics/GRAA2011.pdf


Just Jack said...

Your onto something there Hap pyChucky. Except BC is now loosing population not gaining.

And I expect that to be even more pronounced in the retirement areas because we are loosing young families to Alberta and Older people to Heaven.

Unless you live in Oak Bay - then you are definitely going to Hell.

Like Tokyo, Victoria and Oak Bay are not gaining any significant increases in population. Most of the population growth has been in the Westshore. Yet that has not stopped prices from declining there either.

Immigration isn't saving Vancouver either, it just makes it difficult to get directions or get a refund from a parking lot attendant.

dasmo said...

unlike Japan, we have yet to experience a magnitude 11 earthquake and Tsunami and Nuclear meltdown. All factors that have affected their condo and waterfront markets....

hap pychucky said...

JJ

that is not true. BC is still gaining and expectng another 1.5m people over the next 25 years

http://www.bcstats.gov.bc.ca/StatisticsBySubject/Demography/PopulationProjections.aspx

hit 2011 to 2036 projections

info said...

It is widely known and accepted that Vancouver and Victoria are the most overvalued housing markets in Canada. Many economists and banks state this. They also state that these two markets will experience the greatest corrections of any cities in Canada.

Let's be conservative and say that Victoria will lose an extra 10% when compared to the national average.

Mark Carney, the governor of the Bank of Canada, recently stated that Canadian real estate is overvalued by 35%. Extrapolating, we can logically add 35% and 10% to come up with a total of 45% as the overvaluation for Victoria that Mark Carney supports.

If Victoria's market corrects 45% from where it is today, then we can say that Mark Carney was correct in his analysis.

Animal Spirit said...

Keep up the discussion everyone - I'll be offline for a few weeks, and hope to come back to see a discernable downward drift on listing and sales prices.

Although we could buy a good house today, we're waiting for a price drop to a level where we can comfortably afford the house at higher mortgage rates before purchasing a good house in the area we want to live long term.

That said, my belief is that houses here will likely see a 40-50% nominal drop in prices from their 2010 peak before things stabilize. If 15% of this is from 2.5% annual inflation, then we are looking at a 25-35% drop in actual prices over the next 3 years, putting our current 600K house down around 420K.

Forecasts are useless of course. As our economy is heavily based on exports to Asia, I'm keeping an eye on economic developments over there. We would have a similar exposure as a country like Australia.

hap pychucky said...

Info

Again please post where Carney made those comments. A central banker would never be so stupid as to state that.

Just Jack said...

We didn't make those projections.

As per the latest BC Outlook for 2012-2014

Population to hold steady but losses to Alberta to accelerate

The underwhelming pace of population growth observed since late-2010 will impede a full housing recovery over the forecast horizon. B.C.’s population base expanded at an annualized rate of 0.9 per cent in Q1, down from 1 per cent in the previous quarter.

While consistent with trends observed over the past year, this is significantly slower than the growth rates of 1.5 per cent to 2 per cent observed from mid-2006 through 2009.

Population growth is forecast to hold steady at the current pace of about 1 per cent per annum over the forecast horizon. Migration remains the engine of population growth for the province, but the rumble is more Vespa than Ferrari.

While the flow of landed international immigrants is on the mend after hitting a multi-year low in the third quarter of 2011, total net international migration remained tempered. The seasonally-adjusted pace of about 8,700 persons in the first quarter marked the second consecutive quarter that international net migration fell below 9,000 persons. Notwithstanding the first quarter of 2011, the trend is the lowest since 2004 and reflective of fewer non-permanent residents in the province.

The flow of landed immigrants is expected to revert back to the quarterly trend of about 10,500 persons.

Inflows are largely determined by federal policy, although the ebb and flow of global economic conditions can lead to entry delays on the part of newcomers. There has been no indication that the government will lower the annual target of about 250,000 permanent residents to Canada.

However, net non-permanent residents, which includes temporary workers, fluctuates with labour market conditions. A well-supplied labour market will limit the contribution of non-permanent residents to population growth, which will more significantly impact rental market demand rather than homeownership.

In contrast to the positive contribution of international migration, the pull of stronger labour markets and economies in the prairies has led to a net outflow of residents to other provinces, particularly Alberta. In the first quarter, net movement from B.C. to Alberta favoured the prairie province by an estimated 2,651 individuals. Alberta’s economy is expected to outperform B.C.’s over the forecast horizon, generating lower relative unemployment rates and more job opportunities, leading to further net outflows.

