Tuesday, December 4, 2012

This and that

Top of the this list--some thank you's.

Thank you to Leo S for keeping up with posts lately, especially the market update posts we keep coming for each week.

Thank you to Marko Juras for bucking the trend of agents pretending this blog doesn't exist and providing us with the most up to date market data in as close to real time as practical.

Thank you to Ben Rabidoux, for the shout out calling this blog "solid." For a guy who turned academia and blogging into what I hope is a lucrative private sector gig, that's a solid shout out. Word. Appreciated.

And finally, thank you to the commentators, because you're the reason why anyone would ever call this blog solid.

And now on to that commentary...

The market in Victoria is the pits. Even if the valuation numbers aren't showing it yet. On a personal note, I have mixed feelings. Having written about the market as long as I have, I would have expected more feelings of schadenfreude over the coming months. I don't. And I very likely won't.

Since leaving town for sunnier pastures, though arguably slightly, and only so very slightly, colder, I've become detached, let's call me an objective, no longer emotional, observer. The Victoria market is far less interesting as a result. Dare I call it boring. The only real attachment I have to it now is the experience of others.

I have a close relative who tried, unsuccessfully, to sell an over priced house in the summer before leaving town for the winter. I laughed out loud when they told me they were pulling it off the market for the winter to try again in the spring--only because they blamed the slow fall market for the lack of showings and not their 25% premium to the current market state asking price.

I have another friend who's joined me in my new city with family in tow for a new employment opportunity, leaving an unsold property temporarily rented out behind because, again, no offers due to unrealistic selling price expectations... I hold the agent partly responsible for suggesting the slow market, and not the price, as the culprit.

Both of these folks, should they sell at today's true market value, would still walk away with a hefty sum more than they'd ever spent on their home regardless. Some could call it greed. I simply call it market ignorance.

Another friend sold their house. Not without complications. And not without compromising on their price expectations. But sold it they did and they couldn't be happier. They'll be leaving town too come spring.  

Intertwined with the current market state, two other folks close to me make their living working on homes. Turns out few are spending money making improvements these days. Meanwhile the municipalities complicate matters further with fee hikes, red tape and regulations that can only be described as adding massive increases to the costs of what should be simple renovations. If I owned a trades related company in Victoria right now I'd be screaming at the newspapers to get on this story in a hurry before my business failed. Unfortunately, that screaming would most likely fall on deaf ears until businesses do fail and good people start hurting bad.

No one wants to see people hurting--no matter how many times you had to listen to them preach about their real estate winnings in the past.  

203 comments:

1 – 200 of 203   Newer›   Newest»
koozdra said...

Victoria, and other overpriced markets. have come to be dependant on the availability of CMHC insurance. If you listen to broker talk these days, you will see people are coming to them because the banks have simply refused them. These are the same folks that the bank would happily lend to just months ago.

The decline sentiment is slowly starting to creep on people that would never acknowledge a decline was even possible.

a simple man said...

Glad you are enjoying your new home, HHV. Best of the season to you.

Some serious discounts in houses coming on the market. One on Neil just listed that was sold a couple years back and now is upgraded and I believe is offered for lower than the last sale. Those folks will take a loss.

Marko said...

More and more sellers are starting to accept that their home might not be worth what they paid for it (if they have purchased relatively recently). I've now listed a few properties in the last few months below the previous purchase price. This wasn't occurring in 2010/2011...everyone was looking for a bit more.

All that being said I've had clients that bought in 2007 making 10-15% on resale and clients losing 10-15% on resale, also bought in 2007.

Morale of the story is it is also important to buy the correct property. The market is just part of the equation.

dasmo said...

True Marko. At the very least we are returning to a sane market. The frenzy really lead to a lot of overpaying and overvaluation. It's always good to have a level head when spending half a million dollars after all. I can't say I'm a Halibut when it comes to areas other than Victoria. I Thought it was odd that values tended to level on the run up. Especially recreational properties. The gulf islands in particular. I think we will see a larger spread in prices. A new concrete condo steps from downtown in a nice zone will hold it's value more than a new wood frame condo in a half build development in Colwood...As it should be.

koozdra said...

Assessed: $552,000
Listed: $419,500

76% of assessed in James Bay.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12365061&PidKey=-1060046917

koozdra said...

Assessed: $609,800
Listed: $449,900

74% of assessed in Cordova Bay. Begin the race to the bottom.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12524928&PidKey=2058744996

dasmo said...

The James bay one is more a case of over assessed! land size is 2640 sqft and a 1905 2b 1 bath house. One can't really do much here. Can't scrap it a build new, can't add on. No off street parking. $552 is the result of something next door selling for a similar price with similar specs?
Personally I think JJ's method is best. resale comparison. Comparing to assessed is flawed since they are relatively random. When I bought my place in 2003 it was assessed at 120K...for instance...I don't even think that was lot value at that time.

DavidL said...

@Leo S
Your avatar makes me want to call you Allan.

I hadn't seen that before ... very funny!

Just Jack said...

I'm not finding very many recent re-sales lately. I tend not to put any reliance on a re-sale, if the original sale is from the developer or builder - mostly because the HST/GST screws things up.

Most of the sales that are left have not been previously listed within the last decade or have had a major renovation. And that screws up any analysis on these too.

This market is like flying through the Rockies, in white out conditions, hoping that you don't hit any hard core clouds.

The market is too shallow and dysfunctional to be precise where prices are today. I have to wait for the clouds to clear and that may not be until the spring market in March or April.

Russ said...

I also don't put a lot of faith in the assessed value. I guess they give you a value in the general ballpark for age and neighbourhood but when it comes time for me to price my house or make an offer on another I won't put any stock in the BC assessment number.

I own a 70s box on a street of 70s boxes. The difference is that virtually all of the others are the original owners and have had few if any updates in 40 years. Next door has original green shag throughout and fake wood panel "feature" walls.

Mine on the other hand has new roof, new paint and flooring throughout, new kitchen (cabinets,quartz, SS), bathroom, landscaping etc etc.

Because none of my improvements required a permit as far as BC assessment knows my place should have virtually the identical value as my neighbours. I believe that my market value however is easily $75k or more higher.

I'm not in a hurry to pay more taxes so I haven't done anything to change the situation however if I knew i was going to sell I would consider trying get it assessed higher by somehow to 'coming clean' that the house is updated.

a simple man said...

My feeling now with BC assessment is that if your house is updated and needs little to be done, use the BC assessment number, otherwise start deducting costs to compensate the new owner to make it so.

For example, start at BC assessment - old kitchen? Deduct $25K. Two old bathrooms? Deduct $15K each. Old roof? Deduct 7-10K (and more depending on roof type and area). Old furnace on oil? Deduct for new gas furnace or heat pump, etc.

Introvert said...

In January I'm looking forward to Just Jack's annual installment of "How to Appeal your BC Assessment," which I believe to be JJ's personal and probably futile attempt at influencing the market: the theory being that as assessed values drop, so will sale prices as there is a certain degree of correlation between the two.

Either that or he's just a cheapskate when it comes to municipal taxes, taxes which, as a renter, he does not even pay.

a simple man said...

I always believe that a portion of the rent goes to cover municipal taxes, so renters do pay, just indirectly.

Introvert said...

I always believe that a portion of the rent goes to cover municipal taxes, so renters do pay, just indirectly.

I don't think renters pay indirectly. Sure, in some cases they do, of course. But it's not a fair blanket statement to make.

At the end of the day, the owner must pay the property tax, whether he has rental income or not. Therefore, one cannot say, as a statement of fact, that rental income (indirectly) contributes.

info said...

@Koozdra

Your listed/assessed comments are valuable to everyone. Would be great if you continued with more of it.

Chickinvic said...

Of course rental income contributes to property taxes. Why would it not? As an owner I would assess all my costs before even considering purchasing a property to use for rental income - and if rents weren't covering all those costs (and then some) I wouldn't buy. All renters are paying property taxes (indirectly of course).

Al + TOH said...

"At the end of the day, the owner must pay the property tax, whether he has rental income or not. Therefore, one cannot say, as a statement of fact, that rental income (indirectly) contributes."

True that owner must pay the property tax regardless, but remember that you do deduct part of it as well as mortgage interest, house insurance, utility bills, ... from your rental income at tax time, if you have renters and claim the rental income. So renters do contribute to the property tax indirectly.

Leo S said...

I don't think renters pay indirectly. Sure, in some cases they do, of course. But it's not a fair blanket statement to make.

Of course renters pay property taxes indirectly. Every renter lives in a house and every house is subject to property taxes. The fact that not every house has a renter is not relevant.

Introvert said...

Maybe you're right.

Al + TOH said...

In case you missed to claim the property tax expense against your rental income, you can always file a T1-ADJ to get it back (and remember the money from your renter helped with that).

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

Updated my stats extractor script for the Matrix system

Matrix data extractor

Jack and Cate said...

Isn't it just like a market. Use the assessed value when the market is going up. Ignore or deny it when it's going down.

Paid bank assessor's sent quotes flying out the doors in the hay days 2007-2010. Now banks have fired or not renewed contracts and closely critique assessed values for mortgages. Greed shows no bounds....

patriotz said...

As an owner I would assess all my costs before even considering purchasing a property to use for rental income - and if rents weren't covering all those costs (and then some) I wouldn't buy.

If every owner was like you there would never be a bubble in Victoria or anywhere else. Bubbles happen because investors buy properties that are earnings negative and hope to come out on appreciation.

patriotz said...

I also don't put a lot of faith in the assessed value.

I do think a property that is listed under latest assessment (i.e. price estimate of July 1/2011) tells you something. An owner can appeal an assessment if there are grounds that it is too high, so I don't buy the "over-assessed" argument. It's a very good indication that the property will not sell for what it would a year and a half ago.

Just Jack said...

Lenders use the assessments as a base for their computer risk assessment tools or automated valuation models. The assumption is that properties sell at or above assessed value.

However, if properties are selling below assessed value, there is no longer a baseline of what is a "safe" risk or price level.

This likely happens with humans too. When prices are going up, the thought may be "the home is always worth more than assessed, so we are pretty save in bidding 10 percent more than the assessed value"

When properties are selling below assessment the feeling may be like "who knows what the property is worth, the assessment are useless to us, let's take our time and be more cautious in our bid."

In my opinion.

As for Introvert. I have a whole new meaning for the acronym FYI now.

Leo S said...

My feeling now with BC assessment is that if your house is updated and needs little to be done, use the BC assessment number, otherwise start deducting costs to compensate the new owner to make it so.

This is pretty accurate in the lower end of the SFH market. For SFH sales in the last 4 months in the core areas under $550k, the top quartile only averages out to 99% of assessment. So the top 25% of places are fetching assessed value, and everything else is lower.

Only 20% of places have sold over assessed, and only 8.5% have sold greater than 5% over assessed.

ginnad said...

Further to dasmo's point about recreational properties, there are now a whopping 76 places for sale at Mt. Washington. They range in price from just under $100K to $849K.

I don't have any hard data since I don't know any realtors here, but anecdotally people are getting very nervous about their supposedly "safe" investments.

