Friday, August 24, 2012

Orange Crush: Can government kill the housing market?

Given the current political situation in BC, it's almost a given that a new party, with very different economic goals and policies, will form government next spring. 

To be clear, this blog post isn't political. I could care less if you self-identify as a far-left moonbat dipper, a right-wing whacko or a centrist liberal who simply tries to get out in front of the herd... this post has nothing to do with your personal political leanings. Or mine for that matter.

I'm trying to answer the question: should we expect the local housing market to react to a government change next spring? 

History, perhaps, tells us we shouldn't: 

The areas highlighted by the orange are the years the NDP was in power in B.C. The rest of the time we've been governed by so-called free-enterprise coalitions under Social Credit or Liberal names. Does this chart tell us anything? You could perhaps make an argument that prices are more likely to rise, and rise further, when the NDP isn't the government, but I'm willing to bet a savvy statistician could make a mathematical argument that this is a junk claim.

Between 1972 and 1975 prices rose, but we can't say with certainty exactly what the dollar amounts were because VREB only gives us hard numbers from 1978 on.

Between 1991 and 1994, prices rose from around $192K to $256K or 25%, a nice little jump should you have bought and sold the average SFH in those years.

Between 1994 and 2001, prices fell around an inflation adjusted 21% if you believe inflation was 3% for each of those years - in non-inflation adjusted terms prices were roughly flat.

Does the provincial government establish policies that can impact the inflation rate? Economically speaking, not so much. So we can't really say with any certainty that the provincial government of the day was responsible for the financial woes apparent in our mid-to-late 1990s housing market.

There's a bit of a myth around B.C.'s population during NDP governing times in the 1990s--I fit into the myth too as I left the province for the last 5 of the 10 years they were in government to find decent work--but the data doesn't support the myth:

Population growth rates
1986-1991 = 13.8%
1991-1996 = 13.5%
1996-2001 = 4.9%
2001-2006 = 5.4%

Sure, it's true that the growth rate of B.C.'s population declined sharply after 1996, which may partly explain the housing doldrums in those years, but the rate didn't jump sharply afterwards to coincide with the rapid rise in home prices between 2002-2007 (or the change in governing party).

B.C.'s property transfer tax came into effect in 1996--this is definitely a provincial economic policy with direct effect on the housing market--but it appears to have had little to no effect on the local SFH price.

To end this post, and hopefully spark some discussion and some other contributions to the history here, I'll point out that I've failed to answer my own question and failed to bring in a number of other housing market factors (supply & demand rates, etc). What do you think? Will a change in government cause home prices to rise or fall next spring?

56 comments:

koozdra said...

If the government changes (most likely) I think it will be blamed for a housing decline which I believe to be inevitable.

The next government will also be inheriting a hefty deficit.
http://www.cbc.ca/news/canada/british-columbia/story/2012/07/25/bc-deficit-hst.html

Leo S said...

Between 1972 and 1975 prices rose, but we can't say with certainty exactly what the dollar amounts were because VREB only gives us hard numbers from 1978 on.

Here are the hard numbers (first two columns, everything else is my other work). Courtesy of the VREB.

dasmo said...

Fantastic spread sheet Leo! Interesting the affordability index.
I had pegged 2007 as the true peak but your data shows it was 2008.
Looks like we only had 4 years out of 35 where our affordability met the norm of 30% of income on housing...I would have thought early 2000s would have been close but then again I was tainted since I was focused on VicWest which was priced much lower than across the bridge.

Just Jack said...

Any change in governments brings uncertainty to the market place. Any sitting government will not bring in changes that would adversely affect real estate before the election.

Leo S said...

That spreadsheet has all the charts removed because google docs can't handle them. Here's the full spreadsheet with charts intact.

You'll have to click File -> Download and open it in Excel to view properly. Google docs sometimes displays it, and other times gives up.

Leo S said...

Looks like we only had 4 years out of 35 where our affordability met the norm of 30% of income on housing...I would have thought early 2000s would have been close but then again I was tainted since I was focused on VicWest which was priced much lower than across the bridge.

Also keep in mind that this is average BC income versus average Victoria home price. With a home ownership rate of 70% (who are presumably roughly the to 70% of earners), the average income of home buyers is higher than the average of everyone.

The exact value doesn't really have much meaning. It's only useful to compare over time.

patriotz said...

If the government changes (most likely) I think it will be blamed for a housing decline which I believe to be inevitable.

Agree. What's amusing is that the NDP was blamed for the first bubble of our era when they brought in the ALR. This is also the only bubble which was deflated without nominal prices falling - the high general inflation of the time allowed wages to catch up.