Just Jack said...

Mark Carney, the governor of the Bank of Canada, recently stated that Canadian real estate is overvalued by 35%. Extrapolating, we can logically add 35% and 10% to come up with a total of 45% as the overvaluation for Victoria that Mark Carney supports.

If Victoria's market corrects 45% from where it is today, then we can say that Mark Carney was correct in his analysis.

---------------------
So, let me get this strait, you take Carney's projections out of context, then you add your unqualified projections and then state if Victoria's values do not correct by this amount then Carney is incorrect in his analysis.

Hmmmm, Okay I apologize for anything I said to Hap pyChcky about projections made on this blog.

MD80 said...

Carney didn't explicitly say that house prices were overvalued by 35%. Here's a quote from CBC:

"The average level of house prices nationally is now nearly 4.5 times average household disposable income, Carney said. This compares with an average ratio of 3.5 over the past quarter-century."

That ratio of house prices to disposable income is 35% higher than historical norms. This is only one of several measures of housing valuation so taken on its own or out of context (i.e. applying this national ratio to Victoria) is probably not the best way to draw a conclusion or attempt a forecast.

mne govorit said...

dasmo said...
unlike Japan, we have yet to experience a magnitude 11 earthquake and Tsunami and Nuclear meltdown. All factors that have affected their condo and waterfront markets....


Long time lurker first time poster ... I love this site and love the discussion. Dasmo is one of my favorite posters but that earthquake was nowhere near 11. Maybe it was intentional, but I wonder how much everybody exaggerates when they post "statistics" about housing.

dasmo said...

True is was magnitude 9 ;-)

HachiRoku said...

dasmo said...
unlike Japan, we have yet to experience a magnitude 11 earthquake and Tsunami and Nuclear meltdown. All factors that have affected their condo and waterfront markets....


Seriously? Japan had 19 years of straight declines before the earthquake and tsunami.

This is the country that brought you Toyota (TPS), Sony, Sharp, Sanyo, Panasonic, Toshiba, Honda, Subaru, Nissan, Matsushita etc. But that wasn't enough to stave off year over year declining real estate...and they are REALLY, REALLY, REALLY not making any more land in Japan.

:)

dasmo said...

Comparisons were being made to present day Japan so I thought those facts relevant as they do affect real estate values, present day, and affect Japans "recovery" from their lost decade (or two). I have seen some stats that illustrate Japan had an extreme inflation in real estate prices over a short time before their bubble burst. We on the other hand had a long flat line before our run up. This is why we are only 35% over valued right now ;-). A return to being undervalued as we were in the early 2000's would take a chain reaction not unlike the events of the 80's followed by the 90's. However, that's a 20 year cycle and I don't know about you but that's a long time to wait and cross you fingers to me. Anything happening in the extremes in a shorter period than that will take something extreme and I don't see it....

patriotz said...

A return to being undervalued as we were in the early 2000's

What criterion are you using to conclude that Victoria was undervalued in the early 2000's? Because it's gone up a lot since?

Mindset said...

Another article on Canadian Debt Levels today. It's unfortunate for current and future generations that as a nation we have all bought so heavily into short-term credit thinking as an acceptable social norm.

Candian Debt Accelerates

On the topic of Japan, check out the Japanese debt levels in 2009 and what was predicted for Canada at that time (a reduction!). For those unaware, these predictions for the continued Canadian fiscal responsibility were way off, as Canadians we are now encroaching on 160%.

2009 Debt Levels - Check out Japan!

Debt decimates economies. It's a short-term party with a long-term hangover.

Although we hold some individual responsibility, the main culprits here are the policy makers and rate setters. Cheap money and instant gratification are hard for the average person to turn down.

Mindset said...

Quick correction, the 160% of Canadian Debt is vs. PDI, We are now encroaching on 100% debt levels compared to GDP.

koozdra said...

"NO DOWN PAYMENT? NO PROBLEM!"

The listing doesn't go into further detail about why not being able to afford a down payment is not a problem for purchase. Will they pay your down payment? That would be an interesting move.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12336865&PidKey=456198677

Just Jack said...

That could be a Vendor Take Back.
When, the Vendor agrees to take back a second mortgage equal to the down payment.

Then you shop around and can get a conventional first mortgage from a bank.

This can be tricky for both parties, as this is the gray area where the unscrupulous live. But, it also can be a good thing for both parties too. It's worth while to have an unbiased person look at the deal before you sign.

koozdra said...

@Just Jack

Thanks.

dasmo said...

