Monday, September 23, 2013

Sept 23 Market Update

MLS numbers update courtesy of the VREB via Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.


September 2013September
 2012 
Wk 1Wk 2Wk 3Wk 4
Unconditional Sales96
224
354
416
New Listings305598874
1210
Active Listings451345564579
 5025
Sales to New Listings
31%
37%40%
 34%
Sales Projection403470495

Months of Inventory
12.1

It does seem there are legitimate questions about how accurate sales stats are around the country.  Not just in seedy Toronto but even the CREA might be adding up suspect numbers.  However what isn't discussed in the numbers is whether this is a new practice. One would think that realtors have been listing houses on multiple boards for years or decades.

173 comments:

koozdra said...

A rare breed: Home buyer balks at a $500,000 mortgage

"Canada needs more Franks – people who take a skeptical to paranoid view of debt. We’d have a more affordable housing market, lower household debt levels and less vulnerability to rising interest rates. We’d be both healthier as a country, and quite possibly wealthier."

If we had more financially prudent people like Frank we would be in a recession right now.

info said...

@ Leo

That realtors have probably done dirty arithmetic with sales numbers, etc. for decades is probably true.

However, it doesn't mean that they haven't ramped up the degree of that dirty arithmetic since the new mortgage rules were brought in last year. The motivation is certainly there for them to do it. Sales absolutely crashed last year in many Canadian cities (especially Victoria) and realtors know that price declines always follow sales declines. The realtors who are guilty of playing with the numbers also know that the size of a market (price) correction is also closely related to the degree to which sales have declined.

I think that the real estate boards that are guilty of number fudging have ramped up that fudging over the past year because they know what is coming. This is, basically, an admission on the part of the real estate industry in Canada that conditions are ripe for a major correction/crash and that they expect it to happen very soon. Their actions prove it.

Marko said...

A rare breed: Home buyer balks at a $500,000 mortgage

Frank, “The problem is that over the past two or three years, while we’ve been saving our down payment, the half-million-dollar starter home became a three-quarters-of-a-million-dollar starter home.”

That sucks.

Just Jack said...

The Frank article reads to me more like fear-inducing advertising than true journalism.

S2 (JJ's wife)

patriotz said...

That sucks.

Who it sucks for is those who have bought at three quarters of a million.

They just don't know it yet.

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

Who it sucks for is those who have bought at three quarters of a million.

Same comment could have been made at 550k, 600k, 650k, and 700k.

dasmo said...

There is some truth to that. Back in 2003, when I bought, I had friends telling me housing was over valued. And during that year prices had been flat for a long time and rates were going down! Bottom line is do what makes sense to you and you will be able to live with you decisions. Follow someone else and you will live with regret.

subprime11 said...

Breaking news, CREA confirms their published data is not audited and they would not know if real estate boards are double counting sales.

www.rosskay.com

I believe there to be an intentional manipulation of numbers by real estate boards to hide the truth? Why would you trust the boards who have a vested interest in spinning the data to keep their monopoly going?

poobserv said...

It is interesting to note that we are seeing an increase in sales and inventory in September? Is this normal? I would have expected a decrease in both as fall goes on.

dasmo said...

I agree that they should be punished greatly if intentional deceit has been occurring. However I also agree with Ross Kay when he says "Data does not lie. Interpretation of the Data can!" So his flaw is saying there has been major decreases. He needs to audit all the data to conclude that. He is just comparing a single years audited data against unaudited data...

Just Jack said...

Your friends may have been correct that house prices were "overvalued" in 2003. Simply because your friends saw prices skyrocketing at double digit annual increases. A rate of increase that most people had never experienced before in Victoria. No one could have foreseen the government interventions that would occur to vamp, re-vamp, and re-re-vamp the natural real estate cycle. Given the assymetric information your friends had in 2003, they could have been correct.

Even today, an analysis of your property could show that you overbought in 2003.

I just looked at a property that was purchased in 2006 where the owner was a builder and flush with a lot of cash having 30 people in his crew. He bought in an area that he was unfamiliar with and paid between $100,000 to $150,000 over market value.

Unfortunately, they now have to sell because his construction company has suffered in this downturn. And they'll have to sell the home for less than what they bought it for in 2006. Yet, prices in general are about 10% higher than 2006.

Granted, you would have had to be a gold plated idiot to have lost money on a house that you bought in Victoria in 2003. But I wonder if those that bought a house in Sooke or an older condominium in Victoria share your same thoughts?

Just Jack said...

What I have noticed is that in stable markets where there isn't any external pressures to buy now or never own a house, market activity tends to follow the school year.

Now that the kids are back in school, parents are thinking about changing homes and both listing and sales activity tend to increase.

Just Jack said...

I'm still looking into the effect of the interest rate increase. What's interesting to me is how this last hike had a different affect on different income groups.

I think it sparked an increase in activity in the move up market for houses, but did little for the first time property buyer say in the condo market.

That's different from the past where an increase in the rate would send a flood of buyers from all income groups to purchase before their rate guarantee ended.

This may be symbolic of an unsteady market. I don't know. Just like in the past when the market was rising, no one knows what is going to be the next thing to happen.

For example, if prices in the older condos took another 10 percent slide - why would you rent? A $7,000 downpayment and say good-bye to renting that basement suite. And that's gotta effect houses with mortgage helpers.

With all the new basement suites and condos, I don't think Victoria will ever again see a vacancy rate under 1%. One of the effects of a higher vacancy rate is greater turn-over in tenants. Which is expensive as landlords typically have to paint, clean and repair between tenants.

Phil said...

"For example, if prices in the older condos took another 10 percent slide - why would you rent?"

Wouldn't it take near another 25% slide? Granted you can find old rundown 2bd for 250k now, however they average $300/m strata fees with hidden surprises. So a 200k mtg @3.89% for 5yr fixed is $600/m interest, $150/m tax, and your 50k downpay with transaction costs equal $200/m.
That's already $1250/m NOT including principal, and doesn't include any renovations, suite maintenance, nor extra utility costs you would incur. Once the 250k condo falls well below 200k then I could see it being a wash at today's rates. However the buyer would be subject to higher interest rates after 5 years. Moreover with supply and vacancy rate looking to rise for at least a couple more years, prices may have to fall even further to match.

koozdra said...

Man these guys are skittish. 12.4% and they are talking about a bubble?

U.S. housing prices jump 12.4%, leading to worries about a bubble

It's different here. These kinds of yoy gains are par for the course.

info said...
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info said...

August SFH sales in Greater Victoria were quite weak when you put it into perspective.

August sales for 2009, 2007 and 2006 (the last 3 years of price gains) averaged 364 sales. August 2013 came in at 258 which was 29% lower. I wasn't able to find August sales numbers for 2005 and earlier, but it is likely that sales for August 2005, 2004 and 2003 were also much higher than August 2013. Note that my comparisons are done without population adjustment, which would make things look even worse.

So far this year, total single family home sales are on pace to equal 2012’s total which was the lowest total since 1982 (without population adjustment).

Sales in 2012 were 30% less than the average from 1985 to 2009 and 43% less than the average from 1988 to 1992 (again, without population adjustment).

What's worse is that sales totals this summer were boosted by the rate hold buzzer beater crowd. No doubt they have pulled future sales forward. We will see the result of that in the coming months.


info said...

"Man these guys are skittish. 12.4% and they are talking about a bubble?

U.S. housing prices jump 12.4%, leading to worries about a bubble

It's different here. These kinds of yoy gains are par for the course."

Most of our Canadian bank-paid economists deny the existence of the Canadian housing bubble.... wait, that's right, they are bank-paid economists and Canadian banks have a vested interest in keeping house prices high in Canada. Never mind.

dasmo said...

As I said about a year ago, US house prices would jump back once the foreclosures were over with.... Now the flippers have flipped and the banks are done dumping inventory the stats will jump. Isn't that obvious?

