We all know that the correction of the second half of the 90s was the kind that the government is trying to orchestrate right now: a soft landing where prices declined a little, but then just stayed flat until incomes caught up.
Generally the debate on this blog is between market bulls and bears, but I believe Dasmo coined the term halibut for those that think we are in for another flat market like the 90s. So let's look at the situation at that time and see how it compares to today.
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| SFH Median and Residential MOI for Greater Victoria 1996-2012 (click to enlarge) |
The average MOI from 1996 (the earliest available active listing data) to the end of 2000 was 7.3 and prices were appropriately fishy. If we look at the last two years, we see an average MOI of 8.1 or about 10% higher than in the 90s. Sure enough in that time we've seen some gentle declines. The current inventory is certainly quite extraordinary. If we continue to see YoY increases in MOI we will start to see the market slide faster.
In other news here are the latest VREB Monday numbers thanks to Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.
October 2012 month to date (previous weeks in brackets)
Net Unconditional Sales: 166 (106)
New Listings: 483 (276)
Active Listings: 4616 (4565)
Sales to new listings ratio: 34% (38%)
October 2011
Net Unconditional Sales: 483
New Listings: 1086
Active Listings: 4687
Sales to new listings ratio: 44%
Sales to active listings ratio: 10.3% or 9.7 MOI
205 comments:
1 – 200 of 205 Newer› Newest»Let's take a closer look at the numbers Marko posted today. Note that monthly sales to date only increased by 60 last week! There were 207 new listings and inventory is on the rise. This doesn't bode well for sellers.
At this rate a conservative prediction might be 415 sales for the month of October. How does this fare with other years?
2011 - 483
2010 - 467
2009 - 742
2008 - 316
2007 - 708
2006 - 590
Sales haven't been this slow since the financial crisis of 2008. We all know what happened then to prices until the feds dropped the interest rates to historical lows.
Leo, you're showing an average MOI of 8. Interesting, I hadn't taken a broader look at MOI but it shows that in order for there to be pronounced price drops MOI needs to be higher than 8. A prolonged MOI of 8 will take many years (I think about 10 if not longer) to revert price-rent and price-income back to historical norms. In other words, current inventory/sales levels are the level to elicit a "soft landing". If things were to instead revert more quickly, say over five years instead of well over 10, that would mean decidedly worse conditions for those years.
Prices dropping make the headlines because that's what matters in the end, but the mode by which prices revert necessarily means lower sales. That is an important point, one a generation of vested interests won't have experienced the ramifications first-hand.
I'm bearish but I also have many friends who depend upon real estate transactions for their livelihoods. It's hard to explain to them how long and severe a sales drought can plausibly be. They want so badly for their livelihoods to be sustainable in the long run. I get that but the data are telling me that won't necessarily work out.
For them, because I cannot hope to convince them to see the heightened risk, I'm worried.
Price/assessed in the lower end now at the lowest level since i started tracking it.
Curiously enough, price/assessed in the higher end is still pretty strong at over 100%.
I'm not sure there will be a long and severe sales drought. There is a general preference for owning in Canada.
What may happen is that prices will fall a little and stay stable for a longish period of time. They may drop more if interest rates rise and will recover slowly otherwise.
As far as the RE industry goes. I think good progressive agents will continue to do fairly well. In general, full sales commission RE will decline in popularity.
As far as using historical norms -I think affordability will always be there as an underlying force but I do wonder if there has not been a shift over time towards paying much more for housing. This shift may be here to stay.
There is a general preference for owning in Canada.
That preference was also there in the 90s and the flat market still persisted for 8 years. The difference being that ownership rate now is significantly higher than it was back then. How high do you expect it to go?
I think affordability will always be there as an underlying force but I do wonder if there has not been a shift over time towards paying much more for housing. This shift may be here to stay.
For SFHs I would agree. In a denser city, detached homes become pricier over time. But the idea that housing as a whole is permanently more expensive smells of "new paradigm!".
If the analogy holds true, bear eats halibut.
"Anyone have any thoughts on the revision to the debt to income stats that caused the debt to income to jump by 10%?"
Quite shocking. I can't say I'm surprised though. Lots people in lots of debt.
"Price/assessed in the lower end now" I think that's partly because some sanity has at lease found it's way into the market. Places that need major work or a bulldozer won't command top dollar anymore.
Bears eat salmon, not Halibut...In fact we can get as big as a bear!
"ownership rate now is significantly higher than it was back then"
Indeed it is. And for argument's sake say there is "a general preference for owning in Canada". So... people are willing and able to pay a premium to own because of their preference, coupled with marginal buyers being on balance owner-occupiers, I think we might have fallen upon one of the reasons why house prices shot up.
There may be a preference to own but, as the saying goes, the owner's premium is the renter's discount. Right now owners are heavily subsidizing renters, but many don't realize it. Not that it's a particularly good deal for renters; after all asset bubbles are in net value-destroying because they distort optimal capital allocation.
" In a denser city, detached homes become pricier over time."
But that doesn't excuse people inflating an asset price because of perceived value. If the real cost of capital has permanently changed that's one thing but I (for one) think that's unlikely. All highly theoretical but it's important to consider whether high house prices relative to their earnings are sustainable. If one thinks this one's indirectly stating people are willing to accept below-average risk-adjusted returns compared to what they can readily achieve elsewhere (even today; after all, other industries are seeing the benefits of lower rates too).
A densifying property increases faster than inflation because the land utility increases over time. That's already likely priced in through lower current yields -- a higher capping condo should return the same as a lower density house after earnings are discounted into the present. That may be distorted because the de facto discount rate being used is abnormal (see above).
I have never heard the saying that an owners premium is a renters discount. I've found that more expensive home prices seem to be correlated with higher rents to a degree.
Yes, the ownership rate in Canada is very high. I was not suggesting that it will go higher - only that there will always be a pool of prospective buyers looking to enter the market and those seeking to move up - even in a flat market.
I'm not sure that a flat market is correlated with a long-term severe sales drought - although a severe correction likely is. A severe correction would shake consumer confidence for a time as it has in Las Vegas for example.
Yes, I think that the SFH in densifying areas becomes more expensive over time. Victoria, and OB in particular, is my area of reference, as well as the Okanagan - not the housing market across Canada and in other countries. I don't follow other markets but I would say that it is not true in all markets from what I know. Location is key.
jesse - perhaps another factor is the availability of leverage in a housing purchase. this can bring much greater ROI than other types of investments when the market rises and this is common consumer knowledge. many other types of investments do not use borrowed dollars and loads of them have not done great.
" I've found that more expensive home prices seem to be correlated with higher rents to a degree"
What the "owner premium = renter discount" means is that if someone overpays for an asset, the user of the asset in effect gets a discount.
"I'm not sure that a flat market is correlated with a long-term severe sales drought"
I refer you to Leo's graphs in this very post. Depends how we define "drought" but I would consider current conditions the best-case scenario for a "soft landing". In current conditions, to use a farming analogy, yields are low.
" this can bring much greater ROI than other types of investments when the market rises and this is common consumer knowledge"
Every investment is financed in some way, whether self-financed or otherwise. Investments in, say, a common stock are a form of financing, the business being invested in is therefore already leveraged.
Not that I know much about it but the more successful business investors I know get the business case right first and worry about the financing later. What I see in Canadian property is a reversal of that. The business case right now looks highly suspect and relies upon above-inflation capital appreciation to make the leverage you speak of work. If that capital appreciation falls short the "power" of leverage will work just as hard on the way down. From what I see, risk-adjusted losses on property have already been struck; they just haven't been accounted for yet. That was one lesson the US learned and I'm having a hard time convincing myself Canada is different.
"What the "owner premium = renter discount" means is that if someone overpays for an asset, the user of the asset in effect gets a discount."
I understand the meaning. I, as an owner, am able to cover my costs through rental payments received and have net positive cash flow. I don't think renters are getting a discount in general, although they may on some properties. Rents are fairly high in Victoria and this may be because cost to buy is high.
Victoria is not; however, imo a great investors market because of the low cash flow positive returns in general.
"I refer you to Leo's graphs in this very post."
I don't think we can extrapolate to long term and severe based on current conditions. Time will tell.
"Every investment is financed in some way, whether self-financed or otherwise. Investments in, say, a common stock are a form of financing, the business being invested in is therefore already leveraged."
Investments in a common stock are not a form of financing for the investor - which is who we are talking about. Not sure how that makes any sort of sense in relation to a purchaser borrowing money from the bank to buy a house. They get ROI based on appreciation on the borrowed dollars as well (or conversly depreciation). If you borrow to buy stocks then perhaps the analogy holds true. I would personally never borrow to invest in the stock market given that it is back by an asset I do not control.
