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
19
121
209
322
497
New Listings
104
405
632
889
1318
Active Listings
3786
3886
3964
4031
3977
Sales to New Listings
18%
30%
33%
36%
38%
Sales Projection
--
338
344
376
Months of Inventory
8.0

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.

167 comments:

koozdra said...

I like the table.

Looks like we're headed for a 25-30% drop in YOY sales. The market just keeps getting more and more balanced.

DavidL said...

Love the new format, Leo!

I'm still sticking with my prediction of 375 unconditional sales by month end (just 4 more shopping days!).

@koozdra
The market just keeps getting more and more balanced.
ROFL

koozdra said...

Carney is doing a press conference right now.

"We're seeing a slowdown in the housing sector which is good and welcome."

Leo S said...

By the way, Introvert. The last article was for you. Understand why a smaller mortgage at higher rate is preferable to a larger mortgage at low rate now?

Introvert said...

Re: "More than the monthly"

Leo, I will concede that, in a vacuum, Mortgage B is preferable to Mortgage A. However, using your example, a 2% rate increase results in only a $384/yr difference between the two mortgages. This is not substantial, IMO. If a family cannot handle a $384/yr increase (a monthly increase of only $32), then that family really shouldn't be owning a house, no matter what their principal is and no matter where interest rates are headed. I would argue that the vast, vast majority of current mortgage-holders could easily afford this increase and even a larger one. (Now cue the esteemed bank surveys that say the opposite...but I don't put much weight into them for a few reasons.)

My other point is that, even if Mortgage B is preferable, those real-world conditions (i.e., lower prices and higher mortgage rates) have to materialize for one to take advantage. Whether and when we will see Mortgage B-like conditions in Victoria remains to be seen (last I checked, interest rates are set to remain extremely low for probably at least the next two years AND you don't get much in terms of quality/location in Victoria for $430,000).

Introvert said...

Of course, if prices continued to decline and interest rates stayed low, that would be the ultimate win-win for people. We'll see what happens.

koozdra said...

"last I checked, interest rates are set to remain extremely low for probably at least the next two years"

This is where it gets fun. The central bank didn't want to raise their overnight rate because of the strength of the Canadian dollar. A rate increase would send it higher and hurt exports.

Now that the dollar is sinking...

a simple man said...

Great table, Leo. I like the new format. Thanks for all of your work on here. It is appreciated.

Victoria said...

Great graph. Easy to read and compare. Thanks!

Dave said...

Of course, if prices continued to decline and interest rates stayed low, that would be the ultimate win-win for people.

Then as prices and rates continue declining together, one might call that the 'super ultimate win-win' for buyers who have patience.

Here's the sinking update to fixed rates that I posted last week.

Prices will begin to fall more quickly now that rates are falling again - of course 'real' rates are rising, but let's not confuse people.

Great new table Leo.

Leo S said...

However, using your example, a 2% rate increase results in only a $384/yr difference between the two mortgages. This is not substantial, IMO. If a family cannot handle a $384/yr increase (a monthly increase of only $32), then that family really shouldn't be owning a house, no matter what their principal is and no matter where interest rates are headed. I would argue that the vast, vast majority of current mortgage-holders could easily afford this increase and even a larger one.

I completely agree with you. The bigger issue is the massive difference in the effect of pre-payments. It bugs me especially because once we buy I will be paying down the mortgage as fast as possible. Unfortunately with a large mortgage those pre-payments just won't be as effective as they were for people 10, 20, 30 years ago.

info said...

The following stats are for Greater Victoria, using 3 month median data:

SFH:
peak: 575 K
current: 516 K
(-10%)

Townhouses:
peak: 433 K
current: 374 K
(-14%)

Condos:
peak: 300 K
current: 254 K
(-15%)

In the US and many other countries around the world, the median is used rather than the average.

Clearly Victoria's housing market has corrected significantly. Many people who bought within the last 4 years are under water on their mortgages. Much more of that to come over the next number of years.

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

@Leo S
The bigger issue is the massive difference in the effect of pre-payments.

There is another issue too ... When mortgage interest rates are higher, so is inflation. With higher inflation comes higher wages/salaries. The percentage of income spent on servicing a mortgage decreases faster when interest rates are higher as compared with low interest rates.

Take an example with a family income of $100K, inflation at 4%, a mortgage of $400K at 6% with an amortization of 25 years. The monthly payment is $2560, which at "year zero" is about 30.7% of the gross income. In 25 years from now, if that that $100K/year income has matched the 4% annual inflation - the annual income is now $266K/year. The same mortgage payment of $2560 is now just 11.5% of the gross income.

Using the same family income of $100K, inflation at 2%, a mortgage of $500K at 4% with an amortization of 25 years. The monthly payment is $2630, which at "year zero" is 31.6% of the gross income. In 25 years from now, if that that $100K/year income has matched the 2% annual inflation - the income is now $164K. The same mortgage payment of $2630 is now just 19.2% of the gross income.

The difference between 11.5% and 19.2% of gross income (at the end of the mortgage) is huge, and almost never taken into account! Something to think about ...

axeman said...

Its a no brainer now, we are in for a long protracted slump, but a crash? not if rates stay, and they appear to be set till the end of 2013. This is the worst spring sales in 10 years. The game is up.

Expect 2 more years of this before anything changes. Vancouver, and Toronto will suffer the most, we have seen declines for 2 years already, and more to go. Where will it end? Who knows.... oh ya sorry Garth Knows... he knows everything...

axeman said...

There is another issue too ... When mortgage interest rates are higher, so is inflation. With higher inflation comes higher wages/salaries. The percentage of income spent on servicing a mortgage decreases faster when interest rates are higher as compared with low interest rates.

Thats not what happened in the 80's, inflation was out of control, but wages were stagnant, they didn't keep up. Interest rates rose quickly from 10-20%, taking out homeowners that could not afford the reset to the mortgage, and then the crash came, they were underwater to boot...

Yes real estate and solid asssets are a hedge on inflation, but don't expect this interest rate to be here for 25 years. Your payments will increase substantially on a 25 year mortgage because of interest rate creep. So paying down a huge mortgage can be a good business plan, despite what Garth says...

