Tuesday, August 28, 2012

Tuesday's Monday Update

MLS numbers courtesy of the VREB via a dead heat between JustWatching and 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 yesterday  (previous weeks in brackets)
Net Unconditional Sales: 358 (254, 153, 75)
New Listings: 810 (620, 397, 207)
Active Listings:  4813 (4834, 4834, 4836)
Sales to new listings ratio: 44% (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: 11% or 9.1 MOI

Prices are weak at the moment, with the SFH average at $583k, median at $525k, and condos averaging $328k.  
Sales and new listings balance have recovered slowly from the terrible levels of the start of the month to just similarly bad as last year.   Too little too late for this month where we will likely come up 100 sales short.  However if the momentum continues maybe September will be better.  Otherwise we will be pushing 11 months of inventory for August with predictable pressure on prices.  

225 comments:

1 – 200 of 225   Newer›   Newest»
LWilliams said...

Fuuuuurst

a simple man said...

Thanks Marko and JustWatching for the stats - I appreciate it.

Looks like August could be a very bad month.

And what is with this "greaterfool" behaviour for the first comment?

LWilliams - still believe that there is no downward pressure on prices for houses over $1M?

DavidL said...

@a simple man
And what is with this "greaterfool" behaviour for the first comment?
LOL! Very funny ...

Granted that a few extra sales will slip in before the end of the month - but I would be surprised to see anything above 420.

info said...

Thinking of buying in Victoria?

Now is not the time. There will be better opportunities at significantly lower prices within the not too distant future.

Prices are currently drastically overvalued. Even Mark Carney, the governor of the Bank of Canada, says that Canadian real estate is currently overvalued by 35%.

The government is in the process of tightening mortgage lending regulations. This will mean less people will qualify for mortgages and for less money. Don't think of this as a negative thing preventing you from buying a house right now. Tighter rules will force house prices down, making it easier for you to buy within 12 to 18 months. This process always happens when house prices get to be too high. It happened all over the US and almost everywhere else in the world recently.

Your patience will pay off. You will thank yourself some day for holding off from buying right now.

DavidL said...

@info
Even Mark Carney, the governor of the Bank of Canada, says that Canadian real estate is currently overvalued by 35%.

Can you provide a link? Google doesn't seem to find any valid reference to your statement: https://www.google.ca/search?q=mark+carney+"overvalued+by+35%"

a simple man said...

info - I agree - I believe what you are saying and have held that general philosophy for the past 2-3 years, but I cannot recall Carney making that blanket statement for Canadian housing (maybe condos?, but I am doubtful).

We have to be careful to only present facts here or we will quickly be written off by those who benefit from continued house appreciation.

MD80 said...

I don't want to appear to be speaking on behalf of 'info' but here, again, are my thoughts on this 35% business:

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. In other words, by this measure alone, house prices appear to be 35% overvalued. 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.

http://www.cbc.ca/news/business/story/2011/06/15/carney-banks.html

DavidL said...

@MD80

Thanks for attempting to explain. The average Canadian house price (in 2011) of 4.5 times the family income is a 28.5% increase over the 25-year average of 3.5 times.

In 2010, the the ratio in Victoria peaked at 8.5 times - but it is now beginning to fall.

dasmo said...

Rates do play into it since we don't buy houses with cash. So if rates don't go up there won't be as much downward pressure on prices it's as simple as that. I can entirely agree you would be better off buying for a lower price and a higher rate. I also dont see a lot of pressure to buy right now vs rent so i don't see any problems with waiting. However waiting is passive. I say if you see something you like do your homework, run the numbers and offer what you think it's worth. Beats waiting and hoping and waiting and hoping....

a simple man said...

or waiting, saving and enjoying life.

Leo S said...

I'm waiting for this.

dasmo said...

waiting, saving and enjoying life is a fabulous idea!

totoro victoria said...

A house for $17,500... maybe we should all be buying in the states right now.

Leo S said...

At least it'll be lucrative for the locals that are..

CS said...

Re: What Carney said

The Huffington Post has an indirect quote:

"In comments to the House of Commons finance committee, Carney said Canada’s housing market is overvalued by 35 per cent. While house prices historically in Canada have hovered around 3.5 times average income, they are now at 4.75 times average income."

So either DavidL's quote is correct, or HuffPo got it wrong.

a simple man said...

thanks CS - that sounds pretty solid to me.

Party on, Garth.

patriotz said...

While house prices historically in Canada have hovered around 3.5 times average income

Well this part is wrong for sure. Carney said it was 3.5 over the last 25 years, which were the most bubbly 25 years ever. The historical norm is lower.

DavidL said...

@CS

It was not my quote. It was made by info and then "explained" by MD80.

Here's the Huffington Post link from August 26th: http://www.huffingtonpost.ca/2012/04/26/vancouver-housing-market-correction-rbc_n_1456758.html

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

That 17k house might not be lucrative in their lifetime if it's in a neighbourhood like this

Although they are 28 so they at least have some time on their side...

Just Jack said...

After a brief time at the beginning of the month when the months of inventory shot over eight months, Oak Bay's month of inventory has dropped down to 5.5.

The sales to new listings ratio also fell back to 65%.

But it came at a cost, as the average purchase price ($705,000) dragged down to close to the average assessed value ($719,680) for those property listed and sold in the last 30 days. Since the median and the mean came within $75,000 of each other, the distribution of sales in the last 30 days showed less high end outliers than before.

In summary, you no longer need to be a millionaire to buy in Oak Bay - but it helps.

Just Jack said...

Compare Oak Bay to what is happening in the heartland of Greater Victoria's marketplace - Saanich

473 homes for sale with 76 sold in the last month and 166 listings added.
6.22 MOI
46% sales to new listings ratio

Average sale price of properties listed and sold in the last 30 days $611,940 as compared to their lower average assessed value at $559,428

And the average selling price at $586,909 is close to the median at $562,000. Which indicates a fairly normal distribution from a low around $380,000 to a high of $750,000.

Which is incredibly high by national standards. Low by Vancouver standards and I'd guess similar to Toronto.

But for the last dozen years we have had a powerful economic engine driving our small community of 350,000 which has swelled our prices.

About said...

Remember that house that sold on the corner of estevan and caddy bay across from Pure Vanilla? I remember a comment regarding that sale - something like 'Nearby residents must be shaking in their boots' because the price was low like 480 something. Anyways, it was rented about 5 minutes after possession and now it's got a rezone application sign up for duplex.

$480 something is actually what we picked 2434 caddy bay up for - I remember Simpleman watching that one closely wondering about what we were doing with it.

Just Jack said...

In the Victoria, Westshore and Peninsula areas there are some 109 new homes for sale. In the last 30 days 10 have sold and 30 more have been added to the inventory.

10.9 months of inventory
33% sales to new listings ratio.

Looking at what the market is paying for new construction less the purchase price of the land gives us these kinds of all in construction prices.

For a 1,600 square foot two storey home with single garage -$156 per square foot.

For a 3,000 square foot which includes a 1,200 square foot basement suite and double garage -$117 per square foot.

A custom built 3,150 square foot home with a 1,600 square foot basement suite and double garage -$147 per square foot

And if you live in an affluent neighborhood like Fairfield and Oak Bay and intend to build your dream home. A builder is going to get you at a premium of $215 per square foot for a 3,800 square foot home with a finished basement of 1,150 square feet with a double garage.



a simple man said...

@About - right you are. That house across from Pure Vanilla is requesting zoning for a duplex - getting the renters' derelict coke machines out of the driveway may go a long way for winning the neighbours' favour for the application.

I am glad that your investment on Caddy Bay is doing well.

dasmo said...

@about Nice one! 480 for something livable in that neighborhood is good. Usually nothing is bellow 600.

info said...

Canada's housing market overvalued by 35% according to Mark Carney.

This comes from a Huffington Post article. Whispersfromtheedgeoftherainforest.blogspot.ca posted this on August 21, 2012.

a simple man said...

@info - I stand corrected, and my apologies.

here is the exact quote from the article in HP:

"In comments to the House of Commons finance committee, Carney said Canada’s housing market is overvalued by 35 per cent. While house prices historically in Canada have hovered around 3.5 times average income, they are now at 4.75 times average income."

a simple man said...

So if all Canada is overpriced by 35%, does that make Victoria 50%, since it is bubblier here than anywhere in Canada, save Vancouver?

Alexandrahere said...

I see Scotia Bank is buying ING Direct Canada. They will run it as a separate branch.

dasmo said...

You mean Huffington Post says Mark Carney says...
this is what he actually said "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."

Doesn't sound as sexy as the Canadian is overvalued as 35%! though....

dasmo said...

insert "market" in appropriate spot please....

a simple man said...

I have to trust that when the HP says that is what he said, it is true.

patriotz said...

