Monday, December 17, 2012

Dec 17 Monday Market Update

MLS numbers update 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.

December 2012 month to date
Net Unconditional Sales: 186 (112)
New Listings: 294 (179)
Active Listings:  4118 (4215)
Sales to new listings ratio: 63% (63%)

December 2011
Net Unconditional Sales: 339
New Listings: 505
Active Listings: 3780
Sales to new listings ratio: 67%
Sales to active listings ratio: 9% or 11.2 MOI

Sales dropped off rapidly as predicted.  At the current rate we're going to end up in about the same situation as previous months, significantly slower than last year while listings stay higher.  Not much else to say about that!

Sale price / assessed value for the higher end has taken a bit of a dip lately.  This ratio was always significantly higher for the more expensive properties, hovering around 100% this year while the lower end has been below 95% for months (currently 91.5%).  As the good stuff is sold, the remaining crap is picked up in the slow months for lower relative to assessed.



238 comments:

1 – 200 of 238   Newer›   Newest»
koozdra said...

CTV - 2013 Real estate projections downgraded

Will 40 year 0-down come back to save us this time?

a simple man said...

Hopefully not. It was what got us in really deep last time.

Now that he RE Boards are stating openly there will be a drop you know it is getting worse.

caveat emptor said...

But the new HHV comment frequency index suggests we're about to enter a new bull market.

Buy now or be priced out forever!

eLouai said...

LOL @caveat
Sooner or later we would need to start to unwind our debts that we have accumulated. I dont see the bull market, at best very weak growth. And dont get fooled by China, the growth is coming at the expense of enormous amounts of debt accumulation.

@koozdra
No, not with the amount of debt canadians hold. The government is looking to tighten more to get us to shed the debt. We are already at historically high debt loads (I dont think we were ever this high). They would love to increase interest rates, but that would have dire consequences for manufacturers (looney will go much higher) and consumers. So unlikely for at least another year. We are tied at the hip with the US on this one.

Just Jack said...

The real estate agent mantra of "location, location, location" seems to be ever so true these days. What is incredible is how small of an area is holding value.

For condominiums, if it isn't new or near new and situated downtown the market is tough on sellers.

Condominiums in Esquimalt provide an example. A top floor suite that sold in April 2006 for $245,000. Renovated and resold this week for $225,000 or about $203 per square foot. That's a price that hasn't been seen since 2004 or 2005.

And the condo is only a 10 minute drive from the downtown core.

Dave said...

The latest population growth numbers are out.

koozdra said...

When the market is slow you have to get creative.

""LAST CHANCE LISTING ENDS FEB. Will be removed from market to be rental.BONUS:BUYER GETS CHOICE OF FREE HONDA 750 MOTORCYCLE OR TWO WEEKS ACCOMM AT PRIVATE TNHSE NEAR PUERTO VALLARTA".BRING YOUR OFFER & MAKE this YOUR HOME! LEAVE THE CITY BEHIND & OPT FOR A RURAL LIFESTYLE"

I guess they are hoping no one will look up the assessed value before buying.

Listed: $426,500
Assessed: $301,000

At least you get a "free" motorcycle.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12287712&PidKey=1633010489

info said...

About a year ago, the consensus among many economists around the world was that there were 3 major real estate bubbles left in the the world: China, Australia and Canada.

It seems all 3 of these bubbles are currently deflating.

They said the Chinese economy was too strong and that house prices could only go higher. Not so much.

House prices in both Vancouver and Toronto are down 12% since spring. They said it couldn't happen in Canada. Well, they must have forgotten about the crash of 08-09 because it did happen only 3 or 4 short years ago. An unprecedented, massive, emergency intervention which saw the excessive, abusive and dangerous use of CMHC was used to stop the crash. As well, interest rates were dropped many percentage points down to historical, emergency levels.

Australia's housing bubble has also been deflating for more than a year.

Introvert said...

That's nice.

info said...

We, as Canadians, have achieved record household debt levels after decades of leveraging up due to cheap and easy money. Extremely high household debt has been a drag on our economy for some time now. For the economy to truly find new roots and a solid foundation upon which to build, it will be necessary to deleverage and shed this debt.

The US housing crash caused the average household to shed much debt. It was difficult for many families and it still is. However, they are better off now than they were with the extremely high household debt and sky high house prices that they had in 2006.

Now that house prices in the US are closer to levels that can be supported by fundamentals such as income, the average family can afford the average home. We need to achieve this in Canada too. In the US, a family can earn $60,000 per year and can easily buy a house for $100,000 to $150,000 and have money left over for everything else.

Companies operating out of the US can now pay employees $15 per hour and it works for both the company and the employee. Now that the cost of living is down in the US, some companies that left in the past due to the high cost of living and therefore high wage demands have started to come back to the US. This, of course, is good for the economy as it provides jobs, etc.

Many companies are still leaving Canada to operate in cheaper countries. The trend will not reverse until house prices fall allowing the same situation to play out that has played out in the US. I think our government knows this. We need jobs and the only real way to make this happen is to let the housing market correct dramatically. Adding more debt to stop the housing market from correcting will only make the situation worse in Canada.

dasmo said...

Define the average home. Right now there are 323 two bed two bath homes under 300k listed on the mls in greater Victoria.... If you have your 20% down, that's 1,368/month for a mortgage at 4% for the high end. $842 for the middle range. I think 4% gives a safe buffer...

My friends parents live in a multi-million dollar house right now. They started out in a trailer, in langford in the 80's....

Maybe it's time to rethink the "buy the biggest best that the bank will let you" and go back to the old school property ladder. Get on and step up when you can afford to. Build your equity in stages....

Marko said...

Companies operating out of the US can now pay employees $15 per hour and it works for both the company and the employee.

How is this good? The top 1% get even richer. Great that less disposal income goes towards your home but difficult to buy a decent car at $15 per hour, or even to go on vacation to Europe.

In 1998, US median income was 10% higher than Canada. Now median income is 10% higher in Canada than the US.....I take that as a positive.

Marko said...

Condominiums in Esquimalt provide an example. A top floor suite that sold in April 2006 for $245,000. Renovated and resold this week for $225,000 or about $203 per square foot. That's a price that hasn't been seen since 2004 or 2005.

Have you been inside this building/unit? Current sale price does not surprise me, but what where people thinking in 2006? You could buy a decent house in Oaklands area for 300-330k in April, 2006. Things were so out of whack.

patriotz said...

go back to the old school property ladder. Get on and step up when you can afford to. Build your equity in stages....

Only works when the ladder points up. We're in Snakes and Ladders mode now. You get stuck at the bottom.

reasonfirst said...


"...what where people thinking in 2006"

Indeed!

vawr said...

@dasmo "Define the average home."

I believe info was referring mainly to a detached single family home.
Info states "In the US, a family can earn $60,000 per year and can easily buy a house for $100,000 to $150,000 and have money left over for everything else."

That is certainly not the case here and perhaps never will be but for $300,000 or less there is next to nothing available on an mls search using "house" as the building type. The price correction that is already underway will likely change that.

StalJ said...

Here's a funny one from the real estate ads...
"We are not interested in your shit property in Washington state so why are you posting in Canada? I find it amusing that most Americans make fun of Canadians and most countries for that matter, yet you are trying to flog your property here in Canada. Is your economy still effed up that much that you need to seek out buyers from other countries? If it's that effed up, what makes you think we want to waste our money on your shitty properties?"

Mean time it looks like thier economy is beating ours 5 times over. Earlier.. news guy was adamant we will be in recession early 2013.
http://www2.macleans.ca/2012/11/30/u-s-gdp-growth-nearly-five-time-canadas-in-third-quarter/

mrmike said...

@ info
If you could buy a sfh in Vic for $150k would you work for $15 per hr?

StalJ said...

It would not surprise me if Vic ends up priced near a city like Bellingham. Similar size 200k+pop, nice university & parks...

Here's a full duplex near WWU and beside an amazign park

http://victoria.en.craigslist.ca/reo/3414860546.html

mrmike said...

^ @ StalJ
If that happened the line up of the bankrupt would make the colwood crawl look like a hayride.

dasmo said...

"It would not surprise me if Vic ends up priced near a city like Bellingham" You mean Sooke....

Introvert said...

We, as Canadians, have achieved record household debt levels...[blah, blah, blah, blah, blah]

Anyone here know how to write computer code? We could save info a lot of hassle by creating an application that automatically publishes the same comment every two days.

Just Jack said...

Lower house prices do not cause bankruptcy. People would still make their mortgage payments even if their home value fell by half.

mrmike said...

^ it was a joke man.

Leo S said...

Maybe it's time to rethink the "buy the biggest best that the bank will let you" and go back to the old school property ladder. Get on and step up when you can afford to. Build your equity in stages....

I think it's the exact opposite. When prices are appreciating at 10% a year it might be worth to jump in to a condo as fast as possible and upgrade later.

When prices are declining it's better to wait longer, and then buy the house that you can see yourself living in for the next 15 years. Moving often is a total killer on your return.

steveh said...

@introvert

#! /bin/sh
while true
do
echo "We, as Canadians, have achieved record household debt levels...[blah, blah, blah, blah, blah]"
sleep 86400
done

dasmo said...

It's never a good idea to "jump into a condo as fast as possible"

If things are appreciating by 10% a year you are much better of to borrow as much as humanly possible and buy the most expensive, most desirable place you can get into. Much nicer to double down on a bigger value. Ahhh if I could find that darn crystal ball...

If prices are declining then maybe it's best to buy the smallest you can stand to fit in. Then you have the least amount to lose if things go further south....

Leo S said...

If things are appreciating by 10% a year you are much better of to borrow as much as humanly possible and buy the most expensive, most desirable place you can get into.

Which is, for every single person with their first job, a condo. Hence my point. It may have made sense in the past to buy some sort of "starter" home rather than renting and saving for a few more years, but those days are gone.

If prices are declining then maybe it's best to buy the smallest you can stand to fit in. Then you have the least amount to lose if things go further south....

Why? So you can be forced to upgrade in 3 years at a loss? Might as well continue renting.

a simple man said...