"Not that I know much about it but the more successful business investors I know get the business case right first and worry about the financing later. What I see in Canadian property is a reversal of that. The business case right now looks highly suspect and relies upon above-inflation capital appreciation to make the leverage you speak of work."
It does not relie on above inflation capital appreciation to work. You need to run the complete business case including all factors and be prepared to hold through a cycle imo. I am not relying on above-inflation returns in my business case and it still makes sense.
"If that capital appreciation falls short the "power" of leverage will work just as hard on the way down."
I agree. This is the risk. I have posted before on how to mitigate against this - long term low rate mortgage (I have ten years) and a buy and hold strategy with rental income buffer.
"From what I see, risk-adjusted losses on property have already been struck; they just haven't been accounted for yet. That was one lesson the US learned and I'm having a hard time convincing myself Canada is different."
I agree that the market is more likely to decline or stay flat for the next bit. The unique factor in real estate that you plan to live in is that you have another calculation to do: rent vs. buy. Do the complete calculation and consider the long-term and then you will have a greater ability to weigh the pros and cons imo.
It is not as simple as an appreciating or depreciating market.
If that capital appreciation falls short the "power" of leverage will work just as hard on the way down.
Always found it odd when people say "a house will never go to zero" when explaining why they prefer real estate. Sure the house won't, but your investment in it can very easily. A 5% decline is all it would take for many first timers.
I don't think we can extrapolate to long term and severe based on current conditions. Time will tell.
We can't really, but looking at previous corrections they are either long (90s) or steep (80s). A short and shallow correction would be unprecedented.
Who knows!
I agree that a correction could be long and less severe - ie sort of flat with no inflation-based gains. I also agree there could be a short severe correction ie. interest rate hike.
I disagree that a long and severe correction is currently demonstrated by the data.
As far as depreciation goes, yes this is a frightening and potentially devestating thing when you use leveraged dollars. Know the risks and plan for them or don't buy.
I think depreciation weakens consumer drive to purchase a bit. This reduces competition for formerly desirable properties and creates opportunity.
There is, imo, opportunity to buy a very good home that needs some work for much less in a depreciating market.
I am betting on long.
"I don't think renters are getting a discount in general"
Compared to owning, after accounting for all risks, they are. It's just not obvious yet.
"I don't think we can extrapolate to long term and severe based on current conditions"
My point was that current conditions are drought-like. Not a severe drought but the stresses are evident for those watching closely. The analogy I would use is a penalty killing unit out on a long shift unable to get to the bench for a line change.
"Investments in a common stock are not a form of financing for the investor - which is who we are talking about"
Yet stocks are a form of leverage for the investor in the business, which is what a property investor is. It's a matter of who takes the losses and who gets the gains when an investment is made.
"The unique factor in real estate that you plan to live in is that you have another calculation to do: rent vs. buy."
Which is 99.9% of the time inappropriately calculated. Risks are not evenly meted out and invariably homeowners are incapable of accurately accounting for these risk items in aggregate. These risks are only accounted for after a few years of stagnant or falling market conditions. Right now they're a liability but won't show up on investor (read: homeowner) balance sheets, even though they are first in line for losses.
"It is not as simple as an appreciating or depreciating market."
For someone who is leveraged, a depreciating market is probably THE most important factor to consider right now. They can wax about "buy and hold" or whatever but the risks of them needing to sell are there and absolutely real. I would not countenance ignoring the possibility of a forced liquidation but that's exactly what you are doing. I hope you understand the risk you're taking at current prices. If your ACB is lower it's not relevant but I doubt many owners are as fortunate.
"Know the risks and plan for them or don't buy."
If this was a common market sentiment we would not be in this bubble. Too many people don't think about the risks and dive in.
There is, imo, opportunity to buy a very good home that needs some work for much less in a depreciating market.
Hard to borrow money to buy another property when the one you own (or one of them) is underwater on the mortgage or looks close to getting there.
Compared to owning, after accounting for all risks, they (renters) are (getting a discount). It's just not obvious yet.
It's patently obvious and I think most buyers already realize it. They just expect to come out ahead through appreciation.
"Compared to owning, after accounting for all risks, they are. It's just not obvious yet."
I am an owner and I have done the calculations and posted them here previously - they work for me because I am cash flow positive and receive a hefty discount on my mortgage from rental income even adjusted for income taxation.
Roger has a good rent vs. buy tool as well. I think you are correct in some cases and in particular in a depreciating market where risks are higher ie. have to sell. You are likely correct when looking at a typical SFH.
"My point was that current conditions are drought-like."
Okay.
"Yet stocks are a form of leverage for the investor in the business, which is what a property investor is. It's a matter of who takes the losses and who gets the gains when an investment is made."
I strongly disagree with this analogy. Stocks are not a form of leverage for the investor - they are an investment of their current assets with no borrowed capital. It is not a matter of who takes the losses or gains - it is a matter of money borrowed to invest or not.
"Which is 99.9% of the time inappropriately calculated. Risks are not evenly meted out and invariably homeowners are incapable of accurately accounting for these risk items in aggregate. These risks are only accounted for after a few years of stagnant or falling market conditions. Right now they're a liability but won't show up on investor (read: homeowner) balance sheets, even though they are first in line for losses."
Risks don't show up on balance sheets until materialized. They show up in a risk assessment or long-term business plan. Once a risk materializes it is not a risk but a reality. You are confusing risk with materialization of the risk. I would even argue that materialized risk is not real until actualized (house sold). Risk mitigation is available for a homeowner in a way it is not available with stock investments.
"For someone who is leveraged, a depreciating market is probably THE most important factor to consider right now."
Maybe. This would mean you would not buy until the market starts to appreciate again. This might take 7-10 years. You still have to live out those years and raise your family. You have to way the financial and non-financial costs and benefits. You have to account for rent vs. buy including depreciation; appreciation; interest rates; rental income; principal paydown; quality of life; ability to improve using sweat equity...
The market is like a person with a weakened immune system, what changes it could fight off before, can put it into a comma today.
"The doctors recommend placing the patient in an induced question mark."
Just Jack, you've succeeded in misusing the comma three times in one brief sentence. I certainly hope your job doesn't require you to write much.
"Stocks are not a form of leverage for the investor"
Well you have the analogy wrong -- the proper comparison to a real estate investor is to a business, not a retail equity investor. A house is much more akin to a business investment where financing is required. A business owner sees an opportunity and figures out how to finance it. He can finance through things like company shares or debt. Likewise a property investor can finance an investment through all sorts of means, including issuing stock (as like a REIT), but the predominant mode of financing is through a mortgage.
"Once a risk materializes it is not a risk but a reality. You are confusing risk with materialization of the risk. I would even argue that materialized risk is not real until actualized (house sold)."
Well I know personally a few homeowners stateside who are the unfortunate recipients of a "materialization". I know very well the difference between risk and occurrence of risk; since a risk does not occur in a particular case does not mean it should not be accounted for upfront. Even Leo's buy-rent calculator cannot account for many low probability high severity events. The only way to account for them is to pay a lower price. From what I see now, compared to other investments, the risks being taken at marginal prices are high.
" You have to way the financial and non-financial costs and benefits. "
That is hogwash. It is about the price-earnings, and always was. People are confusing their consumer surplus with utility. Justifying overpaying due to intangible benefits is one thing but I rarely see an acknowledgement from an owner she/he has overpaid.
All the lines you are using are refrains I heard reading US bear blogs in 2006. You may think you are accounting for risk (read: permanent loss of capital) in your investments right now but I assure you in aggregate the market is not. These risks are, based on the cursory look at balance sheets of friends and family, predominately unhedged, save those who were fortunate/smart enough to pay lower prices.
I just wanted to add that bears eat salmon not halibut and that sometimes we can grow as big as a bear...
Seems like this debate about prices falling will continue forever. It is obvious to most readers looking at Leo's graph that median prices peaked two years ago and have been seesawing downward since then.
But median prices only tell part of the story. Market values of houses have been falling and the only thing keeping the median and average prices from showing a bigger decrease is buyers keep spending what the banks will loan them. They end up getting more house for the money. Too bad we don't have a $ per sq. ft metric to show this in detail.
Anyone with a PCS account can see that selling prices are way under assessed value and that every day there are piles of price reductions with some houses requiring 2 or 3 in order to attract a buyer.
Take a look at this one...
What a haircut!
Totoro Victoria,
I have read your posts and you are consistent.
