Wednesday, May 8, 2013

How flat is flat?

The flat landing is what every legislator dreams of when the market gets bubbly, and what every real estate spokesperson claims we are in as markets decline.

It's something we have some experience with here in Victoria, since it is widely known that our last correction turned out to be this flat landing for the better part of a decade while wages, interest rates, and housing policy caught up to inflated prices.

But how flat do prices have to actually be before we can call them flat?  Our resident halibuts have a heavy hand on the straightedge, and tend to call anything within ~10% of peak flat enough to pour the foundations on.    I've been measuring decline from peak based on the 3 month smoothed median, by which prices are down about 10% so far.

So how flat was the correction in the 90s really?  Well from our current lofty vantage point, it looks pretty flat.


What if we apply our same 3 month median measure?


























Clearly detached homes fared the best, with peak drop only 12%, and values mostly hovering at less than 10% under peak for 7 years.  Condos got a worse deal.  Hit with a double whammy of the correction and the leaky condo scandal, they continued to decline to a peak drop of over 25%.  That might kick them out of the flat landing category.

If we're going by percentage corrections, then we're still currently within the realms of a flat landing.   Of course in the end it's all about the money.   10% in 1994 was only some $20,000 ($29,000 in today's money), while 10% today is over $55,000.   So in percentage terms we might still be in flat landing territory, but in terms of lost dollars, we are already beyond our previous correction.

257 comments:

1 – 200 of 257   Newer›   Newest»
Introvert said...

From the previous thread:

Those fortunate enough to have a pension depend on others investing for them, a service for which they pay fees, hidden or otherwise.

With rare exception, it is always preferable to have a pension than to have to do all the investing homework, risk-taking, monitoring, etc., yourself. Pensions may have fees, but they ain't very onerous. Otherwise we'd hear people say stuff like, My pension sucks; I wish I had a self-directed RRSP.

So investing in corporations with rising profits is a way in which those with declining incomes can capture in the form of corporate profits what they are losing in wages and pensions.

Sure, if wages increased at the expense of corporate profits many would applaud that.


Yes. Yes I would.

But that would be to reverse the process of globalization which everyone applauds.

*Cough, cough* You can't be serious.

Few people I know applaud globalization; and I make sure to mock the ones who do.

At least the people everyone votes into office appear to applaud it.

No, many of them don't; however, corporations have disproportionate influence over our politics and over our politicians; therefore, anti-globalization policies are rarely enacted, even though many of those policies have broad public support.

Leo S said...

Canada would be quite an insignificant backwater without globalization.

Leo S said...

I say again, what are the chances that they aren't going to discover widespread fraud and incompetence at CMHC when they start digging? And they're starting to dig. This could be the next game changer for Canadian housing.

In other news, the Teranet index has been accelerated again, now to be published no later than the 15th of the following month.

Just Jack said...

Impressive that this tiny insignifcant blogg started discussing CMHC years ago and has been right on target.

In my opinion, every restructuring of a corporation needs a new and clear mandate to operate under. If you were restructuring CMHC what would your new mandate be?

Just Jack said...

Impressive that this tiny insignifcant blogg started discussing CMHC years ago and has been right on target.

In my opinion, every restructuring of a corporation needs a new and clear mandate to operate under. If you were restructuring CMHC what would your new mandate be?

koozdra said...

Worth of the Canadian dollar based on house prices? What an interest situation.

Canadian Dollar Halts Four-Day Advance Before Home-Price Report

Marko said...

Thanks Leo, giving me lot of material/charts for my listing presentations!

Leo S said...

Their current mandate is a bit of a mess. Clearly written by committee (don't forget to acknowledge the administrative staff!).

I would focus the mandate to very clearly only engage in activities where the private sector cannot feasibly provide service, including:
- provide public access statistics for the housing sector
- provide affordable housing options in special cases that are under served (disability, remote communities, etc). This isn't necessarily insurance, could also be rental housing projects

To transition to this mandate they should:
- immediately and completely exit the bulk insurance business (basically done)
- close remaining regulatory loopholes that permit cash back and skip a payment schemes by the lenders
- phase out CMHC insurance for rental and secondary homes
- conduct a study to determine what free market rates would be for mortgage insurance
- implement a multiyear plan to raise premiums to free market levels
- encourage private sector competition
- as insurance in force naturally declines, lower the cap to match

totoro victoria said...

http://bc.ctvnews.ca/buyers-insurance-policy-protects-homeowners-from-price-drops-1.1271390

koozdra said...

"If you were restructuring CMHC what would your new mandate be?"

We need it to start helping low income Canadians. Although at the level prices are at right now, you could argue every buyer is "low income" Canadian. You're poorer than you think.

"According to CMHC, all the directors had an impeccable attendance record and only two collected more than $30,000 in annual compensation. “You get what you pay for,” is how Leblanc described the current CMHC board. “They are out of their league.”"

What happens next is the CMHC evaluates their risk and decides that there is too much. They will start toning down their business dramatically.

The banks will have to price risk again. Higher rates, higher down payments.

Not good news for the soft landing camp.

koozdra said...

Buyers’ insurance policy protects homeowners from price drops

"five per cent money back guarantee"

Garth was talking about this yesterday. What a joke.

koozdra said...

New home prices edge higher

We're in first place!

Jack and Cate said...

So from up island you must have seen this - one seriously misguided spokesperson, dontchathink??

Deny, deny, deny...


Sellers need to price accordingly, and be ready to make less on the sale, which they'll likely make up on their next purchase

CS said...

We need it to start helping low income Canadians.

Trouble is, anything you do to help people buy houses — special emergency low interest rates, tax breaks, whatever — raises house prices, which hurts low income Canadians more than any others.

If low income Canadians need help, it is surely help in increasing their incomes, then they can make their own arrangements about accommodation.

I suggest renaming the Old Age Security program the National Income Security program and extending this benefit to all those of working age provided that they are either fit and ready to take a job, or unable to work due to disability. At the same time, all minimum wage laws would be repealed.

With no minimum wage, entrepreneurs would be able to do what few Canadians have done for a generation, namely to make shoes and shirts and such like things at prices competitive with the goods we now import from the third world. And in return, those at the bottom of the pay scale would receive an income sufficient to live on.

The savings in welfare, including the cost of huge welfare bureaucracies, and in the costs of crime and mental illness associated with unemployment would be massive. In addition, there would be significant reductions in the cost of living as the cheap labor end of the economy kicked in.

Jack and Cate said...

P.S. like the Nanaimo Daily news regularly does when the article hits their advertisers, they remove the comments...

koozdra said...

"With no minimum wage, entrepreneurs would be able to do what few Canadians have done for a generation, namely to make shoes and shirts and such like things at prices competitive with the goods we now import from the third world. And in return, those at the bottom of the pay scale would receive an income sufficient to live on."

Interesting. In effect we would still have a minimum wage. But our tax dollars would cover the amount the employer doesn't want to pay their employees.

Can the employer then pay their employees effectively nothing knowing that the gov't is paying them a living wage?

CS said...

Canada would be quite an insignificant backwater without globalization.

Would that be bad?

I mean, if we had a national economic policy that protected Canadian workers from competition from Loblaws' Bangladeshi contract employees earning pennies an hour in collapsible factories; if we had a broad-based manufacturing sector; if the RCAF were flying Avro Arrows, not waiting for the F35; if we'd not participated in the violent destruction of the sovereign nation state of Libya; if we still had a birth rate that at least equalled the replacement rate; and much else beside?

CS said...

Can the employer then pay their employees effectively nothing knowing that the gov't is paying them a living wage?

No. There'd be a free market in labor. If the productivity of labor is more than zero, entrepreneurs will bid the price of labor to something like it's value.

The proposal merely enables Canadians whose labor is worth less than the minimum wage, to obtain work in the face of competition from Bangladeshis working for pennies an hour in collapsible factories.

In effect, by paying welfare, EI and other benefits to the unemployed, Canada is already subsidizing the likes of Loblaws who force Canadian workers into idleness.

Marko said...

Went to book 4 showings in Gordon Head, 3 with accepted offers.

a simple man said...

Price reductions in OB a daily occurrence. Sales happen, but at the right price, as always.

koozdra said...