Leo - exactly. Why buy right now when it is cheaper to rent and almost everyone agrees house prices are falling.

patriotz said...

#! /bin/sh
while $VICTORIAISOVERPRICED
do
echo "Guess what! Teranet HPI for Victoria is down again this month!"
sleep 2628000
done

Index Period Nov 2012
Index Level 138.20 ©
% change y/y-1.73%
% change m/m -0.92%
Year to date -0.94%

Leo S said...

Teranet is 6% down from peak (June 2010). Lowest since Sept 2009 and same value as Dec 2008 and Oct 2007.

Just Jack said...

Why buy now when prices are or about to fall?

There are people that only "know" real estate. The stock and bond markets are outside of their comfort zone as an investment. You'll find that these people will sell their home and re-buy into the real estate market in locations that they believe to be "safer".

I believe, this is why the volume of sales has now become so heavily weighted in the city core in relation to the western communities.

But their cumulative action of buying in the core is only deferring the inevitable or possibly inflating the values in the neighborhoods more. Making any correction in the core more severe.

Just Jack said...

The answer to the question of where should you be buying real estate, may simply be to find out what everyone is doing - and then do the opposite. To buy in distressed markets.

As an example, back in the mid 1990's leaky condominiums provided one of the better real estate investments. The impaired condominiums were cash flow positive and after remediation the complex reverted back to market levels. You just needed cash to do it, because the banks were very reluctant to lend in these complexes.

Ironically, a dozen years later, with easier available financing, most of us could have bought these condominiums using a credit card. Yet, at that time the leaky condominium was a disaster for our marketplace.

koozdra said...

There are a lot of people out there that are buying new properties before selling their old ones. They are having an extremely hard time selling their old homes/condos. I hear bulls are saying since prices are so "low", it's a good time to buy.

totoro victoria said...

JJ - I think you may be on to something with the idea that the reason for investment in "safe" areas ie. core is related to the average person's understanding of investments. Real estate is understandable and combine with horrific returns on RRSPs and the need for shelter and you have a consumer market that continues despite ups and downs.

totoro victoria said...

Also, I'm impressed with the skill set here! From graphs to computer code - way above my head.

patriotz said...

Real estate is understandable and combine with horrific returns on RRSPs

An RRSP is just an account and has no return in itself.

If you really mean stocks or mutual funds, $10,000 in the TSX 10 years ago would be worth $23,747 today for a return of over 9% annually. Even if you went all-in at the top of the dot-com bubble in 2000 that $10K would be worth $13,437.

I think the average person is pretty ignorant of the realities of the stock market.

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

patriotz - i agree people don't understand what can be done. i have been on my own learning curve with this. quite fun to take active management of these things.

what i can say for sure is that i do know many folks who have not seen such returns on their rrsp investments that have been made on the advice of their "financial planners". it can be a racket where people are sold products that give the planner a kick-back and do not perform very well at all.

my guess is that many others have had this experience as well.

caveat emptor said...

patriotz
I agree with you that people could and should do more with their RRSPs.

However I think most people have underperformed the TSX with their RRSPs due to a number of factors.
(1) They pay 1 to 3% of their assets in fees. And yes I know there are much better (cheaper) options out there. Sadly most people pay too much.
(2) They were diversified (generally a good thing) into asset classes that over this time period seriously underperformed the TSX (US equities, global equities).
3) They market time in a negative way (buy high, then sit on cash during buying opportunities like 2002 and 2009)

totoro victoria said...

I wanted to pass along to folks who are thinking of renting a suite how positive this experience can be.

Right now we have three lovely university students renting our 3 bedroom duplex suite. We had some extra furniture we don't need as a result of downsizing and we just let them use it.

They have been grateful for everything we have done, quiet and respectful and lovely to deal with. They keep the place neat as a pin.

Last night we got this text from them when we asked if they needed anything else, "You guys are way too nice!"

Our other tenants are similarly nice and thankful for anything extra we do. I'm kind of excited to give them their Christmas gift baskets :)

So, don't be scared off by the stories. Make sure your place is nice, give a few extra things, and screen. It can be rewarding in non-financial ways too.

dasmo said...

I started my stock portfolio 20 years ago and it's grown 300% since then. I had mutual funds that lost 10% over the same period. finally sold them earlier this year and bought RIMM, Facebook, Google, and Coinstar. Regained the loss and then some pretty quick. That financial adviser was actually just a salesperson... I'm a huge supporter of buying equities and investing in what you know. Follow your own instincts or just don't do it at all IMO.
Right now is a good time to rent without question. It's also a good time to shop around for opportunities. As JJ said, there is opportunity in what others don't want and now(ish) is the time to hunt for those breaks because rates are low and prices CAN be down especially when there is way less competition. You need to make it happen yourself though. I don't think we will see a wholesale mega drop in list prices... That's not meant in any way to goad one into buying. Again, I think it's a fine time to rent until the opportunity knocks. Once again, for the record, I'm a Halibut: -10% with a generally flat performance for the next 5 years. Low rates also for another 5.

a simple man said...

Totoro:

Can you be my landlord?

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

I dunno - extensive screening is required - you'd lose your secret HHV alter-ego.

But really, being a landlord is not difficult if your personality matches it. It is more difficult if you really dislike interacting with folks this way. I can understand that.

patriotz said...

toroto and caveat, very true. Basic principles of investing in anything are don't buy high and sell low, don't put all your eggs in one basket, and watch your expenses.

Introvert said...

I'm impressed with the skill set here! From graphs to computer code - way above my head.

Don't forget impeccable grammar! ;)

info said...

Let's compare house prices in Winnipeg with those in sunny California.

This Winnipeg house comes complete with extreme cold, a lot of snow and very hot, mosquito-infested summers. You will eventually get used to living nowhere near the ocean, or anything else for that matter. The list price is only $499,000. I am betting you can hardly contain your house horniness.

On the other hand, this house, located in a gated community west of Los Angeles, is listed at $198,000. You will be able to enjoy the ocean, beautiful, warm weather year-round, easy access to all that Los Angeles has to offer and no snow.

$499,000 vs $198,000. Real estate bulls, please explain.

info said...

Should be east of Los Angeles, not west.

hap pychucky said...

http://www.bestplaces.net/economy/city/california/pomona


Info maybe the 11.5% unemployment may help u understand. You bears are great at taking data that have no business being compared and making assumptions

hap pychucky said...

Income per capital is 37k in Win and 16k in Pomona.

Info do you see that maybe your comparison was king of stupid???

patriotz said...

Income per capital is 37k in Win

Where the hell did you get that number from ? StatsCan said in 2005 that the per capita income in Winnipeg was $16k.

You're clearly looking at the average income for employed people only.

hap pychucky said...

Pat

no per income per capita



http://www.economicdevelopmentwinnipeg.com/uploads/document_file/personal_disposable_income_per_capita.pdf

Just Jack said...

Looking back at 2012, the typical home in the City of Victoria sold for $572,000. And that bought you 1,850 square feet of finished floor area on on a 5,800 square foot lot.

How much would a 1,850 square foot home on a 5,800 square foot lot set you back in other neighborhoods.

$531,000 in Saanich East
$502,000 in Saanich West
$555,000 in the Esquimalt/View Royal (not many sales)

And $649,000 in Oak Bay

Just Jack said...

The western communities typically pay around $240,000 less for a home with a similar utility as those buying a home in Oak Bay. That can add a $1,000 to $1,500 more in monthly costs such as mortgage payments, taxes and other city fees. In contrast, the difference in renting similar properties in these areas may only be $300 a month.

Introvert said...

I started my stock portfolio 20 years ago and it's grown 300% since then.

I'm against the stock market. The companies with the highest returns are the ones who are best at directly screwing the environment, human beings, or both.

Great system we've got here.

Just Jack said...

The best deals that I have seen so far this month include:

A Gordon Head home on Ferndale Road with a potential to subdivide a lot. This property sold for $540,000.

An Oak Bay rancher on Hampshire Road that sold for $517,000.

Another Oak Bay home. This one on Bowker Place having an ocean view and a quarter acre of land for $830,000.

And a top floor corner suite in a condo complex on Alder. Two bedrooms, two baths for $251,000. And you're allowed cats, fish and kids.

All of them were vacant at the time of the sale. In most cases the homes were bought in excess of 15 years ago or had multiple absentee owners.

totoro victoria said...

I like to think of Patriotz as Pat - more warm and fuzzy - just like Pat in real life no doubt.

Off the topic, but these are pretty funny:
http://www.buzzfeed.com/daves4/the-25-funniest-autocorrects-of-2012

Chris VancouverResident said...

Let's compare house prices in Winnipeg with those in sunny California.
------------------
The properties are not comparable at all. Pomona is a far eastern suburb of Los Angeles while River Heights (the location of the Winnipeg home) is a high income area in town neighbourhood (probably the second best in town after Tuxedo) in Winnipeg - not quite Uplands but probably a cut above most of South Oak Bay (in fact, the designer of Uplands - Olmstead - designed River Heights - hence the similar green painted street lanterns. In Los Angeles, the equivalent would be Brentwood or Santa Monica or Hollywood Hills and you would be paying $1,000,000+. Pomona is more like Langford or Sooke. Not exactly the prime area. In fact, Pasadena is much nicer and way more central.

Chris VancouverResident said...

Let's compare house prices in Winnipeg with those in sunny California.
------------------
The properties are not comparable at all. Pomona is a far eastern suburb of Los Angeles while River Heights (the location of the Winnipeg home) is a high income area in town neighbourhood (probably the second best in town after Tuxedo) in Winnipeg - not quite Uplands but probably a cut above most of South Oak Bay (in fact, the designers of Uplands - the Olmsted brothers - designed River Heights - hence the similar green painted street lanterns. In Los Angeles, the equivalent would be Brentwood or Santa Monica or Hollywood Hills and you would be paying $1,000,000+. Pomona is more like Langford or Sooke. Not exactly the prime area so it isn't a helpful comparison.

Introvert said...

I'd say info just got schooled.

StalJ said...

No matter how you dice it by income, you have to admit that the Peg & rest of us are highon something.. espec Van@9 & Vic@8.

info said...