I work part-time as a ski instructor, and I know that rents on mountain are the cheapest they've been for years.

caveat emptor said...

Units at the one Mount Washington condo I am familiar with are selling (or at least asking!) for not much more than they were originally sold for 15 or more years ago.

Great to own if you love skiing and have sufficient money. Lousy to own if you were thinking of it as an investment that would appreciate over time.

Looking at the rental rates and guessing how much of the time units are rented i can't see them being a great investment from that angle either.

Isn't it best to regard most recreational property as a money sink rather than an "investment". Perhaps a worthwhile money sink if you love it enough?

totoro victoria said...

I knew you had access to "the Matrix" Leo - just make sure you can still wake up.

totoro victoria said...

I looked at buying a ski place. The numbers don't work at all even if you are part of a rental pool because of the short season and weekend only market. It is cheaper to rent a place when you go.

The only time they might work is if there is a period of steep appreciation and you sell. I agree recreational properties are the first to fall in a down or flat market.

dasmo said...

Both times I bought my lender didn't look at the BC assessment at all. The got their own assessor to make one. The BC assessment can only be viewed in a zoomed out perspective in IMO. Individual properties are less relevant for any precision. The numbers are generated by formula from a remote desk... I used them for my last purchase to gauge roughly what was happening in the market. Last January, in the hood I was looking, I would say 60% were selling under BC assessment. 20% for over and 20% for relatively close. All that did was give me confidence to offer much lower than ask. (This blog helped me there as well) I came up with my own number...

That James bay property probably last sold for 180k. Tndicating it's a sign of a crash when it's listed at $419 just isn't so. I would peg the land value at $225k. So the house is a $194k or 204/sqft for a 107 year old house, doesn't seem discounted to me.

Let's see what it sells for.

Reid said...

I bought a place at Silver Star recently for less than half of what it sold for in 2007 and for less than it sold for new in 1999 so prices have already severely corrected (the problem is most sellers have yet to accept this reality). There are few if any buyers for these properties today as banks are not keen on financing them. We bought because we love to ski (one of the reasons we moved away from Victoria), so for us it is a recreational property and not an investment. But before I bought this place I tested its “investment” potential as I have a friend who rents a similar unit out in the same building. Because Silver Star has a six month Nordic season and three month mountain bike season and the village was never overbuilt, the gross rent we could generate is 10% (net of fees) of what we paid for the place. We paid cash so no mortgage but annual operating costs are roughly 4% of our purchase price, so the investment return could be 6% on our cash investment which I was totally comfortable with if we ever need the cash flow. I did a similar analysis for Big White which only has a 4.5 month alpine season and is overbuilt and the investment numbers made no sense.

Introvert said...

In case you missed to claim the property tax expense against your rental income, you can always file a T1-ADJ to get it back (and remember the money from your renter helped with that).

I'm sure my accountant claimed this for me. Thank goodness for accountants.

:)

ginnad said...

Reid, that's interesting about Silver Star. Less than 1999 is really saying something about property values. I have friends who sold at Big White a few years ago, because the rental income was less than half the amount they were promised. They managed to sell for a (slight) profit, and had several good ski years, so they counted themselves lucky.

It does seem that the economics are hard to justify on their own, especially if you are hoping for rental income that will cover a mortgage, if you can even get one. It only makes sense to look at it purely for the love of skiing. (Or boarding, I guess...)

totoro victoria said...

Yes, I agree that the numbers at Silver Star are interesting. Goes to show that you have to run the financials first and that there are always exceptions. That is what makes re kind of fun though - finding the exceptions and opportunities in any market.

I was looking at a different Okanagan mountain and Mt. Washington. Neither made sense for us.

caveat emptor said...

4% of purchase cost annually would be a reasonable estimate for costs at the units I know at Mount Washington.

More painful is when there is a special assessment of 20-25% of purchase price to cover repairs

dasmo said...

RE silver star... at $540.15 Monthly maintenance fee for a 500 sqft apartment I can see why! If you find yourself not using it and it's not renting that's some bleeding... I never understood buying these places unless you got them in the 90's for cheap. People NEED a place to live, they don't need a ski lodge...

Introvert said...

I think it's really strange when rich people build amazing houses in questionable locations.

The monstrosity at Richmond and Despard, in Fairfield, is one example. Corner house on a busy road.

Another one is the recently finished house on Hampshire, directly beside the public library, and within earshot of the bustle and noise on Oak Bay Ave.

The right house built on the wrong location. I don't get it.

info said...

Bank of Canada warns that Canada's overbuilt housing market may "cause house prices to fall below the level required to correct any initial overvaluation".

Quoting from the Globe and Mail:

“If the upcoming supply of units is not absorbed by demand as they are completed over the next 18 to 36 months, the supply-demand imbalance will become more pronounced, increasing the risk of a sudden correction in prices”

That, in turn, could pressure house prices in general, which itself would spread through the broader economy.

“This would likely lead to a decline in housing activity, adversely affecting household incomes and employment, as well as confidence and household net worth, which would in turn reduce household spending,” the Bank of Canada said.

“As the declines in incomes and employment impair households’ ability to service their debt, loan losses at financial institutions would likely rise. These effects may be amplified by tighter borrowing conditions as lenders come under increased stress. These interrelated factors would further dampen economic activity and add to the strains on household and bank balance sheets. They may also cause house prices to fall below the level required to correct any initial overvaluation.”


Canadian cities in general saw much speculation and investment buying with the lax lending standards and low interest rates over the last decade. It all adds to downward pressure on the housing market.

Just Jack said...

The housing market is overbuilt?

Where did I hear that before?

Well on HouseHuntVictoria months before.

We're doing pretty good for a little blog.

totoro victoria said...

That house on Hampshire would be my dream location.

I visit that library and walk the avenue every day. Windsor Park is really close, as is the beach. The rec center is walkable too and
the Monteray Centre is also a retirement activity center - it has loads of all types of programs for those over 50 including sports, arts, games, crafts and music.

If you think about getting older the location just gets better.

Anyway, I find the hustle and bustle of this area comforting. Action and activity without having to worry about crime or nightclubs as you do downtown.

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

Maybe I should qualify that, slightly geriatic action and activity.

No, I'm not there yet... I just like that the streets are pretty quiet after 9pm. And who doesn't like the action and excitement of a library?

a simple man said...

You are my kind of gal, totoro! Same things I do.

Introvert said...

I would never buy or build a house right next to a public or commercial building. I, too, love the library, but I wouldn't want to see it and its patrons every time I look out the window.

Mind you, I'm not thinking about getting older. Too early for that.

totoro victoria said...

Don't worry, it won't happen to you :)

info said...

Meanwhile in Richmond, a 3 bedroom, 2 bath condo is listed for 47% below 2012 assessed value.

Knowing that Vancouver and Victoria are the two most overvalued cities in Canada with price/income ratios of 9.2 and 7.7 respectively, it seems just a matter of time before we start to see properties listed this much below assessment in Victoria.

dasmo said...

If foreclosures dominated the market then maybe. This is part of the equation down south. The number of distressed and foreclosure sales on the market meant that if one didn't absolutely have to sell you didn't list. Even the banks held back inventory thus "the shadow inventory". Anyway... I don't see a tidal wave of foreclosures coming. I see a standoff between sellers that want to sell for more than market and buyers that want to pay less, with sellers who need to sell giving in. I see a general boredom of the Real Estate ladder. I see a general price ceiling that has been run up against. I don't see the approach of armageddon, even if it is 2012.

koozdra said...

Dasmo

People that don't want to change their prices will not list because their houses will not sell. They will not be involved in price setting for their area. It is the people that sell that dictate where prices go. Why do you think that this "stand off" can continue at these prices?

totoro victoria said...

Because there is no strong downward impetus other than MOI, changes in mortgage rules, and general consumer confidence. Add the general "time for a downturn in the cycle" and this also seems to point to a slight drop.

While all these factors could cause further declines, I think it does come back to affordability. If affordability is impacted significantly this could push things south quick.

Interest rates rising is one factor re. affordability, as is the unemployment rate.

Boring is right.

koozdra said...

"Because there is no strong downward impetus other than MOI, changes in mortgage rules, and general consumer confidence. Add the general "time for a downturn in the cycle" and this also seems to point to a slight drop.
"

Given those factors, I don't see the drop being slight.

axeman said...

whistler was the place to buy a few years ago, not sure what is happening there now. The problem with any short term rental is it requires daily maintenance, and unless there is a mantenance company running it, it is a hastle. In downtown Victoria, one of the Hotels went condo, but still has a front desk, kinda like a time share but these are purchase units. My Cousin is a conveyance legal assistant, and has done a couple of them. I can find out the name if anyone likes, its right on Wharf, and great view of inner Harbour.

A better investment is a great big house, with lots of rooms that you rent out. No you cannot claim any tax breaks, but as a principal residence, you will not pay any tax when you sell it. (Capital Gains)

Anyone ever sell a revenue property? How much tax did you have to pay?

Dave said...

"with sellers who need to sell giving in"

Thereby setting prices (lower) because they sell to "buyers that want to pay less"

By your own logic the market should fall not remain flat.

Dave3

totoro victoria said...

"Given those factors, I don't see the drop being slight."

Maybe, maybe not. I don't know. Given a long enough period of time the drop should occur anyway. I suppose the question is also how fast. I don't see it being fast but who knows.

totoro victoria said...

Short term rentals of a minimum of a week do not require daily maintenance. They require good overall maintenance and then a cleaning and reset on check-out. Everything, including check-in, can be managed remotely except the cleaning. Finding good cleaners is key.

dasmo said...

I know that sales dictate the "price". In the end it's an individual transaction though, not a stock where one can just strike at a price point. If someone really wants or needs to sell they will find a price that makes it work. It happened with the place I bought in January. I bought for 10% less than what the property was bought for previously so I get it. I also saw it happen in the Comox valley with a commercial property I missed (thankfully). They had the property listed for 1.2 million for three years. Sold in the end for $620k (at that price you could actually make something work and the person that bought it is now making a lot actually). This gave me first hand experience with the "standoff". I thought this would set a new price point in the zone so I was interested and my agent went to work. It didn't. The other three properties that were for sale (but not listed) held strong and wouldn't sell. Still haven't although one has now been listed for a while. I think they can hold out because they all bought there a long time ago and are mortgage free. They all want retirement money and are waiting it out I guess....

koozdra said...

I know you loath comparisons to the states but I will bring it up anyway. The people who decided to be hold outs sat in their houses and watched their property decrease ten percent every year. The longer you hold the lower your eventual sale price will be. Just like you didn't have to do anything to see your property value rise, you don't have to do anything to watch it sink.

totoro victoria said...

I'm no expert on US real estate but wasn't the decrease in valuation different from state to state?

For example, Texas experienced no crash and also had tighter lending rules than most states?

Given that Canada's lending rules overall are much stricter than the US this may impact flat/decline/crash scenarios.

Also, it would be really odd for a decline to just go on forever without a recovery. I wonder what percentage of sellers have to sell? Seems to me in Victoria it might be a minority? Those that want to trade up might wait. Those that will lose might hold on. Those that move might choose to rent out...