Phil said...

US home price are up y-o-y, but the rate of gain has been slowing for months.

Sept 24 NEW YORK (Reuters) - U.S. home prices slowed their rate of gains in July and a dip in consumer confidence this month underscored the potential for higher borrowing costs and a sluggish economy to dent a housing market recovery.

The monthly pace is actually at 10 month lows. The index should roll over again soon like 2010.

Just Jack said...

The cheapest one-bedroom condominum for sale is near the Jubilee Hospital on Morrison. A ground floor suite asking $135,000. Monthly assessment $188

The cheapest two-bedroom is on Glasgow Avenue and they're asking $160,000. Monthly assessment $345

They don't seem to be run down units either. A gallon or two of paint.

And you can get a cheaper two-bedroom if you want to live in Esquimalt. They nstart at $150K for 880 sq. ft. And it's been updated.

There's no doubt that we are overbuilt when it comes to condominiums. And when it comes to rentals too.

Even if you don't adjust for inflation, with the low interest rates today, you're likely paying less in monthly payments than someone who bought the same condo in 1995.

But if your just looking at the choice hoods, then prices do increase a bit.

Older two-bedrrom condos in Rockland start around $225K and in Fairfied at about $250K. but if you look around you can get them for $180K.

Just Jack said...

When it comes to Canadian bankers and economists, I think it's more of a name game with the word bubble.

What's a bubble?
That's not a bubble, that's a correction.
That's not a correction, that's a soft landding.
No, I think that's a medium landing.

When I look at the numbers, I don't see a bubble either. There needs to be a lot more inventory whereby vendors are afraid that they are going to lose everything unless they sell NOW.

But, I'd bet few of you have the same thought as I do.

Then how would you describe what happened in the South Sea and Tulip bubbles?

DavidL said...

@Just Jack
But if your just looking at the choice hoods, then prices do increase a bit.

You can rent a really nice sunny 1100 sq. ft. 2-bedroom apartment in Gordon Head (close to stores and major bus routes) in a 55+ complex for $1050/month. This includes heat and hot water; just pay ~$25/month for electricity.

Even with 10% down payment, 4% interest and a 20-year mortgage, this is about $200 less per month than paying the mortgage and assessment for the "cheapest two-bedroom on Glasgow Avenue". You can also move out from a rental with 30 days notice.

patriotz said...

Back in 2003, when I bought, I had friends telling me housing was over valued.

Your friends are more bearish than us on this board?

Where did you meet them?

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

A lot of idiotic "bulls" moving in at VCI. A sign? maybe.

dasmo said...

Well, not all remained Bearish for long but a few did. Hell I was pro rent and used to tell my parents I would never own a house... I'm still pro rent mind you. That was only a bad choice for a few years....

HouseHuntVictoria said...

We've seen sketchy stats in Victoria since I began writing this blog back in 2007. I'm not sure why anyone would be surprised...

Phil said...

But if your just looking at the choice hoods, then prices do increase a bit.

Yah I was only considering above ground 2bds near downtown with the 250k. Ones where you can walk to work without getting mugged. Sure once you go further out, prices drop a lot, but so do rents. Even in Esquimalt you can rent plenty of 2 bds for $750-900 range, thus prices are a lot less. Glasgow near Cloverdale, you have to consider getting BnE’d every month living in a first floor. I suppose the Jubilee 135k ground floor might be interesting to an investor, depending why they have pictures saying "Motivated!"

http://beta.realtor.ca/propertyDetails.aspx?PropertyId=13615684

dasmo said...

"Ones where you can walk to work without getting mugged" and where would that be in this city?

koozdra said...

Fighting Mortgage Fraud

"Indeed, mortgage fraud is furthered by the fact that neither lenders, regulators nor the police currently consider fraudulent information on a mortgage application a serious crime. It is this view of ‘soft fraud’ that may be reconsidered if a housing meltdown eventually occurs."

Haha, housing meltdown? That can't happen here. Therefore we won't have to deal with this "eventuality".

DavidL said...

CBC News: Toronto condo sales at lowest level in a decade
High-rise sales in GTA down 18% from a year ago; overall new home sales to date worst in 10 years

Phil said...

Here's another discussing sales.

http://www.mortgagebrokernews.ca/news/brokers-blame-busy-august-for-slow-september-175160.aspx

“I had a great August – everybody was battling to get in but my September is definitely tempered,” Floris said. “That has to do with how rates have fluctuated leading up to September.”
As for when the market is expected to pick back up, Floris wonders if it’s a matter of “if” and not “when.”
“It appears to me that things are dying down in the purchase market,” Floris said. “It’s a combination of everything – the rates increasing. Based upon that, affordability and Jim Flaherty’s rules, it makes everything costlier.
“We’ve had a strong market since 1997 and I’m wondering if the steam is running out.”


Victoria sales seem (?) to be holding up a bit better so far, even though I am starting to see some bigger price drops.

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

"In total, the value of real estate in Victoria has declined approx. 50%"

This is why I bought last year....

info said...

Prices are lower in Victoria right now compared to the peak in 2008. However, in 2008, 5-year mortgage rates were at 5.89%. Rates bottomed out this year at 2.64%.

What does this mean in terms of the value of real estate in Victoria?

From 2008 to 2013, 5-year mortgage rates dropped by a total of 3.25% (55%). Prices should have increased dramatically as a result of the increaed buying power. I haven't done the math, but it doesn't seem ridiculous that prices should have increased by at least 35%. However, that didn't happen. Instead, prices actually declined a bit.

Therefore, the value of Victoria real estate has actually declined 35% since 2008.

Inflation since 2008 has increased by 10-15%. House prices in Victoria should have gained 10-15% as a result of this, but that didn't happen either.

In total, the value of real estate in Victoria has declined approx. 50% since 2008 as a result of prices not increasing with the price boosting effects of substantially lower interest rates and inflation.

info said...

The decline in value of real estate hasn't really shown up in house prices yet. That will happen soon.

Once house prices in Victoria and the rest of Canada start to decline substantially, don't expect incomes to save the housing market.

Incomes often decline (or at best stagnate) during major national housing corrections/crashes. Note that incomes declined for 3 to 4 years in the US after the end of 2007 (when house prices began to decline dramatically). Incomes have yet to catch up to 2007 levels in the US (real growth) and have only recently caught up to 2007 levels in terms of nominal growth.

Bubbles always burst and the price correction/crash must play out fully in order for a bottom to be reached. The bottom is formed when prices fall far enough that (declining or stagnating) incomes and rents are able to provide support. The major price declines in a correction/crash usually last no longer than 4-5 years.

DavidL said...

@info
Prices are lower in Victoria right now compared to the peak in 2008

Sales numbers show that the market peaked in the spring of 2010. What "2008 peak" are you referring to?

DavidL said...

@dasmo
Back in 2003, when I bought, I had friends telling me housing was over valued.

You must have very cautious friends! I was fortunate enough to buy in the spring of 2002. From what I could tell (even at that time) it was the best buying opportunity since 1986. Rates were dropping quickly and prices had barely risen in response. By 2003, the average price had increased 15% over 2002 - but there were still many great deals.

info said...

@DavidL

The peak of prices in 2008. The price maximum of 2008.

There are plenty of peaks and valleys on almost any price chart.

caveat emptor said...

In the last few months 5 year mortgages have gone from about 2.7 to 3.6 an increase of 33%. Therefore according to info-logic prices should have fallen by 20% or so.

They didn't, therefore the value of Victoria real estate "increased" in value by 20%.

QED

caveat emptor said...


There are plenty of peaks and valleys on almost any price chart.

But we know the current dip will be a cliff, not a valley

Leo S said...

Despite being a little twisted, I agree with infos fundamental premise. The fact that Vicoria prices didn't increase despite a massive decrease in credit cost shows how overvalued it was back in 2008.