@Chris VancouverResident

The comparison between the two properties points out many things. To start, it doesn't matter if you live in one of the nicest neighbourhoods in Winnipeg or not, it is still Winnipeg. You are totally missing the point.

The area from which I selected the house in California is neither the worst, nor the best, but it is still in California where there is probably the best weather in North America. It is also near the ocean, a relatively close commute to Los Angeles, etc. The house itself is in a private, gated community.

As well, Winnipeg is a small city. No matter where you live in that city, you will always be close to one of the dangerous, high-crime neighbourhoods because they are everywhere and literally blocks away from the so called good areas, no matter which one you choose to live in.

Would many people choose Winnipeg over Pomona if they had to move to one of the two cities? I doubt it. Throw in the prices of the two homes and, well, you get the idea.

But, this is only one of the things that this comparison points out. More importantly, it points out the fact that house prices across Canada are currently in a bubble due to the lax lending standards that caused excess credit.

Who wouldn't be shocked to see this comparison? What fundamentals exist in Winnipeg (and not in L.A.) that support the high prices?

Average (median) household incomes are close to the same in each city.

In a more general sense, what justifies house prices costing on average twice as much in Canada as in the US? Incomes are approx. the same in both countries?

info said...

@ Chris VancouverResident, Introvert and hap pychuky

Houston TX has a much larger and more diverse economy than Vancouver. It also has warmer weather and a lot less rain.

I quickly selected a house from each city. Neither is located in a desireable area and both are about the same distance from downtown.

This Vancouver house, located one block off of East Hastings, is listed at $1,088,000.

This Houston house, not in the best area, is listed for $39,000.

There are houses for sale for a lot less in Houston as well.

The point here, again, is that house prices in Canada are currently in a bubble.

House prices in Vancouver, already down 12% since spring, have started to crash. Unlike the crash of 08-09, there will be no dramatic, unprecedented, emergency intervention to stop the crash this time.

House prices in Victoria have started to crash as well. As pointed out, the Teranet HPI shows that Victoria house prices are at their lowest level since September 2009. They are also at the same level as December 2008 and October 2007. We are only getting started.

patriotz said...

In Los Angeles, the equivalent would be Brentwood or Santa Monica or Hollywood Hills and you would be paying $1,000,000+.

Oh please. NO part of Winnipeg is in any way comparable to the upscale parts of LA, because Winnipeg is not in any way comparable to LA.

If you want a place in Ca that's flat and not close to anywhere in particular, try Bakersfield, where a house like this goes for $250K. But you won't get the cold winters and the humidity.

totoro victoria said...

Why all the red herrings? The comparisons don't work.

You could choose one place in California and another and get wildly different results on house prices and, hey, they could both have pretty good weather.

You could also compare LA and Phoenix... or Detroit and Denver... and would really prove nothing by the stats.

Local real estate markets are local. Terrace and Oak Bay are not the same and don't have the same stats.

There are many many factors that influence prices locally including economy, crime rate, weather, employment, density, affordability... to name just a few.

I personally would not choose to live anywhere else because of the number one factor for me: family. Who wants to move the states btw? Gun control issues and health care are not at a level I'm comfortable with.

Are some places in Canada overvalued? Maybe. Are some places in the US undervalued right now? I think so.

patriotz said...

The real issue is not choosing between living in Canada or the US but comparing prices versus rents. You get exactly the same civic amenities renting as for buying.

Price/rent in the US is now about half that in Canada across the board. Price/rent in the US in 2006 was about the same as in Canada today.

Any conclusions?

vawr said...

@totoro
"Why all the red herrings? The comparisons don't work."

Totoro, you write knowledgeably about the local areas that you invest in but I think you miss info's larger point.

Our average prices in Canada are now about twice those in the US when, historically, the average home prices of both countries have been close to parity.

I believe it is generally accepted that`the US had a housing price bubble that crashed. This would account for most of the difference between our current average price and theirs.

Unless ìt`s different this time I think it is reasonable to assume that American and Canadian home prices will once again align with the bulk of that realignment on the Canadian side.

Marko said...

SFH average this month = 628k
SFH median this month = 535k

Marko said...

Would many people choose Winnipeg over Pomona if they had to move to one of the two cities? I doubt it. Throw in the prices of the two homes and, well, you get the idea.

I had a client who recently sold a home in Winnipeg in a high-end neighborhood and bought a much better home for a similar amount in Sooke.

I think local areas are quite important; otherwise you could make the argument why live in Winnipeg when you can live in Victoria (aka Sooke).

Marko said...

Prices have been flat now give or take for 5 years with down blips in 2008/2009 and an up blip in 2010 and now down 4 to 5% last two years.

Why will the market specifically crash in 2013? The only major change is the mortgage rules which have lowered the buying power by 7% for 20% of buyers, assuming they were all maxing out amortization to 30 years before.

Unemployment is stable, interest rates have dropped, slowly but surely salaries are going up. I know my old union, HSABC, has 1.4% wage increases over next two years on the table. Not great, but at least in the right direction. Rental market is not the best but all the listings I've lost this year have had no problems renting out their places, sometimes at what I perceive as ridiculous rents.

Sales volume is brutal but it has dropped off the cliff before (1990s) and prices didn't crash.

Marko said...

But really, being a landlord is not difficult if your personality matches it. It is more difficult if you really dislike interacting with folks this way. I can understand that.

Personality is big. My parents have students from Tanzania coming back in January for the 3rd time for an entire year. The suite isn't anything exceptional but my parents always invite them to family dinners and we pick them up from airport if we have time, etc.

As I've said before, I've had a lot of free accommodation when I've gone traveling from tenants my parents have had over the last 15+ years.

totoro victoria said...

I haven't analyzed the US market myself in depth. Honestly, I have a hard time trusting data without understanding it deeply. You can reach conclusions that seem like they could be true, but really are not.

This is my view as to what is happening locally:

1. Prices are likely to drop slightly here in the next bit. This is because we have been in a long climb up and real estate markets do not rise consistently in a straight line. There are drops too.
2. The US market is a warning as to what happens when credit is not backed with good risk analysis. We are not the same as the US in many ways.
3. Interest rates are really low making prices fairly affordable even at "high" prices.
4. Consumer confidence has been impacted by the US example and local conditions it is likely this will influence prices slightly negatively.
5. Credit tightening will impact some of the purchasers which will impact the market slightly negatively.

So, in my view, our economy is still relatively strong and interest rates are favorable. In the short-term I do not see that a dramatic crash is supported.

I would see a crash if interest rates rise, BUT this impacts monthly affordability as well. Unless you are a cash buyer or have a really big down payment you might pay the same each month even if you buy lower.

So, the comparison with the US is, in my view, somewhat of a red herring. I may be wrong, it is only my view.

I think this market is fine for a wait a see. I don't think you will lose and there is a chance that a really good deal will come along because someone has to sell.

Long-term I see real estate as a fairly stable investment - especially with a ten year low interest mortgage term! Others would disagree. I use rental income as a hedge and am comfortable with the risk because each year my mortgage gets paid down anyway.

I also believe that the US market is undervalued right now in many places. While we may see some short-term declines in Canada, my view is we will likely see some gains again in various areas in the states.

Doomsday preppers who believe there is going to be a further financial crisis might disagree, but who really cares about the real estate market at the end of the world?

koozdra said...

Everybody become a landlord it's all sunshine and lollipops. With interest rates this low and the amount of money you can draw from your current home, now is the time to buy up houses. Go to the bank, no matter how crazy you think your home value is, the bank will give you a 95% LTV loan on your house. Oh wait this crazy policy has changed. We now sit at a more reasonable 65%.

What happens when too many people take this advice? A glut of housing. Too many Totoros.

koozdra said...

"So, in my view, our economy is still relatively strong and interest rates are favorable. In the short-term I do not see that a dramatic crash is supported."

We would have had a contraction in the summer if not for consumer spending. Where do you get this notion that our economy is strong?

totoro victoria said...

Yes, too many Totoros would be pretty crazy. The HHV website couldn't handle it.

As for the economy being relatively strong. I suppose that there are a number of indicators supported by studies to this effect, including the BC Economic Forecast Council.http://www.cbc.ca/news/canada/british-columbia/story/2012/11/16/bc-economy.html

Where do you get the idea that it is not okay? The debt?

I don't know. I think we are doing okay so far. One factor that is pretty telling is spending behaviour at Christmas: consumerhttp://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/holiday-shoppers-plan-to-spend-more-this-year-survey/article5087904/

totoro victoria said...

Also, how did you know that I leave a trail of sunbeams and lollipops wherever I go?

Marko said...

I don't think the economy is in dire straights by any means...individuals are passing up shifts worth $1,000 in some cases. I worked three Christmas Days in a row when I was at VIHA, twice at overtime. It was awesome, barely anything to do, big pay day and still time to spend with family after shift. Sometimes Boxing Day and New Years as well. You would think if things were difficult out there people would be lining up to work holiday stats?

VIHA scrambling to fill thousands of holiday shifts..

http://www.timescolonist.com/news/local/viha-scrambling-to-fill-thousands-of-holiday-shifts-1.31966

Unemployment fell to 3.3 per cent in Nanaimo last month, one of the lowest in the country.

http://www.timescolonist.com/nanaimo-unemployment-falls-to-one-of-the-lowest-in-the-country-1.28122

koozdra said...

We have been in recession for a while now. It's been masked by our national housing market. An economy based on debt is unsustainable. How much debt is the middle class expected to take on to continue this "economic growth"?

Eventually the middle class is going to get tapped out.

Regardless of the causes we are looking at the same situation in terms of prices relative to incomes that happened in the states. This brought an economy ten times the size of our economy to its knees.

But I keep forgetting not to compare us smart Canadians to those stupid Americans. We are an island of stability.

totoro victoria said...

Has nothing to do with "smart" or "dumb". People are people. Local conditions; however, differ. It is a complex analysis which I have not undertaken because it is not my passion and I do have to work.

The comparison between Canada and the US is too simplistic imo. Time will tell.



a simple man said...

"Also, how did you know that I leave a trail of sunbeams and lollipops wherever I go?"