@ patriotz "What criterion are you using to conclude that Victoria was undervalued in the early 2000's? Because it's gone up a lot since?"

The simple fact that it was cheaper to buy than rent. In a city that offers one of the best life styles in the country and is one of the best places to live on earth (no need to debate, there are many others but this is one). Clean air, clean water and plenty of it, a solid ozone layer, Healthy economy, good weather, nature close by, decent airport, good culture.

Just Jack said...

I suppose if real estate has been under valued and cheaper to rent than to buy in the past it can also be under valued and cheaper to rent than to buy in the future too.

DavidL said...

For the past 40 or so years, housing in Victoria has cost anywhere from 3 to 8½ times the average family income. Granted that 40 years ago, there was just one primary income earner.

- In 2005, the average family income in Saanich was ~$75,000, while the average house (combining sales in Saanich East and West) sold for $478,000 - or 6.33 times the average household income.

- Just three years earlier in 2002, the average house in Saanich sold for $288,000 - or just 3.84 times the average family income.

- In 2010 when the market "peaked", the average house in Saanich sold for $652,000 - or just 8.69 times the average family income.


Household Income - Capital Regional District (2005)
VREB: 2002 Single Family Sales By District
VREB: 2005 Single Family Sales By District
VREB: 2010 Single Family Sales By District

DavidL said...

@Just Jack
I suppose if real estate has been under valued and cheaper to rent than to buy in the past it can also be under valued and cheaper to rent than to buy in the future too.

But history never repeats itself because it's different here!

dasmo said...

True Jack, it can, but I think that would involve inflation into the equation thus my thoughts on the possibility of that being longer out. So in real dollars it's very likely to happen again. My father used to say opportunity knocks but once many times. So I wish all you hunters the best of luck with this. I just don't see what happened in the states happening here.

@David can't argue with the ridiculousness of those stats...At today's low rates it does change the equation but not enough to fit the classic norm. I believe the rule of thumb is 30% of your income on housing? One can't debate that it's expensive here.

Just Jack said...

Time to look at condominiums in the Westshore.

I just want to concentrate on the re-sale market of condominiums in Langford and Colwood. The new condo market and pre-construction sales are too manipulated in this small town area of BC. There is just too much sizzle, spin and salting of the sales in that gold mine when it comes to new condos.

In this big box store community of some 30,000 souls there are about 110 pre-owned condominiums for sale. In the last 30 days about 9 pre-owned condos have sold and at the same time 35 more were listed.

Those are not good numbers with 12 months of inventory and a sales to new listings ratio of 26%.

There were only 2 repeat sales that were listed and sold in the last 30 days. One of which sold at 8% less than its pre-construction price in December 2005. With so few repeat sales in the last 30 days, the best guestimate is condominium prices are at 2006 levels.

Today $235,000 to $247,000 will buy you a three to four year old two-bedroom, 850 to 915 square foot condominium. Which is close to being cheaper to buy than to rent - but I still wouldn't call condominiums in Langford - undervalued.

hap pychucky said...

How do u fit 3 bedrooms in a 850 square ft condo? That should be a one bedroom. These have go to be mighty small BRs.

dasmo said...

I never got Condo's in Langford personally. The benefit of living there was a cheap 80's shack with a large yard and no one bitching about your unfinished car projects in the driveway. I especially shook my head the tower that was supposed to go on Bear mountain. Way to plug the colwood crawl even more. Definite speculation driving the condo market in these suburban areas. Downtown langford needs a tram connection to Victoria, then those condos will be worth it.

Just Jack said...

Or don't work in Victoria.

There are plenty of jobs in Langford and you can be home in 10 minutes.

Once you live and work in Langford, there is no reason to go into Victoria City at all. Unlike a decade ago, everything you need is in Langford.

Which is a reversal from a decade ago for people with kids in Victoria. If you have kids, you're going to spend time going to Langford because that is where the activities for kids are being built and the cheap box stores you need to feed them.

We don't need trams or more highways, we just need more government offices in Langford. Or big box box stores in around Central Saanich that will cut down on the Colwood crawl.

DavidL said...

@Just Jack
We don't need trams or more highways, we just need more government offices in Langford. Or big box box stores in around Central Saanich that will cut down on the Colwood crawl.

Moving some BC Gov offices to Lanford would reduce current rent/ownership costs. Once a Costco is built in Central Saanich (either the Keating X Road area or on First Nations land), more box stores will follow.

Where's my Ikea!

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