Monday, April 8, 2013

April 8 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.

April 2013April 2012 
Wk 1Wk 2Wk 3Wk 4
Uncond. Sales116


586
New Listings345


1470
Active Listings4323


 4638
Sales to New Listings
 34%


 40%
Sales Projection510


Months of Inventory
7.9

Last year we had 145 sales in the first 5 business days of the month so we're continuing to lag both in sales and sales/list.   Of course the Easter pseudo-stat confuses the week a bit, so don't put too much stock in that number.

My future sales predictor for April says to expect 502 sales.

On the topic of the Economist's idea that prices in Canada are 78% overvalued relative to rents, I've never thought this was a particularly solid indicator, and I don't understand why it is continually cited.  Here's a few problems with it that I can see.

  1. I've never been able to find a detailed description of their methodology.  What are their data sources, what are their parameters, what do they mean by "long run average"?    Everyone only brings up this graphic which is short on details.
  2. The metric for determining over/undervaluation is current ratios compared to "long run averages".  Nevermind that that term isn't defined, it also ignores the different state of development of different countries.  The Switzerland of 50 years ago is a lot more similar to the Switzerland of today than the Canada of 50 years ago is to todays.  This might be a moot point though, since they cite Teranet, which is certainly no basis for any "long run" average.  It would make a lot more sense to me to compare prices against a standard multiple of rent.
  3. Doesn't pass the smell test.  As dasmo said, 78% overvalued just doesn't compute in the real world.  

259 comments:

1 – 200 of 259   Newer›   Newest»
koozdra said...

Housing starts numbers come out tomorrow. Should be interesting.

StalJ said...

The 78% only passes the smell test if you compare to the US. Investors did not bite from what I saw until basiclly $1500/month houses fell to 150k range. Here, places bringing $1500/month appear to still be priced nearly 500k. With the fact the US has a much stronger economy adds wieght to the Economist outlook.

Tweev said...

The house I rent in Victoria is more than that undervalues.

I pay $2000 a month to rent a $650K house.

Here is my back of the envelope equation:
(Cost of house - down payment) * (mortgage interest rate - inflation rate) +
(money in house * (reasonable stock market return - inflation)) +
Insurance +
maintenance +
closing costs/years of ownership +
Property taxes (purchase price * 1.25%) -
(home appreciation rate - inflation rate * Cost of house).

Tweev said...

I missed a couple brackets above but i'm sure you smart guys can figure it out.

Full cost accounting can be pretty unforgiving.

Marko said...

I pay $2000 a month to rent a $650K house.

I know of a house that sold a few months ago for $442,000 that is now being rented for $2,400. One of my clients is renting a $495,000 home for $2,600 per month.

There are many variables to the rent/value of home ratio.

Tweev said...

Sure, that's what makes the rental versus house ratio difficult to track.

The 495K house is extremely lose to break even point even at that rental cost - add any sort of decline at all and the rental is a loser.

Leo S said...

One of my clients is renting a $495,000 home for $2,600 per month.

Seems rather excessive. We're paying $1850 for a $500,000-$520,000 house. When we rented the place last fall, I'd say it was about a middle of the road price. Could have probably done better with some more looking, but we wanted to move soon.

patriotz said...

As dasmo said, 78% overvalued just doesn't compute in the real world.

If RE prices are overvalued by 78% relative to rents that requires a real price decline of 43% (= 1/1.78) to bring the ratio back to normal, as rents rise along with inflation.

House prices in the US declined 35% nominal from the 2006 peak to the 2012 bottom. Over the same period CPI increased by 12% which means the real price decline was 47%.

How's that for the real world?

koozdra said...

"12,273 last month, down from 14,517 a year earlier"

On the bright side:
"The March seasonally adjusted rate was 184,028 units, up from 183.207 in February."


Home construction continues to moderate in March

koozdra said...

Another bank CEO comes out to console the Canadian home owner.

What happened in the US can't happen here. It's unthinkable.

Canadian housing will have 'soft landing,' Scotiabank CEO says

Tweev said...

a 78% overvaluation of rents is equal to a 44% decline in real estate which I think many would agree is not impossible from peak in Vancouver or toronto.

Leo S said...

Edit: NM, misread your post Patriotz.

axeman said...

what you need to count in is the effect of interest rates, and increase in family income from 20 years ago. As long as interest rates stay low, people can afford a mortgage. And rates have been dropping for 30 years... that is a long trend that is not going to change overnight. Also when I was 11, most moms stayed home. Not today, 1 in 20 stay home. this has effectively increased the family income and the affordability to buy. Also who says it cheap to rent? 2000 for a 4bdr is normal now, I rented a 5bdr for $1200 in 2000, that house now rents for over $2000... see a little inflation here?

Introvert said...

Housing starts numbers come out tomorrow. Should be interesting.

I bet you guys can't even remember what last month was "going to be interesting" and is now here.

What happened in the US can't happen here. It's unthinkable.

Well, it's thinkable. It's just not happening. But it will. Any day now. Meanwhile, the HHV blog--a.k.a. the Doom Predictor with the Worst Record in History--heads into its seventh year.

koozdra said...

"Well, it's thinkable. It's just not happening."

Isn't it? Sales tanking, public opinion changing about the housing market. Nearly half of the houses that are selling are selling below BC assessment.

Seems very familiar to me. The US 2006.

Or are none of these things happening?

I know what will fix everything. Lets bring back 0-down 40 year mortgages. Keep the ball rolling, as they say.

Tweev said...

Just because things don't happen it doesn't mean they shouldn't.

An increase in house by another 100% is possible if the government stepped in with 0% mortgages - this is of course highly improbably.

Housing has achieved ridiculous heights here out west and looking forward from 2005 - the chance that this would happen was highly improbably.

For those real gamblers they bought as many houses as possible at that time. Smart? No. Lucky ? Hell yes.

Introvert said...

Isn't it? Sales tanking, public opinion changing about the housing market. Nearly half of the houses that are selling are selling below BC assessment.

These are more suggestive of a cyclical downturn in the market than of an apocalyptic U.S.-style meltdown. Talk to me when one in four Canadian homeowners is in foreclosure and U.S. citizens are buying up Canadian housing en masse.

I know, I know: that's exactly what's going to happen. Soon...

koozdra said...

"U.S. citizens are buying up Canadian housing en masse."

I don't see that happening.

Introvert said...

The HHV Blog: Now Celebrating Nearly Six Years of "Soon"!

Come join the celebrations!

You'll meet HHV, the blog's creator, who eventually left Victoria because prices never dropped.

You'll meet Just Jack, who is still betting on someday buying for $300,000 the Oak Bay house that he rents.

And you'll also meet totoro, dasmo and Introvert, who have been more right than wrong for a while now.

koozdra said...

"HHV blog--a.k.a. the Doom Predictor with the Worst Record in History--heads into its seventh year."

Introvert, your commitment to this blog is finally paying off. Where, as you say, doomers on this blog have been wrong for years, we are finally entering a time when we'll be right.

Think about how liberating this will be for you. No longer will you feel compelled rebuff comments on the blog by pointing out the fact that the past is an indicator of future events.

It's unfortunate that you let your perspective cloud your judgement of current events. No crash will occur because it is inconvenient for me.

"These are more suggestive of a cyclical downturn in the market than of an apocalyptic U.S.-style.."

Cyclical downturns do happen, but not after a MASSIVE bubble. What goes up must come down. Or maybe it really is different here.

Renter said...

Introvert, you appear to be moving the goal posts. While admittedly some people have been predicting a US-style crash (folks like info, for example), most bear commenters on this blog have been predicting a much more modest drop in prices. 20% from peak, 30% from peak, and sometimes "rollback to 2005 prices". Those are not doomsayers. And as we can all see from the charts being posted, we are in the midst of the predicted drop. The only question now is how low it will go. Will we get 20% from peak? Probably, given that we're already 8 - 12% off, depending on who you ask.

