Friday, August 2, 2013

Skewmorphism

Despite collapsing sales after our mortgage changes last July, prices have stayed on a relatively sedate course in Victoria.  Declining slowly at a couple to a few percent a year, but stubbornly holding out against a whole year of inventory.  Regular commenter info has raised the issue of the prices being skewed upwards by the sales mix, with the mortgage rule changes having taken out the buyers on the low end, and thus having a larger proportion of higher end sales.

To test this theory it requires another look into the regional data kindly extracted from the VREB monthly reports by koozdra.  The VREB divides sales into 19 regions, some of which have very little activity, and trying to compare the sales mix individually by region would be quite messy.  Info simplifies the comparison by considering the mix between the sales in the lower priced regions (defined to be Esquimalt, Colwood, Langford, Sooke, and Sidney) compared to the higher priced regions (Victoria, Oak Bay, Saanich East, and North Saanich).  

To verify these groupings, let's take a look at the historical prices in these regions.  I've removed areas outside of Greater Victoria, as well as the Highlands, Vic West, and Metchosin, which have very few sales (often only one or zero in a month).  

Going strictly by prices, we can't really include Victoria in the high priced group without also pulling in View Royal and Central Saanich.  So I've decided to ditch the middle group and divvy everything up into low and high priced regions as below.

The ratio of low end sales is then simply the sum of all sales in the lower priced regions divided by the sum of all sales in the higher priced regions.  Let's take a look at how this ratio has behaved in the last 7 years.

Some interesting points to note:
1.  There is a definite shift after the peak in prices 2010, with the sales ratio dropping some 10-15% from the period 2008-2010 compared to late 2010-2013.  This means that before 2010, we would see about 87 lower priced homes sell for every 100 higher priced homes, while after 2010 we are only seeing about 75 lower priced homes sell for every 100 higher priced homes.  This matches well with what has been discussed here many times, that the outer areas are suffering more than the inner ones, so far.
2.  Average ratio over this period has been 82% (82 lower priced homes selling for every 100 higher priced ones).
3.  If the sales mix had not shifted more towards the higher end in 2010, our median prices would now be lower than they are.  

By subtracting the sales ratio for the month from the "long term" average, we can get a measure for how the monthly median price might be skewed in that month.  I call this the skew factor for the month.  
For example, in July there were 119 sales in the lower end regions and 172 in the higher end, for a sales ratio of 69%.  Compared to the average of 82%, the skew factor for July is 13%.  This means that the median price for July is likely shifted higher than it would have been if the sales mix was more in line with the average.

Let's take a look at the skew factors for the same period.


1. Again we see the strong shift in sales mix between the upswing and the downswing in Victoria's market.  I'll hazard a guess that this is due to the credit tightening measures that started in earnest in April 2010 (even though 40 year mortgages were abolished in 2008, the CMHC taps were wide open during that period to compensate).  The skew factor moves upward after April 2010 when refinancing was limited and qualifications tightened up.  It was boosted some more in 2011, and just as the market was starting to normalize the government kneecapped it again in July 2012, cutting out the first time buyers for a while longer.  
2. You can quite clearly see the effect of the mortgage changes last July, with the sales mix strongly shifting towards the high end as the lower end buyers are priced out of the market.  This shift seems to have moderated somewhat, but still it has been positive for a year now.
3.  January 2013 we had a median of $489,000.  The skew factor for that month was exactly 0%.   Now one data point is nothing much to go on, but it's an interesting coincidence if nothing else.  
4.  In general I think we can say that prices are likely down somewhat more than our medians would imply.   How much is anyone's guess.

Now just because our sales mix is currently more towards the higher end doesn't mean it will come down again anytime soon.  However it is another interesting factor to look at to provide more meaning to the monthly stats (which I'll get around to posting one of these days).

Update:  Closer look at the credit tightening measures effect on the sales mix.  The effect from the July tightening does seem pretty clear, with a rush to the exits followed by an anemic low end until now.

109 comments:

DavidL said...

Fascinating analysis... Lots to think about! Thanks for all the effort putting this together.

koozdra said...

Very interesting, a great read.

dasmo said...

Nice work, You should have labeled the post "Halibut fishing" though ;-)

CS said...

Yes, good work all concerned.

The change in skew factor suggests greater price flexibility at the high end of the market than at the low end, with the paradoxical effect revealed in this post, of raising the median sale price.

This is consistent with what has been happening in the Uplands, where property has been selling quite briskly, but in most cases at prices substantially below original asking.

Reductions this week include MLS® 322090, off $100 K this week, and MLS®: 323244 just reduced again and off $200 K since first listed some time ago.

But there have been larger percentage adjustments on houses that actually sold.

Leo S said...

I've put iOS7 on my phone so Skeuomorphism was on my mind.

poobserv said...

This is an interesting post and brings up some interesting points using some very intractable statistics. The median is very difficult to work with on a statistical basis. In fact, the first thing I would do would be check whether a single frequency distribution applies to the whole of the Capitol Region.

The graphs presented here suggest that single distribution is not appropriate. It would be very interesting to use some more tractable statistics, for example the mean, to test this hypothesis. If there are multiple distributions at play the question of how best to group the municipalities, comes up.

The other interesting thing I note from your choice of municipalities in the 'low price' area is that they are all located on the 'far' side of Highway 1 and Mackenzie intersection. It seems likely, people are responding to transportation problems in their choice of where they want to buy.

