Monday, September 17, 2012

Sept 17 - Monday Market Update

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

September 2012 month to date  (previous week in brackets)
Net Unconditional Sales: 208 (97) 
New Listings: 671 (359)
Active Listings:  4716 (4690)
Sales to new listings ratio: 31% (27%) 

September 2011
Net Unconditional Sales: 458
New Listings: 1303
Active Listings: 4940
Sales to new listings ratio: 35%
Sales to active listings ratio: 9% or 10.8 MOI

The market continues to be comatose and we're on track for again missing last year's already mediocre marks.  Meanwhile the BC Real Estate Association has been quick to lay the blame on the new mortgage rules for Vancouver's sales collapse, completely ignoring that it started before they were instituted (thanks JustWatching).  Their big brother illustrates how yearlong forecasts are useless by revising them constantly (again, credit JustWatching).  Does anyone actually use these forecasts or is this just make work by an organization trying to justify its own cost to its members?

About this time last year is when some people here made some forecasts about the end of the year, with mixed results.   Anyone care to try again just for fun?

102 comments:

totoro victoria said...

I only really follow the Oak Bay and Okanagan markets.

For the Okanagan, I would guess the market will drop a further 5% without any rise in interest rates.

For Oak Bay, well, it seems like folks aren't dropping prices significantly, but houses are not selling quickly either. My guess is that it will be the status quo to December. Find a motivated seller and you might be able to get a slightly better deal that over the past couple of years.

a simple man said...

Victoria SFH Median of $505K by years end (for month of Dec 2012).

dasmo said...

I'm sticking to my -10% with continued low interest rates. Highs of 550s with lows of 530s averaging a median of 540 throughout.

patriotz said...

For the Okanagan, I would guess the market will drop a further 5% without any rise in interest rates.

It's already dropped a lot more than that with falling interest rates. Plus we will have the impact of the 25 year amort, and the coming OSFI changes.

You're effectively calling the bottom and I don't think OK is anywhere near it.

DavidL said...

When I look at sales in the past couple of months near my Saanich West home, all had price reductions before selling, and sold for $20K to $30K below the asking price. Selling prices are about 10% lower than a year ago, and about 15% lower than two years ago.

Even with steady (low) interest rates, I expect another 5% reduction by next May - so a total of 20% below the "peak" in May 2010.

fatjay said...

I think that Kelowna (and probably most of the Okanagan) has a lot further than 5% to fall, even without any rise in interest rates.

It has been steadily dropping about 5-10% per year for 4 years and people are really just starting to clue in now that house prices aren't going up any more. A couple years ago a lot of people still thought house prices were rising, and last year I spoke to a lot of owners who pulled their houses off of the market to rent out "until prices come back".

With the new changes I'm seeing a lot more deals fall through as well. 11 of 14 houses were for sale on my street. 3 of them "sold" this year, but the deals fell through due to financing on 2 out 3 of those.

As more deals fall through, more houses go into foreclosure and more people realize that the market isn't going up any time soon I think that the market will continue to fall at least another 10-15% over the next couple years.

If interest rates go up, I think it will fall even further.

totoro victoria said...

For the Okanagan, I would guess the market will drop a further 5% without any rise in interest rates.

It's already dropped a lot more than that with falling interest rates. Plus we will have the impact of the 25 year amort, and the coming OSFI changes.

You're effectively calling the bottom and I don't think OK is anywhere near it.

No. I am saying that is where it will be in December of this year which is what I understood the question to be.

Animal Spirit said...

real or nominal?

dasmo said...

I always think in nominal dollars because they are more real. If we are talking real dollars then my numbers will change since I believe we are also going through an inflationary period due to the QE and debasing of global currencies. so although house prices will remain relatively flat inflation will not...

Animal Spirit said...

If the market has been flat in nominal dollars since 2008 (i.e. 500K in 2008 is selling for 500K in 2012), then there is a foregone 50K (or 10%) real price increase. That houses increased in price 2008 to 2010, and have probably dropped 10% since then complicates any calculus.

Supply is high right now, demand is low. Rules have tightened. Average list price to assessed price has tanked so far in September.

Markets are supposed to be rational, but are beheld to human animal spirits. Therefore a prediction is a rats ass. That said, I'd give us -1.5% per month (on a same house perspective, not necessarily median or average) until the new year.

Animal Spirit said...

Which is 6% lower than current prices, or 16% in real terms since 2008.

Leo S said...

Of course you could always base your prediction on the Teranet repeat sale index.. Although it is also not immune to variability, such as the 3 full point jump in July.

I will carry over my last year's prediction. 6 month average at or below $590k. It's a little boring though, so I'll add Teranet at 135.

Simon said...

