Monday, December 24, 2012

Holiday Market Update


MLS stats 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: 254 (186, 112)
New Listings: 374 (294, 179)
Active Listings:  3979 (4118, 4215)
Sales to new listings ratio: 68% (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

Tracking very close to last year's numbers now, we should be pretty much bang on for sales with possibly somewhat higher inventory.  

Happy holidays everyone!  Thanks to everyone for making this blog so active and interesting.

132 comments:

Leo S said...

from previous:
"Interest rates certainly aren't dropping by 40% going forward."

Unlikely, but not impossible. Not if Canada and the US are turning Japanese.

Could a 5 year fixed ever go for 1.8% (about 60% of current) in Canada? It seems preposterous, but not all that long ago the idea of a rate UNDER 5% would have seemed preposterous.


I don't think it's possible. In Japan, a 10 year mortgage costs about the same as here (high 3 percent range).

Variable rates can go back down, but I think we're scraping the bottom of the barrel for fixed rates.

Alexandrahere said...

My stats for last week 17-23 Dec:

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

Sold: 7
Avg price: $496K
Med price: $500K

5 of the 7 went for below BC assessment.

The avg price within this criteria was the lowest last week since I began tracking in mid July 2010. The median price was the lowest since the week of 24-30 Oct 2011.

Last year for the week of 19-25 Dec there were 10 sales with an avg price of $576K and a median of $560K.

dasmo said...

Scotia has 2.79% for a three year fixed so fixed rates have gone down by 6.7%....
Merry Christmas all!

Leo S said...

Scotia has 2.79% for a three year fixed so fixed rates have gone down by 6.7%....

Doesn't seem like a great deal when you can get 2.89 for 5 years.

Dave said...

"Not if Canada and the US are turning Japanese."

Our dependency ratio, believe it or not, makes it a mathematical certainty we follow along Japan's path to some extent. Our immigration rates will alter the path somewhat, but not as much as many think - as noted in a recent Dept of Finance report:

"...even if the fertility rate were to rise to the replacement level of 2.1 or net immigration (immigrants plus returning emigrants minus emigrants) levels were doubled, the share of the elderly in the total population would still increase sharply...
...raising the fertility rate to 2.1 or doubling net immigration levels would both be challenging, given the low fertility rates in almost all OECD countries and given that Canada already has one of the highest immigration rates in the industrialized world."


Merry Xmas to everyone, and a special thanks to Leo and HHV for providing this educational forum.

totoro victoria said...

Merry Christmas! Excited to try a Christmas goose this year for a change (and turkey... and ham.... - hey it is Christmas!). Hope you all have a great morning tomorrow.

Watching and waiting said...

CIBC now offering 3% cash back for mortgages >400k at 3.54% for 5 years based on 25 year amortization.

koozdra said...

Happy holiday everyone!

backinVictoria said...

There was a comment about The Wave building in the last post...just curious if anyone knows anything about the tarp that is hanging down the east side of the building covering the tile wave mosaic? It looks like some of the tiles have come off, but the tarp makes me think there might be other issues as well.

Happy Holidays everyone!

a simple man said...

A very merry Christmas to all. May your homes be filled with laughter and love.

patriotz said...

Could a 5 year fixed ever go for 1.8% (about 60% of current) in Canada?

DON'T confuse retail mortgage rates with government rates. The former include a spread between the bank's borrowing and lending rates which pays for the bank's expenses and profit margin. This imposes a floor under retail mortgage rates.

Merry Christmas everyone.

SilverSurfer said...

Actually, it's not just 3% anymore it's up to 5% cashback with CIBC - like the entire minimum required downpayment, if you sign up for a 3,4,5,7 or 10 year fixed closed mortgage. This despite the OSFI rule change intervention due on Oc31st, 2012.


Be sure to read the fine print, if you ever leave or change the conditions of the mortgage (you know, like refinance, move the mortage to another institution), you will need to give all your undeserved cashback, back to CIBC. In other words, the longer you sign up for (5, 7, 10 yrs), the greater the probability of something going 'wrong' requiring you to end the mortgage pre-maturely and they clawing back that cash.

As tempting as it sounds, some people also claim that their specific contracts had not just 3 month penalty if they decided to move the mortgage to another institution, but as much as over 1 year worth of payment penalties... on top of you giving the cashback back. Again, be sure to read the extra super tiny lawyer encoded fine print.

Lastly, some banks apparently only offered these cashback deals under certain circumstances, like if you switched your mortgage to their bank, though I don't think that's the case for all of them. In other circumstances, yeah you can get a large lumpsum cashback to reno the moldy basement in your 'new' house, but you will not get the best mortgage rate. In other words, over the long term, the bank actually makes more money on you through higher interest charges, than the cashback they gave you.

On another note,
Merry Christmas to all, and thanks for keeping the blog informative and interesting.

Leo S said...

Actually, it's not just 3% anymore it's up to 5% cashback with CIBC - like the entire minimum required downpayment, if you sign up for a 3,4,5,7 or 10 year fixed closed mortgage. This despite the OSFI rule change intervention due on Oc31st, 2012.

That's a mystery to me too. How is this kosher?

Seth Perry said...

Merry Christmas! Thank you everyone for your contributions to this blog. A Merry Christmas wish to the grammar Nazis as well. I hope you all got what you wanted from Santa this year.

*<:-)

StalJ said...

christmas giftwith my new scanner. The jolly old soul who gave it to me over a year ago said something like you only need look to the lead city. He also said wait til 2017...this looks like 2016..? some where in there.
happy holidays

dasmo said...

What is that graph saying? House prices go up in a logarithmic scale with flat spots that are roughly timed to our dollar value dropping in relation to the US dollar?

caveat emptor said...

"DON'T confuse retail mortgage rates with government rates."

No confusion here. 3% is a pretty typical current 5 year fixed mortgage rate NOT the "government rate" (I assume you mean the overnight rate - now at 1%).

For a 5 year fixed ever to be available at sub 2% I think we would have to see Canadian 10 year bonds yielding sub 1% - in other words Japan.

And Leo yes - mortgages are currently comparably expensive (cheap) in Japan as here. Presumably Japanese banks can borrow extremely cheaply so perhaps they have fatter profit margins on home loans?