Finally, the macro economic tools used by the Bank of Canada to try to cool the housing market work by restricting access to credit. It makes sense to me that buyers who are more interested in lower priced properties would be affected more adversely by these measures than buyers in more expensive areas.

Alexandrahere said...

Can you make sense of this?

1942 war time house on Lockley (on an entire street of war time homes) in Esquimalt sold for $422K. It was assessed at $373K

versus

a 1960s (updated 13 yrs ago) home in 10 mile point on a half acre lot went for $700K. It was assessed at $945K.

I wouldn't want either one of them but clearly, walking distance to work means a lot to most people.

Marko said...

a 1960s (updated 13 yrs ago) home in 10 mile point on a half acre lot went for $700K.

The one without a single interior photo described as "wonderful home could shine again, with some updating and sweat equity," and "this diamond in the rough?"

Just Jack said...

Different target markets. A starter home in Esquimalt and a dated home in an upper income hood. You won't be able to co-relate the two without considering the hundreds of homes in between the two prices.

This is a marketplace with multiple layers of preferences by buyers. As some posters have said, a few of these layers are in trouble. Like properties outside of the core, busy street locations, homes without a suite in some areas, less than showroom condition on some, too big, too small, too much land, etc.

Yet the marketplace is still holding up because these different layers are interlaced. So while Sooke prices are weak they haven't collapsed because Victoria's stable home prices have kept them from falling. And vice versa.

But remember the idiom...

"The straw that broke the camel's back"

The market can come tumbling down for no apparent immediate reason. Afterwards economists will dig back to find a cause or trigger. Maybe it was simply the last layer of buyers that stopped purchasing.

dasmo said...

Looks like the 50 howe st flip was a success....

info said...

@ Leo

Even though I think that the Teranet data is no better than the data put together by realtors (MLS HPI), it is still valuable. The Teranet shows a drop of about 9% from peak for Victoria. As I've said, the Teranet HPI is valuable in terms of the direction of house price changes, but not in the magnitude of those up or down changes. I'm convinced that upward moves are generally generous while both the Teranet and the MLS HPI moves downward are generally conservative. I think the price drop from peak on the Teranet index should be greater than 9%.

I used the Teranet index to support my estimates of where SFH prices would be with no skewing, knowing that there is no pricise mathematical way to calculate this, given the data available.

Your charts definitely illustrate the degree of skewing that has been going on for the last number of months.

dasmo said...

Well, if 50 Howe tells us something, it's that you can still buy a house in Fairfield for 680k, polish it up, put a suite in the basement and sell it for 888k....

Leo S said...

Another knife in the side of the market?

This is starting to resemble the final scene of Julius Caesar

Leo S said...

Correction: Act 3

DavidL said...

@Leo

Yeah, interesting to note that "no one lender will get guarantees for more than $350 million worth of securities per month" by the CHMC. I imagine that small lenders (such as credit unions) could have a field day with this...

Marko said...

Tuesday, August 6, 2013 8:00am

MTD August
2013 2012
Net Unconditional Sales: 74 462
New Listings: 146 1,025
Active Listings: 4,649 5,034

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

koozdra said...

from the cbc article above:

"The move takes some of the air out of the housing market by forcing banks and other lenders to be responsible for the risk of mortgage defaults, instead of being able to pass that risk on to government and taxpayers via the CMHC."

Banks take on more risk. Does anyone remember how banks mitigate risk? Oh yeah, higher rates.

Of course we all know that the government is in full control of mortgage rates and would never let that happen.

koozdra said...

Canada Post cuts mail delivery to illegal suites in Victoria

There aren't a lot of these, right? After all they are "illegal".

Is something illegal if the authorities don't enforce the law?

Just Jack said...

Restricting how much the lenders may securitize has a potential to cause mortgage rates to rise or limit the number of mortgages that can be issued.

Since the mortgage industry now have limits on what they can sell to investors to offset higher interest rates.

Mortgage Backed Securities (MBS)are used to buy down the interest rate. Because no investor would be crazy enough to lend at these low rates without offsetting the rates by selling the security.

The effective interest rate being charged being much higher than what the home owner pays. Without MBS's there would be fewer people qualifying for a mortgage and the interest rate would be higher.

Of course the CMHC can be imposing restrictions on its underwriting and at the same time the government can be increasing the cap for private mortgage insurers like Genworth. As we transition from a government backed program to a semi private/public backed program where the government is exposed to less risk.

dasmo said...

Canada post sucks.... And now they have officially proven an organization can be an asshole.

nan said...

re: cbc article above:

I wonder if this will have the same effect as the $5 daycare in Quebec? Rationed government services don't seem to end up helping those they are intended to. I would suspect that we will start to see a much higher percentage of government & other connected officials with CMHC loans as a percentage of total loans outstanding going forward as those with connections leverage their social standing to make sure they get a piece of that $350MM/ month should the insurance start to get "scarce"

Dave said...

Thanks Leo, interesting stuff.
Dave3

koozdra said...

“No way are they going to take on risk when everyone is concerned about the housing market … so this is going to cool off the housing market.”

CMHC might not like this housing recovery: BMO chief economist

info said...

SFH sales for June and July were slightly higher this year compared to 2012. Obviously many of those potential buyers that locked into a 120 day rate hold (at less than 3%) decided it was a good idea to buy a bubble-priced house before the rate hold expired. Did I mention that this will not end well?

TD agrees:

"The recent strength (of house sales), however, is likely to prove temporary. CREA has attributed some of the strength in sales over June and July to households bringing sales forward to take advantage of low interest rates... Homebuyers with pre-approved mortgages are likely jumping into the market to take advantage of record low interest rates."

