Monday, October 21, 2013

Oct 21 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.


October 2013October
 2012 
Wk 1Wk 2Wk 3Wk 4
Unconditional Sales89
214
319
373
New Listings240444650
1068
Active Listings440843904369
4876
Sales to New Listings
37%
48%49%
35%
Sales Projection--546524

Months of Inventory
13.1

As always, we are on the descending slope for sales. Even so we might almost hit 500 this month, which would put us at an MOI of about 8.5.   Still firmly in buyers market territory, but not quite as extreme as last year.

131 comments:

Just Jack said...

That's the finest graph I've ever seen to describe Victoria's market.

---I have graph envy

Dustin said...

prop's on the graph color scheme. I'd also love to learn how to make a graph like that.

Introvert said...

Graph porn.

fox said...

Hello Leo S,

Would you mind posting XLS file with data used for the graph (via DropBox or any other method)? I'd like to study the correlation and the time lag between MoI and MedianPrice. I'll post the findings back here.

Thank you.

subprime11 said...

I wonder what took so long for the deal at 2857 Dewdney to finalize. Low selling price of $615 and assessed at $750. Structural problems?

koozdra said...

http://www.cfax1070.com/Media/CFAX-Podcasts/Frank-Stanford/October-22-2013-9am

Skip to the half way mark.

Ron Neal says foreclosures are on the rise.

"In September 15-20 percent of sales were foreclosures"

Why didn't they just try to rent out their homes?

koozdra said...

.

koozdra said...

Haha, just finished listening to the whole clip. "we're at the end of a cyclical downturn". More like we are just beginning.

"I saw a property sell in foreclosure for 160 and 240 was owed on it." In Victoria? The safest bet in the universe.

info said...
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info said...

. . . . . . . . . . . . . . ..Percentage Price Decline From Peak (3-month median) . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . ( Oak Bay, Saanich East and North Saanich) . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 3.5% . . . . . . .X .. .X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4.0% . . . . . . . . . . . . . . .X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 5.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 5.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 6.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X . . . . . . . . . . . . . . . . . . . . . . .
- 6.5% . . . . X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 7.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .X. . . . . . . . . . . . . . . .
- 7.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .X . . . . . . . . . . . . . . . . . . .
- 8.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 8.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 9.0% . . . . . . . . . . . . . . . . . X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 9.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .X . .X . . . . . . . . .
- 10.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .X . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 10.5% . . . . . . . . . . . . . . . . . . . . . . . . . . .X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X . . . . . .
- 11.0% . . . . . . . . . . . . . . . . . . . . . . . X . . . . . X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 11.5% . . . . . . . . . . . . . . . . . . . . X . . . . . . . . . . . . X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-----------------------------------------------------------------------------------------------------------------
. . . . . . . . . .M -- J -- J -- A -- S -- O -- N -- D -- J -- F -- M -- A -- M -- J -- J -- A -- S . . . . .
. . . . . . . . . . . . . . . . . . . . . .2012. . . . . . . . . . /. . . . . . . . . . . . 2013. . . . . . . . . . . . . . . . . . . . .

The peak was $684.71 K in April 2010.
Since the peak, the low was $607.27 K in February 2013.
September 2013 = $611.73 K.

info said...
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info said...

Extreme upward (median) skewing has been in effect since April. Leo's graph shows that the low (since the peak) of the overall SFH median was in March. After March, however, upward (median) skewing took over and, as a result, the overall SFH median data since that time has been misleading.

My graph shows that the SFH median for the high end of the market has been declining since April and is very close to the lowest price point since the peak (February 2013).

Similarly, the SFH median for the low end of the market is basically at the lowest price point since the peak. The low end of the SFH market includes Esquimalt, Sidney, Colwood, Langford and Sooke.

Sudden Valley said...

Blog post from Ron Neal

http://victoriarealestateexpertblog.com/2013/10/15/foreclosures/

"Surprisingly, as it hasn’t been big in our media, the incidence of defaulting mortgages here in Victoria has been somewhat extreme over the past couple years, extreme relative to the number during the time of our rising prices and seller’s market through 2007 leading up to the global financial crisis. "

"I don’t have an exact count, but from my own observations and speaking with lawyers specializing in the sale of foreclosed properties we have had somewhere in the range of about 60-100 monthly over the past year for just Greater Victoria. That represents somewhere between 15-20% of our sale volume by my rough estimate. "

"I heard from a reliable source with RBC that the north island region for RBC (including all of Vancouver Island north of the Malahat) has the highest foreclosure rate in Canada currently which can be attributed to significant job losses in the resource sector of the economy."

Link to MP3 interview (Originally posted by koozdra)

Sudden Valley said...

League Assets Corp., largest shareholder at Partners REIT, files for CCAA protection

I'm surprised no one is talking about the CCAA all that much. Seems like BIG news to me. Here are some interesting links. Make sure to read some of the comments at the bottom of the TC article.