The CMHC also needs to do something about Emili.

totoro victoria said...

http://www.realtor.ca/propertyDetails.aspx?propertyId=12897533&PidKey=-58541081

The worst photo of a dining room ever.

koozdra said...

To add to Just Jack's observation from yesterday about how marketing has changed to young professionals from retirees.

I don't see any listings any more that are advertising tearing down a house and building your "dream home". Without constant appreciation this trick doesn't work so well.


----
Below assessed value in Oak Bay?

Listed: $509,000
Assessed: $512,000

Only half a million dollars for an old house. Half a million, it's so low! We've definitely hit bottom.

13077034

dasmo said...

Sigh...can't even clean up before photos. This agent is really earning his $$$.

koozdra said...

Oh oops, that listing was in shitty Rockland.

koozdra said...

Totoro's listing above:

"Overnight appointments for showings."

No wonder. It's occupied by Canada's under class.

totoro victoria said...

Well, the owner/tenant clearly has issues BUT what realtor in their right mind would include that photo???

Introvert said...

Canada would be quite an insignificant backwater without globalization.

Globalization has been nothing short of amazing for Canada. I can't see a single downside.

Introvert said...

Rob Carrick: Renewal risk: The case for the 10-year mortgage

totoro victoria said...

"By the way, Mr. McLister sees 10-year mortgages as being appropriate only for people who have volatile incomes and want stability in their mortgages costs, who are extremely nervous about rates moving higher in the years ahead or who have an income-producing property and want to know their cash flow over the long term. He says a better choice is a five-year fixed rate mortgage, now available for 2.79 per cent"

I agree. I enjoy my 10-year rate a lot and I know what my mortgage interest tax deduction on rental income will be for the next ten years.

Introvert said...

Impressive that this tiny insignifcant blogg started discussing CMHC years ago and has been right on target.

Unimpressive is this blog's target-missing with respect to real estate crashes.

koozdra said...

"...but don’t do it out of fear your bank will turn nasty on you at renewal time."
...
"Robert McLister, a mortgage broker and editor of the Canadian Mortgage Trends blog, said renewal risk is close to nil. “I haven’t come across that situation before,” he said. “Basically, if people are paying as agreed, they’re sent a renewal letter and they can start the negotiation process from there.”"

The banks wouldn't do that to us. The banks are our friends.

totoro victoria said...

"Unimpressive is this blog's target-missing with respect to real estate crashes."

Leo's last graph looked crashy.

Introvert said...

It's not crashy.

totoro victoria said...

It was still a good graph in a non-crashy sort of way.

Introvert said...

Indeed.

a simple man said...

nonsense!

koozdra said...

Here you go young people. You can now stop complaining about mortgages being too high. Expensive houses are for move up buyers that were holding property during the wealth creation period, NOT YOU.

Tiny homes size of walk-in closet pushed by B.C. builder

Just Jack said...

I would have to do the math on a 5 year versus a 10 year term. I have the gut feeling that if you were to invest the difference between the 5 and 10 year terms during the first 5 years that amount could then be applied to the principle to paydown the mortgage or buy down the rate over the last five years. My thought is that the interest rate would have to be significantly higher 5 years from now to make this a financially prudent choice.

A ten year term has a greater economic benefit to the lender and the broker who gains a higher fee for selling a 10 year term. I don't see a financial benefit, although emotion and fear of higher rates or changing bank regulations can sell some on a longer term.

If you can scare someone into a ten year term - why not. They'll never know the difference and they'll think you're doing them a favour.

CS said...

"Unimpressive is this blog's target-missing with respect to real estate crashes."

Wadderyermean? The market just crashed as predicted. Or so we can infer from this ad on Page 16 of the current issue of REV:

"Now" [in large bold font] is the time to take advantage of this unique real estate market before it's too late...

"It's a rarity to find both, low mrtg rates with rock bottom house prices, in the same market."

Says Judy Campbell, an award winning, etc., etc.

LOL.

Now all we need to know is what the heck she meant by the commas after "both" and "prices."

totoro victoria said...

$500 000 year five of ten year mortgage at 3.79 and $2573 a month - mortgage is $433 633

$500 000 year five of ten year mortgage at 2.79 and $2313 a month - mortgage is $425,635

Difference is $4720/year.

At year five rates for a five year mortgage are 5&.

$500 000 year ten of ten year mortgage at 3.79 and $2573 a month - mortgage is $353 628

$401 500 (applied savings as well) year five of second five year mortgage at 5.00 at 2335 a month - mortgage is $355 357 - savings of $14 400 in payments is $341 357

So, assuming you make the additional payments to principal on the 5-year mortgage and never make extra payments to principal on the 10-year mortgage you will come out ahead by almost $12,000 in ten years even if rates rise to 5% at the five-year renewal mark.

Of course if rates are at 6% you lose $7000 over the ten year mortgage option.

totoro victoria said...

Sorry, should be year five of five-year mortgage on second line and 5% on the third.

For me, peace of mind and ability to plan are well worth the potential to lose some unknown amount over ten years.



caveat emptor said...

if some of the dire predictions of hyperinflation that have been made here in the past come true you will look like a positive genius for choosing the 10 year option.

I read recently that the 5 to 10 year mortgage interest rate spread was currently as narrow as it has ever been in Canada.

Still I am waffling on 5 versus 10 for next fall when I renew. Currently on variable rate and loving it, but the potential savings of that option going forward don't look like worth the risk anymore.

Introvert said...

Globe and Mail: When it comes to location, what do home buyers value most?

Leo S said...

Nickel or Dime. 5 vs 10 year mortgage risks analyzed on CMT.

totoro victoria said...

That is a good article Leo. I'm glad my math matches. The article is more in favour of the 10-year term based on the likelihood that rates will rise after five years. Who knows.

koozdra said...

When it comes to location, what do home buyers value most?

"“Conversely, older people value a quiet street more because the younger first-time home buyer can’t even hope to buy a house on a quiet street, so they don’t worry about it much. They just hope to not commute 2.5-plus hours a day to and from work,” he added."

Great.

Introvert said...

Whereas in Victoria, they often have to endure both a noisy street and a long commute.

totoro victoria said...

i have noticed that the crosswalks on OB avenue can cause massive, unprecedented traffic jams at all times of the day - but not night.

Just Jack said...

Interesting article on what buyers value most. Would have been even more interesting to correlate the opinion poll with prices.

How much more will you spend to live on a quiet street over a
-collector road
-an arterial road
-a highway
-Pearson Airport.

However, Sidney, with the airport, has a high proportion of mature residents, as does the Inner Harbour with float planes.

What I have noticed about how people value location is that once they've moved into a neighborhood they tend to play up the positives of their hood and down play the negatives.

When you ask someone if the noise from the Airport bothers them, they say: "you get used to it - now we never here them". A friend just moved from a neighborhood in Victoria to Langford. And I said you must be happy to move out of that high crime area. He said "Oh, I never had a problem there -its not a high crime area" I said what do you mean no crime - just down the street from you is where the kids broke into a older guys home and shot him for drugs" His reply - "Oh no, that's half a block away - half a block makes all the difference"

Yet, when you overlay prices in those neighborhoods - there is a clear difference of what someone who is looking to move into that neighborhood will pay.

koozdra said...

Could be yours for only 2.86 million.

Vancouver Hobbit house facing sale and rezoning

Just Jack said...

Obviously one of the essential points in chosing the 5 or 10 is the spread between the two rates. With the spread this close, chosing one over the other may depend on how optimistic or pessimistic you are about the next five years. Historically the variable rate has shown to be the best financially. I'm just not convinced giving the bank extra money if I forget to lock in my rate is worth it.

So many have called renting paying for someone else's investment. What do you call giving away several thousand a year to a bank that makes billions?

How many of you pay extra for the extended warranty when you buy a toaster?

totoro victoria said...

The spread is narrower than ever before I understand.

I'm guessing there will be a rise in rates by the five-year point but who knows.

Several thousands a year to a bank... I call that sweet in these circumstances.

Thank you bank for lending me money. Who else is going to provide low rate financing for my assets? Thanks to the internet comparison rate shopping has never been easier.

Thank you government of Canada for providing an incentive to own rental property in the form of a tax exemption for mortgage interest.

Now, banks making lots on avoidable account fees, that I don't agree with. Financial advisors charging usurious rates on investments, very suspect... leave the toaster alone - there are bigger fish to fry.

