Monday, February 25, 2013

Feb 25 Market Update

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

Feb 2013 Feb 2012
Wk 1 Wk 2 Wk 3 Wk 4
Uncond. Sales
New Listings
Active Listings
Sales to New Listings
Sales Projection
Months of Inventory

New format.  Current week bolded.  Clear/unclear?
Essentially the market is a depressed version of last year's.  Sales down, new listings down, with the ratio pretty close to last year and solidly in buyers market territory.   Expect MOI north of 10 again.

Sunday, February 24, 2013

More than the monthly

We know that low rates have made housing more affordable on a monthly basis, and likely were the main reason that the crash in 2008/2009 was arrested and re-inflated.  Considering that most real estate purchases are financed, rates are a critical component to determining whether our high prices can still be paid by Victoria residents.

However, just because low rates bring down the payments doesn't mean that the mortgage is equivalent, or that it carries the same risk as a lower mortgage at a higher rate.

For example take two 25 year mortgages with identical payments of $2000/month.

Mortgage A
Rate: 3%
Principal: $422,614
House price (20% down): $528,267

Mortgage B
Rate: 5%
Principal: $343,876
House price (20% down): $429,845

In both cases the payments are the same.  However there are some key differences.

First there's the effect of rate increases.  Assuming that after 5 years when you renew, rates have risen by 2%.  Mortgage A is now at 5%, while Mortgage B is at 7%.   Payments for Mortgage A increase by $373/month while the holder of Mortgage B only has to find an additional $341.

More important though is the effect of additional payments.  Say Auntie Deardra passes away and leaves you $30,000 that you put against your principal.  With Mortgage B that one-time payment saves you $63,000 in interest costs and cuts your amortization down to just over 21 years.  With Mortgage A, poor Deardra's life savings will only buy you a $31,000 savings and an amortization of 22.5 years.
Same goes of course for any accelerated payment schemes.  Bi-weekly payments with Mortgage A will save you $22,000 and 2.8 years.   With Mortgage B you save a whopping $43,000 and 3.6 years.

On a monthly payment basis we aren't so far off historical norms.  But as usual, a low rate environment means savers are punished and those that want to pay their mortgage off earlier will have a much harder time than previously.

Monday, February 18, 2013

Feb 18 Market Update

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

February 2013 month to date (previous weeks in brackets)
Net Unconditional Sales: 209 (121, 19)
New Listings:  632 (405, 104)
Active Listings:  3964 (3886, 3786)
Sales to new listings ratio: 33% (30%, 18%)

February 2012
Net Unconditional Sales: 497
New Listings: 1318
Active Listings: 3977
Sales to new listings ratio: 38%
Sales to active listings ratio: 12% or 8.0 MOI

No signs of life out there yet.  At 20.9 sales per business day we're running behind last year's 23.9 at this stage while listings keep pace.  Of course this February also has 2 fewer business days than last, so any YoY comparisons aren't going to look pretty.  We'll probably end up somewhere close to 425 sales for the month.

Friday, February 15, 2013

Economics 101

It's 200 comment time again, so here's a brief update to carry us to Monday.  By the way I still see no signs of a spring market.  Where are the sales?

What happens when you remove buyers from the market?  Well aside from the real estate industry having a coronary, it weakens market conditions.
Months of inventory is highly seasonal, so to clearly see the effect of the restrictions CMHC imposed in July 2012 without resorting to the always suspect "seasonal adjustment", we can look at the MOI over the last year by taking the cumulative inventory and dividing it by cumulative sales for the past 12 months.

You can see a clear upturn in the MOI after the mortgage restrictions came into effect.  Even in Victoria, where clearly no one needs anything as dirty as CMHC, it seems the market is driven by credit.

Monday, February 11, 2013

Feb 11 Market Update

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

February 2013 month to date (previous weeks in brackets)
Net Unconditional Sales: 121 (19)
New Listings: 405 (104)
Active Listings: 3886 (3786)
Sales to new listings ratio: 30% (18%)

February 2012
Net Unconditional Sales: 497
New Listings: 1318
Active Listings: 3977
Sales to new listings ratio: 38%
Sales to active listings ratio: 12% or 8.0 MOI

Publishing this prematurely given the volume of comments in previous post, thanks Leo for putting the draft together. One of us will update the numbers tomorrow once they're known. 

In the meantime, how about a game to predict the weekly sales volume? Enter your guess in comments, all guesses will count until Marko updates us with the actual numbers. Winner gets to brag endlessly here and elsewhere until the end of time--sorry, no real prize here other than the undying admiration of your HHV blog peers. ~ HHV

Leo edit:  Koozdra takes the prize with a guess of 80 and actual sales of 102.  We all guessed low, but last year at the same time we were on a sales pace of 22/business day, while we're tracking 20 right now, so still down.  New listings rate is slightly behind last year (67 to 69 per business day).

Wednesday, February 6, 2013

Another look at Seattle

Time for another comparative look between Victoria and Seattle.  I like doing this for two reasons:
  1. I think Victoria and Seattle share some important similarities and think that Seattle's decline might be a decent model for Victoria's and 
  2. almost everyone else seems to think that Victoria is nothing like Seattle so the discussion should be interesting.
Last time I looked at the long term price history, with the conclusion that even those cities that think they are immune to crashes and have a long history of soft landings can come down pretty hard.

This time let's take a glance at what happened after the peak.  Seattle seems to have bounced off their bottom (at a median price/income of 5.8) and currently have an extreme sellers market with an MOI of 1.82.  Expect further price increases there in the spring.  

