Friday, September 7, 2012

August sales, a sleepy disappointment

Subtitle: an emergency 200 comment update from the road.

What to say about August sales?  By all counts it's a sales disaster.  Never mind that you can still get 2.99% on a 5 year fixed, people just aren't buying anymore, and August sales are the second lowest in a decade.  The VREB maintains this is a flat, stable market; which I assume is about as positive as a flat, stable reading on a heart monitor. 

Where have prices gone?  Nowhere fast, as DavidL points out with a chart of the last eight years of August prices.  There is certainly weakness in the past few years, but not a lot of movement yet.  These donkeys will need a prod before they move.


The new rules do seem to be having an effect.  Anecdotally we've seen more offers fall through due to financing, and our mortgage broker is seeing the same: "The market is turning out to be a quite soft as approving mortgages for clients has become tougher on all fronts… Clients who would have easily been approved under the old rules are now getting turned down under the tighter requirements."
And it's not over yet.   OSFI rules are coming into effect and cash back mortgages are becoming endangered.

It's going to be an interesting fall. Just don't expect it to be exciting.


44 comments:

Mortgage News said...

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a simple man said...

Wow - after 224 comments the previous thread the first one on a new thread is spam.

Oak Bay is on life support. It can't hold on much longer.

Leo S said...

Yup, unfortunately I dont have the power to remove spam. That's only in HHV's hands.

Alexandrahere said...

So far this week within my criteria of Vic,OB,ESQ,SE&SW for SFH,townhomes & condos, I have 17 sales; only two of these went for above BC Assessment. I only have 8 sales so far for SFH...so the final tally is going to be well below last year in this week of 19 sales. Also, so far this week in SFH, with price criteria being $375K to $775K, I have only one sale in the $500K range. This is not the norm.

Watching and waiting said...

anecdotally my neighbour mentioned he is planning on listing his home in the next week or so to move back to the mainland (ergo stagers/gardeners/water sprinklers have been busy this week) .. he says his realtor is pessimistic on selling his home right away - one thing they could agree on was that the house will have to be listed lower than what he paid a year ago ... ahh the price of island life ...

Marko said...

Good video -> http://watch.bnn.ca/headline/september-2012/headline-september-6-2012/#clip754980

patriotz said...

one thing they could agree on was that the house will have to be listed lower than what he paid a year ago

So the guy bought in Victoria and now he's selling a year later to move back where he came from? I guess he's all hot to buy again back there?

Well somebody has to keep the RE agents in business I guess.

DavidL said...

Thanks for the link, Marco. I think that Robert Schiller's definition of a glamour city would include Victoria - making it more bubble-prone.

Introvert said...

So the guy bought in Victoria and now he's selling a year later to move back where he came from?

Yeah, shocking that this scenario didn't work out financially for the guy.

I think that Robert Schiller's definition of a glamour city would include Victoria - making it more bubble-prone.

For sure, DavidL. Subduction earthquakes notwithstanding, Victoria will always carry a cost premium and will probably be much more bubble-prone than most Canadian cities.

Introvert said...

I'd like to canvass opinion on the blog: do you think that in two years' time interest rates will be as low as they are today?

Leo S said...

Probably not quite, but not much more. < 1% more I'm thinking

dasmo said...

I think one of the reasons the regs came in was because rates are going to stay low for a while. Banks make money lending money so with volume going down I could see rates dropping even. Now that the stage is set with regulations in place, I wouldn't be surprised to see 1.9% in the near future. Probably for a three year term. So two years from now? Probably the same or close IMO.

Ryan said...

It only matters what real interest rates are doing regarding home prices and they have been rising lately similar to the early eighties.

Marko said...

"Thanks for the link, Marco. I think that Robert Schiller's definition of a glamour city would include Victoria - making it more bubble-prone."

He also notes at the end of the video that he has doesn't know where either Vancouver or Toronto real estate markets are heading.

patriotz said...

That means he's not going to call a top, because there's no way of knowing it until afterwards.

It's not about which way prices are going or when, but whether buying at today's prices makes any sense.

The numbers that he gave show that both cities are as overpriced as their US counterparts at peak, as he pointed out.

CS said...

Re: InNterest rates

The Fed has indicated that it will keep rates abnormally low at least until 2014. But does the Fed have absolute control?