DavidL said...

@axeman

The interest rates in the 1980's were abnormally high for just three years: 1980 though 1982:
http://www.bankofcanada.ca/wp-content/uploads/2010/09/selected_historical_page1_2_3.pdf. The twenty year average from 1968 through 1992 was about 8%.

The only other time that we have had such low rates (as now) were during the days of the Great Depression through the mid-1950's.

patriotz said...

With higher inflation comes higher wages/salaries.

You mean "used to come". Remember that back in the 70's and 80's the bargaining power of labour was much higher than today.

koozdra said...

"So paying down a huge mortgage can be a good business plan"

Paying down the mortgage on an inflated asset is not a good business plan. If you own, that's the only option you have. You start a race to the bottom with house price deflation. You keep paying it down but it keeps on decreasing in value.

This of course won't affect you if you can afford the mortgage and you don't have to sell. But for the people on the market that dictate prices, it will affect them.

patriotz said...

Paying down the mortgage on an inflated asset is not a good business plan.

You owe the money and have to pay it back. That it's secured against RE that may be overvalued is really beside the point. The lender can go after everything you own.

Unless your plan is to put all your spare cash into your RRSP and declare BK (contributions up to the most recent year are protected).

Leo S said...

You owe the money and have to pay it back. That it's secured against RE that may be overvalued is really beside the point. The lender can go after everything you own.

Yes. Never did understand Garth's position on this. If you can beat the return in other investments then do that instead, but the fact that your house may be decreasing in value is 100% independent of whether it's a good idea to pay down the mortgage or not.
The return remains the same regardless of the current value of the house.

koozdra said...

I really wonder how many of the current buyers are move up buyers that have bought before they sold. These are the people who see the current "deals" and say "Oh wow, I've never seen deals like this, lets buy our dream house. If we can't sell we'll just rent out the house.". Of course these are the same people that are contributing to the pile up of inventory because they can't sell their old place.

If this is happening, then that would explain why a certain segment of the market is moving and the rest is stagnating. Also a further implication is that these types of buyers are limited in numbers.

Red Light. said...

patriotz, besides the point?

If people are all ready under water and have noticed they'll be taking on more, and more water for some time, BK might be a good option.

A bad investment is just that and washing your hands is pretty easy if your only asset is the over valued property and the ship is sinking.

Strategic default I believe is the proper term.

I think youngsters who bought at the peak, this might be the only viable option. Lets not forget that Most debt is gone with BK secured or not, cc, car loans, mortgage, loc, etc.

Strangle hold for life or a fresh start at 30. I smell jingle mail.

Question is, who eats all this unpaid debt?

Please contact Red Light BK consultants for further information.

Red Light. said...

Red light BK was a joke.

koozdra said...

Why all this talk about Burger King?

Leo S said...

Gotta get rid of that whopper of a mortgage? BK

a simple man said...

The red light BK in Amsterdam does an incredible business.

Red Light. said...

actually, unpaid tax debt is the biggest trend these days for BK.
They usually bundle everything else up though. why not?

Red Light. said...

income tax, gst/hst remittance avoidance.

brodahl jahren said...

Stor tabell, Leo. Jeg liker det nye formatet. Takk for alt arbeidet ditt på her. Det er verdsatt.


Huskatalog

totoro victoria said...

Lots of sold signs in Oak Bay and bordering areas - even places that have been sitting for months. That should produce some price data that will demonstrate what is happening in OB.

koozdra said...

"The affordability exceptions, not surprisingly, are detached homes in Vancouver, Toronto and Victoria. Not coincidentally, these three markets are among the most prone to the one thing that helps affordability the most: a material price correction."


http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/02/what-rates-could-do-to-affordability.html

How dare you sir? This is utter blasphemy. Victoria's market will never correct.

Also I'm noticing a worrying trend in articles discussing national real estate. It seems the economists are calling for a correction in the housing market. They keep forgetting to mention that Victoria is exempt from these predictions. Perhaps in the interest of brevity they just assume that the reader knows. I still I think that we should organize some kind of letter writing campaign to the media regulators so they make sure that all negative statements made in the media about real estate be followed with "...except in the most stable housing segment in all of the world, Victoria."

Marko said...

Looking at the numbers this morning we are on pace for Median of about 520k, average about 590k and I think we'll break 400 sales for the month.

a simple man said...

Hope to break through ONLY 20% lower sales YOY. You know the market is falling when...

subprime11 said...

the media whitewash has so far been successful in convincing a majority of Canadians that housing is now affordable and with interest rates so low you might as well purchase that dream home now. The govt objective is to avoid a hard landing which requires that just enough buyers support the decline at every stage of it's descent which seems to be successful so far. I'm wondering if we might even see a rush of sales this summer when prices decline by another few points.

Leo S said...

It looks like my prediction for an increase in sales in 2013 over 2012 is off to a very bad start.

info said...

"Its a no brainer now, we are in for a long protracted slump, but a crash? not if rates stay"

The US housing market started to crash in 2006. In 2009 interest rates in the US were slashed from 5-6% down to 2-3% very suddenly. The US housing correction continued for another 3 years after that. That extreme rate slashing provided stimulus for the US housing market, but it wasn't enough. The housing market needed to correct to the point where fundamentals once again supported prices.

Canada's major housing correction will not need rising rates to make it play out fully.

Interest rates obviously matter and they will rise, we all know that. When they do rise they will negatively impact house prices.

The long-term, historical average for 5-year rates is 7-8%. Rates will normalize.

info said...

"Looking at the numbers this morning we are on pace for Median of about 520k"

The SFH 3 month median for Greater Victoria would then be 12% below peak.

Dave said...

Interest rates obviously matter and they will rise, we all know that. When they do rise they will negatively impact house prices.

Info
Thought I'd correct your statement,
"Real interest rates obviously matter..."
Your nominal rates are essentially meaningless for determining how they will impact house prices, but you know that.
Chances are, when prices finally begin a sustained upward trend years from now, nominal rates will be rising with prices.

Dave said...