Dave said...

If anyone else has been wondering why inflation is falling like '08 (StatCan graph), this graph shed some light for me. The 'retiring' of inflation makes sense when you consider the post-war spike in birth rates. As workforce growth slows, the slower rate of earning and spending evidently causes velocity and inflation to fall - further pressured by the highest earners leaving the workforce. Several countries share the same challenge. I bring it up since home prices are correlated to inflation and it seems everyone believes 70s-style is right around the corner.

totoro victoria said...

I've been thinking about ski condos again - ever since that post a ways back which pointed out that prices have fallen pretty drastically at some mountains and the numbers might be a bit more favorable for buying right now.

You can get something that sleeps six right at the base of the ski run for about $100 000 right now at some places with strata fees of $170 a month and no rental restrictions.

Anyone else thinking about this type of purchase or have a ski condo? It seems that the numbers can work at some resorts in the interior to break even - if your strata fees are low and there are no restrictions on rentals and you manage the rentals yourself.

koozdra said...


Ottawa’s $800-billion housing problem

Reid said...

totoro victoria

As I posted a few weeks back I bought a place at an Interior ski hill for 50% of what it cost in 2007. My research suggested you need to look at rental revenue potential first if that is your objective. Silver Star has the best rental revenue potential becuase of the 6+ month long nordic season combined with a 3 month mountain bike season and fact that number of properties on mountain are fewer (building was restricted due to water during building boom). Next is Sun Peaks and way behind that is Big White and Apex where your rental seasons are shorter. The prices are Big White and Apex are less but your liquidity is zero and your rental income potential is less while your ongoing costs are similar.

totoro victoria said...

Thanks Reid - I couldn't find your post again.

It may make more sense for us as I can rent out my other place in the okanagan and stay at the ski condo when I am up... that adds a significant amount of additional rental income to the equation and ends up being a cash flow positive investment given the low purchase price.

I can't believe how much places have dropped on the ski hills!

StalJ said...

“What is that graph saying? House prices go up in a logarithmic scale ...”

? I checked the price line.. i don’t think it is logarithmic.
It is just foretelling when prices will bottom ‘16/17. It is not suggesting how much...he figured it would be like two cycles ago.

totoro victoria said...

Why do you think the liquidity at Big White and Apex are less? Is it tied to the shorter season and lower rental incomes or are there other factors?

koozdra said...

Really good presentation by Ben

LePoidevin Group - Canadian Real Estate: What happens next?

Reid said...

totoro, trying to sell a place at Big White is next to impossible right now unless you massively discount - huge inventory which is why I said there is no liquidity. Silver Star is like 5 minutes further if you live in Kelowna as I do.

Big White can work if you low ball the crap out of places and find a desperate seller. We use the place, so for us SS is just a far better option as you can use it 9 months per year.

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

On the topic of interest rates...

It's always a bad time to buy when you have extreme, bubble prices and extreme, emergency level interest rates.

In 2009 Canada was experiencing a housing market crash. Interest rates were dramatically slashed, way down from where they were, to the current emergency level we see today. This was done to help stop the housing market from crashing. It helped turn the market around.

The correction/crash that has already started in Victoria will be different than the last crash. This time, there will be no extreme slashing of interest rates to help stop the crash. It is simply impossible to do since we already have emergency rates. They can be lowered somewhat, but only a fraction of the amount that they were slashed in 2009. Lowering interest rates this time will not amount to any appreciable stimulus for the housing market.

For those of you cheering for continued low interest rates, it might be a good idea for you to read up on what happened with Japan when their housing market started to crash in the early 90s. Interest rates were lowered to emergency levels and have remained there since. Their housing market crashed anyway and has not recovered. This has been going on for over 20 years.

CS said...

"This time, there will be no extreme slashing of interest rates"

The key question is whether we will have engineered inflation and negative interest rates. In that case, we could have nominal interest rates well above current nominal rates.

Japan's new government is going for 3% inflation, from the current rate, which is probably negative.

The US appears about to go over the fiscal cliff, which is why Harper described America's financial situation as a "runaway train," and that means more money printing and possibly sharply higher inflation.

In that event, will Canada not be forced to follow the America lead?

Or will we let the loonie soar and Canada's industrial sector, such as it is, get pounded as our commodity exports plunge?

I think for Canada to follow the inflationary trend in the US, Europe and Japan is inevitable.

Seth Perry said...

Stephen Harper's interview with Global News.

"balance your debt levels, balance your borrowing, and balance your ambitions in terms of house ownership with some savings as well."

"people need to get better control of their personal debt loads and prepare for the possibility that higher interest rates could sideswipe their lives"

Video Link

On the other hand he also called the NHL lockout a “terrible tragedy” - good god.

DavidL said...

@totoro victoria
I've been thinking about ski condos again ...

I chatted with some Mount Washington owners last February and posted my comments here on HHV.

caveat emptor said...

"For those of you cheering for continued low interest rates"

Acknowledging the probability that interest rates could stay low for quite a long time is not equal to "cheering".

Our low interest rates do partially reflect weaknesses in the global economy, so from that perspective they are a bad thing.

Taking advantage of those low rates by borrowing responsibly is not a bad thing.

dasmo said...

I'm sorry StalJ it's not logarithmic but exponential growth with flat zones that line up to a graph of the value of the canadian dollar compared to the US. I'm not sure what this predicts?

caveat emptor said...

"Japan's new government is going for 3% inflation"

2% AFAIK and they haven't been successful in hitting their current 1% target either.

"The US appears about to go over the fiscal cliff"

Fiscal cliff equals automatic tax increases and spending cuts - reducing the deficit but quite possibly pushing the US back into recession - not exactly inflationary.

And of course the oft forecasted housing meltdown in Canada won't exactly be inflationary when it hits.

Serious inflation is bound to happen at some point in the future. Just not real soon

caveat emptor said...

@DavidL

I'd say that prices at Mt. Washington have probably fallen further since you posted almost a year ago

My opinion is based on looking at the current MLS plus falling asking prices in the one building I am a bit familiar with.

Dave said...