CS said...

The fact that Vicoria prices didn't increase despite a massive decrease in credit cost shows how overvalued it was back in 2008.

I thought it had been settled that the value of real estate is the price people pay for it, in which case real estate cannot be overvalued by definition.

But if it is insisted that RE can be overvalued, a sensible criterion of valuation must be stated. But none has been suggested.

Price to rent ratios vary wildly from place to place and from time to time and thus offer no stable basis of valuation.

Anything else that one might suggest seems as useless. For example, house prices relative to gold, anyone? On that basis houses are cheaper than in 2000.

House price:income, seems to make some sense. But if that is the criterion overvaluation cannot have been greater in 2008 than now.

Just Jack said...

What amazes me, is why people seem to be so willing to commit such a huge amount of their income for so very much of their lifetimes.

Yet, if the risk of owning real estate is zero then prices would become infinite. At that point, purchasers are no longer considering paying off the debt. It just becomes the norm to buy a home and be in debt for the rest of your working life - or longer.

But were humans - and that just isn't realistic. Almost all of us are addicted to spending on items that we believe will make us happier. Typcially, Canadians trade homes every 5 to 7 years, because that is as long as we are capable of satisfying house lust.

If there is any "overvaluation" in home prices it is to do with our under estimating our natural tendency for change.

There is no such thing as your "forever house" and everyone of us will eventually sell.

koozdra said...

Overvaluation, to me, has to do with the reason that house prices are so high compared to rents. I looked at the data set published by the CMHC for Victoria rents since 1992. From my quick glance at the data rents have increased roughly by 40% to 45%. That's 1992 we're talking about.

How much have house prices increased since 1992? Triple? Quadruple in some cases?

Interest rates have been decreasing meaning more people can afford to spend more. They become more and more reliant on the low rates because the prices continue to climb to astronomical (in my opinion) levels.

So, are low interest rates here to stay?

I know someone who bought a house with a suite. It's called a mortgage helper. But really it's less of a helper and more of a necessary part of the affordability equation.

Can't afford a house? Let me show you how to run a small business out of your own home so that you have that dream home today. Oh and by the way here is a bunch of money at a low interest rate.

What will my payments be in five years when I renew?

I don't know, but for sure more.

How much more?

Don't worry about it.

Just Jack said...

Yes, the rents for purpose built apartment buildings built before 1975 have not increased at the same percentage as homes in Gordon Head and Oak Bay.

Why should they?

However, if you look at condo's built in the 1970's you might find that apartment rents have increased more as percentage than the prices for these condos.

The rental market and the housing market don't offer a perfect alternative to each other. You may wish to buy the most home you can afford. But do you wish to rent the most home you can afford?

Jack and Cate said...

The Tyee had posted an article on renting and comparing West to East .... "When you zoom in on the actual City of Vancouver itself, the numbers are less surprising: The majority of us (51.5 per cent) are indeed renters. The only major Canadian city with fewer homeowners per capita is Montreal -- and the average rent there is massively more affordable. Tenants here fork over an average of $1,089 in rent every month, almost 50 per cent more than the fortunate renters of la belle ville. "

Interesting - mais oui

Are Stats Glossing over Vancouver's Housing Crisis?

Alexandrahere said...

I agree that the peak price point of housing in Victoria was around March of 2008. i.e. for the most part, a house that sold at that time, would have not sold for a greater price since.

Gary said...

I'm new to this blog. I may be taking position in Victoria later in the year. I've been to the island quite a few times as a tourist, but never lived. I really like what I've seen, but it's been mainly in the summer. I'm currently living in Alberta.

I've been reading this blog and others on Victoria. It seems like the main complaints about Victoria are cost of housing, crime and weather. Is crime really that bad? Any others? What are the good things?

Does anyone have reccomendations about buying or renting right now? I am married with one toddler.

I may also have the possibility of locating in Nanaimo. Can anybody give me some insight or opinions as to which is better - Victoria or Nanaimo.

Thanks.

dasmo said...

Uhhh Victoria without question. The only benefit to Nanaimo is it's cheaper and closer to the skii hill. The crime that is bad here is property crime. So leave nothing in your car, keep your bike indoors and get a home alarm and you will be OK. If I were moving here I would rent for a year and get to know where you might want to live. House prices should remain flat for a while so there is no pressure there.... The good of Victoria? Well that's subjective but it is one of the special places on this planet that is for sure...

Gary said...

Thanks dasmo,

Crime is relative - I lived in Central America for a few years so Victoria shouldn't be too much of a problem. Can you recommend any relatively central areas that would be suitable for a child.

Do you have any ideas what the rental range is for a 3 bedroom apartment, townhouse or single family home?

dasmo said...

Padmapper is your friend


caveat emptor said...

Gary

Measured by rain (or lack thereof) weather is better in Victoria than almost anywhere else on the Island. One aspect of Victoria weather that can be either a plus or minus depending on your preferences, is that it almost never gets very warm here in summer because of the winds from the Strait of Juan de Fuca. Further up the east side of the Island tends to get colder in winter and hotter in summer.

As a city I'd choose Victoria over Nanaimo by a mile, but I'd have to give the prize to Nanaimo for access to outdoor recreation if that is important to you.

This being a blog filled with housing bears, the negatives of Victoria tend to be emphasized more than the positives. I don't think the crime here is that bad, it's just that a region's worth of crime is concentrated in a small area around downtown.

With a toddler (i'm in the same boat) the climate is a real bonus for getting them outside in all seasons without 10 layers of clothes.

Renting for a year wouldn't be a bad idea. There are quite a few nice neighbourhoods scattered throughout the region

caveat emptor said...

"relatively central areas that would be suitable for a child."

Fairfield, Estevan, Gonzales, Fernwood, nicer areas of Esquimalt and Vic West

Gary said...

Thank You caveat emptor,

The weather should be a refreshing change from the 7 months of snow and 3 months of mosquitoes in Edmonton.

I'm aware that this blog probably is heavily weighted to Housing bears.

So, what are the prognostications for the the future of Victoria homes. I've heard stagnation, 10-15% decline, 30% decline, even higher. If you took a poll of this blog, what would be the average response?

info said...

Some of you are obviously having difficulty grasping what I wrote in an earlier post.

Let's try again.

Currently, house prices in Victoria are at the same level as in 2008 (slightly lower, actually). I'm obviously referring to the highest point of house prices in 2008, not the overall peak reached in 2010.

As is always the case in any housing market in the world, part of a housing market's price gains are due to inflation. In Canada, inflation is normally about 2-3% per year.

Therefore, 5 years of inflation (since 2008) should have caused house prices in Victoria to gain 10-15%. That didn't happen (prices are still at 2008 levels).

Therefore, we must conclude that house prices in Victoria have actually lost 10-15% of their value since 2008.

The same logic can be applied to the substantial drop in interest rates since 2008. Normally, a major drop in interest rates causes house prices to increase. Since 2008, 5-year mortgage rates have dropped by a total of 3.25% (55%). An interest rate drop of that magnitude should have pushed house prices in Victoria substantially higher, but that didn't happen. Again, house prices are currently at (approx.) 2008 levels.

Therefore, it is logical to conclude that house values in Victoria have declined significantly as a result of not realizing any of the expected price gains from crashing interest rates since 2008. I'm estimating that loss of value to be 35%.

Applying inflation adjustment to house prices is not a new idea. Applying interest rate adjustment to house prices is not a new idea.

info said...

@ Leo

I have an idea for you.

You could create a (line) price graph that is both inflation adjusted and interest rate adjusted (one line representing the net effect of inflation and interest rates).

caveat emptor said...

"So, what are the prognostications for the the future of Victoria homes."