What are we left with? Divorce and foreclosure and those who believe what goes down must keep going down?

MC said...

And now for the most impactful, well thought out contribution to this thread and perhaps my life:

I agree with the author: this city is whack -- all 13 municipalities of it!

Thank you.

koozdra said...

"What are we left with? Divorce and foreclosure and those who believe what goes down must keep going down? "


Don't tell that to these guys. Numerous price reductions. There was even a cash back offer at one point. Must feel pretty shitty paying a mortgage on a house you aren't living in.

"Reduced! Out Of Town Seller wants it Sold!"

http://www.realtor.ca/propertyDetails.aspx?propertyId=12161979&PidKey=1703965305

hap pychucky said...

Kooz/Info

Kooz do you really think your posting of every MLS that has something reduced or info your posting of every negative news article will have one little impact on prices in Victoria.

Obviously you two want realestate to crash for some personal gain. We got it.

Becareful what you wish for because a realestate crash could send our economy in something very ugly where everybody would be impacted, It would be jobs losses on mass, tax increases, service cuts or something else that impacts the average Joe. A housing crash is not what anybody should want who understand how an ecomomy works.

koozdra said...

hap pychucky

What I want has no impact on what is going to happen. God forbid someone posts information about houses in Victoria on a blog titled House Hunt Victoria. I'm looking for a house that I can afford. I can't afford any, so I wait. My personal interesting is getting a house.

Leo S said...

I think it does come back to affordability. If affordability is impacted significantly this could push things south quick.

I agree with the first sentence. I don't agree that affordability needs to be impacted to cause a drop. Certainly if it was it would hasten and deepen the drop, but I don't believe it is necessary.

After 5 years of price stagnation, and record low rates, affordability for single family homes in Victoria is still 18% worse than the point we ended up at at the end of the last correction (2001).

So if you want to trust affordability, I firmly believe it will improve significantly before it levels off. It's not going to happen with dropping interest rates this time, so there are only two options: rising incomes or dropping prices. I wouldn't completely discount the option that incomes can rise to fill that gap, but I find it very unlikely given current market conditions that prices can be sustained for the years and years that it will take for incomes to catch up.

Leo S said...

For example, Texas experienced no crash and also had tighter lending rules than most states?

My understanding is that they did not experience the strong increase in valuations. That's why they didn't have a crash. The valuations are the important part that influence the likelihood of a crash. Tighter lending rules should constrain valuations, but clearly many parts of Canada have seen just as much price appreciation as the states, so the idea that our lending rules are effective at constraining valuations seems to be a misconception.

dasmo said...

RE "Reduced! Out Of Town Seller wants it Sold!"
$388,900 for a 1500 sqft house on a 3200 sqf lot on the back side of Home Depot world in langford doesn't seem steeply reduced to me.
Lot value 130k
so house value 258,900 or $173/sqft
Sounds about market value. What were they asking before?

koozdra said...

They started at $415,000 many months back. Not a huge reduction, but one has to wonder how much they paid and how much lower they can go to at least break even.

not yet said...

tight lending rules?
0 down? 40 year amort.?
CMHC backing everything so
banks could loan to 20 somethings that have never saved $1,000?
Cash back mortgages? emergency
intrest rates?
the list goes on.
What don't people understand about a housing cost correction?

patriotz said...

For example, Texas experienced no crash and also had tighter lending rules than most states?

Correct. But the part that you missed is that the price run up in Texas was minimal. That's the basic reason why there was no crash.

Given that Canada's lending rules overall are much stricter than the US this may impact flat/decline/crash scenarios.

The overall price run up in Canada is the same as in the US and Vancouver and Victoria have run up as much as the most overpriced cities in the US circa 2006.

However, you can't match Dallas or Houston to any major Canadian city in terms of run up, because all major Canadian cities have gone up a lot more than they did (well maybe excepting Windsor).

Consumer debt in Canada is also just as bad (or even worse by some measures) as in the US at peak.

Given this, how can you say that lending in Canada has been stricter than in the US by any objective standard? "Because the experts say so" doesn't cut it.

info said...

@patriotz

Texas was one very obvious exception to the crash in the US because there was no big run-up in house prices in that state compared to the rest of the country. It has to do with the laws Texas has in place.

Prices in Texas did not reach bubble territory and therefore did not crash.

Quite simple.

totoro victoria said...

Yes, Texas did not experience a run up in valuation like Victoria has. Othere places did not experience a run up and did crash.

I don't know what effect our lending rules have had on valuations but I would expect there was some constraint effect as compared to the United States.

It seems to me that real estate markets have a strong local component.

totoro victoria said...

Here is some info about the differences between US mortgages and mortgages in Canada:

http://ellidavis.com/toronto-real-estate-news/2009/12/differences-canadian-us-mortgage

"The NINJA (“no-income-no-job-no-assets”) mortgage was a very popular product offered by U.S. banks, contributing to the “straw that broke the camel’s back,” which led to the 2007-08 mortgage crisis."

And the debt difference:

http://www.theglobeandmail.com/globe-investor/personal-finance/home-cents/canadian-debt-levels-no-cause-for-alarm-economist-says/article617514/

Although I have to say I wonder what our numbers would look like as RE prices fall.

info said...

@toroto victoria

Canada's lending standards may be somewhat different in some ways than what they were in the US during the house price run-up. Different does not mean better. In fact, Canada's lending standards may have been more lax than they were in the US. It is certainly debatable.

What we can do is compare the overall price run-up in each country. Both Canada and the US achieved approx. a 70% home owenership level at maximum. Income is approx. the same in each country. However, Canada achieved a higher price/income ratio and a higher average price than the US did. Household income to debt ratio (now 163%) is higher in Canada than it was in the US. Canada is not in a safer position now compared to what the US was before their crash.

Moody's reviews 6 Canadian banks for downgrade.

Quoting:

Moody's cited “concerns about high consumer debt levels and elevated housing prices” among its reasons, saying the banks are more vulnerable to a downturn in the Canadian economy than in the past.

This spring, the average ratio of household debt to personal disposable income reached a record 163 per cent, up from 137 per cent five years earlier.

It is only a myth that Canadian banks are conservative. The Canadian media, government, banks, etc. started this myth because they stood to gain from it.

Remember, house prices in Canada basically doubled over the past decade because of excess credit caused by lax lending standards. If our banks were conservative, they wouldn't have been lending money to people based on these lax lending standards. It was all backed by CMHC.

Quoting:

Consider 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.
•CMHC then lowered the down payment to 5% down with price limits depending on the area. Amortizations were 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.
•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.
•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.
•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.

All of these were exacerbated by the emergency actions taken during the financial crisis.

As we mentioned earlier, the Bank of Canada moved fast to slash interest rates to unprecedented lows, allowing banks to continue lending to businesses and consumers. The federal government established a $125-billion program to buy mortgages it had already insured from banks and financial institutions, providing even more liquidity. Ultimately the Fed's bought mortgages worth a stunning $69.4 billion.

CMHC had their lending cap increased. CMHC went from $100 Billion in insured mortgages in 2006 to $600 Billion in 2012.


totoro victoria said...

Yes, that is interesting. What do you think of this article?

http://business.financialpost.com/2012/10/30/five-reasons-canadas-household-debt-panic-is-overblown-david-rosenbergs-5-reasons-canadas-household-debt-panic-is-overblown/

His counterpoints seem valid if the stats quoted are valid.

Just Jack said...

Bankers in Canada were lending over half a million dollars to hair stylists, tree planters and drug dealers.

And your argument is that our lending standards were higher than the USA and that's why will not have an American style crash.

Your argument is kinda like asking who is more pregnant.

dasmo said...

It's the kind of mortgages that were offered. A big problem were the special no principle or reverse principle ARM mortgages designed for developers to maximize cash flow and given to unsuspecting consumers. After two years of $1500/month for your $750,000 house BLAM $4000/month. Such products were not being handed out here in Canada to any relevant scale....

totoro victoria said...

Maybe, I don't know enough about our lending criteria and there seems to be a difference in opinion between published articles on the topic. That is why I was asking about the differences. My impression is that our lending and banking rules are stricter, but perhaps they were not?

Here are 12 specific differences? Are they not valid? I'm not sure because I've not looked into this deeply:

http://ellidavis.com/toronto-real-estate-news/2009/12/differences-canadian-us-mortgage

info said...

@ dasmo

As I said, Canadian lending standards were different in some ways than American, however, different does not mean better.

If Canadian lending standards were more conservative and safer, Canada would not have:

- achieved a higher overall average price than the US did at their peak

- achieved a higher overall price/income ratio than the US

- achieved a higher household debt/income ratio than the US

Canadian lending standards, overall, pushed house prices higher than they were in the US at peak, yet Canadian and American household incomes are and were approx. the same.

You can continue to get into the specifics about the lending standards, but you are ignoring the overall outcome and effect of the lending standards in each country. That is, Canadian lending standards have pushed house prices higher, personal debt higher, etc. than American lending standards did. That puts Canada's housing market in a more dangerous postion than that of the US before their housing market crashed.

If you disagree, then please point out what fundamentals exist or existed that support your claim. I cannot think of even one.

Bringing up the specifics of American lending standards, etc. is useless. The point is, we are where we are and there are no current fundamentals in Canada that support house prices more than house prices were supported in the US before their market crashed.

Just Jack said...

How big does the scale have to be to effect prices?

Almost all foreclosures have the same cause. The owners have borrowed money through their home equity lines of credit and have extended their mortgages out to the maximum amortization period allowed. The higher the prices went, the more the owners could borrow until they could no longer make the monthly payment. And in Canada we could leverage 95% of the home's value at one time. Oh, I get it - that's why we are more conservative than the yanks - they could mortgage - what a 100%?

And that's the problem with leveraging. If you are not making your payments by $500 a month, you have to pay down the mortgage by a $100,000 to get back into the black. Yeah, right, that's gonna happen!

None of them are due to ARMS or an increase in interest rates at renewal time.

The other problem that is surfacing is rental homes in the outlying areas going vacant. The rental market in Sooke just sucks.

With prices coming down, I believe that trend of rental homes and suites having a higher turn over, longer lease up and lower rents will roll right back into Victoria. After all, there is a #%$ of a lot of suites, between here and Sooke. And each month more people are leaving for Alberta to get a job.

Hypothetically speaking if the interest rate went up by two percent, you still would be fine until your term is up. That could be 3 or 5 years from now. With a high vacancy rate, if your suite or home goes vacant, you maybe have 6 months.

If you rely on more than half of the rental income to make your mortgage payments, I think you're claim to fame will be that of becoming a bankruptcy statistic.

info said...

@ totoro

David Rosenberg is a Canadian economist, he works for Gluskin Sheff and Associates, a Canadian company. Consider the source. If he says something positive about the Canadian debt situation you should take it with a grain of salt. It is when he says something negative that you should pay attention.

Canadian housing prices are not sustainable: David Rosenberg.

Quoting from the Financial Post:

“Canada is carving out a top, while the United States is seemingly carving out a bottom,” writes Gluskin Sheff economist David Rosenberg.

