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.
The final monthly numbers will get confirmed tomorrow--at which time this post will be updated.
| September 2013 | September 2012 | ||||
| Wk 1 | Wk 2 | Wk 3 | Wk 4 | ||
| Unconditional Sales | 96 |
224
| 354 | 456 |
416
|
| New Listings | 305 | 598 | 874 | 1073 |
1210
|
| Active Listings | 4513 | 4556 | 4579 | 4565 |
5025
|
| Sales to New Listings |
31%
| 37% | 40% | 42% |
34%
|
| Sales Projection | 403 | 470 | 495 | 485 | |
| Months of Inventory |
12.1
| ||||
The final monthly numbers will get confirmed tomorrow--at which time this post will be updated.
115 comments:
"population adjusted" stats for sales is interesting but all that's really needed is to look at the "sales to new listings ratio" to get an idea of of how sales are going from a relative perspective. To see how that ratio is behaving will give you a picture of the supply and demand forces at play without having to adjust for population...
Speaking of population adjustments, who would have ever thought B.C. would fall behind the national average and Manitoba!! during babyboomer retirement? Kind of strange really.
Percent annual Population Growth -July12 to July13
Canada, 1.2
Manitoba, 1.2
Saskatchewan, 1.9
Alberta, 3.4
BC, 0.8
Tuesday October 1, 2013 8:00am:
Sept Sept
2013 2012
Net Unconditional Sales: 487 419
New Listings: 1,106 1,210
Active Listings: 4,547 5,025
Net Unconditional Sales: 487
or converted to a VREB press release = "Highest since 2009"
I'm definitely not an expert on Victoria real estate. But just my own observations as a long time resident of Alberta.
Ten years ago, both young families and retirement aged Albertans were talking about leaving and moving to BC - Victoria, Vancouver or Kelowna. The frequency of hearing these statements has disappeared over the decade.
Most young families or individuals can't find work or the salaries offered don't come close to justifying the high cost of housing. Now, I'm constantly encountering people who have moved to Alberta in search of better employment, a lower cost of living or both.
You never hear of retirees talking about a move to Victoria (due to the higher costs) any more. Over the last few years, they've been purchasing property in the US and even the East Coast. An Aunt of mine bought a 2 acre waterfront property on the Bay of Fundy last year. She built a brand new 2500 sq/ft house and is all in for just over $300,000. She just sold her North Vancouver home and invested the extra $650,000. She considered Victoria but thought it was still too expensive. Now she's either eating lobster for $3 a pound or travelling down south to warmth a few times her year.
Marko, I meant 2742 Heron. Sorry, I seem to be having difficulties with numbers.
Marko, I meant 2742 Heron. Sorry, I seem to be having difficulties with numbers.
There are currently 645 detached homes and 940 strata titled homes for sale in the core districts of Victoria.
Last month 135 detached homes sold and 117 strata homes sold in the core. (Numbers are subject to change)
The Western Communites have 554 detached homes for sale and 252 strata homes. September saw 54 home sales and 31 strata sales.
And lastly, the Saanich Peninsula had 200 houses for sale and 132 stratas. Sales for the month were 38 and 26 respectively.
And just for kicks, here are three ares that have about the same population
Salt Spring 213 homes for sale with 15 sales in September. Lowest price paid was $280,000
Sooke has 205 homes for sale with 18 sales. Lowest price paid for September was $285,000
Oak Bay has 108 home for sale with 19 sales. Lowest price paid was $499,000.
Marko, I meant 2742 Heron. Sorry, I seem to be having difficulties with numbers.
Not seeing any sales on it.
The lowest price paid for a home in the core districts was for a property along Bay Street. As for the house, it's equivalent to what prairie farmers board up, cut a hole in the roof, and fill with grain. For this you'll pay close to $2,000 a month in a mortgage, taxes, maintenance and lost opportunity costs on your down payment. But remember you're paying for the weather and the weed when you live in Victoria.
Rockland rang in with the most paid for a 5,000 square feet modernistic stlye home at 2.4 million. I'd watch this one to come back up for sale in the next few years at a deep discount. As this is the wrong style of home for the neighbourhood and typically gets butchered in the marketplace when only local residents are buying.
Cheapest strata condo sold in the core sold for $96,000 or $181 per square foot. Most expensive was a Penthouse along Erie that sold for $960,000 or $487 per square foot. Rumours are that the complex was designed by Gopher from the 1970's Love Boat TV series.
Time to play "guess a quote". Where do you think this one came from:
"properly priced homes are selling"
""population adjusted" stats for sales is interesting but all that's really needed is to look at the "sales to new listings ratio" to get an idea of of how sales are going from a relative perspective. To see how that ratio is behaving will give you a picture of the supply and demand forces at play without having to adjust for population..."
Comparing sales totals to previous years gives perspective.
The sales to new listings ratio is just that - the sales to new listings ratio. If you were to compare September's ratio to previous Septembers, it would help put things in perspective.
In order to gain a proper perspective when comparing sales totals to previous years, it is necessary to adjust for population.
