Monday, July 8, 2013

July 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.

July 2013July 2012 
Wk 1Wk 2Wk 3Wk 4
Unconditional Sales120



523
New Listings315



1242
Active Listings4762



 5178
Sales to New Listings
38%



 42%
Sales Projection552



Months of Inventory
9.9

First week of July 2012 was exactly the same at 120 sales and 306 listings.    Goes to show the uselessness of projections in the first week, as back then HHV (using calendar day method) projected 465 sales.   Business days (ignoring the holiday) gives us 552, the predictor based on last year and June's sales gives us 551 using calendar days, or 613 using business days.

Edit:  Die giant fonts die!

117 comments:

Leo S said...

Interest rates: recent rise is interesting, but we are still very low. From stupid low (2.75%) to very low (3.3%). 2 years ago we were at a low 3.6% (and as I recall, I thought we could not go any lower)

Chris said...

Re: interest rates
I believe the key is adjusting for inflation first. 2 years ago CPI was near 3%, now only 1%. So inflation-adjusted, interest rates have actually risen almost 2% since 2011, which is alot when you consider they were near zero. I believe that's why hard assets like gold have fallen so much.

koozdra said...

It's a good thing our housing market doesn't need buyers. There are plenty of people willing to leverage to buy. After all, they've made windfalls on their existing properties. The power of extrapolation at it's finest.

New mortgage rules pushing first-time homebuyers to wait

Just Jack said...

The interest rate only becomes a significant factor in house prices when buyers are over stretching to get into the marketplace. Today we get concerned about a quarter point or half point change in the interest rates. Go back to the last real estate recession in the mid 1990's and a 1 or 2 percent change had no affect on prices whatsoever. In fact you couldn't find a direct co-relation to value as interest rates vacilated.

Today, it's just another sign that buyers are tapped out in both their debt service ratios and length of time to pay off the debt.

And as happened many times before - the pendulum will swing back. But first we have to have some big MSM headlines to take the bloom away from the real estate Rose.

That's happening in Sooke these days with some really big property losses. Like a home on Alder Park that was bought in July 2007 for $635,000. Just re-sold for $376,000.

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

Mind you it was purchased in 1996 for $280,000....hasn't even kept up to inflation.

Just Jack said...

Over the LONG term real estate tends to increase with inflation. However, some of the time it's right off the chart in either direction. That real estate will be worth more 20, 30 years into the future is just something that we take as a fact. But it doesn't have to happen that way. You could actually end up selling in a market trough.

Best not to worry about what you or your aires will realize on disposal of the property. Just make sure you are well within what you can afford in monthly payments and get that mortgage paid off quickly.

People buying today that are maxed in their debt ratio and amortization face a difficult 15 years ahead of them. Half won't make it just because of divorce.

Ironic that some are quick to call others in hind sight idiots for their purchase but are convinced that paying $600K for a old timer house in Fernwood/Oaklands today is a good investment. Or paying another $150,000 for a home with a basement suite is a sound financial decision.

Leo S said...

Wonder what the story is behind that one

Just Jack said...

heirs not aires

Marko said...

People buying today that are maxed in their debt ratio and amortization face a difficult 15 years ahead of them. Half won't make it just because of divorce.

Interesting point. Divorce rate in Canada is around 40%.

dasmo said...

Sheesh the assessed value of the place was $438000 in 2007 so they payed almost 200k over the assessed value... I am very curious about this story...

Marko said...

I am very curious about this story...

Sold as a foreclosure (most recent sale). I doubt it was in mint shape.

koozdra said...

I'm confused, I thought we make money on real estate now. Wages don't matter only affordable monthly payments matter.

You buy a "starter" property. It appreciates. You build some "equity". Buy your new house, keep your old place to rent it out.

Why do wages have to rise? There's no point.

Income growth for Canadian middle-class families lags behind other groups: report

dasmo said...

"Sold as a foreclosure (most recent sale). I doubt it was in mint shape." Maybe they thrashed the place because it was a grow op? Who else would have over paid the assessed value by almost 45%. I mean this sold after the financial crises already broke. Even applying the %increase from 96 to 2007 the place should have fetched $550 tops. Yet it sells for $635. They must have had no help from anyone... or Something is fishy here.

http://shayne4sooke.com/mylistings.html/details-6673997

Leo S said...

Re: interest rates
I believe the key is adjusting for inflation first. 2 years ago CPI was near 3%, now only 1%. So inflation-adjusted, interest rates have actually risen almost 2% since 2011, which is alot when you consider they were near zero.


I just don't really see the connection in that way. At a CPI of 3% and mortgage rate of 4% I'm not only paying more for the mortgage, but cost of living is also increasing 3% a year so I'm getting increasingly squeezed. Seems like 1% CPI and 3% mortgages are better on both fronts.

Now wage growth is something different. I think it makes more sense to adjust interest rates for that rather than CPI. 4% mortgages are 3% wage growth are certainly better than 3% mortgages with basically flat wages. I could take a look to see if the rate of change of earnings has changed much in the last few years.

koozdra said...

"Notes. BACK ON MARKET: FINANCING HAS FALLEN THROUGH TWICE (Buyer problem not House problem) Priced for quick sale"

Must be very frustrating.

13283251

Leo S said...