I always follow them and end up at Monterey library or Oak Bay Starbucks...?

dasmo said...

People are not desperate for work that's for sure...

CS said...

not quite Uplands but probably a cut above most of South Oak Bay ...

Come off it. South Oak Bay is Oak Bay. The Uplands is just a boring subdivision for parvenus.

totoro victoria said...

I bring my reusable coffee mug from home these days, and my sunbeam-themed rolling shopping bag with me - helps with the lollipops and library books.

Introvert said...

... They are also at the same level as December 2008 and October 2007. We are only getting started.

The last sentence is an opinion--and one that we've read for so long on this blog that the words "getting" and "started" are beginning to lose their meaning.

Price/rent in the US is now about half that in Canada across the board. Price/rent in the US in 2006 was about the same as in Canada today.

Any conclusions?


No. Price/rent is not the be-all and end-all of any real estate discussion, as you would have it.

patriotz, you really should have some price/rent T-shirts made up.

SFH average this month = 628k
SFH median this month = 535k


Another month in which a price "crash" hasn't happened. Maybe next month...

Regardless of the causes we are looking at the same situation in terms of prices relative to incomes that happened in the states. This brought an economy ten times the size of our economy to its knees.

"Regardless of the causes"? Um, maybe the causes are important...

Also, keep zeroing in on one or two measures, just like patriotz does, and ignore complexity and nuance; it makes you look smart.

The comparison between Canada and the US is too simplistic imo.

Intelligent comparison between the two is totally worthwhile; too bad we don't have that on this blog.

a simple man said...

Introvert - please, play nicely. To paint everyone's intelligence with one brush, or to do so when this is not any of our jobs is unfair.

Introvert said...

I don't think anything that I wrote is out-of-bounds or particularly out of the ordinary.

Reid said...

The main difference IMO between the US and Canadian real estate markets is related to the availability of credit. The majority of Canadians are financially illiterate and part of that illiteracy is they believe real estate is a solid “investment”. Combine this belief with banks recently providing up to 6 or 7 times family income in mortgage debt and simply drove up house prices to bubble levels. You had the same thing in the US in the early and mid 2000’s with banks lending people all sort of money which accomplished thing.

I can tell you that banks in the US after 2008 have not been lending mortgage money easily. You would be luck to get 3-4 times your income and only if you had solid credit. So it is no surprise that US housing prices had to drop as the credit was no longer there to support the overinflated prices. The new mortgage rules in Canada are contracting credit availability but only marginally, so this is why many people feel their will be a soft landing in Canada. As long as Canadians continue to believe in real estate and can borrow plenty of money, there is no reason to fear a price collapse.

But I can tell you if the new mortgage rules had capped mortgage lending at say four times family income, real estate values would drop significantly in Canada, especially in places like Vancouver.

But Vancouver will be the place to watch because of how levered people are. I am watching the market over $1 million because this is where you can no longer get CMHC insurance so the bank risk goes up. I know so many people in Vancouver that have lent their kids the 5% required to buy a $1 million plus home using the equity in their own house. The logic is why not help out my kids as this way they can remain in the Lower Mainland and heck I have made a million dollars on my house, so why not lend $50k to $70k to my child so they can reap the benefits of home ownership. The parents are willing to do it because they want their kids and grandkids close to home and the dollars involved are manageable. As long as the banks are willing to lend the kids a monstrous amount of mortgage debt it all works.

But now the down payments are much higher without CMHC insurance and many banks are demanding more than a 20% minimum down payment on houses over $1 million. I can tell you none of the people I know would have lent their kids the $250k to $300k required today to make this deal come together. So I suspect the higher valued SFH market in Vancouver is going to get hammered a lot more than many think. If so this should impact the entire Vancouver market and a soft landing likely becomes a pipe dream.

I know bulls think all the buyers have wheelbarrows of cash and few buy million dollar plus home with CHMC financing, but my discussions with banks and homeowners suggest otherwise. I suspect we will know how this unfolds by this time next year.



totoro victoria said...

Scotiabank study:


Canadian mortgage markets are fundamentally healthier
than the U.S.

1. Canada's subprime market is small (5-6% of outstanding mortgages) whereas the U.S.
share peaked at about three times that. As a share of originations, 20-25% of new mortgages in the U.S. were subprime over the 2004-06 period.

So Canada isn't anywhere
near as exposed to the products that caused most of the damage in U.S. housing markets.

2. Not only is Canada's subprime market much smaller, but it isn't even really subprime per se. Canada's subprime market is more like the U.S. near-prime market, whereas the U.S. subprime market often lent to borrowers with extremely impaired quality.

3. Adjustable rate mortgage (ARMs) resets also caused many of the problems stateside, but those resets occur much more suddenly in the U.S. By contrast, the closest Canadian product parallel is the variable rate mortgage, but they get constantly repriced so that
people aren't caught off-guard years later. Furthermore, in Canada, some variable rate
products adjust the principal, not the payment. On balance, the shock effect from payment resets in Canada is nowhere close to what has
caused much of the problem in the U.S.

4. Canada's mortgage equity withdrawal market isn't like the U.S. We've seen secured home equity lines of credit (Helocs) grow in Canada as a way of withdrawing equity, but nothing like the U.S. withdrawals picture. U.S. homeowners' equity has been in free-fall with mortgage debt growth outpacing housing assets since the early 1990s. Canada, by
contrast, retains much higher homeowner equity, and while it may have reached a plateau, the figure has risen in recent years while the U.S. position has deteriorated (chart 3).
5. Mortgage interest is deductible against taxes in the U.S. It generally is not in Canada.
That creates vastly different incentives to leverage oneself in the two markets.

6. The nature of the products has been very different in Canada versus the U.S. Examples of Canadian innovation like long- amortization mortgage products are
absolutely nothing like Ninja mortgages. Mortgage innovation was needed in Canada, but has been relatively more conservative.

7. Further to this latter point, long-amortization mortgage products actually extend the
Canadian credit quality cycle. Long amortization periods of over 25 years have been dominant as a share of new mortgage originations since the 40-year mortgage was
introduced almost two years ago. However, there is still an overwhelming majority of
Canadians who face the option of extending from the previously standard 25-year product
into longer amortization products in a manner that lowers their payments in the face of
shocks. Even though insured 40 year mortgages now banned in principle, 35 year
mortgages still provide this flexibility.

totoro victoria said...

continued:

8. Investor mortgages were among the first products to default in the U.S. where they account for about 9% of all outstanding mortgages, similar to the UK 9.5%) and Australia (10%). In Canada, however, they are about 2-3% of all outstanding mortgages.
There are problems in the investor segment the world over, but the magnitude of the exposure in Canada is far less significant.

9. If there is an imminent problem brewing, then it's not showing up in terms of industrywide
mortgage delinquency patterns. Mortgages 90+ days in arrears in Canada remain at 27 basis points which is the range around which they've been floating since mid-2004.

By contrast, even when the country had double digit variable mortgage rates and double digit unemployment rates in the early 1990s, the peak rate of delinquency was about 65
basis points. We're of the opinion that delinquencies will deteriorate going forward, but
will be nowhere close to the U.S. experience.

10. The extent of runaway house price inflation was much more muted in Canada than in
many other countries. Canada's priciest market is Vancouver, and prices have gone up by
about 80% since the mid-1990s start of the global housing cycle. London England, by
contrast, went up by about 270% over this time period. Canada's house price
appreciation was, on average, significantly below the U.S. experience since then, and
much below the experience of many European countries.
Canadian mortgages are funded, underwritten, and
enforced in a totally different manner

1. Canada's funding model is completely different from the U.S. The majority of mortgages are held on balance sheet in Canada, with only 24% having been securitized.
Thus, much more of Canada's mortgage book is funded by on-book retail deposits than is
the case in the U.S. That also makes the banks more conservative about the products they
are originating since they are

totoro victoria said...

continued again:

2. Further, the majority of the securitized totals have been done through the CMHC — a
Crown corporation with explicit government backing — thus avoiding the problems in the U.S. caused by the ambiguity of GSE liabilities. Other insured securitizations have
been done through private insurers that also receive explicit government backing for the
underlying assets through the Canada Mortgage Bond program.

3. Furthermore, Canadian financial institutions are not as reliant upon short-term lines
extended by other financial institutions. The degree of reliance upon such funding in the
U.S. is what caused excessive exposure to short-term swings in market sentiments, not to
mention adverse incentive effects.

4. Mortgage-Backed Securities (MBSs) were not placed in off-balance-sheet SIV and
CDO structures as in the U.S. So, Canada MBS investors do not face the same heavily
leveraged investor risks. This is perhaps the most important point, since origination
mistakes in the U.S. were bad enough, but what really caused the problems were dollops
of leveraging that occurred after the mortgages were originated.

5. Unlike many U.S. banks, Canadian banks continue to apply prudent underwriting
standards. In other words, they have always checked, and continue to check, incomes,
verify job status, ask for sales contracts, etc., such that all those questions your banker
asks in Canada have a purpose that somehow got lost on many American bankers. The
no-income- no-job-no-asset ("Ninja") style, here-are-the-keys-to-your-brand-new-home
lending just didn't take hold in Canada.

6. Appraisal standards are generally higher in Canada, where appraisals are more likely to
low-ball estimates of property value before making the final decision on how much to
lend.

7. Finally, enforcement of Canadian mortgages is not as tilted in the borrowers' favour as
it is in the United States. In the U.S., lenders have little recourse — they can take the
keys and settle relatively quickly, or sue and go through great expense for a potentially
lengthy period. Alberta is similar to the U.S. treatment in this regard. But the rest of
Canada provides greater recourse to lenders than in the U.S.
Scotiabank Group

totoro victoria said...

CIBC October 31, 2012 conclusions:

In a final analysis, not all is well in the Canadian housing market. Home prices are overshooting their fundamentals, mainly in large cities such as Toronto and Vancouver. The recent slowing in sales activity will probably be followed by price adjustments in many cities across the country.

But the Canada of today is very different than a pre-recession US, namely as far as borrower profiles are concerned. Therefore, when it comes to jitters regarding a US-type meltdown here at home, the only thing we have to fear is fear itself.