TD warns that there will be some pay back in the form of lower sales in August and September.

In my opinion, the drop in sales will probably occur in September and October.

info said...
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info said...

"Canada post sucks.... And now they have officially proven an organization can be an asshole."

People who rent out illegal suites suck.

People who do not claim the rental income from the suites they rent out also suck.

Just Jack said...

Who determines if the suite is illegal? No way will Canada Post be calling the City to find out if the house has a permit for the suite.

This is a non starter issue. All they want is the mail boxes side by side so that the postee doesn't have to walk around the back of the home to the secondary suite.

Management measures every foot step a Postee takes to get their job done.

Neither rain,
nor sleet,
nor secondary suite
will stop the mail to be delivered.

As it is now, I have never received mail on a Friday. I can see that in the future you might get mail once a week.

patriotz said...

"The move takes some of the air out of the housing market by forcing banks and other lenders to be responsible for the risk of mortgage defaults, instead of being able to pass that risk on to government and taxpayers via the CMHC."

This is an incorrect reading of the new policy. The new policy limits the total amount of CMHC-insured mortgages that can be securitized. So banks will have to get new money to lend by borrowing in the market, not by selling the mortgages to CMHC. The lending risk to the banks is unchanged. But their cost of borrowing will be higher which will be reflected in higher rates.

The Financial Post has a correct summary here

dasmo said...

"People who rent out illegal suites suck.
People who do not claim the rental income from the suites they rent out also suck."

So it's just to you to punish the renter? This only hurts the less fortunate...

Leo S said...

>> I can see that in the future you might get mail once a week.

Fine with me

koozdra said...

Rental market is weird.

$2.68 per square foot*

* based on an average of 280 sqft for a garage

71 cents per square foot


I guess when you get to certain price point it's hard to find a renter than hasn't been seduced by the buying maiden.

StalJ said...

Great work on the skew!

My theory is the skew factor in a correction is a major cause of real estate 'stickiness‘...deceivingly flat for a few years due to skew, then eventually a cascading s-curve. At first, the skew lulls people into a false sense of sideways. However once enough buyers and sellers hear of friends or neighbours taking sizeable losses, they begin questioning the media’s sideways. Buyers further wait, sellers accelerate.
I have noticed people questioning the ‘sideways' lately as they observe large drops. That combined with rising rates having pulled so many of the leftover buyers forward with their rate-holds, this autumn could be a cascading fall.

LeoM said...

The CBC news article about CMHC is interesting at:
http://www.cbc.ca/news/business/story/2013/08/06/business-mortgage-banks.html

But the comments being posted on the CBC blog for this story are even better at describing what's going on, in particular this comment:
-----------------
CBC Comment:
•Eagleone
I bought my house in early 2008 after university with 5% down and a 35 year mortgage. I have the same job today as I had then and made all my payments on time.

Come time to refinance my bank refused to refinance. They say I would have to qualify with 10% equity and 25-years but at 25 years my payment to income ratio doesn't pass the test.

I listed it on the market to sell it for what was owing on it and had no luck because of the new rules priced my house as too much for the market. TD got a court order to sell the house and its now listed with a realtor at $30,000 less than I owed on it... which CMHC will pick up thanks to the $9000 premium I paid when I got my original mortgage.

The only rentals available are with slum lords, so my only option for now with a growing small family is to squat here until they force me to leave. This forced me into bankruptcy so we won't be buying a home for a long while... maybe an RV might be our best option at this time.

Its a shame I did about $20,000 in reno's and had the nicest landscaped yard in the neighborhood. Would have liked to keep the place. The way the government played this market did me no good. I guess I can look forward to working a couple of extra years into retirement as well.
-----------end of CBC comment.

Last year I posted a comment on this House Hunt Blog stating that this was going to happen because it happened in the early 1980's and again in the 1990's; but my post was 'flamed' because "It can't happen this time because..."
Well guess what... Banks never lose but home owners do lose.

Believe me, the banks will insist that mortgage holders re-qualify under current rules when their mortgage term is up for renewal. Five year mortgages from 2008 & 2009 will be coming up for renewal soon, and the new rules apply immediately.

The price slide is about to accelerate exponentially each month as more and more people are unable to re-qualify and are forced to sell.

info said...

"My theory is the skew factor in a correction is a major cause of real estate 'stickiness‘...deceivingly flat for a few years due to skew"

This time the skew factor is especially strong due to the tightening of the mortgage rules near the peak.

koozdra said...

" but my post was 'flamed' because "It can't happen this time because...""

Haha, the good old days.

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

I've said many times that Canada's housing bubble will not begin to deflate until the household debt to income ratio starts to decrease. It hasn't yet.

The US housing market peaked when the household debt to income ratio hit 120. In Canada, that ratio is currently north of 160. If the US economy was at risk when the ratio hit 120 there, then imagine the current degree of risk to Canada's economy at 160.

The fact that the household debt to income ratio hasn't started to head south means that there is still way too much excess credit available for mortgages in Canada. This year, CMHC was allowed $85 B for mortgage borrowing but almost 80% of that was used up by the end of July.

Tightening the screws on CMHC will most likely cause this ratio to decrease. A downward trend will be established and this will continue for years.

The net result of the latest actions by the feds will be fewer mortgages issued and higher 5-year interest rates. Housing prices across Canada will finally deflate and this downward price trend will continue for years.