Ernie Fallows said...

We're looking into redoing or mortgage right now as well. Not sure if we'll go 5 year or 10. Prolly 5.

patriotz said...

Thank you government of Canada for providing an incentive to own rental property in the form of a tax exemption for mortgage interest.

That's not an incentive properly speaking, interest paid to buy any taxable investment is deductible.

What you should be thanking them is for guaranteeing the mortgages, without which credit would be much harder to get.

totoro victoria said...

I am thankful for both.

Seems to fit though:

incentive:
1.A thing that motivates or encourages one to do something: "incentive to conserve".
2.A payment or concession to stimulate greater output or investment: "tax incentives for investing".

Dave said...

safety of a neighbourhood is the most important feature of a home’s location, chosen by 63 per cent of those surveyed.

Doesn't bode well for Victoria - second highest crime rate in Canada, after Prince George.

Just Jack said...

I look at it this way. 10 year money will always be available. If I take out a variable and I see rates trending upwards I can always lock in for a longer time. And if the bank starts overcharging me on services I can move my accounts and mortgage elsewhere.

I don't have that flexibility with a 10 year term.

Just Jack said...

Credit would be available even if CMHC was not guaranteeing the banks.

It just wouldn't be at these ultra low rates.

When you look at private lenders their rates are at 9 percent and more for a mortgage.

Personally, I would never lend someone a hundred grand at 3%. Lend someone a hundred grand, so that you can recieve $500 a month for 25 years.

Fugetaboutit

Introvert said...

"you get used to it - now we never here them"

Here them?

totoro victoria said...

If you see rates "trending up" it will be too late to lock in to a 10 year mortgage at the current low rate - you will be paying your bank more as I know you hate to do.

As far as flexibility with a 10-year term - you do have flexibility after the first five years. The maximum penalty on any mortgage after five years is 3 months' interest.

Variable has been a good way to go, could still be good for lots of people. It is not for me.

Leo S said...

Re: the value article.
I think the conclusions they come to do not follow from the data they gathered.
They think that first time buyers value short commutes because they can't afford them, but since when are those two linked? You can value something regardless of whether you can afford it.
Perhaps the younger first time buyers value their environmental footprint more so they want to drive less.
Same with quiet neighborhoods. Perfectly reasonable that someone with experience living on a loud street or near a bad neighbor would value quiet streets and good neighbors more strongly. The affordability onnection is very tenuous

totoro victoria said...

Oak Bay has one of the lowest crime rates in all of British Columbia. Must be that half-block in Fernwood running the numbers up.

Just Jack said...

Most people percieve Oak Bay as having a low crime rate. Although it's a surprise to find that Oak Bay has one of the lowest crime rates in BC. But then again the town centre has one street.

Just Jack said...


What's the penalty if you have to sell in the first five years?

totoro victoria said...

Don't forget about all the back alleys tho...

The penalty for breaking all term mortgages is set in your contract.

Usually, it is the greater of three months' interest or the interest rate differential for the remainder of the term (up to five years). http://www.canadianmortgagetrends.com/canadian_mortgage_trends/interest-rate-differential-ird.html

koozdra said...

Could Garth be right?

The end of any amortization periods longer than 25 years.

The crash doesn't seem to be materializing fast enough for them.

I thought they cared about the 70%.

info said...

Vancity, Coast Capital and Laurentian Bank have continued to offer 35-year mortgages (with 20% down). This has kept the median and average prices in Victoria from crumbling even more.

This supports my claim that the move-up crowd has been dominating housing sales in Victoria since the new mortgage rules were brought in last summer. The move-up crowd has been buying and selling average and above average homes which has kept the median and average higher than they would normally be, even though they have both dropped since last summer.

This has prevented the average and median numbers from propertly representing the state of the housing market in Victoria over the past year.

Canada's 6 big banks have been offering 30 year mortgages.

The Bank of Canada, the OSFI and the Finance Department are in the process of nixing 30 and 35 year loans. Very soon they will no longer be available.

I fully expect the average and median numbers to decline at a much faster rate, starting within a month or two.

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

>> The end of any amortization periods longer than 25 years.

Even more evidence that the govt is doing its best to bring this monster down. They wont be loosening restrictions anytime soon. Looking forward to the whinging on CMT

koozdra said...

You know you have made the right decision to buy when you have to sell your house two years later.

You can like always sell your house for what you paid for it, right? I mean at least what you paid for it. Like not make a profit or anything... right?

153735147

koozdra said...

Buy a house in Bear Mountain. No way real estate prices in a world class golf course so close to Victoria will go down. If anything you can sell it in a couple of years for a nice tidy profit. It's even got a suite in it. Rent it out to some quiet students or don't it doesn't matter. The money will be in the resale.

13089715

Just Jack said...

The level of unhappiness in Langford houses must be quite high. 71 percent of all the homes that are for sale in Langford were built in the last 10 years.

50 percent of all detached homes for sale in Langford were built after 2007. That's right half the marketplace is made up of people who have owned their homes for less than 6 years.

That's just bizarro. I don't think any of them would have opted for a 10 year mortgage.

Introvert said...

If there's any kind of substantial crime going on in Oak Bay, I'm betting it's of the white collar variety.

Introvert said...

I fully expect the average and median numbers to decline at a much faster rate, starting within a month or two.

Although I am quite fond of this blog's subtitle ("Because we never know when interest rates will be increased to stimulate the economy"), I think an even better one would be: "The crash will begin in earnest ... within a month or two."

Just Jack said...

Just the City of Langford alone has a year supply of condominiums for sale. The lowest sales activity since the recession in 2008. Yet prices still remain high at $250,000 for a four year old 900 square foot condominium.

Victoria City with 6 times the sales activity as Langford has a price of $287,000 for a slightly bigger 10 year old condo.

If there is to be a "crashy" that some of the bloggers keep alluding to - its going to be hear.

JFYI

Leo S said...

>> 50 percent of all detached homes for sale in Langford were built after 2007

Or in other words, 50% of sellers are looking at losing money on their house in Langford.

>> If there's any kind of substantial crime going on in Oak Bay, I'm betting it's of the white collar variety

Oh yeah, like that murder suicide where a family got slaughtered. Typical white collar stuff

koozdra said...

Why is the man who bet against U.S. housing so worried about Canada?

totoro victoria said...

http://www.statcan.gc.ca/pub/85-002-x/2010002/article/11292/tbl/csivalue-igcvaleurs-eng.htm

OB was 207/208 (the lowest) for severity of violent crime in all of Canada for communities over 10 000 for 2010. Overall crime rate is extremely low and has been for as long as there are stats that I can find.

The murder-suicide was 2007. A family-based murder suicide could occur anywhere.

patriotz said...

Almost nowhere else in Canada is there a separately incorporated community with demographics like Oak Bay within a larger metro. There's also West Vancouver and White Rock.

That's the reason why you have the low violent crime statistics. Not because it's safer than similar communities elsewhere, or safer than the other side of Foul Bay Road or UVIC, but because it has its own statistics reflecting its demographics alone.

More broadly, the risk of being a victim of violent crime anywhere in Canada is almost entirely a function of your lifestyle and who you socialize with.

What really matters to middle class people is property crime.

Introvert said...

... its going to be hear.

This one's gotta be on purpose.

Sometimes he plays games after his unintended mistakes are highlighted.

Leo S said...

Sometimes he plays games after his unintended mistakes are highlighted.

Sometimes? Baiting Introvert with poor grammar is basically a sport around here.

dasmo said...

What's interesting about these graphs is the similarity. Plus the fact that it doesn't matter when you bought in the 90's , if you did, you did good....

totoro victoria said...

I agree that violent crime is in its own category as it should be and probably partly related to demographics.

On the non-violent crime front:

Victoria 20/208
Langford 65/208
Saanich 167/208
Oak Bay 181/208

I paid more for my home because of proximity to services, but also because of my impression that it was a low crime area. It is nice to see that this is correct.

totoro victoria said...

Well, I have to say something... crashy is just not a noun.

Leo S said...

>> Plus the fact that it doesn't matter when you bought in the 90's , if you did, you did good....

Only if you held. If you bought and sold in the trough, chances are you would have been much better off renting.
And we know from national as well as JJ's local observations that most people don't hold for that long. A huge chunk of buyers in that trough sold again before the market picked up

koozdra said...