I hear this "financing has fallen through" story constantly. Seems like every second house the realtor said they had an offer but financing fell through. Wonder how many of those are actually financing falling through, and how many are just the buyer changing their minds about the place and that's their way out. I can't imagine that many buyers go out making offers without even knowing what the bank will lend them.

Just Jack said...

I've asked this question many times before. What would the begining of "crash" look like?

Are you expecting all properties to fall in value in unison? Or will it be start with one here, one there and so on?

Victoria had extraordinary price increases starting in 2000 up until 2007. That allowed a lot of people to build equity quickly and move up the property ladder to better homes and bigger mortgages.

Now, the bottom rung of the property ladder is being kicked out from underneath those that climbed the property ladder. Tighter lending, higher rates, falling demand, decreasing home equity.

Walk outside and look at your house. Would you or could you buy your home today? How about your neighbor? Or your friends?

How can this not end badly!?

Chris said...

"Now wage growth is something different. I think it makes more sense to adjust interest rates for that rather than CPI."

I agree, one of the best measures as you said, would be mortgage rate minus wage growth rate to calculate real interest rates. Even so, I believe simply subtracting CPI works well in our resource-based region. Some of the larger components of CPI are food, fuel, utilities, heating, so if CPI is falling then our resource backbone and wage growth is falling.

Leo S said...

Even so, I believe simply subtracting CPI works well in our resource-based region. Some of the larger components of CPI are food, fuel, utilities, heating, so if CPI is falling then our resource backbone and wage growth is falling.

I'll check into this.

Chris said...

Here's an interesting provincial comparison,

BC's May 2011 CPI = 3.1%
BC's May 2013 CPI = -0.6%
June data not out yet.

Alberta's May 2011 CPI = 2.8%
Alberta's May 2013 CPI = 2.3%

One could imply that real interest rates in BC have climbed nearly 3.7% since 2011 (assuming similar mtg rates), while in Alberta negligible.
My initial take is BC's well-paid industries (mining, logging) are getting hit harder, while Alberta's oil industry is holding up better. Likely much more to it.

info said...

"How can this not end badly!?"

Exactly.

As the Teranet index shows, about 95% of all property sales since the fall of 2007 have been at or above the current level of the index. First-time buyers with their high-ratio, high-risk mortgages accounted for a huge chunk of those purchases (much bigger than the historical average) until recently, at extreme bubble prices. Reckless doesn't even begin to describe this.

Prices have nowhere to go but down.

subprime11 said...

Oak Bay village prices are in decline...2050 Mc Neil sold 3% below assessed, 2166 Central reduced will sell around assessed, 958 oliver reduced will sell at assessed...688 transit road reduced to assessed value..just sayin.

Marko said...

http://ca.finance.yahoo.com/news/property-prices-continue-climb-second-quarter-says-royal-100508261.html

Overall, the survey found that condominium prices in most major cities were either flat or higher compared with last year, except for Vancouver which saw a drop of 3.3 per cent, and Victoria where prices fell 4.5 per cent.

Just Jack said...

I'd like Teranet to describe their sample size for Victoria. Because the number of re-sales of properties than have not been updated or remodelled is very small. And I question the validity of using a re-sale in Sooke to represent what is happening in Oak Bay.

As I see Greater Victoria today, we have three markets areas with different months of inventory and different sales to new listings ratio. Where it's possible for home prices to drop in Sooke and rise in Oak Bay. Also we have two separate markets divided into detached homes and strata homes and these markets are not in unison either. Then we have different markets for first time home owners, middle and upper income.

I think of the market place as a rope made up of these different strands. And the rope is fraying but hasn't snapped.

Just Jack said...

When I look at the last 500 condo sales in the Victoria Core, I see that sales activity is down some 10 percent and it's taking on average 10 more days to sell a condo. But buyers are paying the same price per square foot for a condo this year as opposed to last year. I also suspect that today's buyers are getting a better suite in condition, age or location than last year's buyer.

Phil said...

The World Map according to Investors
funny stuff

koozdra said...

The real estate bubble is obvious to anybody looking at our situation objectively. Subjectively though...

totoro victoria said...

Comparing sold to assessed is not a valid measure of current market conditions imo.

Assessed values change from year to year. Assessed values can be off market value significantly one way or the other.

What has happened imo is that assessed values were much lower than market values five years ago, have been adjusted upward since then, and are now generally at market.

I don't see a significant decline in OB prices - or any increases either.

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

Now, the bottom rung of the property ladder is being kicked out from underneath those that climbed the property ladder. Tighter lending, higher rates, falling demand, decreasing home equity.

"Now"? You've been saying things to this effect for literally years, and prices have not dropped substantially over that time.

Introvert said...

Victoria: now entering its 47th year (probably way more, actually) without experiencing what most would define as a real estate price "crash."

Is a future crash possible? Yes.

Have the alarmists and mortgage scolds on HHV been proved comically wrong up until now? Entertainingly, yes.

koozdra said...

"people are focused on carrying cost instead of the total cost and I think that's a big mistake"

My generation worships the monthly payment god, grandpa.

oh 30 somethings

StalJ said...