Group behind $1-billion Colwood project files for creditor protection

Carrion (Garth Turner covers the story)


Rachelle Berube blogged about it months ago (now sued Adam Grant)

She makes interesting points about:

Blue Book of Real Estate - Presented by the League


KPMG Role as Auditor

"Meanwhile the BC Securities Commission fined Grant and Arruda $250,000 for failing to properly inform investors of the risks involved in raising more than $209 million. The BCSC has also issued a notice of hearing to probe allegations League broke more securities rules when promoting its REIT, failing to make proper disclosures. But that was just the prelude to the storm."

I've been following this story on Vibrant Victoria but I think it was too hot for them to handle, that post has been taken offline.

I see this as a big fat canary in the coal mine + forclosures up and rising? Now up to 15 %- 20% of all sales?

Just Jack said...

It's not 15 t0 20 percent of all sales.

Only 3 percent were advertised as court ordered sales.

And Ron Neal would not know, nor would anyone else how many properties are on the verge of the bank getting conduct of sale.

Usually, the owner has vacated the home when the bank has taken over the property. That might be where Ron is getting the 15% to 20%. Since some 83 homes that sold were empty. And only 10 were new. But I wouldn't say all of those were foreclosures.

That is acutally a BIG percentage of homes that are selling vacant.

Why aren't people just renting their homes out to pay the mortgage?

-Because the potential rent isn't enough to pay the mortgage.

They're caught between a rock and a hard place. Can't rent out the home - can't sell it without taking a loss. The bank will not approve any sale where the lender is not going to get all of their money and penalites that you owe.

When you have a mortgage the home isn't sold until the bank allows it to be sold.

And a home without equity is renting with debt.

Just Jack said...

Projects like Colwood corners are just too big and too costly to make it through to the end the first time.

You have to spend a lot of money to attract even more money to invest. That's before you can even start to build. That's possibly why a foundation had to be constructed to prove that you are in the development business and not just in the business of raising money.

So the project goes broke, the investors are offered nickels on their dollar and the project is sold to a BC numbered company that completes the project.

Leo S said...

>> prop's on the graph color scheme. I'd also love to learn how to make a graph like that.

On this particular graph:
1. Chart two data series (MOI and SFH median) using the line chart style in excel
2. Add trend lines to each. Moving average type, period of 3 for a 3 month moving average.
3. Move one of the data series to the secondary axis so we can compare disparate scales. Select the series, format selection, click Axis, select secondary axis.
4. Manually set the axis scales of the left and right axes to match the number of divisions (otherwise the gridlines don't line up). So in this case primary axis is $300k-$700k with 20 $20k minor intervals and the secondary axis is zero to 20 with 20 intervals of 1 to match.
5. Create a rectangle for the background and make it the same size as the chart area. Format shape, Fill, Gradient, select linear. Angle 90 degrees. Add the color stops at the locations until you get the gradient to match the part of the graph that you want (trial and error). See here
6. For the text to match the background color, add text, rotate 90 deg counterclockwise, Set Text Glow to the same color as you used in the gradient

Leo S said...

@fox

Here is the full XLS with all the data and charts I post periodically (and a bunch of other random crap).

The macro is a function that estimates next month's sales. It's safe, but you can disable macros without losing any interesting functionality.

Marko said...

"In September 15-20 percent of sales were foreclosures"

"I don’t have an exact count, but from my own observations"

Well I don't have an exact count either but from my own observations I agree with Just Jack for once with the 3% figure.

Marko said...

I'm surprised no one is talking about the CCAA all that much. Seems like BIG news to me. Here are some interesting links.

I've been following and analyzing this project for years. No surprise here; it just doesn't make sense to me on many different levels.

I'll give you an example, their prices per sq/ft on "Skye" were equal that of the Bayview Promontory on some units. Do I want to buy in a high-end building in the inner harbour built by BOSA or in a building on the Colwood strip built by a first time developer?

Many other flags stuck out to me over the years. They were always pushing their "equity mortgage," as a great way to get people into homes and increase home ownership. I remember one of their top guys once saying he went to a conference in Singapore and they had home ownership of 90% and he wanted to see that here with the help of the "equity mortgage." Then, shortly after he would be talking about how these condos would make great rental investments (close to Royal Roads).

When you start analyzing the pitch some questions arise. High home ownership doesn't translate into a vibrant rental market. Royal Roads? How many students are actually on campus every day at Royal Roads? etc.

I feel sorry for the small investor but this was a very ambitious project to start.

Marko said...

http://ca.finance.yahoo.com/news/bank-canada-drops-rate-hike-talk-due-weak-140417465--business.html

Doesn't look like rates are going anywhere anytime soon.

Just Jack said...

One other related item that might be added to the graph is the Sales to New Listings Ratio.


As I would think that between 5 to 7 months of inventory and a sales to new listings ratio between 40 to 60 percent indicates a balanced market with stable prices. An MOI greater than 8 along with an SNL% less than 40 percent indicates a buyers market with or leading to declining prices.

And if the MOI is under 4 along with a SNL greater than 60 percent that would be a sellers market with rising prices.

KS said...