- Buy a rental cash flow positive property and plan for the long term
- Use leverage but put down at least 20%
- Go long term on interest rates and have a 10 year planning horizon on costs
BUT the vast majority of buyers are not like you. They buy on emotion, do little financial planning, have minimal emergency funds and have other debt. They are the ones that will dictate the future of real estate prices over the next few years NOT buyers/owners like you.
"Every investment is financed in some way, whether self-financed or otherwise." Find me a bank that will lend you 500k at 2.99% to invest in stocks and then lets talk...
"Always found it odd when people say "a house will never go to zero"... A 5% decline is all it would take for many first timers."
Good point Leo.
There are numerous risks in real estate. One of which is being able to carry the cost of borrowing. As with any business, borrow too much and you go under. The "liability" side of real estate is "Real". Even if there is nothing owing, it requires maintenance, insurance, tax, etc. Personally I don't think you can just invest in real estate. You can start a real estate business, either as a developer or landlord. If you want to invest, stick to stocks and bonds. You can put just a little in at a time, you can diversify, you have many many choices on how to play your money. Plus, once your in, that's it. No maintenance costs, no added burdens. Just relentlessly watching the ticker...
"Every investment is financed in some way, whether self-financed or otherwise. Investments in, say, a common stock are a form of financing, the business being invested in is therefore already leveraged."
I was responding to the analogy you provided. A house is like a business investment but a home purchaser is akin to the business owner and not the stock purchaser. The stock issuer is the business and this is akin to home financing.
A property investor could raise financing through issuing a REIT but the common investor would purchase a REIT. A home owner will not raise funds through a REIT but through a bank mortgage. There is a big difference: http://www.milliondollarjourney.com/owning-rental-property-vs-owning-reits.htm
"Even Leo's buy-rent calculator cannot account for many low probability high severity events. The only way to account for them is to pay a lower price."
This is somewhat incorrect. The more remote the risk or the more mitigation that is possible the less the risk will impact prices. Take earthquakes for example, insurance is available and the risk, while real, is not certain to occur in Victoria. I would argue that this severe but somewhat remote risks does not impact prices at all right now.
"That is hogwash. It is about the price-earnings, and always was."
Hogwash to you: truth to others, including myself. I would say it is true for investment properties - which I also own. My primary residence has a slightly different analysis as it impacts my everyday quality of life.
I love all the bantering back and forth on this blog and the perceived knowledge of real estate and other investments. I can only envy Just Jack and others with all their intelligence and advise, but what I envy more is that they have such wonderful employers, allowing them to spend the better part of their working day solely to enlighten us! But they do take the weekends off.
How about another look at the typical Gordon Head "shoe box" price by quarters. I think most of us will be able to find peak price and peak sales volume.
2007
1st quarter 105 sales $502,000 median
2 (154) 518,000
3 (108) 542,500
4 (76 ) 549,000
2008
1 (91 ) 570,000
2 (115) 565,000
3 (74 ) 556,950
4 (45 ) 510,000
2009
1 (65 ) 540,000
2 (132) 537,500
3 (109) 563,000
4 (77 ) 570,000
2010
1 (86 0 619,500
2 (113) 585,000
3 (67 ) 575,000
4 (46 ) 575,000
2011
1 (74 ) 590,000
2 (78 ) 590,000
3 (79 ) 575,000
4 (59 ) 575,000
2012
1 (78 ) 569,000
2 (86 ) 575,500
3 (65 ) 540,000
So, it appears that although sale volumes have been falling since 2007, prices kept rising until the beginning of 2010. That is unlikely to happen in a market void of government manipulation.
Yet, the government stimulus plan was a failure as it did not create more buyers, it just created higher prices. And higher debt loads as Canadians dipped into their home equity lines of credit. But even all that CMHC guarantee of hundreds of billions of dollars could not stop the inevitable - prices had to begin to fall. And prices will have to continue to fall until demand returns to the market. And that's not an easy thing to occur when over 70 percent of Canadians own their home.
Basically your about to cross a dessert and your water barrel is almost empty. A lot of people are not going to make it.
Losing your job or an illness are things that are hard to plan for; but to weigh all of your financial livelihood on whether a stranger in your basement can pay their rent. Good luck on that one.
"what I envy more is that they have such wonderful employers, allowing them to spend the better part of their working day solely to enlighten us"
i have an awesome employer. being the boss of me and working fairly little is a nice side effect of an inclination for research and extended decision evaluation periods.
I have nothing but admiration for you totoro......you, as they say, put your money where you mouth is.
"I would argue that this severe but somewhat remote risks does not impact prices at all right now."
Fine, but there are much more tangible risks that I do not see being accounted for. I'm not picking on you here, just debating!
Some examples of risks that should be accounted for: job loss or relocation, illness, divorce. These are much more akin to an auto insurer like model, with a constant flow of events occurring that will elicit a claim. Some are insurable.
So how this matters is during times when markets are more illiquid, like now, and people need to sell for these reasons. If they cannot sell, or if the price has dropped to a point where they cannot sell without a substantial loss, that is realization of a risk -- a permanent loss of capital.
That's where I see buy-v-rent calculators falling flat. I cannot put in "probability of being divorced" as a line item or it becomes self-fulfilling. Actuaries can do it, homeowners are unlikely to. The only way to mitigate these risks is to pay less in the first place.
Earthquates and floods are typically covered by disaster relief funds, insured by governments, perhaps not as much to cover all costs, but does provide some amount of hedging.
"My primary residence has a slightly different analysis as it impacts my everyday quality of life."
And certainly I would not begrudge anyone from enjoying quality of life. What I do take issue with is operating an investment and home ownership in the same market and thinking the two philosophies -- price-earnings versus ownership intangibles -- can coexist. If intangibles dominate that means investors necessarily compete on less favourable terms. How that paradox gets resolved is now canon stateside. Maybe Canada is different.
I agree with you jesse on job loss, illness and divorce.
Here is how I mitigate these risks:
1. job loss - self-employed and have rental income
2. illness - disability insurance and savings and rental income
3. divorce - i have no magic bullet - i advise against buying if you are in a shaky marriage/relationship
I don't feel like you're picking on me, I just like to make sure stuff makes sense - and see if I've missed anything that can impact my next RE decision.
This forum provides an opportunity to examine a very big decision before making it - which can be quite valuable.
Basically your about to cross a dessert and your water barrel is almost empty.
I like crossing crème brûlées.
Also, I see that you still haven't licked "your" vs "you're." That one's a toughie!
Price/earnings and intangibles do coexist for me with my primary residence. I try to integrate as much as I can so the investment makes sense and we have quality of life.
I am willing to pay more for location if it increases quality of life. Usually this would correlate with better rental markets for a property as well.
If you are looking at purely investment properties (rentals) then price/earnings will predominate.
I still find other values sneak in there for me too like - is this a place we can vacation in... would I enjoy staying here part-time... would I enjoy fixing this and making it look better...
So, for me, it is not hogwash to integrate quality of life into my analysis. In a way, is this not a good thing? I expect that my interest in the intangible quality of life benefits of my investment increases my desire to improve and operate it well.
I like to find the crossover point between personality match and investment/life energy expenditure. Money alone would not inspire me in the same way.
How about another look at the typical Gordon Head "shoe box" price by quarters. I think most of us will be able to find peak price and peak sales volume.
2007
1st quarter 105 sales $502,000 median
2 (154) 518,000
3 (108) 542,500
4 (76 ) 549,000
2008
1 (91 ) 570,000
2 (115) 565,000
3 (74 ) 556,950
4 (45 ) 510,000
2009
1 (65 ) 540,000
2 (132) 537,500
3 (109) 563,000
4 (77 ) 570,000
2010
1 (86 0 619,500
2 (113) 585,000
3 (67 ) 575,000
4 (46 ) 575,000
2011
1 (74 ) 590,000
2 (78 ) 590,000
3 (79 ) 575,000
4 (59 ) 575,000
2012
1 (78 ) 569,000
2 (86 ) 575,500
3 (65 ) 540,000
So, it appears that although sale volumes have been falling since 2007, prices kept rising until the beginning of 2010. That is unlikely to happen in a market void of government manipulation.
Yet, the government stimulus plan was a failure as it did not create more buyers, it just created higher prices. And higher debt loads as Canadians dipped into their home equity lines of credit. But even all that CMHC guarantee of hundreds of billions of dollars could not stop the inevitable - prices had to begin to fall. And prices will have to continue to fall until demand returns to the market. And that's not an easy thing to occur when over 70 percent of Canadians own their home.
Basically you're about to cross a dessert and your water barrel is almost empty. A lot of people are not going to make it.