Bank of Canada lowers growth outlook as exports drag
Poloz was all bubbly last month. Oh well, send Tiff to deliver the bad news.
Extreme upward skewing has boosted the SFH average and median numbers for Greater Victoria since spring.
I've been keeping track of changes in the 2-month median for the expensive areas (OB, Saanich East and North Saanich) and the less expensive areas (Esquimalt, Sidney, Colwood, Langford and Sooke).
Since March and April, the 2-month median for the expensive areas has declined 5.4%. The 2-month median for the less expensive areas has declined 1.9% over the same period of time.
These results are similar to the results for the end of August.
Both ends of the market have experienced a decline in prices since spring.
So, even though the overall median has increased slightly since March/April, the high end median and the low end median have both dropped. This shows how upward skewing is giving a false impression of stable or slightly rising prices.
As soon as the (historically low) rate holds expire, we will likely see an acceleration of the rate of price decline for these two areas.
@Just Jack
Rumours are that the complex was designed by Gopher from the 1970's Love Boat TV series.
With the portholes, etc. - I'm thinking that Captain Stubing must be behind the design! pic #1, pic #2
It's hard to imaging that the owner is asking $3990 (plus utilities) to rent it out.
"
In order to gain a proper perspective when comparing sales totals to previous years, it is necessary to adjust for population."
No it isn't. All that matters is Supply and demand. Listings is supply The sales represent the final "demand". totally non-theoretical and hard data. It is "interesting" because it can tell you how many people didn't buy compared to previous years but that's about it. If 1000 units were for sale and 500 sold it doesn't really matter what the population was. In 1982 it might have been 500 units for sale with 250 sold. it's still a 50% ratio. Even if it was 1000 units with 500 sales in 1982 its 50%. Population adjustment will just totally distort that statistic.
As soon as the (historically low) rate holds expire, we will likely see an acceleration of the rate of price decline for these two areas.
Possibly, but an interesting development in the US is that the proportion of houses purchased for cash has gone from 20% before the crash to more than half now. (Wall St. Journal).
Is there a similar trend here and if so is it at the higher end of the market where sales are up, even though prices are apparently down. If so, an increase in mortgage rates may have little effect.
What may be more important are alternative investment options. Stock prices are relatively high, cash and GIC return are less than inflation even before tax.
Many people may think parking their money in RE makes sense. At least they can hope to derive some enjoyment from the investment.
(Re: 2742 Heron: Marko thanks for looking. Property was said to be in hands of trust co. Now has new occupants. Perhaps a sale will show up later.)
"Is there a similar trend here and if so is it at the higher end of the market..."
I believe the US trend is investment funds buying up thousands of low to mid-tier homes with cash that produce net rental returns of 6-7+%. There are many links to google for further reading re: Wall Street pooling cash to buy up Main Street.
Net returns here are lucky to be 2-3% at present. Rents either have to go way up before investors here would swoop in, or like the US, price has to come way down.
I was wondering if anyone could provide me with some estimates for monthly hydro, water and property taxes (in the core areas). Let's assume it is for a 2500 sq/ft SFH. I know there is difference depending on your homes efficiency and usage. But maybe you can offer a range. For property taxes lets say it's an average price home ($550,000?).
Why owning a home is bad for you
"A decade ago, when faith in house ownership reached its apogee, this might have elicited cheers. In 2004, then-president George W. Bush heralded the arrival of an “ownership society,” offering up what might be the purest formulation of the buy-at-all-costs mentality. “The more ownership there is in America,” he said, “the more vitality there is in America.” By then, the ownership rate in the U.S. stood about where Canada’s does today, and it would keep climbing for four years until the subprime mortgage crisis pushed it off a cliff, triggering the financial meltdown that devastated the global economy. It’s been falling ever since, and currently stands at about 65 per cent—the lowest level in 18 years."
Didn't we just get an article last month saying that people are in more debt but we shouldn't be concerned because everybody has more in assets. Assets in the housing market that is. Those aren't volatile? Right?
The subprime mess in the states is the key. Bloomberg business week noted that a large percentage of those who were prey to these predatory loans could have qualified for normal mortgages and would not have been screwed. Those same people are now out of the market. If they qualify for a loan they are being outbid by investors who are purchasing places to turn them into rentals. I guess Garth pedaling REIT's is working.... Who were the hardest hit? Lower income African Americans....
Housing moves: Canada, U.S. contemplate changes to the way we finance housing
A housing market without risk to tax payers? Can it work? Sure, at much lower prices.
>> Population adjustment will just totally distort that statistic.
No, it doesn't.
Adjusting for population is useful to compare total sales or listings to those of years further back. Completely independent of the sales/list ratio.
Another example of a nice looking rental that has lowered its price several times.
Sold in July 2011
http://www.alexburns.ca/Victoria-Property-For-Sale-Details.php?id=6828658
Starts by asking $1650
http://www.placebee.com/bc/victoria/4528354
Then lowers to $1600
http://victoria.en.craigslist.ca/apa/4049172160.html
Then lowers to $1500
http://www.usedvictoria.com/ReportSelectUsedAdPhoto2?used_ad_id=20524390&position=1&hb=2
Now will negotiate at $1400...