Nobody was blamed for subsequent bubbles as people came to believe they were a good rather than bad thing.

Of course the whole province already has declining prices, Vancouver since last year and Victoria since 2010, and most of the rest of the province is in an outright bust, but those facts will be conveniently ignored as they usually are in politics.

Ryan said...

I would think this line is why home prices rose in the early seventies. The number of twenty-something boomers almost doubled in the seventies. I would put far more emphasis on demographics to explain both orange periods, than politics. The latter part of the nineties (2nd orange box), the boomers were all in. And their eldest echo were still in their teens.

jesse said...

Sounds like we should be voting SoCred!

DavidL said...

@Leo S

Bill Bennett was the Socred premier from 1975–1986. According to your data: in 1975, the average house was selling for $52K while in 1986 it was $102. According to the BOC Inflation Calculator, $52K in 1975 should be work $117K by 1986 - showing that during one of the longest periods of "right wing" government in BC, that housing did not match inflation.

My personal opinion is that although politicians think that they can tinker with the economy, it has many variables that are simply out of their control.

DavidL said...

@dasmo
I would have thought early 2000s would have been close but then again I was tainted since I was focused on VicWest which was priced much lower than across the bridge.

Certain neighborhoods in Victoria have often been under-appreciated (i.e. good deals to be had). Esquimalt, Vic West and various parts of Saanich have been historically under-priced compared to nearby areas of similar "quality". Heck, Langford was under-appreciated for many years - but this is no longer true.

Mindset said...

Nice analysis Leo. Keep up the fantastic posts.

Very useful info for anyone trying to get past the blanket statements and truly understand thier investment in Victoria RE.

info said...

People who are currently trying to sell their real estate in Victoria tell me of their frustration.

I know of one person who is trying to sell their townhouse. It was bought 2 years ago for $282,000. It has been sitting on the market for months at a price of $245,000. If it manages to sell for list (probably lower), that will be a reduction of over 13% in 2 years. From peak, it will result in a reduction of nearly 20%.

I could list many other examples of this.

Overall, Victoria is down 15% to 20% from peak.

The governor of the Bank of Canada, Mark Carney, recently stated that Canadian real estate is 35% overvalued (Vancouver and Victoria are more than that).

If you are thinking of buying in Victoria right now, don't. Do what the Globe and Mail says and hold off from buying, save your money for a bigger down payment and buy in the future when prices are much lower. They recommend that you rent for now.

patriotz said...

Sherlock Holmes here. Would it be this place?

10-2771 Spencer Rd
Victoria, BC


Interesting info from BC Assessment. It's assessed at $262K, #8 went for $267.5K in 7/2011, and #2 went for $250K in 10/2011. You can clearly see the downward trend.

Like many other would-be sellers they've been blindsided by the tighter mortgage requirements.

Why do they want to sell?

dasmo said...

Sound like its shaping up to be a good time to buy if prices are 20% lower and rates are low and the powers thatt be recomend against it. Worst time will be when they recomend to buy again because then you will have a lot more completion. Sounds more like its a bad time to sell. If you are thinking about selling right now, don't...

dasmo said...

Competition...

a simple man said...

I believe that buying right now would be termed "catching the falling knife"

CS said...

I'd be grateful if anyone would indicate whether, and if so how, it is possible to discover on the Web the BC assessment Authority's valuation of a parcel of land -- as distinct from the total property valuation, including buildings and other improvements.

koozdra said...

I know of a house for sale in the university area that is being sold due to divorce. They are asking 15 thousand above bc assessment. They haven't received a single offer.

DavidL said...

@CS

If the property is in Saanich, then you can use the Property Profile Report to separately list land and "improvements". For other municipalities, I'm not sure...

koozdra said...

I guess they are having problems getting offers over in bear mountain.

"PRICED $59,000 BELOW ASSESSED VALUE! BRING YOUR OFFER!"
http://www.realtor.ca/propertyDetails.aspx?propertyId=12340458&PidKey=-729854136

"VERY MOTIVATED SELLERS. BRING ALL OFFERS."
http://www.realtor.ca/propertyDetails.aspx?propertyId=12144349&PidKey=1163188279

koozdra said...

oops, Jayhawk Pl. isn't in bear mountain.

CS said...

@DavidL

Thanks very much for the link to Property Profile Report, which provides the info I wanted.

CS said...

@Koozdra

Wow, that house on Nicklaus Dr looks like a deal at $188 per square foot, compared with $300 to 350 for apartments at Bear Mountain.