Gary there was a post back in January where people made predictions:

http://househuntvictoria.blogspot.ca/2013/01/2013-predictions.html

Personally I am in the stagnation/modest decline camp - probably a minority view here. But honestly the only thing that would really surprise me is if house prices shot higher. Of all the possibilities that seems the least likely.

I moved here from Edmonton (where I lived almost 10 years). I enjoyed living in Edmonton a lot, but feel lucky to live in Victoria now.

DavidL said...

@Alexandrahere
I agree that the peak price point of housing in Victoria was around March of 2008 ...

Check out the following charts/spreadsheet I put together (based on VREB data) showing the average, 6-month average and median prices for March SFH sales in Greater Victoria between 2005 and 2013. Even after adjusting for inflation (second tab), all values for 2010 were higher than 2008.

DavidL said...

Doh! The link: https://docs.google.com/spreadsheet/ccc?key=0Aj_0HTYHq-YsdEZST0VBdXBCcHFrb3BrV3RZSlNGZmc&usp=sharing

DavidL said...

@Gary

As someone born and raised in Victoria, I agree with the advice/feedback of both dasmo and caveat emptor. I would add that most neighbourhoods in Saanich (the largest municipality in Victoria) are good for young families.

I would definitely rent for now, until you establish a better idea of where you want to live/work and determine where you want your daughter to eventually go to school.

caveat emptor said...

I agree that it is useful to look at inflation adjusted numbers (real) as well as just nominal. 2008-2013 inflation totals to a relatively paltry 6.5% according to the BoC

However if house prices are to be adjusted downwards for falling interest rates and upwards for rising interest rates then I have to conclude that prices have shot up lately since sticker prices are more or less unchanged and 5 year fixed interest rates have gone up by approx 30%

DavidL said...

The "average" 5-year fixed rate has increased from 3.39% to 4.09% over the past 4 months. Although this is a 20% increase in the interest rate, it does not translate into an 20% increase in payments!

For example, take a $500K mortgage amortized over 25 years. At 3.39% interest, the monthly payments would have been $2467.41. Now at 4.09%, the monthly payments are $2654.55. This is a monthly increase of $187.14, which works out to 7.6% increase.

As caveat emptor points out, the cost of buying a house has gone up.

dasmo said...

"Therefore, it is logical to conclude that house values in Victoria have declined significantly as a result of not realizing any of the expected price gains from crashing interest rates since 2008."

I get exactly what you are saying info. This is why I bought recently.
"Therefore, it is logical to conclude that house values in Victoria have declined significantly as a result of not realizing any of the expected price gains from crashing interest rates since 2008. I'm estimating that loss of value to be 35%."

I negotiated a further ten percent off so I figure I got a house for 45% off!

Jack and Cate said...

Gary said - ..."
I may also have the possibility of locating in Nanaimo. Can anybody give me some insight or opinions as to which is better - Victoria or Nanaimo."

______________________

Having lived and owned in both cities Gary and you have a choice, North end Nanaimo by far. Prices are more realistic than Victoria, same ocean, different view.

Less rain (stats can) Crime per 100,000 is less than Victoria and area. 1 police force not 6 fighting with each other. Traffic, did I mention spending your life in traffic? Prices as continuing to fall in the Nanaimo/Parksville area so if you are starting out and want to save or get more for your buck...Nanaimo is a better choice. (IMHO>>>)

Phil said...

Gary, the best reason to choose Nanaimo or somewhere in between, is you can get much nicer homes for much much cheaper.
See the Sept foreclosure list if you want. The password is foreclosure.

My best advice is be patient and let other people catch falling knives.

Gary said...

Appreciate it Jack and Cate,

Thanks for your opinion. You're not the first one that's told me about the Nanaimo advantage. I've heard it's not for everybody, but it's proximity to nature is superior.

Have you any opinions about which one is better for families?

Gary said...

Also, thanks Phil and DavidL too. Much obliged.

Anything else you can think of will be really nice.

info said...

"However if house prices are to be adjusted downwards for falling interest rates and upwards for rising interest rates then I have to conclude that prices have shot up lately since sticker prices are more or less unchanged and 5 year fixed interest rates have gone up by approx 30%"

Your claim about sticker prices doesn't provide any proof that prices have not fallen.

There is no doubt that the 30% increase in the 5-year rate will cause prices to fall in Victoria. However, the data we need to confirm this is not available yet.

The high degree of skewing that has been happening since early 2013 would probably (temporarily) mask the price declines.

patriotz said...

I thought it had been settled that the value of real estate is the price people pay for it, in which case real estate cannot be overvalued by definition.

Settled by whom?

"Price is what you pay, value is what you get" - Warren Buffett

info said...

"I thought it had been settled that the value of real estate is the price people pay for it, in which case real estate cannot be overvalued by definition."

Settled in your head maybe.

Mark Carney used the price-to-income ratio to determine the overvaluation of Canadian house prices. Governments and economists around the world have used this ratio for decades to determine overvaluation of housing markets and will continue to do so in the future.

Alexandrahere said...

Thanks DavidL....but I'm going to stick to my gut(guns) on this one. It isn't that I don't agree with the charts....its that I believe, and I remember discussions on this in 2009 & 2010 here, that the reason it appears that the peak was later is that people in higher priced homes in that time period (2010), were putting their houses on the market and were getting less. In other words, homes that would have sold for $800K in late 2007 and early 2008, were selling for $750K in 2010. The average and medians were higher in 2010 because better valued homes were selling then than in 2008 as well as more of them. At least this was the case on my properties and properties of others that I know. Of course there were exceptions. Just my opinion. I only wish I started tracking Gordon Head, Lansdowne and Rockheights homes a bit earlier.

info said...

Canada's housing market world's most overvalued, despite cooling: Financial Post:

"Vancouver, however, still ranks as the second least affordable major city in the world after Hong Kong when it comes to buying a house, according to an international survey this week."

Victoria isn't far behind Vancouver in terms of overvaluation. Victoria's housing market is one of the least affordable in the world.

dasmo said...

Careful what you wish for.... Rent is cheap here count your blessings!

"Victoria isn't far behind Vancouver in terms of overvaluation."

uhhhmmm.....

Victoria
Average house price 593k
Median household income 78k

Vancouver
Average house price $1.1 million
Median household income 67k

info said...

Mortgage rates (5-year fixed) have started to rise. They might normalize (rise to 7 - 8%) within the next 5 years or we might see less of an increase.

I've said all along that it will not take rising interest rates to make Victoria's housing market correct fully. All it will take is for rates to stop falling.

House prices in Victoria are currently at 2008 levels. It has taken a massive and steady decline in mortgage rates to maintain house prices at this level over the past 5 years. Without this steady and massive decline in interest rates, house prices in Victoria would be much lower than they are now.

It is logical to conclude that house prices in Victoria will correct/crash if rates stay at current levels over the next 5 years (approx.). The situation will be worse if rates rise (the more likely scenario). However, my point is that it will not take rising interest rates to make Victoria's housing market correct/crash fully (keep that in mind if you decide to make a comment based on this post).

info said...

@ dasmo

Vancouver's price-to-income ratio peaked at 10.6 in 2011. Victoria peaked at 8.5 to 9.0. Not much difference there at all and things haven't changed much in either city since those ratios peaked.

This chart shows that BC's house price-to-disposable income was 50% higher than any other province in Q4 2010. Note that this is a different number than the regular price-to-household income ratio that is used by economists and governments around the world. It is, however, useful when comparing Canadian provinces.

info said...

More importantly, BC's price-to-disposable income ratio increased by 75% from 2000 to the end of 2010. That is much more than any other Canadian province. It looks like Ontario experienced the second biggest increase at 48%.

BC has the bubbliest house prices in Canada.

dasmo said...

That doesn't add up. Victoria Is half Vancouver's ratio if you go by average detached house price and StatsCan median household incomes.

My experience backs that up. I have friends that bought recently in Van. Went in with family to buy a duplex in an esquimaltish neighbourhood for 750k with fixing up needed.