HP did not quote Carney directly, which means they may be drawing an inference from what he actually said.

a simple man said...

This is a possibility - feel the earthquake at 3:20 pm today (3.3 magnitude, epicentre 10 km from Langford)

DavidL said...

@ Alexandrahere
I see Scotia Bank is buying ING Direct Canada. They will run it as a separate branch.

When I bought my house in 2002, I got a 3-year mortgage with ScotiaBank. I had nothing but hassles ... I was obliged to pay property taxes to a no-interest holding account, only to have ScotiaBank screw things up and not pay my property taxes on time. Extra payments on the mortgage were allowed, but required a discussion with a bank teller each time I made them. When the mortgage renewal came up, I was offered their very worst rate (for their best customers?)!

So ... I switched to ING Direct. ScotiaBank "added insult to injury" by trying to charge a mortgage cancellation fee of $3500 when contacted by ING regarding the transfer. ING Direct was "gracious" enough to suspend the transfer for a week and then resubmit the paperwork to ScotiaBank.

ING Direct has been great ... very low interest rates (variable rates were prime - 0.8% for the first five years, renewed at prime - 0.6%), it has been very easy to make extra payments, etc. I doubt that the purchase on ING Direct by ScotiaBank will be good for consumers.

DavidL said...

Yup, felt the earthquake. I initially thought that it was some local blasting (happening just a few blocks away).

Leo S said...

Lowball of the week. 3277 Linwood. Original asking price $534,000, assessed at $521,800.
After 126 days on market it had dropped to $429,000.

Sold today for $380,000.

A good example of what happens when you need to sell. Sure the place looks like a dump, but that's still quite the price delusion.

Leo S said...

Or maybe it's a tie. 5020 Cordova Bay Rd goes for $500,000. $78,000 under ask, $200,000 under assessment.

Just Jack said...

Hmmm, I thought 2434 Cadboro Bay sold for $488,000 back in May
2011.

Fixed up and then listed for 91 days first for $669,000 then $649,000 then $639,000 and then rented out.

S2 (Just Jack's wife)

Leo S said...

Hmmm, I thought 2434 Cadboro Bay sold for $488,000 back in May 2011.

I don't have a record of that sale. But how is it related to the sale on Cordova bay?

dasmo said...

Now thats what I'm talking about. Lose the "lowball" stigma and make it happen. Prices are set by a transaction. 380 is a pretty good negotiation. Maybe it's even lot value minus demolition! I thought I did good at 70k under assesed but 200!

Leo S said...

Maybe it's even lot value minus demolition!

Could be.. Assessed land value is $425,000. I actually quite like that area and one of the few streets close to Victoria that has 10,000+sqft lots.

totoro victoria said...
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totoro victoria said...
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totoro victoria said...
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koozdra said...

@Leo S
I saw that reddit thread also. Perhaps one day when the sellers finally discover that the younger generation is not made of money.

koozdra said...

"$1000 Entertainment Bonus with purchase!"

This is even more difficult than the decorating bonus. How do you prove something was bought for pure entertainment?

http://www.realtor.ca/propertyDetails.aspx?propertyId=12345842&PidKey=-1082580234

Mindset said...

Dasmo said: "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." Doesn't sound as sexy as the Canadian is overvalued as 35%! though

Just a quick correction, a reduction from 4.5 to 3.5 is a 22% reduction.

About said...

S2 - thats right, 488 last may. We were not worried about the stove thing - did not have plans to rent it up/down. Was an easy reno.
Selling was just to test mkt, we knew it was slow/would likely not sell - but there was no good reason to not try.
Rented and cashflowing since we put tenants in place.

About said...

More detail on 2434 caddy bay rd. was not bought as a flip (though appeared that way since it was reno'd and put on the market).

The numbers added up for us as a rental meaning in our own opinion we can rent it and make money even taking the following into consideration:
1) Mortgage including room for increasing rates
2) Expenses including vacancy, repair, prop taxes etc.
3) A rental range we think the market will bear

Plus, $488 was an acceptable price for us. It's a nice big house on a nice big lot with lots of parking in a nice neighbourhood across from a nice school and down the street from the beach, shopping, rec centre parks and more.
Plus it has seemed to attract families as tenants which is nice as well.

we aren't forseeing *having* to sell it anytime soon, but there is a reasonable amount of flexibility in the selling price which would clear us from any debt on it so we bought it. Obviously :)

patriotz said...

Just a quick correction, a reduction from 4.5 to 3.5 is a 22% reduction.

From a 29% overvaluation.

About said...
This comment has been removed by the author.
a simple man said...

@About - good for your guys - you obviously thought it through.

Also makes it a lot more cost effective when one of the partners in the acquisition is a tradesman, as it cuts down reno costs as you can do some of the work yourself and get other trade connections to do the remaining work at a better cost than the general public could generally get.

JustWatching said...

Earlier this week I predicted that real estate sales would be down 20% compared to last August.

Agents are already talking about sales bouncing back in September. Is this historically true?

Sept. 2011 - 436
Aug. 2011 - 542

Sept. 2010 - 395
Aug. 2010 - 425

Sept. 2009 - 437
Aug. 2009 - 764

Sept. 2008 - 512
Aug. 2008 - 517

dasmo said...

So I'm curious where HP got the 35% from then? from the HP article "In comments to the House of Commons finance committee, Carney said Canada’s housing market is overvalued by 35 per cent." Anyone have a link to an expanded version of those comments?

totoro victoria said...

Sorry for triple posting about your property About and the stove thing... Secondary suites aren't legal anywhere in OB so there are plenty of other folks with that situation. Maybe they will change those rules one day.

For you it made sense at 488 and glad about that for you but for me as a buyer at the higher value the numbers did not work. I do love that area though and families with kids at Willows will always be interested in a rental at the crosswalk to the school!

a simple man said...

JustWatching - love those stats - thanks.

Leo S said...

Yeah I don't think Victoria has ever had a fall bump. Seems to be more common in Ontario.

CS said...

Here are excerpts from what Mark Carney said to the Commons Finance Committee on April 24:

Hon. Scott Brison:

TD Bank estimates that the housing market is overvalued by 10% to 15%. Craig Alexander is saying that it could have a significant impact with a correction. Have you done a study on overvaluation? What would be the percentage ...

The Chair:
I guess that's a yes-or-no answer, Mr. Carney.

Mr. Mark Carney:
Not publicly.

and later:

Mr. Wayne Marston (Hamilton East—Stoney Creek, NDP):
Thank you, Mr. Chair.

... I want to pick up on Mr. Brison's question. He was talking about the housing bubble. Are we in a housing bubble? If we are, relative to household debt, where does it fit in the equation? Is there something the government can do to shelter Canadians from this bubble, from the potential harm they face?

Mr. Mark Carney:
Thank you for the question.

I wouldn't use that term. With respect to the level of house prices, I would note that there are local markets in housing. I'm going to come back to that.

Overall, the level of house price valuations across Canada is about four and three quarters times income. The historic average is about three and a half times income. That gives you a sense of the extent to which house prices have moved.

What's different now from the historic averages is obviously the overall level of interest rates. It's not just the overnight rate of the Bank of Canada, but it's five-year rates and ten-year rates, which are influenced by us but also influenced by global interest rates. I mean, the ten-year U.S. government rate is less than 2%, and that certainly has implications for the Canadian ten-year rate as well.

As I think we're all aware, mortgage rates are extremely attractive, and that accounts for some of the move up in valuation. The point we've tried to make is that you can't rely on those rates staying there forever, so an individual should size their debt appropriately.

The level of housing activity, particularly the level of condo activity in some metropolitan areas, is quite high. In fact it's reaching in Toronto to levels last seen in the late 1980s, even adjusted for population. We have some concerns over those developments.

The second thing is that even within that national average there are higher levels of valuation, by a variety of metrics. We don't just look at one metric. There are some firmer valuations in some metropolitan areas as well. There are cases where valuations are firm, shall we say, and there's probably more downside risk than upside risk to the future evolution of prices. That's an environment that warrants caution.

I'll go back to my earlier answer—I don't want to use up all of your time—and a variety of steps that have been taken that have slowed the overall pace of not just credit card debt but the overall pace of debt accumulation of households. It's slowed some of the developments in the housing market.

I think what we're reinforcing is that the interest rate environment is exceptional, and exceptions eventually come to an end.

Note that "four and three quarters" is 35.7% greater than "three and a half".

Just Jack said...

Seasonal fluctuations typically follow the school/vacation schedule in most cities. Victoria and Oak Bay could be different as a greater percentage is made up of Double Income No Kids and retirees.

dasmo said...

Thanks CS. So the statement in the HP had some drama added. What he said is that ratio is higher than the long term average so we need to be careful. I totally agree. However I don't see any reference to overvalued. If rates stay low long term that particular measure could be revised. That said, can't argue with him that RE is expensive for regular folks right now...Especially in Van.