You seem to be feeling defensive.

Introvert said...

Those are not doomsayers. And as we can all see from the charts being posted, we are in the midst of the predicted drop. The only question now is how low it will go. Will we get 20% from peak? Probably, given that we're already 8 - 12% off, depending on who you ask.

Point well taken.

dasmo said...

In the end the bears will claim victory because they think in real dollars. Talk about this long enough and y'all will get your huge decline in real dollars. Unfortunately halibuts think in nominal terms so there will still be arguments from me!

Leo S said...

I prefer nominal dollars for tracking the decline because it's more real for people (no pun intended). However if you're doing an actual comparison of investment returns you can't ignore the effects of inflation.

dasmo said...

Agree. The real dollar abstraction is useful but less so the shorter the time frame.

Just Jack said...

Where or when did I ever claim that house prices in Oak Bay would go back to $300,000?

My prediction was that starter homes in the core would be under $300,000 and the median price of condominiums in the core would be around $265,000. +/-

So far this year three starter homes have sold for under $300,000. One is currently listed below 300K in the core. And the median price for condominiums since January 1 is $271,500.

If you are buying real estate in the core today, you have to be seriously pro real estate or have a granny ready to bank roll you. Because the risk of losing most or all of your down payment to a market fall is close to a sure bet.

If you don't mind wiping out $50,000 or more in your savings - buy real estate.

koozdra said...

These are the people that are supposed keep house prices up.

Outsourcing bank jobs is common practice, say employees

caveat emptor said...

re real vs nominal.

People tend to report all their transactions (real estate, investment, mortgage rate, sale of used goods) in nominal terms. After someone tells me how much money they have made in the stock market I have NEVER heard anyone say "Accounting for inflation over the period that was actually an xx real return."

Nominal returns are fine for comparing past returns of different asset classes. Or comparing future returns if the returns are guaranteed. It's good to keep inflation always in mind though as it affects different asset classes.

Thinking nominal makes some sense though. There aren't many ways to get a guaranteed positive REAL return. You could buy real return bonds, but the best case with them if held to maturity is to lock in puny real returns.

Mayfair Man said...

If you are buying real estate in the core today, you have to be seriously pro real estate or have a granny ready to bank roll you. Because the risk of losing most or all of your down payment to a market fall is close to a sure bet.


Or have a spouse that is tired of renting....

koozdra said...

At least home prices haven't risen as much as they did before the US collapsed. We're safe. Well maybe just Oak Bay.

Understanding the Financial Crisis

koozdra said...

"Canada's housing market is slowing down fast.."

A new study focuses on first-time home buyers, as Canada's housing market continues to slow

Marko said...

Or have a spouse that is tired of renting....

+1, I see this a lot. I remember one guy did not want to buy but both his mother and his wife put some heavy pressure on him to buy. Eventually he caved and they bought :)

koozdra said...

"And while a large down payment is impressive, it does not necessarily mean that young people are diligently saving for their first home. Instead, many may be getting help from their Baby Boomer parents or friends, said Parsons."

Multi-generational wealth destruction. Saving is something my parents did.

Homebuyers in poll expect to spend $300K on 1st property

DavidL said...

B.C. couple 'tricked' into buying unlivable house
Realtor and inspector failed to flag mould, damaged floors and dangerous wiring

koozdra said...

Why would you buy a house without going to see it first?

Just Jack said...

If you can't get your spouse to respect or at least acknowledge your concerns, then by all means buy real estate. Then after prices fall you can grind your spouse every day on the issue until the divorce comes through.

DavidL said...

@koozdra
Why would you buy a house without going to see it first?

I totally agree - but I gather that it happens fairly frequently when people are moving in from somewhere else in Canada. I also can't understand why someone doesn't move to a new town/city and then rent for a while, so that they can determine exactly the kind of neighbourhood where they want to live in ...

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

With computers now, you can take a virtual walk of the neighborhood.

So if you are just buying a new condo in a rising market - why bother going out to see the hole in the ground. Just pick up the phone during breakfast and call the listing agent. Use your line of credit for the down payment and you're the owner of a new condo in any town before your pancakes are cold.

DavidL said...

@Just Jack
With computers now, you can take a virtual walk of the neighborhood.

Yeah, I had a chance to do that on Friday after my wife's cell phone was stolen. I could track the phone via GPS (combined with accelerometer and compass), remotely watching as the perpetrator wandered past the Rock Bay Landing onto Gorge Road, all while watching the scene via Google Street View. Not the same things as real life - otherwise I may have got the phone back!

FYI: Victoria police has a policy to not investigate any reports of stolen phones that are being tracked by GPS. Phone is stolen = you're out of luck.

koozdra said...

Leading forecaster sees bleak days for Canadian economy

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

+1, I see this a lot. I remember one guy did not want to buy but both his mother and his wife put some heavy pressure on him to buy. Eventually he caved and they bought :)

I am very lucky to have such a financially prudent wife :)

Leo S said...

I also can't understand why someone doesn't move to a new town/city and then rent for a while, so that they can determine exactly the kind of neighbourhood where they want to live in ...

Most people can't get beyond the thought that renting is throwing money away.

Just Jack said...

I did not know that the police wouldn't investigate a stolen phone being tracked by GPS.

Hmmmm, must be below their dignity to serve the public.

Did you call the perp?

Introvert said...

Because the risk of losing most or all of your down payment to a market fall is close to a sure bet.

1. You don't lose it unless you sell.
2. Prices have to keep declining.

Therefore, two conditions must be satisfied before your statement is correct. Just to be clear.

dasmo said...

137 Olive st sold pretty quick...

dasmo said...

Sorry, 147...

DavidL said...


I see that the asking price of 1153 Lyall Street has been reduced again. This property has been on the market for over two years under three different MLS numbers:
2013-04-09 $535,000 - MLS# 315030
2012-09-19 $579,900 - MLS# 315030
2012-07-18 $589,900 - MLS# 310889
2011-03-12 $649,900 - MLS# 284965
2011-02-26 $659,900 - MLS# 284965

Someone is taking a haircut on this property. It last sold in 2004 for $272,500.

Tweev said...

Because the risk of losing most or all of your down payment to a market fall is close to a sure bet.

1. You don't lose it unless you sell.
2. Prices have to keep declining.


That's a false equivalency. If apple stock is trading at 500 there is a hell of a lot of difference between if you bought it at $300 versus if you bought it at $700 regardless of whether you sold it or not.

dasmo said...

"If apple stock is trading at 500 there is a hell of a lot of difference between if you bought it at $300 versus if you bought it at $700 regardless of whether you sold it or not."
Except I'm not living in my Apple stock nor do I have a ticker at the bottom of my screen telling me how much my house is worth every second of the day. You will only know that when you sell it...

dasmo said...

"Someone is taking a haircut on this property. It last sold in 2004 for $272,500." How are they taking a haircut on this? Have they spent over $250k in renos or something?

StalJ said...

Victoria declined the most in the country for value of building permits in Feb... - 65% over last year. Calgary took out 22 times!! the value of building permits in Feb as Vic.
http://www.statcan.gc.ca/daily-quotidien/130409/t130409a003-eng.htm

dasmo said...

"Someone is taking a haircut on this property. It last sold in 2004 for $272,500." How are they taking a haircut on this? Have they spent over $250k in renos or something?

dasmo said...

"Victoria declined the most in the country for value of building permits in Feb" OK but building less inventory is not going to help with lowering prices so why rejoice?

Tweev said...

Except I'm not living in my Apple stock nor do I have a ticker at the bottom of my screen telling me how much my house is worth every second of the day. You will only know that when you sell it...

Sure but you can always get a decent idea.

A house is an investment (especially at current levels) whether you like it or not. To dress it up by calling it a 'home' doesn't change the lifelong financial crippling that can occur if you buy over leveraged and at the wrong time.