It's way more expensive in Van....

koozdra said...

Dasmo, we know you are halibutish on Victoria house prices. What about Vancouver? Does that appear bubbly to you?

Leo S said...

I thought it had been settled that the value of real estate is the price people pay for it, in which case real estate cannot be overvalued by definition.

Nope. By that metric nothing is ever overvalued, and the term becomes meaningless.

But if it is insisted that RE can be overvalued, a sensible criterion of valuation must be stated. But none has been suggested.

I've always used affordability.

caveat emptor said...

Interest rates down - house prices roughly flat = PRICES ARE FALLING!!!

Interest rates up - house prices roughly flat = PRICES ARE FALLING!!!

I'm a little slow but I think I get it now.

Leo S said...

You could create a (line) price graph that is both inflation adjusted and interest rate adjusted (one line representing the net effect of inflation and interest rates).

Inflation yes, but I don't think it's valid to adjust house prices for interest rates. But basically what you're getting there is affordability (with the added benefit that affordability captures income gains as well). I should update my affordability graphs.

dasmo said...

"What about Vancouver? Does that appear bubbly to you?" I'm only really a Halibut for Victoria proper. Not so much for Sooke or Langford. Langford condos especially bearish on. Shoot, I hate the word bubble entirely when it comes to RE but it is damn crazy in Van. I'm not sure where I stand there since I haven't really thought about it beyond observing the insanity of it. I think it's expensive here until my friends visit. If I lived there I'm pretty sure I would be renting simply because I couldn't afford to buy....

info said...

"That doesn't add up. Victoria Is half Vancouver's ratio if you go by average detached house price and StatsCan median household incomes."

You've made an error somewhere. I'm not exactly sure what you did, but I'm guessing that if you used detached houses only in the city of Vancouver (and not Langley, etc.) that you might end up with a much higher ratio than you should have for Vancouver.

Leo S said...

The average and medians were higher in 2010 because better valued homes were selling then than in 2008 as well as more of them

Well that's why we have our new skew factor.

2010 is when it turned around and more higher priced places were selling, but by the time it turned prices were already on the decline.

caveat emptor said...

Gary

I'd partially agree with Jack and Cate in that if you go for Nanaimo definitely lean to North Nanaimo.

It's indisputable that you get a lot more house for your money in Nanaimo then Vic.

I have a number of friends with kids in Nanaimo who think it is a great place to raise kids.

For the climate comparison look here:
Nanaimo - http://climate.weather.gc.ca/climate_normals/results_e.html?stnID=184&lang=e

Downtown Victoria -
http://climate.weather.gc.ca/climate_normals/results_e.html?stnID=6

If you go to the Westshore in Victoria then you get essentially the same amount of rain as Nanaimo

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

"Interest rates up - house prices roughly flat = PRICES ARE FALLING!!!"

I'll assume that you are referring to the recent rise in interest rates over the past 3 months. As I've said, we don't have the necessary information to determine whether or not prices have fallen as a result of the rate increase at this point.

Why? It's simple. 3-month rate holds (from when rates bottomed out) are still in effect (for many buyers) so the increase in rates has not had time to affect prices.

Mayfair Man said...

Anyone know a good home inspector? I somehow thought Just Jack or Dasmo was one.

koozdra said...

Bubbles, bubbles, everywhere...

Yale economist worried about another housing bubble

Housing Bubble (as defined by Shiller): A social epidemic where house prices are driven by popular excitement. The excitement is spread by word of mouth and people observing the prices going up. A "new era" story emerges where people believe prices will keep going higher and higher. The whole thing is driven by envy. "you don't want to be the guy that didn't take advantage and now you can't afford anything".

Worse of all to the Canadian situation is the reinforcement that has occurred by negative news stories about a bubble and the fact that it hasn't burst. Bubble talk fatigue eventually sets in and the buying resumes.

Our housing market is truly different. Look how resilient it has been. I just don't see any risk. Even though house prices are really high, I just don't see any risk in buying at these low rates.

koozdra said...

The second part of the interview about Vancouver

koozdra said...

This should get exciting.

U.S. debt showdown: 7 questions answered

"This time, Obama says he's not budging. A confrontational Obama is betting Republicans blink to avoid a government shutdown or default. The president and his aides maintain there will be no bargaining."

Could the republicans send us over the edge?

dasmo said...

That bubble description works in relation to the internet bubble because people don't need stocks, they didn't even understand what they were buying and their primary motivation to buy was everything in the bubble definition. We need shelter, are buying it anyway, and the majority of people are buying out of need and desire not greed....

koozdra said...

"and the majority of people are buying out of need and desire not greed...."

Need? Nobody needs a house. Everybody wants a house. Low interest rates have allowed that want to be actualized. But can people really afford these high prices? I don't think so.

What about people making money on one property, taking out money that they "earned" and buying more property? Is that greed? Speculation might be a better word.

There is no risk, so it's a no brainer when people do it. After all houses just cost this much. It is inconceivable that they would drop by a significant amount and a person that borrowed against an imaginary number would lose that money.

You know the old expression, people who forget the past are doomed to repeat it. We've had crashes in the real estate market, we'll have more.

We're due for one. As Introvert likes to say, soon.

dasmo said...

"Nobody needs a house" Uhhh then why are you paying rent?

koozdra said...

"Nobody needs a house"

Nobody need to own a house. What is owning to the first time buyer these days?

Spending half a million dollars so that you and your partner have to work full time jobs on top of running a business that uses up half your house.

Oh and here's the kicker. If you run into financial trouble you'll have to take a loss on selling.

All for the dream of home ownership. No thanks. That sounds terrible.

koozdra said...

I'm even thinking if the rental situation stays like this and prices remain high I'll never own a house. What's the point?

I see houses come up for rent on craigslist that come back month after month with price drops. Every week that goes by there are more and more houses that meander over from the slow sales market.

How long will it be before this realization dawns on the youngens.

We just need to get a critical mass of first time buyers losing money on their "entry level condos".

"I thought I would build equity with my 600sqft condo. But all I have now is the feeling of elation that my condo finally sold"

caveat emptor said...

"running a business that uses up half your house"

You make renting out a room or a basement suite sound so hard. It's really not that bad. Nor is it a new phenomenon. "Taking in lodgers" has a long tradition.

Jack and Cate said...

This is another precursor to the drops that will show at all levels of housing. Not a story that the VIREB or Cameron Muir wants to see.

Love the comment by the realtor.."The sale shows confidence in the Langford market."

This fellow has a great sense of humour or is retiring with this commission?

Gurmit Singh Uppal wins bigtime

koozdra said...

"You make renting out a room or a basement suite sound so hard."

It's not about being hard to do it's about the advantages of owning.

If I bought a house it would not be optional for me to have a suite. I would be paying more to live in half a house. Not only that, I would be assuming all the risk associated.

"Well get your poor ass into a townhouse or a condo" one would think. Why? Nobody is building equity on those either. You could rent both of those classes of housing for a lot less than owning them.

If you can swallow your pride and admit that no matter what you will have to occupy space with other people, then renting is the best option. At least for us first time buyers.

A crash might change things. But then we will have had a crash and everybody will be scared to buy because they will know some people that were wiped right out.

Of course nobody really spends the time thinking about these things. They have a one track mind. Owning. That's definitely the way to go. That's what my dad said.

CS said...

But if it is insisted that RE can be overvalued, a sensible criterion of valuation must be stated. But none has been suggested.

I've always used affordability.

Aren't affordability and value different things?

And if you assert that affordability equals value, then who's affordability are are you talking about? Are you basing your estimate on the average income of the average home buyer, home owner, wannabe home buyer without the necessary purchasing power, the Asian investor, the local cash buyer?

Use of the term "overvalued" seems merely another way of saying "we're in a bubble, prices have to crash."