Does anybody know anything about 1665 Oak Bay Ave?
http://beta.realtor.ca/propertyDetails.aspx?PropertyId=13724981

It don't think we've seen anything in this city under $200 a square foot. My auntie went to the open house and said its nice and backs onto green area. Any advice is helpful as I'm at least considering calling an agent to see if its worthwhile.

koozdra said...

Ottawa condo surplus causing prices to drop

Up 50% from last year.

"It's mind boggling that with all this money spent and the property's not selling, we're going to end up losing money," Hu said.

On a related note, does anybody want to buy a condo?

Skyline Residences - Esquimalt Condos - Zero Down Financing

caveat emptor said...

"Doesn't look like rates are going anywhere anytime soon."

As most of the regulars here predicted back in January.

I actually predicted a cut to 0.75 which ain't going to happen this year, though it is a possibility next year if the economic weakening continues... Even at the time I predicted it I knew it was a long shot.

caveat emptor said...

and 5 year bond yields have given back about 35 to 40% of their recent rise so we can look to 5 year fixed rates easing down a bit - though not yet to the insanely low levels of last spring

koozdra said...

"I actually predicted a cut to 0.75 which ain't going to happen this year"

Would that even make a difference? Let's say they made that cut right now, would that really turn things around?

totoro victoria said...

1665 Oak Bay Avenue has no rentals permitted and is over 19 and is an OLD building (1969). As a result, values are lower.

Strata fees are 280 per month and include hot water and laundry. Doesn't appear that any units are permitted in-suite laundry which would drive me nuts.

If you are interested in this building you should speak to other owners and review the minutes of the strata meetings for building maintenance and noise issues.

There is a depreciation report available for this building and you should review it as well.

IMO this building is not a particularly good investment given that you can rent something for less than it would cost you to own in the same area and you are stuck with no rentals permitted should your circumstances change.

CS said...

@Info
Upward skewing ...

The median price may conceal more than it reveals. Currently, in the Uplands there are about 26 houses listed for sale on realtor.ca. Of these, seven were built (i.e., rebuilt) or radically renovated (1) in the last three years, with an average new investment of probably 1.5 to 2 million per property. That equals an average of about half a million newly invested for each house currently on the market and, of that new investment, only a small proportion can be written off to depreciation.

This is not a freak statistic. Within four hundred meters of where I live, three houses are currently undergoing radical renovation (two stripped to the studs) and, in the last three weeks, three houses have been torn down prior to new construction.

But while new investment is driving prices higher at the upper end of the market, a growing supply of high quality condos must be bleeding demand and driving down SFH prices at the lower end of the market.

The implication is that the median SFH price is relatively stable because the effect of increased investment, which is raising prices at the top end, is balanced by the effect of an expanded condo. supply which is weakening SFH prices at the bottom end.

From this it seems that price indices for market segments defined by, say, assessed value range would be instructive.

CS said...

@Caveat emptor

I actually predicted a cut to 0.75

I'll beat that. I predict a cut to 0.1%!

After all, what else but create asset bubbles can an unpopular government do to have any hope at the next election?

I suppose they could hope for an oil price crash, which would probably kicks-start the global economy, but it would leave us drowning in our own tar sands.

Just Jack said...

Ask and ye shall receive.

Using mid-month fiqures from the 15th to the 15th. The median Sale to Assessment ratio, based on 20 sales for each of the two time periods, increased from 101.3% to 102.7%

The typical home in Oak Bay is selling at 102.7% of its assessed value as compared to the prior period when the typical home sold at 101.3 percent of its assessed value.

However, this tiny sample could be off by 2% one way or the other.

caveat emptor said...

@koozdra
Would that even make a difference? Let's say they made that cut right now, would that really turn things around?

Hey I'm not an economist. I was just predicting the cut not the outcome.

My personal opinion is that a cut to 0.75 or 0.50 would have a negligible effect on the housing market.

I think it might have some positive effect on the economy by leading to a slight devaluation of the C$ vs the US$. Right now we have an interest differential of 1% for overnight rates which goes a long way to explaining why the C$ is overvalued.

koozdra said...

From today's rate announcement press conference.

"One of the things that helped us not have a major downturn was strength in the housing market....consumers did the heavy lifting" -Polos

Low interest rates have done their job. Lowering them will be useless at this point. If anything they would start helping people service their debt somehow. Maybe make mortgage payments tax deductible.

caveat emptor said...

Maybe make mortgage payments tax deductible.

Totally prejudices the system against renters IMO

koozdra said...

"Totally prejudices the system against renters IMO"

Of course, but it's a move to help the "middle class". With 70% home ownership we need to get people who are burdened by housing debt spending money in the economy instead of devoting a large proportion of their income to debt service. I also feel that the intersection of people that vote conservative and are renting is rather small.

koozdra said...

Cutting Insurance Premiums

"A severe sell-off may be unlikely, but if it does happen the firewall between CMHC and a taxpayer bailout is $19.4 billion1. That’s roughly how much CMHC has available to pay claims if things go bad.

How long would it take to burn through $19.4 billion? Bell doesn’t say. Nor does CMHC disclose this data. However, assuming 3% of CMHC’s book defaulted (three times the all-time record), that would trigger almost $17 billion of defaults. It wouldn’t be a total loss, however, since CMHC would recover value during liquidations."