In 2009 interest rates in the US were slashed from 5-6% down to 2-3% very suddenly.

One last nitpick, the Fed (or BoC) usually follows the free market. If you look at the Fed rate from 2007 (red line), they are merely following the T-bill rates (black line) set by the free market - which btw started falling in 2007, not 2009.

patriotz said...

Your nominal rates are essentially meaningless for determining how they will impact house prices, but you know that.

Really now? If inflation suddenly jumped by 4 % points, and interest rates suddenly jumped by 4 % points, that would mean no change in real rates.

Would the same people be still able to buy at the same prices?

Introvert said...

Just finished Nate Silver's book, The Signal and the Noise. HHV denizens might enjoy this book insofar as it focuses on predictions, forecasts and how to think probabilistically. A good read!

Introvert said...

This is from Wikipedia. Very cool!

A May 2011 Hamilton College analysis of 26 politicians, journalists, and media commentators who made predictions in major newspaper columns or television news shows from September 2007 to December 2008 found that Krugman was the most accurate. Only nine of the prognosticators predicted more accurately than chance, two were significantly less accurate, and the remaining 14 were no better or worse than a coin flip. Krugman was correct in 15 out of 17 predictions, compared to 9 out of 11 for the next most accurate media figure, Maureen Dowd. Krugman's result was found to be statistically significant at the p<0.001 level.

CS said...

Krugman's result was found to be statistically significant at the p<0.001 level.

By means of sophisticated statistical methods it is possible to distinguish Krugman's predictions from mere random prattle.

LOL

CS said...

Your nominal rates are essentially meaningless for determining how they will impact house prices

And affordability has nothing to do with the prices people pay!

Dave said...

Would the same people be still able to buy at the same prices?

For inflation to jump 4%, labour markets and GDP would almost certainly have to jump 4%. Better economy would mean better jobs, and more ability to afford these prices.
I'm guessing you're thinking of something like stagflation, but there's really no threat of any type inflation.
Inflation expectations have been pointing to an extended period of low inflation for a while now. I tried to warn colleagues from certain cyclicals (energy, etc) last two years to no avail. However, I have noticed lately some are starting to catch on that there's no imminent threat of inflation.

Marko said...

1655 Warren Gardens listing for $659,900 and sold today for $740,000.

CS said...

but there's really no threat of any type inflation.
Inflation expectations have been pointing to an extended period of low inflation for a while now.


Thar's hardly a rational argument. People questioned about their expectations concerning inflation said they expected the future to be like the recent past, i.e., that inflation, by which they may have meant the CPI, will continue to fall.

But when central bankers are openly scheming to up the rate of inflation, what are you gonna believe? The vague notions held by ordinary people with no expertise or deep interest in the matter, or people like Prime Minister Abe of Japan who has ordered the Finance Ministry to target 3% inflation and Mark Carney who has recently talked about targeting inflation?

CS said...

Warren Gardens sold at 7% over assessment. Not a convincing indication of rising price, since sale price must vary plus or minus 10 or 20% around the assessment according to condition.

a simple man said...

Warren garden sale is insane in the membrane.

Just Jack said...

Detroit, Michigan

In the city of Detroit today, there are over 33,000 abandoned houses, 70 schools are being permanently closed down, the mayor wants to bulldoze one-fourth of the city and you can literally buy a house for one dollar in the worst areas.

During the boom days of the 1950s, Detroit was a teeming metropolis of approximately 2 million people, but today the current population is less than half that. The city of Detroit, once a shining example of middle class America, is now a rotting cesspool of economic decline and it actually saw its population decline by 25 percent during the decade that recently ended. According to the U.S. Census Bureau, Detroit lost a resident every 22 minutes between the years of 2000 and 2010.

So why are people leaving Detroit so rapidly?

There simply are no jobs.

Watching and waiting said...

interesting rental marketing plan on this recently purchased home:

Posted Feb 26,2013 and offering free rent for February:

http://www.usedvictoria.com/classified-ad/FOR-RENT-AT-522-TAIT-STREET_19189244

Dave said...

CS
But when central bankers are openly scheming to up the rate of inflation, what are you gonna believe?
Are you sure bankers like to scheme 'to up' inflation? If you were a banker, wouldn't you rather string along your mortgagors with the hope of inflation, but not deliver? Perhaps we're being baited ;)
The vague notions held by ordinary people with no expertise or deep interest in the matter
Call us 'ordinary', but bond investors are the ones collectively waging billions of their own money each day, based on things like their inflation expectations. Elected and appointed officials, not so much.
or people like Prime Minister Abe of Japan who has ordered the Finance Ministry to target 3% inflation and Mark Carney who has recently talked about targeting inflation?
Central bankers targeting inflation?!? Correct me if I'm wrong but hasn't Japan been targeting for 15 years - result, deflation. Central bankers job is more to follow and keep up with smart money. You wouldn't want to live in a country where government or appointed bankers are the 'smart money'.
Now I have to get back to the hockey game so stop 'baiting' me ;)

Al + TOH said...

1655 Warren Gardens must be thought after its MCM (mid-century modern) furnishings, hopefully those are included :-)

patriotz said...

For inflation to jump 4%, labour markets and GDP would almost certainly have to jump 4%. Better economy would mean better jobs, and more ability to afford these prices.

Are you saying that if my salary went up from $60K to $62.4K, and interest rates went from 3% to 7% (jump of 4% in inflation, real rates unchanged), I could afford to buy at the same price?

Want to run that through your calculator again?

Dave said...

Nope. I'm saying if GDP went a rockin 4% higher in this environment, your earnings would go from $60k to 80k.
Well, I should clarify, as I don't know what industry you're in. But just imagine the wealth effect on your stock portfolio alone. I can assure you it wouldn't take long for my salary and bonuses to go 33% higher, that's for sure.
Alas, at this stage I'll be happy if our GDP reading has a positive sign in front of it.

Introvert said...

1655 Warren Gardens listing for $659,900 and sold today for $740,000.

Not surprising in the least. Warren Gardens (Marvin Gardens, as I call it) is one of the nicest locations in the core, IMO.