“47th year”

Well, duh. It is not hard to figure out 1966 is the year the boomer pig began entering the property python. Bigger, better, bubblier…til retirement that is. Prepare for the python poop :P

“Have the alarmists and mortgage scolds on HHV been proved comically wrong…”

? I dunno, I have seen numerous houses list or sell for 35% or less than peak.

example, sold for 40% off 2010 sale price
http://www.realtor.ca/propertyDetails.aspx?propertyId=13368360&PidKey=1272515197

Marko said...

example, sold for 40% off 2010 sale price

Not sold yet....still has to go to court.

info said...

"I don't see a significant decline in OB prices - or any increases either."

House prices in Oak Bay have been declining since the summer of 2010.

koozdra said...

What does a finance minister have to do to kill the Canadian housing market monster?

I think they'll continue to mess with the DSR through OSFI. These changes are only talked about by mortgage brokers and nobody pays attention to them.

Changing any of the major variables like down payments would be too heavy handed at this point.

Although... you never know. You could seriously cripple the market if you push out the sub prime first time buyers completely.

The line between a soft landing and a crash is extremely small, if it exists.

Let's continue to tinker.

totoro victoria said...

"House prices in Oak Bay have been declining since the summer of 2010."

Maybe, maybe not. I don't have access to the stats. I could be wrong. You also have not posted the stats. You could be wrong. If anyone has the year over year stats it would be good to look at them.

If there has been a significant decline I've missed it.

totoro victoria said...

That should be adjusted to year over year median and not average prices.

caveat emptor said...

"House prices in Oak Bay have been declining since the summer of 2010"

The VREB medians for Oak Bay actually show a miniscule increasing trend over the period Jun 2010-Jun 2013 based on a least squares fit to the data. The trend is miniscule and not even close to statistically significant.

Statistically speaking the VREB medians for Oak Bay provide very little evidence for ANY change in Oak Bay prices over that three year period. So exactly what totoro said.

Personally I don't think the medians are a particularly good way to determine price trends, but I am unaware of an Oak Bay specific repeat sales index.

caveat emptor said...

If you run the least squares regression back to January 2010 you do get a very slight decreasing trend.

A trend that switches sign based on adding or subtracting a few data points is a pretty good indicator of a trend that lacks significance

dasmo said...

Unless it indicates a flat trend...

patriotz said...

You can't say much that's meaningful about a market as small as OB over a couple of years when the decline for the whole metro has not exceeded 10% over that period. Just not enough samples and not enough price change.

Prices for individual properties are what they are of course.

Just Jack said...

Since the begining of this year the Sales to Assement Ratio for homes in Oak Bay ranged from a low of 80% to a high of 120%. And on average over the 126 homes that sold the median and average Sales to Assessment Ratio was 99%.

The ASR for 2012 was 103%
For 2011 it was 107%
2010 it was 113%

I believe on a mass basis the ASR provides a good cross check to general market conditions. On an individual level - it sucks.

caveat emptor said...

re sales to assessment.

What JJ posted makes total sense. In a rising market assessments are continuously playing catch up with market values.

Now in a flattish market for several years assessments are on average close to market values.

If the market starts to swoon we can expect assessments to lag on the way down as well so that sales to assessment will fall well below 100%

totoro victoria said...

Yes, I agree caveat emptor re. how assessments work. There is a lag up or down. Down may be adjusted more quickly due to taxpayer complaints.

Thanks for the stats. Flat is about how it seems to me.

Leo S said...

What was that? Oh yeah, just as I said

caveat emptor said...

"You can't say much that's meaningful about a market as small as OB over a couple of years when the decline for the whole metro has not exceeded 10%"

Totally - way too much random month to month fluctuation with what is sold and how much is sold to pick up a small trend. Monthly averages are all over the map and even monthly medians sometimes change by >100K month to month

info said...

The 6-month median for Oak Bay has decreased (-7%) since May 2010.

A decline of (-7%) puts Oak Bay's price erosion in the same ballpark as the rest of Greater Victoria.

The 6-month median uses enough sales to prove that prices have declined in Oak Bay.

This (-7%) price plop is enough to put many recent buyers into negative equity. Many who bought with extreme financing will be stuck in their Oak Bay homes without being able to sell if it became necessary. Add in the realtor commission, land transfer tax and other closing costs and suddenly many families would need to pay their best friend, the bank, between $50 K and $100 K to be able to avoid bankruptcy.

The price decline is across the board in Greater Victoria, including Oak Bay.

Just Jack said...

A house without equity is just renting with debt.

info said...

We know that Oak Bay house prices have definitely declined since the peak. By how much is the question.

The (-7%) six month median decline is, of course, not an exact number. It is statistically reasonable to assume that the actual decline is between -4% and -10%, with no more weight being give to either possibility.

Even if the decline is only (-4%), it is still enough to put many recent buyers into a position of negative equity, effectively trapping them in their homes if they needed to sell.

Just Jack said...

James Bay is a difficult area to estimate a property's value. Limited sales and a lot of diversity in the stock of housing. That's why back in 2005 when the market was really "hot" people were making poor decisions. Such as a property on Avalon that sold back in 2005 for $599,000. Today there is more to choose from, and that same home just sold for $499,000.

So was the 2005 purchase at market value?

I suspect that if the property had been objectively appraised in 2005 this deal would have likely fallen through. Thereby saving these vendors from a hundred thousand dollar loss today.

How many of you think, the appraiser that valued the home back in 2005 should be sued for negligence?