Friends of mine asked me to check out this listing that they are looking at and included a side note that the owner is willing to negotiate at $1400.
This is the second example I've been able to find in the past month where a nice looking rental has had its price lowered significantly due to lack of interest. It sure feels like a renters market to me.
"Population adjustment will just totally distort that statistic.
No, it doesn't."
So how would you add population adjustments to a sales to new listing ratio?
"This is the second example I've been able to find in the past month where a nice looking rental has had its price lowered significantly due to lack of interest. It sure feels like a renters market to me. "
The place I'm renting now was vacant for six months. Rent went from 1550 to 1250. Mountain top, ocean view, 2000 sqft. It's in the "place of stinking fish" (Metchosin) though.
Since that was what I was referring to when I said "that" statistic ;-)
So how would you add population adjustments to a sales to new listing ratio?
As far as I know no one ever wanted to do that.
Exactly! Why on earth would you?
So, Victoria enjoyed a great third quarter. I wonder if it will continue, or will the recent increase in interest rates bring the market lower, even with “Proper Pricing” (which still seem too high for me).
Just a little aside about the East and West Coast markets.
In the winter of 2000, we sold a property in Chester, Nova Scotia for $315,000 (Nova Scotia’s equivalent to Oak Bay). We then moved to Victoria and bought an ocean view property in Gonzales Bay in the spring of 2001 for $365,000. At just $50,000 more, it didn’t seem too bad to us at the time. In fact, the house in Gonzales Bay had almost 3,200 sq ft of living space, compared to the Chester house, which was only 1,700 sq ft! Both lots almost equal size.
We sold that home in Gonzales Bay in 2005 for $740,000. It was such a deal, yet at the time, properties had already increased substantially and, therefore, we just thought we were getting market value.
The same house in Chester resold in April 2009 for $490,000 (when the Canadian market was heating up again after the financial crash of 2008).
Earlier this year, the house in Gonzales Bay resold again for $965,000. I doubt the Chester home could get much more than the $490,000 it got last time.
Interestingly enough, the house in Gonzales Bay has just been relisted again a few months later (empty this time, except the suite). I guess the new owners didn’t want it after all! Buyer’s remorse? I wonder what it will sell for this time?
It just shows how out of whack these two Canadian markets developed over the last 13 years.
Gary said...
I was wondering if anyone could provide me with some estimates for monthly hydro, water and property taxes (in the core areas).
_____________________
Hi Gary, it looks at though you are asking questions that you can get answers from places like BC Hydro and the BC assessment site.
Gary: if you can find a realtor that uses PCS instead of matrix you can see the taxes paid
Utilities (victoria) - 180 to 250 per 4 month billing period. This includes water, sewer, garbage. We use a LOT of water (big house, big lot, doing lots of laundry with young kids, tenants in basement). Summer bills would be even more if I worried about a perfect lawn.
Electricity - 1/2 Edmonton rates is my guess. But still big bills in winter if you heat with electricity.
Natural gas - an insane ripoff on the island as we are locked into an extremely high regulated rate. Still the annual bills will be smaller or comparable to Edmonton for a similar size and vintage house thanks to the warmer climate
So Gary,
Looking for a great deal on homes. Everything north of Victoria is on sale.
VIREB stats released today. Sales up by 57% in Nanaimo but Average YOY prices down %5. Cowichan which is closer to Victoria even higher.
Patience may bring you more value for your dollar!
Link for your review Gary -
VIREB September 2013 sales stats
Thanks All for the info on utilities & taxes.
Like I've said before, there is a possibility that my family and I are going to relocate to the Island in the near future (had a job offer). Lifestyle is the main reason why we'd consider it.
The first problem is Victoria's cost of living, particularly buying a house. Even though homes in Edmonton have also gone up dramatically, I would get a lot less home and an inferior location for the money in Victoria if I bought. So, renting seems more palatable for now. Actually, the rents in Edmonton and Victoria are similar - which makes me feel that Victoria home prices can only stagnate or correct downward. Anyway, on all fronts, it would make sense to rent for a while.
The other problem is finding employment for my wife. She is a college/grade school teacher, more precisely a Spanish teacher. Good teaching jobs on the Island are hard to come by, but specialty jobs seem rare. So, the search continues. Luckily, I have quite a while before I need to decide.
Net returns here are lucky to be 2-3% at present. Rents either have to go way up before investors here would swoop in, or like the US, price has to come way down.
I don't think those considerations are relevant to most sales in Victoria. No one, surely is buying million dollar homes to rent. So the question is what is the proportion of cash purchases in Victoria.
We have an aging population, which means that many in middle age are inheriting homes, etc. These, and the double income professionals, are the people who are often in a position to pay cash for a million dollar plus home purchased for their own enjoyment. Moreover these people do not have tremendously attractive investment alternatives, e.g., government bonds or GIC's yielding less than inflation before tax or stocks at rather high PE's.