Holding since the 90's? Holding real estate for a long time is something my parents used to do.

Welcome to Kettle creek station. An alternative to condo living. You can get your fill of granite countertops and ceramic back splash. And all this for a measly $300,000.

Buy it now, get in the game, and start building equity. In a couple of years you'll be able to sell it for a profit.

Some of us now hold real estate for two years. We scoff at property transfer taxes. "dude, prices are going up so fast, you gotta pay money to make money, at these rates anybody can afford it".

"fast possession is possible"

Oh good.

13171166

Mayfair Man said...

I heard a portfolio manager speak yesterday and he explained why housing prices are skyhigh in Hong Kong. Because they peg there currency to the US dollar, there interest rates reflect the US interest rates. Therefor they have low interest rates and decent growth (not the abysmal growth the US & Canada has) and real estate skyrockets. Something to think about when they have the annual “least affordable cities survey”, any country that pegs its currency to the US dollar, take it with an asterisk.

Introvert said...

Sometimes? Baiting Introvert with poor grammar is basically a sport around here.

There's voluntary bait and involuntary bait.

Introvert said...

Well, I have to say something... crashy is just not a noun.

You're right: it's an adjective.

a simple man said...

Reminds me of the butcher in the tiny SK town of my in-laws...

"I make all of my sausage with no adjectives".

Introvert said...

This blog is but a microcosm: the world baits me with poor grammar.

Perhaps one day I'll become a vigilante copy editor, like this one in New York.

a simple man said...

Reminds me of a run I had along the Galloping Goose a few weeks back. When running through the Vic West portion, I saw the same gang tag repeatedly - "Grey Wolfs". They may be tough, but not too bright. Even my kids noticed and laughed.

Introvert said...

Tightwads like me really need to stick to reading the New York Times, the New Yorker magazine and--at my blood pressure's peril--the Economist.

Fastidious copy editing is so rare nowadays.

koozdra said...

Welcome to the golf community of Arbutus Ridge. You are (pretty much) guaranteed value retention for your purchase.

Seniors will be bidding each other into a frenzy for your house.

Buy it now, hold it for a couple of years and make a tidy profit, all while you practice your debutante laugh with your friends down at the club house. If you want to make additional money you could renovate the place "top to bottom".

"Priced Reduced $86,000 below bank appraisal."
...
"Seller’s will consider trades fro comparable home in Greater Victoria."

What a deal.

12697107

koozdra said...

Welcome to the rural community of River's edge. A group of prestiges properties in an interesting location. There aren't really any "amenities" close by. You'll have to go to Naniamo. Don't let that worry you.

Sure it's not near the ocean and there isn't a golf course but the houses are huge and on large plots of land.

Rest assured of value retention. After all, we're running out of land.

12880078
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koozdra said...

You did everything right. You bought a house. You held for years and now sold to some young couple that now runs a home based business to afford to service the amount of money they paid you.

It's time to reward yourself.

You are sitting on a pile of cash. The stock market is shaky and interest rates are in the crapper. What to do?

Welcome to the rural oasis of Fairwinds. It's near the ocean. The golf course is amazing. Here is the best part, there is no risk.

House prices only go up... right?

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Tweev said...

@koozdra If you're going to post the RE links would you kindly provide a little more context for your point?

Right now it just seems like random cutting and pasting but I think you are attempting to make a larger point.

koozdra said...

I'm trying to demonstrate how prices have risen proportionally in every area on the island regardless of location.

Each post showcases a smattering of random properties from each of the communities.

Who will be the target market for the million dollar house in River's Edge when the current owners sell? Families? Retirees? Investors?

I have been to all of these places and I would like to share with you the absurdity of what is happening.

Nobody buying in those communities thinks they'll lose money.

What happens to these communities when it is clear you will lose money if you buy? How money buyers will be lining up around the block?

Most people don't see the bubble because they limit their view to the neighbourhood that they live in. "no over building here".

And here's the kicker... they're still building more!

a simple man said...

"And here's the kicker... they're still building more!"

Builders build. Head in sand, it will get better. Numbered companies. Declare bankruptcy. Start again.

Tweev said...

@koozdra I see. I agree that the 'RE is local' is somewhat overstates (but has some truth).

To think that RE is truly local then we wouldn't have see, massive run-ups EVERYWHERE (although to different degrees). The point, hoever, is EVERYTHING went up - to sugget that all markets are independent is to ignore this fact.

Ernie Fallows said...

Wonder what the sales numbers are so far this month.

Just Jack said...

That's right, every town in BC went up in price after 2001. Even those towns that were losing population to Vancouver and Victoria.

CMHC made a massive change in how they insured mortgages. Instead of using the home value as the basis for the insurance they went on the ability of the person to pay. That's the EMILY program that some of you may have heard about.

That made people buy to the limit they could finance which could easily eclipse the physical value of the home.

Kinda the same idea as some of you who look at the Gold standard versus today's "fiat" money. Before - the loan was backed by collateral, now it's backed by that persons ability to pay.

Well that just @#$%^% the marketplace. You would be out bid on a home not because the home was worth it - but because the person bidding against you could finance more!

Now as the marketplace is correcting you see these wierd anomalies in prices occur as the marketplace trys to right itself. This is more prevailent in the Western Communities which is further into the correction. However, in parts of Victoria and Oak Bay it's still a matter of who has the bigger dick.

Introvert said...

Now as the marketplace is correcting you see these wierd anomalies in prices occur as the marketplace trys to right itself. This is more prevailent in the Western Communities which is further into the correction.

Migh name iz Just Jack. I trie to right good.

info said...

From whispersfromtheedge:

"It’s about the finance minister eliminates 30 and 35 year amortization mortgages. Canadian households have become accustomed to the monthly cost of the mortgage payments. There is a total disconnect to the true cost of debt that people are accumulating. They are simply not afraid of the long term commitment that debt represents, or the consequences. As long as they can make their payments they will continue to borrow until they cannot. Flaherty should have taken tougher actions a long time ago and because he did not take more decisive action sooner, he should be held accountable for the resulting debt levels amassed by Canadian households. Most Canadians are simply not financially equipped to understand that leverage is a two edged sword. It can be very lucrative in a rising market but can financially ruin you when the market collapses. Unfortunately many households have not experienced the devastating effect of too much leverage in a declining market. They will soon find out."

totoro victoria said...

"every town in BC went up after 2001"

Umm.. that is 12 years ago. I would hope that prices have appreciated something since given that this has been the case since before 2001 over a 12-year period.

Also, "every town went up" the same massive amount? Really? Now that would prove that markets are not local and it is all government intervention. Just don't compare Prince Rupert with Victoria or Powell River with Kelowna.

As far as massive run ups EVERYWHERE... don't tell people in Windsor Ontario that... or Powell River... or Prince Rupert... or Kitimat (which is only seeing a massive runup since last year)...

Introvert said...

My idea of Oak Bay crime.

info said...

"As far as massive run ups EVERYWHERE... don't tell people in Windsor Ontario that... or Powell River... or Prince Rupert... or Kitimat (which is only seeing a massive runup since last year)..."

Cherry picking with mostly smaller communities, most of which are out of the way.

Victoria's bubble price run-up was second only to Vancouver among Canadian cities.

Victoria's price run-up far exceeds that of Seattle in the US. The only city that had a bigger price run-up in the US was Los Angeles, and Victoria wasn't far behind.

The US housing bubble was a result of lax lending standards that created excess credit - the same general environment that caused Canada's housing bubble.

The correction Victoria has experienced so far is only a fraction of what is yet to come.

totoro victoria said...

"That's right, every town in BC went up in price after 2001. Even those towns that were losing population to Vancouver and Victoria."

Don't you just think that cries out for some evidence to back it up? As does the assertion that there was a massive run up EVERYWHERE.

I see that "massive" and "unprecedented" rates have been replaced by "lax credit" as the rationale for increases.

I think it is a combo myself... with a large dash of local market conditions general real estate cycle patterns.

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

"massive run ups EVERYWHERE"

What I find funny is the massive run ups in Vancouver, Calgary, Toronto while poor Victoria has fallen 10plus%. Cuz it’s the weakest cities that will take the biggest beating, once the big three are in full tumble mode. Just like stocks, you never hang on to the weaklings (Cdn stocks), lest you enjoy enduring pain.