Last year the feds tightened the mortgage rules, but the banks countered by lowering 5-year mortgage rates to historic lows.

Unlike last year, I doubt there will be a counter measure that will render these latest actions ineffective.

Leo S said...

Believe me, the banks will insist that mortgage holders re-qualify under current rules when their mortgage term is up for renewal.

They will not. CMHC has taken on the risk for them, and it is not in the lenders' interest to force their clients into default.
Someone that took out a 0 down 40 year mortgage in 2008 can now continue that mortgage with 35 years remaining. Unless they want to refinance they won't have any problems.

Leo S said...

I'm not 100% sure if they can switch lenders though without qualifying under the new rules, so they might be stuck in a poor negotiating position.

dasmo said...

Do you really think the banks are dumb enough to follow the path of what happened down south. It didn't work out so well for them down south... I'm pretty sure they will just keep collecting their $$$ instead....

StalJ said...

Also be prepared for the flipside of the skew.
Once the lower tiers flush and investors move in, the opposite skew will occur. Median prices years from now will look worse than they really are since a higher proportion of lower tier property will be selling to investors.

Marko said...

Also be prepared for the flipside of the skew.
Once the lower tiers flush and investors move in, the opposite skew will occur. Median prices years from now will look worse than they really are since a higher proportion of lower tier property will be selling to investors


Prices would have to drop 30%+ for it to make sense for investors to move in.

Just Jack said...

Investors that want a return on their equity will be the ones to restart our market place in the next upcycle. That will take some time, as most real estate investors will be illiquid for years to come.

Like Icarus, our real estate market flew too high.

koozdra said...

Great news everyone. The recovery is just around the corner.

"Nevertheless, indicators point to a steadily improving economy that will help the market return to historical sales volume and house price appreciation averages."

Housing poised for for upward swing, Royal LePage says

dasmo said...

The 50 Howe guy seemed to do alright in this market... Surprisingly....

Leo S said...

>> The 50 Howe guy seemed to do alright in this market... Surprisingly....

Keep fishing... Someone might bite eventually!

dasmo said...

you just did...

dasmo said...

In all seriousness, is it not interesting to examine the market from many angles and perspectives? I myself am surprised by the purchase and flip of 50 Howe. Considering the topic of this blog, is that not worthy of contribution to the discussion? Because I present alternate views I am relegated to troll status? If so... I'm OK with that. I don't need interaction here. I have much better looking friends in meet space ;-)

Leo S said...

Relax, just thought it was funny that you've mentioned it three times now

dasmo said...

Don't take my response too harsh! I thought I was kinda funny with my meat space comment. That's what the winky face was for! I am a bit of troll around here due to my Halibut stance... I'm ok with that.

CS said...

There's 21 months before the next Federal election. Until then a halibut stance makes sense. For the Feds, the time for the market to crash is the day after the election when it will either sandbag Justin, if he wins, or leave the Tories in power for another four years despite the fiasco.

Leo S said...

If they can pull off flat for 21 months they will have pulled off the flat landing

dasmo said...

They are certainly working at it. Personally I think they care less about a flat landing so much as they want to keep out new buyers without screwing existing owners for at least five years. Then there will be some equity in the market and rates can edge up.

info said...

The changes to the mortgage rules, etc. last summer and fall were brought in to immediately cool the Canadian housing market. It obviously didn't work. Most of the blame should be put on the banks as they countered the desired cooling by lowering 5-year mortgage rates to historic lows.

In order to gauage whether or not the Canadian housing market was cooling over this period of time, it would have been necessary to keep a close eye on 4 main indicators.

1. The Canadian household debt to income ratio. This ratio should have been decreasing if the housing market was cooling. It wasn't, at all. It continued to climb since the time that the new mortgage rules were brought in. It shouldn't have taken until August of 2013 to notice this and take further action.

2. The total amount of mortgage insurance issued by CMHC (and all private insurers such as Genworth). This year, for example, CMHC was allowed $85 B for mortgage borrowing but almost 80% of that was used up by the end of July. In other words, CMHC was continuing to allow the banks to hand out high-risk, high-ratio mortgages like they were candy. Again, it shouldn't have taken until August of 2013 to notice this and take action.

3. The rate of increase/decrease of Canadian housing prices in general. Obviously housing prices in Canada have continued to increase in most major cities (not Victoria) since last summer. Apparently this went unnoticed until the 8th month of 2013, a full year after the new mortgage rules were brought in.

4. The increase/decrease of housing sales. Sales have been up and down across Canada since the new rules were brought in. Even Victoria experienced increased sales in June and July. Action should have been taken earlier to keep these numbers down.

Clearly, the signs were there shortly after the new rules were brought in that the actions taken were insufficient and that more policy changes were needed to cool the housing market.

In early 2009, a dramatic intervention took place that immediately changed the direction of a rapidly declining Canadian housing market. It didn't take a year to gauge whether or not the intervention worked. In fact, it was obvious after a month or two that the policy changes were working.

The same timeline should have been applied to the policy changes of last summer. The household debt to income ratio was still rising shortly after those policy changes. That should have been a clear indication that CMHC had not been throttled back enough.

The banks countered the rule tightening by lowering 5-year mortgage rates. Further (gradual) action should have been brought in to counter the (gradual) counter measures of the banks.

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

"If they can pull off flat for 21 months they will have pulled off the flat landing"

Sarcasm

koozdra said...

Real estate markets set for 'major slowdown'

Hmmm... who to believe? An objective study or an "economist" working for Royal Lepage.