Leo S said...

You will only know that when you sell it...

Yes and that ostrich attitude is why people then act shocked when they go to sell and face the prospect of losing money.

StalJ said...

“…not going to help with lowering prices…”

Surely it will lower prices. Economy & jobs are the key. The glut in supply of homes already exists...even if builders full stopped pulling home permits, it would take many years to eat into supply. Not only have housing starts exceeded housing formation for 10 years.. also buildings permitted in Nov, Dec, Jan. can take up to years to occupancy.
Besides, the building permits in Calgary were mostly business & institutional..“The increase was a result of higher construction intentions for non-residential buildings, particularly commercial buildings” It was noteworthy since Calgary is only about 3x size of Vic, but 22x activity.

dasmo said...

"it would take many years to eat into supply" But aren't we running at around 7 months at the going sales rate? I don't see excessive over building in Victoria, sorry... Best I can do for you is misplaced building, like Sky @ capital city centre, but not overbuilding on a grand scale. Then again Halibuts aren't as dramatic as bears. Something to do with both eyes on one side of there face I think.

And I wouldn't call it an "ostrich attitude". I think it's pretty normal do do other things than obsess about the value of your house at any given moment. Stocks require a closer eye as they can be bought and sold in an instant with little expense or impact on your daily life. They can also lose all there value and simply disappear if your aren't careful.

DavidL said...

@dasmo

I don't know the full history of the property, but the interior photos suggest that the owner has sunk quite a bit of money into the house. A $125K drop in asking price suggests that the sellers expectations were substantially higher than market reality - hence my "haircut" comment.

DavidL said...

I can confirm that 3904 Bedford Road has now gone "unconditional". The "sold" sign will be going up tomorrow. The property sold in seven days.

david hain said...

Its a informative article and it will be helpful for those who are going for buying a home

Leo S said...

>> I don't see excessive over building in Victoria, sorry

Condo market shows evidence of that

>> I think it's pretty normal do do other things than obsess about the value of your house

A basic awareness of the market is not obsessing. Is it too much to ask for people to have some interest in the biggest investment they will ever make? It's important because many people don't stay in their houses for 25 years but instead are banking on upgrading in a few years.

>> They can also lose all there value and simply disappear if your aren't careful.

Introvert, over to you.

koozdra said...

"If you’d rather not eat cat food in your retirement, you’d better invest in condos, according to Toronto-based real estate developer Brad J. Lamb."

On the serious side, cat food is more expensive than dog food. So eating cat food is the luxury food of animal foods.

Ottawa Citizen

(found on whispers)

dasmo said...

">> They can also lose all there value and simply disappear if your aren't careful.

Introvert, over to you."

ha ha. reading that again made my morning! It should be if youz aint careful.

dasmo said...

It's a good thing to obsess on the market if you are looking to buy. Once your in it's most likely unhealthy, even in an up market. Better to pay attention to your personal finances and possibly interest rates. If you have investment properties then that is something else. Selling your house to rent and buy back in later is a fools move. Selling your house to rent is not....

subprime11 said...

3904 Bedford Road sold in 7 days simply because it was correctly priced for the market. Quality home, huge lot, liveable condition..10% below assessed value.

koozdra said...

Can you ignore your home losing 10% value per year? yes

Can you ignore your new neighbour paying half of what you paid for your house? yes

Can you afford to keep making your payments even if interest rates rise (we all know they won't)? Maybe

Unfortunately if you do all of those things you don't matter. If you continue to live in your house and don't participate in the market, you don't set market prices. Your neighbour who has to sell because of a myriad of reasons is the one setting prices.

There is also a certain group of people that base their happiness relatively to other's happiness. For example, houses are ridiculously over priced. You think to yourself "I don't know if we can afford this". Luckily your voice of reason is drowned out by your screaming wife that wants a house. You capitulate because, hey, everyone else is doing it so why shouldn't I? I should be able to have the things others have also.

Worst case scenario we'll sell the house.

But what happens in a downturn? People are making payments on an asset that is worth much less than they owe. The calm rational economic actor simply states "I only realize the losses if I sell". Again by not realizing these losses you are excluding yourself from the discourse of the market.

However, the same people that base their happiness on how everyone else is doing are getting pissed off that they are paying more than the people buying homes at the time. Lets not even get into the people that actually HAVE to sell. Oh and then there's the elephant in the room, interest rates.

In conclusion, can you ignore the fluctuations in the housing market? yes. Just keep in mind that you don't matter. The crash will occur despite your reasonable approach.

Just Jack said...

When I look at the last 25 sales in 10 mile point I find that the Sales to Assessment ratio for the neighborhood ranges from a low of 0.86 to a high of 1.28. The mean sales to assessment ratio being 1.01 and the median 1.02

If you assume that there is any validity of using a Sales to Assessment ratio as a primary means of valuation, then Bedford selling 10% below the assessed value would be a good deal.

Myself, I know that estimating a value for any property in 10 mile point is difficult because of the considerable physical variation in properties, water views and the limited sales activity in the area. In this case I would give BC Assessment a passing grade just for being within 10 percent of what a property might sell for in this hood.

I suspect that the vendors of this property have been over assessed by a hundred thousand dollars for the last half dozen years now and have paid more than their fair share of property taxes every year. That's around $3,000 in extra property taxes paid to the municipality.

Yet every year home owners argue to have their assessed values raised because they believe the myth that a higher assessed value will get them a higher sale price. As you see, all a higher assessment does is make them pay more property taxes.

yogurt said...

Man, just this week I was defending HHV to my wife, saying it was only Garth Turner's site that disparaged wives as irrational.

Can we stick to talking about pressure from spouses if we're generalizing?

Introvert said...

What a strange rant, koozdra.

Introvert said...

Interest rates will rise. Just probably not any time soon.

Also, when they do, most people will be locked in to a fixed rate and so won't feel the pinch for a few years.

But let's not dwell on the positive...

Just Jack said...

Here's another way at determining if we have an over supply of housing. How many homes for sale are currently vacant.

In the urban core, 10 percent are vacant homes. 29 percent are condominiums.

It's about the same percentages for the Westshore too.

10 years back, most people would accept that we had a shortage of housing that precipitated an increase in prices. And those percentages were half of what they are today.

So is this a good measure of over supply? Probably not - but its the best I can think of.

a simple man said...

I actually was starting to get some pressure form my spouse in the past week to buy.

I asked her to compare our quality of life now to what it has been in the past. No comparison - my spouse said - since we have been renting our quality of life has never been better.

I then asked her why we would ever mess with that then - particularly when we are in a market where renting is so much less than owning currently and one where the market at best will be stable but will likely fall further.

She agreed, we hugged, discussion over.

Just Jack said...

Absolutely right Introvert, the effect of rising interest rates will only be felt by home owners at renewal time.

Back in the eighties when interest rates increased by 50% from 12% to 18% that busted the market. Prices fell for years after that even with the interest rates dropping. Unemployment and Vacancy rates increased and there was a loss of skilled workers to Alberta and Ontario.

Those that had a 12% mortgage and had a month to go to their renewal at 18% had a good idea that they would not be making their mortgage payment in a few months. That's a tough thing to lose sleep about knowing that at renewal time everthing you paid into the home is going to be wiped out.

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

JJ, you're pretty good at reciting past events. And since everything that happened in the past will repeat itself exactly, your recitations are invaluable.

Just Jack said...

Oak Bay Strata owners are really putting a bullet to their brain with age restrictions. A 1500 square foot, 3-bedroom, 2-bathroom park view condominium on Newport just sold for $317,000. Originally purchased June 2002 at $256,000.

Age restriction of 55 years. A difference between $100,000 to $150,000 in comparison to a non age restricted complex.

DavidL said...

@Just Jack
Myself, I know that estimating a value for any property in 10 mile point is difficult because of the considerable physical variation in properties, water views and the limited sales activity in the area. In this case I would give BC Assessment a passing grade just for being within 10 percent of what a property might sell for in this hood.