19.4 billion reserve to cover 600 billion. Three percent seems very optimistic if things go south. If things go as they did in the south.

kabloona said...

Mortgage payment deductibility is not going to happen, simply because it's w-a-a-a-y too expensive. Flats and Harpo plan on cutting the current account deficit to zero in time for 2015 election and that's not going to happen if they bring in a policy of mortgage interest deductibility.

Just my non-deductible $0.02....

info said...

"The implication is that the median SFH price is relatively stable because the effect of increased investment, which is raising prices at the top end, is balanced by the effect of an expanded condo. supply which is weakening SFH prices at the bottom end."

Incorrect.

Clearly, my graph shows that prices at the upper and end of the SFH market, including Oak Bay, North Saanich and Saanich East, are approaching the (post peak) low, which was in February. At the end of September, the total price decline from peak of the upper end of the SFH market was 10.7%.

As I've said, prices at the lower end of the SFH market are also very close to the (post) peak low. I will post this chart soon.

The upper and lower end of the SFH market have experienced similar total price declines from peak.

The performance of the upper end of the SFH market has been about the same as that of the lower end of the SFH market since the peak.


Introvert said...

"One of the things that helped us not have a major downturn was strength in the housing market....consumers did the heavy lifting" -Polos

Is the quotation attributed to polo shirts?

koozdra said...

Oops, Poloz. Copied and pasted Ben's tweet during the press conference.

patriotz said...

Flats and Harpo plan on cutting the current account deficit to zero in time for 2015 election

You mean the budget deficit. Not a lot they can do about the current account deficit.

I don't think they will really eliminate the budget deficit either, but they will do a good job pretending a la Crusty.

info said...

At the end of September, prices at the lower end of the SFH market, including Esquimalt, Sidney, Colwood, Langford and Sooke, were 14.23% below the peak.

Since the peak, the low (14.26% below peak) was reached in March. Skewing kicked in, but prices only increased to 12.92% below peak in June and have been declining since that time.

Just Jack said...

If the government made mortgage interest tax deductible then the government would claw back the Capital Gains exemption.

I don't think we want to go there.

Just Jack said...

If the government made mortgage interest tax deductible then the government would claw back the Capital Gains exemption.

I don't think we want to go there.

Just Jack said...

Odd things happen with the luxury condominium market in Victoria.

What's luxury today, won't be luxury a decade from now. There will always be those who want the best money can buy. And they'll pay a premium for that distinction.

Like waterfront penthouses in the Songhees. Back in March 2004 you could have purchased a 2,000 square foot penthouse in Royal Quay East for $624,000.

Today, the market is so overbuilt with luxury condominiums that this once luxury condo now sells for $665,000.

Just Jack said...

And what about single parents with a rug rat or two. Back in May 2007 you could have bought a 2-bedroom condominium on Carnation place in Saanich for $226,000. Mom and Dad told you to buy now or be priced out forever. They even lent you the $50,000 down payment. Six years later it's time to move up the property ladder as the kid is now driving a car and you crazy.

However, you can only sell your condo for $178,000 today. That's the price of impatience. For six years you spent more money every month on owning a condo than someone renting the unit beside you and then the big insult you lost $48,000 on the re-sale. Or should I say your mom and pop did!

Owning a home without equity is just renting with debt.

Real Estate the biggest investment you'll ever make - now becomes the biggest mistake you ever made or your parents made in you.

Just Jack said...

So how great has it really been owning a condominium. Well if you had bought at the bottom of the last cycle in 1993 an 11th floor condo to watch the chem-trails from your balcony you would have paid $206,000.

20 years later as you watch the radiation plumes from Fukushima roll across the harbour you could sell your unit this week for $335,000. Granted over the last 20 years of ownership you probably paid more than $400,000 in mortgage payments alone.

KS said...

Thank you totorovictoria. I hadn't fully consider the no rentals permitted in case we had to move.
I believe the MLS says 1976.
http://beta.realtor.ca/propertyDetails.aspx?PropertyId=13724981

Regardless I suppose there can be lots of issues with older buildings. The reason my hubby got excited was after adding up the PITS with 20 % down, the S being Strata fee, the monthly came out to 1310. Then if you don't include the P only $840 a month. I don't think we could rent for less than $840 for 1300 feet in the Oak Bay area, although I'm not positive.

CS said...

The performance of the upper end of the SFH market has been about the same as that of the lower end of the SFH market since the peak.


Oh, OK. Nevertheless, the reconstruction of many houses, i.e., new investment, must have made the performance of the upper end much better than it would otherwise have been.

And if the lower end has done no worse than the upper end, that is remarkable since, for many buyers, the increasing inventory of condos offers a generally cheaper, and often more attractive alternative to a low end SFH.

koozdra said...

Randy's place

This property has been vacant for at least 8 months. They had it up for the longest time for $1500/month. To entice a renter they have sweetened the deal to $1450. I don't get it. It's way too much. How many years of lost rent will it take for these people to realize that they are charging too much?

kabloona said...