The replacement cost could surely not be much less than $188 per foot, which means the lot is free!

CS said...

Australia's Gold Coast Daily reports that home sellers are getting realistic with cuts in the millions of dollars (link via Mish).

Leo S said...

@CS. My pcs account shows the assessment separately for the land and the improvements for the last 5 years. Click a property and click the tax data link.

@dasmo. I don't think people saying its a bad time to buy makes it a good time to buy. Being contrarian is one thing but in the end the most important is the numbers. Can't see any indication that this is the bottom.

koozdra said...

"Present owner to take down cedar wood from house."

...interesting.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12141940&PidKey=453862521

dasmo said...

no but info was saying it's 20% off peak and it's not that either...now if it was we would be at around .37 for affordability. Not bad compared to past years.

patriotz said...

The replacement cost could surely not be much less than $188 per foot, which means the lot is free!

Perhaps a better way to put it is that the lot is worthless. That's what it means when properties sell for construction cost alone.

Marko said...

"The replacement cost could surely not be much less than $188 per foot, which means the lot is free!"

You could get a similar house built for around $120 per sq.ft.

patriotz said...

Well then that means the lot is worth about $250K, assuming the house would sell for $699K (which doesn't seem terribly likely).

What were these lots going for a few years ago?

CS said...

@Marko

"You could get a similar house built for around $120 per sq.ft."

You could if you are in the business or have the right contacts, but could anyone? I mean if I went to two or three contractors for a quote, is it likely I'd get a price that low?

a simple man said...

$120 sq ft? - now that makes me happy.

New house in Oak Bay that much closer.

dasmo said...

120 doesn't sound too far off, it is cheaper the larger it is. A place might cost a similar price if it was 2500 sq ft. 120 would make the place about $450k to build. It doesn't look custom to me. Standard Vinyl windows, heat pump with forced air, wall panel construction with prebuilt roof trusses and a cheap roof saves more money than a hot tub, a granite countertop, and a sprinkler system costs ;-) Especially when the developer can buy all this in bulk.
$250k for the lot sounds about right for there.

Just Jack said...

The cost of constructing the home along with the current value of the land is a nice starting point. But with more and more homes selling below their cost to build, the cost "new" becomes irrelevant.

The home with the garage and landscaping might cost $450,000 to $500,000 to build today. And if had to buy land in that location TODAY it may cost you $250,000. That makes the asking price of almost $700,000 seem attractive.

But when the Vendors built the home, the owners bought the land for around $165,000. So, the vendors are still likely above their "actual" construction costs.

dasmo said...

I agree J $699K is more like list price than a sale price. They aren't that motivated I guess.

DavidL said...

Housing affordability eroding, RBC says
Higher home prices coupled with slightly higher mortgage rates to make home ownership slightly less affordable over the past three months, Canada's largest bank said Monday.
...
Indeed, Vancouver is skewing the numbers for the rest of the province. In Victoria, for example, the bank figures the percentage of income needed to carry the costs of a mortgage at market prices is almost half the share in Vancouver for some housing types.

Just Jack said...

Are builders meeting the demands for new homes in Langford and Colwood?

There are 48 new homes listed for sale in Langford and Colwood and in the last 30 days only 2 have sold. At the same time 9 more have been listed for sale.

15 months of inventory and new homes being listed at the rate of 4.5 for every single sale.

At the same time the sale of pre-owned homes built between 2007 to 2011 had 7.9 months of inventory with 10 sales in the last month and 16 new listings or 1.6 new listings for each sale. Still a bearish market, but not the start of a slaughter like what is happening in the trades.

Not good news for those in the trades as unemployment will continue to rise. It's time to pull the plug on that plumbing, electrician or roofer job and either re-locate to Alberta or change vocations to something like a credit counselor or repo man.

Because the trades in Greater Victoria are becoming a sunset industry.

dasmo said...

Well the building boom is over but there are plenty of roofs to be redone, knob and tube to be upgraded, and a lot of failing drain pipe out there. Maybe now everyone with a small reno can actually get a quote....

Just Jack said...

A look at condominium construction is made more difficult because of pre-construction sales.

Better to concentrate on new and built condominiums in the Victoria core districts.

There are 35 condominiums for sale that were built in 2011. Last month 3 sold and 11 more were listed. That is 11.7 months of inventory and almost 4 condos being added for each sale. Which is a bit better than pre-owned condos built between 2008 to 2010, that had 16.4 months of inventory and 2 new listings for each sale.