Because I do.

info said...

Five-year fixed mortgage rates at Canada's major banks have increased from 2.89% to 3.69% in the last 2 months. This is a 28% increase.

Most first-time buyers are buying with extreme financing. The vast majority can barely scrape together the minimum 5% down payment. When it comes to how much they can qualify for, the 5-year fixed mortgage rate is key. The recent 28% increase in the qualifying rate will lower the amount of house first-time buyers can purchase and that amount will not be insignificant. The amount that this will erode house prices will not be insignificant. This increase will, obviously, affect all other potential buyers in the same way.

info said...

"James Bay is a difficult area to estimate a property's value... a lot of diversity in the stock of housing."

What other areas would you consider to have a lot of diversity in the stock of housing?

info said...

Benny Tal is an economist with CIBC. He is often quoted by the media. Recently he was interviewed by the New York Times. In that interview, he used the word "crash" when talking about the future direction of housing prices in Canada.

Quoting:

"There is no question that the housing market in Canada is overshooting. Now the cocktail party conversation in Canada is: 'Will this lead to a U.S.-style crash?'"

Remember that Benny Tal is normally very bullish on Canadian real estate, as are virtually all Canadian economists (as biased as they are, for obvious reasons). When you hear a major housing bull like Benny Tal use the word "crash" when talking about Canadian real estate, the statement must be given much emphasis.

His prediction is that house prices in Canada will decline by (-10%) from current prices and then level off at that low for four to five years.

Again, consider the source.

Seth Perry said...

Bankers Caught On Tape, Joking About Bailout, And How They'd Never Pay It Back

http://youtu.be/dj8eR2o4f6s

These are bankers from the now infamous Anglo Irish Bank. This bank wasnt a normal bank. It did not have tellers instead it was sort of an investment bank and as you will all know went apeshit with property. It lent billions to developers and property speculators.

Seth Perry said...

... and it's gone.

Awesome clip from south park to brighten your day.

http://youtu.be/SvSJY3Xiwdg

Just Jack said...

James Bay is one of the oldest neighborhoods. Over the decades it has evolved into a mish mash of zoning, odd lot configurations and lot sizes, handyman home additions, infill housing, etc.

Other older neighborhoods like Central park or downtown usually had the homes bulldozed for commercial buildings.

I believe Fairfield was the first "planned" residential development in the early 1900's. A lot more regularity in design, lot and house size.

Vic West was again one of the older areas of Victoria and it too has a mish mash of housing. Some call it Italinate or Queen Anne to me its early American Brothel. A UVIC Prof has been researching the census records of Victoria and discovered that the working girls at the time disclosed their vocation as "dress maker" to the census taker. Either Vic West had a lot of well dressed people or ...

Afterall Victoria was a British Naval City back then.

caveat emptor said...

"We know that Oak Bay house prices have definitely declined since the peak."

I want it to be true so it is true.

"The (-7%) six month median decline is....."

Wrong on multiple levels. Don't calculate trends from moving averages (statistically invalid because the data is not independent). Don't calculate trends as a simple subtraction of start point and endpoint unless your data are perfectly smooth.

"It is statistically reasonable to assume...."

Your post demonstrates that you aren't a good judge of statistically reasonable.

If you want to test for a trend in data you take the data at its original resolution (one month in this case) and then use a valid statistical technique to estimate the trend. In this case there is no trend.

caveat emptor said...

Definitely a trend or bouncing around flat?

You be the judge.

http://imgur.com/JKxQpfr

Note this data doesn't prove prices aren't declining (there is in fact a very slight downward trend of very low statistical significance). But it's pretty weak evidence to say it is "definitely" declining

Just Jack said...

I think you would have to go back and look at your data for each month. Perhaps develop a benchmark home with limiting physical parameters and follow the trend of that benchmark house rather than all properties selling in Oak Bay that can range form $450,000 to $2,000,000 in any single month. Better to exclude waterfront or even water view properties and treat them separately. As these are more "tropy" properties and tend to be more emotional than logical in what the uber riche pay.

totoro victoria said...

Thx for that Caveat.

Info - I could show you a 10% increase since 2010 if I picked the right month... Overall the stats do not support your assertion.

JJ, I think the median excludes those waterfront and apartment properties already.

Uneventful would be another word to describe the prices.

info said...

@ caveat

Oak Bay SFH prices have declined 7% since peak, based on the 6-month median. That is simply a fact. Valid in every way.

The peak for the 6-month median for Oak Bay was in May 2010, where it reached $804 K. At the end of June 2013, that value had dropped to $748.5 K, a price decline of (-7%).

info said...

"Info - I could show you a 10% increase since 2010 if I picked the right month... Overall the stats do not support your assertion."

Read what I wrote again. The 6-month SFH median peaked in May 2010 for Oak Bay. The current 6-month median calculation for Oak Bay SFHs was (-7%) lower than the peak. You cannot possibly refute this fact.

The source is the VREB. I took the stats directly from their website under Oak Bay SFHs. What I did was very simple and valid, don't try to complicate things.

info said...

"Wrong on multiple levels. Don't calculate trends from moving averages (statistically invalid because the data is not independent). Don't calculate trends as a simple subtraction of start point and endpoint unless your data are perfectly smooth."