I give it better than even odds that the new buyer will bulldoze that old house and build his or her dream home on that site.

Introvert said...

Thanks for telling us about Detroit. Are you implying something, or are you just providing random facts?

koozdra said...

If past events have a direct affect on future events then this article is definitive proof that bubble calls are all false.

Real estate 'bubble warning' for Vancouver, Victoria

koozdra said...

"Fears of a Canadian housing bubble are largely unfounded and, in fact, house prices remain affordable in three-quarters of the country, with the exception of Vancouver, Toronto and Victoria, says a new BMO report."

I find it troubling that BMO didn't state anywhere in their report that this is their opinion and not an actual prediction of the future.

Fears of a Canadian housing bubble unfounded: BMO report

koozdra said...

Great news!!!

According to realestateandconstruction.ca "Victoria Area Should Be Safe From Housing Bubble".

Get out your check books and start buying. Prices won't come down. Well they'll come down in the rest of the country but not here.

"If you look specifically at Victoria, we haven’t seen any slowing of the economy here, although there’s a little bit of government downsizing. There are still developers who are breaking ground on new projects."

We will weather the storm brothers and sisters. Shouting at the winds of economic turmoil from the bow of our ship. "IF YOU CAN'T AFFORD IT GTFO!"

http://www.realestateandconstruction.ca/2012/01/victoria-area-should-be-safe-from-housing-bubble-says-real-estate-board/

koozdra said...

CMHC seeking to hide foreclosure information from home buyers

"The move, said to be part of CMHC national policy, upset Quebec realtors who refused to play ball, worried about an ethical breach."

Ethical realtor??? oxymoron?

Introvert said...

"IF YOU CAN'T AFFORD IT GTFO!"

If you shout this in places like Kitchener, they just laugh!

Leo S said...

Ethical realtor??? oxymoron?

No.

Although this is hilarious:

"The two sides resolved the issue by making it no longer mandatory to reflect the foreclosure status of a home, based on the seller’s instructions."

So the real estate boards didn't want to blatantly disregard a rule that they have to publish the information and call that ethics. But just changing the rule makes everything a-ok. I guess ethics doesn't extend to doing what's good for the public, just covering their own asses.

Leo S said...

Introvert re signal and noise. Thanks, listening to it now. Interesting

CS said...

bond investors are the ones collectively waging billions of their own money each day, based on things like their inflation expectations. Elected and appointed officials, not so much.

With the US Fed buying $89 billion worth of treasuries a month, the independent bond investor's opinion has only a limited effect on rates. They will stay low till the Fed stops buying or other central banks, e.g., China and Japan start selling in earnest. And even then, the Fed has a printing press, so they'll just buy more, if they feel like it.

Central bankers targeting inflation?!? Correct me if I'm wrong but hasn't Japan been targeting for 15 years - result, deflation.

Which is why control of money supply has been transferred from the BoJ to the Finance ministry. Politicians know better than bankers how to create inflation when they need it.

You wouldn't want to live in a country where government or appointed bankers are the 'smart money'.

But that's exactly what Japan now has.

CS said...

bond investors are the ones collectively waging billions of their own money each day, based on things like their inflation expectations. Elected and appointed officials, not so much.

With the US Fed buying $89 billion worth of treasuries a month, the independent bond investor's opinion has only a limited effect on rates. They will stay low till the Fed stops buying or other central banks, e.g., China and Japan start selling in earnest. And even then, the Fed has a printing press, so they'll just buy more, if they feel like it.

Central bankers targeting inflation?!? Correct me if I'm wrong but hasn't Japan been targeting for 15 years - result, deflation.

Which is why control of money supply has been transferred from the BoJ to the Finance ministry. Politicians know better than bankers how to create inflation when they need it.

You wouldn't want to live in a country where government or appointed bankers are the 'smart money'.

But that's exactly what Japan now has.

Introvert said...

Introvert re signal and noise. Thanks, listening to it now. Interesting

I thought you especially might enjoy it, Leo.

For me, a couple parts were a bit boring, but many parts were riveting.

DavidL said...

@Introvert
Thanks for telling us about Detroit. Are you implying something, or are you just providing random facts?

I think that Just Jack is illustrating the strong between real estate and employment. I expect that an increase in unemployment would further drive down real estate prices in Victoria.

Leo S said...

I thought you especially might enjoy it, Leo.

For me, a couple parts were a bit boring, but many parts were riveting.


Another interesting one I'm halfway through is Thinking, Fast and Slow by Daniel Kahneman. Examines cognitive biases and their effect on decision making. Also how poorly people do at interpreting statistics (even highly trained ones).

Dave said...

CS
With the US Fed buying $89 billion worth of treasuries a month

Mere peanuts for us to frontrun, my friend.
"$822 billion average daily trading volume in the U.S. bond market"

Patriotz
Here's another way of visualising why it's better to think in real rates than nominal. In the early 80s for instance, one might have predicted prices would rise because nominal interest rates were declining - same err people are making today.

koozdra said...

Struck by Lightning is another good one.

koozdra said...

Found this article from HHV from 2007 on bare land stratas.

The Bare Land Strata

These will take a take a hard hit in the coming decline. I would rather continue to rent for the rest of my life than join a strata.

koozdra said...

What is the CMHC?

CMHC is a fee you pay because you are poor and can't afford to put a down payment on a house that would make you a prime borrower (20%).

How does CMHC insurance protect me?

It doesn't protect you at all. It protects the bank. If it turns out that you can't pay back the loan you took from them, they'll get their money back. Here's the best part. The don't even have to pay a deductible of any sort.

Wait a minute. If this insurance is protecting the banks why aren't they paying for it?

Because the thing that Canadians excel at the most is complacency. When the bank tells you there is an extra fee, you will pay it.

Ok, how much do I have to pay?

Oh it's pretty reasonable. Lets say you are putting ten percent down, it would only be 2 percent of your total purchase price.

That totally sucks I don't have that kind of money. All my money is going towards the down payment.

Don't start crying yet potential home buyer because we have a deal for you. Instead of giving us the money for this insurance, we'll let you add it on top of your mortgage.