Using three charts, Rosenberg points out the stark differences in the Canadian and U.S. housing market and the existence of a possible Canadian housing bubble.

Canadian home prices are on average twice the level of home prices in the U.S. Historically, average home prices had been close to parity. Rosenberg asks, “which of the two do you think is going to correct relative to the other?”

totoro victoria said...

CIBC Deputy Chief Economist Benjamin Tal notes that while the debt-to-income ratio in Canada just broke the American record set in 2006, "this ratio is more a headline grabber than a serious analytical tool. There is a list of countries with comparably higher debt-to-income ratios, which did not experience anything remotely resembling the recent U.S. experience."
http://www.newswire.ca/en/story/1061195/canada-is-not-going-to-see-a-u-s-style-housing-market-meltdown-cibc

I don't know what to believe but I'm pretty sure that it is not as simple as comparing the US to Canada and that the true basis and quality of the stats used is questionable in most cases.

koozdra said...

Where has all the new money come from to afford these new higher prices?

Traditionally this is how the banks worked. The bank would have customers that were savers. They would take that capitol and lend it out to people in the form of loans. They also charged interest to make money. You have to have a certain number of savers in order to lend out more money. This is tracked by a banks balance sheet.


It is pretty clear that Canadians are no longer a nation of savers. That must mean that the banks are doing something to their balance sheets to lend out the huge amounts required to purchase homes at these price levels.

As it turns out we have something called the CMHC. The bank issues a loan that is completely backed by the government. If the debter cannot meet their financial obligation the CMHC will refund the lender 100% of the financing without a deductible (usually unheard of in the world of insurance). This allows the banks to move these mortgages off of their balance sheets. They can now lend out more money.

This practice is sometimes referred to as "double booking". This being a special case banking on the fact that our government will meet any financial obligations of the CMHC. Which I certainly hope they will because if they didn't that would be quite a disaster.

The banks have turned into debt machines. The CMHC has effectively removed any risk from them lending out any amount of money. They didn't go too crazy. The CMHC had guidelines. These guidelines wouldn't be considered "financially prudent" by any stretch of the imagination. Let's take for example the fact that the 5% down needed to secure a mortgage could have been borrowed. Conveniently the banks themselves were eager to lend people this down payment.

So, where are we now? The CMHC is getting more regulations and is starting to slow it's insurance drastically. The housing market has become completely dependant on the insurance. The banks will now step back and think about lending. The free ride is now over.

When I talk about a housing bubble it is because of these factors.

An oldish article about our amazing banks:
http://www.cbc.ca/news/business/story/2012/04/30/bank-bailout-ccpa.html

CS said...

I suggest that the Federal Conservative government deliberately fired up the housing market to generate a good economy that would enable them to win a majority government.

Their strategy then was to engineer a soft landing on the back of a US recovery. The US housing market has turned up and the recovery should be on its way. Hence the tightening of credit mortgage rules.

But is it really? The other day Greenspan was saying the US would be lucky if to settle for a 25% cut in entitlements, a tax increase and a new recession.

He didn't say what the US could expect if they were unlucky.

dasmo said...

Banks don't need savers, they borrow money at a lower rate than they lend out. Banks are still borrowing at around 1% and lending it out at 3%. That's pretty darn good margins!
Why do you think our banks are making record profits right now?

Bitterbear said...

house on Ferndale assessed = 698,000
Sold in 1 day = 540,000

Was talking to loans manager a couple days ago. She tells me "Low rates, lots of selection, now is a great time to buy."

I reply "No, it's not."

She looks at me blankly then says "Well, it doesn't matter because you'll be insured through CMHC"

I say, "Doesn't matter to you because you're the one who's insured. Matters a great deal to me."

She then has a conversation with me about how you can always get out of a mortgage if you need to and many of her clients who have had a job loss, illness or divorce, have successfully discharged their financial obligations.

"How?"

"I usually suggest bankruptcy."

True, you can't make this stuff up.

Just Jack said...

That's wild.

The first decade and a half of this century will be remembered for its lack of accountability and responsibility.

Leo S said...

Maybe, I don't know enough about our lending criteria and there seems to be a difference in opinion between published articles on the topic. That is why I was asking about the differences. My impression is that our lending and banking rules are stricter, but perhaps they were not?

It's such a complicated issue and I think I have yet to see a good article comparing the two systems. There are certainly lots of differences as shown in the articles you linked, but overall what is the net effect to borrowers? We didn't have nearly the same extent of ARM and NINJA loans, but on the other hand every canadian mortgage is essentially ARM, and if you examine the portfolio of CMHC, it is actually extremely similar to the portfolio of Fannie Mae before their crash in terms of average equity, average credit scores, etc.
So on the surface it appears our lending standards are stricter, but why is it that the effect is not visible in the results?

Leo S said...

You can continue to get into the specifics about the lending standards, but you are ignoring the overall outcome and effect of the lending standards in each country. That is, Canadian lending standards have pushed house prices higher, personal debt higher, etc. than American lending standards did. That puts Canada's housing market in a more dangerous postion than that of the US before their housing market crashed.

If you disagree, then please point out what fundamentals exist or existed that support your claim. I cannot think of even one.


I agree with you, but the whole argument rests on the assumption that it is the overvaluation or combination of overvaluation and debt levels that caused the US crash.

Looking at valuations, the US crashed at a peak average home price of about $325,000. Well Canada passed that level in 2009 and kept rising, so the price alone doesn't seem to be enough to crash.
Same for consumer debt levels, we passed the US and kept rising while they crashed.

So the issue is more complex. It may be that it was more the shock to the US system of subprime and rising rates (essentially similar effects on borrowers) which triggered their crash, and then a wave of foreclosures that kept the crash going.

So I wouldn't be 100% confident that there is no other alternative to a big decline. I could see a gentle decline nationally, but I can also see that the stagnation could last for many years or even decades if interest rates move up at all.

Leo S said...

I don't know what to believe but I'm pretty sure that it is not as simple as comparing the US to Canada and that the true basis and quality of the stats used is questionable in most cases.

Exactly. The old adage applies as always: "For every complex problem there is an answer that is clear, simple, and wrong."

Leo S said...

Almost all foreclosures have the same cause. The owners have borrowed money through their home equity lines of credit and have extended their mortgages out to the maximum amortization period allowed. The higher the prices went, the more the owners could borrow until they could no longer make the monthly payment.

I don't think this is true. The banks will not let you borrow past your ability to service the debt in most cases.

The number one correlated factor with foreclosure is job loss. The number two is negative equity. Reducing your equity increases your risk when prices stay flat or decline, but it doesn't directly cause foreclosures.

Leo S said...

The number one correlated factor with foreclosure is job loss.

Or, as you say, loss of rental income, which is equivalent, and probably a bigger risk for many Victorians.

Leo S said...

This allows the banks to move these mortgages off of their balance sheets. They can now lend out more money.

For high ratio mortgages, borrowers were required by law to get CMHC insurance, so that part of CMHC's portfolio makes sense.
The really perverse thing is that the banks also shuffled their conventional mortgages off to CMHC to get them off their books.

Now that CMHC has essentially stopped accepting these bulk insurance orders from banks, it results in the bizarre situation that a borrower with 5% down is actually lower risk for the bank (zero risk) than a borrower with 25% down (some non-zero risk).

Government distortion of the free market at its finest.

info said...

Leo

If you don't remember, our housing market was crashing in 2009. The only thing that stopped the crash was a massive, unprecedented, emergency intervention. It took CMHC't total of $300 B in 2009 to almost $600 B today, only 3 years later. That crash was in full force and would have continued for years had it not been for the intervention. In those 3 years, CMHC basically gave out mortgages like candy knowing they were all being backstopped by taxpayers. High-risk, high-ratio mortgages were given out to almost anyone who applied and this brought about higher house prices and more sales.

The Canadian housing market just didn't magically turn around. You suggest no reason as to why it turned around.

Housing markets in both Canada and the US went into bubble territory because of excessive debt due to lax lending standards. The measures that were taken from 2009 - on are also explained in that summary.

Why does there have to be a shock to send prices lower? Substantial changes to lending standards have been made over the last number of months, including those from the CMHC, the OSFI and the federal government. Our housing market was already in decline before these changes. They will obviously add much downward pressure on house prices.

I wouldn't be surprised to see a 15% drop in Victoria house prices over the next year and then more after that.

Mark Carney has said that Canada's housing market is 37% overvalued. There are many outside, independent sources that say Canada's housing market is overvalued by much more than that. Canada's Housing Market More Overvalued Than U.S. At Its Peak, The Economist Says.

Quoting:

Canada’s housing market is more overvalued than the US’s market was at its peak, and Canadians are carrying a larger debt burden than Americans were before the crash, a report from The Economist states.

Canada’s housing prices are overvalued by 29 per cent relative to income, and by 71 per cent relative to rental rates, the study found.

Robert Shiller considers Canada's housing market to be in a bubble.

I am interested in the information you have that makes you think that there will be a small correction. What fundamentals support your view? What fundamentals are currently supporting the Canadian housing market that were lacking in the American housing market before it crashed?

I am assuming nothing. The information I have been providing for this blog has led me to think that we have a substantial correction/crash coming our way.



patriotz said...

It may be that it was more the shock to the US system of subprime and rising rates (essentially similar effects on borrowers) which triggered their crash

Wrong. Prices in the US started falling in early 2006, well before any financial shocks.

Prices started falling in the US simply because they were too high. The financial shocks were the effect of the falling prices.

All of the analysts who successfully predicted the US downturn did so on the basis that prices were simply too high relative to incomes and rents.

House prices can only be maintained at a certain multiple of incomes long term. This multiple can be exceeded in the short term by loading up on debt in various ways, but this debt accumulation always reaches a limit.

There isn't any more to it than that and those who claim otherwise are trying to sell some version of "it's different here".

Leo S said...

Wrong. Prices in the US started falling in early 2006, well before any financial shocks.

Aside from the doubling of prime rate in the previous 2 years.

Marko said...

I wouldn't be surprised to see a 15% drop in Victoria house prices over the next year and then more after that.

I wouldn't be surprised if we saw relatively flat prices in most segments. Affordability has improved in the last 5 years quite a bit.

500k box with a suite in Fernwood likely isn't going to drop to 425k.

patriotz said...

"Wrong. Prices in the US started falling in early 2006, well before any financial shocks."

Aside from the doubling of prime rate in the previous 2 years.


You've just pointed out that US house prices rose substantially over the same period that the prime rate increased.

If rising interest rates were the reason why prices started falling, why did prices rise along with interest rates for the previous 2 years? Not what I would call a shock.

You can also see the reverse - for example the current bust up-Island and in the Interior has taken place during a period where interest rates declined substantially.

Leo S said...

The Canadian housing market just didn't magically turn around. You suggest no reason as to why it turned around.

Given that we weren't talking about why it turned around, it seems logical that I haven't given a reason.

Why does there have to be a shock to send prices lower?

I floated that as a possible explanation, given that interest rates rose significantly before the US crash. Nowhere did I say that there has to be a shock. Perhaps the mortgage changes that we have experienced will be the shock for Canada.