Losing your job or an illness are things that are hard to plan for; but to weigh all of your financial livelihood on whether a stranger in your basement can pay their rent. Good luck on that one.
" it is not hogwash to integrate quality of life into my analysis"
The point I would make here is that from a strict financial sense you're overpaying. There is nothing wrong with that -- it's called a consumer surplus -- but an investor paying the same premium is overpaying with no benefits. These can be explained away by "control over the use of the property" or other platitudes but it comes back to a high price-earnings and it's hard to resolve that.
Look, at current real interest rates people are being encouraged to invest in assets including property. Property is not unique in seeing low yields right now; it can be thought of as future earnings being brought forward into the present. There have been few periods of history of prolonged negative real rates, the last scenario was in the 1970s with about 4-5 years or so. Maybe Canada will see an even longer bout but, fair warning, the tests in history of current conditions are not favourable for asset prices in the medium term. Eventually the 5 year is going to show some upwards leakage once the bond market catches a whiff of a sustained US recovery. That might be sooner than we think -- i.e. it's now within a few years. JMHO.
@Leo S
Actually, the 1980's correction was both steep and long. Housing plunged 26% from an average $126,776 in 1981 to $93,865 in 1985. Although seeming to recover to $127,888 by the end of 1988 - factoring 42% inflation over 7 years, that average 1981 home should been worth $180,713 by 1988.
It wasn't until 1992 (11 years after the "crash") that $126,776 was then worth $212,217 and the average house sale had risen to $222,415. Between 1992 and 2002, housing prices barely kept pace with inflation (19.83% over ten years).
Inflation calculator: http://www.bankofcanada.ca/rates/related/inflation-calculator/
VREN Historical SFH Sales: http://www.vreb.org/pdf/historical_statistics/YE782011.pdf
My boss is a relentless bag and she's cheap too! I'd quit on the spot if I could!
The only thing that keeps me going are the self-employment perks :-)
I think that a sustainable real estate market requires a large pool of prospective purchasers. That pool of prospective purchasers is now quite shallow, making the marketplace dysfunctional. Anomalies are appearing in almost every neighborhood with homes that at one time received multiple offers, now languish on the market.
The market is like a person with a weakened immune system, what changes it could fight off before may put it into a coma today.
That is an interesting stat. If you bought in 1981 for $126 000 you would have been paying above prime I presume. Rates for mortgages were around 21% if I'm reading the charts right.
You would have been paying the same monthly payment then as a $500 000 home today costs with a current 5-year mortgage rate.
Now that is a situation in which a cash buyer has an extremely strong advantage and one in which I would definitely not be buying.
In 1992, mortgage rates were half of 1981.
Current historic low rates for long term mortgages seem to put the homeowner today with only 20% down in a much better buying position today than 1981.
"from a strict financial sense you're overpaying"
maybe, maybe not. time will tell. it is a complicated analysis and my boss is telling me to get to work now :)
A Grammar Nazi is a person who incessantly corrects the spelling and grammar usage of others on the Internet in fascistical manner, hence their comparison to Nazis.
Some grammar Nazis really do believe they are on a mission from God to prevent the barbaric mutilation of language on the Internet, others behave in this way to try and outdo other grammar Nazis by by finding and correcting increasingly more obscure errors in each other's comments. Whoever identifies the final and most obscure error (preferably the one that requires a consultation with a resident linguist at Cambridge to understand) wins, and evidently has the bigger e-penis.
Other tend to exploit the fascist tendancies of grammar Nazis as a drama-generating technique. If a troll leads the Nazi into a "trap", filled with deliberate bad grammar, they will leap on the oppertunity.
Grammar Nazis are often hypocrites as well, challenging the grammar of others with posts that contain spelling and grammar errors themselves.
Lots of high-end sales this month, SFH average sitting over $650k.
Even Leo's buy-rent calculator cannot account for many low probability high severity events.
Correction: This is Roger's tool, not mine.
Mind boggling how few sales are occurring in the Western Communities. There are 619 houses for sale in Sooke, Langford, Colwood, Highlands and Metchosin.
There have only been 40 sales in the last month.
Langford and Colwood have 311 houses for sale and had 24 of the total sales. Yet re-sales show that home prices are only back to 2007/2006 levels.
So it appears that prospective buyers in the Western Communities
are still quite willing to part with a sizable amount of their pay cheques for a home in Langford and Colwood.
Of course Victoria City had almost as many sales, but their inventory was only at 162 listings or a little less than five months. Yet some starter homes are beginning to show up for under $350,000.
Maybe Totoro is correct, why not buy today. People buy cars with no expectation of appreciation - why not homes? If fact they expect their car to be worth less and less each year - why not homes?
But don't expect banks to finance at 2.99% on a depreciating asset. Those days will be over.
Homes have always depreciated (until renovated). It's land that appreciates. Banks expect that. In fact when they get a valuation on a property it is broken down by land value and depreciated building value. This is why I always felt 400k for a float home was total insanity...
Current historic low rates for long term mortgages seem to put the homeowner today with only 20% down in a much better buying position today than 1981.
Correct. In 1981 the average house cost $3710/month in today's dollars before the market collapsed. 2 years later the monthly payments had collapsed to $1935/month for new buyers of an average house and continued to decline for 3 more years.
The recent peak was in 2008, with payments of $3191. Since then we've come down to $2500 a month due to lower rates.
Mind boggling how few sales are occurring in the Western Communities. There are 619 houses for sale in Sooke, Langford, Colwood, Highlands and Metchosin.
There have only been 40 sales in the last month.
Langford and Colwood have 311 houses for sale and had 24 of the total sales. Yet re-sales show that property prices are only back to 2007/2006 levels.
So it appears that prospective buyers in the Western Communities
are still quite willing to part with a sizable amount of their pay cheques for a home in Langford and Colwood.
Of course Victoria City had almost as many sales, but their inventory was only at 162 listings or a little less than five months. Yet some starter homes are beginning to show up for under $350,000.
Maybe Totoro is correct, why not buy today. People buy cars with no expectation of appreciation - why not properties? If fact they expect their car to be worth less and less each year - why not properties?
But don't expect banks to finance at 2.99% on a depreciating asset. Those days will be over.
As corrected
I never said that I did not expect homes to appreciate. I do expect them to appreciate over a seven-ten year window over and above where we are at today.
Cars are another matter. I buy second-hand in good condition and fully expect that the asset will depreciate. Business travel mileage compensates for most of that though.
Banks will continue to finance a home at the going rate (related to prime) because it is not a depreciating asset - or at least the land is not. It is an asset subject to market fluctuation but overall it will appreciate over time. Appraisal and qualification processes may tighten further.
Leo - you are on to something with those affordability figures.
"BRING OFFERS!!"
If only there was some way to elicit offers. I know... add instructions in the listing so that people know that offers are wanted.
http://www.realtor.ca/propertyDetails.aspx?propertyId=12399515&PidKey=237360734
"VERY MOTIVATED SELLERS. BRING ALL OFFERS. Open house July 1st, Aug 1, 2, 6, 7, 8, 2pm - 4 pm."
Not that motivated.
http://www.realtor.ca/propertyDetails.aspx?propertyId=12144349&PidKey=1163188279
"Appraisal and qualification processes may tighten further."
That looks to be near certain. OSFI underwriting guidelines for FRFIs are going to be fully implemented by spring 2013.
Low rates are definitely helping things, especially for those who are facing cash flow crunches and can lock in at lower rates. Right now the 5 year renewal gap is bordering on -2%. That's a healthy reduction in carrying costs ceteris paribus.
Post by Mish: Canada Household Debt Approaches US Bubble Levels; Inane Housing Comments From Canadian Economist
The interest rate charged on mortgages represents the risk to the lender. When prices are rising the security of the collateral and the ability of the applicant to pay is high that makes the risk of lending money low.
But when the security of the collateral is declining, that makes lending more risky. That means the lenders will tighten up on who they lend to, discounts to the interest rate, etc.
That is what we are seeing now.
It seems counter productive to the interest of a bank by tightening up on loans to protect themselves from mortgage losses the very act causes prices to decline further and more losses.
CMHC intervened in the past and greased the wheels by offering 600 billion dollars in guarantees to the banks so that would not happen. Those days are over.
If you have a mortgage with a Canadian bank, it is very likely that the mortgage will be renewed at the end of u'r term. But you'll have very little wiggle room on the rate or terms.
And a new buyer will find it much more difficult than you had to get financing.
And while it is true that land does not usually suffer from diminished utility or depreciation that doesn't mean that land prices can not decline for 20 years.