Introvert said...

The correction Victoria has experienced so far is only a fraction of what is yet to come.

We've been hearing this statement from you for months and months now. In that time, the correction has not accelerated.

So sad!

Ernie Fallows said...

Some folks believe that hyperposting about a potential crash will make it happen even soon *cough

koozdra said...

"We've been hearing this statement from you for months and months now. In that time, the correction has not accelerated."

Exactly, you agree with Flaherty et al. Time take some more drastic steps to slay this behemoth.

Ernie Fallows said...

*er

Just Jack said...

There's only one person that mentioned a massive run up in prices everywhere - and that's you Totoro.

My statement was that prices went up everywhere in BC despite some areas losing population.

That's not normal. If people are leaving a city for jobs elsewhere - you'd expect prices to decline not to increase.

But I see you two ladies are back at it again. Obfuscate the issue and divert attention.

totoro victoria said...

Perhaps I try direct quotes then:

Tweev: "To think that RE is truly local then we wouldn't have see, massive run-ups EVERYWHERE"

JJ: "That's right, every town in BC went up in price after 2001."

I was merely pointing out:
a. not everywhere
b. 2001 is 12 years ago and real estate generally increases with inflation over time
c. where are your backup docs for every town increasing in price after 2001? Here is one: "Kitimat's housing prices averaged about $140,000 in 2007, little changed from 1998."http://www.canada.com/theprovince/news/money/story.html?id=2f2a5be7-226a-4046-b937-7e5cdc560060

But look away folks, nothing to see here, just a bit of obfuscation as us ladies (who else I wonder) are prone to do.

info said...

"What I find funny is the massive run ups in Vancouver, Calgary, Toronto while poor Victoria has fallen 10plus%. Cuz it’s the weakest cities that will take the biggest beating, once the big three are in full tumble mode. Just like stocks, you never hang on to the weaklings (Cdn stocks), lest you enjoy enduring pain."

True. In the US, the real crash started once all US cities were correcting rapidly at the same time. Human psychology and emotions always play a big role in the deflation of a housing bubble. Banks start lending less...

Right now we cannot say that all Canadian cities are experiencing price corrections. Until that time comes, no city in Canada will correct much. However, that time will be upon us soon.

Victoria has started to correct already, as it has (probably) the weakest housing market in Canada. Once the rest of Canada starts to correct simultaneously, we will see the rate of Victoria's correction increase significantly. This is how national housing bubbles deflate.

Similarly, the bottom of the US market was reached, for the most part, by all US cities at the same time. That Victoria's correction started sooner than most other Canadian cities doesn't mean it will end sooner.


totoro victoria said...

the oracle has spoken. prophecy timing is tricky.

Leo S said...

>> Wonder what the sales numbers are so far this month.

Weekly updates aren't enough for you?

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

Looking at the Canadian housing market crash of 2009, it is clear that the vast majority of Canadian cities were correcting at the same time.

That explains why the correction in Victoria was so steep at that time.

Leo S said...

I was merely pointing out:
a. not everywhere


So you have one example of a town where prices were maintained despite the town losing population and basically being economically in the dumps. How exactly is that evidence against the point that lax credit was a major driver of house prices everywhere?

But look away folks, nothing to see here, just a bit of obfuscation as us ladies (who else I wonder) are prone to do.

Well it certainly is impossible to nail you down on anything because it's an endless series of strawman and tangential arguments.

caveat emptor said...

However, that time will be upon us soon

People were saying "soon" in 2007 and they are still saying "soon" in 2013.

Maybe the crash will start getting crashier soon but I'm still betting on a slow decline barring a big trigger (recession, large rate increase, "info" appointed as Finance Minister, etc.)

Just Jack said...

Are our unemployment and vacancy rates increasing faster than most other cities that saw massive increases in prices.

I believe it is.

And I would expect that are population level has crested and we are either having or about to have a decline in our population.

Much like Henry Ford made his cars cheap enough for his workers to buy. Low interest rates made it possible for the construction trades to buy the same homes they built creating their own demand. Now building starts are declining and the workers are picking up their shovels and pick axes and leaving to find work elsewhere.

And that means a lot of empty new (er) homes for sale.

totoro victoria said...

Easy credit will affect house prices.

Real estate markets are influenced by, among other things, national policies, interest rates and local economies/amenities.

The issue I have is with blanket statements that may or may not be true being used to support a proposition that markets are national or BC-wide. It has not been true in my experience.

JJ likely felt I was misrepresenting his position, perhaps in part because he did not realize I was responding to Tweev's statement about EVERYWHERE and not his.

JJ's statement that all BC towns have increased in value - even those who lost population - since 2001 is difficult for me because:

a. I know that, in Kitimat for example, this is not true (your statement that they maintained prices over nine years -not really when you count inflation and this is certainly not an increase) and,
b. I know that real estate goes in cycles but generally increases with inflation so I would expect values to increase over a 12-year period.

You will note that JJ started his post with "That's right" which I presume was in response to Tweev's post on the fact that markets were not really local.

So, in conclusion, I see no tangents or strawmen in the mix.



Ernie Fallows said...

Weekly updates aren't enough for you?

Awe muffin.


Ernie Fallows said...

Hyperposting will make the crash happen sooner. Koozdra hasn't met his quota today.

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

There are some regulars on this site who smugly think that the (not so big) correction that has happened so far in Victoria is proof that it is different here. Surely, they reason, we would have crashed by now if it was going to happen since all those mortgage rule changes were brought in 6 to 10 months ago.

What they don't understand is that the mortgage rule changes that were brought in have not decreased the household debt to income ratio in Canada. The continuation of the great Canadian debt orgy has prevented house prices from falling.

In fact, Canadians have continued to borrow even more over the past 6 to 10 months, as this chart shows.

Until the household debt to income ratio in Canada starts to decrease, Victoria's housing market will not really start to correct.

The fact that Victoria's housing market has been correcting for some time, despite the rising household debt to income ratio in Canada, is proof that Victoria has a weak housing market.

info said...

"However, that time will be upon us soon"

"People were saying "soon" in 2007 and they are still saying "soon" in 2013."


Maybe you missed it. Victoria's housing market crashed about 15% in 6 months in 2009. It would have continued to crash but a massive, unprecedented, emergency intervention turned the market around.

Those who predicted a crash in 2007 or 2008 were correct. Nobody could have predicted the government's sudden intervention in 2009.

caveat emptor said...


Those who predicted a crash in 2007 or 2008 were correct.

Info - i don't think you understand what CORRECT means. Correct prediction means that what you predicted actually happens. It doesn't mean "would have happened except something else stopped it from happening".

There was no nationwide housing crash in 2008-2009. There was a rapid blip down in prices that was rapidly recovered.

You calling wrong right won't rewrite history and your frantic postings here won't hasten the crash you are so horny for.

caveat emptor said...

In 2007 I predicted a huge bull market in stocks in 2008.

My prediction was correct because "nobody could have predicted" the financial crisis.

Just Jack said...

If you understand that I was saying that the increase in prices was not local but through out BC - then - that's right.

I remember speaking with an elderly couple back then who lived in Kitimat and they were saying prices had gone up there too - not as high as Vic but they still had risen.

And the point is...

This was not a localized event. Prices did not just go up in Vancouver and Victoria. Vancouver being the City that saw the most incoming migration. It happened in towns and cities that were losing population to the urban cores too.

I remember this - because I thought if our prices are going up because people are moving here - then they must be going down where people are moving from?

Not the case at all - the real estate boards in BC did not show any declines in prices. The reasoning followed that there had to be an external cause relevant to all towns in BC.

And there was - easy money and a change in CMHC that now looked on the ability of someone to pay and less on the value of the home. That meant you could bid $10,000 or $20,000 or even a hundred thousand (in Vancouver) over the asking price and STILL get financing. Peak pricing was here - where your home went higher with every higher sale on your street - and so did your ability to borrow against it. At that time 95% of the value of your home to buy that BMW, Mexican rental property, start a contracting business with new Dodge Ram truck or whatever.

And I suspect the reason why Victoria went so high was the expansion of the sewers that added a lot of money and thousands of homes. Otherwise our growth might have been along the lines of Hope.