I would totally agree - the variation between homes on Ten Mile point is considerable.

I suspect that the vendors of this property have been over assessed by a hundred thousand dollars for the last half dozen years now and have paid more than their fair share of property taxes every year. That's around $3,000 in extra property taxes paid to the municipality.

Interesting idea - but completely incorrect on this property. The house/property has been under-assessed for years (when compared with similar properties), saving the owner many thousands.

Now that the house has sold, I can "come clean" ... The house belonged to my father until he passed away last November. My family moved into the house in 1968 and I moved out in 1984. It has remained the "family home" ever since. My widowed step-mother found herself in a cash-poor, house-rich situation. She has done the sensible thing, selling the house in the "rising spring market" at a reasonable price. She's happy that it has sold and she can move on with her life. The new owners are happy getting a decent house and very nice property at fair market value. Neighbours who are selling (for $200K to 500K more) are probably pissed off, now that the "bar has been lowered" in the neighbourhood.

Before being put on the market, it was assessed by three real estate agents and an independent appraiser. The asking price was a bit higher than two of the agents suggested and about $10K lower than the appraiser. Based on the interest and offers submitted - the house was fairly priced.

a simple man said...

DavidL - my condolences on your father's passing. Must have been emotional selling the house.

Better days ahead.

Just Jack said...

Introvert, what are the odds that interest rates will be 50% higher in two years? - zero

5 Years? -could happen
10 years? - most likely
or over the 25 years it takes to amortize the mortgage? - definitely

If you are honest with yourself, you'll realize that the likelyhood of an increase of 50 percent becomes almost a certainity the longer the period of time you have a mortgage.

Which means to offset the increase risk of defaulting you will have to aggessively pay down the mortgage.

So how much would you have to pay down the mortage to reduce your payment by $500 or a $1,000 if the interest rate was to increase.

Just like in the 80's - it ain't going to happen for most people. The only solution is to sell the home before the mortgage is more than the net proceeds of the sale.

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

"But many members indicated they want to slow and eventually end the program soon after that, as long as the job market and economy show sustained improvement. The Fed's purchases of about $85 billion a month in Treasury and mortgage bonds are intended to lower long-term interest rates and support more borrowing and spending."

Perhaps "not anytime soon" could be later this year.

Fed wants to keep buying bonds

DavidL said...

@Just Jack
Did you call the perp?

My wife called ... The cell phone was immediately shut off, and I was no longer able to track it (or the wallet that was stolen as well)!

Just Jack said...

If your house keys were taken as well, it would be prudent to have your locks re-keyed.

Keeping a baseball bat by your door may be considered an overly aggressive act - and who needs all those questions from the police. However a nice heavy putting iron would just be considered an opportunistic event if left casually by your bed after a recent game.

I prefer a gap wedge myself. Easy to control and a nice lifting surface. That should introduce him to his ancestors.

DavidL said...

@Just Jack
Fortunately the wallet and phone were stolen from a bicycle pannier - nowhere close to our house.

info said...

@ axeman

"And rates have been dropping for 30 years... that is a long trend that is not going to change overnight."

The only thing we know for sure about interest rates is that they will rise substantially. Long term trends turn around when they reach one extreme.

You have such a small view of things. If you keep banking on extreme, emergency level interest rates you will get burned.

info said...
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dasmo said...

Extreme, emergency level interest rates were there for twenty years through the 30's and 40's. We are only a few years in.

DavidL said...

@simple man

Thanks for your sentiments. Yes, selling the house is a bittersweet experience ... I have many happy childhood memories there. Another family will now be able to create new memories.

koozdra said...

"Extreme, emergency level interest rates were there for twenty years through the 30's and 40's. We are only a few years in."

Describe why today is like the 30's and 40's. Are we heading into a depression?

koozdra said...

"Extreme, emergency level interest rates were there for twenty years through the 30's and 40's. We are only a few years in."

I mean this is great news!

Interest rates are going to stay low for at least another 20 years. I wonder why the gov't is telling people not to over extend themselves if we are in for some Japan style lost decades. Are they joking or something?

Just Jack said...

In my opinion,

I think buyers may be starting to take a look at properties outside of the core. The price differential is quite attractive.

If you're within 10 years of retiring maybe you want to get slightly away from the city.

Sell the Victoria home, upgrade to a better remodelled home, put money in the bank and be less than 30 minutes drive during the day to downtown.

And if you're going to retire in the next year. Why not sell the war shack and move up island.

Taxes are a third less in Cobble Hill, you get a newer home that won't need big repairs and the air is cleaner. And did I mention you could own your home without a mortgage and put a couple hundred grand in the bank.

Markets seem to zig and zag. For the last couple of years the trend has been to move to the city to protect your house wealth. Now the trend might be shifting to take advantage of the price differential and get a better home and a nest egg to live on.

Oak Bay is nice - but Cobble Hill is a lot nicer with a couple hundred grand in the bank at retirement.

Consider it over a can of Alpo.

nan said...

"Extreme, emergency level interest rates were there for twenty years through the 30's and 40's. We are only a few years in."

And then there was a war.

info said...
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info said...
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info said...

@ Leo

"The metric for determining over/undervaluation is current ratios compared to "long run averages". Nevermind that that term isn't defined"

You have always had a problem with price/income and price/rent ratios because they do not fit your line of thinking in terms of how much the housing market will correct.

This chart shows what happens when house prices in any country in the world reach extreme, bubble levels. The data from this chart is taken from 50 different national housing bubbles over the past 40 years. Once the peak is reached, house prices always correct back the same amount.

Canada's housing bubble has reached its bubble price run-up peak and has started its long correction.

The starting point for Canada's bubble is when lending standards were loosened (starting around 1999) and prices clearly shot higher because of excess credit. This is the point where fundamentals (like price/income ratio and price/rent ratio) were clearly left behind.

The US housing bubble was also caused by excess credit as a result of lax lending standards.

As the US example has shown us, after the bubble bursts, house prices always correct back to the point where incomes and rents are once again able to provide support. The same will happen in Canada.

StalJ said...

“house prices always correct back to the point where incomes and rents are once again able to provide support.”

A study by Zillow chief economist warned today the US is not there yet...

“More likely, in his view, is that as rates rise and push mortgage payments higher, people are going to realize that homes—and not just mortgage payments—are overpriced for what the nation as a whole earns, which in turn could send home prices tumbling again.
Humphries’s outlook is unsettling. He says many people think that once home prices corrected from their overinflated bubble levels, the market would be back to normal. But that’s not the reality he sees. “It’s really a period of oscillations that will be disorienting for buyers and sellers, and I think we are far from done.”
http://www.businessweek.com/articles/2013-04-10/cheap-mortgages-are-hiding-the-truth-about-home-prices

Introvert said...

Ten Mile Point was once affordable to many. Now, not so much. File it under the heading "Things Change."

Will Ten Mile Point ever "correct" to the point where the average family would reasonably be able to buy a house there? I don't think so. Same goes for Oak Bay and probably to some extent Cadboro Bay and Cordova Bay, Fairfield and Fernwood.

koozdra said...

"Will Ten Mile Point ever "correct" to the point where the average family would reasonably be able to buy a house there? I don't think so. Same goes for Oak Bay and probably to some extent Cadboro Bay and Cordova Bay, Fairfield and Fernwood."

If I didn't know that you were serious, I would think these statement were made by a sarcastic bear.

dasmo said...

@info
from your bubble article:
"We looked at forty years of housing fundamentals in twenty-one OECD countries to see how house prices interacted with inflation, household incomes and rents. Over the sample period 1970-2012, prices really do go up most of the time, just like your dad and your realtor always say. However, in the long run, prices go up because incomes and rents go up, mostly due to inflation."