I am interested in the information you have that makes you think that there will be a small correction. What fundamentals support your view?

Affordability.
First, I reject the notion that prices themselves are in a bubble. If we accept that bubbles correct as they inflated (ie, roughly symmetrically), then prices cannot be in a bubble given the price history in Victoria. I also see no real pattern in Victoria's price history. Hence why I started looking into affordability.
What I found there was much more interesting because there did seem to be more of a pattern (note limited data only back to 1976 though). Percentage of income spent on mortgage varied in a defined, somewhat sensible range, and more importantly, showed a symmetrical pattern in our current correction.
This made sense to me, hence I wrote about it back in June.

I've since updated the main graph in that post to include nominal prices (since that is what most people care about) and take the average of the mortgage rate for the year rather than a spot rate for December of the year.
That That graph is here.

Leo S said...

You've just pointed out that US house prices rose substantially over the same period that the prime rate increased.

The market doesn't turn on a dime. If rates increase then more and more buyers are priced out and more people on ARMs are stretched until they can't do it anymore. I'm not married to the idea that the interest rates were the main cause, but certainly the increase is significant and precedes the crash.

Dave said...

What if the dependency ratio is the missing link?

http://www.businessinsider.com/matt-kings-most-depressing-slide-ever-2012-12

"In almost every country you look at, the peak in real estate prices has coincided – give or take literally a couple of years – with the peak in the inverse dependency ratio"

Notice how Canada's ratio (flipped) like Australia, lags Spain, Ireland, US. That would explain why we're the last to correct. If so, the depressing part is no recovery in real prices until 2030.

In case someone's thinking China's building boom will continue to save us, notice how their ratio is the similar to ours.

info said...

Leo

You don't think Victoria has reached bubble territory. Perhaps you should buy right now. You obviously think that Canada is different than the US was before their crash. In other words you think "it's different here".

I really think you lack perspective.

The world has gone through at least a couple of decades of credit expansion. It was no more evident than in the last 10 years and many countries around the world experienced housing bubbles as a result of it. The list is long. Most important to Canadians is the bubble that formed and burst in the US.

We have been able to watch the housing market crash in the US and Canadians should have learned from it. Those who think "it's different here" probably ignored it.

Of the many countries that experienced real estate bubbles and subsequent crashes recently, no two countries arrived at bubble prices due to the exact same mix of lax lending standards. The lax lending standards that caused the bubbles in Ireland, Spain and the US were not exactly the same, but the general problem was just that - lax lending standards. The same can be said about Canada, the lax lending standards that caused our housing bubble are not exactly the same as those that were in place in Ireland, Spain, Iceland or the US.

So we as Canadians have been able to watch bubbles form and burst around the world and we seem to have learned nothing from it. It gets worse. Canada's housing market was in all-out crash mode in 2009, only to be halted by an extreme, dramatic, unprecedented, emergency intervention. Again, Canadians seemed to learn nothing from it and ate the candy of even cheaper and easier money over the last 3 years to re-inflate our housing bubble.

On top of that, we have been warned by economists and others outside of canada with an independent view that Canada's housing market has been in bubble territory for some time and is about to burst. Again, Canadians seem to ignore this information. Many regulars on this blog fall into this category.

Many sources provide us with important warnings about Canada's housing market. Note that many actually say we are in a bubble. Also note that the majority of these sources are independent and have nothing to gain or lose in terms of where the Canadian housing market is headed. Some of these sources are Canadian with important warnings.

Noted economist Robert Shiller who predicted the US housing crash -

“I worry that what is happening in Canada is kind of a slow-motion version of what happened in the U.S.”


CBC - "Canada's 'housing bubble' deemed close to bursting"


Macleans - "What happens when Canada's housing bubble pops?"


Scotiabank - "Canada house prices to drop, stay down for a decade, causing unemployment."


The tightening of our mortgage rules will add much downward pressure to Canada's housing market. I think many Canadians underestimate exactly how much of a difference these changes will make.

Leo S said...

You don't think Victoria has reached bubble territory.

You're confusing overvaluation with a bubble. Victoria is overvalued, but I would say not in a bubble. A bubble does not maintain its peak for years, it goes down like it went up.

I really think you lack perspective.

I prefer to think that I've been looking at this long enough to have a healthy respect for the complexities involved. This iron conviction that there is no alternative to a crash is foolish bravado. Even if there is a crash you cannot actually predict it with certainty.

So what's your prediction for Victoria decline then? Percentage, by when?

info said...

Leo

I'm not confusing overvaluation with a bubble. Did you not read the links I provided? Economists and others in the know are saying we are in a bubble. How many times do I have to provide those links?

You think that your interpretation of one graph proves that it is different here. That's all you have ever used to prove your point of view. You talk as though your opinion is more important than that of Robert Shiller, David Rosenberg, Scotiabank, Time Magazine, The Economist, etc.

You are confused with what has happened in the Canadaian housing market over the last 5 or 6 years. We were in a bubble in 2008, the market was crashing hard and in 2009 the government intervened and stopped the crash. The market would have continued to crash if it had been left on its own. Prices went up due to the intervention until within the last year or so in most areas of Canada. Now prices are falling again basically across Canada.

This scenario is different than 5 years of a stable, flat market. Why can't you see that?

What you are suggesting is that over the last 5 years we have had stability due to fundamentals and that makes Canada's housing market different. It is not different. There is nothing stable about a crash that started 4 years ago, was rescued for 2 or 3 years only to have prices start to correct again.

We are in a bubble, unless of course you disagree with Robert Shiller and many other credible sources.

CS said...

Prices started falling in the US simply because they were too high.

It probably was not that simple. The Fed funds rate was increased from 1% in 2003 by 17 increments to 5.25% in June 2006. To deny that that had anything to do with the crash seems implausible to me.

But high price to income ratios was surely a factor too. Affordability can decline only to the point where buyers can no longer afford to pay more. At that point the expectation of rapid capital appreciation must fade, and with it the impetus to buy. As demand weakens prices must fall.

I maintain that here, the Feds are aiming for a soft landing on the back of a US recovery. That's why we are not seeing the run-up in interest rates that Greenspan provided in the US between 2003 and 2006: a run-up that looked like a deliberate effort to crash the market.

If the Feds here get it right, prices across the country may fall little if at all, especially if there is sufficient inflation to generate nominal wage increases.

However, Victoria and Vancouver are anomalies in Canada, with crazy price to income ratios. Here prices are likely to continue falling because they are not rising, i.e., there's no longer a sane expectation of a quick capital gain.

The assumption that prices will continue falling here is consistent with finance minister Flackerty's promise of infrastructure funding for Victoria, i.e., some stimulus to prevent a severe local economic turn-down. Not that the Tories can surely care much about Victoria. There man got, what, 10% in the byelection?

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

Oh, FYI Introvert, I know I just mis-spelled "their". Sometimes, I mistype and then forget to proofread.

Leo S said...

I'm not confusing overvaluation with a bubble.

I think you are, but this is semantics, let's move on.

Did you not read the links I provided?

Like most of the links you post, I read the articles when they were written many months ago.

You think that your interpretation of one graph proves that it is different here. That's all you have ever used to prove your point of view.

After 4 years of research it is the best explanation for the data that I've come up with. I like it because it makes sense to me.

You talk as though your opinion is more important than that of Robert Shiller, David Rosenberg, Scotiabank, Time Magazine, The Economist, etc.

You talk as if those people are some magical fairies that have all the answers. They probably have better access to data than I do but in the end it's just another prediction. They're also not talking about Victoria specifically, which is all I care about. What happens in Vancouver or Toronto I don't care at all about.

The market would have continued to crash if it had been left on its own.

Quite likely. However the thing that stopped the crash was low rates. Those low rates are still in place, so you've altered the situation that was crashing before. It's not like they were some temporary stopgap that has now been removed. Those low rates put supports under the market, so it will not crash as far as if rates were still the same as in 2008. That doesn't mean it won't decline further, but clearly the situation now is different than in 2008.

What you are suggesting is that over the last 5 years we have had stability due to fundamentals

Not remotely. What I'm saying is we've had a very significant correction in the percentage of income that the average family pays for the average house. That correction happened because of lower rates and rising incomes, rather than significant movement on price.

By the way you never answered my simple question: How far do you predict Victoria will decline, and when do you anticipate to see a bottom? Also do you think that interest rates will increase in the next few years?

CS said...

I think Info is probably correct about the dynamics of the market since 2008.

And I would explain the Feds action on the basis that they think that now, as the US is showing signs of recovery, is a better time to let the market work than in 2008.

I also contend that the Feds may be wrong about the viability of the US recovery and that the US economy may soon be in another dip, with houses re-dipping too. In which case, taking the props out from under the Canadian housing market now will cause a resumption of the 2008 crash.

kunwak said...

Leo S,

You hit the nail on the head with this. IMO it's not worth arguing with info's simplistic and naive narrative.

"I prefer to think that I've been looking at this long enough to have a healthy respect for the complexities involved. This iron conviction that there is no alternative to a crash is foolish bravado. Even if there is a crash you cannot actually predict it with certainty."

dasmo said...

Predictions from credible sources do not make a factual premonition of the future. If that was the case Apple would have actually gone the way of the Betamax as many experts predicted. Instead they became the most valuable company in the world. Has mr Shiller spent any time in victoria? How familiar is he with this market.. The only fact is that houses are very expensive in Victoria. What will happen next is pure guess work.

totoro victoria said...

I wish there were magical fairies

totoro victoria said...

I wish there were magical fairies

CS said...



The future is always uncertain. But folks nevertheless seek to anticipate it. If intelligent guesswork was never vindicated, we would surely not have evolved brains.

dasmo said...

I'm not saying to anyone not to predict. I find it a very useful behavior. I'm only expressing my reaction to the attitude that because someone has made a prediction that it is bound to come true. I beleive my own predictions all the time and live by them but know I could be wrong. Luckily I'm usually right ;-)

Introvert said...

info, unfortunately for you, the winner of this argument--and any argument--will not be determined by who has assembled a larger collection of links to articles sympathetic to a specific viewpoint.

Introvert said...

Oh, FYI Introvert, I know I just mis-spelled "their". Sometimes, I mistype and then forget to proofread.

Not to worry. Typos and isolated examples of incorrect word usage happen. (I, too, slip up on occasion.) But what I often cannot refrain from going after is a lack of grammatical understanding demonstrated across numerous posts.

info said...

Leo

Low rates were only part of the reason that Canada's housing market stopped crashing in 2009. There was much more to it than that.

Looking at CMHC's total insured mortgages is insightful.

CMHC was formed in 1946.

1946-2006 CMHC total = $100 B

2010 $$ added to total = ~ $100 B

2011 $$ added to total = ~ $100 B

2012 $$ added to total = ~ $100 B

By the end of 2012, CMHC's total is almost at $600 B.

This tells us that from 2009 until now CMHC insured far more high-risk, high-ratio mortgages than it had ever done in the past. It insured mortgages that it wouldn't even have looked at prior to 2009.

Examples:

- self employed workers did not have to show proof of income

-immigrants with no credit history or employment history were given mortgages

As well, the banks brought in cash-back mortgages. The government still provides tax credits for first time buyers. The list goes on.