So it is still an interesting question how many homes in Victoria are selling for cash as this will determine how sensitive the market is to interest rate hikes (which incidentally will make the stock market an even less attractive investment alternative to a waterfront property in OB).
According to VREB surveys
All cash transactions....
2012 - 25.3% of all transactions
2011 - 22.7%
2010 - 23.2%
Wow! OK, so rate increases will surely have a noticeable impact: especially if we have 17 consecutive central bank rate increases as they had in the US leading up to the crash!
>> especially if we have 17 consecutive central bank rate increases as they had in the US leading up to the crash!
I doubt this will happen here anytime soon. Every rate increase will drag on the economy by weakening the housing market. Likely the bond market will push up fixed rates some more, but I'm almost certain we are in for a long period of stagnant growth and low BoC rates.
>> especially if we have 17 consecutive central bank rate increases as they had in the US leading up to the crash!
Wouldn't 17 ticks downward in inflation have the same effect?
http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/cpis02a-eng.htm
>>will make the stock market an even less attractive investment alternative to a waterfront property
Not sure there have been many investments less attractive than waterfront lately. Wasn't someone on here linking waterfrnt homes that have dropped their prices over 50% from 2-3 years ago?
"Wouldn't 17 ticks downward in inflation have the same effect?" only if you like imaginary numbers...
Would an all cash transaction be synonymous with any offer to purchase that did not have a subject to financing clause?
How else would VREB know if someone is financing the purchase or not?
There is a big difference between a buyer who writes a clean offer without a financing clause and one that is buying with all cash.
Vancouver, Toronto house sales surge over year
"Sales of residential housing in Vancouver rose a whopping 63.8 per cent in September over last year while in Toronto sales were up 30 per cent from a year ago."
Amazing news! The market has returned.
""While sales are up considerably from last year, it's important to note that September 2012 sales were among the lowest we've seen in nearly three decades," said Sandra Wyant."
Oh.
In other news:
Canadians more optimistic about the economy: Nanos
Bank of Canada downgrades economy economic growth. Perception still high.
As long as housing stays strong our housing dependent economy will stay strong. It's good that it is a commonly held belief that housing in invulnerable.
this will determine how sensitive the market is to interest rate hikes (which incidentally will make the stock market an even less attractive investment alternative to a waterfront property in OB).
No, rate hikes will make stocks a more attractive alternative to RE. That's assuming the same person is actually making a rational choice, which I doubt.
Reason is that since (1) stocks have a higher yield and (2) RE is more leveraged, the higher rates go the higher the cash flow gap in favour of stocks.
Current yield on TSX is approx 3.1%.
Aggressive rate hikes in the current environment would most likely kill both the stock market and housing (IMO that is why they won't happen). If rate hikes happen a few years out in the context of a strong economy they needn't kill either one.
I'd agree with patriotz though that RE is potentially more interest rate sensitive than stocks right now, due to the degree of leverage.
The housing market version of the Dutch Disease?
Could it be that our real estate market eroded our manufacturing sector?
The other problem is finding employment for my wife. She is a college/grade school teacher, more precisely a Spanish teacher. Good teaching jobs on the Island are hard to come by, but specialty jobs seem rare.
Gary, you are correct. Finding a teaching position in Greater Victoria is a challenge, to say the least. But getting a job is only the first hurdle: reaching a satisfactory level of job security typically takes several years.
Landlords, delete your old posts..
$1950 / 3br - 1650ft² - Beautiful, bright, spacious 3bdrm/2bath upper (Langford)
$1850 / 3br - 1600ft² - Beautiful, bright, spacious 3bdrm/2bath upper family home (Langford)
$1750 / 3br - 1600ft² - Free Rent! Move in now, pay Nov. 1st! 3 Bdrm/ 2 Bath Upper Suite (Langford)
Even at 1750 they'll struggle to find someone. You have to appreciate the ridiculous hubris, 1950?? Where do they get these numbers.
One dollar per square foot and throw in free utilities, then we'll talk.
@Gary
I was wondering if anyone could provide me with some estimates for monthly hydro, water and property taxes (in the core areas). Let's assume it is for a 2500 sq/ft SFH. I know there is difference depending on your homes efficiency and usage. But maybe you can offer a range. For property taxes lets say it's an average price home ($550,000?).
My late 1970's 2400 sq. ft. Saanich home uses electricity for (baseboard) heat and hot water. The annual electricity bill for our family of four is about $2000, with the heat making up ~$900. (This is after using programmable thermostats, LED lighting, and high-efficiency appliances.) Water costs about $900/year which includes a sewage fee based on the lowest water usage period (winter). After the homeowner grant, my taxes are about $2500 ... for a $550K home this would scale up to about $2800. Note that taxes in Saanich are lower than Victoria and Oak Bay. Property insurance costs just shy of $1000/year (including earthquake coverage).
Bottom line: You need about $7000/year just to cover core utilities, taxes and insurance for a 2400 sq. ft. home. This does not included the ~$2500/year for basic care (maintenance of roof, floors and walls) for the property.
LOL at asking 1950/month for part of a house when we paid $1850 for a whole house, and it was in east saanich not langford.