Not sure about December, but for January, 2013, it will be about 15% lower than today's average price. So the average will be 505K from last month's $580K.

In the next 4 years. The average will drop another 10-15 % to about $425K, asuming no disatrous action of interest rate hike from Bank of Canada.

Marko said...

New record for Bear Mountain.....

2186 Nicklaus Drive just sold for $1,550,000.

totoro victoria said...

I'm not sure why the use of average prices as a comparitor when the median is likely a more accurate measure.

In addition, I'm not sure what relevance nominal or real dollars has for the average home buyer. If you are looking at it as an investment then inflation is relevant to a big picture academic view or for historical comparison, but it is not how most folks calculate costs for housing which is an investment - this tool seems more relevant to the cost of consumer goods or wages.

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

No. I am saying that is where it will be in December of this year which is what I understood the question to be.

OK so you mean it will fall 5% over the next 15 weeks and keep going, since you're saying you're not calling the bottom.

That's over 15% annualized which is about equal to the fastest rate of decline of any US market during the recent bust.

totoro victoria said...

I have no idea why you take this approach Patriotz.

I said that I felt the market would fall in the Okanagan a further 5% by end of year. I did not "call bottom" or extrapolate that this would continue at the same rate.

If you would like to understand my rationale, please ask. If you wish to create a conflict please choose someone else to interact with.

JustWatching said...

totoro victoria said: In addition, I'm not sure what relevance nominal or real dollars has for the average home buyer. If you are looking at it as an investment then inflation is relevant to a big picture academic view or for historical comparison, but it is not how most folks calculate costs for housing which is an investment

I agree with you. Most folks are financially illiterate and do not even know the difference between real and nominal dollars. Did you know 65% of people sign the mortgage renewal letter without looking for a better rate or negotiating with their bank?

totoro victoria said: I said that I felt the market would fall in the Okanagan a further 5% by end of year. I did not "call bottom" or extrapolate that this would continue at the same rate.

The housing market is like a big ship that takes a long time to change direction. Around 2000 it started the turn towards higher prices and kept this course until 2009 when it started to change direction. Sales have been lacklustre for the last three years, prices have plateaued and we are now headed down.

Do you think the Okanagan or Victoria will drop 5% by the end of the year and then stop dropping?

JustWatching said...

Today's RE news...

Globe & Mail - Canada's housing market cools

“The Canadian housing market has indeed ratcheted down its growth pace,” Toronto-Dominion Bank economist Sonya Gulati wrote in a research note after the data were released. “In fact, in most local markets, it has reversed course, with price and sales contractions becoming more the norm.”

David Madani, a bearish economist at Capital Economics, reiterated his forecast Monday that house prices will fall 25 per cent in the next year or two. “The first sign of trouble at the peak of the U.S. housing bubble was that home sales began to drop in 2005, well before house prices began to fall in 2006,” he wrote in a research note.


Here is a mortgage broker that knows how to make a rent vs. buy calculation for her clients.

Paula Roberts, a mortgage broker based in Markham, Ont., said one of her clients, a young teacher, was preapproved under the old rules, but now that she has found a home she likes, is having trouble securing the mortgage. She will likely have to get someone to co-sign the loan, or come up with a larger down payment, Ms. Roberts said.

“It's really hindering people,” she said. “Her rent is basically the same as her mortgage payments.” In Ms. Roberts’ opinion, “it's always better to try to buy something instead of rent.”

totoro victoria said...

Do you think the Okanagan or Victoria will drop 5% by the end of the year and then stop dropping?

I only follow Oak Bay and a specific part of the Okanagan.

I don't think OB will drop 5% by the end of year. I think it will stay sort of level with good deals to be had by low balling sellers who have to sell. A lot of folks may choose to take their homes off the market instead of selling. There is enough consumer pressure in this area to keep homes level until December IMO.

For the specific part of the Okanagan I follow it appears that prices are dropping now. I expect that the fall season will show a 5%drop to end of year from now. It is easier to sell in this area in the spring and summer when there are loads of visitors and prices tend to stay stable over this time period.

I don't know what will happen in OB or the Okanagan next year. I find that I cannot forecast prices accurately that far in advance, but I am generally accurate in the short term if I follow trends closely.

I do believe that a rise in interest rates would be a catalyst for much bigger drops. Until then, well, lets see what happens to consumer confidence next year.

a simple man said...

Why don't we all make predictions on the same scale for comparison - such as the SFH Median or Average (less valid) price for the end of Dec 2012?

I had median at $505K for end Dec.

dasmo said...

OK, good plan. I have Median SFH, nominal dollars (That's what the VREB stats are in), in Dec this year at $506k ;-)
I think Langford and Sooke will be the biggest drags.

Introvert said...