@dasmo & totoro
It's land that appreciates.
not a depreciating asset - or at least the land is not.
In a correction, the land component declines the most.
For instance a quick Google search will show stateside lot prices "going for between $20,000 and $50,000, down from $100,000 or more before the housing bubble burst."
http://www.bizjournals.com/portland/morning_call/2011/01/clark-co-home-lot-prices-plummet.html
Closer to home, the sale price (not list price) of for example these 14 building lots will affect the land component of our entire area.
$72.30/sq seems a little steep for that location... I could buy waterfront in Sooke for 22....
Undesirable land would decline the most in a downturn without doubt. Like lots in unfinished subdivisions at the edge of civilization for instance. I can't argue there.
You don't have to go to Sooke for your cheap waterfront lot. You could get this fully serviced & ready View Royal waterfront lot for $20something per sq ft (foreclosure). The correction marches inward.
Banks will continue to finance a home at the going rate (related to prime)
Banks will finance at a rate and down payment which they calculate will make them money going forward. If they see an increasing risk of loss (i.e. see a declining market) they will want an increased down payment and/or a bigger spread over prime.
And we've already talked about the situation where your mortgage comes up for renewal and yout credit worthiness has dropped due to declining equity.
The renewal rulse which may be applied in the case of changes to another lender are: 1. the new 25 year amortization will apply, and, 2. your housing expenses will need to be under 39 per cent of gross income.
This could affect individuals upon renewal who are earning less than when they first qualified. Here is an article on this:
http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/new-mortgage-rules-could-make-switching-or-refinancing-tougher/article4389044/
Almost all lenders will renew a mortgage upon the same terms without requiring requalification. It is only if you are shopping around for rates and wish to switch that this may apply.
Almost all lenders will renew a mortgage upon the same terms without requiring requalification.
Except they will shaft you on the rate. Everyone should be shopping around on renewal.
@ Chris $37.60/sq ft and it's strata... And here you were getting me excited...
Introvert
You're obsession with Just Jacks punctuation is pathological. Take some time off to deal with it.
How much more should you pay for a home with a suite than a home without a suite?
For example, a Gordon Head shoe box.
One has a finished basement with a recreation room and the other has a living room and kitchen. The basement suite gets a monthly rent of a thousand dollars. And keeping things simple, let's assume that the cost of money is $500 a month for every $100,000 mortgaged.
How much more are you willing to pay for the home with the suite over that of the home without?
Almost all lenders will renew a mortgage upon the same terms without requiring requalification.
Listen to some stories coming out of Spain right now. Their housing collapsed and people ended up under water. The banks jacked up the rates for people seeking renewal. They calculate how much it would cost you to switch and match that amount in a rate increase. The people are seeking government intervention to control the banks from this behaviour. Could that happen here? Are our banks "better"?
How much more are you willing to pay for the home with the suite over that of the home without?
Cost of home with suite minus cost of removal of suite and cosmetic repair = offer.
Therefore, I would pay less for a house with a suite, because it is of no use to me. I always cringe when I go see a house with a newly minted suite in the basement to attract more buyers - to me I just subtract $25K from the asking right there.
JJ - It would depend on the suite. assuming it's decent, then around a 100k.
Kooz - Our banks aren't better. They are machines with human interfaces and machines don't have empathy or compassion. The one input we have to our advantage is the example down south. The actions of the banks just worsened things. I think our banks will be a bit more careful not to bring down this house of cards. They wan't their comfy, insured, low risk, money pipe to keep flowing, not a bunch of houses to sell.
In the early 80s there was government intervention for mortgage renewals in Canada: the Canada Mortgage Renewal Plan and the Graduated Mortgage Payment Plan. Interest rates were at 20% and many could not afford to renew otherwise. I expect if rates rose drastically we would see similar plans instituted.
http://www.thecanadianencyclopedia.com/articles/housing-and-housing-policy
Suite - not sure but it is interesting that it could be up to $100 000 more. $1000/month supports $200 000 worth of mortgage payments currently.
Interest rates didn't rise in Spain. The banks screwed people during renewals.
I'm not sure about the Spanish banking system but it appears to me that it is not stable and Spanish banks have experienced a dramatic increase in bad loans.
"Spain is in the eye of the storm of the eurozone debt crisis amid worries that its banks are overexposed to toxic property loans and the government, fighting recession and a nearly 25 per cent jobless rate, cannot afford to bail them out if it needed to."
http://www.dailymail.co.uk/news/article-2146112/Spains-banking-crisis-rocks-Santander-UK-new-worries-British-customers-credit-rating-blow.html
http://www.guardian.co.uk/commentisfree/2012/jun/08/spain-90s-greed-banking-crisis
Here in Canada many mortgages are insured through CMHC. Our banking system appears to be more strictly regulated. I would not put much credence in what happened in Spain happening here (thankfully) - but perhaps I am missing something.
I'm the same way, simple man. We don't want a suite, but know other buyers will pay a premium for one, so we write off any house with a suite. Not worth looking.
... Grammar Nazis are often hypocrites as well, challenging the grammar of others with posts that contain spelling and grammar errors themselves.
I'm not hypocritical, actually. I'll concede hyper-critical, though.
You're obsession with Just Jacks punctuation is pathological.
I'm not going to point out the mistakes in this sentence. I'm not going to do it.
Our banking system appears to be more strictly regulated.
Would you call banks that give out cash back loans strictly regulated? The CMHC is the definition of deregulation. It allows the banks to issue toxic loans to people that shouldn't have these loans. The banks don't care. There is no risk to them.
If a person buys a house and is issued a $600,000 loan. Then they can't make the payments and foreclose. The bank then sell the house for $250,000, the CMHC now has to pay the bank $350,000 to make up the difference.
Is this what you mean by strict regulation?
A suite has been very valuable to me over the years. The rental income allowed me to purchase two SFH's in very desirable areas and - when the time came to sell as the upswing in prices ended - both sold very quickly.
Picking the right tenants is key. I always picked professional women in their thirties. They paid the rent, kept the suites up beautifully, didn't party and were more than pleasant to deal with.
I am also an excellent landlord. Why not be? Not only it is the right thing to do but it makes life much more enjoyable for tenant and landlord.
I can certainly see how a suite wouldn't work for everyone. During the wealth building years it worked fantastically for me.
I'll do it again once prices have hit bottom.
In Canada, we have a lot of competition from online lenders that don't have the expense of buildings and employees. That makes these online banks much more competitive in interest rates and the ability to pay a better compensation to brokers that bring them work.
That open competition, whether fair or not, keeps interest rates low for those that can move their mortgage to another institution.
But, like in Spain, if property values should fall then the banks would become far less competitive in their interest rates. Ironic as it may seem, a small correction in the national home price of say 20 percent would be good for bank profits.
Do I think the head banks are that devious - yeah, you bet I do.
Your strategy resonates with me Victoria.
koozdra - not sure what your point is. my point was that I cannot see the same scenario playing out in Canada in the near future given the differences in the banking systems. i'm no expert on banking systems. just a few google searches demonstrate that there are significant differences though. i suppose if rates rose astronomically and prices plunged sharply, coupled with 25% unemployment like in Spain, CMHC might be in trouble. it is just armchair speculation tho and i don't see the strong argument for it - but maybe i don't have all the facts. maybe there are no facts because these are future what ifs and worst case scenario'ing.
as far as "toxic" cash-back mortgages. not sure about that either. never had one and don't see why they would be toxic.
As far as grammar goes, I have errors in my posts too. I notice them right after posting but there is no easy way to edit other than deleting and reposting - which I'm too lazy to do. I type fast, but not always accurately.
And way to show restraint Introvert.
For the past 10 years or so in Victoria the buy and rent strategy worked well for just about anyone that could get a mortgage, but I think we are in a different time now and the risks are far, far higher.
I heard a story yesterday about a recent house up for sale in South Oak Bay. The owners bought it not too long ago (couple yrs) and were renting it out and had the same idea as you. However, they have seen the market turn hard and now have accepted that they are at best $80,000 in the hole if they get their initial asking price. If. Which is highly unlikely in this market. This is a nice house on a prime South Oak Bay street with a tonne of character appeal.
Be careful.
I love the casual comparisons to Spain and sometimes to Greece. It's uncanny how both countries are so similar to Canada, in so many ways. This is especially so in terms of taxation, the price of longterm government bonds, bank stability, perception of corruption rankings, overall outlook, unemployment rate, debt rating, natural resources, and global reputation.
Interest rates have not risen anywhere. I'm not sure why you think that interests have to rise for property values to sink significantly?
as far as "toxic" cash-back mortgages. not sure about that either. never had one and don't see why they would be toxic.