Source: CIBC calculations based on S&P/Case-Shiller, Loan-Performance and MBA
Chart 8

totoro victoria said...

I thought it interesting that the CIBC report highlighted interest rate hikes as an area of vulnerability - I would strongly agree.

koozdra said...

"You're richer than you think" -Scotia bank

koozdra said...

What message do you expect to come from the banks? They want you to continue borrowing. It's like the cigarette companies that used to run laboratories that did studies proving that smoking was safe and didn't cause cancer.

Even if one of the bank economists wrote a bearish report, the would not publish it. It wouldn't be in their interests to do so.

totoro victoria said...

Did you actually read through the points? Some of them are valid imo. Mortgages in the US are quite different - you can walk away from them in 12 states and you can get 30 year low interest fixed terms - interest is not adjusted at all... there are others.

You can't just discount any fact that does not accord with your current position of an imminent crash unless you don't worry about credibility.



Introvert said...

What message do you expect to come from the banks? They want you to continue borrowing.

So when a bank releases a report that doesn't strongly support your viewpoint, it's dismissed.

But when a bank releases a report that does support your viewpoint, it's met with statements like "If banks are saying this, things must be changing."

The inconsistency here is truly breathtaking.

Dave said...

Yowsers, the bulls are anxious today.

I must say, it's not rocket science why the US is posting ~3% GDP and Canada ~0%.

There's no doubt that our average price will match theirs again -- like it has for centuries.

Over the long run, the US economy has and will always outshine our tiny resource-based economy.

For toto's sake dorothy, they'll soon even have us beat on our number one resource - energy.

Introvert said...

You can't just discount any fact that does not accord with your current position of an imminent crash unless you don't worry about credibility.

They don't. That is plain to see.

dasmo said...

"There's no doubt that our average price will match theirs again" I agree, because there prices will climb back up...

Introvert said...

For toto's sake dorothy, they'll soon even have us beat on our number one resource - energy.

All part of America's ambitious Leave No Aquifer Uncontaminated plan.

Just the usual money-today, who-cares-about-tomorrow line of thinking.

Business as usual!

dasmo said...

Sorry introvert..Their...

vawr said...

@koozdra "What message do you expect to come from the banks?"

Precisely. Not only the banks but much of the real estate media commentary is dominated by individuals who have conflicts of interest.

The banks have no interest in your financial safety. They are all competing for your dollar. How likely is it that they will advise you to do something that doesn't pad their bottom line.

As far as the economy is concerned, it is true that no one knows what will happen in a year or two.

But it is not just the doomsday preppers who believe there may be another financial crisis looming.

WE here are not immune from what happens in other parts of the word.

Just Jack said...

I was speaking with a recently married couple and they have they stopped saving for a home in Victoria. Instead, they are making plans to move to another country.

So now the newlyweds are leaving.

info said...

totoro

Both recourse and non-recourse mortgages are available in Canada, depending on the province.

The same thing in the US, both recourse and non-recourse mortgages are available, depending on the state.

The US saw both recourse and non-recourse states record crashes.

Non-recourse mortgages do not prevent price crashes.

dasmo said...

JJ I suggest Bulgaria. Freind bought an acreage with a stone house for 15k a few years ago.

Just Jack said...

Actually, they're thinking of Peru.

info said...

Marko wrote: "The only major change is the mortgage rules which have lowered the buying power by 7% for 20% of buyers..."

So you, as a realtor who represents the housing industry in Canada, are saying that you don't expect the new mortgage rules to have much of an impact on house prices.

If this is true, then why is CAAMP lobbying the government to change the rules back?

"Our concern today is the number of growing first-time buyers who are now unable to get a mortgage,” Murphy told MortgageBrokerNews.ca earlier this year. “We worry that this is having a dampening effect on what was already a cooling market, we hope policymakers will give some thought to addressing the needs of this key sector.”


This is important for all potential home buyers. On one hand we have Marko, a realtor, telling this blog that the new mortgage rules will have little impact on house prices. No doubt he tells his clients this as well. On the other hand, CAAMP (mortgage professionals), who also represent the housing industry, are kicking and screaming and lobbying the government to change the rules back because the changes are having too much of an impact on house sales and prices.

You can't have it both ways Marko.

Why does the housing industry release positive news to the public and then go behind doors with the government and tell them that the rule changes are too much for the already weak housing market? Lies!

totoro victoria said...

In Canada, except for some mortgage loans in Alberta (non-CMHC insured with more than 20% down), all mortgages are in fact recourse mortgages. Seems pretty low risk to me. The rules in the 12 states are far far different.

This means that if you default on your mortgage in this country and the bank takes over and does not recover their full loan when they sell, they can sue you personally for the difference. They can then go after your other assets or attempt to garnish your wages if they know where you are employed.

This is why people don't hand back the keys to the bank in Canada. You will still be responsible if the bank sells for less than you owe.

The full recourse feature of Canadian mortgages results in more responsible borrowing, fewer delinquencies, and significantly fewer foreclosures than in the United States.

http://www.american.com/archive/2010/february/due-north-canadas-marvelous-mortgage-and-banking-system

info said...

@totoro

If Canadian banks were so conservative, Moody's would not be reviewing them for downgrade.

info said...

@ totoro

If all of the reasons you listed made Canada immune to a housing crash, then why did the Canadian housing market crash 15% in 08-09 in only 6 to 8 months?

It took a massive, unprecedented intervention by the government to stop the crash. As well, interest rates were slashed way down to emergency levels and have been kept there for the last 4 years.

dasmo said...

Peru sounds nice. Never been. It's on the list though.

patriotz said...

you can get 30 year low interest fixed terms (in the US) - interest is not adjusted at all...

That's a reason for the US to be less vulnerable to a crash than Canada.

As for all the claims that mortgage lending is more responsible than in the US, the numbers speak for themselves - we're more indebted than they were in 2006.

totoro victoria said...

I think that the review by Moody's is the responsible thing to do. Canadians are vulnerable to interest rate hikes.

I'm no fan of consumer debt - that seems way more irresponsible and fiscally imprudent to me than mortgage debt.

The average Canadian has 26,000 in non-mortgage debt. I have zero, and zero HELOC debt, and hopefully won't incur any ever that doesn't get paid off at the end of the month. Consumer debt makes no sense to me at all unless it is an emergency.

I; however, happily pay my mortgages and feel incredibly lucky to to have them.

High consumer debt is not caused by lax credit. The studies point to the combination of a rise in incomes and, most importantly, incredibly low interest rates.

Interest rates create vulnerability when they rise. I've been consistent in stating this.

What I have disagreed with is that:

1. We are on the same path as the US.
2. A crash is imminent.

Vulnerability is there, but I do not believe it will be actualized without a hike or similar drastic event.

I am in the soft landing camp with long-term appreciation bearing out.

totoro victoria said...

Pat - that is right.

Those long-term low interest mortgages are enviable right now too because investors are snapping up below-market priced properties.

I suppose they may have contributed to a greater run up in prices though.

totoro victoria said...

I'm going to have to take a break from posting. I'm worried about causing a market crash.

info said...

You may have forgotten about the lax lending standards, here in Canada, that have been brought in over the past 13 years. These lax lending standards provided the environment of excess credit that caused the unrealistic and unsustainable housing price gains. The same thing happened in the US with their lax lending standards.

This is how we got here:

•Prior to 1999 you needed 10% for a mortgage and that mortgage had a maximum amortization of 25 years. CMHC also had limits on how much you could buy with their insurance.

•Just after 1999 CMHC lowered the down payment to 5% with price limits on how much they would insure depending on the area. Amortizations were still 25 years. There would be no price limit on what they would insure if 10% or more was put down.

•By Sept. 2003 CMHC allowed 5% down on 25 yr amortizations but they removed all price ceiling limitations. Now any mortgage would be insured regardless of the value of home purchased.

•In March 2004 CMHC began allowing Flex-Down products which permitted the 5% down to be borrowed and 1.5% closing costs to be borrowed (essentially zero down, but 95% insured.

•In March 2006 you had 0% down, 30 yr amortizations. This became 0% down, 35 yr amortizations later in the year. Interest only payments were allowed for 10 years.

•In November 2006 CMHC began allowing 0% down, 40 yr amortizations along with interest only payments for 10 years.

•Canadian banks ramped this up by allowing up to 7% cash back offers is you would take on a mortgage with them. You could basically get paid if you bought a house.

•Not only were the rules surrounding the granting of money loosened, but CMHC's cap for granting mortgages grew from $100 Billion in 2006 to almost $600 Billion today.


Canadian lending standards have created a slightly higher overall home ownership rate (70%) than that in the US before their housing market crashed.

There are differences between the mortgage products and lending standards. However, it can be argued that the Canadian housing market is in a more dangerous position than that of the US before it crashed. We have reached higher prices and a higher price/income ratio than they did in the US.

The government has massively scaled back their interference in the housing market via CMHC. The very thing that caused the bubble prices in Canada has been, for the most part, removed from the equation. This did not happen in the US before their housing market crashed.

We are different than the US, but the same in a general sense. Lax lending standards caused bubbles worldwide that have crashed recently. None of these countries had the exact same lax lending standards as the US did, but they still crashed.

The exact mechanism that created the US housing bubble did not cause it to crash. A housing bubble formed and bubbles burst. It got to the point where fundamentals, such as income, could not support the bubble prices. The average family could not afford the average home. Canada is in the same situation right now.

vawr said...

"So when a bank releases a report that doesn't strongly support your viewpoint, it's dismissed.

But when a bank releases a report that does support your viewpoint, it's met with statements like "If banks are saying this, things must be changing."

The inconsistency here is truly breathtaking."

Nothing inconsistent that's truly breathtaking here, introvert.

The banks whored and on the way up, fully aware of what they were doing and now that the game is up, they've finally changed their tune.

Hey, business is business.

totoro victoria said...

info - you make some good points.

I suppose that we just differ on affordability right now.

I view the US as being different in a number of ways, but there are some similarities. I'm not an expert.

In BC median family income is $90,000 or so. The average family can afford to purchase a home if they save a down payment - Vancouver excepted.