Currently it keeps rates down through asset purchases using printed money, thereby forcing all holders of Treasuries to accept extremely low rates.

But at some point QE will undermine the dollar. If the dollar weakens significantly, price inflation could vastly exceed current Treasury yields. At that point, would the Fed not find itself the only buyer of Treasuries?

And in that case, to keep rates down the Fed would have to buy just about every outstanding bond, which would mean more QE and hence an even weaker dollar and more price inflation.

So it seems to me there could be a crisis beyond the control of the Fed that would force rates up and perhaps very sharply, just as they spiked suddenly in Greece, Spain and Italy. What I have no feeling for is the likelihood of such a fiasco.

mrmike said...

Trying to sell your home these days is a bad idea IMHO. Everyone I know who tried in 2012 ended up cancelling the listing. Much better off to ride it out 5-10 yrs.

Leo S said...

@mrmike. I thought you had an offer?

mrmike said...

I did...and a pretty good one, didn't pan out. I'll try again in 2022.

Leo S said...

@mrmike. Gotcha. Good luck.

Introvert said...

It only matters what real interest rates are doing regarding home prices and they have been rising lately

If QE3 occurs, wouldn't inflation tend to rise somewhat, which would lower real interest rates (again)?

And Bernanke has lately been talking up the necessity for QE3; it seems as though the question is no longer "if" but "when."

Watching and waiting said...

Patriotz re: "So the guy bought in Victoria and now he's selling a year later to move back where he came from? I guess he's all hot to buy again back there?"

Well he did mention if he can't sell he will rent the place - time will tell - appears it's a career issue why he is returning. When he bought the place last summer it was only on the market for 10 days and he bought .35% under asking ... nice neighbours though, would hate to see them go and have another rental in the neighourhood that doesn't maintain the house or yard ...(go ahead flame me for this comment ..:)

Marko said...

Monday, September 10, 2012 8:00am

MTD September
2012 2011
Net Unconditional Sales: 97 458
New Listings: 359 1,303
Active Listings: 4,690 4,940

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

DavidL said...

@Introvert
Victoria will always carry a cost premium and will probably be much more bubble-prone than most Canadian cities.

Although the bubble may grow bigger in Victoria than elsewhere, when it bursts - there's no extra premium to buy a nice home in Victoria. The bigger the bubble, the bigger the burst ...

CS said...

"If QE3 occurs, wouldn't inflation tend to rise somewhat, which would lower real interest rates (again)?"

That's probably true. But it is the nominal interest rate that determines how much a house purchaser can borrow.

And if CPI inflation heads sharply higher we could see sharply higher nominal interest rates much sooner than many people expect.

Just Jack said...

The majority of home buyers are from Victoria. A small percentage come from outside of BC.

I have never heard, nor will you ever hear a buyer say that they based what they offered on a home for what a house were selling for in Windsor or any other city.

What you do hear, is home owners justifying the high prices based on what they think prices are in other cities. Of course, these home owners like to compare "up" to other cities like Vancouver, Toronto, Paris, London. They never compare home prices to cities like Victoria. Such as Surrey, White Rock or the east Fraser Valley.

Because when you do, you'll find that Victoria does not have a premium over similar areas.

The only exception might be Oak Bay just because of the number of early 20th century homes. As a lot of those "character" homes in South Surrey and White Rock have been demolished.

But Oak Bay has always been the exception and not the rule.

dasmo said...

So you would put Victoria on par with Surrey, White Rock or the east Fraser Valley? Now that needs some justification!

a simple man said...

@ mrMike;

May I ask why your house sale fell through?

PS - loved your namesake restaurant growing up.

DavidL said...

@Introvert
I'd like to canvass opinion on the blog: do you think that in two years' time interest rates will be as low as they are today?

We live in interesting economic times ... While the cost of energy and food are rapidly inflating, manufactured goods are continuing to decrease. Wages are not keeping pace with inflation.

Carney, Benake, et al. are trying to avoid stagflation, but with QE3 - this will become a reality. With this in mind, I expect interest rates to be 1½ to 2% higher by the end of 2014. Attempts will be made to keep the increase as low as possible, but with the EuroCrisis unfolding and China's reduced productivity in the wings - this will be hard to control.