Japan's new government is going for 3% inflation, from the current rate, which is probably negative.

Several Japan gov's since the 90s have been trying to achieve that range of inflation. Every attempt has failed, with yet more deflation. I don't see why this attempt will differ.

and that means more money printing and possibly sharply higher inflation.

First off, printing (M1) doesn't necessarily mean more money in circulation (M2). Banks have to lend it, consumers borrow. Second, the amount that does make it to M2 surprisingly doesn't correlate with inflation. Notice here how 10% y-o-y growth in M2, has actually led to deflation in the past. Consider how many trillion have been 'printed' worldwide past few years, and yet BC'ns are experiencing borderline deflation. Part of the explanation as to why, is contained in my previous post above.

info said...

Lowering interest rates to emergency levels in 2009 was done out of desperation due to the economic crisis that was upon us.

If Canada's economic situation had imporoved much at all since 2009, rates would have started moving higher by now.

Rates in Canada have not moved higher because our economy is still extremely fragile. So fragile that even a quarter point increase (by the Bank of Canada) would have a huge negative impact on our economy.

Keeping rates this low for 4 years has given Canadians the opportunity to go deeper into debt than ever before, and they've done just that. Personal debt to income ratio is at 164%. This, going forward, will have a negative impact on the economy.

Emergency interest rates have also done their part in creating an even bigger housing bubble than what we had in 2009. The housing market correction/crash that has started in Canada will be another big problem for the economy going forward. Our politicians have already warned that a housing correction will have a negative impact on the economy.

Slashing interest rates to extremely low levels may have helped stop the housing market crash in 2009, but the negative consequences of this will be felt for decades to come. It was really only a matter of kicking the can down the road. Now we have an even bigger housing bubble and an even bigger correction/crash upon us.

Keeping interest rates at emergency levels for too long (4 years) is very damaging to the economy in the long run.

totoro victoria said...

I think I'm going to do it if it checks out after talking to my friend who rents a place for the winter in the building I'm considering. Buy the condo and rent out the other place - my calculator puts this move at a cash flow positive move and it gives us a ski place in winter.

totoro victoria said...

Also, for anyone looking for a good set of colours I can recommend what we are currently using for our rentals:

Benjamin Moore coastal colours: http://www.benjaminmoore.com/en-us/for-architects-and-designers/coastal

CS said...

Acknowledging the probability that interest rates could stay low for quite a long time is not equal to "cheering".

You need to bear in mind that with the increased inflation that all Western governments now want, lower real interest rates may be manifest as higher nominal interest rates.

Fiscal cliff equals automatic tax increases and spending cuts

Good point. But all efforts seem aimed at avoiding that outcome. Pretty certainly what we will see is QE and interest rates targetting GDP growth and increased employment.

printing (M1) doesn't necessarily mean more money in circulation (M2)

True. But if the government spends the cash on windmills, solar cells, bankrupt car companies, food stamps and warfare, then you'll will see more money in circulation.

Keeping rates this low for 4 years has given Canadians the opportunity to go deeper into debt

Which is why some inflation leading to higher nominal but lower real interest rates would be welcome to governments, as it can stimulate productive investment without blowing a new property bubble -- since house prices are determined by affordability, i.e., nominal mortgage interest payments relative of income (and incomes are not likely to rise much even with inflation since, in a globalized world, labor has limited bargaining power).

dasmo said...

Exactly CS. This is why they put the "restrictions" in place and didn't just raise rates...Gov is in debt too and want to reduce it for free. Savers will be punished.

CS said...

Gov is in debt too and want to reduce it for free.

Say, 5% nominal rates with 5% inflation would mean free money for the government, insofar as GDP, and hence government revenues, grew at least as fast as inflation.

Animal Spirit said...

HHV/LeoS - check the HHV e-mail - new post sent over

SilverSurfer said...

Dave, the labor force vs long term inflation you've correlated in the graph to suggest deflation is directly related to a decline in the labor force seems a concept far too simple. To suggest you can't get inflation because of lack of labour force growth accompanied by a lack of banks lending overlooks a myriad of other factors that can trigger inflation, such as bond vigilantes targetting increased bond yields due to default risk increase (i.e. Greece) that directly impact interest rates and indirectly inflation itself.

Other factors include: Cost-push inflation - when the 'input' resources required to manufactor X product rise due to shortages, this also includes Oil/Energy. If you believe in peak oil theory, then by natural means cost-push inflation should be increasing over the next few years as it has in the past decade (more than doubled). Oil may also spike due to war fears or reality. Or nevermind Oil, just the simple fact that the cost of living in China is increasing, thus manufacturing will eventually cost more, thus creating inflation of goods in Western countries for those goods.

Another trigger to inflation is a deflating currency due to fears of collapse (i.e. Yen dropping 10% recently due to threat of increased QE printing).

Iceland experienced 75% overnight currency deflation = inflation for all consumer goods, due to sovereign debt default. Prior to the Euro, liras, pesos and dracmas were relatively highly inflated currencies to the US dollar, primarily due to money priting and not due to labour growth.

I could go on, but labour force numbers are not the only factor, if it were that simple, any one of us could be working at the BoC.

Chris said...
This comment has been removed by the author.
DavidL said...

Frozen out: Behind Canada's housing 'affordability crisis' - The Globe and Mail

info said...

This chart shows 48 housing bubbles from different countries across the world over the last 40 years. They have all crashed.

It's important to note that none of these 48 housing bubbles had the exact same lax lending standards. We can apply this to the comparison between Canada's current bubble and that of the US that started to crash in 2006.

Once a bubble forms, it will always burst. The subsequent crash causes financial hardship to families for many years.

It's interesting to compare the prices of US properties to those in Canada. Historically, prices in the two countries have been on par. The housing bust that is happening in Canada right now will soon restore this long-term correlation.

This house in Phoenix, AZ is listed for $60,000. There are houses in that city that are listed for much less. At peak it would have sold for more than $200,000.

This house in Miami, FL is listed for $40,000. There are many others available for a lot less. At peak it would have sold for $200,000.

In comparison, this house is one of the lowest priced in Victoria. It is listed for $314,000.

This is the lowest priced house in Vancouver. It is listed for $499,000.