Who was calculating a trend? I simpy stated that the decline from peak was (-7%) which is valid.

info said...

"Your post demonstrates that you aren't a good judge of statistically reasonable."

Leo uses this same method to show the decline from peak for SFHs. You must think that he isn't a good judge of statistically reasonable.

His decline from peak graphs (6-month median and 3-month median)are valid and statistically significant.

Obviously these calculations become more precise with more sales data to work with, but the 6-month median calculation for Oak Bay certainly shows that prices have definitely declined in Oak Bay.

totoro victoria said...

Don't complicate things... aka.. I want to be right and pick one high point and one low point to make it sound like prices are dropping - don't question my logic.

info said...

"Don't complicate things... aka.. I want to be right and pick one high point and one low point to make it sound like prices are dropping - don't question my logic."

You don't understand what I did and that it is valid. I did the same thing that Leo does each month when he calculates the 3-month or 6-month median decline from peak for Greater Victoria. All very logical.

Again, the peak for OB SFHs was May 2010 when using the 6-month median. This is not an arbitrary point, it is the maximum for the 6-month median. There is only one maximum point and that is the one I used. Nothing fishy about that at all. Leo does it every month.

I wasn't looking for any particular low point. I used June 2013 since it is the last month with recorded stats from the VREB. It makes the 6-month median as current as possible. Nothing fishy there either. Leo does it every month.

Go ahead and show me with actual numbers that I am wrong. I challenge you.

totoro victoria said...

Just wondering if you looked at CE's link?

http://i.imgur.com/JKxQpfr.jpg

Leo S said...

6-month median

The median in general is better than the average, but in this case the 6 month median is not as good as the 6 month average as calculated by the VREB. Because in order for you to get a 6 month median, it is the average of the 6 medians. However this isn't very good because the median in months with low sales has the same weight as the median in months with high sales. The VREB 6 month average is the average of all sales in the past 6 months, which is much more valid.

For my 12 month median and MOI, I weight the medians by the sales, but it's still not nearly as good as a median of all sales in 12 months.

Leo S said...

Info - I could show you a 10% increase since 2010 if I picked the right month

Info is using the 6 month median, not individual months.

totoro victoria said...

I don't know what the end result is statistically. I can say with some degree of certainty that the average house listed in 2010 between $550 000-$700 000 in OB is not listed for 7% less now.

How do I know this? I've followed this market closely for ten years now.

Sales prices - I don't know because I don't have access to the data. It appears from prior posts by others with access to this data that assessments have caught up to market and sales are at or about market assessment currently in OB.

Leo S said...

Just wondering if you looked at CE's link?

http://i.imgur.com/JKxQpfr.jpg


Yeah. I prefer scales that actually show the data..

So, have Oak Bay prices declined? Probably, but not any significant amount. We can argue about whether it's been a couple or a few percent, but likely they are within 50,000 of the peak, which I hope is pocket change for anyone buying there.

Leo S said...

Leo uses this same method to show the decline from peak for SFHs. You must think that he isn't a good judge of statistically reasonable.

Decline from peak is what you chose to define it as. It is not a truth that can be measured, except for each individual house. For the entire market you just chose a definition of "price" and then compare the highest to the lowest. Clearly we can't use individual months because they are too volatile, so I decided to use 3 month medians. They're not great (as evidenced by the significant volatility in even that data) but it's more about choosing a definition and sticking to it. It allows us to compare to some other cities.

Using the Teranet is probably better, but even that is vulnerable to low sales counts.

Leo S said...

His decline from peak graphs (6-month median and 3-month median)are valid and statistically significant.


I haven't checked any of the decline numbers for statistical significance. I'm only presenting the data.

Just Jack said...

Here are the medians I have calculated for the first 6 months of each year in Oak Bay. Waterfront and waterview homes have been excluded.

2013 $720,000
2012 $706,000
2011 $727,913
2010 $783,750
2009 $645,000
2008 $723,750
2007 $655,000

Leo S said...

JJ I assume those are medians for all sales in the first 6 months of the year, rather than average of the monthly medians?

If so, it looks good to me. Down about 8%.

caveat emptor said...

"I prefer scales that actually show the data.."

Hand that graph and the data to a statistician without telling her what it is and she would say it has no discernible trend since late 2007, just random fluctuations around an approximately flat level.

Hand it to info and she will say it shows a steep decline from a peak in 2010.

caveat emptor said...

Take a random series of numbers that is neither increasing or decreasing. Pick the highest point in the series and compare it to the last point in the series. Define that as "decline from peak". Then every random series of numbers will have a "decline from peak" even if there is no trend.

Just to clarify. I am NOT claiming that there has been no decline in OB prices. What I am claiming is that there is very little evidence of a downward trend in the VREB sales data using extremely basic statistics.

Other information such as a decline in the Teranet for Greater Vic suggest to me that there is in fact a modest trend down in Oak Bay, but the medians do not demonstrate it in any convincing way.

Leo S said...

Hand that graph and the data to a statistician without telling her what it is and she would say it has no discernible trend since late 2007, just random fluctuations around an approximately flat level.

And clearly they would be wrong, given that the decline in 2009 was not random at all.

caveat emptor said...

"And clearly they would be wrong, given that the decline in 2009 was not random at all."