DavidL said...

A few years ago, a blogger called DoubleAgent was providing HHV community with excellent data and analysis.

Here's a chart that DoubleAgent created, showing that the 425 sales in August 2010 were the worst in ten years:
http://i51.tinypic.com/2m3nrtf.png
Granted that last year, August sales picked up to 542, but will this years sales number set a new decade low? Only 33 hours to go ...


August 2011 sales: http://househuntvictoria.blogspot.ca/2011/09/august-sales-modest-bounce.html
August 2010 sales: http://househuntvictoria.blogspot.ca/2010/09/this-is-bad-very-bad.html

totoro victoria said...

Of course people are spending more on houses. Interest rates are extremely low meaning borrowing power increases which means prices can rise if other market conditions are stable-ish.

If you have a long-term mortgage I don't think you are at higher risk than if you borrowed at higher rates and lower purchase price. Those with shorter terms who bought high will eventually be at risk when rates rise and they have to renew or sell and prices have dropped because rates are higher.

a simple man said...

DoubleAgent has never returned from holidays down south - I think he may have had his fingers doubly-slapped by VREB whip.

patriotz said...

If you have a long-term mortgage I don't think you are at higher risk than if you borrowed at higher rates and lower purchase price.

You are at higher risk simply because you owe more money than the person who bought at a lower price. Remember he has all the same choices as you going forward. Actually he has more because he's less likely to become upside down or to have <20% equity in the case of the original mortgage being uninsured.

Leo S said...

DoubleAgent has never returned from holidays down south - I think he may have had his fingers doubly-slapped by VREB whip.

yeah it's too bad. He had great stats that only an insider can reproduce.

dasmo said...

One can't argue that you should not buy beyond your means. If you are purchasing at 2.99% and at the bitter edge of affordability you are an idiot plain and simple. You should do the math at 6% to be safe. This way the low rates are just a bonus period, even if they last for a decade. If that math means you can't buy now then don't. Maybe prices will come down maybe not but the bottom line is you can't afford to buy right now, it's that simple. Renting is cheaper than buying in Victoria so no pressure there. The tricky part comes if you can afford it. Then the low rates right now play into it. The lower sales activity gives you an advantage in negotiating power. Waiting can maybe pay off but if you can negotiate tomorrows price today then why not act now while rates are low and there is little buying competition?

Just Jack said...

How long do you want to make mortgage payments?

When you go to buy a new car. You can choose to pay off the car in 3 years or 5 years and now maybe even 7 years. Now, that car depreciates in value every year and chances are the longer you finance the car, the more likely the car will have a lower value market value than what is remaining in the payments until the last year. Cars just depreciate quickly.

So why do you take out a 25 year loan for a house? The answer - because houses always appreciate. When prices are increasing, the average Joe is willing to make payments over a longer and longer time.

What happens if you have say 3 or 5 years of flat prices then. I think people become less willing to take on long term debt. Maybe the want to only have a mortgage for say 20 years and hope that prices will again appreciate.

What if prices are going down? People don't stop buying homes, they just are far less likely to take on long term debt. Then they may want to pay the mortgage off in 10 or 15 years.

So, buy when it is right for you. If you can afford to buy in this market and pay off the mortgage in under 15 years - whose to call you wrong in your purchase.

Now, don't you feel stupid for financing your Smart fortwo car over 7 years?

patriotz said...

if you can negotiate tomorrows price today

Then it's today's price. Tomorrow's price is what houses sell for tomorrow.

Leo S said...

Waiting can maybe pay off but if you can negotiate tomorrows price today then why not act now while rates are low and there is little buying competition?

That all depends. If prices are dropping, you might be able to negotiate tomorrow's price today, but tomorrow you'll be able to negotiate next week's price.

Just Jack said...

"if you can negotiate tomorrows price today"

I'm waiting for the day after tomorrow's price.

S2 (Just Jack's wife)

dasmo said...

I have never financed a car or bought a new one...

totoro victoria said...

"I have never financed a car or bought a new one..."


Ditto. I hardly buy anything new, including houses. I do; however, continue to buy real estate is this market.

Patriotz - maybe. Maybe not. Depends on all the factors because lower price and higher rate with only 20% down and no foreseeable way to may lump sum payments (many folks situation) likely works out to the same or similar mortgage payments for ten years if you have a ten year rate. You are correct if you face the risk of selling after depreciation tho.

Just Jack said...

Then why do you finance a house?

koozdra said...

"All FOUR quarter shares available for ONLY $49,900 each!! You're actually buying two separate hotel rooms for only $49,900 for both! Professionally managed and marketed by the Hotel management team and affiliated as a Westin Hotel. This is the easiest revenue property an owner could ask for."

I guess the seller is so tired of making so much money that they would like to share with the world this amazing investment opportunity. Bear mountain is finally living up to it's name. I'm surprised they didn't call it Bull mountain.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12152964&PidKey=310207273

dasmo said...

Because by the time it takes me to save the amount to buy it I will be very old and wouldn't even have had the chance to have lived in it. It would be chasing a moving target that, over the long haul, is always going up. If I borrow now and buy with that borrowed money then A. the money I would be spending on rent is going to the house (which is one part that would make saving all that money more difficult). and B. inflation works to my benefit making the burden of my debt less and less. and C. money is cheap right now so it would be better off to keep your cash if you have it and borrow the money.

dasmo said...

confusing ad...am I getting two hotel rooms and all four quarter shares for 196k?

patriotz said...

"Patriotz - maybe. Maybe not. "

We were talking about risk, not amount of payments at time of purchase which is a known factor. The person who has a higher level of debt has more risk of future interest increases simply because he owes more money.

Just Jack said...





Carla Wilson has another advertisment...I mean investigative journalism piece in today's Business section of the TC.

"A community grows at Westhills

Huge project bucks trend in home building and sales"

S2 (JJ's wife)


totoro victoria said...

"Then why do you finance a house?"

A house is an appreciating asset, while cars depreciate. At the end of the 25 year mortgage I have something worth more than today.
I'm happy to walk and bike for health reasons and the car I drive does really matter to me.

I have to live somewhere and rent vs. buy: rent is cheaper for me because I buy properties with suites.

For my rental properties, they are cash flow positive which means I make money each month after taxes and not counting principal paydown.

Why would I not finance the right home? The power of leverage works in my favour if I hold long-term.

totoro victoria said...

Sorry, should be the car I drive does not really matter to me (beyond being reliable and fuel efficient).

totoro victoria said...

"We were talking about risk, not amount of payments at time of purchase which is a known factor. The person who has a higher level of debt has more risk of future interest increases simply because he owes more money."

Yes, I agree that is a real and identifiable risk, but there are risks in not buying now too for those that have only 20% to put down. Will prices really go down that much? How much will interest rates rise?

I calculate it a bit differently. It is not the cost of the house but whether it is cheaper than rent overall and how much the rental income offsets other risks over the ten year fixed term, along with how much I can pay down over the 10 years (ie. what sort of mortgage will be left if I double-up?). I also take into account my personal circumstances and when I want to retire.

koozdra said...

Totoro Victoria

You are in a situation that the VAST majority of the readers of this blog are not in. If you are looking at your own personal situation when you are giving advice, then it's not that useful to someone like me who did not buy into the real estate market when it was half the cost it is now. Now is absolutely the worst time to buy property.

"Will prices really go down that much?"
Yes, absolutely. If you consider what has lead to this bubble, you will realize that these factors are no longer present. What do you think will sustain prices at these ridiculous levels?

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

Most of those that bought pre 2007 would likely say that buying a home was their best investment they have ever made.

Those that bought since, have not had the appreciation as those before them, their response would be more tempered.

Now face five years of falling prices and as Dasmo and Totoria have shown, they will not finance an asset that is falling in value or at least not finance it as long as when property values were flat or appreciating.

The key, as they have said, is that they are willing to finance an asset that appreciates in value, and who wouldn't the greater the appreciation, the greater the return on their equity. And the less that they put down or more that they leverage the property, the greater that return becomes.

But times have moved on, and appreciation has evaporated from the marketplace and the volume of sales has diminished along with this disappearing appreciation.

As prospective purchasers become more risk adverse, they still will take advantage of the low interest rates, but will want to pay off that debt sooner or commit less of their income to debt servicing.

So how many years are you willing to spend paying off a debt that shows no property appreciation? Or put another way, how much of your income are you willing to commit to an asset that shows no appreciation?

I would suspect, that for a market with declining prices, the length of time, a buyer is willing to service that debt will be in relation to the rate of decline. The harder prices fall, the shorter period of time a buyer would be willing to spend paying back that mortgage and/or the less of their income they would be willing to commit to debt servicing.


dasmo said...