Pre-construction sales should follow the new and built market closely - but that is not what the numbers show. The month of inventory and rates for pre-construction are half of those for new and built condos which makes pre-construction condos appear to be a sellers market.

But, in my opinion, I don't think that is the case. When it comes to pre-construction sales - trust nothing.

Just Jack said...

Yes, with the end of the building boom, a new roof on your home might just come down from $10,000 to $3,500 where it should be.

a simple man said...

Any stats, Marko?

DavidL said...

Desperate sale? I see that 1035 Thistlewood Dr. (MLS 310181) sold for $560K - which is $98K (14%) less than the assessed value and $125K (18%) less than the original asking price.

Just Jack said...

When it comes to Langford and Colwood, 65 percent of all the sales are for homes that were built after 2000. That does not leave a heck of a lot of demand for homes built before then.

So what about those love shacks that were built in the 1990's and have never been updated.

Like the recent sale on Bellamy. This 1995 built home with a mortgage helper in the basement sold for $20,000 less than it was bought for in June 2007.

Alexandrahere said...

Here are my stats for last week 20-26 Aug:

SFH: In Vic, OB, Esq, SE & SW with a min of 2 beds and 2 baths & priced between $375K & $775K.

Sold: 18
Avg Sale Price: $555K
Med Sale Price: $540K

Four sold with 2ndary suites (much less than usual of over 50%)

50% sold under BC assessment

Condos' & Townhomes:

Min 2 beds & 2 baths in Vic (including downtown), Esq, Oak Bay, Saanich East & most of Saanich West.

Condos:
Sold 14
Avg Sale Price: $322K
Med Sale Price: $298K

71% of these condos went for less than BC assessment.

Townhomes: Sold 2
One went for $359K (well below assessment) and the other sold for $400K.

Average single family dwelling sales since the beginning of the year were down but condo sales were up considerably.

Alexandrahere said...

Kind of an interesting Web Site.....if only it was used more often.

"Condo Advisory Rate & Review"

Scroll down to 1061 Fort St at the Mosaic.

Only one review but the responses to it tells the story. I like the one comment of "at night you can see light coming through the top of the drywall"

dasmo said...

RE 1035 Thistlewood Dr... classic case of over pricing. $685 seems a bit much unless the place had been updated throughout which it wasn't. Assessment is high IMO. the place is probably due for a bunch of upgrades.

Just Jack said...

Are the new CMHC regulations making lenders nervous on financing condominiums in excess of million bucks?

I think any banker is out of his/her or their collective gourd to okay a loan for a million bucks in Greater Victoria for a strata condominium or town house. Not that we don't have some very nice water views, but so does Prince Rupert. We just don't have the population size to support a stable market for million dollar sky boxes.

Would that be the reason why a strata town home with an exemplary water view complete with access to a sandy beach in Cordova Bay sold for $975,000. Which is $50,000 more than the same town home sold during the last real estate boom in 1993.

koozdra said...

@Just Jack
Thanks for these updates. Keep them coming.

dasmo said...

Ouch! Only 50K more than in 1993? Maybe it hadn't been kept up? It must have been pretty nice in 1993 to fetch almost a million back then!

Just Jack said...

It's all about the ability to finance. If you can't finance it, it won't appreciate.

Such as cooperative condominiums and some of the older manufactured homes. The last decade is a market boom that should never have happened.

JustWatching said...

simple man,

Marko may be MIA in Croatia. Here are the stats you requested.

Victoria BC Real Estate Month-to-Date Statistics August 27

Net Unconditional Sales: 358
New Listings: 810
Total Active Listing Count: 4,813

We will probably see 450 sales this month. Last August there were 542. VREB will need to bring in a spinmeister.

Marko said...

In Austria for a few more days before heading back to Victoria. I checked out quite a bit of real estate in Croatia and some here in Austria, I'll have a few youtube videos coming up when I get back.

Monday, August 27, 2012 8:00am

MTD August
2012 2011
Net Unconditional Sales: 358 542
New Listings: 810 1,200
Active Listings: 4,813 4,944

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

SFH MTD Average = 583k
SFH MTD Median = 525k

Condo MTD Average = 328k

DavidL said...

@JustWatching @Marco
Thanks for the stats! Are 92 more sales achievable in the next 5 days?! It looks like the SFH average and median have been sliding a lot this month.

@Alexandrahere
Thanks for the stats and condo review links... Very interesting.

koozdra said...

Great news. Compared to the most overpriced and unaffordable city in all of Canada, Victoria is affordable.

http://www.timescolonist.com/business/Housing+affordability+improves+Victoria/7154528/story.html

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