If you then told that staistician about the financial crisis in 2009, and how that event caused a real fall in house prices, she might counter that the data you gave her is too noisy to determine that with any statistical significance

Leo S said...

Take a random series of numbers that is neither increasing or decreasing. Pick the highest point in the series and compare it to the last point in the series. Define that as "decline from peak". Then every random series of numbers will have a "decline from peak" even if there is no trend.

Why do you keep confusing decline from peak and the trend? Those are two different things. Oak Bay is down about 8% from peak using Just Jack's numbers which are better than the monthly medians or any averaging thereof. The recent trend in Oak Bay is flat. Different things.

Leo S said...

So why do these "decline from peak" numbers generally come out larger than most people expect from watching the market? Because when you're looking at the data, you're looking at every single data point and you can pick out the actual peak much more accurately.

When you're observing the market, you only see (or remember) some salient data points, maybe one every month or so ("my friends' house sold for this much", or "that place with the purple door sold and it was this big"). To come to some conclusion about a price level in the market you need several data points for various properties, so the best resolution you're going to get is about 6-12 months. Hence you are quite likely not to hit the peak in prices, and thus think the decline is less.

Just comes down to how much you want to steamroll the data with your averaging window. If you look at yearly prices there basically was no decline in 2008/09, but try telling that to someone that had to sell in January '09 that the market is really just flat.

caveat emptor said...

"Why do you keep confusing decline from peak and the trend? Those are two different things."

Agreed. The problem is when people automatically infer that the former is evidence for the latter

subprime11 said...

I have a hunch that Oak Bay prices are crashing. Doesn't that count for anything?

subprime11 said...

We know the economic shock will come when we've been subdued by a period of stability and all appears to be back to normal. Lulled into a sense of security as we pile on the debt, safe in our little houses that will always hold their value. It will be unbelievable how we didn't see it coming...yet again.

Just Jack said...

Compare what was happening in Saanich East to Oak Bay in those same time periods. Saanich East having about 3 times more sales.

2013 $570,000
2012 $586,000
2011 $615,000
2010 $632,500
2009 $550,000
2008 $589,500
2007 $530,000

Small sample areas like Oak Bay have greater variability. Over each 6 month period the number of sales varied between 104 to 123 in Oak Bay. While in Saanich East the number of sales ranged between 305 to 423.

Leo S said...

Agreed. The problem is when people automatically infer that the former is evidence for the latter

++

Leo S said...

Thanks Just Jack, very interesting

Just Jack said...

The hunches and feelings of prospective purchasers are really important to what happens in the market. As a prospective purchaser, if your world is constantly being bombarded by negative events it will affect your spending habits. And in today's world those events don't have to be local. The flooding in Alberta and Toronto can affect propspective buyers here too.

Just Jack said...

Oak Bay and Saanich East show a drop from peak prices of between 8 to 10 percent.

But how about Langford and Colwood. There prices peaked at $539,900 and are now down to $445,000. Almost 18 percent.

That should be an opportunity alarm going off for some people. This type of discrepancy doesn't last long. Eventually, enough prospective buyers will weigh the alternatives and choose Langford/Colwood over Victoria. It might be people who are about to or just have retired and no longer need to drive into the city on a regular basis. It makes sense to sell that Victoria war shack, buy a newer home in Langford and pocket a hundred grand or more.

You can have your cake and eat it too. Have a house and fund your retirement. But this quirk doesn't last long. All your doing is taking advantage of a lag in the marketplace.

And really are you going to miss the downtown panhandlers and higher crime rates that much!?

RichardP said...

Hi everyone, I've been following this blog for 2 1/2 years since moving to Victoria from Edmonton. I find HHV a good source of real estate information and analysis. Comments are fantastic and often hilarious. This site is actually quite addicting.

I was a home owner in Edmonton for 7 years but prices here were insane when we moved in January 2011 so we didn't buy. Instead we are renting a nice house near McKenzie and Shelbourne for $1,600 net rent (we sublet a small suite for $650).

When I retire I'll get a DB pension of 60% of my income (CPP is included, as the plans are integrated). Add in Old Age Security and I'm at 70%. I will retire in 30 years, so my financial planner says that with the $200,000 we have already and my continuing retirement savings ($500 per month) I will have retirement income of more than 100% of my current income, which is $100,000 (my wife doesn't work at the moment). As my income rises my DB pension will too automatically. My financial advisor actually says we are saving too much for retirement.

I am increasing thinking that purchasing a home is totally optional for me and it may make sense to rent forever. My location is perfect and the rental at this stage is very long-term. I can't beat $1,600 net rent with no property taxes or other expenses. Rentals in this area are heavily subsidized by owners. At the moment we can afford a nice vacation once every 2 years.

I still want to buy, if for no other reason than because it's what I'm supposed to do, but having been a homeowner and given our retirement situation, I'm increasingly thinking renting is a viable alternative for the long-term.

Any thoughts from you guys would be appreciated?

Richard

koozdra said...

"I still want to buy, if for no other reason than because it's what I'm supposed to do,"

Never let a well rationalized argument get in the way of what you are supposed to do.

Leo S said...

I still want to buy, if for no other reason than because it's what I'm supposed to do, but having been a homeowner and given our retirement situation, I'm increasingly thinking renting is a viable alternative for the long-term.