Bloomberg: Bernanke Has Already Told Us: More Stimulus Is Coming

Leo S said...

How to incite a bidding war in this market? Easy. Price your home $140,000 under assessed value ($43,000 under assessed land value) like the former owners of 1550 Earle.
Sold today for $6000 over asking after one day on the market.

Leo S said...

Or you can price high and get the same result...

1871 Elmhurst sells for the exact same $133,000 under assessment after 66 DOM by starting high and dropping prices.

DavidL said...

Re: 1550 Earle Place

The 2012 asessment was as follows:

$573K    Land Value
 $96K     Improvements
$669K    Total Value

As the property just sold for $536K and the house has not suddenly lost value, does this mean the land is now worth just $440K ($536K - 96K)? A drop from $573K to $440K would equate to a 23% decrease!

Just Jack said...

The prices are a little higher in South Surrey - White Rock, because they get a premium for not being on an island.

dasmo said...

Hello rezoning application...

SilverSurfer said...

@Introvert - The US fed has specific mandates: 1. Maximum Employment (FAIL!) 2. Price Stability (FAIL!) 3. "Moderate" long term interest rates (aka ~2%).

When you get into the details of these mandates, there are obvious contradictions which explains why the Fed is and will continue to fail to meet all 3 of its mandates.

The one mandate the Fed has successfuly accomplished so far is moderate long term interest rates, but this has been primarily by rigging the system and implementing "Operation Twist". If you do the math, eventually the Fed ends up owning all long term T-bills, or conversely, run out of short term T-bills to sell. When a single entity such as the Fed continues to own a greater and greater part of the bond market (aka. Monitizing the debt), eventually it leads to a bond crisis wherein all foreign bond holders dump their US bonds resulting in a bond crisis (aka. crisis of confidence). When that happens, you end up with a massive yield reverseal, meaning interest rates will spike.

ETA for this event is currently targetted at aprox 2016 to 2020. If and when this occurs, you will all wish it was 2008 all over again, cuz a Greece bond crisis and the bond crisis of a reserve currency are two completely different beasts.

So, next 2 years, I don't have an answer for you but my gut is that the US Fed (assuming Obama wins and Bernanke keeps his job) will extend its low interest rate policy into at least 2015. By extension, unless something dramatically changes - and I suspect a real estate crash in Canada will only further assure lower interest rates - Canada will follow with keeping interest rates low.

SilverSurfer said...

I should add, the "interest rates" I am refering to above are the overnight lending rates from the Central Bank to standard banks, not mortgage interest rates. It is still possible (though we haven't seen much of it yet) for the overnight lending rate to be low, but banks raising moritgage rates regardless. Keep in mind the stndard loans and savings banks aren't legally allowed to collude and raise mortgage rates regardless; however, given banks make their money on the spread between the overnight rates (or $$ borrowed from other lending institutions - typically abroad), it is in their interest to maximize their spread. The past few years of very low overnight lending rates has resulted in a dramatic loss of revenue for standard loans and savings banks. Thank god (for them in Canada) that the real estate bubble has proceeded high volumes of sales/mortgages - what they lost in low interest spreads, they partially replaced with volume. Gotta keep them bonuses coming one way or the other. Next up, look for Canadian banks to get into the insurance business similar to what credit unions are already doing.

Leo S said...

Anyone know previous sale price for 1780 Angola Pl (MLS 311912)? Would have been sometime in 2008.

Simon said...

Leo S. WHy you want to know about Angola? it is an ordinary house which will follow the pattern: In the next 10 years, the price will keep going down, bit by bit continuously. Unless money is not a problem, you don't want to touch rea estate, Honesly.

Leo S said...

it is an ordinary house which will follow the pattern

What pattern?

dasmo said...

I think he meant In the next 10 years, the price will keep going up, bit by bit continuously. Have we ever had a ten year decline?

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

1780 Angola Pl sold for $550,000 back in 2008.

Leo S said...

Thanks!

CS said...

Re: Bond crisis

Moody’s expects to cut US rating without deal to lower debt/GDP ratio.

A crisis is something that occurs unexpectedly. It might happen sooner than some folks have "targetted" for.

In which connection, the $C has moved well above par, reflecting a general weakness of the $US.