Dave said...

b. I know that real estate goes in cycles but generally increases with inflation so I would expect values to increase over a 12-year period.

Except for the numerous 20-30 year periods where property prices decrease relative to inflation. Not surprisingly, those periods follow the 20-30 year periods where prices outrun inflation. ie. the 1980s to ~2010. Homeostasis or dynamic equilibrium comes to mind.

Leo S said...

Whether you call the 2008 downturn a crash or a blip is semantics.
However it is pretty clear that given the speed of price recovery, the crash of 2008 was more a function of the financial crisis than a self-sustaining housing downturn. Many good investments crashed in 2008. That is not enough evidence to call those investments overvalued.

In Victoria we have good evidence that housing was actually overvalued back then, since it has been flat for 5 years, and down trending for 3.

So the people that predicted a crash in 2007 were wrong, but the general idea that housing is/was overvalued and a bad investment in most cases going forward was right.

Just Jack said...

Real Estate goes in cycles but you never know the length or magnitude of the cycle.

Not much of a cycle when you really think about it - is it. Real estate goes up - then it goes down - then it goes up again - then it goes down.

Real Estate goes in 7 year cycles until it doesn't any more.

totoro victoria said...

smug·ger, smug·gest. 1. contentedly confident of one's ability, superiority, or correctness

crashies are coming across pretty smug imho.

Dave, you might be right but I do know that houses have appreciated far more than wages in my lifetime extending back to my grandparents' lifetime.

I would like to see graphs or stats on this but I'm not sure where to find them.

Leo S said...

I do know that houses have appreciated far more than wages in my lifetime extending back to my grandparents' lifetime.

The issue I have is with blanket statements that may or may not be true

In your lifetime yes. In your parents' lifetime... maybe. In your grandparents' lifetime... unlikely but certainly don't have the data to check this.

Just Jack said...

What fascinates me about this market is with the absolutely crap number of sales, market prices are just stable to declining.

What is happening behind the fascade of stable home prices? Are those home equity lines of credit being devoured by underemployed home owners? Are we going to get to the point that the whole market just implodes? There are over a hundred homes for sale - just on Bear Mountain. The small neighborhood of Vic West has another hundred for sale. Sooke with around 10,000 souls has over 300. And each area had only between 15 to 30 sales last month.



Just Jack said...

facade

-feel better

koozdra said...

Why are you even entertaining these arguments, Totoro. You KNOW you're right. You KNOW that real estate is a good investment. These kids don't know anything.

They just come on here to whine about not being able to afford a house. Maybe they should just go out and get a better paying job.

Worst case scenario people will stop selling their houses and we'll just wait for salaries to catch up. A couple of years, nothing longer.

Then we'll be back to 4-5% real gains per year.

Right?

totoro victoria said...

My data comes from those birthday cards which have the stats based on the year of your birth.

I looked at the stats for wages vs. house prices in Canada for my birth year and my parents and my grandparents and it is pretty astonishing.

I don't think they were incorrect. Houses have become much much much less affordable.

koozdra said...

"Are we going to get to the point that the whole market just implodes?"

A housing crash, worse than the states.

totoro victoria said...

Never pretended to know with certainty what would happen next Koozdra. I've always said that I don't have a crystal ball and my best guess is that prices will be flat for up to ten years absent interest rate spikes or other crises.

I've been consistent with this and you can review my past posts on this. I don't appreciate the misrepresentation, yet again.

What I do know is real poverty and how to get out of it. I don't believe a better job is the answer, although it helps. Better jobs don't happen without effort.

Saving more than you spend and investing the difference is the magic formula.

If you are complaining about not getting into the market and still have cable, eat out and use your credit cards for stuff you don't need then you have room to start saving.

Finally, as I have said before, now might not be the right time to buy for many people. If you have rental income and a ten-year term it might not be a bad time though depending on your stage of life.


koozdra said...

Totoro, I think you'll do just fine.

But it's not you that's the problem. It's all the people that didn't plan for the future. The people that believed there is no risk in the market. They exist and they are almost everyone. Even our friend Ernie.

In the crash a few will come out ahead just like they did in the states. It's the many that will suffer.

Ernie Fallows said...

Even our friend Ernie eh? You know nothing about me or my investment.

patriotz said...

I've always said that I don't have a crystal ball and my best guess is that prices will be flat for up to ten years absent interest rate spikes or other crises.

What are "other crises"? Doesn't mean much unless you define them ahead of time.

While you're at it, you can define "flat" too. :-)

Just Jack said...

Hey, I have friends that are cablevision installers stop suggesting that people take the bread from their table.

How about people stop using what you do for a living.

These aren't just jobs - these are people with families.

totoro victoria said...

Ok. My best guess is:

flat - you buy now and don't have any appreciation for up to ten years. after this point, prices go up. in the ten years prices might decline a bit (probably a bit more than now) but no crash like in phoenix. after 10 years you can sell for more than you bought for.

crisis: unemployment spikes; earthquake or natural disaster; interest rates rise; something else bad enough to affect the economy/house prices that i haven't thought of happens.

It always throws me when you use happy faces. It is almost crisis-like.

totoro victoria said...

Internet installers won't be out of a job - cable is on its way out my friend. Transferable skill set.

getting ready said...

Sayward,a small town on Northern Vancouver Island, saw spikes in real estate prices in 2006 to 2008 (no evidence to quote here, but I bought property there in 2007, so I was watching the market closely). This was at a time when the forest industry that used to sustain this town was dying. Property was cheap compared to other parts of Vancouver Island, but still rising in price at a pretty fast pace (one house sold for $220k in 2007 and then $320k in 2008). Now, of course, prices have dropped to pre 2007. Not sure what this proves - just some interesting anecdotal info.

Leo S said...

I also get all my stats from birthday cards. I heard that Hallmark employs some of the world's best statististicians.

I kid I kid... Anyway the only data I have for house prices before 1960 in Victoria is some advertisements in the British Colonist for properties around 1900, and they indicate that homes hardly appreciated at all between 1900 and 1960.

Leo S said...

While you're at it, you can define "flat" too. :-)

Many people are realizing how much money you can lose in this supposedly flat market. Nevermind that a paltry 10% decline translates to $50,000 these days, even if you sell for what you bought for, after transaction costs it is almost impossible to come out ahead of renting*

*exceptions apply blah blah blah

Leo S said...

crisis: unemployment spikes; earthquake or natural disaster; interest rates rise

I find it funny that you've put an interest rate rise in the same category as an earthquake. Megaquake or 5% mortgages, it will pretty much level Victoria (crisis smiley ;)

patriotz said...

something else bad enough to affect the economy

Like a slow RE market? I think that's what you're missing most of all - in an economy overly dependent on RE, a slowdown feeds on itself.

totoro victoria said...

Don't knock my methods, birthday cards can't be wrong.

Of course you can lose money in a flat market if you have to sell. Do the math. Think about selling without a full service realtor before you do.

If you have rental income and a low long-term rate you might find you are ahead with buying by quite a bit anyway.

If you think there is going to be a big crash without a "crisis" you are better off waiting.

ymmv

Leo S said...

Don't knock my methods, birthday cards can't be wrong.

True dat, birthday cards do seem to arrive exactly on my birthday with amazing accuracy.

If you think there is going to be a big crash without a "crisis" you are better off waiting.

No crash necessary. This gentle decline is more than enough to make it worth waiting.

totoro victoria said...

a slowdown does feed on itself AND prices cannot rise like they have forever imo and we've had a good long run.

the question is how the market will behave when interest rates are as low as they are and we didn't have the same subprime craziness of south of the border.

i'm okay if your opinion is different, we each get to make our own choices and live in them.

Leo S said...

1277 Cherry Rd and 1269 Cherry Rd both sold for the identical price of $524,895 ($25k over ask), both new builds.
Who out there is buying new houses like socks?

Ernie Fallows said...

1277 Cherry Rd and 1269 Cherry Rd both sold for the identical price of $524,895 ($25k over ask), both new builds.
Who out there is buying new houses like socks?


Yikes! That is a terrible buy. And seems they went over asking since they've been on the market for awhile.
1) They are RIGHT beside the prison. No thanks.
2) Interurban is horrid. Good luck getting off of Cherry onto Interurban most times of the day it's pretty much impossible. I hope they plan on turning right.