Do you think 0-down mortgages are a good thing? Do you think that without the CMHC the banks would offering people money to borrow money? The banks were offering 7% cash back on a mortgage. You would walk into a bank and say I have no money, I would like a mortgage. They would say you need 5% down to get a mortgage, but don't worry well GIVE you 7%. You make money from the deal and can use that 2% for the closing costs.
Explain to me how this is not the definition of a toxic mortgage. ANY decline means these people are underwater already. This has been happening for years.
Here is a fun article from 2008 warning about this.
http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2008/09/cash-back-contr.html
So, are our banks strictly regulated?
I wouldn't go for a cash back mortgage - you pay a higher interest rate. Some of this is buyer beware but I would agree that rules for lenders about clearly disclosing the costs should be required if they were not.
As far as bank regulation goes, yes, I do believe Canada has tighter regulations than the US or many European countries. Again, not an expert but my cursory review of expert opinions indicates that this is the case.
In addition, Canada has fewer major banks than the US and they hold more capital. It is harder to walk away from an underwater mortgage than most of the US states.
Comparing Canada to Spain and Greece is flawed in one simple way. Both those countries have seen their time and are well past their prime. Canada is just beginning... Go to these places and you will see it. Both are beautiful and have their strengths (I prefer Spain) but they are no longer growing super powers...
I'm not comparing Canada to Spain. I'm saying that in the situation where a bank has an underwater mortgage I can see the banks wanting more money from the borrower. These are stories coming from Spain now. Soon they'll be coming from your neighbours.
The thing about a cash back mortgage is that it allows someone with very little money to compete equally with someone with a large down payment.
If someone is willing to lend you all the money you need to buy a home -how high do you bid?
House prices are a function of how much the lender is willing to lend you. The more aggressive the mortgage broker, the more you can pay for a home.
No wonder house prices and incomes became so disjointed.
-Maybe we should be comparing house prices to the broker's income.
My theory of prices is that the more brokers per capita that you have, the higher the prices in that city.
Looks to me like Spain has a brighter future than us.
Spain's 2012 public debt per person: $21,676.49
Canada's 2012 public debt per person: $44,016.11
http://www.economist.com/content/global_debt_clock
"In the early 80s there was government intervention for mortgage renewals in Canada"
Yes indeed CMHC was bailed out in much part because of (drumroll) increased default rates above what they could handle.
Chris
Somthing bizarre about that number
Federal debt is 600m, find it hard to believe there is another 900million with the provinces and cities.
http://www.debtclock.ca/
provincial debt is 500m
http://ca.news.yahoo.com/blogs/canada-politics/canada-provincial-debt-growing-crisis-everyone-211557391.html
Could be the economist does not include financial assets.
"It could happen, and suddenly."
Debt Burden / person (Source: Canadian Federation of Independent Business)
Quebec $39,773
Ontario: $36,004
Newfoundland & Labrador: $33,535
Nova Scotia: $32,824
New Brunswick: $31,786
Prince Edward Island: $31,576
Manitoba: $30,156
British Columbia: $25,667
Northwest Territories: $23,042
Saskatchewan: $21,783
Nunavut: $21,296
Alberta: $14,544
Yukon: $12,707
wow ontario and quebec are a basic case
http://www.rbc.com/economics/market/pdf/prov_fiscal.pdf
How does Spain's assets per capita compare to Canada? Dept is only one half of the equation so doesn't paint a complete picture at all.
Canada's per capita national net worth is approx. $174,000/person
http://en.wikipedia.org/wiki/National_wealth
Not sure about Spain.
"This house is a mystery. When Spurgin & Johnson designed this heritage-tour home built at the crest of Smith Hill, they must have worked some lost magic into it. Some houses are just that - houses. But this home feels serene. Cozy even. It looks grand from the outside, but it feels like being at the lake cottage. Your friends will love to come inside. Maybe it's the layout? the holiday perfect great room? the huge park behind? the school in front? the country touches? Who can tell? The mystery only deepens when you realize that the home has been so updated that you'd expect it to feel modern, featherweight. The heritage architects certainly would have approved the new private studio for the weekend tea party, artist, or yoga meditation."
Perhaps the allure of mystery will sell this home.
http://www.realtor.ca/propertyDetails.aspx?propertyId=12146913&PidKey=253854706
Canada's per capita national net worth is approx. $174,000/person
US per capita net worth in 2006 was over $220,000/person.
Then what happened?
hmmmm....
http://www.realtor.ca/propertyDetails.aspx?propertyId=12498453&PidKey=-641268401
http://www.realtor.ca/propertyDetails.aspx?propertyId=12143219&PidKey=-534809648
Not sure but the most current stats show this figure has now risen in Canada to $193 000 per capita. Up approx $20,000 in a year.
http://www.cbc.ca/news/business/story/2012/06/15/statscan-debt-net-worth.html
Looks to me like Spain has a brighter future than us.
Spain's 2012 public debt per person: $21,676.49
Canada's 2012 public debt per person: $44,016.11
Way to use one statistic to draw a sweeping and general conclusion. Who's buying this crap?
I'll have three sweeping statements and one general conclusion to go please.
Things are certainly slowing down on my pcs. So far this week, sales within my criteria in VIC,OB,ESQ,SE&SW, show only 2 condos, zero townhomes and three SFH. Not one sale has shown up yet today. This could easily end up as the worst week since I began tracking in mid July, 2010.
OK:
1. Everybody wants to move to Victoria.
2. Houses prices will never drop in Victoria.
3. Renting is for fools.
General conclusion: Now is a great time to buy in Victoria!
Spain versus Canada
http://www.reuters.com/article/2012/07/27/us-spain-unemployment-idUSBRE86Q09420120727
Canada`s unemployment is 7.3, spain comes in close behind at 24%.
The 2 countries are not in the same boat.
Canada debt rating AAA
Spain Baa3
The rich seem to think it is a good time to buy, lots of high-end sales this month, another one in Uplands just went for a cool $1,805,000.
Marko
I think the high end ones have taken a much bigger hit than the below 1 million. What would you figure the 1.8m house would have gone for in 2007?
Not sure
Not sure what happened to US per capita net worth post 2006?
Hint: most of it was based on RE prices. As it is in Canada.
1. Everybody wants to move to Victoria.
2. Houses prices will never drop in Victoria.
3. Renting is for fools.
General conclusion: Now is a great time to buy in Victoria!
More like:
1. Hardly anybody wants to move to Victoria, because Victoria is basically the same as every other city in Canada, if not worse.
2. House prices will not only correct but stay "corrected" for all eternity.
3. Renting is always preferable to buying. And no one will ever again make money on real estate. Ever.
General conclusion: rent in Edmonton. It's awesome!
Intro
LOL
The rich seem to think it is a good time to buy, lots of high-end sales this month, another one in Uplands just went for a cool $1,805,000.
Looks like I need another PCS account! It's incredibly slow up to $900k so far this week.
Hardly anybody wants to move to Victoria
Well you did get that part right. Victoria is one of the slowest growing metros in Canada, as we've already discussed.
@intorvert
"Way to use one statistic..."
In case you wanted another source to crossreference.
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html
If it makes you all feel better, we're sitting prettier %wise of GDPthan say Sudan...although, regrettably, countries like Cyprus now put us to shame with far less debt to GDP....and I'll try not to mention that on a debt per capita basis, Canadians are far more indebted than Greeks and Sudanese.
Here's some back at you:
1. It happened in Spain
2. It happened in Japan
3. It happened in the US
Only an uninformed idiot would buy now cause you're gonna go down with the ship - no lifejacket for you.
@Marko
"The rich seem to think it is a good time to buy"
I know they did a lot of knife catching on other things too, like Nortel and Rim. It's always the same story.
Well you did get that part right. Victoria is one of the slowest growing metros in Canada, as we've already discussed.
A lot of people want a BMW but make due with an Elantra.
Chris
Differnce is Canadians have jobs that pay well to service the debt.
Debt becomes an issue when you cannot service it, whether it is a small or large amount.
Well you did get that part right. Victoria is one of the slowest growing metros in Canada, as we've already discussed.
So I guess location desirability can only be measured by growth. Of course.
We are now comparing upland realeste to Nortel and RIM. One is worthless the other is down over 90%. Wow that quote is priceless.
So I guess location desirability can only be measured by growth. Of course.
It's the only objective metric. People can say they "want" anything, but if they don't follow through it means nothing.
This whole debate reminds me of Mac vs PC and we know how that turned out don't we....