CS said...

f they can pull off flat for 21 months they will have pulled off the flat landing

Or could be we'll see continued gradual descent, partly concealed by skewed stats, followed by growing disillusionment as the direction of the skew factor reverses, leading to an unstoppable plunge just after the election.

More than a million dollar downward adjustment on this property. If it's enough to get a sale it will sure skew the Oak Bay median price for the month.

Marko said...

More than a million dollar downward adjustment on this property.

It is a steal now at only nine million.

LeoM said...

What will happen to house prices in Victoria if each property owner gets TWO property taxes each year?

Is a new self-funded "Storm Water Utility" planned for the City of Victoria??

I hear that Mayor Fortin wants this new Utility organization to take over all infrastructure for storm water, including maintenance, upgrades, and all new storm water pipe installations.

I heard the plan is to NOT use property taxes for storm water infrastructure, but instead to set-up a new Utility organization that will be self-sufficiently funded by imposing a new 'assessment' on every property owner to cover all the costs associated with digging up streets and working on the storm water infrastructure.

Is any of this true?

Is Mayor Fortin actually considering imposing a second 'property tax' to fund the storm water infrastructure?

If true, this seems like a sly way to manipulate the Infrastructure Debt incurred by the City of Victoria during the past 6 years to hide the mismanagement of the city's underground infrastructure.

If true, it looks like home owners in Victoria will get two property taxes to pay each year.

House prices in Victoria will suffer when people realize they have two property taxes each year.

LeoM said...

It's true!!!

http://www.victoria.ca/EN/main/departments/engineering/storm-water-management-codes-of-practice/stormwater.html

I suppose this will free-up more property tax dollars for Fortin to buy more Travel Lodges for the drug addicts and homeless.

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

They say that they are removing the cost from the taxes and creating the utility so we can see what we are paying? Uhhh who is that fooling. Like adding all those layers of administration won't add to the cost. And as if they will lower the property tax!... It's a creative way to increase taxes, I give them that.

Mayfair Man said...

If the banks do increase 5 year mortgage rates by 0.35 %( from the NHA MBS announcement) that will be a 0.9% increase in a short period of time or a 30%(2.8%->3.69%) increase in the 5 year mortgage rate. When is the last time such a sharp increase has happened in a relatively short period of time?

koozdra said...

Landlords brace for construction spree

Just Jack said...

If you are elderly and defer your property taxes - you're now going to have to pay the storm water tax.

The idea of a user pay system is good. But this is going to be abused by the city. The City knows it is much easier to raise utility fees by 10% that are paid bi-monthly than property taxes that are paid yearly.

And there is no accountability. The city can easily over charge on the storm water tax - because there is no one watching them. And do you really think all this money will be used for repair and maintenance. No, like property taxes it will go into general revenue and be eaten up.

You let the City have this one, then they will invent another tax and another tax and another tax.

And as a side note. The two week garbage collection is showing results. My neighborhood is infested with rats.

I'm thinking of a catch and release program on the Mayor's front yard.

info said...

Canada loses 39,400 jobs in July; unemployment rate rises to 7.2% (CTV News)

Quoting:

"The retreat all but wipes out any hopes that April's head-scratching surge of 95,000 added jobs might have been signalling an upward trend for the Canadian economy."

I've said many times that as long as Canadian housing prices remain in bubble territory, the part of the Canadian economy that is separate from housing market related industries will continue to weaken. Those jobs that were the bread and butter of the Canadian economy before the beginning of the current "housing market economy" (around the year 2000) will continue to be lost. They will be lost to a long list of countries that provide an environment of much lower operating costs due to much lower housing prices, a list that includes the US.

CS said...


It is a steal now at only nine million.


Yeah, but you gotta add the cost of a covered swimming pool, squash court, and boat ramp, remodeling the kitchen and six or eight bathrooms, plus getting new drapes, floor coverings and light fixtures. So the total price would still be well into eight figures -- or twice what it sold for last time before they chopped off a large waterfront lot.

CS said...

This one's been on the market for years. Now they've got a new agent and hiked the price. Good thinking.

dasmo said...

I doubt a house price crash would do anything positive for the economy. I priced out a good quality 2800 sqft build without a garage or frivolous luxuries and it came out at around 420k with only paying a GC and no material markup allowance etc. a crash will just mean a proliferation of crappy builds....kinda like the eighties. It won't spark another building boom.

info said...

"I doubt a house price crash would do anything positive for the economy."

The US economy is recovering nicely after their housing correction/crash. The average family in the US can now afford the average home. In order for the economies in the US and Canada to function properly, the average family must be able to afford the average home based on the price to income and price to rent ratios. Historically it has been that way in both countries, more or less, except for Canada currently and the US from 2001 (approx.) to 2006.

info said...

Housing prices in Canada are deep in bubble territory. It's ridiculous.

Compare these houses:

This Winnipeg house is currently valued around $427 K. Bring your insect repellent and extreme weather gear as Winnipeg is known for its sparrow-sized mosquitoes in the summer and -40 degrees weather in the winter.

This bubble-priced Esquimalt house is currently valued at about $598 K. Bring your rain gear as Victoria experiences about 6 months of rain every year.

This Los Angeles house is valued at about $250 K. In July 2007 its value was $ 442 K. Bring your beach gear as Los Angeles has some of the most beautiful weather in all of North America and you can actually swim in the ocean there.

patriotz said...

a crash will just mean a proliferation of crappy builds....kinda like the eighties. It won't spark another building boom.