Canada's housing bubble is bigger than what was seen in the US in 2006. We have reached higher prices and Canadians now have a higher debt to income ratio than Americans did in 2006, with similar incomes.

The dramatic slashing of interest rates in 2009 helped slow the US housing crash. Interest rates in Canada cannot be lowered much at all in comparison to what they lowered in the US in 2009. This is one of the reasons that Canada will experience a bigger correction than the US.

Leo S said...

Very interesting article davidL, thanks.
@animalspirit HHV has that email.

Trilobite said...

@totoro victoria or others in the know

I've been interested in Mt. Washington for some time but am wondering how many days a year a condo near a slope (such a Bear or Dear Lodge) can be rented out. Any ideas? Are there decent cleaning contracts?

totoro victoria said...

I'm not sure what the rental prospects are at Mt. Washington. Maybe someone else knows? Same with the cleanings - probably someone has this business going there.

In the Okanagan it varies from mountain to mountain. The places I'm looking at rent for $120-$240/night (ie. weekends and breaks are $240) and I would estimate eight nights a month for four months plus an extra seven days for holiday times like xmas and spring break.

That is approximately 39 days worth of rentals which is on the low side looking at the online calendar of bookings for these units (which you could do for Mt. Washington too). I would ballpark $7000 a season less cleaning fees of $1280 ($80 each time) and you are looking at $5720 rental income.

All in the places where I'm looking would cost $800 a month to own with a ten year term on a 30 year amortization.

I would hold the mortgage in my RRSP at a competitive rate which might increase costs slightly - but the money comes back to me and I get the benefit of the tax deduction from the rental income for the interest.

Given that you are only bringing in about $475 a month - not counting your time to manage the bookings and cleanings - you are cash flow negative.

Also, you might not be allowed to write off your expenses if you don't have a reasonable expectation of profit which would increase the taxes payable on the rental income.

This scenario only works for me because I would also gain a significant amount of rental income by staying at the ski place mid-week when I am up for work once a month and renting my other place out. I would also do some of the cleanings. I can stay with friends and family if the place gets booked. I end up ahead by about $5000 on this calculation.

For Mt. Washington, I've wondered whether you might be better off buying a place with a suite in Comox near the college.

If you have someone who you can share the place with and do up a detailed agreement this might also be a way to go.

Dave said...

SS, good points. However I think we can rule out monetary collapse in Canada and US. They're both seen as safe-haven currencies (as is the Yen). With US it's typically the opposite - fear strengthens their currency and bonds. Btw, Iceland's population is less than Victoria. Small, volatile economy.
If we stick with the textbooks and say the 3 causes of inflation are demand-pull, cost-push and monetary expansion. The M2 growth I posted above suggests very little association with expansion (notice the r-squared value). With cost-push, I only see a few resources in short enough supply at present to ignite mild inflation - eg. some grains, but they typically rebalance quickly after drought. Moreover, we're about to be awash in cheaper energy again with the amount of global conventional and unconventional production coming down the pipe. War is always the wild card, but would likely be a quick war with NATO involvement (eg. Libya, spring 2011). The upsurge in inflation would then lead to a dramatic drop off post war. That leaves us with demand-pull - where labour force growth isn't the only factor, but it's the kingpin.

Introvert said...

In Calgary. Was -25 every day until just recently. Does the bribery companies offer people to live here offset the long periods of cabin fever one must endure? Apparently so.

Heading back to Victoria soon. Looking forward to stuffing my heavy winter coat back in the deepest reaches of the closet, where it belongs.

info said...

Comparing total residential sales in greater Victoria for November 2012, we see a 25% drop from a year earlier.

Sales always slump first, then price declines follow.

Back in November 2008, Victoria's housing market was in the middle of a strong downward correction. Total number of sales in November 2008 was down to 257, after recording 591 a year earlier. By November 2008, house prices in Victoria were down significantly from a year earlier. Selling a house at that time was about as challenging as it is today.

We all know that a massive, unprecedented, emergency intervention took place, starting in early 2009, which saw the number of sales skyrocket and prices turn around. Victoria recorded 556 total sales in November 2009.

Summary of total sales in November by year:

Nov. 2007 591
Nov. 2008 257
Nov. 2009 556
Nov. 2010 453
Nov. 2011 455
Nov. 2012 343

Victoria's housing market is leading the country in terms of a price correction, according to the Teranet HPI. I estimate prices are already down 12 - 15% from peak. Looking forward, we will probably see accelerated price declines as sellers begin to understand that the market has started to correct. Those sellers that have to sell, will be forced to accept an offer much lower than the price that they probably discussed with their neighbours.

dasmo said...

Or not... I more see that prices will remain relatively flat until they go up again. There simply is no trigger for a collapse. It's a stale mate between sellers and buyers. So there are deals to be had if you are willing to take them but I don't see a massive wholesale decline in listing prices. Rates are low and dropping still. You can get a 5 year fixed for 2.84%. That means you can get yourself a 2 bed two bath detached house in the Westshore for under 1,600/month. This keeps prices afloat because almost no one even looks at the total figure, it's too abstract. Hell, 200k seemed like a crap load of money to me in 2003. Now, not so much.....

patriotz said...

Or not... I more see that prices will remain relatively flat until they go up again.

How about defining "relatively flat"? What is the most you think prices will decline going forward?

nan said...

@ dasmo: unless you have wildly increased you earning power in the last 10 years, 200k is still a crapload of money to you whether you think so or not.

Just Jack said...

The percentage of duress sellers in relation to total sellers is still very small. But as the market continues to slow, duress sales form more of the marketplace.

That's what happened in the mid 1980's, properties that sold under duress circumstances became the basis of market value.

Many people said that they wouldn't sell their homes for so little of a price. But, purchasers weren't interested in buying at those home owners' prices. Time was on the purchasers side, as there was always another better home and better deal coming on the market.

Quite the reverse of what we have seen during the last decade.

dasmo said...