I'm no math wizard but aren't you paying for insurance with debt then?

Yes that's right, you aren't a math wizard. All these numbers are very complicated and you will never understand them. Let our prudently run economy and banks handle that kind of stuff. It's time for you to pay up.

CS said...

average daily trading volume in the U.S. bond market"

Oh, so you think if the Fed simply dumped almost a $trillion worth of newly created Treasury paper on the market this year instead of buying it for their own portfolio, it would have not effect on interest rates?

Or if China dumped a $trillion-worth of their bond holdings it would have no effect on rates, even if the Fed stood idly by and did nothing to pick up the slack?

You should drop Bernanke a line. He's evidently wasting his time.

axeman said...

"Yes. Never did understand Garth's position on this"

Ya, its a matter of opinion, something Garth has a lot of. If interest rates were to stay at 3%, I would never pay off my mortgage. Why? because effectivly I am borrowing at 3%, and investing the money I could be using to pay down my mortgage, at 7-10%. Much better return, even though you are still paying interst on the mortgage. but the mortgage is "Compound interest" and the rate will not stay at 3%. I need to double up payments in the first 5 years, to get the principal down, and then, well if I renew at 6%, its 6% of the remaining debt... doesn't it make sense to reduce debt, knowing the future debt servicing will be much higher?

Its not the same as borrowing to invest. You borrow to invest at 3% and your return is 7%, no brainer. If the interest rate increses you can always liquidate, not so easy to do with a house.

Oh and the mortage in your RRSP thing, I still don't get that ?

axeman said...

"The US housing market started to crash in 2006. In 2009 interest rates in the US were slashed from 5-6% down to 2-3% very suddenly. The US housing correction continued for another 3 years after that. That extreme rate slashing provided stimulus for the US housing market, but it wasn't enough"

Yes my point exactly, the US dropped rates to stimulate... 3 years into the correction... our rates are already low... going into our correction... the stimulis is already in effect... see the differnce here?

I could not afford anything for 12 years, but now I can. My wages have gone up, but it was interest rates and a drop in prices that allowed me to buy last June at a substantial discount. Yes the feds rules will have an effect, but once we see the average down another 5-10%, buyers will be back, as long as cheap mortgages abound.

And yes, rates could drop to .5 or 0 if need be.

koozdra said...

"Yes the feds rules will have an effect, but once we see the average down another 5-10%, buyers will be back, as long as cheap mortgages abound. "

Everyone will want to buy into a sinking market.

Leo S said...

"Yes the feds rules will have an effect, but once we see the average down another 5-10%, buyers will be back, as long as cheap mortgages abound. "

Everyone will want to buy into a sinking market.


Certainly lower prices will drive some additional demand. At the same time consumer psychology may remove demand. What the net effect is remains to be seen. However looking at other corrections I would expect sales to increase slowly as prices decline, until slowly the supply/demand balance is restored and prices stop declining.
Of course that doesn't tell us what that point is, but clearly it exists somewhere below us.

koozdra said...

Right. Are we close to the equilibrium point?

If the CMHC wasn't being throttled I would say that a 10-15% drop would do it. However it is being throttled. That takes out not only the desire but also the opportunity for future buyers to support these price levels.

info said...

More housing industry lies. It just keeps getting worse.

a simple man said...

OB is selling right now - I guess the spring has begun!

info said...

"Yes my point exactly, the US dropped rates to stimulate... 3 years into the correction... our rates are already low... going into our correction... the stimulis is already in effect... see the differnce here?"

You are missing the big picture. Canada's housing market has started its correction. It will correct fully unless there is some major source of stimulus added to the equation like there was in 2009.

Emergency low interest rates have failed to prevent the start of Canada's correction. Now that it has started, these extremely low rates will not stop the correction just as extremely low rates in the US did not stop their correction, once it started.

info said...

"Everyone will want to buy into a sinking market."

Wrong. The opposite is true. Human psychology plays a big role in a down market just as it does in an up market.

In an up market, everyone wants to buy houses. Human psychology has the reverse effect in a down market - people don't want to buy houses that are declining in value. This was the case in the US crash and every other housing market crash in the world.

koozdra said...

"Wrong. The opposite is true. Human psychology plays a big role in a down market just as it does in an up market."

I know... I was being sarcastic :)

info said...

"And yes, rates could drop to .5 or 0 if need be."

You are completely missing the big picture about rates.

If the BoC dropped rates to 0.5 or 0, it wouldn't provide enough stimulus to stop the housing market from correcting.

In late 2008, the BoC had rates set at 4.5%. By early 2009, those rates were slashed to 0.25%. That was a rate drop of 4.25%.

Currently the BoC has rates set at 1.0%. A drop in rates to 0% would only be a drop of 1%, miniscule in comparison to the drop of 4.25% that happened in 08-09.

What turned the market around in 2009? It wasn't only interest rates. As we know, an extreme drop in US rates did not stop their housing market from crashing.

Canada's housing market experienced a massive, dramatic, unprecedented, emergency intervention, starting in 2009.

To give you an idea of the size of that intervention, one needs only to consider the increase in total mortgage insurance (both private and CMHC) from 2009 until present. In 2009 that total was about $600 B. Within about 3 years, that total doubled to about $1.2 T.

Don't expect another round of stimulus like that again.

info said...

@ koozdra

"I know... I was being sarcastic :)"

I didn't actually see who originally posted that. lol

Dave said...

Or if China dumped a $trillion-worth of their bond holdings it...

China is small potatoes my friend. Besides, why would they ever sell? They're making a fortune holding US debt. Same goes for the Fed - they never have to 'dump' any, they'll simply let most of it mature.

info said...

Garth Turner has a lot to say. In terms of predicting the future of the Canadian housing market, he has always been correct. He correctly predicted Canada's housing market correction in 08-09 that was stopped by a massive intervention that nobody could have predicted.

Garth also predicted the current housing market correction that has started in Canada. He was correct about the peaks of the housing markets in Vancouver and Victoria and suggested that it was a good time to cash out and secure maximum gains.

He should be commended for his work.

koozdra said...