Nice one Jack...chuckle.
Anyway, These are not reasons to buy but rather reasons we finance. certain things are within the scale of saving and buying others are not. If you do plan on buying your house cash then this is where you need to start. you could probably get it for 49K. Not a bad financial move possibly.

koozdra said...

Desperation abounds.

"SALE BONUS - TRIP FOR 2 TO MEXICO!"

http://www.realtor.ca/propertyDetails.aspx?propertyId=12146291&PidKey=1766002765

Just Jack said...

Time shares could be profitable. But you have to be a wise investor. It isn't the property that you are buying but the income stream that flows from it. In that case it is best to look at the last three years of income and expenses along with any immediate repairs to calculate what you should pay for the quarter ownership in the suite.

Even though an identical suite has sold in another building, that does not mean the quarter ownership you are buying is worth the same. You should be comparing income statements to each other not comparing the physical assets of one to the other.

In that case it may be more profitable to pay more for a one-bedroom that you can rent in the summer than buy a two-bedroom you can only rent in the winter.

a simple man said...

@Koozdra - you are the master at finding these funny gimmicks. Keep it coming.

I always find these incentives interesting - I would be more apt to tell the agent to keep the trips and discount the price of them from the purchase price as then i can decide what to do with that money saved.

Lastly, a lot of readers here are either owners now or have owned previously, so don't assume that we are all property virgins.

Just Jack said...

So how do prospective buyers view the risk of buying property. I suppose you could look at the volume of sales as a measure of risk. More people are willing to buy when risk is low as compared to when risk is high.

Here are some monthly figures showing condominium sales in the core districts for most of August in each year

1998-69
1999-62
2000-59
Interest rates were higher and prices were in the doldrums - people seemed not to care about buying real estate - buyers were risk adverse

2001-123
2002-128
Two back to back years of increased volumes and prices. Buyers returning to the market

2003-169
2004-145
2005-152
2006-157
Four great years where it seemed you couldn't lose on real estate. The years of the Risk Takers. The only thing holding people back was affordability.

2007-195
Hello Zero down and 40 year amortizations

2008-154
Global Economy melt down

2009-184
What me worry? - CMHC opens up the insurance fund to $600,000,000,000.

2010-100
2011-108
2012-103
Risk returns to the marketplace, but it is seen as temporary only and prices will go up once more - you hope.

totoro victoria said...

koozdra - I took possession of my most recent house today with a 20% downpayment. I'm not sure how I'm in such a vastly different position?

totoro victoria said...

"So how many years are you willing to spend paying off a debt that shows no property appreciation?"

I'm willing to go ten years without appreciation. I will benefit from rental income and principal down payment in the meantime. In addition, my monthly costs will be far less than rent.

Will ten years show prices at where they are now? I suppose they could be factoring in a drop and then rise again. I do expect that after 10 years there will start to be some appreciation.

koozdra said...

Totoro Victoria

You say "I took possession of my most recent house today" and then you ask "I'm not sure how I'm in such a vastly different position?". Are you being serious?

MD80 said...

"I'm willing to go ten years without appreciation." - totoro

I would never be willing to purchase an investment of any kind with no return over 10 years. That's insane.

Yes, ten years from now you would have equity. All of it from your own pocket! Not to mention the costs you would have incurred over that time.

If your personal circumstances are that you are willing to let your investments decline/stagnate for 10 years then yes, you and I are in vastly different positions. I agree with koozdra.


Just Jack said...

For buying and selling properties, 10 years is long term. Before the boom, people were keeping their homes on average for about seven years. During the market frenzy in 2007 that turn over rate dropped to around 3 years.

With flat to falling prices, I think most will have to wait at least 10 years to paydown their mortgage, just to come out ahead of the market to trade up to the next home.

If your plan was to buy a condominium and then to trade up to a house, I think you'll be waiting a lot longer as I believe condo prices will decline at a faster rate than home prices and will stay at trough prices a lot longer too.

a simple man said...

I think we can all agree that each person's position is unique.

I can't wait for tomorrows stats - unfortunately as it falls on a Saturday of a long weekend we may have to wait until Tues morning.

Any chance of getting this morning's stats, Marko or JustWaiting?

Leo S said...

@md80. Have a look back at totoro's posts. Because he/she has extensive rentals, the cost to own those places for 10 years is less than renting the space to live. So in that case it can make sense even if prices are declining.

Of course you could argue that even smarter would be to wait for prices to drop more before buying, but since no one knows precisely what will happen, it's an acceptable hedging strategy to own if that ownership is cash flow positive.

Personally I have no desire to own rental property, so totoro's analysis does not apply to us, but it shows that owning can work if you do it right. Notice how the people on this blog that advocate owning mostly rent out their properties or a suite therein?

Just Jack said...

Remember the good old days when houses were selling in two weeks and at over the asking price.

Well now, you have spend a ton of cash updating the same home, then wait almost a hundred days to sell it.

Like the one that just sold on Newton street near the hospital. Bought in September 2007 for $436,000, updated and now re-sold for $500,000.

And for those that think holding real estate for a long time is a safe bet.

Back in 1994, you could buy a luxury 2,000 square foot condominium in Ten Mile Point for $339,000. 18 years later, it just re-sold for $460,000 or about the equivalent in the rate of inflation. Proving once again the wisdom of Kenny Rogers

"You gotta know when to hold'em, know when to fold'em, know when to walk away, know when to run, you never count your money when you're sitting at the table"

By the way he lost his ranch to foreclosure too.

Just Jack said...

It makes sense to own a rental home when it has a positive cash flow even when prices are declining makes sense to me too.

The problem happens when it comes to sell. The theory is that you can always hold on until the prices come back up. And if you hold the property long enough then your estate can sell the rental at a profit.

With the amount of money that you have to put down on a property in order to make the rental have a positive cash flow seems like a such a colossal waste of a down payment. When you can invest that down payment and get a better rate of return with zero hazels.

Buying a rental property isn't necessarily a bad investment, it just isn't as good as others.

Introvert said...

I'll speak for myself. Having bought in 2009, I obviously don't anticipate the kind of appreciation that late-1990s Victoria homeowners have enjoyed. That type of relatively steep appreciation probably only happens once--unless you live in Vancouver. But I do anticipate long-term appreciation, as most everyone does.

I don't actually care if prices drop by $50k or $100k (or more) in the next few years. I would only care in the event that I wanted to sell my house--which is exceedingly unlikely to happen. I'm in it for the long run. I know the land I'm sitting on is worth a goodly amount today, and it more than likely will be worth quite a bit more 20 or 30 years from now.

Meantime, I'll make sure not to shoot myself in the foot: no HELOCs, no credit card debt, no brand-new cars, no moving (unless you're loaded, why wouldn't you try your damnedest to buy the right house the first time and save yourself from chucking tens of thousands of dollars out the window later on?).

I know that many young-ish homeowners don't take my approach, and so maybe it's not in their best interest to buy. But I firmly believe that buying a house when I did works very well for me and that I won't be disappointed when I'm in my fifties or sixties and decide to sell my house.

Lastly, the majority of renters on this blog (some of whom are former owners) are, by all accounts, all-star savers. They're squirreling away gobs of money for the day they choose to buy a house (again). That's great, and it's smart. I get it. But most renters in Victoria (and anywhere, for that matter) are not good savers. (My albeit brief experience as a landlord has confirmed this view of renters.) Either their jobs suck, which means they don't make enough money to save; or they make enough money but spend it unwisely.

Those in the former group cannot and should not buy a house. For some in the latter group, I submit that it could be advantageous for them to commit to the forced-savings program called paying a mortgage. As long as they followed most of the basics of my approach to owning, they would probably be better off in the long-run than had they rented forever.

patriotz said...

there are risks in not buying now too for those that have only 20% to put down. Will prices really go down that much? How much will interest rates rise?

Those are not risks for those not buying, because nobody has to buy.

Rising interest rates are a risk for someone in debt because YOU HAVE TO PAY THE MONEY BACK WITH INTEREST.

The only risk for someone who rents is rising rents.

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patriotz said...

It makes sense to own a rental home when it has a positive cash flow even when prices are declining makes sense to me too.

Even in Vancouver you can get positive cash flow with a big enough down payment. Makes no difference to the actual ROI.

I don't think there are any properties in Victoria today which return an operating profit under accepted accounting principles, as I've said before.

Just Jack said...

You may not care if prices drop 50K or a 100K in the next few years, but it is going to change your spending habits. And collectively that will cause the economy to contract.

That means high unemployment, which may make your job not necessary anymore.

dasmo said...

I've looked. Victoria proper is a hard place to find cash flow positive rental properties. I know someone who bought a couple in Nanaimo though. But then they got sucked into the allure of the Victoria market and have bough into a property that will be negative flow....

True Patriotz there is no risk in not buying. Renting right now is a good option without question.