It turned out with IBM no longer making PC's and Apple having the largest market cap of any high tech company.
Why does this remind you of RE?
It's the only objective metric. People can say they "want" anything, but if they don't follow through it means nothing.
So because most people don't follow through with buying a luxury car we should conclude that luxury cars aren't actually that desirable?
It doesn't. This debate does. To clarify, Just because everybody is saying it and experts agree doesn't mean it will happen. Then again, those negative sentiments towards Apple did push their stock price so low I was able to make a lot of money off of them... So maybe you guys are on to something.
Just because everybody is saying it and experts agree doesn't mean it will happen.
Actually if everybody thinks that the price of RE (or a stock) will go down it has to go down.
But that is never the case. There are always bulls and bears for any asset. Every sale has a buy and sell side.
And "experts", however defined, are never unanimous about markets either.
The great majority of the population of Canada thinks that RE will not go down. That was also that case in the US before the bust and even for some time after it began. What most people think will happen has little bearing on what actually does happen.
So because most people don't follow through with buying a luxury car we should conclude that luxury cars aren't actually that desirable?
It doesn't matter. The only people that matter is people that buy the car. The people that want it but can't afford it might as well not exist.
@Introvert
"I'm not going to point out the mistakes in this sentence. I'm not going to do it."
Once again,clueless Introvert, you took the bait.
"The great majority of the population of Canada thinks that RE will not go down"
It's inconceivable the consequences if it does. Willful blindness, validated by those attempting to justify their past bets to the bitter end.
CMHC third quarter report:
https://www03.cmhc-schl.gc.ca/catalog/productDetail.cfm?lang=en&cat=129&itm=11&fr=1350531819564
Provincial resale market conditions
are forecast to remain in balance
during the rest of this year and
next, although local market
conditions will vary.
Existing home prices, as measured
by the average MLS® price, moved
lower during the second quarter of
2012 after modest growth in the first quarter. The average annual price for 2012 is forecast to be $522,200 while 2013 will see a slight increase to $535,700 as resale activity picks up.
"The rich seem to think it is a good time to buy"
If you've got a few million in the bank and a house you like becomes available, why would you not buy? If the price drops, it's not going to ruin you.
The market for property bought by those who need to borrow most of their lifetime disposable income to make the purchase is quite different. In that low end market, some prospective buyers are probably beginning to sense they could ruin themselves by buying now. So we will almost certainly continue to see a divergence between the outer communities and the low-end town properties and OB waterfront and view homes.
"The rich seem to think it is a good time to buy"
So, who sold the home? The poor?
Now, who's the richer of the two?
The CMHC is doing just fine -CMHC
The housing market is doing great -CREA
Perhaps we can consider a different take, say someone that doesn't earn money from home sales...
http://theeconomicanalyst.com/content/canadian-housing-sales-fall-15-stats-canada-revises-debt-income-ratio-significantly-higher
@hap chucky
"Canada`s unemployment is 7.3, spain comes in close behind at 24%."
"Differnce is Canadians have jobs that pay well to service the debt."
The question you may want to ask yourself is, if Spain hit levels of 17% employment in the housing industry when it collapsed, and we are at 14-15% while ours is collapsing (17%+ in BC), how high will our unemployment rate climb in the coming years?
The saddest thing is, Canada is already in a worse debt position than the already burst countries, before our collapse. Our children shall be so proud of our behavoiur someday.
Looks likeSpain's unemployment is now 25%. I wonder if 20+ is in store for us?
http://www.businessinsider.com/were-headed-for-an-economic-black-hole-2012-10
As an aside, it makes no difference how the debt was accumulated. The black holes of debt in Greece and in Argentina had completely different origins from those of Spain or Sweden or Canada (the latter two in the early '90s). The Spanish problem did not originate because of too much government spending; it developed because of a housing bubble of epic proportions. 17% of the working population was employed in the housing industry when it collapsed. Is it any wonder that unemployment is now 25%?
JJ, you nailed it "who's the richer"
@totoro. Thanks. Your link doesn't work for me, but try this one: CMHC Housing Market Outlook BC
For entertainment value, you might want to look at the same report from 5 years ago:
[PDF]
CMHC Housing Market Outlook 2007-2008
Interestingly the link at CMHC no longer works but as we know once something is on the Web it never goes away.
"Price growth (in BC) will slow in 2008 as increased listings and fewer resales bring supply and demand for existing homes into balance. The average MLS® price will reach $464,000 in 2008, a 6.3 per cent increase from 2007’s projected level."
Of course prices went down during 2008. CMHC seems to be incapable of predicting a price decline.
Yes, not sure about CMHC's track record for predicting year over year trends.
You'd have to analyze all of its quarterly reports to determine whether its predictive powers are generally reliable - not just one.
The stats used by CMHC are the best ones I've seen. They are definitely going to be better at analyzing what has happened than what will happen - fact vs. prediction - as every expert is.
That said, their information seems fairly reliable. They are predicting a balanced market with no severe downturn in 2013. Flat like a Halibut...
Not sure that will hold true in Vancouver or some other markets as consumer confidence is dipping.
More precisely, they are predicting:
"The average annual price for 2012 is forecast to be $522,200 while 2013 will see a slight increase to $535,700 as resale activity picks up."
That's for all of BC. My prediction: both Vancouver and Victoria will be down on the Teranet index during 2013. But you already knew that.
Once again,clueless Introvert, you took the bait.
Is this sentence more bait?
JJ, you nailed it "who's the richer"
We all know the richest people are lifelong renters.
The saddest thing is, Canada is already in a worse debt position than the already burst countries, before our collapse. Our children shall be so proud of our behavoiur someday.
I'm not saying that you're necessarily among them, Chris, but I do find it comical when fiscal hawks who worry about the debt support policies such as lowering the GST.
The Queen Victoria Hotel being turned into rental apartments.
Sounds like an interesting proposal. I would have thought congregate care would have been a more profitable option, and you wouldn't need to install kitchens in every suite.
But Concert Properties must have done the economic studies showing conversion to condominiums or the market for a care facility in Victoria is not the most viable options. That only left renters.
When the Condo Developers came for the luxury market,
I remained silent;
I was not a buyer for luxury condos.
When they locked up the social outcasts in foreclosed Motels,
I remained silent;
I was not a social outcast.
When they came for the young urban professionals,
I did not speak out;
I was not a young urban professional.
When they came for the retirees,
I remained silent;
I wasn't a retiree.
When they came for the renter,
there was no one left to speak out.
Most of the Queen Victoria units have kitchens in place. Not sure but I think around 85% have them.
hmmmm...my pcs changed this morning. I used to be able to see when houses sold and how much they sold for, etc. but no longer. All of this data has been wiped.
Is anyone else seeing this?
PCS - mine's fine.
@simple man
My PCS is still working as before. I can see sold dates and amounts. Mind you, the last sale in my PCS is October 5th! (SFH, $300K to $650 in 'Victoria, Victoria West, Esquimalt, Saanich East, Saanich West')
I am on the victoriamls.ca/matrix/public/portal pcs and I have reloaded several times and all of the data I had is gone - over 1700 sales. All I can see now is what is for sale and what has recently cancelled.
Really, I went onto the web site and it only mentioned that the penthouse had a kitchen.
So much misinformation.
ahhh. I also see that the software was updated to have better scrolling of pictures, etc.
Yet, I am feeling so neutered with the loss of so much data.
@simple man
My PCS has always only kept the sales for a short time (there seems to be no rhyme or reason to it with some sales disappearing quickly, and others staying for a long time).
That's why I wrote a script to extract the stats from PCS into spreadsheet form so I can keep a record.
@Leo - I got around it by discovering that if I put the houses immediately into the discard bin that they would never disappear. Seems and though now they have closed that loophole.
The VREB has been carrying out upgrades to the PCS system over the last few days.
then why do I feel so downgraded?
Because you're abusing the system :)
Most of the improvements are on the realtor end of things. Now I can classify PCS accounts as "Buyer," "Seller," "Friend," "Propsect," and a few other little upgrades.
JJ: You could be right. It may have been one of the other hotels with suites that I was talking about with someone awhile back.
They advertise like this without commas :-)...."One and two bedroom suites Kitchens Penthouse & Spa suites."
They advertise like this without commas :-)...."One and two bedroom suites Kitchens Penthouse & Spa suites."
Heavens!
Well, almost set to move into the new place - ten days to go.
Was more work than we thought. The house was owned by Canada's worst handyman. Hinges were on backwards on one of the doors and nothing matched. Also who paints a kitchen dark grey and hot pink?Not to mention the years of accumulated dirt and grime I had to scrub off everything.