CMHC's response to National Post

Another government agency trying to protect the consumer by hiding information. Thank you government.

Introvert said...

Thank you government.

Stephen Harper says, "you're welcome."

CS said...


China is small potatoes my friend.


By evading the question I raised, you acknowledge my point, which was that the Fed controls the money supply through its purchases and sales of bonds and, if it wishes, it can certainly create inflation — inflation, being money supply expansion.

In any case, $trillion dollars of Chinese or any other bonds dumped would certainly affect interest rates unless the effect were counteracted by compensatory Fed action.

And what you say about front running Fed bond purchases is rubbish since the Fed is currently buying directly from the Treasury.

Marko said...

I was at Slegg Lumber today and lumber is like 20% more than last year? What gives? Must be China or housing recovery in the states? Throw on top of that the new more complicated building code.

New home construction prices not going to budge much.

Dave said...

New home construction prices not going to budge much.

While at Slegg's did you happen to look at copper, oil, land, labour, aggregate, zero inflation rate, venture stocks, glass, and stainless steel? ;)

CS, I did answer your question, you simply didn't catch the answer. For sanity sake ;) I have to say good luck to you sir.

Dave said...

Darn it CS, I can't leave without helping. I couldn't find it, but my answer was something like "they don't have to dump them, they will let them mature." So, the answer is no.

Marko said...

While at Slegg's did you happen to look at copper, oil, land, labour, aggregate, zero inflation rate, venture stocks, glass, and stainless steel? ;)

Because I will need to buy crude oil to build my home?

Quality skilled labour still ain't cheap, never will be.

I have a two clients right now building brand new homes. One 2,900 sq/ft and one 3,300 sq/ft and it isn't proving to be cheap. New building code has increased costs in a number of areas.

koozdra said...

"New building code has increased costs in a number of areas."

Victoria is doing it's part in sucking the oxygen out of this housing market.

In an up market people will pay just about anything because they feel rich due to the wealth effect.

In a down market...

Leo S said...

Increase or decrease in building costs for new construction. Likely not to make any significant difference either way. What's the new building percentage in the core. 0.5%?

StalJ said...

Speaking of new bldg %, check this out if you think Vic is over building. We are but not like TO.

http://www.bloomberg.com/news/2013-02-27/canada-losing-debt-halo-as-bull-market-housing-peaks-with-carney.html

“Toronto is awash in real estate. There were 144 skyscrapers under construction in late February, more than in any other city in the world, according to Skyscraperpage.com. Proposals for new condos reached 253,768 units at the end of the fourth quarter, up 10 percent from a year earlier”

That is 253,768 proposed for 2.5M pop’n! Or 1 new condo proposed for every 10 Torontonians. That would be like Vic having 10,000 proposed. My guess is we have only 3000 on the drawing board. The reason it excites me is I may move to TO after it pops. Think of the places you could choose from.

koozdra said...

Vancouver: prices to high
Toronto: over building
Victoria: just peachy

Marko said...

Increase or decrease in building costs for new construction. Likely not to make any significant difference either way. What's the new building percentage in the core. 0.5%?

I know, won't make a differene. Just surpirsed to see lumber up 20% from last year.

Jack and Cate said...

New realtor concept in sales.

No such house but "could be"... What's next...?

http://tinyurl.com/ala33dv


a simple man said...

the victoria equal

Just Jack said...

Interesting find a simple man.

Desperate times call for desperate measures.

S2 (JJ's wife)

Marko said...

Not sure how that is desperate. A well-known construction company advertising for a custom build before the start a spec home?

The description is very clear.

Leo S said...

Yeah the one in Vancouver showed a place without any indication that it was a concept. That's quite different.

a simple man said...

If you have the price in the ad and it is for an existing house and the land, show pictures of the existing house - not a new luxury manor that costs $2M more and is the figment of a CAD dream.

Marko said...

Existing house is irrelevant. It is owned by a construction company. The house is going to be demolished whether they build custom or spec.

Also they are not selling the lot/house straight up - they want to build on it.

"Listing Price is for lot/existing house, building contract to be entered into separately."

Last year I had some crazy person complaining about how come I didn't have interior pictures of my three listings on Shelbourne? Really....I knew the target market and interior pictures weren't relevant to the target market. Sold all three.

You have to understand when you represent a seller that is footing the commission as a REALTOR® your job is to get people through the home by marketing the property in its best light. Recently I sold a listing; nice home but poor bathrooms did not match level of rest of home. Did I put pictures of the bathrooms up? No as it would have probably deterred showings. I did all living areas except the bathrooms. It sold.

a simple man said...

"Building contract to be entered into separately" infers that it is optional.

If they want to put their pictures up for the almost $2M build, then they should have kept the original price at $2.7 or whatever it was. if you drop the price, drop the pics of the mansion and show the actual house you are selling - why is that not logical?

Marko said...

Why do some developers offer price including taxes and some price plus tax? On the MLS listing you just see list price.

Why do some new subdivisions commonly offer what seems like an extremely attractive price on a building lot but you have to sign a $200 per sq/ft building contract with them?

Marko said...

Logical thing would be that everyone list new homes either plus tax or including tax.

Logical thing would be that everyone has to take pictures with a similar type of camera lens.

Etc.

It isn't just real estate, many other industries have their own non-logical annoying tricks of the trade.

Leo S said...

if you drop the price, drop the pics of the mansion and show the actual house you are selling - why is that not logical?

I think it's logical, but it's more an issue of semantics than ethics. Given that the description is clear that the price doesn't include the new house, someone might be misled into clicking it based on the picture, but then immediately see the truth a few seconds later.
The listing in Vancouver misled the buyer for much longer. Would have taken a call to the realtor or a visit to the house to find the truth.

a simple man said...

Totally agree the Vancouver listing is unethical and the Victoria unclear.

koozdra said...

Another day another million plus dollar property comes to market.

Don't these people know this is a bad time to sell? Why are they listing their places?

Sellers, pull your properties off the market and wait for better times. They are just around the corner...

If we work as a cohesive mass we can limit the supply and keep prices stable. Don't be a listing traitor!