In the Okanagan you can get a very nice home for $450 000. In Victoria, that is pushing it - you'd need rental income or a townhouse/condo or less desirable area with commute.

I view houses as affordable still but they will become unaffordable if interest rates rise.

I don't view a crash as imminent, partly on analysis of the market and partly on something like intuition.

A combination of the factors that distill into a sense that we are not there yet - maybe much like you have the opposite sense. Time will tell.

The good thing is you can be okay with either scenario if you buy or don't buy - now or later.



caveat emptor said...

"Yowsers, the bulls are anxious today."

Are there actually any "bulls" posting on this site? Folks who think Victoria house prices are going to rise in the next few years?

About the most bullish prediction I have seen lately is along the lines of "flat to gently down in the next few years, recovering in the longer term.

It's more like the micro-bears (flat to gently down) arguing with the mega-bears (a crash or serious correction is BOTH inevitable and imminent).

totoro victoria said...

Like koalas vs. grizzlies?

Just Jack said...

I don't think Totorro has forgotten about the lax lending policies of the past. After all, that has been the reason why so many have been able to purchase a home or become landlords either intentionally or by default.

However, the restrictions now placed on CMHC will cause the beast to bleed red ink, just like its counter part did in the USA. Making mortgages far less portable and much more expensive for the home owner at renewal time.

Banks don't have to follow the Bank of Canada rate - they can charge more. The reason why the banks haven't in the past charged higher rates is that the home owners had a option to move to another lender. As prices slide and lenders tighten up on credit that option withers away.

We may not have all of the reasons that caused a US style crash. But it isn't necessary to be exactly the same as the USA. There are enough Canadian reasons to cause our own style of correction.

What Canada and the states had in common was that we were both impregnated by lax lending regulations. Now we're just arguing over which one is more pregnant.

To say that a person or persons starting out in life should shackle themselves to a life time of debt in their twenties or thirties is ludicrous. Especially when most of those making this inflammatory statement, never came close to carrying this much debt in their twenties and thirties. All that these high prices do is make those in their twenties and thirties leave the community.

We know that the rate that retirees are coming to Victoria is slowing down. Now we'll have a net loss of those in their twenties and thirties too.

Rising prices may stimulate economic activity for a while, but that can't be sustained. High prices themselves are causing the current stagnation in sale volumes. And that's why the cure to every boom must be a bust. And our current market has enough examples peppered through out of prices falling and vendors not getting any bids on their listing.

One doesn't have to look for examples in California, Winnipeg or Vancouver. They exist in Esquimalt, Sidney and Saanich today. That some choose to not acknowledge them as an economic precursor only underscores their myopic understanding of the marketplace.

There are no soft landings.

CS said...

It would be useful if folks would agree a definition of "crash."

Intro. seems to think when someone talks of a crash they are expecting prices to collapse overnight. But I doubt if that is the general understanding of "crash" as applied to the housing market.

I suggest a decline of around 40% or more in constant dollars from the peak over a period of up to five years would be regarded by most people as a crash. At present, we are down 10-15% in constant dollars from the 2010 peak.

So by the definition I have proposed, we could be in a crash, but we won't be able to say for sure for several years yet. In the meantime, getting uptight about whether it's a crash or sheds little light.

CS said...

Mark Carney has raised some hackles, or eyebrows, anyhow, by raising the possibility that central banks attempt to revive slumping economies by relating interest rates to GDP growth not inflation, a proposal implying the possibility of creating negative real interest rates and substantial inflation.

Such a policy could have interesting consequences. When interest rates are negative, the logical thing appears to be for everyone to borrow the brains out, to borrow a phrase from another housing blog. But our problem is supposed to be that everyone is overleveraged, so how could negative interest rates really help?

patriotz said...

My definition of a crash is 20% nominal from the peak over any amount of time, as this would cause serious consequences to a great many people who've bought since 2006 or so and to the RE industry which accounts for a disproportionate amount of the economy.

Not necessarily disjoint with CS's definition as real versus nominal declines can come out in various ways depending on inflation and duration of decline.

info said...

Victoria currently has a price/income ratio of about 8.0. This is considered extremely overvalued. Extremely high prices and extremely low interest rates do not make it a good time to buy.

Emergency interest rates are here for a reason. The government knows that the economy is too fragile to handle normal rates. Our weak economy is also adding downward pressure on house prices.

Over the last 25 years, the average 5-year mortgage rate is between 7% and 8%. Knowing where rates will eventually be, how is buying a house right now because of temporary affordability (due to emergency interest rates) a safe thing to do?

Introvert said...

My definition of "crash" is when Just Jack can afford the average Oak Bay house.

Just Jack said...

I don't think many people would feel any effect of a 20 percent decline from peak prices. Since most never bought at the peak.

In my opinion, a crash would have to be front page news. That would mean a rapid descent. More likely scenario, at this time, would be for annual double digit declines for years to come.

A decade of foreclosures.

Just Jack said...

Can you imagine myself and Introvert as neighbors?

I would cut the lawn in the nude every Sunday.

And I have man-breasts.

CS said...

annual double digit declines for years to come.

Wow. That'd be a complete massacre of the bulls. Fun to watch but could it be?

What is generally called the US housing crash amounted to no more than a decline of about 34% nationwide (Case Shiller index), so a 40% decline in constant dollars from peak to trough seems a reasonable measure of a crash.

True, Victoria would likely fare worse than the country as a whole. But the Crash of the 80's was only about 40% in nominal terms, and that seemed severe, so anything worse than that I would call, not a crash, but a cataclysm.

LOL. Now the bulls have to worry about a cataclysm.

mrmike said...

Whats with the big hate on regarding helocs? It's cheap money (sub 3%) and is there if you ever need it...certainly beats a cc. I'll admit my wife and I have a $75k Heloc based on 65% ltv and we love it. We don't abuse it, but we do use it to keep it active...just pay it off every month like any other bill.
I find it comforting having it available if we ever need it. For example if the roof goes, water main blows, big EQ happens.
I don't understand the problem having a heloc...please enlighten me.

mrmike said...

^ note, they would have given us a bigger heloc, with appraisal, and assignment of rent for the suite we don't use or rent...but felt fine with the $75k.

Introvert said...

Can you imagine myself and Introvert as neighbors?

I would cut the lawn in the nude every Sunday.

And I have man-breasts.


I'd watch that.

Trent Sze said...

he best deals that I have seen so far this month include:

A Gordon Head home on Ferndale Road with a potential to subdivide a lot. This property sold for $540,000.

An Oak Bay rancher on Hampshire Road that sold for $517,000.

Another Oak Bay home. This one on Bowker Place having an ocean view and a quarter acre of land for $830,000.

And a top floor corner suite in a condo complex on Alder. Two bedrooms, two baths for $251,000. And you're allowed cats, fish and kids.

All of them were vacant at the time of the sale. In most cases the homes were bought in excess of 15 years ago or had multiple absentee owners.

December 19, 2012 5:13 PM
@just jack, can you tell me the mls# for those?
i would like to know more details about those listings....like how large, which year etc.

thank you

Trent Sze said...

@Just Jack

Leo S said...

@totoro

Scotiabank study:

The problem with this massive copy/paste is that I don't see the data, and it contradicts other things I've read. On the subprime issue, they say canada has essentially none, but don't define the terms or give any numbers on this. The issue is way more complicated than a simple statement. Here's a good article on the subject

On the topic of equity, they trot out the comparison to the US as if it has any meaning at all. Of course the US equity has declined. Up until recently they were still crashing.

Even though insured 40 year mortgages now banned in principle, 35 year
mortgages still provide this flexibility.


This statement shows that the information is already significantly out of date.

In the end what matters is the valuations. No amount of talk about our conservative banks changes that we reached and exceeded the heights of what the US achieved with similar incomes.

Leo S said...

30 year low interest fixed terms - interest is not adjusted at all

A factor making their market safer than ours. Essentially all of canada is on an ARM. The risk is low right now, but when interest rates increase everyone gets hit, whereas in the states it mostly just affects new mortgages.

Leo S said...

I don't think anything that I wrote is out-of-bounds or particularly out of the ordinary.

Well that's certainly true. Taking swipes at other commenters accounts for half your posts, so certainly nothing out of the ordinary.

Leo S said...

So when a bank releases a report that doesn't strongly support your viewpoint, it's dismissed.

But when a bank releases a report that does support your viewpoint, it's met with statements like "If banks are saying this, things must be changing."

The inconsistency here is truly breathtaking.


That is not inconsistent. The position is that the banks are biased towards making bullish statements. Right or wrong, that means positive statements are to be taken with a grain of salt, and negative statements gain more weight.

Leo S said...

In BC median family income is $90,000

Where'd you get that number?
Median family income in 2010 was $52,800 in BC.

mrmike said...

Would also like to add...IMHO Credit Unions are way better for us common folk than the Big Banks. I've been a client with my institution since age 11, at that time it was "west coast savings" I was a winger on the local hockey team they sponsored.

Leo S said...

I don't understand the problem having a heloc...please enlighten me.

There is no problem for anyone that's responsible. Just like a credit card is great if you pay it off. Why not put everything on the CC and get your extra 1% or airmiles or what have you? The problem is the people that are using their HELOC to live beyond their means. Run up the credit card, transfer it to the HELOC, then increase the size of their HELOC when their property appreciates.

totoro victoria said...

Can you imagine myself and Introvert as neighbors?

I would cut the lawn in the nude every Sunday.

And I have man-breasts.

I'd watch that.


))))))

Yikes!

totoro victoria said...

I got the median from a business council of bc publication which gave the median net at 68,000.

www.bcbc.com/content/210/PPv18n5.pdf

totoro victoria said...

You are correct, the Scotia report is a few years out of date. If you copy and paste some of the text into google you call pull up the whole report.

totoro victoria said...

Bank info should be taken with a grain of salt, as should any info from a partisan group; however, verify the data yourself prior to dismissing it.

Just because banks or realtors or HHV posters might have a vested interest does not mean all the info is ruled out in advance.

Leo S said...

It appears the government prefers to bail out a "private" company than a crown corp:

Genworth and Canada Guaranty get an extra $100B in insurance room

totoro victoria said...