As for predictions of price declines over the next several years, I'm in agreement: prices will probably continue to drop. But that doesn't mean that I've lost a whole bunch of money: I only lose money if I sell my house. So I won't sell!

Just as prices go down, prices will--one day--go back up. And if history is a good guide, the next big upswing will see prices exceed all previous highs. Of course, that probably won't happen for another decade, but that's fine by me. And hopefully a few other young homeowners can hang in there, as well.

Leo S said...

Keep in mind that monthly medians can be quite volatile too.

And the end of the year is only 3 months away. However I would expect some continued downward movement. Say $520k

dasmo said...

OMG it is only three months away... so it's 526 right now?

dasmo said...

If you own equities for any length of time you get used to ups and downs. If you are making a long play you get used to riding them out. Buying a home is and should be a long play...

totoro victoria said...

Agree with introvert and dasmo. Think long-term if you own or are going to buy now.

a simple man said...

But if you are thinking long-term why not let the market come down and let someone else take the >$100K hit and then buy.

dasmo said...

There is no guarantee you will get a 100k price drop by sitting on the sidelines. I don't think you will see as big a movement in asking prices. You can Negotiate the price down now and take advantage of low rates now are the only reasons I see. I think it will be the same next year. You will only get a deal on a house of you make it happen yourself...

totoro victoria said...

I think that is a good strategy as long as interest rates don't rise.

Some of us have already bought. I felt satisfied with a guaranteed long-term low interest rate and my purchase results in much lower monthly payments. I also like being within walking distance of everything which I estimate saves us an additional $200 a month.

Had I been in a different situation or had a much larger down payment I might have waited longer for a drop. The right place came along and I went for it after balancing it all.

Life is short and buying a house is a big decision but nice when it is made and you can move on from it and afford it along the way.

CS said...

"Why don't we all make predictions on the same scale for comparison - such as the SFH Median or Average (less valid) price for the end of Dec 2012?"

This could be interesting. It would be in the spirit of Thomas Bayes. If everyone were to make a prediction, we'd have the best attainable Bayesian "prior."

But why not everyone give their guess as to the date and value when the market bottoms?

reasonfirst said...

Buying a home is and should be a long play...

And your timing to buy should also have the same consideration....

Marko said...

Impossible to time the bottom.

This might be a replay of 2009, prices come down a bit, everyone sits on the sidelines and sales volume plummets and people only start re-entering the market as prices go back up.

Very few people buy at the bottom.

reasonfirst said...

...sitting on the sidelines"

You are NOT sitting on the sidelines if you have actively invetsde the money elsewhere.

reasonfirst said...

...start re-entering the market as prices go back up.

And how is that a problem?

Leo S said...

But why not everyone give their guess as to the date and value when the market bottoms?

If interest rates stay low: 2014 at an average of about $530k.
If they go up, whatever level is necessary to complete the correction in affordability levels.

Impossible to time the bottom.

I'm not concerned with the bottom. It's just getting further away from the top.

totoro victoria said...

I've got no idea as to when the "bottom" will occur. Depends on interest rates a lot and that I can't predict except rates will likely stay low for the near future.

There are opportunities in every market but the market conditions change. When it becomes a sellers market there is way more competition for houses and multiple offers are common. I did not like buying in that market because of the pressure.

I actually prefer to buy when it is dropping as there are fewer buyers to compete against. I feel better knowing I am okay to take on a fixer upper or a home without curb appeal because this also knocks down the playing field. Private sales can work well this way too.

Marko said...

If you look at 2009, prices bounced back in a matter of a few months.

It is a lot easier to find the right property when you have time and limited pressure to buy.

When prices are going up typically is sales volume and there is lots of competition amongst buyers - a perfect scenario to jump into the wrong property.

Marko said...

As far as my prediction....I think the year finishes at around 535k or so and 2014 maybe 525 to 530k.

Leo S said...

The founder of seattlebubble.com showed that the market can be timed through analysis. This is their market. That blog started in 2007, and the founder bought in spring 2011.

If you look at 2009, prices bounced back in a matter of a few months.

The 2009 bounce was from people pulling their properties off the market and interest rates collapsing. We aren't going to see that kind of bounce again unless there's significant government intervention.

dasmo said...

Technically he bought on the way down, not at the bottom ;-)

Leo S said...

Yes, well I agree that buying shortly before the bottom is smarter than buying after the bottom. I just don't see any danger of a bottom in Victoria within 6 months.

totoro victoria said...

I agree we likely won't see bottom within six months. Nothing pushing it there except lack of consumer confidence that tends to build when prices start to fall.

SilverSurfer said...