DavidL said...

@Introvert
That type of relatively steep appreciation probably only happens once ...
In Victoria, this has happened three times in the past thirty-five years:

$64K in 1977 to $127K in 1981 (98% increase)
$110K in 1987 to $256K in 1994 (133% increase)
$251K in 2000 to $630K in 2010 (151% increase)

Note that when comparing each bubble to the previous one, the percentage increase has been higher while the that mortgage interest rate has been lower (coincidence? - probably not!). Each time, after peaking, the prices have dropped quickly, then plateaued for a number of years before resuming an upward trend. History would suggest that if you are willing to wait, you can "time the market". I recall that there was a similar rapid increase in the late 60's into the early 70's - but I couldn't follow the details back then as I was still mastering diapers and learning to read. ;-)

Historical stats from VREB: http://www.vreb.org/pdf/historical_statistics/YE782011.pdf

totoro victoria said...

"Notice how the people on this blog that advocate owning mostly rent out their properties or a suite therein?"

Yep. I would not buy a SFH without additional rental income because the numbers do not work for me in Victoria ie. I they are more than rent in a nice area for a nice house.

If I hated having an inlaw or duplex or triplex because of renters I would have to change my views on how much is an acceptable cost of ownership, or remain a renter and hope for a price drop.

Patriotz - if you never buy you don't have the ownership risks but hopefully your investment top the returns you would have gained as an owner from principal paydown and the eventual differential as rents rise while mortgage amounts decline through equity paydown.

History demonstrates that this is the less likely scenario but who knows... maybe Garth Turner is right and the sky will fall without a rise interest rates.

There are no absolutes here IMO that apply to everyone the same... except that I would agree that I can't find a SFH without a suite in an area near my kids schools that would rent for more than mortgage and expenses in Victoria right now.

DavidL said...

@Introvert

I agree with your analysis about young homeowners, renters, etc. A lot of people don't carefully consider the long-term commitment required with a mortgage.

Just Jack said...

In those cases falling interest rates sparked consumer demand which lead us out of a recession. This time we will probably have to wallow in the mud longer before consumer spending will pick up, which will happen just about the time the first wave of baby boomers start to join Roy Rogers, Rin Tin Tin and Trigger (dogs and horses go to Heaven too - they just don't poop anymore).

Alexandrahere said...

I see the "West Hills" development will eventually add 2500 new homes and 65% of those will have legal secondary suites. That will put another 1625 rental units on the market....and more than 4,000 more cars on the crawl. This figure doesn't include the new townhomes and condos.

Did anyone look at the photo in this mornings TC of one of the streets? They are going to build bike trails but looks like no sidewalks. Those SFH are really just detatched townhouses. It is making the cookie cutter Gordon Head homes look a heck of alot more appealing.

About personal debt. I have NEVER owed a penny in my entire life except on a mortgage. That means besides interest on a mortgage, I have never paid a cent of interest to anyone. I went without a car until I was 30 years old. But I managed to put my daughter in a private school for her last three highschool years. I never felt poor, broke or hard done by. I did work at 2 and 3 jobs though for about 5 years straight. My daughter who is probably around the same age as the younger bloggers on here learned well. Her and her husband own about 75% of the value of their home in Vancouver city. Other than their mortgage, they have no debt. They also don't have 3 TV's, 2 late model cars,stainless steel appliances and granite counters. Their only real unnecessary expenditure is a fully paid vacation each year.

Many people on here that rent are seemingly fairly financially astute, but so many people (couples) aren't. So the money they "save" by renting versus buying, they toss away on downpayments of new cars, vacations, cell phones, and cheap leather furniture from the Brick. Some of those people with that mentality did manage to buy a home 10 and 15 years ago. If they had not, they would have nothing right now.

totoro victoria said...

You say "I took possession of my most recent house today" and then you ask "I'm not sure how I'm in such a vastly different position?". Are you being serious?

Yes. As far as I can tell many folks here have 20% saved but are waiting for a drop to buy. I bought a primary residence with legal suite right now in this high market.

Nothing stopping many others from doing this except that prices are high and lots are predicting a drop - me too if you look back at my posts. If you read my past posts you will see that my choices are based on my own situation and analysis and not having tonnes of cash to risk. I grew up poor and know how to budget.

If you have more than 20% it likely makes even more sense to wait because you pay off a greater amount of the principal in one shot and even if interest rates rise you will likely be ahead.

You may be making some assumptions about me. I enjoy research and analysis and don't always follow what most other folks think is a good idea. I tend to enjoy blogs like Mr Money Moustache and Early Retirement Extreme. I also enjoy real estate and I actually like improving properties so I'm willing to invest in this where the bottom line works in my favour.

Sometimes doing things differently works out well and sometimes it is a learning experience :). In any event, I look at this blog as a chance to get other perspectives and re-evaluate my analysis. Time will tell.

Just Jack said...

No one wants to die penniless.

Why not! God doesn't allow carry on baggage, so you can't take it with you.

Or how about this on your tombstone.

"I never owned a new car, took a vacation, used a cell phone or had leather furniture. However, I did own a home in Oak Bay, but the kids sold it when I died and bought a new car, cell phone and leather furniture - what the hell was I thinking!"

Just Jack said...

The West Hills development uses Geothermal as a heating source for their furnaces. Right now, they development company is subsidizing those heating costs until there are enough homes on the grid to make it competitive with traditional heating sources.

koozdra said...

I agree with the comments about the younger generation. I am freshly thirty and am astounded by the amount of financial illiteracy that is rampant among people in my age group. A friend of mine didn't know that a mortgage had to be renegotiated after 5 years. He thought that the rate you get is the rate you pay for the life of the mortgage. I have money to get a mortgage to buy a house, but I see that this housing bubble is based on debt. People my age don't save any more. If they want something, they buy it on credit. This is the reason I see a coming drastic decline in real estate. We have to go through a period of debt deflation where some of this astounding amount of debt is repaid. I don't see any way around that. The downside, as Just Jack pointed out, is that spending will decrease. Spending decreases, the economy contracts and the joblessness rate starts to climb.

I have heard some stating the fact that Canadians don't default on their loans, so we won't see a rise in defaults. This might have been true in the past but the stigma against defaulting is not as prevalent as it once was. Canadians used to be fiscally conservative and not take on as much debt as possible. Times are different, defaults are coming.

Just Jack said...

After putting down 20%, the market drops another 10%. Well that's all your money that just went south. You now own an asset that you can't sell with out taking a loss or at best breaking even.

Well, that's alright as long as the tenants are paying the bills. But if you are unlucky to have bought on the outskirts of town, you are probably looking at a high vacancy rate with several months to lease up the home when it goes vacant every two years or so, and most likely lower rents in the future.

With slowing construction, vacancy rates are rising. And that's the hidden back door to a crash in prices. Unlike rising interest rates that only affect you at renewal time. The affect of vacant houses and suites on your pocket book is immediate.

Just Jack said...

So, what has happened in 25 years?

My information only goes back to 1989 or 23 years - but lets call it 25.

Back in August 1989, there were 335 sales of homes in the Victoria Core municipalities and the typical price was $142,000.

Today, the number of sales has shrunk to 135, yet prices have ballooned to $575,000. A four fold increase in home prices!!!!!

At this rate if the number of sales drops to 60, home prices in Victoria will be over 2.3 million dollars!!

Which is like the story of a twin engine airplane when one of the motors quits and the pilot explains that there will be an hour delay reaching the airport. One passenger turns to the other and says. "if the other engine quits we're going to be up here all night"

reasonfirst said...

I'm going to take out a loan so I can pay it back and benefit from principal paydown.

totoro victoria said...

"I'm going to take out a loan so I can pay it back and benefit from principal paydown."

It is a bit disheartening to have to repeat past discussions but here goes:

Step one - is this good debt or bad debt - in houses my opinion is that good debt makes you money in the end and as much or more than you would have made by investing the down payment and renting. Best to make sure you are taking on good debt.
Step Two - how do you figure that out. Well, I would suggest Roger's tools are good. So you factor all your expenses including lost opportunity costs on your down payment against the the principal payments and any differential between renting and buying. Appreciation is a bonus if you get it.

In my case, the numbers work because of being a duplex and the fact that I have a 10 year term at 3.79 giving me some peace of mind. My monthly cost of housing will also decline and is much less than rent.

patriotz said...

I have heard some stating the fact that Canadians don't default on their loans

Utter nonsense. Any falling RE market sees increasing foreclosures (the rate is very low as long as prices are rising because those behind on their payments can simply sell and get the equity).

There has been a huge surge in foreclosures in the Okanagan in the last couple of years. There are plenty up Island too. Always the same cause - falling prices.

totoro victoria said...