Certainly, the vendor of a property accurately appraised according to market conditions is not going to be moved by an offer to pay "true value" or "intrinsic value" or some lower value based on the past history of income to price ratio.

To say that RE is currently overvalued is to imply the inevitability of a fall in prices, whereas to say that affordability is low by historical standards leaves open the question of what will happen in the future. Will affordability return to the historical norm, or are things different now? No one knows for sure.

Leo S said...

And if you assert that affordability equals value

Wut? Of course not. But houses are paid from incomes, so the percent of income that goes towards housing cannot go too far out of a given range. Pretty clear from our history that when affordability gets very stretched it indicates prices are overvalued for the conditions and will correct. This happened since 2008, mostly by the cost of credit collapsing and incomes increasing rather than prices dropping, but the result is the same. Looking at affordability now it is middle of the road and not nearly as stretched as it was. Hence indicating that risk has reduced substantially. Of course it's all banking on low interest rates.

Leo S said...

Use of the term "overvalued" seems merely another way of saying "we're in a bubble, prices have to crash."


Nope.

Will affordability return to the historical norm, or are things different now?

We can't conclude that affordability will move in any given direction. Just that it is more strongly range bound than other measures like price/income which depend hugely on current credit availability.

Russ said...

Gary,

Besides being biased towards bearish sentiment, most posters here tend to focus on the core Victoria / S. Oak Bay neighbourhoods. I also have a young growing family and am looking to buy our "long-term family house."

I am looking almost exclusively in Saanich, specifically Cordova Bay, Cadboro Bay, and Gordon Head. OK they are further from some of Victoria's "cool" areas like Cook st village, Dallas road, and the downtown restaurants but as a young family we find we very rarely have the urge to venture to these places.

Some of the pluses in my mind are that these areas are far enough from downtown that the homeless/drug addled aren't roaming around, yet it's not a long commute if you do work in the city.

The lots are bigger and the houses are newer and bigger. Property taxes are lower. shorter drives to the ferries, airport, up-island/out of town. Neighbourhoods are more homogeneously middle class (if you like that sort of thing). Cordova Bay is right on the lochside trail if you're into cycle commuting. Gordon Head is littered with schools and parks and rec centers. The list goes on.

I guess all I'm saying is don't get sucked into the hype around the core without looking in Saanich, especially if you don't need to be downtown for work.

I can't speak to Nanaimo except to say that most long time Victorians look down their snooty noses at it.
I have no idea if it's deserved or not.

Gary said...

Thanks Russ,

It sounds like your expectations and desires are similar to mine. I'll keep your advice and observations in mind.

dasmo said...

You have to work to rent a nice place too. We need shelter bottom line. We desire to own it. This affects the entire "bubble" notion. With tulip bulbs...well, they were tulip bulbs! the entire run was entirely based on the bubble theory. With houses it's not....

To me renting has always been a solid choice. Especially if you are young... You will get no argument from me there....

reasonfirst said...

http://www.cbc.ca/news/canada/saskatchewan/saskatoon-regina-expected-to-lead-growth-conference-board-says-1.1871053

"Victoria is expected to grow by 0.1 per cent." Go Victoria Go!

info said...

"Hence indicating that risk has reduced substantially. Of course it's all banking on low interest rates."

I've explained that prices have remained at 2008 levels only because of a massive and steady decline in interest rates over the past 5 years. Without falling interest rates since 2008, prices in Victoria would be much lower than they are now.

"Of course it's all banking on low interest rates" is an incorrect statement.

It's all banking on the continuation of a steady and massive decline in interest rates, which is impossible now. Hence, prices will correct.

Therefore, risk is very high right now and will be until prices correct/crash substantially.




CS said...

But houses are paid from incomes ...

Some houses are bought on credit, which is income-limited, some are not.

But in any case, affordability as a multiple of income varies over a several-fold range, so within that range once cannot talk about variation in affordability as you define it without assuming that affordability always reverts to some mean value, an assumption that you admit is untenable.

It is desirable, surely, to clearly distinguish between values, i.e., market prices, and affordability and other variables. The notion of over- or undervaluation, where there is no definite means of assessment does nothing to advance an argument.

Renter said...

@Mayfair Man

I recommend Lee Ottewell from Crest Building Consultancy, 250-888-9182.

He saved us from making a BIG mistake a few years ago. He's very thorough and doesn't pull any punches.

Marko said...

Anyone know a good home inspector?

Russ McCarthy from Barnes and Company.

Very good inspector and rates are below average.

Just Jack said...

Well Gary, I measure neighborhoods using Tattoos as my valuation model.

For example, you are more likely to have a neighbor with a facial tattoo if you live downtown.

Tramp stamps for ladies in Langford.

For men in James Bay.

Wrinkly tweety birds or a roses in Oak Bay.

Celtic rings are in Fernwood.

And full sleeves in Esquimalt.

info said...

This post is intended as a supplement to some of my previous posts.

The second chart on this page shows that 5-year fixed mortgage rates have fallen dramatically since 2008.

Keep that in mind while looking at Teranet's price chart, starting at 2008. Prices in Greater Victoria are currently at 2008 levels (approx.).

It's obvious that without sustained falling mortgage rates since 2008, house prices in Victoria would have declined substantially. Now that rates will no longer be declining, prices must correct/crash.

The party is over and it will not take rising interest rates to push prices lower. Prices will correct/crash with steady rates.


Gary said...

Good to know Just Jack!

George P said...

Uh-oh. Bad news for the Canadian housing market?

Check out the top line in the latest total household credit numbers from the Bank of Canada. The rate of increase in the total household credit numbers is really starting to slow down.

http://credit.bankofcanada.ca/householdcredit

koozdra said...

Great news, Canadians are becoming more prudent with their debt.

Horrible news, Canadians are becoming more prudent with their debt.

CS said...

The second chart on this page shows that 5-year fixed mortgage rates have fallen dramatically since 2008.


Actually, mortgage rates have fallen dramatically and for over 30 years. Maybe its a trend. Maybe real mortgage rates are about to go negative! In which case, Canadian RE prices could continue rising indefinitely, even though they should've fallen!

CS said...

More productive, perhaps, than trying to relate price to affordability where no relationship appears to exist, would be an examination of the composition of the market.

While prices in Victoria doubled during the first decade of the 21st Century, the makeup of Victoria's RE inventory changed substantially. Thousands of condos have been constructed, and hundreds, and probably thousands, of sfh's have been demolished and replaced by bigger and better houses. (On our block in OB seven out of 20 houses, i.e., 35%, have been rebuilt during the last 23 years.)

What those changes mean is that first time buyers and retirees who are downsizing, have in a large proportion of cases bought relatively cheap (and small, with a very small land component) condos.

That means that at the lower end of the market, prices paid have, in fact, fallen.

At the other end of the market, cash buyers, folks who made a killing in the stock market, successful business people, drug lords, Asians with hot money, etc. frequently buy to rebuild thereby doubling or more than doubling property value.

The net result is flat mean and median prices, while actual prices are falling at one end of the market and rising at the other end.

CS said...

The net result is flat mean and median prices, while actual prices are falling at one end of the market and rising at the other end.

Or rather I should have said that the prices paid are falling at one end of the market and rising at the other end.

Phil said...

http://www.timescolonist.com/business/victoria-last-in-economic-growth-report-1.641961

The Conference Board of Canada has once again ranked Victoria dead last

The BC government has to cut so much red ink, that it's going to get worse before better. People will keep leaving for better prospects -- Alberta, the States, and other inexpensive retirements abroad.

patriotz said...

"while actual prices are falling at one end of the market and rising at the other end."

Or rather I should have said that the prices
paid are falling at one end of the market and rising at the other end....

The only actual prices are prices paid. You can estimate what something would sell for, of course, but that's not an actual price.

info said...