Are you guys talking about a bottom within 2012? Or *the* bottom? If the latter, I'd say the bottom is somewhere around 2020-2022. If that sounds crazy, consider markets have gone up from 2001 to 2008, then resumed after the financial crisis to new highs. Taking the historic 7 year average cycles, and combining it with a 2015/2016 US bond market crisis and global reserve currency collapse (-30 to -50%), and a commodity crash (30 to 50%) after China hard lands in 2013, crushing the TSX by 2014, is likely to extend your average 7 year cycle to 10-12.

indubidably said...

For those concerned with real or nominal, there won't be much difference in the coming years. For instance last year's -9.5% Aug-Aug was essentially the same in real, as inflation was near nil. M2 money velocity over the last 50 years is an easy way to visualise why. Be mindful there has been multiple trillions added over the last 4 years and all we got for it was the that last little bump.

http://research.stlouisfed.org/fred2/series/M2V?cid=32242

totoro victoria said...

I'm betting we will be in recovery by 2022. Be a weird ten years to be lower than today and I would not put all my eggs in that basket.

WorldtravellerPlus said...

Enough talk about the bottom! What is going to cause the next wave of buying?? Reduced interest rates? Not likely Increased Incomes? Haha Increase ownership as % of population? Already at point where US popped.
It is so premature to talk about a bottom right now when we're in shouting distance of the top. This is going to be a 5 year experience..maybe prices won't freefall but they certainly won't jump back up anytime soon. There just isn't any catalysts left to make home prices rise.
But I say buy now as long as you don't care in the least what house prices do in the future..otherwise, wait and see is the call. You will have plenty of notice as sales will really have to jump to start to reduce inventory, contrary to what our resident realtor is telling us. 2009 this ain't.....

Just Jack said...

There is a lot of unwinding that has to happen, before any recovery can start.

It would take another government intervention, much like we have had in the last decade to make prices increase to the multiple of income to prices that we have now. I don't see that ever happening again.

I doubt that even CMHC will survive in the form that it is today. Most likely it will be sold off and the government will get out of the mortgage insurance business.

I don't think that in any of our life times will we see real estate this high in relation to income.

Of course nominal prices could be as high as they are today in 25 years. But then someone bagging groceries at Thriftys would be making a hundred thousand dollars a year.

dasmo said...

" I just don't see any danger of a bottom in Victoria within 6 months." Agree. No pressure to by right now at all.

a simple man said...

no pressure to buy, except from my wife :)

But she is a patient woman, as exemplified by marrying me.

CS said...

"Impossible to time the bottom."

You can make an informed guess. You may not be right. But someone else may be.

Each person brings a different perspective to the question. Therefore, the mean of all predictions incorporates all the information that this community possesses.

For what it's worth, I predict that a slowdown in China and a strong Canadian dollar will slow the Canadian economy and drive down real estate for the next three years despite low interest rates.

After that I predict a strong American recovery will stimulate the Canadian economy and stabilize real estate (at -40% from the peak in Victoria).

Now I feel like a fool for making a prediction with a very low probability of being correct. Still it would be interesting to know the consensus.

dasmo said...

Ha simple! I feel for you. I should rephrase that there is no pressure from rising prices. From a nominal perspective I see it being long an flat so if you find the right place, keep your head about you an negotiate hard. This is the only benefit of buying on the way down. Just don't be afraid of making a "low ball" offer, just don't bother if the listing is fresh. I mean, -10% or not we are still talking a half million dollars! Is being polite that important?

patriotz said...

Timing the bottom is not the issue. The issue is determining the right price to pay and buying at that price. You're still ahead of renting even if the bottom comes later, which is what matters.

dasmo said...

" (at -40% from the peak in Victoria)." So just to clarify, you are predicting a median price bottom of $337k?

JustWatching said...

This graph tells the RE story.

Collapse of a bubble

We have had our recovery peak after the Financial Credit Crunch and are now on our way down.

Lets review what drove prices up.
- Gradually decreasing interest rates that ended at historic lows.
- Increased amortizations (up to 40 years) and zero down payment. Even when down payments were increased to 5% banks offered cashback.
- Fear of being "priced out of the market" drove many buyers to buy.
- Peer and parental pressure (being a renter meant being a loser)
- Greed to make easy money. Many early buyers flipped or traded up the property ladder and then boasted to their friends.

Now the game has changed.
- Mortgage rules have been tightened considerably (four major changes)
- The buyer pool is thin because so much demand was brought forward
- The media, government and RE industry are all talking about falling prices.
- Foreclosure on the rise and stories of losing money on real estate are now being told around the water cooler.
- Peer pressure is dwindling fast. I suspect the Bank of M&D is now closed for many kids as parents hear whats going on with house prices.
- Buyers have moved to the sidelines since there is no longer any pressure to buy now. Many don't want to catch a falling knife.