@patriotz I would define flat as plus or minus 5% in the stats. I think we are already 10% from from peak. You can't really see the picture clearly from stats until much later. Having bought a place in 2003 and watching the market go nuts. Then selling my parents place in 2007, I saw the market starting to slow then. The frenzy was over, just no one was talking about it at all. (maybe this blog). You can actually see that in the graphs now. I guess this is partly why I am cynical towards the notion of a price collapse. I have watched for 5 years and nothing. Some deals have come and gone but no across the board decrease. A new anchor has be set and it would take a strong gale force to unseat it. So, I see another five years of flat prices and low rates.

@nan, I have increased my earning power in the last ten years... And, 200k is a lot of money but it's not as much as it was in 2003...

Trilobite said...

@totoro victoria

Many thanks for you detailed reply! That is very useful indeed. Considering the high strata fees and still not so low prices on Mt Washington in the places near the slope that I like, with that kind of numbers things clearly would not work and be terribly cash flow negative.

Dave said...

I'm not confident on the percentage amounts, but I'm convinced both 2013 and '14 will witness the steepest annual declines of the whole correction. It's the ripples from our 'Big Sister across the Strait' that are unavoidable.

patriotz said...

I would define flat as plus or minus 5% in the stats.

We will see Teranet go down more than that just in 2013. I won't make any predictions based on GVREB stats because they're sales mix biased.

Leo S said...

Hell, 200k seemed like a crap load of money to me in 2003. Now, not so much.....

That's what happens when you live here long enough. You get desensitized to large numbers.

200k isn't really that much, but $500k is. However if you look at the housing market long enough, suddenly a livable house for under $500k starts to seem like a good deal. Once in a while you have to smack yourself in the face, step back, and realize that you're talking about a 50 year old shack with a coat of paint for half a million dollars.

dasmo said...

I've also made it clear before that I beleive we have been in a -10% environment for a while. You just need to get it yourself. Stats lag... The place I bought almost a year ago was 10% less than what was last paid for it. It was originally listed for about 5% more. So seeing -10 at some point would not suprise me.

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

A lot of the places I list sellers also have decent equity; therefore, when they rent they are typically cash positive as their mortgage is reflective of when they bought 10-15 years ago for 50% of the current price.

Marko said...

I think there are a few support levels that will be hard to breach. I can't see decent well maintained homes in the core dropping much below 425k. First time buyers still make up 20% of the market and at 425k or less there is no PTT. With rates at 2.84% it is relatively affordable for the young working professionals.

425k decent with a suite in the core is also something I predict we never see again at these interest rates.

Money is still too cheap to cause wide spread distress in the SFH market. Rental market isn't what it use to be but still solid. All of the listings I've lost this year to the rental market haven't had trouble renting for solid rates.

As for condos some (typically those with restrictions) have already suffered massive drops. A nice 2 bedroom/2 bathroom 1999 condo in View Royal on Aldersmith resold today for $243,000. It was purchased in 2008 for $330,000. This building is 55+ and they seem to be taking the biggest hits in this market. CHMC won't insure anything with age restrictions!

patriotz said...

So seeing -10 at some point would not suprise me.

So your prediction of "flat" prices lasted about half a dozen posts.

patriotz said...

A lot of the places I list sellers also have decent equity; therefore, when they rent they are typically cash positive

So why are they selling then? So much for the "people won't sell if they don't have to" theory.

dasmo said...

@patriotz I bought a place for -10% almost a year ago. Plus I have stated many times my position is -10 and flat... I have not changed positions at all. I also would not be suprised if the stats were a +. I think the stats are vage until later when you can see a stretch after the fact. I'm a Halibut as I've said many times...

Trent Sze said...

What does ptt stand for?

totoro victoria said...

property transfer tax

totoro victoria said...

Being cash flow positive for a rental only because you have more than 50% equity does not seem to be the best use of equity/credit to me.

Patriotz - as Marko has mentioned before, perhaps people try out the market and if they don't get their price they rent it out. If you don't have to sell you can ride out dips. That is a good place to be.

totoro victoria said...

Money is relative.

$200 000 by itself means nothing.

Tell me you have $200 000 cash and I would say its pretty good.

Tell me you have $200 000 debt and no assets to back it up and interest to pay each month I would tell you that it is a big number.

Tell me you have $200 000 debt on an investment returning more than the debt servicing plus principal plus expenses and it is expected to do so over the long term and I will congratulate you.

dasmo said...

speaking of profits,
Bank profit margines are at historic highs

Right now lenders are sitting at about 126% profit margin based on the 1.3 or so yields on 5 year bonds. This is why I think rates can go down (as they have since I first started saying they will)...Perhaps we might get into a price war of sorts as they compete for the dwindling business?

Leo S said...

I can't see decent well maintained homes in the core dropping much below 425k

Hard to define decent. What do you reckon those places are selling for now? 550? If so I'd agree that 425 is likely a stretch. Maybe 475 or 450 for a place with a suite.

This building is 55+ and they seem to be taking the biggest hits in this market. CHMC won't insure anything with age restrictions!

Goes to show how big of a factor cheap insurance really is.

Leo S said...

This is why I think rates can go down (as they have since I first started saying they will)...Perhaps we might get into a price war of sorts as they compete for the dwindling business?

I think if we do see rates go down more we will see more tightening from the government. The 2.99 rate war in the spring got them all riled up last time.

SilverSurfer said...

Interesting chart dasmo. Would be nice to see if this is also true for variable rates. Ie. chart the variable rate mortage vs BoC overnight lending rate.

Despite the higher profit margins, this does not necessarily translate directly to higher profits in general for the banks, because volume also matters, and as we all know by now, mortgage transaction volumes (RE sales) have plummeted. Thus, possibly they need higher margins to compensate a bit for loss in volume. I'm just guessing here.

If you can share, I wouldn't mind checking out the source site for this great chart.

Cheers

Leo S said...

speaking of profits,
Bank profit margines are at historic highs


I don't think this chart is very useful for a few reasons.

1. They used posted rates rather than actual lending rates. Posted rates have not budged for a while while actual lending rates (ie discount) have continued dropping. Banks are not lending out anywhere near posted rates (CAAMP says that the average mortgage interest rate is 3.55%).

2. Profit margin is not profit. As SilverSurfer said, you also need to consider volumes, which are decreasing. On the other hand you need to consider total amounts, which are of course high right now (but what about the number of lenders?).