Bottom line: You need about $7000/year just to cover core utilities, taxes and insurance for a 2400 sq. ft. home. This does not included the ~$2500/year for basic care (maintenance of roof, floors and walls) for the property.
Sounds about right. Will see how the heat pump performs in the winter, but so far it's about $50/month electricity (lots of halogen lighting that I will slowly replace with LED as they burn out), and $45/month gas (hot water). Once the heat kicks in electricity will increase, so we'll be at about $1400-$1600/year for 2 ppl + kid.
Victoria's municipal tax rate is quite a bit higher than Oak Bay's or Saanich, though by the time you add all the other charges (schools, CRD, assessment authority etc.) that are the same between municipalities it tends to even out a bit (at least in percentage difference terms). When you factor in that assessments are higher in Vic than Saanich, the average homeowner in Victoria pays quite a bit more taxes.
City of Victoria bureaucracy is bloated and overpaid by most accounts
Current yield on TSX is approx 3.1%.
That's the dividend yield, not the earnings yield. Most companies retain part of their earnings. There are no "retained earnings" for RE since the property is not a corporation. Also many companies on the TSX are growth stocks which are bought on anticipation of future earnings growth (or speculation if you want to put it less nicely).
Yield on RE should be compared against income trusts (obviously including REIT's) and utilities. By this measure it's dismal. Yield on XTR is 6% and that's net of MER, and you get a tax credit for dividends.
2213 Windsor
Doesn't surprise me. The previous owner would have gave in at a bad time, losing alot of money on the reno.
First bought in April 2010 for $550k, completely gutted & raised in 2011, listed for $1085k in 2012 selling for $825k with seller paying HST. That owner would have lost alot. The person who just sold vultched at a good time.
The person who just bought, not so much.
2213 Windsor Rd just resold quite a bit higher than last year...
rate hikes will make stocks a more attractive alternative to RE. That's assuming the same person is actually making a rational choice, which I doubt.
"That's assuming ..."
Exactly!
If interest rates rise, stocks will likely fall, which makes them unattractive, which will make them fall further, which will make them even less attractive.
House prices may also fall on an increase in interest rates, but that doesn't necessarily makes them unattractive.
People buy stuff that's sure to depreciate all the time: cars, plasma TVs, husbands.
Houses are no different, a bad investment that people find irresistible.
Yield on RE should be compared against income trusts (obviously including REIT's) and utilities. By this measure it's dismal.
Yield on RE has not been dismal, it has been excellent if you include capital gains, which have a 50% tax exemption.
What the future holds, who knows. But there must be as much downside risk to a REIT as to a rental house, and utilities are not invulnerable. Communications utilities are susceptible to disruption through technological change, energy utilities are at risk as Moore's law takes effect in the solar energy business.
The housing market version of the Dutch Disease?
This looks like a red herring. Or a distraction, rather, from the real economic story:
The auto industry shifts away from Canada
How Steeltown became an exporter of agricultural commodities.
Astra-Zeneca closes Montreal research lab
Printing money and a blazing RE market are Canada's answer to globalization and deindustrialization. Oh, and commodities. We are returning to our roots as hewers of wood and drawers of water, although the forest industry is a shadow of its former self and the environmentalists won't allow the export of our most abundant resource; namely, water, and are doing their best to strangle the energy industry.
So keeping the housing market red hot is really our only hope. In the future we'll live almost exclusively by building houses for one another.
Gary, keep in mind, also, that BC Hydro is deeply in debt (at least $2.2 billion), thanks to BC Liberal mismanagement.
A recently leaked document revealed that BC Hydro wants a 26% rate increase by 2016. Such a steep increase may not come to pass; however, that will not mean that the debt has disappeared.
Put simply, BC Hydro needs to find a lot of money in the near future, and that money will have to come from British Columbians.
If interest rates rise, stocks will likely fall, which makes them unattractive, which will make them fall further, which will make them even less attractive.
Except when the exact opposite happens akin to 1950-1980. Interest rates went from 0% to 20% and stocks rose fivefold.
When you look at how much housing has been created in the first decade in Victoria, we could go a decade or more without having to ever build a house or condo again in this city.
That's a big loss for the coffers of the municipal and provincial governments. I can't see the governments not trying to offset that loss by reducing the Capital Gains exemption or at least taxing a portion of the sale of your personal home if you don't re-buy within a specific period of time.
After all, the government created the recent housing wealth why shouldn't they get a bigger piece of the pie when you sell your home.
A hefty portion of the equity in homes wasn't earned by paying down the mortgage it was created by government policies. If the taxpayers of Canada are on the hook for CMHC why should the taxpayers also not have a portion in the windfall profits of home owners.
and they could call it the sour grapes tax...
4 sales in Oak Bay today
Except when the exact opposite happens akin to 1950-1980. Interest rates went from 0% to 20% and stocks rose fivefold.
From 1950 to 1964 the Dow went from 161 to 995, a six-fold increase, during which time interest rates fluctuated within a 2 to 4% band.