Ernie Fallows said...

Meant to say, seems weird they went over asking.

Leo S said...

3974 Saanich Rd.. 216 days on market, sold $75k under ask, 115k under assessment.

2650 Foul Bay Rd. 2000sqft with suite for $470,000. $55k under assessment.

You want a good deal in this market, you go for the places that are on a busy road, or have some other undesirable feature. The perfect "move in" places are still holding pretty strong and selling fast, but one defect and no one wants it.

Leo S said...

Yikes! That is a terrible buy. And seems they went over asking since they've been on the market for awhile.

I dunno. Seems like a decent price to me. Where else are you going to get a new build that close to the core for a paltry half mil?

Ernie Fallows said...

Maybe, but not for me. I've been there, the location is pretty bad. Interurban is a nightmare in that location, very congested. I'd rather buy one of those newish places in Bear Mountain or Langford.

Marko said...

Meant to say, seems weird they went over asking.

Asking price did not include taxes.

Yikes! That is a terrible buy.

Actually seems like okay buys to me.....location isn't ideal but half a million for a brand new house in town isn't too bad, relatively speaking of course.

Ernie Fallows said...

I shouldn't have said terrible buy. It is new. Everyone is different; but at that price I'd have settled for an older updated house in an more easily accessible location.

info said...

"the question is how the market will behave when interest rates are as low as they are and we didn't have the same subprime craziness of south of the border."

House prices in the US went into bubble territory because lax lending standards created an environment of excess credit. This led directly to the bubble price run-up in the US.

House prices in Canada went into bubble territory because lax lending standards created an environment of excess credit. This led directly to the bubble price run-up in Canada.

No two countries reach bubble prices with the exact same set of lax lending standards.

This chart shows that once a national housing bubble reaches its peak, it always corrects back the same amount. The details of the lax lending standards are not important. The important thing is that a price bubble forms.

This chart shows that there was housing price parity between Canada and the US until 2006. Both countries had housing bubbles of equal size by 2006. The US housing market crashed while lending standards in Canada were loosened even more to keep inflating the bubble.

At peak, Canada's bubble was bigger than the bubble that had formed in the US. Canada has, therefore, the potential for a bigger correction/crash than that which happened in the US.

totoro victoria said...

Maybe. But maybe not. The one thing we know to be true is that we don't know the future. Or at least one of us knows this.

What you know from your chart is past data. Your chart is not a crystal ball into the future. Just like stock market charts cannot be used to accurately predict the market.

My view is that lending standards do matter and where there are different standards, as there are between the US and Canada, there may be different consequences.

Just Jack said...

Our lending standards were more conservative in the past. That's what most people refer to when they talk about our banking system. When the banker looked strenuously over your pay stubs and gave you the one-eyed stare. That parent-child attitude is long gone.

That changed when our banking system was opened up to competition from the USA. Our second largest insurer of Canadian mortgages is after all a US company - Genworth.

A portion of our mortgages are not with Canadian banks at all. ING, Wells Fargo, Citibank, etc they were lending here too.

And with that opening up of the mortgage market came changes. We left the system of market valuation appraisals to a computer based system of risk management. The program was given to mortgage brokers to input the data to obtain financing. That was the fox guarding the hen house. You are not going to let a $750 pay commission slip buy just because the house is a little too small or the applicants actually expenses are too high. Forget about those day care expenses - the program doesn't ask for them.

How can our system be any better than the USA when we have over 70 percent home ownership in Canada. Just like in the USA - you don't get there without a lot of dubious lending practices.

What is different is that our CMHC is a crown corporation that was given special accounting privledges. The US had a public company that had to report to its shareholders.

In Canada all we've done is buried the corpses a little deeper than the USA.

So what's your evidence that our mortgage market is more secure than the USA? Mostly it is rhetoric given out by the banks and mortgage brokers. But none of that rhetoric explains how we got to 70 percent home ownership so quickly in Canada.

totoro victoria said...

http://www.clevelandfed.org/research/commentary/2009/0909.cfm

"But while subprime lending also increased in Canada, the subprime market remains much smaller than in the U.S. The most cited estimate is that subprime lenders had a market share of roughly 5 percent in 2006—compared to 22 percent in the U.S. (Mortgage Architects, 2007).

Moreover, the Canadian subprime market never expanded significantly into newer products, such as interest-only or negative-amortization mortgages, whose popularity grew rapidly in the U.S. from 2003 to 2006.

Instead, the Canadian subprime market mainly offered products popularized in the U.S. during the 1990s, such as longer amortization periods for loans (from 25 to 40 years), and mainly targeted near-prime borrowers."

So, I don't know. Maybe there is a big busting bubble looming because of lending practices. What is clear is that there are some differences between the US and Canada.

koozdra said...

Totoro, can you define what a subprime mortgage is.

Leo S said...

How can our system be any better than the USA when we have over 70 percent home ownership in Canada. Just like in the USA - you don't get there without a lot of dubious lending practices.

I'm not sure about this. I definitely see your line of argument, but home ownership alone is not really a way to judge overvaluation. Yes the US crashed when they approach 70%, but many countries have ownership rates about 70% and far beyond.

More factors need to come into play to make a judgment on that. Not just ownership rate, but incomes, prices, interest rates, debt to income, etc.
Even based on those, we are very similar to the US which would seem to imply a big crash coming.
However there may also be more hidden factors at play here, and I think the best way to check is to find an exception in another country. Are there other countries with similar or higher price/income, price to rent, ownership rates, and debt to income?

totoro victoria said...

Google broken again for you?
http://en.wikipedia.org/wiki/Subprime_lending

totoro victoria said...

http://business.financialpost.com/2013/05/03/canadian-housing-bursting-bubble-or-gentle-landing/?__lsa=4548-ab54

But then there are Canadian policymakers, economists and market watchers who have the next best thing to a crystal ball. Their data and analysis point not to a bursting of the bubble like in the United States in 2007-08, when prices from peak to trough dropped 35$, but rather a gentle easing in Canadian housing prices, or perhaps just a momentary pause.

Naysayers believe Canada may be too optimistic and relying heavily on that old saw that Canada is not nearly as reckless as the United States. After all, the debt-to-income ratio of Canadians is at a record high, close to the levels experienced in the United States before its market crashed, and home ownership is at nearly 70$, also a record and five points more than its neighbours to the south.

But Canada does have some things going for it, most notably a move by the government to tighten mortgage lending rules four times in five years, most recently in July 2012, which has taken some buyers out of the market, dampening demand.

“If you look at the developments over the last year in Canada and compare them to the situation in the U.S. before the crisis, there is a clear difference,” said Julien Reynaud, an economist at the International Monetary Fund who follows Canada.

“It is not just a question of housing supply and demand; it is rather a difference in the system of mortgage finance.”

Canadians have more equity in their homes than Americans did, the default rate is lower, the sub-prime market is tiny, and mortgage interest is not tax-deductible, so there’s no incentive to build up debt.

Finally, mortgages are structured as recourse loans in which assets other than the house are held as collateral. That makes Canadian homeowners less likely to walk away than their American cousins.

koozdra said...

from the wikipedia page:

"In finance, subprime lending (also referred to as near-prime, non-prime, and second-chance lending) means making loans to people who may have difficulty maintaining the repayment schedule. These loans are characterized by higher interest rates, poor quality collateral, and less favorable terms in order to compensate for higher credit risk."

The less favourible terms we deal with here is paying less than 20% down. People qualify with out any consideration that interest rates may rise. Not any time soon of course, but eventually (very confusing). Self employed people qualify easily (why was it a problem before?).

Can't afford your down payment? borrow it, no problem. Is 100% financing subprime?

The CMHC provided insurance on existing mortgages held by the banks (bulk portfolio insurance). Freeing up more capital for the banks to lend.

We don't have a subprime crisis because we have changed the definition of the term. We have used tax payers money to remove risk.

Our situation is different, our crash will be different.

Leo S said...

then there are Canadian policymakers, economists and market watchers who have the next best thing to a crystal ball. Their data and analysis point not to a bursting of the bubble

LOL. Good joke. Just like the policymakers in the US were predicting a soft landing.

Introvert said...

Hey, I have friends that are cablevision installers stop suggesting that people take the bread from their table.