"The net result is flat mean and median prices, while actual prices are falling at one end of the market and rising at the other end."

In Oak Bay, the SFH 6-month median for the first 6 months of 2013 was 8% lower than the 6-month median for the first 6 months of 2010 (the peak), as Just Jack pointed out.

Just Jack also noted that the SFH 6-month median for Langford/Colwood was down 18%.

Both ends of the market are down in Greater Victoria.

There is no evidence at all that suggests that hot Asian money has had an effect on house prices in Victoria.

As I've pointed out, 5-year fixed mortgage rates have fallen dramatically and steadily since 2008, otherwise house prices in Victoria (at both ends of the market) would be much lower than they are today.

Now that 5-year mortgage rates have stopped falling, house prices at both ends of the market in Victoria will correct/crash.

info said...

"The Conference Board of Canada has once again ranked Victoria dead last"

"The BC government has to cut so much red ink, that it's going to get worse before better. People will keep leaving for better prospects -- Alberta, the States, and other inexpensive retirements abroad."

BC residents have, by far, the highest amount of debt in Canada. The average BC resident has a -8% savings rate, which is the lowest in Canada.

All of this will add downward price pressure to an already weak Victoria housing market.

The rate of increase of Canada's household debt-to-income ratio has slowed in recent months. The Canadian housing bubble was formed by excess mortgage debt. Without increasing mortgage debt, house prices in Canada will fall as they did in the US once their debt-to-income ratio peaked and started to decline.

Clearly, the party is over in Victoria. House prices will correct/crash.

Gary said...

In 2012 Victoria did quite well in auto theft OF cars per 100,000 people.
Victoria 114
Vancouver 294
Edmonton 326
Calgary 323
Toronto 130

But when you look at theft FROM cars it was a slightly different story. Victoria was near the worst of the list.
Victoria 935
Vancouver 1150
Edmonton 681
Calgary 797
Toronto 358


http://www.vancouversun.com/news/auto+crime+down/8968572/story.html

CS said...

Clearly, the party is over in Victoria. House prices will correct/crash.

My point was that prices paid may already have crashed — at the lower end — the effect on mean prices being masked by value added at the upper end. For example, on our block, a property purchased for one million, now with a new house that would probably list at $2.5 to 3.0 million.

But if you want, by all means go on about some trivial fall in mean price (if any) since 2008 while ignoring the 2.5% increase this summer!

What's remarkable about Victoria, is not that prices have fallen slightly or remained flat, but that they haven't risen as they have in most other cities: a result perhaps in part of being a government town that did not return a single governing party MLA at the last election!

info said...

"But if you want, by all means go on about some trivial fall in mean price (if any) since 2008 while ignoring the 2.5% increase this summer!"

What proof do you have?

We all know that a house recently sold on Haultain Street for 33% less than it did in June 2010.

There is no evidence of any increase in house prices in Victoria. A lot of upward price skewing, but no actual price increases.

info said...

"What's remarkable about Victoria, is not that prices have fallen slightly or remained flat, but that they haven't risen as they have in most other cities"

Victoria and Vancouver experienced some of the biggest price increases in Canada since 2000.

You should consider providing graphs and other sources of evidence to back what you say.

dasmo said...

She says as she provides no evidence of a house selling for 33% less than it did in 2010...

Leo S said...

You have to work to rent a nice place too. We need shelter bottom line. We desire to own it. This affects the entire "bubble" notion.

I don't know if this holds up. We desire plenty of things including tulip bulbs, so that is no different. And we need shelter but that is completely independent of owning shelter so again does not make housing any different as far as bubbles go. Sure you won't see the 1000x increases in values just because that is impossible in housing, but you can still have bubbles just the same.

CS said...

What proof do you have?

Why, Leo's excellent graphs, of course.

And when you say:

"There is no evidence of any increase in house prices in Victoria. A lot of upward price skewing, but no actual price increases"

you in effect confirm that mean and median prices have remained essentially flat. What I am trying to point out, is that there may be a lot more to flat mean prices than merely the skewing to which you have drawn attention.

Specifically, I suggest that prices paid by first time buyers using mortgage credit have not risen since 2000 nearly as much as the mean price, because they have in many cases bought condos. not houses. This effect on mean price has, I suggest, been masked by the value that has been added by redevelopment, and renovation, to pre-existent houses.

This may be wrong, but why not try to understand what I am saying?

Leo S said...

It's all banking on the continuation of a steady and massive decline in interest rates, which is impossible now. Hence, prices will correct.

Perhaps. The big decrease in rates was in 2008. Yes they've drifted down slowly since then but not that much overall.

CS said...

And by "this effect" I mean the effect on the mean price of an increase in the number of mainly first-time buyers (but also downsizing older people buying condos), not houses.

Even that doesn't sound clear!

Oh forget it!

But what I said is probably essential to an understanding of the RE market in Victoria. LOL

Leo S said...

The notion of over- or undervaluation, where there is no definite means of assessment does nothing to advance an argument.

There are plenty of ways to determine over or undervaluation that have been discussed. Compared to income, carrying costs, equivalent rental, etc. What you seem to be stuck on is that just because something is overvalued by some measure doesn't mean it will immediately become fairly valued. That's clear, but the assertion that value == market price definitely gets us nowhere.

Leo S said...

The notion of over- or undervaluation, where there is no definite means of assessment

By the way, this statement is true for every product or investment under the sun. You can never definitely measure value. What is the value of a piece of cheese? What is the value of a gold bar? Is $1600 too much, too little? All we have is historical data, and measures like price/earnings, replacement value, or utility of the object. These are all just guides, none of them will give you a definite value.

Leo S said...

It's obvious that without sustained falling mortgage rates since 2008, house prices in Victoria would have declined substantially. Now that rates will no longer be declining, prices must correct/crash.

Given that rate holds will have mostly expired now for the ultralow rates, this theory should be testable in the next few months.

Leo S said...

Specifically, I suggest that prices paid by first time buyers using mortgage credit have not risen since 2000 nearly as much as the mean price,

Almost certainly.. I think any city will see a shift towards condos.

This effect on mean price has, I suggest, been masked by the value that has been added by redevelopment, and renovation, to pre-existent houses.

This is the part I don't follow. We have separate price data for condos and SFHs, it's not like the mean price includes the whole market.

CS said...

You can never definitely measure value

The dictionary gives "monetary worth" as the primary definition of value. By that definition the value of RE is the price at which it trades, which is a definite value.

So yes, you can value a piece of cheese, currently about $10.00 per 100 grams, (which is ridiculous, a ripoff. But is it an overvaluation? If so compared with what?.)

CS said...

it's not like the mean price includes the whole market.

Oh. OK.

But the point about the changing composition of the RE market is still relevant to understanding changes in mean and median house prices.

One implication of the move at the low end of the market away from houses and into relative low priced condos is that the number of income-limited buyers purchasing houses on credit is declining.

All other things being equal that should have a negative effect on the mean or median price. The fact that so far it has not, suggests that affordability is not such a big issue, i.e., there are still plenty of people with large incomes or large amounts of cash who remain keen to buy and are not too sensitive to interest rates.

Leo S said...

The dictionary gives "monetary worth" as the primary definition of value.

Sure, but clearly that is not definition of interest here.

People on HHV are interested in whether real estate represents "good value", not what the current monetary worth is.

So yes, you can value a piece of cheese, currently about $10.00 per 100 grams

Ok we have a block of cheese that costs $10. So in the simplest definition, that cheese has a value of $10.
But if you're standing at the supermarket deciding whether to buy cheese you might be interested in whether $10 for a block of cheese represents good value. Metrics to determine whether it is good value would include the prices of cheese the last few times you went shopping, or the memory of that cheese advertised in a different store's flyer for $8.

Leo S said...

One implication of the move at the low end of the market away from houses and into relative low priced condos is that the number of income-limited buyers purchasing houses on credit is declining.