Why does it have to be either or? Renting forever is probably not the best idea, but renting now is a good one. So why not rent the place for another 1-5 years until the correction has played out and then buy when prices appear to have hit their bottom?

RichardP said...

"Why does it have to be either or?"

I guess my question is that if I can replace 100% of my income in retirement, is there a strong rationale for owning a home? I’ve always thought that having a mortgage free home was necessary to ensure that your standard of living in retirement didn’t suffer given the fact that your income in retirement would be lower. The lower income was offset by the fact that you don’t have a mortgage payment and your income can be supplemented by the equity you’ve built up.

But if my income isn’t going to be lower in retirement, what are the arguements for still needing to own a home?

subprime11 said...

The only argument for owning a home is if the banksters decide to create another housing asset bubble after this one crashes. Then you can more than double your money like I did buying in 2000 and selling in 2012. Hard to predict though how long this unwinding will take and what external economic factors could come into play. For now you are in a great situation if your family is comfortable and wife is happy.

CS said...

The advantage of owning over renting is that you can paint walls, plant trees, finish the basement, etc., etc.

But if those benefits of ownership do not appeal, then why not rent at two or three percent of capital value and invest your savings at the 6 or 7 percent Garth promises you will earn on your preferred bank stock.

From Just Jack's stats, it's clear that Oak Bay's median Jan to June price was lower this year than in 2010, minus 8%. From that, however, it would be a mistake to infer a trend.

Real estate prices depend on numerous factors that vary in unpredictable ways with the gyrations of the overall economy, the memes that prevail among first-time buyers, and changes in government policy that can be abrupt and unpredictable. Last week, everyone was talking about interest rate increases. This week, central bankers are falling over themselves to reassure everyone that interest rates aren't going on a steady upward trend anytime soon.

A valid prediction of the direction of the RE market may be possible, but the rationale for such a prediction is not obvious.

info said...

"Here are the medians I have calculated for the first 6 months of each year in Oak Bay. Waterfront and waterview homes have been excluded.

2013 $720,000
2012 $706,000
2011 $727,913
2010 $783,750
2009 $645,000
2008 $723,750
2007 $655,000"

Appreciate the input JJ.

However, these numbers don't actually allow us to calculate the 6-month median decline from peak for Oak Bay.

The 6-month median for Oak Bay peaked in May 2010, not June. Thus, the peak 6-month median must include December 2009 (794 K) and exclude June 2010 (668.5 K). This would cause the peak number to be significantly higher which would result in a bigger drop from peak.

info said...

"Last week, everyone was talking about interest rate increases. This week, central bankers are falling over themselves to reassure everyone that interest rates aren't going on a steady upward trend anytime soon."

It won't take an increase in the BoC rate to cause an increase in the cost of home ownership. In case you missed it, the cost of home ownership has increased lately with increases in the 5-year fixed mortgage rate.

Five-year fixed mortgage rates at Canada's major banks have increased from 2.89% to 3.69% in the last 2 months. This is a 28% increase.

Most first-time buyers are buying with extreme financing. The vast majority can barely scrape together the minimum 5% down payment. When it comes to how much they can qualify for, the 5-year fixed mortgage rate is key. The recent 28% increase in the qualifying rate will lower the amount of house first-time buyers can purchase and that amount will not be insignificant. The amount that this will erode house prices will not be insignificant. This increase will, obviously, affect all other potential buyers in the same way.

info said...

"Real estate prices depend on numerous factors that vary in unpredictable ways with the gyrations of the overall economy, the memes that prevail among first-time buyers, and changes in government policy that can be abrupt and unpredictable."

Real estate prices do depend on numerous factors. The following is a list of factors/reasons that house prices in Victoria will sink much further in the next number of years:

1. Maximum amortization is now 25 years, down from 40.

2. Debt servicing ratios have been scaled back.

3. Minimum down payment is 5%, up from 0% and banks are no longer allowed to give 7% cash back loans.

4. CMHC will no longer be used the way it once was, covering far too many high-risk, high-ratio loans.

5. CMHC coverage is no longer available for properties worth more than $1 M.

6. BC residents have the highest household debt levels in Canada.

7. BC residents have a negative savings rate (by far the worst in Canada).

8. Victoria's economy, in general, is struggling and many young people are moving away in search of greener pastures elsewhere.

9. As is the case with any housing bubble, the economy takes a big hit for many years once house prices start to fall.

10. Canada has more than its share of temporary foreign workers (380,000), showing that many Canadian companies and businesses are hiring them to save money on wages.

11. Victoria has the second highest price to household income ratio in Canada. In the US, the cities that were the biggest price gainers were also the biggest price losers.

12. Canada has the least affordable housing in the world, according to multiple studies (using price to income and price to rent ratios).

13. Canada's housing bubble is bigger than the bubble that had formed in the US in 2006.

14. The average Canadian house costs about twice as much as the average house in the US (historically there was price parity until 2006).

15. Emergency interest rates will not last forever.

16. The B.C. first-time new home buyers' bonus ended April 1, 2013.

17. Canada's housing is overbuilt and, as is the case with any housing bubble, the oversupply doesn't become apparent until prices really start to fall.

18. Home ownership is at a record high in Canada at 70%, which is higher than the peak level in the US before their housing market crashed.