There was a lot more to the equation over the last 3 years than interest rates alone. These other factors are very dangerous and allowed people who wouldn't have qualified in 2008 to qualify in 2009 - 2012.

Credit has obviously been tightened now. Interest rates can stay where they are, it will not matter. The new mortgage rules, with contributions from the federal government, the OSFI and CMHC, are very substantial and very few people understand how much of an impact they will have in the coming years.








info said...

Leo

Your graph doesn't match up with the Teranet index or other average price graphs in that it does not show the significant declilne in prices from mid 2008 - mid 2009. It seems much flatter than other graphs.

However, it is obvious that from 2002 to 2008 house prices in Victoria more than doubled. This is what a bubble is all about. No different than what happened in Miami, Las Vegas, California or Phoenix. Lax lending standards create bubbles.

So by 2008 Victoria was definitely in a bubble.

Then there was the crash that went from mid 08 to mid 09. Victoria lost 15% in about 8 months. Then the market was rescued.

From my previous post, we note that from mid 2009 - onward CMHC absolutely insured almost any mortgage that came its way and interest rates were slashed to emergency levels. This stopped the crash in mid 09.

From mid 09 until recently, other cities in Canada saw rapid price gains. This is understandable, given the degree of stimulus via CMHC, the loosening of lending standards in 09 and emergency interest rates. Huge price gains happened in almost every Canadian city except Victoria, where prices remained relatively flat in comparison. This meant that Victoria's market was actually declining in a relative sense to the degree of stimulus that the market was receiving.

On a graph, Victoria's average house price has remained relatively flat since 08. House prices doubled from 02 to 08 creating a bubble. In no way does this relative flatness since 08 mean that Victoria's market has found some sort of floor. The bubble remains because fundamentals such as income did not increased in proportion to price gains in that time to support current prices. This means that we are still very vulnerable to a crash, as we were in 08. Given the events since 09, with CMHC's total increasing from $300 B to $600 B due to the loosening of credit, etc. it is obvious that we are currently even more vulnerable to a crash. The recent tightening of credit will not help the situation.

info said...

kunwak

Simplistic and naive narrative?

You offer nothing to this blog. Tell me, how exactly is my factual, researched information a "narrative that is simplistic and naive"? Perhaps you can come up with something that is supported by facts, not simplistic and not naive. What have I left out that you can obviously see? Please tell.

Leo S said...

CMHC was formed in 1946.
1946-2006 CMHC total = $100 B
2010 $$ added to total = ~ $100 B
2011 $$ added to total = ~ $100 B
2012 $$ added to total = ~ $100 B
By the end of 2012, CMHC's total is almost at $600 B.

This tells us that from 2009 until now CMHC insured far more high-risk, high-ratio mortgages than it had ever done in the past.


It actually does not. It only tells us that CMHC's mortgage portfolio increased dramatically in the last three years. It doesn't tell us anything about how risky those mortgages are. How do you come to that conclusion.

We just talked about the cause behind this explosion in their portfolio, and it is due mostly to bulk insurance of conventional mortgages. I don't have the numbers at the moment, but when you see that they have reduced bulk insurance to major banks by 98%, and Scotiabank bought $17B of it just last December, you can see that most of the increase is likely due to that. 80% of CMHC's portfolio has greater than 20% equity, although I know that this is a misleading measure and can decline quickly.

There was a lot more to the equation over the last 3 years than interest rates alone.

True, but in order to use that information you need to quantify it. Exactly how much impact do the changes have? I've seen elsewhere that all 4 mortgage tightening measures combined would price out 17% of first time buyers. That's a start, but I don't know how accurate that is.

Your graph doesn't match up with the Teranet index or other average price graphs in that it does not show the significant declilne in prices from mid 2008 - mid 2009. It seems much flatter than other graphs.

That's because the data points are end of year averages. The decline happened late 2008 and early 2009, so it partly dragged down the average for both years, which ended up basically flat.

However, it is obvious that from 2002 to 2008 house prices in Victoria more than doubled. This is what a bubble is all about.

From 1987 to 1993 prices also more than doubled ($110,000 to $246,000). Clearly a bubble and we should have had a big crash in 1994. Many things are different now so I'm not saying we're in for a repeat of the 90s (I don't think we are), but just price increases doesn't prove anything.

from mid 2009 - onward CMHC absolutely insured almost any mortgage that came its way

Actually I have yet to see any convincing data that shows to what extent the quality of new high ratio mortgages deteriorated in that time. To prove that statement we need data on average down payments, credit scores, TDS ratios, etc over those years. As far as I know this data doesn't exist.

In no way does this relative flatness since 08 mean that Victoria's market has found some sort of floor.

No, and I don't think we are at a floor. We've got some declines ahead of us still. However we are less vulnerable now than in 2008.

You just don't want to give a prediction for Victoria eh? I don't want to hold you to it, just curious.

Leo S said...

Regarding the quality of CMHC's high ratio insurance, all I have is the last 3 years from CMHC's financial statements.

Distribution of high ratio insurance in force by credit score.
2012
Average credit score: 726
Percentage with score under 660: 12%
2011
Average credit score: 723
Percentage with score under 660: 12%
2010
Average credit score: 721
Percentage with score under 660: 13%

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

This Winnipeg Free Press article caught my eye.

http://www.winnipegfreepress.com/business/million-dollar-houses-hot-sellers-in-city-182496911.html

dasmo said...

Leo, I appreciate you data mining and organizing/graphing. You should really have your own site presenting this analysis. It's so much more useful than over dramatic, attention grabbing, proclamation sites. Pure detailed presentation of the data is rare these days. It would be great to have all your work presented in one place. Like the non-spin vreb! There are plenty of free website builders out there!

totoro victoria said...

ditto on the data dasmo

Marko said...

However, it is obvious that from 2002 to 2008 house prices in Victoria more than doubled.

Prices have also doubled a similar percentage from 1993 to 2013 (now).

You had flat prices from 1993 to 2002 and since 2008.

Marko said...

Info,

Have you tried obtaining a mortgage in recent year as a self-employee?

I had banks last year rejecting my application because I only had two years’ worth of self-employed income (most wanted 3 years). I was looking for a mortgage that was less than 200% of my annual income, 725+ credit score and liquid assets that were more than 50% of the mortgage after my 20% deposit.

I didn't have to use CMHC but they have really clamped down as well on applications. I've had a number of deals in the last two years collapse because CMHC wasn't happy with the bylaws or minutes of a building...yes, they actually read that now!

I don't think they are giving money away as you would suggest.

Marko said...

Credit has obviously been tightened now.

The lastest round of credit tightening only effects 20%-23% of buyers in Victoria by lowering their max borrowing power by 7% assuming they were going to go 30 year amortization and max out in the first place.

Approximately 80% of buyers in Victoria buy with either cash or conventional mortgage (no CMHC).

Has the tigthening had some impact on the market? Sure, but it is much more complicated and multi-factorial than that.

info said...

Leo,

Your chart makes far too many assumptions. Assumptions based upon other assumptions leads to fudged data. I'm a math major.

Basically what you have always tried to say is that without interest rates moving higher, Victoria's housing market will not see much of a correction.

This is completely false. You underestimate the loosening of the mortgage rules in 2009. Nobody can put an exact number on the effect of those changes, but that is not necessary. The pool of buyers was increased dramatically as a result of the changes. This is reflected in CMHC's total insured mortgages in each of the years 2010, 2011 and 2012. Each of those years had approx. $100 B in insured mortgages which was equal to CMHC's total from the start until 2006. I don't think you are grasping the extent of this market interference.

CS said...

But what I often cannot refrain from going after is a lack of grammatical understanding.

Mostly just carelessness, perhaps. But in any case, effort to write correctly is usually related to care about writing logically. So I guess you do a good job Introvert, if you encourage more careful writing.

info said...

Marko

You claim 80% of applicants in Victoria buy with either cash or without CMHC insurance. Show me the proof.

Over the past decade, slightly more than 50% of mortgages in Canada went to first time buyers. Almost all of them require CMHC insurance. I really doubt your numbers.

80% may be right. Whether it is correct or not makes no difference. The fact of the matter is that Victoria's housing market crashed 15% in 8 months in 08-09. Your 80% number made no differnce then and it will not make a difference now.

As for your other comment - self employed applicants were given mortgages in recent years. Not only that, they were given mortgages without proof of income.

Alexandrahere said...

Really nice condo in the Savoy, 2 beds, 2 baths, bright with great floor plan, new laminate flooring, conrete building and in town just went for $230K. I wonder if upgrades (maybe the brick facade) to the building must be made.

dasmo said...

I think Leo represents himself in a much more mathematical manner info.
If the supposed sudden lax lending standard had such an effect wouldn't there have bee a sales volume spike in 2010 2011?

Leo S said...

@dasmo, thanks. Maybe I'll throw some of the stuff on a page sometime.

If the supposed sudden lax lending standard had such an effect wouldn't there have bee a sales volume spike in 2010 2011?

Well the spike came in 2009 when the crash turned into an equally quick recovery. I think info's argument is that the relaxed lending standards are what allowed us to maintain our high. Sounds reasonable to me.

info said...

The loosening of credit that was initiated in 2009 to stop the housing market crash was on a massive scale. Two basic categories of changes were made.

1. Changes that dramatically increased the pool of buyers:

- cash-back mortgages. People with no money at all, who couldn't come up with a 5% down payment, were suddenly able to qualify for a mortgage.

- immigrants with no credit history and little job history. This dramatically increased the pool of buyers.

- self-employed applicants did not have to provide proof of income. They were also given the same rates as even the most qualified buyers.

2. Changes that resulted in more money per mortage.

- interest rates were slashed to emergency levels. Suddenly interest rates were at the lowest levels in Canada's history. Obviously this gave more purchasing power to everyone, including the massive pool of new buyers that was created.

Other changes were also brought in at the time.

The effect that these changes had on turning the housing market around in Victoria and the rest of Canada in 2009 is almost always underestimated.

Rates could have been at 0% or 10%, it wouldn't have mattered. The new pool of buyers was created regardless of the emergency interest rates.

The new pool of buyers that was created in 2009 was a pool made up of applicants who previously were unable to qualify for a mortgage. Not only were they a risky group, but they were buying in at peak prices. These will be the first to lose their homes as prices correct.

As prices correct around the country, banks will tighten up their own lending standards. This will result in even more price losses. The whole pattern is predictable and has happened in Canada before. It has been happening around the world recently on a grand scale.

As you can see, emergency interest rates were not the only thing that stopped the market crash in 09. Recently, the new mortgage rules have disallowed everyone in the new pool of buyers from obtaining mortgages. This will cause prices to correct significantly and for many years, regardless of where interest rates sit.

The new mortgage rules go beyond this, including a cap on CMHC insurance, tightening of debt ratios and of course the reduction of the maximum amortization to 25 years.

Leo S said...

Your chart makes far too many assumptions. Assumptions based upon other assumptions leads to fudged data. I'm a math major.