3. The percentage profit margin (purple) is misleading as low rates will distort it.

Dave said...
This comment has been removed by the author.
Leo S said...

I think this one is a slightly improved.

Still has lots of problems though. The funding is a lot more complex than just looking at the 5 year bond yield and I don't pretend to understand the details.

Also that series (average lending rate) is still significantly higher than what CAAMP reports, so who knows how exactly it is defined.

Profit margins might be somewhat over the 30 year mean, but not wildly so.

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

(shouldn't hav ehad that last beer)

Keep in mind dasmo, lately falling interest rates have meant falling prices.

Here's one of the missing variables

This looks like the site SS
http://takloo.wordpress.com/2010/06/12/profit-margins-on-fixed-rate-mortgages/

One caution with the banks is CMHC likely won't cover losses where the banks neglected their due diligence.

Good points Leo. I decided to look up the Big 5's current profit margins and they’re all 25-30%. Lower than the chart's red or purple line.

dasmo said...

That is where I found it Dave. The profit margin as a percent does look interesting and I also don't get it. Why the huge spike in 2009? Anyway it is a "gross". I'm curious what their net is on lending. Dave did you already do the ground work on a place with more direct data? I assume you are quoting the big 5's overall margin?

Leo S said...

The profit margin as a percent does look interesting

But it isn't really. The measure is actively misleading and doesn't tell us anything of value. If the bond yield is 0.5% and they charge 2% on mortgages they have a 300% profit margin by that definition. If the yield is 5% and they charge 9% their profit margin is 80% even though they're making almost 3 times the profit.

and I also don't get it. Why the huge spike in 2009?

Sharp drop in bond yields during the financial meltdown. 3.13 to 1.69% in 3 months.

patriotz said...

This building is 55+ and they seem to be taking the biggest hits in this market. CHMC won't insure anything with age restrictions!

Why on earth wouldn't a 55+ buyer have 20% down anyway? For that matter, why wouldn't a 55+ buyer be paying cash?

Leo was spot on, but just forgot the bold caps.

patriotz said...

Being cash flow positive for a rental only because you have more than 50% equity does not seem to be the best use of equity/credit to me.

Right, which is another way of saying that rental housing at current prices and rents in Victoria is a bad investment.

Just Jack said...

This building is 55+ and they seem to be taking the biggest hits in this market. CHMC won't insure anything with age restrictions!


As we have discussed before, strata corporation have the right to restrict on the basis of age.

I have never had CMHC ask if a building has or has not any age restrictions. It's a policy that is ignored or interpreted in a different manner.

Don't Ask - Don't Tell

totoro victoria said...

I agree that as a pure investment rental property in Victoria is not great. Might never be again.

Alexandrahere said...

Jack: so you work for CMHC?

Marko said...

I have never had CMHC ask if a building has or has not any age restrictions. It's a policy that is ignored or interpreted in a different manner.

I've had two deals collapse this year because CMHC would not approve due to 19+ age restriction.

Marko said...

Being cash flow positive for a rental only because you have more than 50% equity does not seem to be the best use of equity/credit to me.

Most people with one or two residential rental properties are not sophisticated investors. They will sell at a certain price but below that they will prefer to keep the rental income.

They aren't running calculations on how their return would fair if they pulled out the equity and invested into something else.

Also, a lot of people feel more comfortable with real property versus investing in stocks or other.

Happy camper said...

I am surprised that any agency associated with a government, especially the federal government, would approve anything including CHMC insurance when there is discrimination such as age associated with the transacction.

info said...

All housing bubbles burst and then crash. The US housing crash is only one example of the 48 that I have shown to this blog.

As you can see from this chart, Canada's price/income ratio increased and peaked 30% higher than the starting point and will correct 30%, as all housing bubbles correct the same amount that they increase to their peak. The US housing bubble grew bigger until its price/income ratio peaked 20% higher than its starting point and then it burst and corrected back 20%. If you look at the chart, you can see that the other 47 housing bubbles did the same thing.

This chart is comprised of national housing bubbles. The 30% that Canada's housing bubble will correct will be made up of different degrees of correction from all Canadian cities. Since Vancouver and Victoria have the highest price/income ratios in the country, they will correct the most.

Victoria's price/income ratio will, therefore, have to correct much more than 30% in order to help bring up the national average, since many other cities will experience a price/income ratio correction of much less than 30%.

Using the US as an example again is useful. Cities such as Los Angeles, Miami, Las Vegas and Phoenix experienced price/income ratio increases of much more than the US national average of 20%. These cities all experienced price/income ratio corrections of much more than 20%. In the same way, we can expect Victoria and Vancouver to experience the biggest corrections in Canada.

The correction has barely started in Canada. It will take years to play out. Huge bubbles like Canada's, that have taken 13 years to form, take much more than a year or two to correct. The chart also proves this point.

It has been proven (and the chart shows it) that incomes must support house prices. Those of you who continue to hold onto the idea that the current emergency interest rates will prevent further price declines in Canada will be sadly disappointed.

The US housing bubble burst in 2006. Emergency interest rates were put into place in 2009 - 2010. Note that US house prices continued to fall for at least 2 more years even after emergency rates were put into plcae. Also note that their interest rate drop in 2009 was dramatic, from 5-6% down to 2-3%. We all know this is impossible in Canada. Even if it was, the US example has shown that it wasn't enough to stop their crash. Prices in that country continued to decline until they reached the point where incomes supported them.

The US is not the only example of a country that saw a price crash or a continuation of a crash after emergency interest rates were put in place. Japan is another example and there are more.

Price/income ratio is the determining factor when it comes to major national real estate corrections.

Any lowering of interest rates at this point in Canada would be miniscule in comparison to that which took place in the US in the middle of their price crash. If a major reduction in interest rates couldn't stop the US housing crash, then a very minor and insignificant reduction in interest rates in Canada will not stop our price crash.

Having said that, there is no saying that interest rates will be lowered again. Most people in the know are expecting interest rates to rise, starting soon. Our housing correction does not require rising interest rates to make it happen It will happen regardless of where rates are.

Marko said...

Price/income ratio is the determining factor when it comes to major national real estate corrections.