Between 1964 and 1980 the Dow declined to around 750, during which time Fed funds rate rose to 19%.
Taking inflation into account the stock market took a huge beating during the 1964-1980 rise in interest rates.
And here's the interest rate chart.
CS,
You can cherry pick the interest rates versus the equity market quite easily.
I don't understand why you think if interest rates go up it is bad for equities? Wouldn't interest rates go up mean the economy is on better footing, unemployment lower and getting stronger. Those are bullish signals to me.
The equity market stagnated in 1970's to 80 not because rates went up but because inflation was out of control. I don't see inflation being an issue this time. It's a secular bull market in the making, ignore at your peril.
And to complete the picture, here's what happened to US house prices between 1950 and 1980.
During from 1950 to 1964, when interest rates were low and stable US home prices rose less than 10 percent, whereas from 1964 to 1980, they rose more than 10% despite the huge spike in interest rates.
You can cherry pick the interest rates versus the equity market quite easily.
I didn't cherry pick anything. The period of comparison was selected by Phil who claimed they showed the exact opposite of what they do show.
The equity market stagnated in 1970's to 80 not because rates went up but because inflation was out of control.
Rates went up because inflation was out of control. Not the other way around!
I don't see inflation being an issue this time.
I didn't say it was. If you think CPI inflation and interest rates will remain low for years to come, I'm inclined to agree.
It's a secular bull market in the making, ignore at your peril.
Not sure what a secular market is, though I'd agree there's nothing priestly or religious about the stock market despite what some boosters would have you believe. But whether the market is certain to go up, is something I'm inclined to doubt. And it depends on which market and when. But I hope you're right as I own stocks.
Rates went up because inflation was out of control.
Yes exactly. The reason the stock market did so poorly 1965-1980 is that the economy had gone from a low inflation growth environment to a stagflation environment.
Interest rates are currently so low because we are in a deflationary stagnation. If we are able to recover to a low inflation growth environment going forward, that will result in a return to normal interest rates, but be positive for the stock market.
CS said
From 1950 to 1964 the Dow went from 161 to 995, a six-fold increase, during which time interest rates fluctuated within a 2 to 4% band.
A 6-fold increase suits me fine. That's roughly a 15% per year gain. Imagine how many of those bad investment that people find irresistible. I will be able to buy by 2025.
A 6-fold increase suits me fine.
But you claimed that occurred during a period of rising interest rates, which was not the case.
The discussion, if you'd care to recall, was about whether rising rates would be negative for stocks. You claimed that the market rose between 1950 and
1980 while interest rates also rose. But that was incorrect. The market only rose while interest rates remained low. When rates rose after 1964 the stock market fell and fell substantially when adjusted for inflation — probably more than 50%.
If we are able to recover to a low inflation growth environment going forward, that will result in a return to normal interest rates, but be positive for the stock market.
If!!!
1950-1964 was the last time we had a sustained low inflation growth environment. Then the US accounted for almost 50% of World GDP, while rivals Germany, Japan and Britain were recovering from the devastation of a World War that did not impact the American mainland, or Canada.
Now, Germany and Japan have, in many sectors, a more technologically advanced economy than the US, while China, the World's largest industrial economy, has a four to one wage advantage over the US and Canada.
Sustained growth in North America, i.e., excluding Mexico, will not be achieved without a radical downward adjustment in wages and living standards, the dismantling of much of the welfare state and a revamping of education to focus on hard subjects not political indoctrination.
In fact, as Western wages converge with those of the Rest, we will face sustained imported inflation as the cheap manufactured stuff we depend on now will become progressively more expensive (as measured by hourly wages).
If we work at it, we may be able to rebuild domestic manufacturing, but it will be difficult because we have lost many of the skills associated with the jobs we have off-shored. Moreover, if we again manufacture shoes and shirts, computers and car parts for one another, rather than outsourcing the work to Asia, we will have to get used to paying real money for what we buy. That is another way of saying that higher prices and lower living standards are inevitable, unless there is some unforeseen economic revolution that makes labor more valuable at a time when automation and globalization are having the opposite effect.
But you claimed that occurred during a period of rising interest rates, which was not the case.
You said yourself From 1950 to 1964 the Dow went from 161 to 995, a six-fold increase. Meantime the Fed fund rate went from zirp, like now, to 3.5% in 1964. In case you didn't notice, that's a big increase and yet stocks rose 6-fold. Which again, will suit me just fine.
Read Patriots comment again if you don't understand how markets work. That guy gets it.
the Fed fund rate went from zirp, like now, to 3.5% in 1964.
The rate was never zero.
From 1950 to 1964 rates remained in a band between 1 and 3.9% and were as low as 1.5 or 1.75 in the early 60s.
The big rate increase to 19% between 1964 an 1980 corresponded with a sharp decline in the inflation adjusted value of stocks.
But good luck with the "secular bull market in stocks." Just hope it doesn't go the way of Silver Surfer's secular bull market in silver.
If we are able to recover to a low inflation growth environment going forward, that will result in a return to normal interest rates
But what's a normal interest rate? Look at the historical data and you see no clear "normal" value to which rates tend to return.