Sounds like we are in store for ten years of rents going up and inflation going up not plummeting prices.

Just Jack said...

Incidentally, the price/rent ratio that most people are quoting is actually called the Monthly Rental Factor. Almost always it is shown on an annual basis and is then called the Gross Income Muliplier.

At the very least, you should make an allowance for vacancy and bad debt between the various neighborhoods when comparing one GIM to another GIM.

If you are going to compare one time period to another time perid then you will also have to account for the difference in expenses like property taxes in 1990 to those in 2013. Or property taxes in Toronto to those in Victoria. Then you can compare the net operating incomes divided by the market price which gives you a capitalization rate that you can compare one time period to another time period.

The higher the cap rate, the greater the risk. The higher the risk the greater return that an invstor will want. You can then compare the current risk to risk in other time periods.

Today, most people purchasing real estate are underestimating risk. You can tell that by ranking the different levels of risk against the different types of investments.

Which is a less risky investment. stocks in MicroSoft, municipal bonds or your house?

The point that you get to live in your home - doesn't change the level of risk in the investment.

Now you can do this for all 50 cities in the study and only 2 people on the face of the Earth will understand what you are writing about.

Or you can do a fluff piece using a price to rent ratio that only requires an IQ slightly more than a head of cabbage to understand and end up selling more magazines.

Just Jack said...

The average family never bought in Ten Mile Point. They bought in Gordon Head.

Now will prices in Ten Mile Point ever correct so that the upper middle income family can ever afford a house in Ten Mile Point again? Most likely.

Leo S said...

You have always had a problem with price/income and price/rent ratios because they do not fit your line of thinking in terms of how much the housing market will correct.

Nope, you missed the point. There is a big difference between an overvaluation based on a price/rent ratio, which I think has flaws but is at least logical, and an overvaluation based on a change in price/rent ratios.

For example, say the "long run" price to rent ratio was 150 in Canada. Now it is 250. So compared to our long run average it looks like we are hideously overvalued. But what if another country's long run average is 250 and now it is still 250. By the economist's measure Canada would be marked as severely overvalued, while the other country is fairly valued, even though they could have the exact same price/rent.

Just Jack said...

Fernwood is "blue collar" That someone changed a draughtsman table to earning a living with a laptop doesn't change the fact that the housing in this hood is sub standard for most middle income households. Too small, too old and too close to the downtown core. And middle income households do not need a stranger living in their basement to make ends meet.

Introvert said...

And middle income households do not need a stranger living in their basement to make ends meet.

And middle income households do not need to rent to make ends meet.

DavidL said...

Fed wants to keep buying bonds
Beige Book hints policymakers will keep plan in place until middle of year

Just Jack said...
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Just Jack said...

'

a simple man said...

And middle income households do not need to rent to make ends meet.

But some choose to do so.

Introvert said...

And middle income households do not need a stranger living in their basement to make ends meet.

... But some choose to do so.

koozdra said...

First it took one salary to afford a home. Then dual incomes became the norm and it took two. Now buying without a suite is not really an option for the middle income earner. So now it takes 3 (or 4 even).

What happens next? 5,6,7

No

We drop back to one as people realize that being a slave to debt is a terrible life decision. Every Canadian will know someone who declared bankruptcy. Debt will no longer be a blase thing.

This would be a crazy thing to say if it didn't happen in an economy 10 times the size of ours next door.



AIG === CMHC

AIG is a mortgage insurance company. They insured everything under the sun. After the collapse they could not pay out the money the owed. As a result they were nationalized. The US government now owns 80% of AIG.

In Canada we took a different approach. We used an existing institution that helped Canadians buy affordable housing. We created our own government run AIG.

patriotz said...

But what if another country's long run average is 250 and now it is still 250.

What country would that be? For that to be even plausible its interest rates would have to be much lower than Canada's for decades, and the only one that fits is... well you know.

Leo S said...

What country would that be?

Thats the thing, we don't know. Without knowing the actual values of price/rent, we don't have the foggiest idea if a change in the price/rent is concerning or not.

So unless I can see the actual numbers behind that Economist table, I don't trust that it means anything. Certainly Canada is overvalued, but without details the percentages they cite are just noise.

Alexandrahere said...

So Oak Bay sells for much higher than everywhere else in the Victoria area....or does it?

Check these two out & I realise a couple of valid argument points...but man, where is the value?

#306-1156 Colville Rd (busy street in Esquimalt). Built 2005. Sold for $333K and assessed at $300K. Two beds, 2 baths. Living room size...9X8. Piggy Back w/d in a closet. Wood frame bldg and located on the 3rd floor. Nice view tho over the Colwood golf course.

Now, look at #303-1175 Newport in Oak Bay. Built in 1983. Sold for $317K and assessed at $436K. Three big bedrooms, living room size...15X16. Separate laundry room, F/P with marble surround. Huge 142 sq. ft west facing balcony looking over Windsor Park. Underground parking for 2 cars. Steel and concrete bldg. Huge kitchen although it is minus the granite counters and SS appliances. But it does have a neat built in oven.

Of course the main arguing point is that this bldg is a 55+ one....so many people are out of luck.

Introvert said...

First it took one salary to afford a home. Then dual incomes became the norm and it took two. Now buying without a suite is not really an option for the middle income earner. So now it takes 3 (or 4 even).

What happens next? 5,6,7


Many locations in Victoria's core currently take two to three average salaries. Don't have/want three? Move to a crappier place, like Langford. Choices.

By the way, there's no God-given right to be able to buy a house in Fairfield on an average single income. At least not anymore.

Things change!

Alexandrahere said...

DavidL: I hope the new owners of your old childhood home make as many wonderful memories as I know you will always have.

I often walk by our old home in Fairfield. The apple tree is still in the back and the aromatic lilacs are still in the front. The exterior remains identical except for the roof. Fortunately over the years I've been able to have a few "tours" of the inside. You know, they haven't changed a thing...even the old kitchen remains intact. The basement now has a suite and that is about the only change to the interior.....memories.

dasmo said...

"Describe why today is like the 30's and 40's?" Because we are entering a long period of low interest rates....

koozdra said...

"Because we are entering a long period of low interest rates.... "

Wishful thinking.

Al + TOH said...

@DavidL,

We were at 3904 bedford twice (outside only on the 3rd and inside on the 4th) last week, per request of our friend who is in Calgary. We loved the location and the lot, and were very impressed by the volume of the books and binders of academic papers there.

We told our friend that the house would go very fast with possible multiple offers. But he was just one day too slow to fly over to see it.

I heard that the new owner is from Vancouver area and probably will rent the house out first. Actually that was what my friend would have done for the first few years (before they retire and move to here) if he had got the house.

45 years is a long time for one family to live in the same house. May those fun and cherished memory stay with you and your family.

totoro victoria said...

I tried to buy my grandma's house back. The woman who owned it said no, she planned to be carted out in a box. I did wonder about her health...

caveat emptor said...

"Which is a less risky investment. stocks in MicroSoft, municipal bonds or your house?"

If bought on 19:1 leverage (5% down) the house would be safer than MSFT purely because the bank won't do a margin call on you as long as you keep paying the mortgage.

OTOH if you had 500K cash to invest right now I'd predict a higher rate of appreciation (divs plus capital gain) for MSFT than for a Victoria investment property.

The MSFT would likely have higher volatility which is another form of risk (bad timing could force you to sell when the stock market is down)

MSFT could theoretically go to zero - highly unlikely but great companies have failed before. Victoria property only goes to zero in a true doomer scenario (plague, social breakdown, mass expropriation, etc.)

Animal Spirit said...

I see introvert is back to strait trolling now instead of being a grammatical nuisance. I preferred the latter.

caveat emptor said...

"Will Ten Mile Point ever "correct" to the point where the average family would reasonably be able to buy a house there? I don't think so. Same goes for Oak Bay and probably to some extent Cadboro Bay and Cordova Bay, Fairfield and Fernwood."