Frankly there is nothing left to push this market back up. Flaherty and Carney are happy with the way things are going and a flip-flop is not on the horizon. The market is going to slowly deflate as those that have to sell unload for whatever the buyers will offer them. Sellers that wait until next spring will just get less.

And if the US enters recession (some say it already has) then all bets are off on a slow drop. And if there is no recession and inflation goes up rising interest rates will hammer the RE market.

Watch out below!

Just Jack said...

And because we have and still are creating more dwellings, we will not have a shortage for at least another decade. More likely, for the next decade we will have a glut of condominiums and declining rents, at least in real dollars.

However, maintenance of the dwellings and other costs like taxes and utilities will continue to rise as the government tries to find someway of balancing their budgets.

Caught between a rock and a hard place. Once again we will feel the burden of ownership.

I am surprised that people are not mad as hell at the government.

Leo S said...

" (at -40% from the peak in Victoria)." So just to clarify, you are predicting a median price bottom of $337k?

Peak monthly median price was $595,000 in Jan 2010. So 40% off is $357,000.

Either way, I don't see that decline without an interest rate increase.

DavidL said...

Just over two years ago, I wrote here on HHV:

[1] I expect that prices will continue dropping quickly through the Spring of 2011.
[2] The rate of decrease will then taper off due to: [a] tinkering with CHMC and other government policies, and [b] speculators thinking that "now is the time" to get back into the real estate market, but then [c] overwhelmed homeowners selling because they are mired in debt.
[3] The market will continue to slowly slide through the remainder of 2011 through 2012 as more owners sell than buy. Inventory will continue to climb.
[4] The "rock bottom" will be sometime in 2013 and 2014 when a balance is achieved by people bailing out of their mortgages by selling (when faces with higher rates at mortgage renewal time) and buyers wanting to get back in the market. The total drop will be about 30% for houses - more for apartments.
[5] The real estate market will be stagnant through 2018 as the North American economy continues be depressed by an over-expansion of consumer credit/debt during 2000-2009 combined with pan-global security and environmental issues.


It's like I got a crystal ball!

CS said...

"Either way, I don't see that decline without an interest rate increase."

How about if prices of lumber, copper and coal all slump, we fail to get new oil pipelines or gas export facilities built and unemployment exceeds 10%?

CS said...

"" (at -40% from the peak in Victoria)." So just to clarify, you are predicting a median price bottom of $337k?"

I don't have much feel for the average, but I see the million-dollar North Oak Bay bung dropping to $600K, and the dated two-million-dollar, 1950s/60's Uplands home on half an acre dropping to $1.2 million -- and it could be worse. Right now, if you want to buy in the Uplands but don't like the price, it seems you only need to wait a week or two and the owners obligingly lower the asking without you having to go to the trouble of making a low-ball offer.

Leo S said...

We have had our recovery peak after the Financial Credit Crunch and are now on our way down.

But it has been 3 years since our "return to normal" bump. So how do you explain the time since then? Clearly it has not been a steep decline like one would expect.

The fact that our prices have not behaved like an asset bubble I think is the strongest argument that there is no bubble. Bubbles don't correct sideways as you know.

The evidence is much stronger for the bubble being in (in)affordability, essentially credit, which does appear to be correcting like a bubble should.

Leo S said...

How about if prices of lumber, copper and coal all slump, we fail to get new oil pipelines or gas export facilities built and unemployment exceeds 10%?

Sure. But I don't like to factor in these kinds of events. Yes they might happen, but they are essentially unpredictable. That kind of thing could always happen, so it could always be used as a reason to not buy, no matter where home prices go.

Leo S said...

Another way to look at affordability is to look at the price of an affordable house.

Historically, the standard measure for affordability has been 30% of income going towards the mortgage. Victoria is a nice place than average, so let's add a 10% premium and make it 33% of income.

Average Victoria SFH Price VS The Affordable House

Ideally we would use the median house and the median family income, but I don't have either of those data.

Leo S said...

Notice the effect of the interest rates crashing. The affordable house price increased by 20%.

The definition of the affordable house is of course debatable. The accepted number is 30%, but how much of a premium does Victoria carry?

10%? 15%?

Today's prices are only justified if mortgage payments at 40% of income are sustainable.

By the way, Seattle prices match very well to the 30% model. Is Victoria 33% better than Seattle?

Marko said...

"How about if prices of lumber, copper and coal all slump, we fail to get new oil pipelines or gas export facilities built and unemployment exceeds 10%?"

What if there is a massive drought and we all starve.

PD said...

"they are essentially unpredictable"

Respectfully disagree as "copper and coal" and others are all but predictable. The reason is the long lag times for miners to ramp up production in response to rising prices. This lag time is what drives a full 12-13 years of rising prices due to the extensive timelines involved in opening new mines. Which is then followed by almost 20 years of falling prices to work through all the widespread oversupply of the new mines. An example, copper in the late 1990s was 60cents/lb, came close to $5/lb last year, now under $4/lb. Of course the up leg was amplified in a similar manner as our homes, through excessive financialization.