Great. Maybe you can help me out then and improve the data. Here are my assumptions for the affordability calculation:
1. BC Average family income is sufficiently similar to Victoria average income. I do have Victoria average income and it does track the BC numbers quite closely, but has more variability because of low numbers of respondents. All this is from CANSIM 202-0401
2. Average original mortgage amortization period is what I've gleaned from CAAMP reports. Up until 1989 that was 25.3 years, then 25.55 until 2000, then increasing to a peak of 28.25 in 2010 and down again now that terms above 25 years are essentially unavailable again. This assumption I believe is the weakest, since the data is poor and I don't know of a better source.
3. Down payment constant 20% down. Again I don't know of any source that gives average down payments per year.
4. Average 5 year mortgage rate from here.

Is it perfect? Far from it. There are many other factors that are hard to take into account. What about the costs of servicing other debt? Is the 5 year mortgage rate actually what people are paying (seems a bit high), what about undeclared suite income? What about lower down payments?

By all means there is room for improvement. But it is a constant measure to compare against historical trends, and it takes into account more things than just price.

Nobody can put an exact number on the effect of those changes, but that is not necessary.

I would say it is absolutely necessary. Otherwise we are just waving our hands around. That is not a basis for any kind of informed decision.

The pool of buyers was increased dramatically as a result of the changes. This is reflected in CMHC's total insured mortgages in each of the years 2010, 2011 and 2012.

You're ignoring the fact that probably the majority of CMHC's increase in insurance in force is from bulk insurance of conventional mortgages.

totoro victoria said...

Math major is fine but I'm guessing there are plenty of folks who post and read with advanced math/engineering/law/economics degrees that might be relevant to detailed analysis of any topic on this board.

I'm not trying to say that training is not helpful, but there are plenty of ways to become informed on your local market.

I've noticed that plenty of folks have done very well financially in real estate without any higher education or advanced math skills. Sometimes it takes just making a move. If you analyze too much you can just sit and spin around in circles while others make progress.

From my perspective, no degree can substitute for motivated attention to the local market over a long period of time and then... action.



Marko said...

I've noticed that plenty of folks have done very well financially in real estate without any higher education or advanced math skills.

Very very true based on my experience.

Leo S said...

I've noticed that plenty of folks have done very well financially in real estate without any higher education or advanced math skills. Sometimes it takes just making a move.

Those times are past. Not to say money can't be made, but the days when anyone can make money by blindly buying is no more.

koozdra said...

I've noticed that plenty of folks have done very well financially in real estate without any higher education or advanced math skills.

I believe this type of sentiment is something that has contributed to the run up in prices. Too many people are convinced that the there is no risk associated with real estate. This has also encouraged people to buy at the edge of their affordability. Why not buy in at any price when Victoria real estate is a sure thing?

"advanced math skills"

This is particularly funny to me. There are people that are cash flow negative right now that don't know it precisely because of poor math skills. If you try to show them some calculations, they completely shut down. As if you are speaking another language. This is no way to run a small business.

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

Those times are past. Not to say money can't be made, but the days when anyone can make money by blindly buying is no more

Yes, buying completely blindly is a receipt for disaster.

However, in my opinion intuition when buying investment property is more important than the math.

I've done lots of advance financing courses and I found them for the most part useless. Sure, it is great to know how to calculate net present value, IRR, cash flows, etc. The problem is you always have to make assumptions for a lot of different variables.

totoro victoria said...

My point was not to buy blindly believing that prices always go up.

My point was that excessive analysis, by any kind of major of anything, does not always result in financial progress.

There is a line between trying to time the market and spending all your time posting about various aspects of what the market is doing based on statistical analysis.

I don't know if it intuition so much as deep knowledge of a particular market that comes into play as to what type of property to buy. This requires not only some general knowledge, but hands-on local knowledgw.

I feel more in tune with the small markets I know about because I spend the time touring listings and have done so for the past ten years or more.

As far as people being in over their heads because of basic lack of math skills - not sure who this is? I don't have anyone in this situation in my circle of family and friends.

Are you equating buying a house to running a small business? Are you talking about apples and oranges?

What cash flow negative scenario are you referring to re. the housing market?

Are you suggesting that all financial investments be viewed as cash flow negative unless they are actively making you money right now? Most would fail this test at many specific points in time unless you look longterm.

A house is not a small business. You have to live somewhere. If you are trying to make a rent vs. buy comparison I could buy this analysis based on Roger's charts.

I buy nicer food than I need to sustain life. I spend discretionary funds on some extras like travel. None of this makes money - it enhances quality of life - as a home can do.

This is why, imo, a house is not a small business nor can it be compared to one. I like to have rental income and run my places like a small business would, but this is not the norm and I can't think of why it should be.



koozdra said...

"Are you equating buying a house to running a small business? Are you talking about apples and oranges?"

Buying a house with a suite is exactly starting a small business. Let me know the differences.

totoro victoria said...

A secondary suite may bear some similarity to a business venture but it is not, imo, a small business.

It might be called an ancilliary economic activity, or under stats can, a micro-enterprise.

According to Canadian Industry Profiles, a small business is defined as one with revenue between $30,000 and $5 million.

Coincidently, under $30,000 and you don't register for HST.

Other places to look for definitions include: 1) Canadian Bankers Association, 2) Canada Revenue Agency, and 4) Statistics Canada (Federal Govt.).

A secondary suite is quite different (and a lot simpler) from a small business requiring a business licence, HST registration, business number registration, and more complicated accounting, and perhaps even employee payroll management.

If you are making substantially all of your income from this activity and you are making over $30,000 a year maybe we are somewhere near that but most with secondary suites have other jobs.

It goes without saying that if you are losing money and this is your only source of income then you are a failing small business.

Of course, the fact you have to live somewhere might factor into the equation somewhere :)



koozdra said...

"ancilliary economic activity"

So we can't call it a small business. Let's call it a very small business. People have become reliant on the income from this very small business to pay their mortgages.

From the banks perspective, why should there be a difference a small business or an individual that is reliant on the success of a very small business?

totoro victoria said...

I dunno - I'm not a bank.

I would say that the rules around the use of suite income (ie. you only get 50% of gross legal suite income added to your income), along with other types of criteria including your credit score and other income/assets, in qualifying for a mortgage are the gatekeeper.

There is no guaratee you will have any of the income you have at the time you apply for a mortgage later on.

You get to take care of you and your financial obligations after you qualify and the bank has its security.

If you become reliant on rental income and you can't rent for some reason (even at 50% of market???) you'll have to increase your income some other way. Personally I view this as a minimal risk, but maybe not in some situations that I'm not aware of.

The question is what kind of credit risk you are.

Small business financing seems much more risky to me. This is why you are normally required to put up a personal guarantee - usually your home.... and it becomes just like a mortgage in a way.

Marko said...

When it comes to qualifying for a mortgage the suite rules are fairly conservative.

If you make $100,000 per year and you can borrow $537,000 at 3.09% on a 25 year amortization your monthly payments would be $2,567.

Now you are buying a home with a suite that rents for $1,000 per month. Add $6,000 to your income and you get $106,000 per year and you can borrow $570,000 on the same terms and your monthy payments will be $2,727 while you are collecting $1,000 in rent minus expenses.

Option #2 seems like a safer bet both for the bank and the buyer.

Marko said...

Monday, December 10, 2012 8:30am

MTD December
2012 2011
Net Unconditional Sales: 112 339
New Listings: 179 505
Active Listings: 4,215 3,780

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

Dave said...

Sounds great. Time to take action. How can I short the Victoria housing market?
Dave3

Just Jack said...

I can't think of a way to short the real estate market.

In contrast when the market was rising you could put an offer on a property and have a long closing date.

I have a feeling that access to lots and lots of cash will be very important in buying real estate in the years to come. Unlike in the past when it has been access to lots of financing. So maybe the key to future real estate deals is to keep your investments quite liquid.

There are a few other ways, but they're a bit dodgy and involve risking your deposit.

CS said...

The loosening of credit that was initiated in 2009 to stop the housing market crash was on a massive scale. Two basic categories of changes were made.

1. Changes that dramatically increased the pool of buyers ...

2. Changes that resulted in more money per mortage. ...


So however well one analyzes the market on the basis of standard financial, economic and demographic principles, one may be blindsided by government intervention. The housing market is not a free market. It is a market messed about by governments as a key tool in creating electoral advantage.

patriotz said...

Has mr Shiller spent any time in victoria? How familiar is he with this market.. The only fact is that houses are very expensive in Victoria.

That's the only fact that matters - more precisely the fact that prices are very high relative to rents and incomes. That's how Shiller and others predicted the bust in the US.

StalJ said...

The IMF & Economisthave us at 77% overvalued to rents. If my calculation is correct, that’s only a 42% drop to reach equilibrium with the States. My point is, we still wouldn’t give back all the gains since 2000.

Marko said...

The median in 1993 was 225k.

The median now is approx.. 530k.

42% drop = 307k.

1993 to 2013 we would be looking at a 36% increase in median.

1/ Economy is better than mid 1990s
2/ Wages have gone up
3/ Interest rates have gone way down
4/ Many homes now have suites

Unless the entire economy completely collapses there is no way we are rolling back 42%.

dasmo said...

I still hold on to the theory that the distressed sales distort the reality. Look at these two Seattle recent sales snapshot links from zillow. From low to high and from high to low

As you can see each transaction is very individual (with some good deals had without doubt). True, the conglomerated stats obviously have influence on sellers but it doesn't set an exact price that one can strike on as with a stock. The closest comparison I can think of in relation to stocks is to think of the housing market as a sector of the stock market with each individual house it's own stock. Just look at microsoft, RIMM, Google, Apple and Nokia. They are all performing quite different from each other. Hard to "Short the smart phone market"...

Alexandrahere said...

I read somewhere that in the City of Vancouver you have to take out a business license when you have a suite in your home.

Introvert said...

Unless the entire economy completely collapses there is no way we are rolling back 42%.

I firmly agree that a 42% rollback would be part and parcel of an overall economic calamity.

Who here thinks such an overall economic disaster is imminent? I don't.

Furthermore, Victoria isn't Williams Lake. We would have to see massive employment cuts across a variety of institutions (DND, provincial government, BC Ferries, UVic, VIHA, federal government) before truly dire economic outcomes are seen. When that happens, the price of housing will not even be in the top ten concerns people have...

info said...

Marko

You are doing what so many have done. Pick a starting point on an average or median graph and then make conclusions based on that. I can pick other starting points and come up with completely different conclusions than you.

The price to income ratio is the most useful and accurate metric available by far.

Mark Carney uses this metric. He concludes that Canada's housing market is 37% overvalued.

Indeed price/rent ratio is the metric of choice for most banks, governments, etc. around the world as it allows city to city and country to country comparisons.

It also prevents people like you from cherry picking stats.

Vancouver has a price/income ratio of 9.2. It is the second highest in the world right now. Victoria is second highest in Canada and very close to Vancouver at about 8.0. The normal price/income ratio is about 3.0. Above that is considered overvalued and 8.0 is way out in the category of extremely overvalued.