Yep. Foreclosure rate in the Okanagan is 5%... much much higher than in 2008. I never used to see foreclosures advertised at all.

dasmo said...

in 1989 a comic book cost $.75 now they are $3-4. That's more than a four fold increase!

Just Jack said...

A house cost $60 a square foot to build in 1989. Today that same house would cost $120.

A vacant lot in Langford was $75,000 and today its $275,000.

Interest rates were 11% and now they are 4%

And in 1989 I was good looking - somethings don't change.

dasmo said...

Ha Ha!

Alexandrahere said...

lol Jack: that was funny. Actually I retired when I was 48 yrs old. I drive a extremely good quality used car, have gorgeous furniture. I have been around the world, and up until two years ago vacationed in Mexico, California or Arizona for 3 months of every year for quite some time. What I was getting at was if younger people could discipline themselves for just a few years of their life, once they have saved a couple of thousand dollars for a good used car, scouted around and found some quality used furniture at a fraction of sub-standard new junk and paid cash for it all, they will eventually get themselves in a situation that they have all they need having better quality items and they will have gotten into the habit of saving x amount of dollars each month so that when replacement of items is needed, they will always have the money to pay cash. If you can do this.....you will save virtually hundreds of thousands of dollars over a lifetime in what would have been interest payments. Believe me, people that do this have more, live better and do not live their entire lives on the "edge". Just ask Totoro or Marco....they have done these things....in their own way.

patriotz said...

Right you are Alexandra, the last thing I borrowed money to buy was a house back in the 1980's. Everything has been cash since.

And my next house is going to be cash too.

koozdra said...

"AWESOME VALUE FOR THE DISCERNING BUYER!!! PRICED UNDER B.C. TAX ASSESSED VALUE TO EFFECT AN IMMEDIATE SALE.."

Have we reached the "discerning buyer" saturation point?

http://www.realtor.ca/propertyDetails.aspx?propertyId=12287683&PidKey=474520016

Leo S said...

It is quite amazing how little people know about their own mortgages. The biggest expense of your life but you can't be bothered to spend a bit of time doing some research on how you can spend less?

Being here for so long my view is distorted. I forget how boring most people think this stuff is!

Well I'm off for a week to enjoy the lovely Bowron lakes by kayak. Just my luck the market will crash while I'm gone.

dasmo said...

Koozdra, that is both humorous and depressing at the same time. Then again that's what house hunting is. There is a lot of crap out there for way too much money. Then again I'm not the biggest fan of 80's fixtures and decor....

Watching and waiting said...

another real-estate-does-not-always-go-up-in-value lesson:

1741 Harvest Lane:

just sold for 700k - purchased a year ago (Aug 18,11) for $720k

care to do the math on what it cost the owner these past 12 months?

interesting how the assessed value in 2011 was 781k and 2012 dropped to 723k ...

patriotz said...

1471 Harvest that is.

I'm sure the proud owner of 1463 Harvest, who bought at almost the same time for $750K, will be happy to hear this.

dasmo said...

Bad time to sell no question!

arfenarf said...

I'm a dedicated fence-sitter myself. Have been sitting on a sizeable down payment and renting while I consider my options.

Except I *know* I'm doing it wrong. I'm taking a big opportunity cost hit because in order to keep my down payment available, it's been sitting in savings, earning pathetic interest.

Any suggestions for appropriate ways to steward the fund without locking it away for years in a GIC?

Introvert said...

Any suggestions for appropriate ways to steward the fund without locking it away for years in a GIC?

Coast Capital Savings' High-Interest, No-Fee Savings Account: 1.20% interest.

ING Direct's Investment Savings Account: 1.35% interest.

Dave said...

arfenarf,

http://www.highinterestsavings.ca/chart/

Canadian Direct Financial (1.9%) or Ally is probably the highest interest and safest choice to put 100K, without being locked into GIC. I wouldn’t go with any of the MB credit unions as they are insured through Manitoba, not the CDIC. Nor would I go with People’s Trust as even though they are CDIC insured they are headquartered in Vancouver, so it could be a headache to get your 100K back as foreclosures rise.

Anything close to 2% interest you're still beating inflation of around 1%. It’s better than losing money in other investments slash management fees for the novice.

Dave said...

and only put 100K, or a bit less, with each institution, to make sure you're whole amount is CDIC insured.

patriotz said...

Bad time to sell no question!

Compared to last year, yes. Compared to next year, maybe not.

patriotz said...

Any suggestions

You (and spouse if applicable) should have the maximum amount in a TFSA, of course.

Might be only a fraction of the DP now but you can put more in every year.

a simple man said...

Leo S - enjoy the Bowron chain - I have some great memories of that country.

arfenarf said...

Thank you very much for these helpful suggestions!

not yet said...

be carefull if filling US returns, this could be deemed "a foreign trust"

a simple man said...

So, we wait for the August numbers. Any predictions?

I am guessing 485 sales.

DavidL said...

I expect August 2012 sales will be similar to those in August 2010 - 425 sales. Official VREB press release tomorrow?

Marko said...

Yup, tomorrow.

Marko said...

Just got the sales numbers....

Monday September 3, 2012 1:30pm:

August August
2012 2011
Net Unconditional Sales: 462 542
New Listings: 1,025 1,200
Active Listings: 5,034 4,944

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

a simple man said...

Thanks Marko.

Ouch. 11 (10.9) months of inventory and a sales to active listing ratio of 9%.

Will be interesting to see the median.

DavidL said...

Thanks Marco. Wow, second lowest sales in twelve years. As JustWatching posted above, September sales are usually even lower.

Just Jack said...

The tale of two condos on Beach Drive. Same size, same age, same street. One is strata titled where it is easy to get financing. The other is a co-operative where financing is near impossible to get, so you have to pay cash.

The strata costs $337,000 and the co-operative condominium sells for half the price at $160,000.

The cap on CMHC is 600 billion dollars. CMHC is currently at 576 billion in insured mortgages.

What happens to prices when the interest rate remains at 2.99 percent but you can't get mortgage insurance anymore?

Half the value of housing is in the ability to get financing. It isn't the bricks, the mortar, the granite counters or the dirt.

By the way, that co-operative condominium that just sold for $160,000. Well it previously sold in 1996 for $127,000. That's a 25% increase over the last 16 years.

Dave said...

Anecdote:
Co-worker purchased a condo that was owned by out of towners (vacation property). Listing noted past property taxes. As the buyer who is living full time in the condo he qualified for a home-owners grant (not very familiar, just relating the story as best as I can remember) which is some sort of rebate on the property tax. The previous owner was paying the property tax for the entire up-coming year so this year was already paid, but the buyer had to reimburse the last few months' worth. Now, the buyer's property taxes are lower than the previous owners' due to the rebate, but when he asked the lawyer about having to pay the non-rebated rate for the last few months of the year the lawyer said he was the first person to ever ask him about it and there's nothing he can do, that's just the way the system works.

Sounds odd. Needless to say he's annoyed.

Comment on the system itself or the lackadaisical typical buyer?

Dave3

Dave said...

Anecdote:
While looking for a rental we came across a place where the owner was renting and required at least a 1 year lease so the bank would give him the mortgage he needs so he can buy a house. He was renting rather than selling because he thought the market isn't that great.

My thought was, 'So why not rent your place out and apply the rental income to renting a house rather than buying a house?' He implied he thought the market was declining anyway.

I didn't ask any more questions. Obligatory 'His situation could mean it makes sense to buy another property.' Just struck me as funny when I first heard him tell the story.

Alexandrahere said...

Here are some of my stats for 2010,2011,2012 for the same week.

SFH in Vic,OB,Esq,SE & SW min. 2 beds & 2 baths, priced between $375K & $775K.

30 Aug - 2 Sept 2010:

Sold: 17, Avg Price: $599K

29 Aug - 4 Sept 2011:

Sold: 17, Avg Price $508K

27 Aug - 2 Sept 2012:

Sold: 16, Avg price $556K

The med price last week within this criteria was $540K, 5 out of the 16 sold had listed secondary suites and 11 out of the 16 went for less than BC assessment.

SilverSurfer said...
This comment has been removed by the author.
a simple man said...

VREB release:

VICTORIA BC - The August real estate market continues to be steady and flat, considered by the Victoria Real Estate Board to reflect the "wait and see" attitude its Member REALTORS® are hearing from the buying public.

Total MLS® residential sales for August 2012 was 462 compared to 542 for the same period in 2011. During the month, 240 single family homes sold throughout the Victoria Real Estate Board’s region, 67 fewer than the 307 sold in August 2011. The average price for single family homes sold in Greater Victoria last month was $590,843, down from August 2011’s average of $652,841. The median price is down by $17,000 to $530,000. There are 5,034 active listings.