More coveted neighbourhoods will remain more coveted (expensive)after the real estate correction. One of the Garth's views that I do subscribe to is that desirable central neighbourhoods won't correct as deeply as ex-urban McMansions.

dasmo said...

@Marko,
What did 147 Olive St sell for?

Marko said...

Olive still not pending but the amount it sells for will be give or take land value.

Al + TOH said...

If you're within 10 years of retiring maybe you want to get slightly away from the city.

@JJ, obviously you are not close to retirement, as retired people normally want to live somewhere more convenient than when they were working, say walking distance to library, cafes, parks, beaches, activity centers, ... Why, because we have more free time now and want to use and enjoy these facilities that we didn't have much time to do so before, and want to walk to them in fresh air, under the sun or in the rain, than depending on a car all the time.

Leo S said...

Price/assessment pretty strong right now. Both lower and upper priced SFHs are around 100%

Marko said...

Fernwood is "blue collar" That someone changed a draughtsman table to earning a living with a laptop doesn't change the fact that the housing in this hood is sub standard for most middle income households. Too small, too old and too close to the downtown core. And middle income households do not need a stranger living in their basement to make ends meet.

Funny you say that as my goal is to own a home preferably in Fernwood, I love the area and being able to walk to downtown is high on my would like to have list.

Personally, would also never ever buy or build a home without a suite (esspecially in a desirable location where vacancy is low). I am in my late 20s and if I built a home in Fernwood with a nice 2 bed/2 bath suite that rented for $1,500, over 20 years that is $360,000 not factoring in rent inflation or investment return on the money. Even if I didn't need it I would most certainly still have a suite. If I had a networth of 3-4 million maybe at that point I would consider no suite.

My parents have collected more from suite rent than what they paid for their Fernwood Bungalow in the mid 1990s. They paid off their home a decade ago and they still rent, not everyone rents to "make ends meat."

koozdra said...

"make ends meat."

So they are omnivores I take it.

dasmo said...

It's moments like this that keep me coming back, he he....

Marko said...

Well, I am ESL.

Just Jack said...
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Just Jack said...

"izraditi završava meso"

Introvert said...

I see introvert is back to strait trolling now instead of being a grammatical nuisance.

Around here, arguing from the opposite perspective is trolling.

koozdra and Just Jack "troll" just as much as I do, but no one calls it that.

Introvert said...

There was a time when I thought it was "end's meat." It made sense to me because I thought that the meat at the end is probably the worst cut, so if you could barely make "end's meat," you weren't eating well or doing well!

I also thought "euthanasia" was "youth in Asia." Not kidding.

Chris said...

Marko said
"I am in my late 20s and if I built a home in Fernwood with a nice 2 bed/2 bath suite that rented for $1,500, over 20 years that is $360,000 not factoring in rent inflation or investment return on the money."

You would do better to rent the 2 bed/2 bath yourself and instead invest your money. You couldn’t pick a worse 20 years to be a mortgagor than the next twenty. You really only need know two things per the period; deadly demographics and rising interest rates. By 2033 it will nominally be worth what you paid, but a MCD burger will set you back 20 bucks.

CS said...

I tried saying in Croatian "if ends are made meat, it means not that ends are carnivores but that they are animals not vegetables or minerals." However, I'll have to leave it in English since Google Translate rendered my statement, retranslated to English, as "If the edges of the meat, it does not mean they are carnivores, but the animals are not vegetable or mineral."

That's nonsense. So lets not have any more comments in Croatian, please. At least not via Google Translate.

CS said...

The debate about future changes in interest rates seems futile unless placed in a political context.

The present interest rate environment has been established by fiat, rather than the free play of market forces.

Specifically, since 2009, the Bank of Canada purchased approximately $125 billion in GoC bonds, the money so printed being made available to CMHC for the purchase mortgages from Canadian banks. Largely as a result of that action, Canada's national debt rose from $458 billion in 2009 to $600 billion in 2012.

Without that intervention, interest rates would most likely have risen sharply, and the fall in RE that began in 2008 would have ended in a rout, not a recovery.

dasmo said...

"You couldn't pick a worse 20 years to be a mortgagor than the next twenty. You really only need know two things per the period; deadly demographics and rising interest rates. By 2033 it will nominally be worth what you paid, but a MCD burger will set you back 20 bucks."

It's much more likely that by 2033 it will be worth twice what you paid and a MCD burger will set you back $14.99...

koozdra said...

"The debate about future changes in interest rates seems futile unless placed in a political context."

If only we had a time machine.

CS said...

Will Ten Mile Point ever "correct" to the point where the average family would reasonably be able to buy a house there? ...

With the one percent owning most of the wealth, they will certainly bid the price of the best property beyond the reach of ordinary folk.

But there's only thirty-five hundred of the one percent in Victoria, which means they could all squeeze into the Rockland mega-mansions and OB and E Saanich waterfront, leaving nearly all of those districts available to more of less average folk.

And, in fact, as Alexandrahere points out, there isn't much difference in price for ordinary properties between OB and Esquimalt. And that's true if you compare OB with Langford or Colwood, although for the same money, you get a much older and often more dilapidated home in OB.

The thing is, increasingly, people live on the West side not because they are poor but because that's where the action increasingly is.

Victoria's core municipalities are dying economically because their councils largely represent the dog in the manger folks who oppose new development that would change the character of their neighborhood.

That's a defensible attitude, but it's bad for the economy and in time it will be reflected in the incomes of the people who chose to live in those municipalities.

Marko said...

You would do better to rent the 2 bed/2 bath yourself and instead invest your money.

I don't think I would be better off financially (we could argue this all day long) and certainly not in terms of quality of life.

Having a 2,800 sq/ft home with a two car garage, yard, etc., and renting out the 1,000 sq/ft suite is not equivalent to renting that 2 bed/ 2 bath suite.

Leo S said...

By 2033 it will nominally be worth what you paid, but a MCD burger will set you back 20 bucks.

It will? I guess we know who took the time machine from the Iranians.

DavidL said...

@CS
Victoria's core municipalities are dying economically because their councils largely represent the dog in the manger folks who oppose new development that would change the character of their neighborhood.

Saanich is dying economically ... how so?

Leo S said...

Having a 2,800 sq/ft home with a two car garage, yard, etc., and renting out the 1,000 sq/ft suite is not equivalent to renting that 2 bed/ 2 bath suite.

True. Neither is it equivalent to owning a 2800sqft home.

In fact, if you have a suite, the whole term "single family home" is a misnomer. What you actually have is a duplex with a slightly different configuration. Some people like owning duplexes, but it isn't a single family home any longer, since it now houses multiple families.

Leo S said...

Check this out: Amalgamation Yes!

Introvert said...

The thing is, increasingly, people live on the West side not because they are poor but because that's where the action increasingly is.

No, I think you have it backwards: the "action" is in the West Shore because that's the only place affordable enough for young families. Do people enjoy sputtering along at 2 km/h twice daily in the Colwood Crawl? Would many of them not prefer to live in Saanich West if they could?

That's a defensible attitude, but it's bad for the economy and in time it will be reflected in the incomes of the people who chose to live in those municipalities.

How would that be?

... although for the same money, you get a much older and often more dilapidated home in OB.

Location, location, location: right?

Langford et al. are inconveniently situated compared with Oak Bay, Saanich East, and the like.

Introvert said...
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Introvert said...

What you actually have is a duplex with a slightly different configuration. Some people like owning duplexes, but it isn't a single family home any longer, since it now houses multiple families.

Mine is either a single family house with two kitchens, or, a "duplex." The difference is only circumstantial.

CS said...

Langford et al. are inconveniently situated compared with Oak Bay, Saanich East, and the like

Not if you work at the General Hospital; or work as a professional -- doctor, dentist, accountant or whatever -- serving the Western community; or run one of the big boxes that dominate retailing in the GVA; or build the houses and high-rises that accomodate the rapid population growth of the Western community.