But if we are to call anything normal, two to four percent on the 10-year US Treasury bond looks to me to be the nearest thing to normal, and that is the range we are in now.
In any case, why if we return to a low inflation growth environment would real interest rates exceed the 20 to 4% range?
That should be 2 to 4% in the last sentence, not 20 to 4%.
As rates rise, brace for mortgage renewal time
"The era of pleasant surprises for people renewing their mortgages is over.
After five years of trending lower, mortgage rates have reversed course and started to rise. Aspiring first-time home buyers are being priced out of the market by these increases, but at least they’ve avoided a costly mortgage entanglement. Existing homeowners may simply have to pay more."
The Bank of Canada has an 'Inflation Calculator' at the website address below.
In 1970 a specific house in a good neighbourhood of Victoria sold for $23,000.
In 1978 that same house re-sold for $85,000.
According to the bank of Canada Inflation calculator that same nice house today should be worth a maximum of $334,000.
The government manipulation of interest rates to an ultra-low rate has caused a severe inverse relationship between interest rates and house prices in Victoria.
That same house, in the still nice neighbourhood sold recently for $625,000.
If interest rates ever increase to 'normal' levels of 7% to 10% we will have a crash in house prices unlike anything seen in the past hundred years.
http://www.bankofcanada.ca/rates/related/inflation-calculator/
The only thing predictable about the stock market is it's down on Friday and up on Monday...
The Bank of Canada has an 'Inflation Calculator' at the website address below.
In 1970 a specific house in a good neighbourhood of Victoria sold for $23,000.
In 1978 that same house re-sold for $85,000.
According to the bank of Canada Inflation calculator that same nice house today should be worth a maximum of $334,000.
The government manipulation of interest rates to an ultra-low rate has caused a severe inverse relationship between interest rates and house prices in Victoria.
That same house, in the still nice neighbourhood sold recently for $625,000.
If interest rates ever increase to 'normal' levels of 7% to 10% we will have a crash in house prices unlike anything seen in the past hundred years.
http://www.bankofcanada.ca/rates/related/inflation-calculator/
There are a multitude of many other factors that have driven up housing, not just interest rates.
And that same $625,000 is it really the same?
I had a listing in Gordon Head earlier this year that sold for $665,000. It was purchased in 1994 for $320,000 with an unfinished basement. On paper it looks like it doubled but when you factor in the $50,000 spent to finish a 1,200 sq/ft basement it is not the case.
There are a multitude of many other factors that have driven up housing, not just interest rates.
The most significant by far being that in 1970 one income households were the norm and today two income households are the norm.
But that trend can't go any farther. In fact the % of households with two full time incomes is decreasing.
In 1972 my aunt and uncle bought a condo in Fairfield (bottom floor at the back) for $21K. They had just sold their 1912 Fairfield home for $25K. Today that home in Fairfield would sell for approx $800K .....and nothing has been done to it except a suite was put in the basement. The Fairfield condo however would fetch around $210K.
What is important is what wasn't done in this case... And in this case it's that The west shore and the rest of the CRD didn't build Fairfield like neighborhoods. And thus it became more desirable and unique over time...
Yield on RE should be compared against income trusts (obviously including REIT's).
Makes perfect sense. RE is overvalued, so let's buy REITs instead!
RE is overvalued, so let's buy REITs instead!
REIT's don't buy the kind of properties that individuals buy to live or invest (or should I say speculate) in. They buy multi-unit rentals and commercial properties.
I'm not saying that REIT's can't be overvalued, but there's no connection between the valuation of SFH and condos on one hand and REIT's on the other.
And what REIT would you invest in? League?
I'm not saying that REIT's can't be overvalued, but there's no connection between the valuation of SFH and condos on one hand and REIT's on the other.
NO connection?
So residential real estate will correct by 20-30-50% or whatever it is supposedly going to do, at the same time a REIT investing in residential real estate will keep increasing in value?
Also we know that the coming spike in interest rates that is going to CRUSH (crush I tell you!)housing in Canada won't affect heavily leveraged REITs one bit.
Monday, October 7, 2013 9:20am
MTD October
2013 2012
Net Unconditional Sales: 89 373
New Listings: 240 1,068
Active Listings: 4,408 4,876
Please Note
•Left Column: stats so far this month
•Right Column: stats for the entire month from last year
I'm likely wrong on this one. But wasn't the multi tower condominium/commercial property being developed at Colwood Corners financed through a REIT?
A concern I have about some REITs that only select properties that meet a minimum cap rate of say 9%. In order to do that, most properties being bought by the REIT are going to be high risk. For example an industrial property is a higher risk than an apartment block that's why investors want a higher rate of return at 9%. If the REIT is buying apartment buildings at a 9% in a market where most apartment buildings trade at 4%. Then I'd bet the apartment buildings they are buying are slum dog millionaire apartment blocks.