I can't come up with an example of a city anywhere in the world that reached a price/income ratio of even 7.0 that did not experience a subsequent crash. Victoria is sitting in more dangerous territory than that.

info said...

Leo

CMHC insured many high-risk, high-ratio mortgages before and after 2009. It certainly is not the case that post 2009 CMHC suddenly started to ignore high-risk, high-ratio mortgages to the point where they only comprised a small percentage of their overall numbers. My point stands.

Therefore, the dramatic increase in insured mortgages post 2009 is still very valuable to us. It still shows that the government used CMHC to create a whole new pool of buyers to stop the housing market crash that started in 08.

info said...

Introvert

Victoria doesn't need to see a dramatic economic downturn before house prices tank.

In the US this was not the case at all. In 2006, the housing market in the US peaked. In 2008, as a result of the housing market collapse, the economy collapsed.

Let me guess, now you are going to go off about how you think we are different than the US.

Well, in general we are the same in virutually every major category, including average income, 70% of our GDP is based on consumer spending, etc. However, that is not the point.

What is usefull from this comparison to the US (and other economies around the world) is that when a housing market corrects dramatically, which is happening in Victoria now, the economy takes a huge hit as well. It takes years for this to play out once it starts.

hap pychucky said...

"What is usefull from this comparison to the US (and other economies around the world) is that when a housing market corrects dramatically, which is happening in Victoria now"

Info please show me in the median or average where this is happening in Victoria. Show us all, the dramatic correction in Victoria. Please use real VREB numbers to show this.

hap pychucky said...

http://www.articlesalley.com/article.detail.php/160140/153/Politics/News-and-Society/18/World'_top_ten_cities_in_housing_price

Victoria is around $250 a sqaure foot. Canadian realeste is cheap compare to world prices. I rather live here than anyone of the places on the list.

Marko said...

is that when a housing market corrects dramatically, which is happening in Victoria now, the economy takes a huge hit as well.

What is your definition of dramatic? 2% for the year?

Dave said...

Rents have dropped quite a bit here since the IMF price-to-rent research. That is to say, our ratio would be even higher now.

Introvert said...

I can't come up with an example of a city anywhere in the world that reached a price/income ratio of even 7.0 that did not experience a subsequent crash.

Please show me your source for price/income ratios of all cities with populations over 350,000 in the world. Thanks.

Here's something a Google search yielded: World Map of House Price to Income Ratio.

Look at how many cities around the world have extremely high house price to income ratios. It's clearly "not different here": lots of cities have high ratios.

hap pychucky said...

Info

according to this there should be 221 cities that should experience a crash according to you. They are 7 or above.

http://www.numbeo.com/property-investment/rankings.jsp

hap pychucky said...

Victoria is at 185 or so on the list.

Marko said...

Victoria is second highest in Canada and very close to Vancouver at about 8.0. The normal price/income ratio is about 3.0. Above that is considered overvalued and 8.0 is way out in the category of extremely overvalued

There are way too many variables to have a "normal" price/income ratio.

info said...

Looking at the US housing crash, I can't come up with even one US city that crashed faster and harder than Victoria, Vancouver or Toronto did in 08-09. Furthermore, I can't come up with a US city that had a higher price/income ratio than Victoria or Vancouver currently have.

Knowing that the government used CMHC to create that massive pool of new buyers starting in 09, and for several other key reasons, the Canadian housing market is probably sitting on much more dangerous ground than it was in 08 before it crashed.

This will not end well.

info said...

Marko

Banks and economists worldwide use the term normal price/income ratio and have for decades.

hap pychucky said...

Info

http://www.numbeo.com/property-investment/rankings.jsp

NY 10.65
Dayton 9.53
SF 8.74
Honolulu 8.39
Richmond Virginia 8.36

Victoria 8.3

Info it is horrible when the number prove the BS that comes out of your mouth.

What about the Victoria crash. Where are those numbers?

info said...

hap pychucky

As we have discussed on this blog at length, using averages and means at a time when there are so few sales is meaningless.

Even the VREB knows better than to trumpet November's sudden spike in average price.

You should be looking at sold vs assessed values. If you look at enough list vs assessed values you can get a better idea of what is actually going on in the market right now than what the average price indicates right now.

Ask someone who is trying to sell their house how healthy the market is.

hap pychucky said...

Info there are 220 cities that have a higher ratio than Victoria. What`s up with that!!!

hap pychucky said...

Info

Bla bla bla. I Only care about sold prices. Sold prices are at the same average and mean since 2008.

hap pychucky said...

Info

I have no houses for sale in my area. Last one went in 7 days in Nov. My area is healthy. Quality in the core is fine.

Marko said...

Split & Zagreb are on that list in the top 100. I was born in Split and my parents moved to Victoria when I was in elementary school. I visit frequently and was there this summer as my parents have a house on an Island Brac.

The ratio in Split and Zagreb has been over 10 for decades and with very high interest rates to boot.

My cousin is a PhD chemist in Zagreb, works full time, and her husband is a mechanical engineer for Siemens. All they could afford was a 550 sq/ft one bedroom condo in Zagreb. That is just reality, has been so for a very long time (decades). Market hasn't crashed.

I am pretty sure a PhD chemist at UVIC and an engineer working for Siemens Canada can afford a bit more than a 550 sq/ft condo even at these prices.

The place where my parents own on the island houses regularly go for $1 to $2 million and the average income on the island is maybe $8,000/year, if that. The average finished home probably goes for $400,000 CND.

New Dubrovnik condos are often more expensive than Vancouver on a per sq/ft bases.

I made a short video this summer:

http://www.youtube.com/watch?v=5pe81KKEjg4

info said...

Numbeo uses an entirely different methodology. It makes some assumptions, etc. that differ from the indexes used in western countries.

It uses net disposable family income, for example. That creates a whole different set of numbers. You can easily see that these numbers are in a whole different range than the 8.0 and 9.2 that Victoria and Vancouver are in. Gross family income is used to arrive at these numbers, not net.

You need to compare apples to apples, not apples to oranges.

info said...

Vancouver second least affordable city in the world, an international study finds.

hap pychucky said...

Info

Apples to apples Victoria is 220 on that list compared to the other cities. Victoria is lower than 5 American cities. You may not like what the list says but they are using the same calculation for all the cities.

Net is no better because americans have way higher house taxes in major cities. They also have health care costs and higher education costs so lets not go down that path.

My friend pays 16k for his 800k house in city taxes in his NJ town.

Marko said...

Numbeo uses an entirely different methodology.

Yes, but they apply the same methodology to all the cities.

Their numbers makes sense to me when I compare Victoria (where I live and do business) and Croatia where most of my family lives.

hap pychucky said...

http://www.numbeo.com/property-investment/rankings.jsp

Info

according to this there is over 180cities less affordable than Van. Click on affordability their number is 1.35.



patriotz said...

Unless the entire economy completely collapses there is no way we are rolling back 42%.

You don't need a 42% rollback in nominal prices to get prices back in line with rents and incomes because the latter will likely rise with inflation.

That is, a 42% rollback in real prices can happen with a much smaller rollback in nominal prices.

The US overall fell about 35% nominal and 50% real I think.

patriotz said...

according to this there is over 180cities less affordable than Van. Click on affordability their number is 1.35.

These numbers are meaningless because you're comparing against the affordability of Western style accommodation in 3rd world cities which is out of reach of all except the wealthy.

hap pychucky said...

When you get your property tax bill and you are paying .5% do not conplain.

Look at NY, NJ is just as bad.

Highest Property Tax as Percent of Home Value
1. Orleans County, N.Y. (3.05 percent)

2. Niagara County, N.Y. (2.87)

3. Monroe County, N.Y. (2.81)

4. Allegany County, N.Y. (2.77)

5. Montgomery County, N.Y. (2.72)

hap pychucky said...

Pat

"It assumes 100% mortgage is taken on 20 years for the house(or apt) of 100 square meters which price per square meter is the average of price in city center and outside of city center"

I may have missed it but where does it say western style accommodations. Above it say average in city center.

Introvert said...

It uses net disposable family income, for example. That creates a whole different set of numbers. You can easily see that these numbers are in a whole different range than the 8.0 and 9.2 that Victoria and Vancouver are in. Gross family income is used to arrive at these numbers, not net.

You need to compare apples to apples, not apples to oranges.


A whole different range? You call the difference between your number (a ratio of 9.2 for Vancouver) and Numbeo's number (9.83) a "whole different range"?

On what planet are you living?

patriotz said...

I may have missed it but where does it say western style accommodations.

Because that's pretty much the only kind that is individually sold in 3rd world markets. Everyone else rents. Or just squats.

patriotz said...

Niagara County, N.Y. (2.87)

Better known as metro Buffalo. What do you think house prices are like there?

That goes for your other examples too.

Dave said...

Comparing PtoI ratios across countries is meaningless. You can really only compare a city's current PtoI ratio with its long-term average ratio, to determine if over or under valued.

An example,
Quito has a PtoI ratio almost twice Victoria, yet it's consistently rated as one of the best and most inexpensive places to live and retire in the world. Perhaps Quito's long-term average ratio is normally quadruple Victoria’s average. Quito's 14 is undervalued, whereas Victoria's 8 is over valued.

http://www.moneysense.ca/2012/11/27/retire-in-luxury-on-next-to-nothing-2/retire_luxe_ecuador/

dasmo said...

Just comparing to Victoria's long term average to itself won't give you a long enough sample range. This is especially true since our city is so young and has been changing on many fronts.

patriotz said...

That's also true of Seattle and every other city in western Canada and US.

Comparing current with historical price/income was a pretty good predictor of price declines in the US, so why shouldn't it work in Canada?

Just Jack said...

7 home sales in the last 30 days in Sooke. With some 220 listings or nearly 2.5 YEARS of inventory.

A new home in Sooke will costs you less than $400,000. The equivalent home in Fernwood rings in at over $800,000.

A fool and their money are soon parted.

dasmo said...

...and if you looked at my links you would see that a nice house in a nice location still goes for a pretty penny in Seattle...unless you are lucky enough to get in on one of those distressed sales. That is the market down south, not a wholesale decline in prices across the board to previous affordability levels. More a leveling of the stats due to two poles being created.

Just Jack said...
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Just Jack said...
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caveat emptor said...

"Vancouver second least affordable city in the world, an international study finds"

Info, please! Last time I checked there were more than seven countries in the world. Also have you actually read the Demographia report? They have such a big ideological axe to grind (the socialists are at the gate!!) that I would treat their findings with caution.

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

Why do so many of the bulls have to compare Victoria with cities like Seattle when all the comparison you need can be seen from your front window.

Like Salt Spring Island, 9 sales in the last 30 days and 186 active listings. With prices back to 2005 and 2004 levels.

But that can't happen to Victoria?!

Saanich East, the middle income family area of Greater Victoria and the heart of our real estate market. 31 sales in the last 30 days and 247 listings. Average days on market is now more than 70. With two new listings added for every one that sells.

Which begs the question - why aren't prices falling?

Because these are the last of the delusional buyers who think Victoria is different from anywhere else on Earth.

"There's a sucker born every minute"

-accredited to P.T. Barnum and exemplified by Hap pychucky

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