If you do not understand why Canada and Australia initially escaped the correction that so many countries succumbed to 5 years ago, you simply are not thinking it through. Here's a hint, the following line is taken from the Natural Resources Canada site.

"Total capital investment in the three natural resource sectors is expected to reach $129.5 billion in 2012, which would represent approximately one-third of all capital investment in Canada."

The lion's share of that $129.5 billion is of course centered this side of the country.

Leo S said...

Respectfully disagree as "copper and coal" and others are all but predictable.

And? The price of copper and coal does not influence the Victoria real estate market.

Unemployment does, but it is, as I said, not predictable.

totoro victoria said...

Maybe. Maybe not. Time will tell. Each of us will make decisions based on the beliefs we have about the market. Kind of good it works that way :)

All of the prognostication on natural resources and interest rates and overvaluation and various statistics form the basis of personal opinions.

Seems pretty incredible to me that so many folks believe they can time the market and that things are that predictable that it can be set out in black and white from a fairly lofty position.

I know I just got lucky with the market for my first house. The only real skill set I have to bring to the table is willingness to work on properties, some knowledge of current and near future conditions, and an eye for the undervalued. I'm okay with keeping on that way in most markets.

PD said...

And? The price of copper and coal does not influence the Victoria real estate market. Unemployment does, but it is, as I said, not predictable.

So to be clear, you don't think the price of resources can influence the price of real estate here, which is part of a nation where resources represent 1/3rd the nation's entire capital investment?

Rather than try to convince you otherwise, I will paste the first sentence to this week's TC article entitled 'BC to slash spending, freeze hiring' in case it stimulates further discussion

"Another round of “austerity measures” is about to hit as the B.C. government struggles to replace more than $1 billion in natural gas revenue that has vanished."

Leo S said...

So to be clear, you don't think the price of resources can influence the price of real estate here, which is part of a nation where resources represent 1/3rd the nation's entire capital investment?

Sure it can, but the connection is tenuous at best. Victoria is not a resource town, so it is only indirectly affected.

Tons of things may or may not happen. Maybe the big earthquake will hit, maybe Canada will plunge into recession, maybe Marko is right and there will be a big climate-change induced drought. None of those things factor into my buy vs rent decision.

Great if you want to consider them, but don't kid yourself into thinking that you can predict the effect of copper prices on Victoria real estate with any degree of certainty.

Marko said...

"Respectfully disagree as "copper and coal" and others are all but predictable."

Don't take offense, but if you could reasonably predict resource price fluctuations you probably wouldn't be on this blog.

Ryan said...

..,predict the effect of copper prices on Victoria

hum, not a bad fit for Vancouver copper vs Vancouver houses ...let us pray to the copper gods :P

patriotz said...

August Teranet now out, Victoria % change y/y -1.12%, % change m/m -0.73%.

a simple man said...

The National on cbc tonight is supposed to have a highlight on real estate in Canada - filmed from Vancouver. Should be interesting.

dasmo said...

There are probably a thousand price graphs that look like that right now...is there much that isn't twice as much as it was in 1994?

JustWatching said...

Raeside cartoon about CREA

Good deal

dasmo said...

nice one...so true.

JustWatching said...

Want to sell and enjoy the relaxed life of a renter? Then you will need a mortgage penalty calculator.

Prepayment charge calculators from the top banks

JustWatching said...

Patriotz,

Thanks for the Teranet update. You forgot to mention Victoria had the biggest negative drop of all cities surveyed.

Teranet HPI Chart

JustWatching said...

Today's RE News...

Globe & Mail - B.C. housing slowdown signals wider slump

“The housing market correction appears to be under way, driven by a sharp downturn in Vancouver,” TD chief economist Craig Alexander said in a report Tuesday. “We expect the slowdown will become more broad-based following a fourth round of mortgage insurance regulation tightening by the federal government in July.”

What is this guy drinking?

“People in Central Canada tend to talk about the housing bubble in Vancouver more than anyone on this side of the Rockies,” said Cameron Muir, chief economist for the Vancouver-based B.C. Real Estate Association. “I always joke that Vancouver is okay, but I’m not sure about Toronto.”

Cameron - What happens if the pool of greater fools dries up?

“Housing markets don’t operate like the stock market. People don’t decide to sell their house and buy it back in six months,” Mr. Muir said. “To see a substantial price decline, you need a macroeconomic shock or household financial disaster, writ large, which is what happened in the United States. You need a recession, high unemployment and extremely high interest rates, where people can’t afford to make their mortgage payments and houses get flooded on the market and there’s no one there to buy them because there are no jobs. But there’s no evidence of that here.”