Two sentences just mashed together. Wow.

Introvert said...

Info - i don't think you understand what CORRECT means. Correct prediction means that what you predicted actually happens. It doesn't mean "would have happened except something else stopped it from happening".

info is basically saying, I would have been right if I hadn't been wrong.

Introvert said...

If you are complaining about not getting into the market and still have cable, eat out and use your credit cards for stuff you don't need then you have room to start saving.

I don't have cable. Or a TV.

It's called The Pirate Bay and a computer.

Introvert said...

No crash necessary. This gentle decline is more than enough to make it worth waiting.

Yes, if money is your primary or only consideration.

patriotz said...

Well, if you have money to burn, go ahead and burn it.

I don't.

Introvert said...

But none of that rhetoric explains how we got to 70 percent home ownership so quickly in Canada.

And none of anyone else's rhetoric explains why it's been five to six years since the global financial crisis and Canada has yet to see anything approaching a steep U.S.-style correction.

Introvert said...

LOL. Good joke. Just like the policymakers in the US were predicting a soft landing.

Ha ha. Of course, because everything there matches exactly everything here. Duh.

Introvert said...

Well, if you have money to burn, go ahead and burn it.

I don't.


I'm in the fortunate position of having (some) money to burn. And everyone's definition of "burning" is different.

Chris said...

Another 1000 souls, since last month, are not working in Victoria.
Greater Victoria’s unemployment rate, meanwhile, dropped to 5.3 per cent as the size of the labour force declined by 6,000 year over year. “It wasn’t more people working that brought the unemployment rate down, it’s a decline in the labour force,” said Statistics Canada spokesman Vincent Ferrao. The capital region’s unemployment rate was down from 5.5 per cent in March. New data showed that the size of Victoria’s labour force shrank to 194,300 from 195,800 month over month. The number of people working decreased to 184,000 from 185,000 from March to April. Sectors with job growth include the professional, scientific and technical services category, which rose to 18,800 from 16,400 between April 2012 and April of this year. Public administration climbed to 20,700 yearly from 19,100. Construction jobs slipped to 10,900 year over year from 14,400. Finance, insurance, real estate, and leasing fell to 8,000 from 11,000.
http://www.timescolonist.com/life/parties-split-when-it-comes-to-spin-on-unemployment-drop-1.175871

And the sectors that did grow, we all get to pay more for. Hip hip hooray!

Leo S said...

Ha ha. Of course, because everything there matches exactly everything here. Duh.

Might be worth spending a bit more time on reading comprehension and a bit less time on grammar.

Leo S said...

>> Yes, if money is your primary or only consideration.

Not in the least, but money is obviously a consideration. So deciding not to burn tens of thousands for no big benefit (at this point in our life) it wasn't that hard of a decision.

subprime11 said...

The banks are the cause of asset bubbles. What if the rate of interest any bank could charge was fixed at 5% and the fractional reserve ratio was fixed at 50%. The world would be a different place entirely and we would not be running around obsessing about making or losing money in the casino style markets or on our real estate holdings.

Leelan said...
This comment has been removed by the author.
CS said...

Capital Coast just sent me a flier offering a mortgage at 2.69%, or about 10% less than what seemed to be last year's lowest rate.

So affordability is still rising!

But the trouble with judging "affordability" by how much you could possibly borrow if you borrowed your brains, to borrow a phrase, when interest rates are at an extreme emergency low, is that the near inevitable near future rise in rates will force you either to sell or to default.

And if you bought with a negligible down payment, an increase in rates will leave you bankrupt.

So now Flackety has a tough job on his hands keeping the housing market on a knife edge, neither inflating bubblisciously, nor falling crashily. A task at which all recent, heavily mortgaged, first-time buyers must wish him the best of luck.

CS said...

What if the rate of interest any bank could charge was fixed at 5% and the fractional reserve ratio was fixed at 50%

It would be rather easy to eliminate fractional reserve banking altogether. e.g., as proposed here.

But that'd be no fun, since it would deny the banks an opportunity to create money out of thin air — a rather profitable activity.

info said...

"And none of anyone else's rhetoric explains why it's been five to six years since the global financial crisis and Canada has yet to see anything approaching a steep U.S.-style correction."

In 2008 to early 2009 Canada's housing market was crashing. The government intervened in a big way to turn the housing market around knowing that doing so would also turn the economy around.

To understand the size of the intervention in 2009, we can look at what went on with CMHC between 2009 and 2012. In 2009, CMHC's total mortgage coverage was at $300 B. By 2012, that total was close to $600 B.

In order for CMHC's coverage to double in 3 years, there had to be a major loosening of mortgage lending standards.

In early 2009, many people who were previously considered to be too risky to be given a mortgage, were all of a sudden deemed to be eligible for high-risk, high-ratio mortgages.

Two examples of such groups of people come to mind:

1. Self employed applicants were suddenly not required to show proof of income. Their word, in terms of how much money they made, was good enough for the banks.

2. Recent immigrants were given mortgages with no proof of sustained employment or income.

The result was obvious. More people were suddenly eligible for mortgages and house sales increased dramatically and so did house prices.

info said...

"Info - i don't think you understand what CORRECT means. Correct prediction means that what you predicted actually happens. It doesn't mean "would have happened except something else stopped it from happening".

info is basically saying, I would have been right if I hadn't been wrong."

In 2009 Canada's housing market was crashing. It would have continued to crash but the government intervened in a big way. What is so difficult to understand about that?

Leo S said...

But the trouble with judging "affordability" by how much you could possibly borrow if you borrowed your brains, to borrow a phrase, when interest rates are at an extreme emergency low, is that the near inevitable near future rise in rates will force you either to sell or to default.

But the trouble with ignoring the affordability from low interest rates is that if rates stay low for a long time, then it might be ok. It is looking more and more likely that we are in for a Japan-style extended pseudo-recovery with low rates continuing, or dropping even further.

info said...

"What you know from your chart is past data. Your chart is not a crystal ball into the future. Just like stock market charts cannot be used to accurately predict the market."

Show me an example of 1 (one)country that went through a housing bubble price run-up that did not correct the way that the US and the other countries in that chart did.

That chart is helpful to us because it tells us that a general concept always holds true: once any country's housing market enters bubble territory and then peaks, prices always correct back to where they started.

You cannot compare it to the stock chart of one company. There is no general concept to follow with respect to that stock chart that predicts the direction of that stock for the next number of years.

The forces that deflate a housing bubble are extremely powerful. They are probably not the same in every case, just as the forces that inflate housing bubbles are never exactly the same.


info said...

"But the trouble with ignoring the affordability from low interest rates is that if rates stay low for a long time, then it might be ok. It is looking more and more likely that we are in for a Japan-style extended pseudo-recovery with low rates continuing, or dropping even further."

I think interest rates will be rising soon as the government tries to stop rising household debt in Canada which is already at a record high. What rates do is what they do. Canada's housing market will correct regardless of what happens with rates.

Speaking of Japan, their housing market peaked back in 1991. This chart shows that Japan's real estate market has been declining since that time.

Interest rates have been at emergency levels in Japan for about 2 decades. It has not stopped the housing market crash.

The US housing market had been crashing for about 2 years when the US brought in emergency interest rates. Emergency rates did not stop the crash as that crash continued for at least another 2 years.

totoro victoria said...

This chart does not tell us that this general concept always holds true.

You are confusing facts - like without oxygen you die - with a hypothesis about the future of the real estate market which is not shared by many.

The “bubble condition” periods do not necessarily end with the bubble bursting, but could as well be resolved by slow convergence of prices and market values.
Sustained periods of “bubble” and “crisis” conditions can continue without a corresponding correction

"Our study shows that bubble crashes are not always inevitable in the short run,” write the researchers. “While prices do revert back to market value, this reversion may take decades such that a restoration of balance becomes more of a fading out than a crash."

http://research.smeal.psu.edu/news/do-price-bubbles-always-end-in-bursts

I think we have uncovered the fundamental flaw underpinning your infomercial. This is not to say a crash could not happen, but it is only one of a number of possible outcomes.

totoro victoria said...

A twenty-year interest rate cannot be an emergency rate info.

Introvert said...

Might be worth spending a bit more time on reading comprehension and a bit less time on grammar.

Maybe your writing wasn't clear.

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