If you bought for long-term capital gain, Intro, you should have bought on the West side.

Introvert said...

Victoria's core municipalities are dying economically ...

Saanich is such a terrible place to live. Well, it is at least in my part of Saanich. My 12-minute commute is a killer. I hate being able to walk to the ocean from my house. And all the grocery stores, hardware stores, specialty stores, pizza joints, coffee shops, and movie theatres are at most a 15-minute walk away. I'm breathless by the time I arrive anywhere!

But I don't even need to walk to those places anymore because they're all being boarded up. No customers! The economy is dying in my part of Saanich.

And I hate all those damn parks near me. Trees! How do they help the economy?

CS said...

"The thing is, increasingly, people live on the West side not because they are poor but because that's where the action increasingly is."

No, I think you have it backwards: the "action" is in the West Shore because that's the only place affordable enough for young families.

There may be more cheap houses on the West side than in OB, but if you compare the new build and lot prices with Oak Bay you see you're not getting much more for your money on the West side. True the West side lacks the cachet of an OB address, but surely Victoria will follow the trend of all great cities where the West side is always the place to be.

Do people enjoy sputtering along at 2 km/h twice daily in the Colwood Crawl? Would many of them not prefer to live in Saanich West if they could?

You forget the double or triple income household. Increasing numbers of families have at least one member doing the daily crawl, whether the live East or West.


"That's a defensible attitude, but it's bad for the economy and in time it will be reflected in the incomes of the people who chose to live in those municipalities."

How would that be?

The arguments implicit in what has already been stated. If the core, i.e., Victoria, OB and Esquimault, stagnate due to resistance to development while the West shore booms, this will be reflected in incomes.

"... although for the same money, you get a much older and often more dilapidated home in OB."

Location, location, location: right?

No, not right. Increasingly OB will prove to be the wrong location as the West-side economy grows.

CS said...

Saanich is dying economically ... how so?

DaveL, I didn't know Saanich was considered "core." They seem to have lots of traffic, so I should think the gas station business will keep them afloat.

Leo S said...

Mine is either a single family house with two kitchens, or, a "duplex." The difference is only circumstantial.

If you're renting the suite it's a "duplex". If you're not renting it out it reverts back to a single family house with 2 kitchens.

Alexandrahere said...

re: the term "duplex"

I wish we here in BC could get with the rest of North America and use the term "duplex" as a one owner home with two accommodations as in tri-plex, four plex etc. However, if you own "half" the house, i.e. both sides (units) have separate titles, then call it a semi-detatched. These titles give a much clearer description of the type of dwelling talked about.

dasmo said...

It's not a duplex since it's a single owner, single address, single title...

"surely Victoria will follow the trend of all great cities where the West side is always the place to be."
Sure but that's not the West Shore, that's Vic West and it's taken some time. It started to turn the corner in the 90's and probably won't be "finished" for another ten years. So... about 35 years to complete the transformation. Langford, I mean the West Shore™, will take another 50....

Introvert said...

If you're renting the suite it's a "duplex". If you're not renting it out it reverts back to a single family house with 2 kitchens.

Yes.

Introvert said...

DaveL, I didn't know Saanich was considered "core."

I've always regarded the "core" as comprising Oak Bay, Victoria, Saanich, and Esquimalt.

Just Jack said...

Strata titled duplexes always do bad in a declining market. This style of home is a leading indicator of prices for detached homes.

A half duplex in Sooke that sold in May of 2006 for $265,000 - resales today for $259,000. With Westshore prices now pushing back to mid 2006 levels Victoria prices will have to follow.

Why?

Because we live in a marketplace where neighbourhood prices are interwoven with each other. Anytime an advantageous discrepancy in prices occur, the marketplace has to adjust to a new level. And all of the areas outside of 8 miles of the downtown core are experiencing this re-shuffling of prices. That Oak Bay hasn't had this kind of drop doesn't mean that it will not happen. There is just a lag time before they have to correct too.

Back in 2006, the median price for a home in Oak Bay was $655,000 or about 10 percent less than what they are today. With homes along arterial roads and the crappy areas of Oak Bay starting at $375,000. Totally plausible for prices to return to this level even with the low interest rates.

And by keeping the payments the same - you knock off 51 months of mortgage payments. Ironically by waiting to buy - you will be mortgage free sooner than someone buying today.

Introvert said...

True the West side lacks the cachet of an OB address, but...

It lacks more than cachet, I'm afraid.

You forget the double or triple income household. Increasing numbers of families have at least one member doing the daily crawl, whether the live East or West.

Huh? If you live in the core and need to drive out to the West Shore for work, you would always be driving against the traffic, not with it.

Increasingly OB will prove to be the wrong location as the West-side economy grows.

Yup, it's only a matter of time before the well-to-do give up on Oak Bay and head for Langford en masse.

And since you don't agree with the concept of "location, location, location," I suppose you are championing a new and improved real estate concept, "structure, structure, structure."

dasmo said...

"With Westshore prices now pushing back to mid 2006 levels Victoria prices will have to follow."

Not necessarily. One of the things I found "funny" in the run up was the equalization of prices that occurred. When I started poking around in the early 2000's you would take 100k of the price of a house by simply crossing the bridge. Now it's about the same. You can take 100k off by crossing the bridge. BUT... house prices have doubled so the % difference is much less. I think you will see a return to a greater price spread between sooke and Fairfeild...Maybe less of a spread between VicWest and Fairfield though ;-)

Introvert said...

Someday Langford will become Victoria's Kitsilano.

Just Jack said...

The bridge?

Introvert said...

Love the insinuations that Oak Bay's relative desirability is arbitrary.

Alexandrahere said...

If you own a purpose built duplex, triplex, four-plex....it has a single title. If both sides of the duplex have separate titles....then it is a semi-detached (everywhere else), if you own 1/3 of a triplex and all have separate titles....you call it a townhouse.

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

All purpose built duplexes don't necessarily have different addresses. The older non-conforming duplexes often only have the one. Sometimes it will be the address plus "upper" or "lower" added or the same address plus A or B.

Many SFH now being built especially in the western communities have legal secondary suites. The house is still listed as a SFH with suite.

dasmo said...

@JJ the JSB or the Bay st Bridge...

dasmo said...

@ Alexandrahere
semi-detached means the land has separate title. The Duplex would have strata title. Anyway, I have no idea what I'm talking about! I am making assumptions. Any lawyers in the mix that actually know if there is a legal definition?

Just Jack said...

Actually Dasmo - No

Back in 2000 the median price for a home on your side of the tracks (bridge) was $183,500. In Victoria City it was $211,250.

Today its $477,500 and $560,500 respectively.

But you are better off than those that bought in Langford and Colwood. Those prices have just increased from $195,000 to $459,000.

Interestingly, prices on your side of the bridge have historically been slightly less than Langford and Colwood. I suppose it's the stigma of being near the base, drugs, transients, sewer etc. So your neighborhood still has to correct downward.

Might be in your interests to start looking at other types of properties or in locations that have already corrected while you can still get a good price for your home.

dasmo said...

@JJ I think I'll be fine since I'm a block from Spinnakers and the Roundhouse. Once I get that new bridge, then I might sell....

Also, Victoria and VicWest are grouped in the stats. But yes, pre Railyards, Dockside, and Bayview, Vicwest prices were about the same as ESQ.

So in 2003 ESQ average was $260,301

Victoria / Vicwest was $317,540
Saanich East $363,509
Oak Bay $515,372

If you remove the drag of Vicwest and RockBay on the Victoria Stats then it would be more in line with Saanich East. This concurs with my anecdotal experience of the time.

So let's just call it $363,509 VS $260,301 - about a 100k....

DavidL said...