Seattle hit absolute bottom at 33% down from peak after a decline of 4.5 years, however this didn't last long and the stable bottom seemed to be more like 25-27% down.  As we know Victoria's monthly medians are quite variable because of low sales.  King County generally has about 10 times our monthly sales, so their monthly medians don't vary nearly as much but to reduce volatility for both I've smoothed all values with a centered 3 month averaging window.

So how does Victoria stack up?  Well we are 2 years 8 months into our decline and down 10% from peak median prices.

The chart below compares the two with both prices and residential months of inventory compared to the values at market peak for each respective area.  You can see that for both markets the conditions continued to deteriorate after the market peak for several years, with peak MOI coming in year 2 of Seattle's correction, while we are still exploring new heights well into our third year.   

So if one were inclined to use Seattle as a model, you might conclude that we have another ~15% drop ahead of us.  Certainly the market conditions are pointing to an accelerated drop in the next few months compared to what we've seen in the last two years.

However let's look at the absolute values as well.  It is interesting to note how much higher our prices started (despite having lower household incomes) and how much higher our current MOI is than anything Seattle experienced in their downturn.  

Update:  Patriotz points out that King County doesn't include outlying areas.  Here is the normalized chart using Case Shiller (which includes King, Pierce, and Snohomish counties) and the Victoria Teranet index (greater Victoria).  Using the Teranet data, Victoria's peak moves back to June 2010.

On an unrelated note, the video below has been posted on multiple sites but deserves another link.  Rick Mercer hits the nail on the head with respect to government interference in the markets.

Sunday, February 3, 2013

Turning hindsight into foresight

Ever wish you had the ability to know what would happen in the future when making decisions today? Yah, me too. That's called foresight, and while some may appear to have it from time to time, I'd be willing to gamble that hindsight bites our a$$es more frequently than foresight rears its beautiful head in our lives.

The Victoria real estate market peaked in December 2010 with a SFH average selling price of just under $640,000.

In January 2013, the average selling price of a Victoria single family home was not quite $535,000.

For the record, that's a price drop of almost sixteen percent (16%).

Meaningless numbers I know* when it comes to actual individual home owner experience, regardless, the numbers are indicative of general market experience and can't have many folks (there's probably only a handful really) who took the home buying plunge for the first time in December 2010 feeling all that good--Hindsight, she's a bitch. At this market stage, all you can do is sit tight and hope you don't have to sell your place anytime soon.

Which leads me to another story.

Some friends of ours decided last summer to leave Victoria for greener, sunnier pastures. They'd owned their home for almost a decade, so plenty of equity. They listed their house in the slow summer months at a price they believed reflected fair market value. It sat for three months with nary a showing. They pulled the home off the market, rented it out, left town for their new home, and recently put the house back on the market "priced for a quick sale."

How much did they drop their asking price? you ask. Eleven per cent or 11% if you prefer. They're working with a licensed full service agent, and I'm willing to bet that the agent had a lot to do with how the price reduction played out.

How much did VREB's SFH monthly average selling price change from the first month of list to current? Ten per cent or 10% if you prefer.

What's the point HHV?

Remember when I said above the average SFH price reported by VREB is basically meaningless* in the big scheme of things? Turns out it's not really meaningless--at least in my hypothesis anyway. I'm willing to bet that that data had a big part in how the agent convinced his sellers to set their price: "You have to sell. You need to be at the market or just below. Here's what the market has done in the past 6 months. Here's the market price of your home today."

Seeing as how I'm a gambling man, I'd bet dollars to doughnuts that the majority of sellers in today's market use the December 2010 high, or something close to it, to price their home.

So if you're a buyer and you find a home you love and want that you think is priced like it would have been in December 2010, I believe you're perfectly justified in making a first offer 20% below asking. You can work your way up a bit, say 4% max, and then you'll be at fair market value if you buy my meaningless data hypothesis.

Here's an example: Nice home priced at $600,000. Offer $480,000. Don't pay a dollar more than $504,000. Use VREB's own data to support your offer.

If anybody goes out and does this, tell us about it. Please. I'll get the popcorn ready. Beer too if it leads to a successful purchase. 

Friday, February 1, 2013

January roundup. It gets worse

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

January 2013 (previous weeks in brackets)
Net Unconditional Sales:  294 (251, 177, 87, 32)
New Listings: 1080 (917, 701, 407, 161)
Active Listings: 3870 (3812, 3759, 3681, 3574)
Sales to new listings ratio: 27% (27%, 25%, 21%, 20%)

January 2012
Net Unconditional Sales: 372
New Listings: 1088
Active Listings: 3715
Sales to new listings ratio: 34%
Sales to active listings ratio: 10% or 10.0 MOI

I'm not quite sure what to say about these abysmal numbers except that I am surprised at just how weak they are.  Sales down 21% from last January while listings remain the same.  And it's easy to forget just how bad last January already was.  A typical January in the boom years had sales closer to 450.
Months of inventory sitting at  13.2!

The only January in recent history that was worse was 2009, and sales very quickly rebounded in the following months.  Anyone want to bet if that will happen this year?

Update:   Let's see what the VREB has to say about January.
Although January 2013 sales are 27% lower than January 2012, the six-month average price for a Greater Victoria home is only down 1% for the same period.
I don't have the foggiest idea how they came up with 27% sales decline.  It seems they took the sales drop of 78 and divided that by 294 which is....  not correct.   In any case, prices are flat!
"One Member told me that he has several potential buyers, but they can't find anything they like."
Attention sellers:  The easiest way to make your house attractive is to drop the price.
"He (VREB president Shelly Mann) believes the economic fundamentals are strong, and as a result the sales volume will increase 4% this year over 2012, but prices will remain flat." 
We will add this to the official predictions.  Sales up 4%, prices flat.