Jack and Cate said...

I must say Marko that you use the word "Logical" a lot.

One would hope that anyone willing to spring for 2 mil in this market should be informed and aware, but to assume that most people reading that listing would imply all your logic....not likely.

I and repeat I say that all the scams and questionable sales techniques that are being uncovered are due to this industry's self policing.

No logic there only greed and to self aggrandize with little or no education.

Time to pay the piper.

koozdra said...

Ok first time home buyer do I have a deal of a life time for you!!!

This house has 3, you heard it right, 3 suites. You will figuratively be drowning in money.

But wait it gets better. Can't qualify for those dinky 25 year amortization mortgages. Well today is your lucky day because you can assume our 35 year am. mortgage.

All these amazing features wrapped up tight 1600 sqft package.

And how much will it cost? That's right! a measly half million dollars.

DON'T DELAY

Great color scheme (if you like neon green).

http://www.realtor.ca/propertyDetails.aspx?propertyId=12876517&PidKey=967495158

axeman said...

Marko

"Existing house is irrelevant.

True, I dont' think we can fault Realtors for pictures that show the good stuff, its called marketing. when you go for an interview don't you brush your hair and put on a suit? The same with a house. If you only see pics of the outside, well take a guess, the inside is going to be crap. Even the pictures are distorted via the type of lens on the Camera, they always make the yard look bigger.

Dave said...

Marko, if you have any interest in taking your Slegg price curiosity to the next level, here's a good model to use for when commodity inflation (and RE) will storm back.
Stifel Nicolaus has one of the highest ranked research institutions.

axeman said...

info said...

Yes very valid points indeed, tons of stimulis to prevent the crash, and now that the Feds have realized their mistake, they are pulling back the same stimulas. it can only have one effect...

Rest assured this time it will not prevent a correction, but we are back to 2007 prices now. That is 5 years with no appreciation, and if you factor in inflation, you are down even more. I think we are well into the correction already.


Garth is an interesting guy and yes his predictions are proabably close, but if you can get your hands on one, find his book "The Defense" it is pre 2000, and a very interesting look on what people thought was the "New Paradigm" as he put it.

Let just say, it didn't work out like that... there was no "New Paradigm"

I do think he is very entertaining.

Jack and Cate said...

....and as a follow-up to the 2 million listing.

One of the agents likes to parade his letters. Passed the bar but didn't quite make it maybe?

Apparently chose a career where you require the same amount of insight and integrity, or so it seems?

Marko said...

You come across as a very bitter person.

CS said...

Re: lot, offered with or without flash new home, looks pricey to me, with a busy road both in front and behind, and located at a tricky intersection with Cadboro Bay Road.

The cachet of an Uplands address must be great for someone to pay 900 K for the lot, plus another 1.6 M for a house.

CS said...

Especially when the price of copper is dropping like a stone.

CS said...

Steve Keen reports that the mortgage accelerator, a measure of the rate of change in mortgage finance, which is understandably highly correlated with house prices is at present in slightly negative territory, which would indicate continue gradual house price deflation — until, that is, the mortgage accelerator changes.

CS said...

Oops the link for Steve Keen's perspective on Canadian RE.

CS said...

But actually, since last August copper has been in an uptrend, from ca. 3.20 a lb to around 3.50 now.

Wow that seems high. When I traded copper back in the 80's it was going for 80 cents, I think — a four-fold increase since then.

CS said...

But actually, since last August copper has been in an uptrend, from ca. 3.20 a lb to around 3.50 now.

Wow that seems high. When I traded copper back in the 80's it was going for 80 cents, I think — a four-fold increase since then.

CS said...

But actually, since last August copper has been in an uptrend, from ca. 3.20 a lb to around 3.50 now.

Wow that seems high. When I traded copper back in the 80's it was going for 80 cents, I think — a four-fold increase since then.

SJ said...

@ Marko

"Existing house is irrelevant. It is owned by a construction company. The house is going to be demolished whether they build custom or spec."

The ad says "Renovate the existing house." Doesn't this imply that they will sell the existing house for $898,900 and let you renovate on your own, or would they expect you to hire them to renovate as part of the deal?

DavidL said...

Re: 3520 Upper Terrace Road

This property is listed under MLS 317443 for $898K while was previously listed under MLS 309635 for $799K (and then later dropped to $770K).

So, you get to pay an surcharge of $100K+ to have a well known development company convince you to pay another $1,000K to build a new home?!

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

Doesn't this imply that they will sell the existing house for $898,900 and let you renovate on your own, or would they expect you to hire them to renovate as part of the deal?

I am sure you could give them a call and ask.

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

Everything is negotiable. Yes they paid 770k for this home last year. Plus $13,500 in PTT, plus legal, on the other side they have to pay commissions, etc. I don't think their intention is to flip; especially SEBA they do a lot of new construction.

If this was owned by an individual, sure, I would say maybe they are trying to flip it.

I am too lazy to explain every single detail but there are benefits to someone buying it right now and having them build it versus them building it then selling it. Tax implications, etc.

Not everything out there is a scam and no need to be bitter against successful REALTORS® who have other qualifications as well.

DavidL said...

@ Marko
Existing house is irrelevant. It is owned by a construction company. The house is going to be demolished whether they build custom or spec.

The MLS 317443 listing indicates the property could be renovated - so demolishing is not a certainty.

Two photos show the supposed exterior (reflected on the TV and through the windows) of the house. The Garry Oaks reflected on the TV indicate that these photos are of another house in the Victoria area.

SEBA Construction's web site is "down temporarily for updates", but current and previous projects are actually available here.

DavidL said...

@Marko
Not everything out there is a scam and no need to be bitter against successful REALTORS® who have other qualifications as well.

I tend carefully research most things ... I am in no way bitter or suspicious.

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

This listing debate reminds me of a mere posting I had last year on a million dollar home.

The seller, smart individual, did a brochure on the home which I uploaded to my website. It was 6 pages long and well put together. Some individual tore a strip into me via email that I should be embarrassed about the grammatical mistakes in it. There were like two and even I had a hard time picking them up after reading it twice.