Hmm.. Perhaps. I don't see this as self-evident. The number of people not buying with credit is a function of the number of people with that kind of money, not the sales mix. Perhaps the percentage of houses being bought outright is increasing as the more credit-dependent are forced into condos. Although you could easily make the opposite argument that retirees are buying condos outright while the middle class mortgages themselves to the eyeballs to buy houses for their families.

there are still plenty of people with large incomes or large amounts of cash who remain keen to buy and are not too sensitive to interest rates.

Well, there seems to be just enough to keep prices more or less stable. But as info points out this was a period of declining rates. Whether or not people are particularly interest rate sensitive remains to be seen if rates continue climbing (I've never heard of anyone being sensitive to declining rates after all).

CS said...

People on HHV are interested in whether real estate represents "good value", not what the current monetary worth is.

Comparing monetary value of RE with some specific alternative measure, such as a multiple of rent, or income, or relative to oil or gold or the PE on the Dow, may well be instructive. But to speak of over or undervaluation without stating the criterion of assessment seems a basis for endless unproductive debate.

CS said...

The sales mix undoubtedly has complex implications. But one seemingly clear and important implication is that if those who are credit limited are increasingly driven to buy condos rather than houses, then declining affordability (i.e., increased mortgage rates or lower wages, employment rate, etc.) will have a negative impact on prices of houses at the lower end.

However, we are in an era of increasing income and wealth inequality so one would expect that as the lower end of the housing market weakens, the upper end may be holding firm or strengthening, which could account for stable mean and median prices despite tightening credit rules and rising interest rates.

This interpretation is supported by an examination of VREB listings over the last two weeks. There have been almost 300 listings of houses priced at $550K and up with a mean price of around $904,000, for a total value of ca $270 million.

A similar number of houses (ca. 293) have been listed at less than $550K, with a mean price of around $375K and a total value of ca $109 million.

So with over 70% of houses listing for an average of $904K one should not be surprised if the financial difficulties of those in need of up to 95% financing is not clearly evident in mean and median prices.

Further, it means that the impact of changes in lending rules and mortgage rates on mean prices may be less than some expect.

Leo S said...

So with over 70% of houses listing for an average of $904K

This can't be right.

Just Jack said...

If you want value for your money, it might be time to look at Sooke.

In the last month you could have bught a 2,080 square foot home on a 9,000 square foot harbour view lot in Sooke Village for the price of a 2 bedroom Victoria condo. Equivalent price of $285,000.

Or a 1500 square foot home on 6,000 square foot lot in Sidney for $320,000.

Equivalent homes in the core districts would reasonably cost you another $200,000 or another 13 years of your life to pay off the mortgae using the same monthly payment.

"Price is what you pay - value is what you get."

In this scenario instead of money, value is based on how long you have to live to pay off a mortgage. Imagine a world where money did not exist. Instead we paid in time. A house in Victoria would cost you 25 years of your life span and a house in Sooke would cost you 13 years. What value would you put on having another 12 years to live?

CS said...


This can't be right.


Well, it could be wrong, but I don't see how. But remember, I'm talking about listings and listings don't necessarily equate to sales.

Plus 550 K houses may be relisted or removed from the market more often than sub 550 houses, and thus be over-represented relative to sales in the VREB listings.

CS said...

What value would you put on having another 12 years to live?

Not much, if you have to spend most of those 12 years either commuting between Sooke and Victoria, or earning the money necessary to pay for commuting between Sooke and Victoria.

But if you can find a way to earn a living in Sooke, then Sooke would surely seem the better value to many people.

Marko said...

Good traffic at open houses this weekend despite the rain.

dasmo said...

Ha ha true CS commute time from sooke over 13 years is about two years so that's 15 years plus the year to earn the gas money for driving over the 13 years. So it's more like comparing 25 years to live in the core vs 16 years to live in sooke.

Just Jack said...

If we had to pay in time, I believe none of us would choose to lose 12 years of our lives just to live in a City. That's were the "overvaluation" occurs when money is cheap but time is not.

Because 12 years is just as valuable to the Sultan of Bahrain as it is to the janitor at Wallmart. But $200,000 isn't.

Even if you considered the 500 hours of annual commuting as a loss - which it isn't. Then that is less than a year of commuting time in total. I think you can start to sense how we are "overvaluing" the market if we were willing to die 12 years early to save commuting on a bus for one year. It's irrational.

dasmo said...

Remember earlier when I brought up the 50 Howe st flip as a test of the market. Well that sold quick! List was 888k. Marko did it sell for that? I know they bought it for around 690k 2011 ish and maybe put 70k into it?

CS said...

I'd be glad if anyone (Marko?) would be kind enough to indicate whether 3742 Heron St has sold recently (a private sale possibly) and if so at what price.

Marko said...

Well that sold quick! List was 888k. Marko did it sell for that?

862k

Marko said...

3742 Heron St

Can't find such address.

Leo S said...

Well, it could be wrong, but I don't see how.

You said a similar number list for over and under 550k. That would be about 50% for each segment. Then you said 70% list for over 550 with an average price of 904. I don't see how both can be correct.

Phil said...

I know they bought it for around 690k 2011 ish and maybe put 70k into it?

You "know--around--ish and maybe put" do you?

I know one thing. They put a whooole lot more than 70k into it.
They might not have lost money, dependign whether you include flipping wages and transaction costs as did get it for a good price at the time. The previous owner chased the market down I think it was from 830k to 695, through the latter half of 2011. Prices did fall hard in late 2011.

Phil said...

It's hard enough to make money flipping in an up market.

dasmo said...

Of course I don't know how much. I'm estimating having looked at the house myself and choosing not to buy. I thought 690k was too much :-) (That's what the realtor told me the bottom line was). The original asking price of 830k was a pipe dream not chasing the market down. They didn't do much to the upper floors. Exact same kitchen. They suited the basement but already had a bathroom down there. Front porch windows done, bottom windows, new roof, new paint. They were done in about three months. A blue collar flip I think. Anyway, I was curious because when I saw it was a flip I was surprised and was curious what would happen. Well it sold fast in the high 8's that's what happened.

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

Monday, September 30, 2013 8:00am

MTD September

2013 2012
Net Unconditional Sales: 456 419
New Listings: 1,073 1,210
Active Listings: 4,565 5,025

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

Marko said...

Probs another 25 sales today and 50 new listings.

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

Here's before and some after picson 50 Howe St. They did a great job on it.

koozdra said...

50 Howe

That painting really ties the room together.

dasmo said...

Obviously staging works.

CS said...

Then you said 70% list for over 550 with an average price of 904. I don't see how both can be correct.

You may be right! I guess 70% was a typo. Should have said 50%.

CS said...

But what I meant was that 70% of the listed property by total value has an mean price of $904K. I think that makes sense.

Come to think of it, it was probably what I meant to say.

CS said...

But if so, the numbers suggest a mean price of around $750, which is too high.

The explanation for that discrepancy, though, may be as I mentioned above; namely, that upper end houses are more likely than lower end houses to be relisted or removed from market without sale.

CS said...

Then you said 70% list for over 550 with an average price of 904. I don't see how both can be correct.

You may be right! I guess 70% was a typo. Should have said 50%.

Fiduciary said...

But what I meant was that 70% of the listed property by total value has an mean price of $904K. I think that makes sense.

But the whole reason to use means in the first place as opposed to averages is to eliminate the "total value" from the equation. By reintroducing it, then talking of the mean, I think you're mixing measures.

info said...

"Good traffic at open houses this weekend despite the rain."

So you say.

The big picture is that sales so far this year have been extremely weak.

Total SFH sales so far this year are on pace to equal 2012's total which was the lowest since 1982 (without population adjustment).

The recent (temporary) buying rush by the rate hold crowd has prevented 2013 sales totals from being a lot worse than that.