Patriotz:

Oh yeah.... the current account deficit is worse than I thought. I see it used to be in balance back in 2008....

And of course the federal budget was in balance back in 2006-2007 with a surplus of $13.8 billion dollars. Current Harper budget deficit for 2012-2013 is $25.9 billion....

Nice work, Flats....

Leo S said...

Doesn't appear that any units are permitted in-suite laundry which would drive me nuts.

This is the killer. That's the one advantage many condos have over renting in any of the dime a dozen 60s apartment buildings where rent is pretty cheap.

totoro victoria said...

"then the big insult you lost $48,000" you forgot to account for principal repayments I think JJ.

KS - I don't believe you can rent 1300 square feet for $840/month and this might be a good deal for you if it fits your lifestyle. There does seem to be a lot for sale in this particular building.

The Principal/ Interest/ Taxes/ Strata are the major costs. You also have to factor in potential special assessments, depreciation/appreciation, increases in strata fees, insurance, maintenance and lost opportunity costs on your $42,000 down (7% per year compounded). You also have to consider future interest rate increases and the impact they have on the payment. Also, property transfer tax and legal fees to buy, and realtor fees to sell.

The NYT rent vs. buy calculator can be helpful.

Leo S said...

>> you forgot to account for principal repayments I think JJ.

Doesn't matter. The money is gone regardless of how much of the mortgage you paid off.

Just Jack said...

It's unrealistic to expect someone to be able to factor in future Special Assessments unless there is a depreciation report available.

The depreciation report is to assit the strata council to budget for those future shocks. That can mean a substantial increase in your monthly strata fees years before anything is replaced.

Typically, the older the building - the more repairs that will be required. Roof, failed thermal windows, paving, drainage, termites, etc. These are costs that a house owner can defer until it's time to sell their home. Then it became a mad dash to home depot and getting your unemployed stoner of a cousin to fix the deck.

You can't do that in a strata. The Strata Council has a duty to regularily maintain the building and if they fail to do that then that can have an effect on the ability of condo owners in the complex to get bank financing. And it may suppress market prices in the complex.

When buying an old condo from the 1970's you may not want to gamble on a complex that hasn't had a depreciation report performed. And you definetly want to look at how much is in the contingency fund for repairs and what has been repaired. I suspect that for older condo complexes the amount in the fund will be inadequite as it was held at a percentage of annual strata fees for decades. If you're looking at an older complex that has low strata fees - that just might be the clue to stay clear of that complex.

And I expect depreciation reports will be a bank requirement in the future to get financing.

No depreciation report or an unsatisfactory report - no mortgage.

That opens the door to spurious reports. Especially when so many of the variables are subjective in these reports.

koozdra said...

I hear certain buildings are in denial of the magnitude of the depreciation reports. They get them done but don't action them. They consider them drafts and refuse to disclose them. This is illegal.

These reports are brutal. Some in the hundreds of thousands. Caveat emptor.

Marko said...

I hear certain buildings are in denial of the magnitude of the depreciation reports. They get them done but don't action them.

A lot of buildings don't action them because it would be a massive money management nightmare. A lot of depreciation reports will suggest/project the amount that strata fees have to increase to cover expenses up to 15-30 years into the future (elevators, exterior envelope, roof, etc).

As a former strata treasurer of a large building I wouldn't want to be handling millions in contingency for years.

There is a difference between ignoring an existing leaking roof and ignoring a suggestion to start saving now for a roof you will need in 20 years.

If a strata corporation wants to jack up their fees to pay for something in 20 years, great; however, I think most would prefer to deal with it in 20 years via special assessment.

koozdra said...

"If a strata corporation wants to jack up their fees to pay for something in 20 years, great; however, I think most would prefer to deal with it in 20 years via special assessment."

Isn't this the whole point of the depreciation reports? to eliminate these ridiculous special assessments. "Hey guys do you have a couple of thou lying around for the new roof? I'll need that by the end of the week."

Marko said...

Isn't this the whole point of the depreciation reports? to eliminate these ridiculous special assessments.

Do you start saving for your single family home roof 20 years in advance?

I think the point of the depreciation reports is force the strata councils to provide a plan for common assets (roofs, boilers, elevators, exterior envelope). However, how they choose to plan is entirely up to them.

I would much rather have my cash personally invested and pay for special assessments down the road than to have my strata fees jacked up 50% so they can sit in a contingency fund handled by a strata council for a decade or two.

koozdra said...

Why no rate hike means variable mortgages are safe again

“It’s possible interest rates will go down,” said CIBC deputy chief economist Benjamin Tal, adding there’s a huge amount of mortgage debt already in the pipeline that was created when people took advantage of rates they were pre-approved for in the summer. “I’ve seen what is in the pipeline in mortgage activity and you won’t believe the numbers when it is official.”

Marko said...

I was doing a market evaluation a few weeks ago on a single family home rental property the owner purchased in 2009 and it he put $30,000 in maintenance into it. New roof, drain tile repairs, sewer line replacement, exterior painting, necessary bathroom renovation.