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

Dave said: "Anything close to 2% interest you're still beating inflation of around 1%"

Too bad the REAL inflation is more like 5%+ in Canada. The chart linked is for the USA and shows currently aprox 8.5%, but Canada is not that far off since we measure CPI very close to the same way (Canada's CPI calculations at least includes some key food costs, but like the USA, CPI excludes energy (can you live without energy?), selectively weights different core components (On average, are Canadian shelter expenses only 27.49% of spent income? Umm... No! Ownership Costs as a % of income are more than twice as high!) and applies funky hedonics calculations and commodity substitution: I.e. As people buy less salmon (because they can't afford it), that commodity gets substituted by a cheaper fish. If you do this continously, eventually CPI assumes everyone is eating kraft dinner).

The Shadowstats.com tracking of inflation (SGS Alternate) as shown in the first link above (blue line) is the "old" but far more realistic way to track inflation which has changed several times since 1983 by various administrations both in Canada and the USA to make it look like things are rosier than they really are. It is no accident that retired people living on pensions "wake up" a few years later and realize they can no longer buy what they were able to when they first retired. The latest change proposal in Canada was just earlier this year, where they attempt to (falsely) argue that Canadian inflation is actually being reported higher than it should be (translation: We'd like to steal another fraction of a percent from all Canadians, by further lowering how we report inflation rates): "CPI: Why tinkering with Canada’s inflation measurement could trigger lower pay and pension increases". 0.2% may sound like an insignificant amount to quibble over, except when you take into consideration compounded interest.


To get a sense of how the government is lying and robbing you...er. I mean reporting inflation, spend 15 very worthwhile minutes watching this excellent video on FUZZY NUMBERS by Chris Martenson.



The only "Guarantee" of putting your money in a GIC or anything that yields a similar rate of return, is that your buying power is Guranteed to go down over time.

DavidL said...

Based off the current VREB release, year over year from August 2011 to August 2012 in Greater Victoria:
- Total number of real estate sales are down 15% (specifically, SFH down 21%, condos down 11% and Townhouses down 11.5%)
- Single family home sales are down 18%
- The average selling price is down 9.5%
- The median selling price is down 3%

If this defines "steady and flat", I would like to see what a declining market looks like!

DavidL said...

@SilverSurfer

Thanks for all the good information regarding inflation. I'm in complete agreement that inflation is misrepresented - primarily as it is used in the calculation of the GDP. A higher inflation would suggest that the real GDP is actually negative - also known as a recession (or depression).

Alexandrahere said...

I see 738-203 Kimta at Ocean Park Towers just sold for $430K. 21 years ago, when they initally went on the market, I believe that particular one (on the 7th floor) would have sold for around $300K. About 5 years later, the buildings went under the envelope. That probably cost a further $50,000 per unit. So if the seller bought new in 1991, he probably made himself about $35K over 21 yrs. Not a happy camper. Note: I could stand corrected on initial prices. I remember looking at them though and they were asking around $275K for a second floor one and they went up about $10K per floor.

patriotz said...

(On average, are Canadian shelter expenses only 27.49% of spent income? Umm... No! Ownership Costs as a % of income are more than twice as high!)

Umm, yes. Do you seriously think that on average Canadian households spend >50% of their income on shelter?

Hint: The vast majority of Canadians did not buy for the first time recently.

DavidL said...

According to Statistics Canada, in 2010 shelter accounted for 29.5% of total spending in British Columbia.
http://www.statcan.gc.ca/daily-quotidien/120425/dq120425a-eng.htm

dasmo said...

The reason you can't get financing for a co-op is because you aren't buying property, you are buying shares in a company that owns the property. A totally different legal concept.

SilverSurfer said...

@Patriotz and DavidL,

Good points, in particular about not everyone owning a home with a mortgage. So I will conceed that I think you are in part correct; however, please note that in the weighted calculations of CPI for "Shelter", only interest payments are taken into consideration. Where's the tracking of cost for principal mortgage payments whose size has more than doubled in the past ~10 years? So unless, I'm missing something it still looks to me like Canadian CPI doesn't fully account for all housing costs.

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

VREB is a spin machine. I saw a lot of evidence of a slow down in 2007 when we sold my parents place... after I first bought, and watched the market for a while, and before they beefed up security on MLS, one could access the agents data if you just had the right link. I could see when and for how much places sold for (kinda like a PLS account now?). It used to be common for places to go within a week of listing and sell for about 10% more than asking (by my perception with out a statistical graphing). In 2007 it was already averaging 30 days on the market and sell 5-10% under asking. There was nothing but positive spin then in the media still...What's the average time on market now, 70 days? Anyway, that's why I turned here for some guidance, even if it didn't stop me from buying. It at least influenced my negotiating confidence. One can better form their own opinion with all the stats and different opinions that are thrown around here. HHV, I appreciate you!

a simple man said...

and dasmo, I appreciate your viewpoints. Thanks for providing them.

Ryan said...
This comment has been removed by the author.
ArtVandelay said...

South Island Home Prices Dip More Than 10% (Video) ATV NEWS - Sept 4th.

I'm surprised no one has posted this yet. Very pleased that some sanity is reaching the main stream media.

What's your feeling about this report and more like it possibly airing over the next while? Will it inspire more people to wait to see how low prices will go?

Just Jack said...

From what I am hearing from agents and sellers is that prospective high ratio buyers are having a tougher time getting financing.

At $576,000,000,000 in insured loans, CMHC is near the $600,000,000,000 cap and are being more cautious in who gets mortgage insurance.

From what I see, both the average and the median prices are not showing such a big drop as reported in the news. The fellow in the news clip bought his home back in 2003 and the median price for homes has gone up close to 84% since then. That would put his home's value slightly above $500,000. However, recent re-peat sales (case-schiller) indicates a lower value for homes like his.

Ironic, that it sounds. If his property were a little more expensive, say $600,000 he would likely have a better chance in selling and getting a better price, as those buyers would be putting 20 percent or more down and not need CMHC financing.

He seems to be caught between a rock and a hard place in selling this type of home which appeals to the first time house buyer that also needs income from a basement suite.

JustWatching said...

Here is the latest from Carla at the TC - Greater Victoria real estate market cooled in August

The market is not falling, said Shelley Mann, president-elect of the Victoria Board. But she added: “We are definitely in a flat market. There’s no question.”

Shelley doesn't seem to get it...

Mann predicts that the number of sales will rise in September and October — typical for those months after summer — and that prices will be steady.

Shelley needs to look at the stats published by her board before she gives an interview....

Sept. 2011 - 436
Aug. 2011 - 542

Sept. 2010 - 395
Aug. 2010 - 425

Sept. 2009 - 437
Aug. 2009 - 764

Sept. 2008 - 512
Aug. 2008 - 517

Wendy Moreton, real estate agent with Newport Realty, said, “I agree that condos are going to lose value over the next period. I’m not entirely sure we are going to see them go up in 2013. I think the oversupply is going to continue for a while.”

As for single-family homes, industry predictions indicate that prices could decline for a year or 18 months before they bottom out at five to 10 per cent lower and then start increasing again, she said.


Wendy has woken up and smelled the coffee. Once she has a sip or two she will figure out that 10 percent is just the beginning of the drop in prices.

JustWatching said...

Art Vandelay,

Thanks for the link. I bet sellers and VREB weren't happy when they saw that news report.

Iggy_12 said...

@ArtVandelay

Here's the listing in the news report - http://www.realtor.ca/PropertyDetails.aspx?PropertyID=12249452&PidKey=1181543614

I like how it says "Will not last long." and "Don't hesitate". I guess 2 months on the market is not considered a long time anymore.

a simple man said...

The fall has begun.

DavidL said...

@a simple man
The fall has begun.

.. and it doesn't officially begin until September 22! ;-)

DavidL said...

@ArtVandelay

Thanks for the link to the video. Although the homeowner states that the "market price" has been assessed at $500K, he doesn't realize that the market price only be determined when the house sells. If $479K isn't getting offers, then the market price is lower.

JustWatching said...

The house in the video was listed at 499K back in June. Great potential, needs some updating.

556 Tait on Used Victoria

Savannahedward said...

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dasmo said...

Here is the problem: "Needs some updating, lots of potential" so reflect it in the price from the start and you would sell. Now this place will have the 3month listed problem where it get's the undesirable stigma. They should have listed it at $429.

Phil said...

I think the real problem is you can rent a place like that for $1600/month if you look around.

The monthly payment on a 25yr plus maitenance cost is going to be about 1k more per month.

Just like in the states 5 years ago people are starting to figure it out.

dasmo said...

Also very true. However, nobody figured anything out down south...You are giving people way too much credit there.

a simple man said...

has anyone kept a chart of median price change over time?

Just Jack said...

Here's a repeat sale for a home on Stone Gate in Bear Mountain. It provides a nice example of how our prices have rolled back.