I emailed the individual and explained the situation, the mere posting component, and that I would let the seller know. He made more comments about how even though it is a mere posting I should be embarrassed, I was unprofessional, long email, etc.

Anyway, turns out the guy complaining sold his house 8 months earlier in the same area using a full service realtor ($$$$$). The mere posting with the "grammatical mistakes" and all sold as well but the seller saved over $17,000 in commission.

Sometimes the bigger pictures if much more important that fretting over how a listing is uploaded.

Bigger picture is I don't think the uplands listing is trying to do any harm - they are trying to maximize their exposure to potential clients. No need to get too excited.

Marko said...

"Two photos show the supposed exterior (reflected on the TV and through the windows) of the house. The Garry Oaks reflected on the TV indicate that these photos are of another house in the Victoria area."

Maybe I am going on a limb thinking that this would be obvious to most buyers reading the description looking at spending this kind of cash?

When pre-sales put up photos they almost all have photos of the show unit, not the actual unit.

SEBA is just showcasing their construction talents from other projects.

Leo S said...

Some individual tore a strip into me via email that I should be embarrassed about the grammatical mistakes in it.

Sheesh Introvert, you're really going too far now.. :)

Introvert said...

Sheesh Introvert, you're really going too far now.. :)

I'm innocent until proven guilty!

CS said...

Sorry about the repetitions above. Once would have been quite enough. Don't understand what happened.

koozdra said...

"Sorry about the repetitions above."

This happens sometimes when you log in as you post. It will post for each submit.

a simple man said...

info - I had no idea you were a young woman in your 20's.

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

Love what your doing here, very informative and a great perspective!

Irad said...

Love what your doing here, very informative and a great perspective!

Jack and Cate said...

@ Marko
"You come across as a very bitter person."
___

Did I hit a nerve? Maybe?

koozdra said...

Irad, welcome. Fascinating cave documentary.

Jack and Cate said...

At least some sort of honesty from CMHC - but still a bit under handed don't you think?

http://tinyurl.com/af2fet6

Leo S said...

Sup Ron.. Long time no see.

koozdra said...

From CMHC article from above:

"We establish our target prices and we stick to our guns," said Mr. McInnis. "It’s more efficient to deal with people who are paying fair market value."

There we go sellers. This is what we have to do. Stick to our guns. If it takes you one, two, even three years to sell your house, don't lower your price. The CMHC is sending a strong signal here that will in no way discount properties.

Remember, it is better to never sell than to let a bear win.

Our brothers to the south of us fell because the did not hold the line on prices.

¡Viva la Revolución!

Leo S said...

info - I had no idea you were a young woman in your 20's.

What did Introvert say? Very Infomative. Although even Garth is starting to get a little tired of the template it seems.

Leo S said...

“It’s more efficient to deal with people who are paying fair market value.” - Mark McInnis, VP Insurance Underwriting CMHC

Wow, thanks Captain Nonsense. That is so logical.

But I think Professor John Andrew takes the cake with this one: "The real estate industry is all about transparency and disclosure."

Just Jack said...

Yet foreclosures rarely sell at fair market value. The underlying premise of fair market value is a willing buyer and a willing seller acting in their own best interest and not being under duress. In the case of a foreclosure, the vendor is most likely gone and it is left up to the agent to work in CMHC or the banks best interest - not his or her own best interest to make a commission. Good luck on that one. Sales people are not fiduciaries. It's the old tale of the Scorpion riding on the back of the Turtle.

And there would be no representations or warranties (ie. property disclosure statement) from the vendor, the property sold on an "as is, where is" basis. The appliances, window coverings and other chattels may not be included as the vendor is allowed to take them.

And you can't have a "subject to" clause in your offer. No subject to financing, no subject to a building inspection, etc.

You also accept the condition of the property as at the day you take possession. That means you can't back out of the deal or you're in contempt of court.

These are just some of the reasons why foreclosures rarely sell at fair market value.

Having said all of the above, the property would sell at the lower end of a market value range.

If the property's value fell within the range of $275,000 to $325,000. Under normal market conditions the fair market value might be $300,000. Under a court sale the most probable value, after considering the above, would be $275,000. That value range would be quite narrow for a Gordon Head box and quite wide for a home used a grow operation on 8 acres of rock in East Sooke.

-Class dismissed - smoke if you got em.

Marko said...

Friday March 1, 2013 7:45am:

February February
2013 2012
Net Unconditional Sales: 394 497
New Listings: 1,039 1,318
Active Listings: 4,072 3,977

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

Marko said...

Sales down 20.7%, new listings down 21.2% and I am seeing a lot of re-listing from last year.

Marko said...

SFH Median = $517,500
SFH Average = $601,377

Condo Median = $270,000
Condo Average = $299,412

Introvert said...

SFH Median = $517,500
SFH Average = $601,377


When the median gets to the low 400s, I'll start asking myself some questions.

Al + TOH said...

@JJ said: If the property's value fell within the range of $275,000 to $325,000. Under normal market conditions the fair market value might be $300,000. Under a court sale the most probable value, after considering the above, would be $275,000.

Actually one person who made money in US foreclosure housing market since 2006 suggested that one should never pay more than 80% of the fair market value on a bank owned house. That is the bottom line which would protect a buyer from "AS IS" condition. That seems to be the rule banks follow in State, when they put a house on the market.

Marko said...

I was in court three times last year on foreclosures and two of the times the properties went over market value in my opinion in a bidding war. One buyer I had I straight up told him, "this is ridiculous, I personally wouldn't go higher." He lost out by $2,000 but found a better non-foreclosure home a few weeks later.

I've never seen great deals in Victoria on foreclosures.

Introvert said...
This comment has been removed by the author.
axeman said...

Marco

I looked at one on the top of Greenridge, I rented the house next door for 2 years and knew the elderly couple. House listed at $480,000. My realtor (great guy saved me a bundle) said probably goes for $500 plus in the courtroom. Forclosure via a life insurance company, go figure.

Sold price $425,000 to young asian couple with deep pockets, and they needed them. We eventually found something much nicer but it was a deal in my opinion.

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