Single family homes aren't without their "special assessments" either.

Also, strata fees aren't a total waste. If your fees are $300 per month sure there is probably $100 of dead weight in there (management expense, etc.) but there is probably $200 of value in there as well (insurance, cleaning/gardening, etc.)

koozdra said...

"I would much rather have my cash personally invested and pay for special assessments down the road .."

This is assuming that people can be trusted to save for special assessments. They can't. The savings rate in this country is abysmal.

Strata councils need to put people into a "forced savings plans" through condo fees. Wait, I've heard that expression before somewhere.

Marko said...

This is assuming that people can be trusted to save for special assessments. They can't. The savings rate in this country is abysmal.

Strata councils need to put people into a "forced savings plans" through condo fees. Wait, I've heard that expression before somewhere.


You don't have to trust them. If they can't come up with it the strata corporation can put the unit up for sale after a period of time.

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

I don't think the strata corporation should be responsible for teaching people how to think ahead in terms of their personal finances.

If you give an owner a depreciation report and tell him or her we need new elevators in 10 years, plan ahead as we have decided to issue a special assessment at that time, and they choose not to, their problem.

koozdra said...

"You don't have to trust them. If they can't come up with it the strata corporation can put the unit up for sale after a period of time."

You make it sound so simple to force someone out of their condo. Have you seen it done? Isn't it a long drawn out expensive process that involves lawyers and the such.

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

Haha, cannot disagree with that.

Marko said...

Have you seen it done?

Yes I have seen it done, at that point they are usually in foreclosure as well.

Some depreciation reports I've read require increasing strata fees by 40-100% over 3-4 years. That would probably put more people in trouble than a special assessment in 5 to 20 years.

By increase fees by a massive amount many individuals would have a month to month cash flow problem. With a special assessment down the road you have a bit more flexibility in terms of financing it.

At the end of the day, I personally wouldn't trust many of the strata councils with huge sums of money.

You get a lot of idiots on strata councils that don't know what they are doing. ANYONE in the building can be on the council if they get elected. There is no competency requirement.

Just Jack said...

If I were managing a fund and looking to develop a long term income stream for that fund, I would really like to get into the Special Assessment market. Where the fund would provide the cost to remediate the building and each owner would pay a monthly fee added to their current strata costs.

But the condominum act would have to be altered to allow strata councils to enter into this type of agreement where there would be an assignment of a portion of the monthly strata fee collected before, during and after any remediation.

Buckets of cash to be made.

The government should provide the environment to allow free enterprise to fill this gap - not enforce it through band-aide legislation that adversely affects property owners.

Just Jack said...

I'm not to sure that the Strata Council can get Conduct of Sale for non-payment of strata fees. And I don't think they want to either.

As Marko implied, if they are not making their strata payments they're likely not making their mortgage payments either.

A Mortgage is in first position to be paid. Going for a Conduct of Sale would just cost the strata council legal fees and at the end of the day the mortgager will take all of the money anyway.

The Strata Council is just left with putting a lien on the property that would have to be paid when the condo owner refinances.

Dave said...

If you give an owner a depreciation report and tell him or her we need new elevators in 10 years, plan ahead as we have decided to issue a special assessment at that time, and they choose not to, their problem.

Forgive my ignorance, but in terms of a prospective buyer, how do you get your hands on the depreciation report? Even the minutes - do you get them from your agent? Do you just ask the council president for them somehow? How do you know how much the contingency fund is?
If I was looking at that Oak Bay complex I'd want to know if the report said a new roof was due next year and the council has chosen special assessment to raise the funds.

Dave3

Marko said...

Forgive my ignorance, but in terms of a prospective buyer, how do you get your hands on the depreciation report? Even the minutes - do you get them from your agent? Do you just ask the council president for them somehow? How do you know how much the contingency fund is?
If I was looking at that Oak Bay complex I'd want to know if the report said a new roof was due next year and the council has chosen special assessment to raise the funds.


You get it all from a REALTOR®, who gets it from the strata. A strata package can be upwards of 200 pages of strata plans, minutes, bylaws, financials, form B, depreciation report, etc., etc.

However, calling the council president and having a chat with him or her to get a "feel" for the council is also not a bad idea.

caveat emptor said...

A Mortgage is in first position to be paid.

Incorrect. This is one of the few cases where the bank doesn't get the first pound of flesh. See Strata Property Act Section 116(5)

(5) The strata corporation's lien ranks in priority to every other lien or registered charge except....

The except does not include a normal mortgage

Renter said...

@Dave

Back when I owned a condo and had the "joy" of being on the strata council, the deal was that your realtor asked the council for the minutes from the last couple of years. One of the changes we made was to just post all of the non-confidential strata business publicly on a web site so that everyone who was interested could just go get it. By non-confidential I mean you could see that some units were in arrears, but not who they were or by how much, or that some unit was breaking rules, but not which unit, etc. I wouldn't be surprised if other buildings started doing the same thing since. It's worth a google, anyway.