We ended up replacing all the light fixtures, repainting and putting new floors down(not finished that yet) in the suite we will live in. We used Golden Select Autumn Oak laminate - good price on sale at Costco and got good reviews - pretty nice looking stuff and durable. Its been hard work in between postings :) It is satisfying to see a space improve dramatically though.
I'm really looking forward to setting up - but not the move. I hope this is our last move... ever. Yes, ever.
We rented out our other place here and are just finishing up some renos. Kitchen cabinets next.
The nice thing is that our cost of living will be extremely affordable overall - much less than renting. But yes, we will have tenants to deal with.
We'll see what happens with the market but I may be too busy rectifying years of neglected landscaping to notice :)
Time to get u'r meds checked!
Was that a general reminder for all of us or just me JJ?
No, you're doing just fine.
Well, there you go. I'll have to cancel the check-up.
This is most likely not the all time record for re-listing a property, but a property just sold on Bear Mountain for $785,000 and was advertised as selling in 52 days and close to asking price.
But, the listing doesn't show that the home was re-listed twelve (12) times or that the property was up for a total of 916 days on the market after originally listed at $1,130,000.
Oh well, its just numbers.
JusrJack said:
"But, the listing doesn't show that the home was re-listed twelve (12) times or that the property was up for a total of 916 days on the market after originally listed at $1,130,000."
If this is true, and I believe JJ, then the VREB is a fraud organization for for allowing its agents and the VREB itself to promote this type of 'misinformation'. This is more than 'misinformation' its a lie.
"This is most likely not the all time record for re-listing a property, but a property just sold on Bear Mountain for $785,000 and was advertised as selling in 52 days and close to asking price."
Props to my friend at Fair Realty Matt Bourque for listing & selling this property after other brokerages were not able to do the job. Morale of the story, it comes down to price. Commission you pay your listing agent is irrelevant in the online market place. Which begs the question, why are so many people still paying commissions that may look like 6%100k + 3%balance?
But yes, we will have tenants to deal with.
-totoro victoria
That's unfortunate as renters seem to be extremely bitter people who are resentful of home owners, if this site is any indication.
,We'll see what happens with the market but I may be too busy rectifying years of neglected landscaping to notice :)
Almost all of my buyers deactivate their PCS accounts once they purchase and for the most part stop following the market.
Almost all of my buyers deactivate their PCS accounts once they purchase and for the most part stop following the market.
And then they're surprised when they can't sell their place for more than what they paid. So it goes..
Or they have better things to do other than wasting their time on this blog in over analyzing activity in the PCS account? :)
LWilliams - try harder with the trolling next time :)
Or they have better things to do other than wasting their time on this blog in over analyzing activity in the PCS account? :)
Hey everyone needs a hobby..
^ True.
When I bought my first place my interest in the market never weaned entirely. Then again, there was a lot of action then.
I agree with Marko, the difference between a full service agent and a discount agent is extremely small when it comes to price. Under conditions where the buyer and seller are willing, knowledgeable and acting in there own best interest.
That's because agents bring buyers and sellers together to facilitate a trade. All those some may have a God complex, they don't create value. Even if you didn't use an agent at all, you should get the same price within a couple of percentages.
However, in this very soft market, in my opinion, it is worth using an agent, because you need a greater exposure to the market, than just a sign on the lawn and an advertisement in the paper. Because now it is important to sell the home sooner rather than chase the market down in price. I just finished using an agent to sell my mother's condominium. I had it listed and sold in 7 days this last August for those reasons, I didn't want to chase the market down.
Sometimes agents can have an influence on price when the above conditions are not there, such as an estate sale, foreclosure, out of town buyer, young person in their nonage or an old person in their dotage.
I think it is always good to get exposure on the market and get onto MLS whatever the market. You can do this without paying a commission.
For example, you can list on MLS for $749 with Marko including photos ect. You have to take care of showings though.
For someone comfortable with showing, a MLS listing alone is likely adequate in any market.
Do those $749 listings show up differently on the pcs?
Not sure. Marko would be the one who would know more.
The main value I see is not being on PCS, but being on the MLS site.
The main value I see is not being on PCS, but being on the MLS site.
As far as I know you can't be on one but not the other.
I rarely go onto mls, but always onto my pcs...but less so now that a lot of its use has gone for me, as a prospective buyer.
I don't have a PCS. I figure if I'm not going to use the realtor's services I shouldn't have access.
I think loads of people use realtor.ca more frequently - but I could be wrong.
Totoro - I think you are right. But more and more people who are seriously looking will use a pcs - it has so much more information.
Value is relative to the time that you are purchasing. A deal today may not seem to be a deal in the future. But it's difficult to convince a home owner to sell today at tomorrow's prices. Most of the time, you have to wait for tomorrow to get tomorrow's price. Yet, there are "deals" in today's markets. These generally are because the seller is no longer looking after their own interest. That could be a foreclosure, divorce, estate, etc.
So, let's go condo hunting and see if there are some "deals" out there.
There are 792 condos (excluding fractional ownership and leaseholds) for sale in the core municipalities. And in the last 30 days there have been 78 sales which works out to be 10.2 months of inventory. Just like when you're hunting Caribou, you want to go where the Caribou are the most plentiful.
You, being a Cougar (no slight to any of our lady bloggers) now have to find the weakest in the herd.
That means you look for the stragglers which excludes developers who control pricing in their complexes. Your looking for that slightly older condominium, but not too old because that could mean tougher meat,lots of repairs, to make it palatable. Say condos built between 2000 to 2010.
That brings the herd down to around 223 that could be considered lunch. Some of the herd have been on the trail longer than others, they're tired and falling behind the younger ones. No sense in looking at condos that have only been on the market for less than 60 days as they still think they can get to the water hole. Now you're down to about 50.
As you scan the last 50, you look for the weaklings, limping along the trail, the ones with a low assessment to list price ratio.
You start you're charge at a 6th floor condo in Shoal Point, but are rebuffed by the property being owner occupied. You shift your tawny colored eyes to sub penthouse suite in Songhees, but a search of the title shows that it is owned by a real estate agent. Curses foiled again, agents tend to be nimble on their feet and get a slightly higher price when selling their own versus their client's properties.
Quickly you dart to the downtown core for a micro condo on Mason. You can smell the sweet smell of fear as the condo is not owner occupied and just bought in the last three years. But at a little over 400 square feet, it wouldn't be enough to satiate your lust.
But, then you see an orphan, an abandoned babe, vacant and listed slightly below the original purchase price in 2008.
You start to drool, you pounce
to be continued....
The suspence!
Does it cost realtors to have open PCS accounts? I would suspect not, since I've never been hassled about my long term accounts.
I think PCS account access will become more automated anyway. Used to be you had to engage with a realtor to get one. Now you just fill in an online form at the brokerage and they'll set it up. It specifically says you're under no obligation to a specific realtor or the brokerage.
dasmo... are you baiting introvert??
Do those $749 listings show up differently on the pcs?
They show up EXACTLY the same as full service listings.
The difference occurs on the realtor end where it notes in a section "Mere Posting, please call seller directly to arrange showings at xxx-xxxx and present offers directly to seller."
About 35% of buyers find their home in the PCS system and only about 12.5% on realtor.ca so I would say PCS is more effective.
I am current writing content and gathering testimonials for a new website I will be launching in January called flatfeemlsvictoria.com (you can view now but it is under construction).
Flat fee listings (aka Mere Postings) work like a charm for the right sellers. I don't think they will take over the market but I could see approximately 10 to 15% going with a flat fee in 10 years. 85% are always going to want full service (don't confuse with full commission, you can have full service at the discount.)
If there is a 10% adoption that will mean there will be 500 flat fee listings out of 500. Currently there are only 70.
Does it cost realtors to have open PCS accounts?
Free in a sense that it doesn't cost to open a PCS account, not free in the sense that I have to pay $100 to the board every month, plus variety of other board fees for uploading lists, etc.
I consider the PCS as an offer of goodwill. I will give the realtor that provides it too me a first crack at being my buyers agent as a result but feel no obligation to engage him/her if they don't fit with my needs.
I personally think PCS accounts should be publically available. It would weed out a lot of realtors and people would go to those realtors that actually offer more than just data.
"It would weed out a lot of realtors and people would go to those realtors that actually offer more than just data."
The US, with fully-online sales histories should be indication that's unlikely to happen! The prize goes to the best salesman; is that reprehensible? :)
I read often but have never commented before. The sales/listing ratio for Marko's last update is wrong; it should be 34%. Minor detail, but it's bugging me!
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