The crappy builds by and large get built during the booms. Buyers are less discriminating when they think they are assured that prices are going to go up. As well, the more houses that are built per year, the more are built by less competent labour rather than by skilled tradespeople.

Leo S said...

>> This Winnipeg house is currently valued around $427 K

And they say: "Offers presented August 13th." so I guess they expect a bidding war.

dasmo said...

What really needs to happen, is incomes need to go up.... In the US they can build for cheaper because they can get materials cheaper and labour way cheaper. Houses becoming affordable is important. How can anyone argue that. The market collapsing so that a quality SFH can not be built at a reasonable profit is rather obvious as to it's outcome... Should Kettle Creek homes be cheaper? YES!
The condos I have seen being built in the last few years have been at a very high quality. Compare this to the 80's rotters that proliferate the city... Was there anything of quality being built in the 80's?


Anyway, I hope the service industry revolt takes root and spreads to here. What difference does it make if a corp makes 10 billion or 9 billion? Plus that money doesn't flow back into the economy. It is locked away in the matrix somewhere....

CS said...

Housing prices in Canada are deep in bubble territory. It's ridiculous

As evidence of which you refer to a newly renovated Winnipeg home offered at $250 per square foot, with a rather seedy looking LA home offered at $226 per square foot.

I think the Winnipeg home may be worth the $24 dollar the premium.

Phil said...

“What really needs to happen, is incomes need to go up....

and people who have incomes…
Victoria’s labour market mirrored the trends nationally and in B.C. as the region shed about 600 jobs in July and the unemployment rate for Greater Victoria rose to 5.8 per cent from 5.5 per cent in June.
http://www.timescolonist.com/business/greater-victoria-labour-market-mirrors-drop-in-jobs-across-nation-1.574701

Just Jack said...

Of the 1,744 properties listed for sale in the Victoria Core, some 339 are available for immediate occupancy. That's 19 percent of properties listed.

The Western Communities has 14%. And Saanich Peninsula has 16 percent.

For the core districts this may be further broken down to 12 percent of listed homes and 26 percent of condominiums.

I don't know what that means. I just think its a lot.

info said...

"Housing prices in Canada are deep in bubble territory. It's ridiculous."

"As evidence of which you refer to a newly renovated Winnipeg home offered at $250 per square foot, with a rather seedy looking LA home offered at $226 per square foot."

You didn't get it CS. Let's take square footage completely out of the equation.


This rather seedy looking Vancouver house has 900 square feet and is listed at $899 K.

This beautiful San Diego house (5861 Chaumont Dr.) has 2035 sq. ft. and is listed at $250 K. It lost almost 60% of its value when the US housing market crashed. Its square footage is more than twice that of the Vancouver house yet it is listed at nearly one quarter the price.

This beautiful Phoenix house (16018 S 32nd) has 1881 sq. ft. and its value is estimated at $248 K. Its value dropped 55% when the US housing market crashed. Its square footage is almost twice that of the Vancouver house yet it is listed at nearly one quarter the price.

This beautiful Dallas house (3444 Briargrove Ln) has 2352 sq. ft. Its value is estimated at $213 K. As was previously discussed on this blog, real estate in Texas did not experience a big run-up in prices due to state policy. Texas was an exception in that regard. No need to discuss it again. Nevertheless, the value of this house did drop 15% during the US housing crash. It square footage is nearly 3 times that of the Vancouver house yet its value is about one fifth.

This Houston house (7806 Candlegreen Ln) is listed at $99 K and has 3307 sq. ft. Despite being located in Texas, this house still lost 23% of its value during the US housing crash. Its square footage is almost 3 times that of the Vancouver house, yet it is listed at about one tenth the price.

CS said...

You didn't get it CS

I got it OK: that your evidence did not support your argument, which is presumably why you are now citing different evidence.

CS said...

But unfortunately your new evidence, although demonstrating that prices in the US have fallen, does not demonstrate that prices in Canada will fall.

True, the links you provide show that in some parts of the US you get more house for your money than in Victoria, but that doesn't tell us anything about the future of the Victoria housing market.

A bubble has two phases: up and then down. We have seen an up in Victoria, but as yet, no comparable down.

CS said...

This Houston house (7806 Candlegreen Ln) is listed at $99 K and has 3307 sq. ft.

What this and the other data you provided show is not that Victoria houses are overpriced, though they maybe (whatever overpriced means), but that in parts of the US the economy has imploded, as in Detroit, for example.

For even in Houston houses cannot be built for $30 per foot (on free land presumably). So what the examples you provide show is that in a number US cities the supply of housing vastly exceeds demand.

Such an imbalance is unlikely in Victoria, though I suppose possible. For example, if Vancouver Island achieved provincial status, the provincial capital was established in Nanaimo or Parksville, and all government offices moved up Island. Add to that a collapse in enrollment at UVic, RRU and our other colleges, closure or one or more hospitals due to financial constraints, and we might then be in about the same shape as Candlegreen Ln., Houston, TX.

koozdra said...

"if Vancouver Island achieved provincial status, the provincial capital..."

A more likely scenario is a protracted recession in the Canadian economy. That would crash the local housing market. Too much debt, too much risk out there.

A slow deflation is not really an option at this point. Keeping houses prices where they are means more debt accumulation.

Unlike me, Flaherty has confidence in the Canadian people. "I believe Canadians are acting prudently..". Oh Jim, your funny.

koozdra said...