We had one unit that never ever paid their strata fees. We'd follow the arrears procedure to the letter - 3 months of reminders, take them to court, they'd have to pay up and all the court bills. Over and over and over again for years. I'd also see that same unit up for auction by the city unless they paid their property taxes - which at that point they would. They always just made everyone force them to pay up instead of doing so as a matter of course.

caveat emptor said...

I'm with Marko on the special assessment issue. The last thing you want is a condo board sitting on a huge chunk of change for repairs that are 20 years in the future. Even if you have an astute board now, there is no assurance that a bunch of dimwits won't take over the helm.

That said if the special assessments are coming every couple of years then the fees aren't high enough. Ideally the condo board would use the depreciation report (1) to set fees appropriately such that special assessments only happen every five years or so and (2) to inform owners about when they might expect special assessments

Tweev said...

Jesus, who are these guys kidding?

http://beta.realtor.ca/propertyDetails.aspx?PropertyId=13747103

koozdra said...

Hmmm.. the price needs more eights.

Dave said...

Thanks peeps.
Dave3

totoro victoria said...

">> you forgot to account for principal repayments I think JJ.

Doesn't matter. The money is gone regardless of how much of the mortgage you paid off."

It does matter.

If you bought for $226,000 with $50 000 down from the folks (interest free we assume) and sold for $178 000 you lost $48,000 on paper.

At the end of year six you owe $145,700 on the mortgage.

This means when you sell you are looking at a loss of approximately $15,000 - not $48,000 - assuming you would have paid the same to rent during this period.

Marko said...

Jesus, who are these guys kidding?

Well $250 per square foot plus the lot equals asking price give or take.

Tweev said...

They are going to be sitting on that house a looong time at that price.

Just Jack said...

At the end of year six you owe $145,700 on the mortgage

And your parents
And the agent(s)who sold your home

patriotz said...

If you bought for $226,000 with $50 000 down from the folks (interest free we assume)

Well why not go all out and assume the whole purchase price interest free from Mom and Dad. You've come out ahead.

Leo S said...

This means when you sell you are looking at a loss of approximately $15,000 - not $48,000

Where does $15,000 come from?

You bought something. It declined in value by $48,000. That means you lost $48,000 on that purchase. It doesn't matter if you borrowed the money from a russian mobster or won it in the lottery.

>> assuming you would have paid the same to rent during this period.

That's not the topic of discussion. Yes we can do a rent vs buy analysis to see how losing $48,000 on the condo compares to rental costs over that time, but you are claiming the equity influences the loss, which it clearly doesn't.

Just Jack said...

The balance of your mortgage maybe be $145,700, but you still had to pay the bank back $176,000. That mortgage paydown is a debt the home owner owes to the bank. It isn't the home owners money.

That's an error that the broker did in his calculation with the Esquimalt condominiums. You can't deduct mortgage paydown from your monthly payments and call it a net payment.

The game is to confuse the buyer into believing that mortgage paydown is their money. It isn't - it's just retiring a debt a little bit each month so that in 10 years if you sell the condo you won't have a big wad of debt to payoff.

Mortgage paydown is what you pay back to the bank. It isn't created wealth that can be deducted from your cost of ownership.

patriotz said...

Yes we can do a rent vs buy analysis to see how losing $48,000 on the condo compares to rental costs over that time

You have to add operating expenses of ownership to that $48K capital loss to make a comparison with rental costs, which of course are the operating expenses of renting.

The operating costs of ownership in Victoria exceed rent all by themselves, which means you lose money even if you break even on the sale.

caveat emptor said...

The operating costs of ownership in Victoria exceed rent all by themselves.

Loanership - yes. Actual ownership quite unlikely IMO. But you do get a pretty crummy net return on your 400-800 K of capital tied up.....

Just Jack said...

In order to access the capital in your home you have to convert equity into debt.

Or you can sell the home and not incur debt - but then you'll have to move.

The other thing is if you have a hundred thousand in a savings account. It's a very safe bet that in five years you'll still have a hundred thousand in your account.

Based on the past five years, it's likely that the equity in your home will be less five years from now.

When it comes to liguidity and the security of the capital invested between a home and a savings account -

I'll take the cash.

caveat emptor said...

@JJ
I'll take the cash.

Me too. But I was talking about investment ownership not owner-occupier.

Personally I think it would be idiocy to tie up 500K in a SFH to rent out, earn a net return of 3% a year or less and bear the risk of a market decline when you could get almost the same return guaranteed in a GIC with zero transaction costs.

The SFH market in Victoria is not a viable moneymaking investment by and large IMO.

To me that is a separate decision from wanting and being able to afford a house to live in.

totoro victoria said...

"You have to add operating expenses of ownership to that $48K capital loss to make a comparison with rental costs, which of course are the operating expenses of renting."

You have to add operating expenses and subtract principal payments. You then need to adjust for the plus or minus difference between what you would have paid for rent.

I agree ownership costs exceed rent in Victoria if you have a large mortgage and even if you don't have a large mortgage the equity could be making you money in another way.

Of course that equation shifts the other way if you have rental income to offset ownership costs.

totoro victoria said...

Principal payments are debt repayments but their positive effect on your equity is real and needs to be accounted for at point of sale when depreciation/appreciation is realized.