19. The household debt to income ratio is at a record high in Canada at more than 160% (the US hit a maximum of 120% before their housing market crashed).

20. Housing investment as a share of GDP in Canada is over 7%, which is extremely high. Only twice has this number climbed over 7% and both times Canada's housing market crashed within 2 years.

21. As is the case with any national housing bubble, once a price peak is reached, prices always correct back the same amount (50 countries and 40 years worth of data prove this to be true).

22. Victoria is as vulnerable to a housing price crash as any Canadian city. In 2009 it took about 6 months for prices in Victoria to crash 15%. That crash would have continued but a massive, unprecedented, emergency intervention turned the market around.

23. Many boomers will be selling over the next number of years. Their buying helped push house prices higher over the last 30 years and now their selling will push prices lower for many years.

24. As is the case with any housing bubble price run-up, the wealth effect has a positive effect on the economy and house prices. Now that Canada's housing bubble has burst, the wealth effect will disappear and this will have a negative impact on the economy and house prices.

25. A house is the most emotional asset. The higher house prices climb, the more people want them. However, the opposite is also true. People's emotions helped push house prices higher and now they will help push prices lower for a number of years.



koozdra said...

Koozdra is moving up in the world. Literally we are moving to the top of a mountain in Metchosin. I did have to sign one of those nasty fixed term leases. Oh well, that's the just the cost of doing business.

patriotz said...

"Why do you keep confusing decline from peak and the trend? Those are two different things."

Agreed. The problem is when people automatically infer that the former is evidence for the latter


In other words, extrapolating the future from the past, since the trend is where prices are going from today rather than where prices have gone to today.

But I really don't see anyone on this forum thinking like that. The problem is that too much of the general public does.

As for me, do I think Victoria prices will continue to decline? Yes. But that's not because prices have been going down since 2010, but because I think present prices are too high to be sustained under the inevitable interest rate increases, which are already happening.

Leo S said...

But if my income isn’t going to be lower in retirement, what are the arguements for still needing to own a home?

Didn't you say you wanted to buy still? Sounds like a good enough reason to me. Rent for a few more years, then buy.

For me, advantages of owning:
- Nicer place, since I prefer to save money when renting we always rented places that, while fine, were not what we would have bought.
- Can fully unpack knowing we won't have to move the crap again for a long time.
- little maintenance things are somehow, if not fun, kind of satisfying to do when owning
- no landlord

Advantages of renting for us
- more flexibility can move anytime
- negligible time spent on maintaining the place
- cheaper
- no debt, no stress related to that.

Leo S said...

The 6-month median for Oak Bay peaked in May 2010, not June

Yes the precise peak would require Just Jack's 6 month median to be calculated every month for the sales in the past 6, but does the exact month really matter? It is not going to change the value that much. Just Jack's median of 6 months of sales is a far more reliable measure than an average of 6 monthly medians.

totoro victoria said...

I think the interest rate impact will cause prices to fall too. That it is the key factor imo.

subprime11 said...

I'm surprised info could only come up with 25 reasons house prices in Victoria will decline.

CS said...

I think present prices are too high to be sustained

My feeling also, but one I attributed to an inability due to age to keep up with the times.

Still, drove by a house today offered at about $100K above BC assessment authority valuation. The roof is shot. All outside trim badly in need of painting. Garden unkempt. Looks like a rental. A good place, it seems, to sink a hundred thousand or two and then find you can't get back your purchase price in a year or two, let alone the cost of improvements.

Just Jack said...

One thought that I had when calculating the six month medians for Saanich East and Oak Bay was that Saanich East may have peaked sooner than Oak Bay. Or another way of saying the same thing - Oak Bay's prices lag Saanich East's prices.

Things that make you go hmmmmmm.

Introvert said...

I will retire in 30 years, so my financial planner says...

Most, we hear, never really plan for retirement, or do so too late; then there are people like RichardP, who plan and plan and plan.

What will the world be like in 30 years? I wonder...

patriotz said...

Any thoughts from you guys would be appreciated?

I don't know how much you have invested outside retirement plans (if anything). The income on such investments is taxable. But the imputed income (rental value) from owning your home isn't.

This is a case for owning your own home as opposed to non-registered investments, particularly if you're a senior receiving OAS which has a clawback. But the price of the home has to make sense in the first place - i.e. the yield should be comparable to what you'd get from securities.

koozdra said...

Canadian housing bubble looks ripe for popping - Trend of rising prices and rising debt cannot be sustained.

Just Jack said...

As the article speaks to, yet doesn't touch upon is how an interest rate increase of say 1 or 2 percent may substantially increase the supply of housing. As homeowners try to sell before their mortgage has to be renewed at a higher rate and substantially higher monthly payments kick in.

That's good for bank profits with heavy penalties for selling your home before the term is up. One person that I know had to pay a $30,000 IRD on her mortgage.

The problem with JUMBO mortgages are JUMBO penalties.

Should I be buying bank stocks?

koozdra said...

Lots of sold signs up the peninsula. Lots of listings also.

Tren said...

Wheres peninsula?

koozdra said...

Saanich peninsula

Went for a long ride around the whole area.

Marko said...

Monday, July 15, 2013 8:00am

MTD July
2013 2012
Net Unconditional Sales: 256 523
New Listings: 622 1,242
Active Listings: 4,817 5,178

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

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