Rose gets it...

Rose Fong, who lives in the more affordable Mount Pleasant area, briefly pondered whether it would be worthwhile to take advantage of softening prices and buy into Kitsilano. But Ms. Fong said she likes it where she is and Kitsilano is still too expensive. “Kits is overrated for what you get for the price,” she said.

CS said...

@ Marko:

"What if there is a massive drought and we all starve."

If you think that likely, figure it into your prediction of the time and level of the bottom and we can include it in our community mean projection.

But I think from what you've said, you think we're in level flight now, so in effect your prediction is the bottom's now.

In fact, as many will know, we are already experiencing a "massive drought", which is driving up food prices, which must have some impact on housing affordability in Victoria.

Marko said...

"But I think from what you've said, you think we're in level flight now, so in effect your prediction is the bottom's now."

It could go down, let's say another 5-15%, but it could also stay flat.

Even if I knew prices would drop another 10% I wouldn't sell my place, by the time I pay commissions, legal fees, moving costs, and PTT on the other end it would take a minimum 10% drop just to break even. Add the incovinence of having to move and maybe I would sell if I knew market would drop another 15-20%....

As for buyers, I've as always said the right property is far more important than trying to time the market. This market gives you the opportunity to find the right property by taking your time and not competing with as many other buyers, is it the bottom? Who knows, we'll know in a few years.

CS said...

"Seems pretty incredible to me that so many folks believe they can time the market"

I don't think anyone has claimed to be able to time the market.

Your comment seems equivalent to saying that if someone bets on the outcome of a horse race they are claiming to know the result before the race is run. But no gambler believes that, and if they did there'd be no excitement in betting -- or anyone to take a bet.

Nevertheless, gamblers know something, which is why the odds on race winners tend to be short -- a lot of people bet on the winner, i.e., the community of bettors knows more than nothing about the outcome of the race.

I'm suggesting that the community of property analysts and investors knows, collectively, more about the future of house prices than is suggested by those who assert that the future of property prices is totally unpredictable.

CS said...

"Victoria is not a resource town"

You kidding?

Victoria is primarily a government/university town funded by taxes and the taxes are very largely paid by the resource industry. When resource revenue contracts as is happening now due to low gas prices, government spending must contract too, which is why UVic has a 4% budget cut this year and next -- something that's not good at all for the price of the North Oak Bay bung.

totoro victoria said...

"I'm suggesting that the community of property analysts and investors knows, collectively, more about the future of house prices than is suggested by those who assert that the future of property prices is totally unpredictable."

That is a reasonable proposition for short-term trends and very long term overall movements of markets based on historical analysis (ie. length of real estate cycles).

I did not say that prices were completely unpredictable, just that bottom could not be predicted with accuracy and long-term predictions tend not to be reliable.

I did say that short-term predictions can be made, and that I find that I have fairly good degree of accuracy when I follow a specific market closely.

There is a difference between making a pronouncement that the sky is falling and setting it out as the gospel based on resource markets, global markets or other factors not clearly correlated (like interest rates for example) and clearly stating that you are guessing/gambling based on your view of these factors.

Perhaps it is more a matter of presentation.

CS said...

"It could go down, let's say another 5-15%, but it could also stay flat."

Hey, come on, Marko, lets have it one way or the other. This is a poll we're doing.

But for for most property owners to sell because they think the market may dip would be crazy because their bet about the future is subject to uncertainty.

That means that although one may have knowledge that indicates a trend with a certain degree of probability, betting on that trend cannot be a sure thing and it may be close to a sure loser.

The people who have to worry about a dip in the market are those buying or who have just bought with little or nothing down and who lack a secure income, or who may have to relocate to maintain their income. These people face the possibility of future insolvency.

a simple man said...

My approach is not to try and time the market at all - it is about quality of life.

Having a huge mortgage leads to severe decreases in quality of life. A smaller house with a smaller mortgage will in the end make you happier.

That said, my wife and I have a level of debt that we are comfortable going into - previously it was a raw dollar amount for the total mortgage (ie. $200K), but now it has shifted to a monthly dollar amount that takes into consideration the prevailing 5 yr closed interest rate (25 yr amort).

When a house comes up that that is right for us in terms of location and space is below that monthly threshold (with all needed renos), we buy (we intend to pay off mortgage in 5 yr).

There are far more important things than a big house. We have lived in a number of houses and find that all the "extra" niceties (ie. granite, coffered ceiling, wainscotting, etc) don't really matter that much. You can live in a smaller house than you think - get outside more and enjoy what Victoria has to offer.

Why spend all of your time working to take care of the things you own - own less and enjoy more.