Another thing is that if the commercial project being built has a potential market value of $50,000,000 when it's complete - but the REIT raised $250,000,000 in investments. To me that's like selling 250% of a Gold Mine to investors.
http://www.quantmonitor.com/the-bigger-picture-sp-500-rolling-10-year-annual-returns/
CS,
Here is why I think we have a secular bull market? Does anyone see the pattern? It's a couple years out of date but close enough.
I'd love to see a rolling 10 year return for housing in Victoria but I don't think the data will go back far enough to see a pattern.
Bet you will see a peak.
@CS
Rates [in the 1980's] went up because inflation was out of control. Not the other way around!
Absolutely ... I remember witnessing this firsthand!
@patriotz
There are a multitude of many other factors that have driven up housing, not just interest rates. The most significant by far being that in 1970 one income households were the norm and today two income households are the norm.
With all those "mortgage helper" suites in houses, it now seems that three incomes are the new norm.
@dasmo
And what REIT would you invest in?
I've been very happy with the Sentry REIT Fund (NCE205). Like many REIT's, it dropped in value in July after the suggestion by the US Fed to scale back QE - so now's a good time to buy. It is well diversified with retails, residential and office REITs. The annual distribution (paid monthly) has been 8.33%.
Most people think residential when they hear REIT. I prefer medical/hospital and am starting to look at nursing/retirement reits. However two of my best performing to date have been Public Storage and Sovran self Storage.
So residential real estate will correct by 20-30-50% or whatever it is supposedly going to do, at the same time a REIT investing in residential real estate will keep increasing in value?
For residential, there will always be locations that "will correct by...%" while others are "increasing in value". A current example would be Victoria and Calgary.
"If interest rates ever increase to 'normal' levels of 7% to 10% we will have a crash in house prices unlike anything seen in the past hundred years."
True, however, house prices in Victoria have remained at approx. 2008 levels over the past 5 years as a result of a dramatic and steady decline in 5-year mortgage rates. Without falling rates over the past 5 years, house prices in Victoria would be much lower than they are today.
The days (years) of falling rates are over with. That is so 2008-2013. Falling rates will no longer be providing a means of support for house prices in Victoria. Without that support, house prices in Victoria will fall.
Heck, prices have been falling since 2010 even with the price boosting effect of falling rates. The removal of falling rates from the equation will definitely result in an acceleration of price declines.
Rising 5-year rates will not be a necessary condition for house prices in Victoria to fall dramatically over the next number of years - steady rates will do the job just fine.
and incomes have been completely flat since 2008?
Toronto real estate: Condo buyers ‘scrambling' to close deals
"Hardest hit have been the self-employed who had pre-approvals from lenders when they bought their pre-construction units. But now, with the unit almost complete and final payments due, they are being told they need 35 to 50 per cent down, instead of just 20 per cent of the purchase price, unless they want to rely on secondary lenders offering rates that can hit double digits.
Many investors who bought units intending to flip them on completion, or rent them out for a few years, have also been shocked to find they thought they had pre-approvals, but they are no longer being honoured in the wake of tighter lending rules imposed by Ottawa."
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"and incomes have been completely flat since 2008?"
Real incomes, yes. Are you not seeing all this labour strife around you? Do you think these people are just being greedy? No, they can't afford to live on wages that aren't increasing.
Okay so we'll talk absolute in terms of housing prices but real in terms of incomes.
"Okay so we'll talk absolute in terms of housing prices but real in terms of incomes."
House prices in real terms have sky rocketed. The only reason affordability is at an all time high is low interest rates. Temporary emergency low interest rates, that is.
In nominal terms house prices are at 2008 levels. How do you figure they have skyrocketed in real terms?
Nationally they have sky rocketed. Not in over priced markets like Victoria.
If you're talking about Victoria specifically since 2008 then prices are down. Strangely enough other markets have been booming. It's not that much of a mystery when you consider demographics.
Anecdote time.
The house across from me sold for $86,000 in 1986. Lets pop that into the inflation calculator.
1986: $86,000
2013: $160,403.03
What are they selling for now? OVER A MILLION DOLLARS.
Has it had renovations to increase it's value by an order of magnitude? nope.
What was different then? high interest rates.
Well, let's hope interest rates never "normalize". Whatever that means.
That one probably fell under the "buy the nastiest house on the nicest street" category....
If you thought real estate was getting boring then you're not looking in the right place.
SOOKE SOOKE SOOKE SOOKE
A village of 11,000 souls and the market is shite.
House prices start at $220,000 for a home that any person living in Esquimalt or Vic West would know as a starter home.
A basement entry home similar to the ones that pepper Mt. Tolmie and Cedar Hill start at $295,000
New ranch style homes start at $315,000.
A Lake Hill style two storey in Sooke fetches $330,000. And what would be a Gordon Head box sells for $345,000 - but 20 years newer.
There are 200 homes for sale in this community with only 18 selling last month. At the same time another 29 came on the market.
If you were following the dream of urbanites in June 2009 that rushed out to buy in Sooke - as everbody wanted to live there, and are now forced to sell, you're looking at a drop of almost $100,000 in your home value.
This isn't Vegas or Dade County, Florida - this is in Victoria's back yard.
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