I think there is no problem with a HELOC as long as you can pay it off and are not using it for luxury purchases that you can't pay for if your house value drops and you have to sell.

I am in favour of HELOCs for investment purposes - to a point. I just don't happen to have one.

Leo S said...

@totoro

Ok. The difference in incomes is because the $67k net is for economic families.

“Economic family” refers to households comprised of two or more related individuals; single-person households are not included in this measure.

I would think that many single person households are buying property, however.

mrmike said...

Well I'm out, happy dooms day all!
Supposed to be the night of three nights...I'm going to bed!
;)

totoro victoria said...

That makes sense Leo. I didnt realize when I was looking at it that it was economic families - or that this was separately defined.

I did think it was a little high for inclusion of single person households.

Are there a lot of single person households buying real estate? I'm not sure what the stats say.

I wish we had access to 30-year fixed rates. Does anyone know why we don't?





Leo S said...

Given an ownership rate of 70%, and assuming the top 70% or earners are also approximately the owners, we get a median total income of about $66,000 for home owners in BC.

Introvert said...

Well that's certainly true. Taking swipes at other commenters accounts for half your posts, so certainly nothing out of the ordinary.

Exactly! If I don't, who's gonna?

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

This article looks at 48 housing bubbles from different countries. It shows that once a bubble bursts, it will correct in a predictable manner.

The chart shows that, for instance, if a housing bubble started at 20% below its peak (the US did), then it will correct 20%. Note that it uses changes in price-to-income ratio.

It illustrates that Canada started at about 30% below its peak. So we, as a country, can expect a 30% correction (in price/income ratio) in the future.

It also works for price-to-rent ratio, which has Canada correcting by an amount of 35%.

Note that we would have to assume that Canada has already reached its peak and is on the way down now. In my opinion, this is a safe assumption.

This would be the average for Canada. Some cities will correct less than 30%, and some will correct more, like Victoria and Vancouver. These cities peaked at price/income ratios of about 9.0 and 10.6 respectively, the two highest in the country.

patriotz said...

I wish we had access to 30-year fixed rates. Does anyone know why we don't?

Because borrowers are not willing to pay the interest rate premium that would make it worthwhile for the lenders to offer them. You know that a 10 year term costs more, a 30 year term would cost a lot more.

There is no law or regulation in Canada that prevents banks or any other lender from offering 30 year terms.

The reason that borrowers can get 30 year terms for low rates in the US is that Fannie/Freddie buy them up and assume the interest rate and repayment risk. In other words government (de facto) intervention.

patriotz said...

These cities peaked at price/income ratios of about 9.0 and 10.6 respectively, the two highest in the country.

For major cities. Kelowna got even higher, and it's no coincidence that they have been at the forefront of the bust in Canada.

totoro victoria said...

"Because borrowers are not willing to pay the interest rate premium that would make it worthwhile for the lenders to offer them. You know that a 10 year term costs more, a 30 year term would cost a lot more."

Yes, but in the US you can get a 30-year fixed for much less than our 10 year best rate - 3.37% - and this is after a recent hike. The average 15-year rate is 2.65%. http://www.bloomberg.com/news/2012-12-20/mortgage-rates-for-30-year-fixed-u-s-loans-rise-to-3-37-.html.

I'm not sure why their rates are so much lower.

caveat emptor said...

"I wish we had access to 30-year fixed rates."

RBC is offering 25 year fixed. The posted rate isn't exactly appealing though!
http://www.rbcroyalbank.com/mortgages/mortgage-rates.html

a simple man said...

So a 5.5% spread between US and Canada for 25-30 yr terms.

Brutal for us!

patriotz said...

I'm not sure why their rates are so much lower.

I told you why in the same post you quoted from.

totoro victoria said...

Pat - you are so patient!

I suppose the ``buy them up`` difference might not be quite enough explanation for some of us. Or maybe just me.

dasmo said...

Like I said, there is room for rates to go lower even without the BOC doing anything. The banks have a 3X spread right now!
In fact, rates have gotten lower.

2.79% from Scotia Bank.... and I thought I was doing good at 2.99%.

CS said...

If the BoC went from a zero (real) interest rate policy to a negative interest rate policy (ZIRP to NIRP) we could have a property crash without any reduction in nominal prices. For example, fives years of 10% annual inflation with house prices flat would mean a 40% decline in real house prices. What that would mean is that everything went up in price except your biggest asset which is absorbing all you income to finance. (NIRP does not mean negative nominal interest rates, it could mean rising nominal interest rates.)

This is a scenario that might appeal to a government intent on avoiding blame for creating a property bubble. It would be achieved by a combination of below-inflation interest rates and continual money printing.

The printed money could be used for government boondoggles and bureaucratic empire building (the NDP way), tax cuts (the Conservative way), giveaways to friends of the government (the Liberal way), huge subsidies on ridiculously uneconomic electric cars, public transit, windmills and solar cells (the Green way).

CS said...

The banks have a 3X spread right now!

I doubt if the banks care about the ratio between what they pay and what they receive. It is the absolute difference that determines the profit margin. Because bank rate is low does not mean that banks will, or could, lower their margins.

caveat emptor said...

"I suppose the ``buy them up`` difference might not be quite enough explanation for some of us."

Fannie and Freddie ARE a a big part of the answer (to lower US rates), but i wonder if the fact that the Americans have a very competitive banking sector while we have a near oligopoly (The Big Five) has something to do with it.

Quite simply Canadian banks don't have to compete too hard and that shows up in the outsized profits they make year after year. Also reflected in the fact that owning Canadian bank stocks has been a very good long term investment (notwithstanding a big hiccup in 08/09).

With long term interest rates where they are now it should be possible for Canadian banks to offer a REASONABLE rate on a 20-30 year fixed, pay to hedge the interest rate risk they take on and still have a tidy profit left over.

dasmo said...

Canadian banks have been recording
record profits.
So they do have room to move in relation to the absolute amount. And as shown in my link the actually have, no debate needed...

CS, on your previous post you are starting to get it...

totoro victoria said...

I think I found the reason we don't have 30-year fixed low rate mortgages here. It relates to s.10of the Interest Act and not to government programs.

See: http://worthwhile.typepad.com/worthwhile_canadian_initi/2010/06/why-cant-canadians-get-30-year-mortgages-but-americans-can.html

CS said...

So they do have room to move in relation to the absolute amount

So what are your proposing? Legislation to force banks to lower their profits? Or would you like to see the Canadian market thrown open to all those dodgy American banks that need taxpayer subsidies to stay alive?

If you are dissatisfied with mortgage rates under 3% when the BoC is targetting 2% inflation, I suggest you are hardly qualified to consider having a mortgage at all.

dasmo said...

I thought we were talking about what's happening and what might happen happen not what we would propose. I'm not dissatisfied at all. It's like being dissatisfied with the weather. I might be dissatisfied with the fact I forgot my umbrella but to be dissatisfied it's raining will only lead to a dissatisfied life...

Introvert said...

My answers to questions need no elaboration. If, after reading one of my answers, you still don't understand, then re-read it again and again. And shut your hole.

-patriotz

Just Jack said...

The slow sales are effecting Oak Bay as well. A current listing along Kings road has an asking price of just $10,000 over what the current owner bought the home for in August 2007. A 920 square foot home on a 6,300 square foot lot.

Described as an ideal starter home, the property has been listed for 207 days.

This is a property that falls between two markets. It's a starter home at middle to upper middle income prices. Too expensive for the first time house buyer and too small for middle or upper middle income families.

So, the property withers away waiting for that builder to come along and possibly re-develop the site. That is an extremely limited market, hence the ridiculously long listing period.

The property is simply too expensive. When prices were rising these properties escalated rapidly as most of the value is in the land component. Now as the market continues to slow, these properties will fall faster for the same reason. They are too heavily weighted in the land component.

In relation to other properties with a more even break down between the land and improvements this would not be a good investment for long long term appreciation or cash flow.


Yes - it can happen in Oak Bay too!

koozdra said...

Our rock solid housing market and banks.

Serious concerns raised over housing appraisals in Canada

patriotz said...

Or would you like to see the Canadian market thrown open to all those dodgy American banks that need taxpayer subsidies to stay alive?

It is open to all those dodgy American banks, at least as far as mortgage lending is concerned. Canadian subsidiaries of US banks can make CMHC insured loans. Any business at all can make uninsured loans.

And Tortoro, yes it's correct that legislation in Canada allows borrowers to prepay mortgages after 5 years. But that's only a risk to the lender if rates have gone down since the loan was made. The risk for the lender today is of higher rates. If that legislation were repealed you would not see lenders offering long term mortgages at today's 5 year rates.

a simple man said...

UVic starts "unprecedented" layoffs:

http://www.oakbaynews.com/news/184286221.html

what a terrible time for this.

dasmo said...

Good thing we are adding hundreds of jobs to our ship building industry and tech companies, Like Metalabs, are hiring right now. One of the advantages of living in a diverse economic area. All our economic eggs are not in one basket...

Just Jack said...

There should be serious concerns as to the accuracy of any appraisal either done by a computer program or by a human.

As the market was rising, lenders wanted speed over accuracy. After all, if prices are going up then even if the property over sold, it would be worth the inflated appraised value eventually.

Even when the banks used humans, there was short dead lines imposed by 24 hour clauses. That made sloppy appraisal reports and poor valuations. But as long as the property "appraised out" everything went along smoothly.

Now, things are different. As I have shown in some of my past posts some of these appraised valuations were ridiculous.

So this system has to be changed. And in our society, that means lots of law suits. I suspect that very few appraisers will go their entire career without being sued.

patriotz said...

Serious concerns raised over housing appraisals in Canada

Business reporters Grant Robertson and Tara Perkins talk to Hannah Sung about a six-month investigation by The Globe and Mail that uncovered a hidden risk in Canada’s housing markets: The rise of automated lending approvals, which have created a rapid-fire system that has financial regulators worried about the foundations of Canada’s housing market – that the true value of Canadians’ homes could be far lower than what computerized or human appraisers have estimated. Read the full story in Saturday's Report on Business in the newspaper and online.