Quality of life trumps almost everything, but massive debt trumps quality of life.

CS said...

"short-term predictions can be made, andI find that I have fairly good degree of accuracy"

Give us some tips!

If you can predict, with an accuracy of better than 50%, whether tomorrow the direction of the Dow will be up or down you could soon be richer than George Soros!

DavidL said...

@JustWatching

Thanks for the link to the prepayment charge calculators. I was surprised to learn that there would only be a $300 charge (3 months interest) if I paid off the remaining $50K on my mortgage with ING Direct. Seems quite reasonable...

totoro victoria said...

Ah, unfortunately my powers of short term prediction do not extend to the stock market. In fact, it is limited to two really small geographical regions.

The stock market is a big black box with a question mark in it to me. I know very little about investing outside of real estate.

dasmo said...

Victoria has a diverse economy....
for example

I might add that it is not just it's own city government(as many as it has), but it also has the provincial government and navy. It's also not just a single university town but has many including numerous colleges and other learning institutes.

Sorry, but the price of copper falling will have little to no effect on Victoria house prices. The price of tin might.

Just Jack said...

I'm not to worried about those that have recently bought a home. They have been stress tested by the lender and will have a mortgage that is most often affordable.

The ones to worry about, are those that have owned their homes a lot longer and have been over using their home equity credit. These people can go way over their ability to service their debt. The low interest rate works to their disadvantage because if they are short $400 a month, they would have to pay their mortgage down by a $100,000 to get back on budget.

And that is not going to happen.

The percentage of foreclosures to sales is increasing and that will have a big impact on the market in the months to come.

reasonfirst said...

I think predicting when the bottom will come is almost impossible but knowing it when you see it is a different story. And I am not talking perfection here but bottomish.

Here's a question for everbody: In general, would you say that US RE is near bottom?

I say yes.

CS said...

"I'm not to worried about those that have recently bought a home. They have been stress tested by the lender and will have a mortgage that is most often affordable."

The problem in a falling market is with those with little equity and a need to sell due to a loss of income on a need to move. If they're under water on the mortgage, then they're insolvent.

Leo S said...

@JustJack

The percentage of foreclosures to sales is increasing and that will have a big impact on the market in the months to come.

Do you have stats on this? How has the foreclosure rate varied over time? Through the 2008 mini-crash?

Just Jack said...

Well last month there were 8 advertised court ordered sales out of 418 sales. That's one house out of every 52 for sale that were court ordered. The actual number of properties that are in the process is not known. But it will be a lot higher.

One out of 52, is not something to worry about. But if that number were to increase to ten out of 52 or 1 out of every 5, then foreclosures would have a dragging affect on prices.

Back in 2007, there were essentially no court ordered sales in the entire year. That doesn't mean that people were making their payments, its just that they could sell their home without the property without the bank taking them to court.

Introvert said...

I always find it laughable when people say stuff like "when the price of w slumps, then x will go up, which will affect y, which means z will happen."

patriotz said...

"short-term predictions can be made, and I find that I have fairly good degree of accuracy"

No fooling. RE cycles have a period of many years, which means that predicting that the next few months will be like the last few months will be right 90% of the time.

Such short term predictive powers are worthless of course due to the high transaction costs and low liquidity of RE.

"Ah, unfortunately my powers of short term prediction do not extend to the stock market."

Due to the reasons given above.

Introvert said...

Victoria is primarily a government/university town funded by taxes and the taxes are very largely paid by the resource industry. When resource revenue contracts as is happening now due to low gas prices, government spending must contract too, which is why UVic has a 4% budget cut this year and next

The provincial public sector and UVic are both institutional goliaths whose budgets will more or less stay the same in perpetuity.

4% cut at UVic? It's not what I want to hear, but it's not a monumental change, either.

Temporary provincial hiring freeze? Not a big deal. Bad news? Certainly. But not that big of a deal.

When UVic or the province lays off 40% of its workforce in one fell swoop--then I'll light my hair on fire.

totoro victoria said...

"Such short term predictive powers are worthless of course due to the high transaction costs and low liquidity of RE."

Worked pretty good for me so far :)

Don't think it is worthless at all when you are ready to buy. Part of what lets you figure out what is a good deal and whether to hold off a bit and when to lowball. When you add knowledge of renos and resale and financing and credit and transaction cost reduction and tax planning and rental markets - it has created signficant financial returns for me and continues to do so.

Perhaps the most interesting aspect of that is that anyone can figure that stuff out if they are motivated and want to invest for a longer time period. I don't find the stock market so easy to master.

So, you can denigrate my comments but I do have some experience and four properties - soon to be five -from which to draw experience from. Cash flow and principal paydown are beautiful things when you want to retire early.

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