I warn you, Mr Carney – a housing bubble is coming

Low rates causing a housing bubble? That's just a theory.

Leo S said...

The one option that might surprise people is household consolidation. Yes we dot have massive overbuilding but we do have a very small household size. Lots of people living alone in small houses. Protracted raised unemployment or rising rates and suddenly those people are moving back in with their family or taking in roommates and houses are suddenly available

Leo S said...

Alone in large houses rather

koozdra said...

Welcome to Craigslist, MLS friend.

$2500 / 4br - 2500ft² - Highland lakefront Home (Highlands Fork lake Rd. )

325783

When the only thing that passes through your open house is tumbleweeds come to Craigslist. We have plenty of room.

CS said...

we do have a very small household size. Lots of people living alone in small houses. Protracted raised unemployment or rising rates and suddenly those people are moving back in with their family or taking in roommates

But aren't those small households mainly of the elderly, who aren't going to consolidate with anyone or anything until they "compounded are with clay" or moved to a care facility, plus the young occupying tiny condos, which they may be able to hang onto even during a period on EI or even just welfare?

Then there are the millionaire second home owners, unaffected by the local economy, whose year-round occupancy of their Victoria getaway probably averages less than one person per household.

So the scope for consolidation may be limited.

And the risk of protracted recession is probably less here than in most places because of our massive reliance on foreign trade combined with a highly flexible currency. The $CAD is up about 70% against the greenback since 2002, and if necessary there's no reason why it should not slide to 63 cents US once again, which would give us huge competitive advantage over US mine, mills, factories and service companies.

Phil said...

sounds like somebody bought more property

CS said...

But if the $C slipped back to 63 cents US, then, all other things being equal, our house prices in US dollars would be off 37%.

Which means, if you look at prices in US dollar terms, the rise in Canadian house prices since 2002 has been a truly astounding 200% plus, which suggests that something soon has to give.

CS said...

And the rise in the C$ since 2002 has likely had much to do with the rise in RE prices. It has resulted in substantial savings in the costs of imported shoes and shirts, computers and car parts, foreign travel, ships for the BC Ferries Corporation and off-shored services of many kinds. These savings have contributed substantially to the ability of Canadians to allocate a large fraction of income to housing. The rise in the C$ has also made Canada a prime target for foreign investment in RE.

If the dollar were now to retreat, these positive effects on RE would be reversed. The rise in US oil production is negative for the C$ and underlies US resistance to XL pipeline. Trouble with E-W pipelines is another negative for the C$ and has already resulted in abandonment of major oilsands developments. China's eonomic slowdown is another negative for the C$.

Perhaps we're headed back to a US63 cent dollar and 2002 house prices.

CS said...

And the rise in the C$ since 2002 has likely had much to do with the rise in RE prices. It has resulted in substantial savings in the costs of imported shoes and shirts, computers and car parts, foreign travel, ships for the BC Ferries Corporation and off-shored services of many kinds. These savings have contributed substantially to the ability of Canadians to allocate a large fraction of income to housing. The rise in the C$ has also made Canada a prime target for foreign investment in RE.

If the dollar were now to retreat, these positive effects on RE would be reversed. The rise in US oil production is negative for the C$ and underlies US resistance to XL pipeline. Trouble with E-W pipelines is another negative for the C$ and has already resulted in abandonment of major oilsands developments. China's eonomic slowdown is another negative for the C$.

Perhaps we're headed back to a US63 cent dollar and 2002 house prices.

Just Jack said...

And Sooke continues to correct. A 1,000 square foot rancher on a 7,400 square foot lot. Purchased 19 years ago for $135,000 and sells today for $220,000.

If this type of correction were to spread into Victoria that would make the typical home drop from $575,000 to $353,000.

That's still too high for a war shack in Fernwood!

Marko said...

And Sooke continues to correct. A 1,000 square foot rancher on a 7,400 square foot lot. Purchased 19 years ago for $135,000 and sells today for $220,000.

Doesn't seem totally out of whack for Sooke. I had a listing in Gordon Head earlier this year sell for $665,000 with a finished basement featuring a two bedroom suite. The same home was purchased in 1993 for $320,000 with an unfinished basement.

If you adjusted for improvements it didn't even double in 20 years so doesn't surprise me that something in Sooke went from $135,000 to $220,000.

Nathan Stretch said...

Doesn't seem totally out of whack for Sooke. I had a listing in Gordon Head earlier this year sell for $665,000 with a finished basement featuring a two bedroom suite. The same home was purchased in 1993 for $320,000 with an unfinished basement.

Just as a side note, according to this, inflation over the past 20 years has totaled 44%: http://www.bankofcanada.ca/rates/related/inflation-calculator/

So inflation alone would bring $320k to about $460k.

(This caught my eye since we viewed a house with Marko today that iirc also sold in 1993 for, what was it, around $360k?)

Nathan Stretch said...

Perhaps we're headed back to a US63 cent dollar and 2002 house prices.

As someone who earns in USD, I certainly hope you're right there! I expect we'll be buying before we can see a return to 2002 prices, but at least if you are right we'll have a nice hedge in that case.

Numbers Hack said...