We'll just ignore the 50 other factors.

Having said that, there is no saying that interest rates will be lowered again. Most people in the know are expecting interest rates to rise, starting soon.

Define "soon" please.

patriotz said...

We'll just ignore the 50 other factors.

The point is that none of those other 50 factors are common to every RE bust, so why should you think any one of them is necessary for a RE bust in Canada? Remember, a bust has been underway in parts of BC for years and prices are down 6% in Victoria on Teranet, which has a built in lag.

Define "soon" please.

Before your mortgage is paid off. :-)

Leo S said...

It has been proven (and the chart shows it) that incomes must support house prices.

This is a very nebulous statement, and therefore can't be proven. Incomes must support prices, well sure we can agree on that. But what incomes? What is the correct ratio? Certainly it has been demonstrated that some places have high price/income ratios and stay there.

As you can see from this chart,

The problem with this chart is that it has been presented to suggest that a crash is imminent. You could have made that exact same graph anytime in the last few years and come to the same conclusion. Just because something has been going up for a long doesn't mean it is on the verge of turning around.

Some other problems I have with that graph you like so much:

1. No legend, no identification of which series is what, and many examples of missing data.

2. They want the data to be a nice up and down, but there are also examples that start higher than their "peak" and others (or the same ones? impossible to tell in that hairy mess) that regain or exceed the peak. What does that mean? Are they not identifying cycles correctly, or are some countries not fitting the predicted model?

3. Some of the data is extremely improbably, leading to the conclusion the quality of the rest of it is probably suspect. Look at the volatility in some of the series. Look specifically at the bottommost line, just before the centre. At year -1 it is at about -34%, then it shoots up to 0% in one year. Anyone here believe that a national house price can increase 34% in one year (or maybe all their incomes dropped? Very suspect in either case). There are a few such examples of seemingly impossible moves in the data.


Most people in the know are expecting interest rates to rise, starting soon.

Like who?

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

British Columbia provides a blanket statutory exemption for seniors-only housing.

In British Columbia’s Human Rights Code provides that the Act’s protection against age-related discrimination in rental tenancy does not apply:

"if the space is a rental unit in residential premises in which every rental unit is reserved
for rental to a person who has reached 55 years of age or to 2 or more persons, at least
one of whom has reached 55 years of age"

So, in BC, this type of discrimination is legal and would be legal for CMHC to underwrite if it decided to do so.

Leo S said...

So 55+ is legal but 19+ isn't?

totoro victoria said...

The code only protects people nineteen and over from discrimination.

Alexandrahere said...

If you are in a 55+ building then only persons over 55 may live there. If you are in a building that allows rentals, other than the 55+ one, then you may not discriminate against age for the rental units. If this is a condo, then the owner/occupier must be 19 etc to live there....but if you are renting it....you can not discriminate against age.

koozdra said...

This behavioural finance book describes the real estate bull mentality pretty accurately.

http://vreaa.wordpress.com/2012/12/30/behavioural-finance-textbook-describes-crashes-as-a-bubble-starts-to-unwind-there-can-be-under-reaction-when-investors-do-not-update-their-beliefs-sufficiently-with-cognitive-dissonance-attempt/

totoro victoria said...

It is not the discrimination against age that permits children in rental buildings - the Code only applies to those older than 19. It is the prohibition against discrimination against "family status" that makes it illegal to restrict a building to adults only unless it is 55 or over as permitted under the Code (a statutory exception).

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

Marko, that's too bad that your two deals collapsed because they could not get CMHC financing.

I'm wondering why you didn't suggest using Genworth rather than loose the two sales?

Genworth does lend on stratas with age restrictions.

Introvert said...

"Loose" and "lose" are different words.

Just Jack said...

Loosen (spelt correctly) up Introvert. :-)

S2 (JJ's wife)

info said...

Leo

Victoria is currrently in a housing bubble whether you like it or not. An extreme price/income ratio of 8.5 proves that. You may not like the price to income ratio, but that has been the metric of choice among governments and economists around the world for decades and it will continue to be the metric of choice moving forward.

All housing bubbles burst and crash.

Between 2003 and 2006, house prices in several Canadian cities more than doubled. The chart shows Canada's housing bubble starting 9 years ago, which was 2003. Clearly there is no other starting point that works better. No secrets there.

Please show me an example of a country that experienced a dramatic price/income ratio increase in a short period of time that did not experience a correction taking it back to the starting point. You said there is an example out there. Prove it.

The chart is very clear. It may be the case that you want there to be problems with it because it goes against the small price correction that you want to see happen in Victoria.

Price/income ratio corrections cannot be stopped. Canada is currently in the position where it will experience a 30% price/income ratio correction. This rule has applied in all 48 cases over 40 years in different countries.

As for interest rates... Mark Carney recently said that rates will be moved higher soon. However, even if rates stay where they are or move a bit lower (they will not), it will not stop the 30% price/income ratio correction that has already started in Canada.

dasmo said...

But rates have gone lower....

patriotz said...

But rates have gone lower....

And so have prices in Victoria. And elsewhere in BC, prices have gone a lot lower.

Leo S said...

All housing bubbles burst and crash.

Why is it that you never address specific arguments, but just go back to your general statement? This isn't particularly convincing.

Between 2003 and 2006, house prices in several Canadian cities more than doubled.

Between the late 80s and early 90s, house prices in Victoria more than doubled. If that's all it takes to be a bubble, then please explain why prices didn't crash back then.

The chart is very clear. It may be the case that you want there to be problems with it because it goes against the small price correction that you want to see happen in Victoria.

Are you saying you think it's perfectly plausible that one of the countries in that chart increased its price/income by over 30% in one year? As a reference, the US at the peak of it's crazyness only increased about 5% a year.

By the way, given that I don't own any real estate, nothing would please me more than a massive crash in Victoria prices. The difference is that I try not to let my reasoning be influenced by what I would like to see.

Mark Carney recently said that rates will be moved higher soon.

No he didn't. He said eventually interest rates will move up and people should be prepared.

Leo S said...

it's -> its Sorry introvert

Alexandrahere said...