Leo S said...

Employment rate is about 61% right now, or about 10% less than before the financial crisis.

totoro victoria said...

Pat - I'm sad you don't know my name yet.

I didn't understand what you said really even though I did reread it.

Chris said...

"UVic's website cites inflation pressure" for layoffs.
i'm left scratching my head after just seeing Global BC annual inflation,

"Regionally, inflation was highest in Prince Edward Island and Quebec at 1.5 per cent, and lowest in British Columbia, at a barely visible 0.1 per cent."(emphasis added)

I know many owners praying for the inflation angel to save their ass-ets. *snortles* Best prepare for de-mon-flation.

dasmo said...

Those inflation numbers are based on an index that changes. So this year smartphones and white T-shirts are less expensive? On the index. Things like milk, cheese, gas, houses, daycare, paper, etc are not on the index...Uvic is talking about their actual inflation pressures...

CS said...

The inflation they're talking about was in the salaries of the university executive: up 11.5% in the last two years, an increase of $143 K. (Details here.)

If they'd fired a couple of VP's, or rather refrained from hiring them in the first place, and kept the President's salary in line with inflation for the last ten years they could have saved about three-quarters of a million a year, and had a less bureaucratic institution too.

CS said...

But the layoffs have more to do with budget cuts totaling 9.5% over four years.

The cuts may have something to do with enrollment, but UVIC's server won't serve the pages that provide the data -- about what you'd expect at a university with such an expensive administration.

Across N. America kids are beginning to realize that a bachelor's degree isn't the key to fame and fortune the universities would have them believe. Reluctance to go deeply into debt for the sake of a credential of questionable economic value may have started to take a toll on the ability of the higher education industry to hike revenue, or even to maintain it.

dasmo said...

I'm sure the universities executives all have degrees ;-)

Random Poster said...

First time poster, long-time lurker, former Victoria renter - very happy with the arrangement - and since moved to the US with it's saner market but less sane society. Watched the BC market with awe, fear, and loathing, so I still follow this forum, one of the more intelligent ones out there.

Totora Victoria, you presented a very well articulated comparison of US versus Canada loans, nicely done. However, I disagree with most of it and have to comment as it echos some of the hubris (i.e., it's different here-ism) I observed in BC that could bite hard in the months and years ahead.

1. Canada's subprime market is small ... whereas the U.S. share peaked at about three times that.

True. But don't confuse sub-prime loans with predatory loans - those designed to fail when unscrupulous lenders actually wanted to foreclose on loans then re-sell the house in a hot market - kind of like the Rent-to-Own furniture store business plan. See "predatory lending" on Wikipedia.

2. Not only is Canada's subprime market much smaller, but it isn't even really subprime per se.

Canada's prime market has much in common with the US sub-prime, e.g. pre-payment penalties, significantly high rates for longer terms, many fees to re-up as typical loan every 5 years, 10% down payment acceptable.

3. Adjustable rate mortgage (ARMs) resets also caused many of the problems stateside, but those resets occur much more suddenly in the U.S.

This is a product of the interest rate at the time of re-set, little to do with the loan. I would rather be lucky than smart.

4. Canada's mortgage equity withdrawal market isn't like the U.S.

Debt by any other name is still debt. Personal line of credit, car loans, or a high balance on the Visa card still are on the wrong side of the balance sheet, to the tune of 164% of income. HELOCs may actually be the lesser of these evils.

5. Mortgage interest is deductible against taxes in the U.S. It generally is not in Canada.
That creates vastly different incentives to leverage oneself in the two markets.

No, it lowers the effective interest rate. The credit applies to taxable income, not directly to taxes payable. Lower earners (lower tax bracket) get less benefit.

6. The nature of the products has been very different in Canada versus the U.S.

Small box, big box, round box, blue box, still debt inside. If the package has to be massaged for buyers to qualify buyers it is likely dodgy. Didn't Australia have to go to 50+ year loans at their peak?

7. Further to this latter point, long-amortization mortgage products actually extend the
Canadian credit quality cycle.

I don't understand this point, no comment.

8. Investor mortgages were among the first products to default in the U.S. where they account for about 9% of all outstanding mortgages, similar to the UK 9.5%) and Australia (10%). In Canada, however, they are about 2-3% of all outstanding mortgages.

Reasonable, but how do you get these mortgage stats?

9. If there is an imminent problem brewing, then it's not showing up in terms of industry-wide mortgage delinquency patterns.

I think that is a timing issue. Hopefully a soft landing for BC - prices don't rise, inflation in the economy slowly brings prices back into line. Could happen.

10. The extent of runaway house price inflation was much more muted in Canada than in
many other countries.

Evidence seems to be to the contrary. Prices Canada-US similar in late 1990's, Canada now double US.

Anyhoo, I liked your discussion, and your comments posted here are generally very good. The comparison you presented surprised me and I wonder if you travel in a circle that depends on the rationale you presented to support their business model. Just wondering.

Marko said...

Across N. America kids are beginning to realize that a bachelor's degree isn't the key to fame and fortune the universities would have them believe.

A lot of institutional jobs you can't even apply for unless you have a master's degree or there is a preference for an individual with a master's degree. I learned very little when I did my masters at UBC and about 80% of the class did not have the right leadership traits to do any kind of hospital administration/management. I know many people with no masters that would do a better job than 80% of my master’s class, but it would be impossible for them to get the job to prove themselves. Such is life.

Marko said...

I think that is a timing issue. Hopefully a soft landing for BC - prices don't rise, inflation in the economy slowly brings prices back into line. Could happen.

I think this is where we are heading. 5 years of a relatively flat market. Wages have caught up a bit, interest rates have dropped, people have paid down a bit of their principal, mortgage regulations have stiffened up.

Dave said...

Could happen.

With growth and inflation at zero and falling, the chances of a soft landing are slim to none. Nominal rates could fall further, but real rates will continue rising.

CS said...

I know many people with no masters that would do a better job than 80% of my master’s class, but it would be impossible for them to get the job to prove themselves. Such is life.

Who insists on hiring only people with irrelevant paper credentials? I suppose, people in useless bureaucratic organizations, of which we have far too many.

There are plenty of sixteen-year-olds with more wit, drive and personality than some with a master's degree. Unless an employer requires specific expertise that a university training provides, they'd be smart to hire and train kids straight out of school.

CS said...

Hopefully a soft landing for BC - prices don't rise, inflation in the economy slowly brings prices back into line. Could happen.

Hopefully for all those over-leveraged home buyers, but bad news for anyone with cash in the bank.

Inflating away debt is simply wealth transfer from A to B, i.e., government sponsored theft, designed to rip off the elderly who saved for their retirement and other members of the financially ill-informed middle class.

But this looks to be a likely scenario. Here's a former US Deputy Secretary to the Treasury, predicting a US dollar smash and hyperinflation.

And here's Steve Harper offering the same warning.

How a US dollar crash would affect Canada is an interesting question. But a depression leading to massive money printing and hyperinflation does not seem improbable.

In that case we would see a crash in real property values while prices soar!

SilverSurfer said...

Shaky foundations: How Ottawa's computers get Canadian home prices wrong

"CMHC’s automated underwriting program – called Emili – had been stamping its approval on millions of mortgages as safe. But in Emili-approved cases where the banks were forced to foreclose, the homes turned out to be worth much less than believed. First American had to pay the banks $45-million. The company stopped offering the policy immediately. “We’ve taken the situation, obviously, very seriously,” Mr. Gilmore said.

But an investigation by The Globe and Mail has uncovered a hidden risk in Canada’s housing markets: The rise of automated lending approvals, which has created a rapid-fire system that has financial regulators worried about the foundations that underpin Canada’s housing market. There are worries that the true worth of Canadians’ homes could be lower than what computerized methods spit out. There are also worries that unscrupulous human appraisers can manipulate home values.
"

The article goes on for 7 more pages...

--

At first I thought the title was misleading. When I visited BCAssessment 7 or 8 years ago, they explained to me that they only physically visited 1 out of every 10 homes, and the other 9 were appraised by extrapolation & comparison (but manually by a human).

However, looks like we have some flavour of Robo-signing going on at the CMHC, but don't worry, tax payers got their back. /sarc

SilverSurfer said...

Oh and the video for the article above.

SilverSurfer said...

Oh, and don't look now, but the Fed just approved another $50 Billion for the CMHC.

koozdra said...

@CS

fta:
"But this time the Canada Mortgage and Housing Corp., the biggest provider of mortgage default insurance, is not getting any. Instead, the additional backing is going only to private-sector players such as Genworth Canada, who will see their maximum raised to $300-billion from $250-billion."

koozdra said...

"Easy build. This is money in the bank. Home to be removed plus all approvals and designs will be in place at completion EST to be end of January. Plans and home designs available."

By "money in the bank" they mean your money in their bank. At almost double the assessed value this would make this property a great investment... for the seller.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12637336&PidKey=-1711268546

totoro victoria said...

Random Poster

Noo!! that long comparison between Canada and the US was not my argument!

It was a Scotiabank study - a littled dated now too as Leo pointed out. I did put that it was from a Scotiabank study and not my words at the top of the massive cut and paste!!

You can copy and paste the text into google and find the original document.

I don't happen to agree with all the points they made actually - but, on the other hand, I don't agree with the blanket US/Canada comparisons and thought the massive post might have some alternate thinking/viewpoint value.

Also, I agree with some of your responses and it is good to have you post.

totoro victoria said...

As for the circles I travel in, well, it is mostly me and my dog.

I don't advise anyone on the residential real estate market in my work. This is my personal interest.

Just Jack said...

Again, this little blog has been discussing Automated Valuation Models (AVM's) long before the Globe and Mail has gotten around to them.

There appears to be a strong correlation to the introduction of these AVM's with the astronomic rise in prices. Especially when in a rapidly rising market, the last sale on a street sets a new baseline for prices (peak pricing). Garbage In - Garbage Out

Now, that the market is contracting, the over reliance on computer programs such as AVM's is apparent. And while there are problems with dodgy human appraisers, at least you can sue their arse off. Try suing a computer program.

The beginning of this century will be known for its lack of accountability and responsibility.


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