***HOUSE PRICE ANALYSIS***
Guys, I am a new poster. But so here goes, your feedback right now would be greatly appreciated as we are deciding whether or not to buy or not buy right now. The following is the info for the areas of Oak Bay, Uplands, Fairfield and Cadboro Bay from $500K upwards in price:

SOLD AND CLOSED: 22 Properties
8 Properties sold for UNDER ( avg -7.1%) of Assessed
14 Properties sold for OVER ( avg 14.0%+) of Assessed

PENDING SALES: 61 Properties
30 Properties PENDING for UNDER (avg. -9.3%) of Assessed
31 Properties PENDING for OVER (avg. 7.1%) of Assessed

CURRENT LISTINGS: 180 Properties
36 Properties ASKING for UNDER (avg. -6.4%) of Assessed
144 Properties ASKING for OVER (avg. 18.7%) of Assessed

My analysis:
1/ Sold ratio of under to over assess was 1:2
2/ Pending ratio of under to over assess is now 1:1
3/ means more people are doing deals now in the over $500K with over 50% getting a 9.3% discount to market
4/ which means, for the short duration I have been looking at the data, THIS IS A BUYERS market in general
5/ THE TREND IS YOUR FRIEND, and the TREND is clearly DOWN.
6/ we have put an offer in for a big house at -6.0% of asking, and that was a MISTAKE from a numbers standpoint
7/ All offers should be NORTH of 9.3% and see what people come back with, yes there will be some ruffled feathers, but the quantum on 1% is 1000$/for every $100K.
8/ Assume assessments will come down 5-6% in all areas in 2014, you are only getting a 3% discount to market
9/ I DON’T KNOW how much the market will go down, I am no Oracle, but if you want to be satisfied with a purchase, being we are all CHEAPSKATES, one should aim for 10-15% off assessed

What I learned through this process is MOST REALTORS are self-serving and will do anything to get the deal over the line, as their livelihoods count on it. You don’t sell, you don’t eat. There is a bunch of HUBRIS of BS that they try to justify, but the numbers above IMO is the most significant common denominator and one can use it for justification in getting a better price. OK good luck.

So if I really like something, but I don’t need it right now, should I pull the trigger at -6%? haha

Phil said...

“should I pull the trigger at -6%? haha

Or you could rent this place for half the amount you could own it for and relax and see if the chips fall at -50%.

http://www.timescolonist.com/business/with-home-boom-in-9th-inning-even-the-good-news-may-portend-trouble-1.575323

Marko said...

Putting too much weight into assessment value is not a great idea in my opinion.

Homes that have had a lot of upgrades and maintenance are much more likely to be worth more than assessment than those that have been neglected.

However, using the assessment concept it will show that neglected homes are a better "deal" because you are buying them for a bigger percentage off assessment price.

Leo S said...

Yeah, sale/assessments only makes sense as an overall gauge of the direction of the market. On individual places it doesn't make much sense to offer based on it. Sure if you have an average place then maybe you could try to use the assessment as a negotiating tool but I suspect sellers won't be moved by any arguments about how their house should be minus some percent of the assessed value.

1666 Longacre just sold for some $200k over assessment. Extensive renos will do that

Marko said...

1666 Longacre just sold for some $200k over assessment. Extensive renos will do that

+1, perfect example.

Marko said...

All offers should be NORTH of 9.3% and see what people come back with, yes there will be some ruffled feathers, but the quantum on 1% is 1000$/for every $100K.

9.3% off list price would be an outlier.

In July 225 SFHs sold in the 400k-800k price range.

Price original: $580,776
Price list: $568,017
Price sold: $553,507

Price original does not include previous listings.

There is a good opportunity to get a significant amount off price original in this market but off price list the spread is never more than 3% on average. 2-3% seems to be consistent irrelevant of the market.

I think it just comes down to people making offers on the best priced properties. If a buyer sees 10 identical homes priced at 500k and the 11th one is 480k they will probably make an offer on it versus the previous 10.

Marko said...

Monday, August 12, 2013 8:00am

MTD August
2013 2012
Net Unconditional Sales: 181 462
New Listings: 337 1,025
Active Listings: 4,661 5,034

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

caveat emptor said...

http://www.theglobeandmail.com/report-on-business/economy/housing/after-decades-of-stoking-mortgages-ottawa-in-a-mess-of-its-own-making/article13705668/

Just Jack said...

Numbers Hack,

Are you not interested in the house at all? In otherwords, you don't care if it's a one-bedroom or a 5-bedroom. A thousand or three thousand square feet?

Because if you don't care what you are living in - just the location. Then it sounds like you're speculating that property values are going to rebound and not continue to drift downwards.

In my opinion, the improvements are just as important as the location in this market. And in some instances more important than location. Unless you are looking for a building site - but then you would be looking for a tear-down.

And I will itterate what other posters have said. Basing your offer on the BC Assessment is not a good idea. Too many variables have an effect on value. An assessor may not have been inside that home for 30 years or more.

Better to trust your own judgement than rely on an overworked government employee.

koozdra said...

The time for trying a -10% offer is not yet at hand. Dropping 10% in the foreseeable future is an optimistic estimate on what is going to happen with our housing market.

Building equity and real estate are becoming unrelated terms in this country.

koozdra said...

Calm before the storm?

"There is nothing to panic about.." -interviewed realtor

Well that puts my mind at ease.

koozdra said...

Benjamin Tal, CIBC's housing expert and deputy chief economist, wouldn't go as far as Madani in predicting a price correction of as much as 25 per cent, but he agrees the time has come for caution.

"If I was a speculator, I would not be buying," he says. "The days of flipping houses and speculating on increasing prices are clearly coming to a close. We are in the ninth inning of this boom."




Tal is a bit late to the game but finally he's going bear.




Building permits down, homes sales up: Canada's housing market sending mixed signals