@CS

The City of Victoria defines the four adjacent municipalities (Esquimalt, View Royal, Saanich and Oak Bay) as the "core". (See page 4 of Victoria’s Labour Force.)

Back to my question - how is Saanich is dying economically?

DavidL said...

@dasmo

In 2003, a mid-70's Glanford area home in Saanich West sold for about $100K less than an equivalent mid-70's Gordon Head home in Saanich East. No bridge to cross - just a drive under the Pat Bay Highway.

Alexandrahere said...

Dazmo: that is what I said

dasmo said...

@DavidL
Similar, but I could still walk downtown in 15 minutes...

Just Jack said...

Where you're getting confused is because you are mixing up type of ownership and building style.

A single family home with one, two, three or 4 suites is is simply called a duplex, triplex or fourplex.

If each has a separte title then it would be a Strata Duplex, Condominium or Townhome.

The distinction between a condominium and a townhome is if you have a yard or not. And that strata duplexes don't fall under the Condominium Act for things like reserve funds. But you still have to share the building insurance in a strata duplex.

Then there is legal and non-conforming use. And this tends to confuse the issue. A piece of land can be zoned two-family and if it is large enough, someone might build a single family home with a suite or two strata titled homes which can either be attached or detached. Never seen a semi-detached one. Maybe its attached on Monday - but not on Tuesday? Of course, just because you are zoned duplex doesn't mean you can build a duplex - unless your lot has been grandfathered.

But the structure still has to be approved by the city as one family or two-family or mult-family. Except in Esquimalt. If City Hall doesn't have the structure on permit as a duplex, then if the home is destroyed you would not be allowed to rebuild the structure as a duplex. You can build a duplex on a single family zoned lot, if the structure is approved at the time of construction for a suite. Then you have a single family home with a legal suite which is not the same as a legal duplex. You can also have a single family home with an illegal suite. Agents like to call these in-law suites as you are allowed to have your relatives living there but not a non related renter. The problem with saying its an in-law is that some people might think that makes it a legal suite which it may or may not be.

So you can have a single family home with a suite on a two family zoned lot but not on permit for two dwellings. That would make the property a legal and non-conforming duplex.

Of course the bylaws for each of the 13 municipalites differ slightly so you should read all 13 bylaws to make sure.

I simply can't understand why you have a problem understanding this.

Leo S said...

I've always regarded the "core" as comprising Oak Bay, Victoria, Saanich, and Esquimalt.

Same. Victoria, Oak Bay, Vic West, Esquimalt, Saanich west, saanich east are what I would call the core areas.

Of course the actual city center is just Victoria proper.

Just Jack said...

Okay Dasmo, what would happen if they make the new bridge a toll bridge. $5 one way.

Did you know the new bridge is being built in China. I won't be travelling across that one. Everything I buy that is made in China falls to pieces in 6 months.

Leo S said...

duplex vs SFH.

I don't mean a legal definition, I mean a functional one. If you're buying a SFH with the intention of renting out a suite, then you don't really own a single family home.

Of course telling people you own a duplex will just lead to confusion. :)

Just Jack said...

View Royal is part of the core. Everyone seems to forget about Vic West. Kinda like Ottawa and Hull or is that Gatineau.

See what I mean..

I bet if you stopped 10 people on the street, one or two of them would think Vic West is a different municipality from Victoria.

Maybe Vic West, Esquimalt and View Royal should amalgamate. They probably could come up with some unpronounceable First Nations name to call themselves, like Manspoocomeshere.

dasmo said...

JJ I guarantee you almost everything you buy is made in China even the stuff that doesn't fall apart. What do you write on?

Marko said...

MTD SFH Average = 570k
MTD SFH Median = 523k

dasmo said...

I might also add that sewage treatment goes on right now in some pretty nice neighborhoods like Dockside Green, Fairfeild and North Oak Bay....

Introvert said...

Back to my question - how is Saanich is dying economically?

It just is.

–CS

DavidL said...

I was under the impression that Vic West was a neighbourhood in the city of Victoria, not a separately incorporated area. Perhaps I've got this wrong?

dasmo said...

Vic West is a Victoria neighbourhood. I pay my taxes to Victoria. So it is Victoria plain and simple.

nuke2uk said...

@Marko,
Garth banned you? What happened? With RE at 12% of his net worth he's likely sitting at $3+ Million, conservatively.

DavidL said...

@Marko

I think that you posted that the March numbers were:
SFH Average = $583,886
SFH Median = $510,777
... so it looks like the average is down and the median is up. With only a weeks' worth of sales, do you think that this is significant?

nuke2uk said...

@DavidL,
I'm no realtor but I wouldn't count on just *one* week of data being significant unless you had a +/- wager on between friends.

Leo S said...

With only a weeks' worth of sales, do you think that this is significant?

Given that the median varies up to $40,000 month to month, the answer is a pretty clear no.

DavidL said...

I think that Just Jack's approach of using the last 500 sales to track trends makes the most sense to me. I'm just wondering why Marko posted the MTD stats midweek, unless he thought it was significant. I figure that with his high volume sales model, he likely has his finger on the pulse of the current trends.

koozdra said...

Just discovered this great CBC show on economics.

The Invisible Hand

nuke2uk said...

@koozdra,
For sure! I listened to this podcast last summer, sadly no new episodes since then. I recommend "Episode Eight: The Paradox of Thrift."

CS said...

@DavidL
Back to my question - how is Saanich is dying economically?

I already responded to that.

Like Leo S, I thought "the core" was just Victoria, plus OB, plus if you want, Esquimalt, i.e., the least dynamic, the most slowly developing, and the most heavily decayed parts of Greater Victoria.

CS said...

@Intro:
Re: Many locations in Victoria's core currently take two to three average salaries. Don't have/want three? Move to a crappier place, like Langford.

Here's what you get for three quarters of a mill in one of those crappier places, versus what you get for the same money in OB.

And in the Langford/Colwood area you there are dozens more houses to chose from at prices in excess of $750K than in OB + Gordon Head.

But naturally if you must work among the down-trodden and huddled masses of the economically declining "core," then you may prefer the convenience of a house in OB to the obvious benefits of a larger newly built home on a larger lot with a sea view and access to beaches and trails, that is available to those on the West shore.

totoro victoria said...

It's personal preference to an extent - although prices would not be higher in OB than Westshore if more folks did not share the same preferences.

I myself wouldn't move to the Langford/Colwood area. The Colwood crawl is pretty horrendous if you ever want to get into town - or... work there. I'd leave Victoria for a smaller town first.

That doesn't mean you can't get a bigger house for less out there. I don't need a big house or a sea view and I can already walk to the beach.

My priority happens to be walkability and amenities nearby like schools, stores, rec center, library and parks. Neighbourhood charm is also not lost on me.

If you are okay with lots of driving if you can have a bigger newer house then it might be a perfect match.

yogurt said...

Hm, after 94 days on the market, 4020 Rainbow Hill Lane decides to raise its price by $10,000.

I guess the idea here is to bump to the top of the listings without dropping the price even a bit?

a simple man said...

I'm moving to Metchosin.

If it weren't for the rampant drugs in the schools out there.

And the fact I hate driving.

And I would dearly miss my lattes on the Avenue with Myrtle, Marge and Totoro.

dasmo said...

I grew up in Langford / Highlands. I loved the forest around there...
On to the "Decaying" core. That is simply not true and is at odds with the claims of "over building". I live and work in town. It has it's issues as any growing, living city would, especially one that shoulders the homeless burden of all the neighbouring cities. I have been going downtown since I was a kid in the 80's and I have seen it ebb and flow but overall improve over that time. Victoria has the luck of history in that it's geographic location can not be surpassed by any other location on the island, it's bones are European in nature so it is unique in our country and is extremely people and pedestrian oriented. This is the crux of our tourist industry... Personally, parking lots, big box stores, Condo's in the mountains, and Ticky Tacky suburbs are not my ideal of urban progress...

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