$630,000 bought this week
$646,500 bought September 2009
$636,000 bought April 2008
$591,000 plus GST bought July 2007

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

The reason you can't get financing for a co-op is because you aren't buying property, you are buying shares in a company that owns the property

Not really, because that's also true for a condo.

But a share in a strata corporation (i.e. your ownership of a condo) can be foreclosed on, which makes it mortgageable.

Just Jack said...

Very true, a strata condominium has a separate legal title to specific unit. A Co-operative has a single title for the entire building and you are allotted a unit for your share.

With a strata the bank can seize your property, toss you out onto the street, change the locks and sell the specific legally described suite.

Shares you can carry around in your pocket. Much harder for the banks to confiscate them and have you sign them over to the bank. And the other shareholders may not allow the bank to become a shareholder either. It gets messy, and so most bankers just avoid co-operatives or ask for a much larger down payment.

Although, most of the older buildings in New York are Co-Operatives and it works very nicely for them.

I suppose it just a matter of which you prefer to ride a camel or a horse. They both do the same thing in pretty much the same way.

LeonMaynard said...

Average days on market?

Is this statistic misleading? I don’t know how it is calculated. For example; let say a property does not sell during the first 90 day listing with a realtor and it is then relisted for another 90 days, and then sells on the 61st day of the second listing. When VREB calculates the average-days-on-market for this property do they use 61 days or 151 days for the average calculation? Or, do they not even include the first 90 day listing because the property did not sell during that first listing?

Or do they have another category of statistics for properties that do not sell during their listing with a realtor?

Does anyone know?

dasmo said...

hey don't get me wrong, if you can get into a co op its a very cost effective abode. All the shareholders have to agree, or is it just a majority?

I guess quarter share ownership is like this too? anyone know?

Just Jack said...

They use 61 days, not 151 days.

Re-listing a property actually works. And a lot of realtors do it. Even the property on the news the other night was a re-listing after 42 days on the market. The agent wanted to bump it up in the stats and hot sheets.

So how good is the days on market statistic? Its a nice cross check to the months of inventory and the new sales to listings ratio. But in itself it doesn't tell you too much.

For example, if a house sells in one day - what would that tell you?


If you said that the house was under priced - you'd be wrong. All it means is the house sold in one day.

What if the home has been on the market for 80 days? Is it over priced? In itself it could mean nothing. You would have to know if the property was unusual like waterfront or acreage which may need a lot longer exposure on the market to find a buyer than the typical Glanford box that sells on average in about 50 days.

Just Jack said...

A quarter share or fractional ownership has a maximum of 4 people on title.

Fractional ownerships are usually done by Hotel chains to offset their construction costs. And usually, the first to buy into them end up losing money - a lot of money.

Your buying the cash flow that the hotel generates by renting out your suite. If the Hotel has a bad year, your investment falls in value. The vacancy rate of a condominium might be 5%, but the vacancy rate for hotel suites is closer to 50%. And that's for a good downtown hotel. So, while it sounds great that the hotel will rent your suite for $225 a night that isn't going to equal 90 nights X $225 or $20,500 in annual income. You would likely be looking at half that amount less house keeping charges, etc, etc. So, its important at what times you have the use of your quarter ownership to generate income.

Then of course this is taxable income too. And if you don't use the suite for some personal use, you may have to pay a commercial property tax rate and not a residential property tax rate.

And don't expect the hotel to rent your suite out, before they have rented all of theirs first.

Having said all of this, they can be profitable, but you have to get them really cheap and have an unusual life style to take advantage of them.

Just Jack said...

I wouldn't suggest a co-op for a young couple starting out in life. Co-op's generally don't appreciate well.

However, if you're older, really older, and don't care about appreciation or the ability of mortgaging the home or having an equity line of credit. Then its a good deal at a fraction of the cost of a strata. Co-Op's in Victoria are generally located in very nice neighborhoods.

But there are also "leasehold" condominiums too. And these you can get for a cheaper price than a co-operative condominium. Leasehold condominiums are older 1970's apartment building style suites where you're buying the rights to occupy the suite until the lease ends in the next 50 or so years.

totoro victoria said...

imo co-ops are better than leaseholds if you have the cash to buy in. Co-ops generally don't fall in value while leaseholds decline in the last 50 years and are hard to sell during this period. Leaseholds can be mortgaged though.

Malory "Innocent Meat" Knox said...

Yeah it is going down as expected. THere is nothing what can stop this downfall. There are some other results (grabbed from Vancouver Housing Market: Developments in 2012):

Residential Activity in the Second Quarter of 2012
Number of Sales – 8,132
Year/Year (%) – -18.8 (from 10,018 )
Number of New Listings – 19,085
Average Price ($) – 724,319
Year/Year (%) – -11.5 (from 818,721 )

dasmo said...

I've never seen a time or quarter share that wasn't over priced... except maybe these bear mountain ones, but those are still risky. i mean the only attraction is the golf course and as nice as it is there are plenty others. If you are on title you are also responsible so seems very risky. Property is an asset and a liability after all...
I think those bear mountain quarter shares sold for twice that originality. Anyone know?

LWilliams said...

[Stone Gate in Bear Mountain] provides a nice example of how [our] prices have rolled back
- Just Jack

A +8%, +2%, -3% sale history does not show a roll back. In fact, the overall price is still +7%. B.M. homes are mainly improvement value since the lot is +/- $0 so one would expect a slow decline over time (in a flat market). This example basically shows an increasing improvement value which is not a characteristic of a decreasing market, but actually a characteristic of an increasing market.

This blog tends to have a lot of wishful thinking. Last I checked, that Oak Bay lot is still unaffordable. Guess we'll have to wait until next month for a roll back to 2001 prices.

a simple man said...

LWilliams - make sure you add GST to the change calculations (and deduct rebate, of course).

Those million dollar plus listings are sure starting to pile up in Oak Bay - I run by the same signs every morning and they are being joined by more and more. Time to drop prices more than they already have to get sales.

Cranmere is for sale now - great house, but a little rich at $7.9M.

reasonfirst said...

LWilliams - my investment savings at ING did better....which was worse than inflation.

Just Jack said...


Most of the jump in prices happened in 2007 because we went to zero down and 40 year amortizations. So, its a tough to roll back passed 2007 without seeing a BIG drop in prices.

Here are the 90 day median prices for houses in the core for each year

2012 - $580,500
2011 - $590,000
2010 - $585,000
2009 - $562,000
2008 - $549,000
2007 - $544,900
The above medians lag the market. Unlike re-peat sales which are the most up to date. That's why we are actually at 2008/2007 price levels today.

2006 - $475,000
2005 - $450,000

And 2006-2005 is most likely where the market is going, because we are once again back to 25 year amortizations.

That still is a 20 to 25 percent drop from today's prices. And that's enough to spook Central Canada bankers into making it harder to qualify for a mortgage on the west coast and for CMHC to pull back in the amount of mortgage insurance available to the west coast.

Just like what happened in the USA. Interest rates are low, but it's hard to get a mortgage without a really substantial down payment.

Just Jack said...

So what implications would a roll back to 2005 prices or even an over correction to 2004 prices have on our economy?

Entire subdivisions, like Bear Mountain will be have their homes' value at less than the original purchase price. The loss of the wealth affect on the human psychic, means fewer home, car, boat, big screen TV, etc. purchases.

Just like the USA.

MC said...

Would it be possible to do a small article on what it truly costs to buy a house, outside of the actual purchase price, e.g. lawyer fees, land transfer fees, inspection fees, banking fees? realtor fees etc.

I have no idea what all the costs involved in the house hunting process are. I think many people forget about these additional costs too.

Marko said...

"Would it be possible to do a small article on what it truly costs to buy a house, outside of the actual purchase price, e.g. lawyer fees, land transfer fees, inspection fees, banking fees? realtor fees etc."

- You can find many REALTORS® (me included) that will actually pay you if you use him or her to purchase a home, here is an example of my program -> http://markojuras.com/70-cash-back-program/

- Property transfer tax is 1% on the first 200k, and 2% on the balance.

- Lawyers’ fees $800 to $1,200

- Inspection $400 to $450, add $250 for drain tile scope. Septic, well, speciality inspections (electrical, plumbing) extra.

- Moving costs.

- Mortgage costs (appraisal $200-$300, etc.)

Just Jack said...

Oak Bay isn't unaffordable. It's just unaffordable to you!

The Oak Bay market has really slowed down to a trickle of sales. There are still million dollar plus sales happening, but these are at deeper discounts than what the typical home has lost as a percentage.

It's really tough to get a better non waterfront location than King George Terrace. I mean damn these people are rich, they make those that live in the Uplands look like dumpster divers.

Yet they too have been hit by the changing economy. A King George home that sold in 1997 has doubled in value to $1,450,000. In relation to the typical home that has increased 2.5 times in that same time period.

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