If you own and occupy a condo and the age restriction is say 40. Then you must be 40 or over to live there. However, if that condo allows rentals....the rental unit must allow for persons of any age. The only exception is the 55+ buildings.

Introvert said...

The difference is that I try not to let my reasoning be influenced by what I would like to see.

Leo, you're about the only one here who is pulling this off to any decent extent.

dasmo said...

An interesting look at the long term trend of house prices...

patriotz said...

A long term increase in real house prices in the US can be explained simply by increasing real wages (which ended in 1980), increasing labour participation rate (which has recently started declining from an all time high) and declining interest rates post 1982 (which can't continue).

All of which trends also apply to Canada.

Real house prices simply can't increase long term without at least one of these.

Happy camper said...

The code regarding age discrimination that I'm trying to reconcile in my mind is the human rights code and a federally supported agency providing services (in this case insurance) to an entity that discriminates. To take this example to an extreme - let's say a strata says no people of religion xyz can purchase. From what I'm understanding, stratas in BC seem to have lots of decisional power. But when someone buys into this and requests insurance approval from CHMC there seems to be reason for concern.

Dave said...

dasmo, another factor why his chart of real house price from 1976 would have an upward slope - the boomers had just begun household formation in the 70s. They're now done their trade-up phase and about to begin exiting.

You should change the words "long term" to medium term.

patriotz said...

To take this example to an extreme - let's say a strata says no people of religion xyz can purchase.

They can't. They can only restrict by age or family status. Good explanation here

Marko said...

I'm wondering why you didn't suggest using Genworth rather than loose the two sales?

Genworth does lend on stratas with age restrictions.


I was the listing agent on both failed sales; therefore, was not involved with buyer financing. I know on one Genworth wasn't happy with a credit blemish 6 years previous and the other I don't know why Genworth didn't work out.

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

Thanks Patri...It's all very curious to me because I'm unwittingly looked at 2 townhouses that were age 55 but in a perfect area for my kids' school. These were open houses. Both have been on the market for some time with price drops. In both cases each real estate agent said to put in an offer and ask the strata to modify the rule for the sale. My kids aren't even close to 19 so this isn't a temporary fix. This is multiple years of having young children in the strata. I wouldn't consider an offer that required a strata change since I think it would be a crappy situation for us and I don't know if the strata would consider this. However, it was surprising to me that this was the suggestion. I keep trying to educate myself but simply become more baffled about stratas in BC. I'm stuck between a 1912 out of date detached house (rock) and a strata (hardplace).

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

In both cases each real estate agent said to put in an offer and ask the strata to modify the rule for the sale.

I can't believe someone would actually suggest this! What da?

In general, strata is what it is. I am the strata council treasurer in my building (115 units) and you always have 5 bad (aka crazy) apples. Some of the emails I get are just ridiculous. We had a framed picture in the lobby that fell and broke and one of the owners questioned me as to why I didn't call the police to investigate? Ha ha.

One owner approached me about banning flyers to the entire building...doesn't understand that some owners might actually want flyers in their mailbox?

Many other stories.

Marko said...

Monday, December 31, 2012 8:10am

MTD December
2012 2011
Net Unconditional Sales: 278 339
New Listings: 399 505
Active Listings: 3,894 3,780

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

vawr said...

@ Simplovert
"Loose" and "lose" are different words.

"looser" and "loser" are different
words but they still apply to you.

info said...

Leo

House prices in several Canadian cities more than doubled from 2003 to 2006. Canada was in a bubble at that point. However, as I have already pointed out, the government, in late 2006, went ahead with more policy that dramatically blew the bubble even bigger. By 2008, the bubble was much bigger. Then the crash of 08-09 happened, halted again, by more policy that blew the bubble bigger again.

The chart that I reference deals with national housing bubbles, not local ones. I have not had time to look at Victoria's numbers for the late 80's through the early 90's. Even if what you say is true for one city, it would not refute the overwhelming amount of evidence that the chart shows for 48 different national housing bubbles over 40 years. I do know that Toronto crashed hard in the early 90's. I know of cases where people, who bought houses in the late 80's in Toronto, had to sell two years later and took a full 50% loss.

Mark Carney recently stated that Canada's housing market was 37% overvalued. The chart shows the same thing.

With that chart, what you see is what really happened. It is an accurate historical, comparative collection of data that we, as Canadians, are better off knowing than not.

sosan usa said...

like the blog abt house hunting thnks for sharing


Ocean Drive Miami Beach Condo | Miami Midtown Apartments

Samantha de Veyra said...

Thanks for the update. Well, many are getting a good income out from having their homes rented out for holidays. Holiday Letting Agency is also helping a lot in this business.

Samantha de Veyra said...

Thanks for the update. Well, many are getting a good income out from having their homes rented out for holidays. Holiday Letting Agency is also helping a lot in this business.

turesta, said...

The size of an istanbul real estate apartment or house can be described in square feet
or meters.istanbul real estate In the
istanbul real estate United States, this includes the area of "living space",
The istanbul real estate "square meters"
figure of a house in Europe may report the total area of the walls enclosing the home, thus including any attached garage and non-living spaces, which
istanbul real estate makes it important to inquire istanbul real estate
what kind of surface definition istanbul real estate has been used.

It can be istanbul real estate described more roughly
by the number of rooms istanbul real estate. A studio
apartment has a single bedroom with no living room (possibly a separate kitchen). A one-bedroom apartment has a living
istanbul real estate or dining
room istanbul real estate separate from the bedroom. Two bedroom, three bedroom,
and a istanbul real estate closet for clothes
storage.istanbul real estate)

In most istanbul real estate advanced economies,
istanbul real estate the main source of capital used by
individuals and small companies to purchase and improve land and buildings is mortgage loans
(istanbul real estate or other
instruments istanbul real estate). These are loans for which the real
loans at istanbul real estate favorable rates in large part because, if the borrower
does not make payments, the lender can foreclose by filing a court action which allows them to take back the property and sell it
istanbul real estate to get their money
back istanbul real estate. For investors, profitability can
be istanbul real estate enhanced by using an
off istanbul property plan or pre-construction strategy to purchase at a lower price which is often the
case in the pre-construction phase of istanbul property development.