If you would have rented anyway you need to do the rent v buy calculation including all costs/benefits to know how much you actually gained or lost by owning over the time period.

totoro victoria said...

"The SFH market in Victoria is not a viable moneymaking investment by and large IMO."

Agreed. The only way it might make financial sense is if you are paying more in rent and you plan to stay longer term and you think prices will eventually rise.

In Victoria you need a house with a suite to have positive cash flow with 10-20% down imo. It is not a good investment market.

totoro victoria said...

"Where does $15,000 come from?"

Only from the rent v buy calculations.

If you would have stayed at home with your parents for free then you don't need to do this calculation. Otherwise, imo, you do.

Leo S said...

If you would have stayed at home with your parents for free then you don't need to do this calculation. Otherwise, imo, you do.

Except this is not a rent vs buy analysis. It's a simple buy asset for X, sell for Y. Gain (or loss) = Y-X.
Which part of Y is used to repay the bank and which part is left over doesn't impact the gain/loss.

Garth Turner seems to be confused about this issue, as he has stated multiple times that it makes no sense to pay off a depreciating asset. When in fact once you take on the debt, the rate of return from paying it down is completely independent from whether it is appreciating or depreciating.

Leo S said...

You have to add operating expenses of ownership to that $48K capital loss to make a comparison with rental costs, which of course are the operating expenses of renting.

Sure, there are a million things that aren't included because it's not a comparison to renting.

Just Jack said...

Any positive effect on your equity is negated in that you had to pay that exact amount back to the bank.

You're just not accounting for it when you look at the difference of what you sold the home for and what you paid for the home. It would be more transparent if you had had an interest only loan. Then the full amount of the mortgage would have to be paid when you sold the home.

What you are doing is giving someone, such as a bank, a thousand dollars today to save for you. Ten years later that person gives you back that thousand dollars.

Did you make any money? Of course not. What you had was a forced savings plan that paid you no interest and paid you back with inflated money. And if you wanted to access this mortgage paydown before you sold the house then the bank would charge you interest.

I don't think any person would walk into a bank and ask for this kind of savings account.

totoro victoria said...

"Except this is not a rent vs buy analysis."

We have a difference of opinion. In my opinion, if you would have rented otherwise you always need to account for this at time of sale for overall accuracy in evaluating the investment. In your opinion, you don't.

Just have to agree to disagree on that one because in the real life of a Victoria house owner I don't see the logic of asset appreciation/depreciation analysis if it is space you otherwise would have had to rent.

JJ - No, any positive effect on your equity is not negated by the fact you paid your mortgage to the bank. Principal comes back to you when you sell and if you would otherwise have spent all or part of the money on rent this needs to be factored.

Appreciation/depreciation may raise or lower your equity position - it is a separate factor.

What you are doing is leveraging your investment with a mortgage loan. How that works out long-term is unknown.

Historically it has worked out very well for most homeowners. They got back at least $2000 for every $1000 (for which they only had to put $50-$100 down of their money) over that ten year period due to appreciation alone, plus a significant amount of principal pay-down which would might otherwise have been spent on rent and become non-recoverable.

Going forward I don't know if appreciation will match inflation, probably not for the next bit. It only matters if you have to sell when prices drop.

Long-term things seem like they should work to homeowner's benefit based on past performance, but who knows.

Just Jack said...

The principle comes back to you - because you prepaid it to the bank. Now you can take those prepaid payments and the balance of the mortgage to the bank and pick up the Title to the property.

You owed the bank. You had a mortgage and the bank held the title to the property. The home didn't become your property until you paid back the loan.

You haven't accounted for that in your calculation.

When you sell. You take all of those principle payments and the balance of the mortgage and exchange it for the Title to the property.

Until you pay off the mortgage you don't have Title. In the case of the condominium that Title will cost you $176,000 of which you have prepaid $45,700.

You bought the condo for $226,000
You took out a mortgage for $176,000.

You sold the condo for 178,000
Less the total cost of the mortage $176,000

That left $2000 profit to pay back the parents who lent the $50,000 downpayment. That's still a $48,000 loss.

Just Jack said...

Say the condo owner had leveraged their purchase 95%.

I would think that the only way that these people were able to move on in their lives was because they had 20 percent down.

If they had financed at 95%, and didn't have access to lots of money to make up the difference, the bank wouldn't have let them out of their mortgage.

Now they're caught between a rock and a hard place. They've outgrown the property and need to move.

They can't rent it and cover their costs. They can't sell it because they're upside down in the mortgage. Owing more than the condo is worth.

What can they do?

Load up their RRSP's, max out the credit cards. Stop making mortgage payments and declare bankruptcy after dicking the bank around for two years.

7 years later, they will be living in a new home with a new mortgage. And the rest of us will be paying higher user fees at the bank.

And life goes on.

totoro victoria said...

"You haven't accounted for that in your calculation."

I'm not sure what you are talking about. Perhaps if you provided an example with some numbers I could understand it better.

The point with the $176,000mortgage is that after 6 years you owe $143 000 because of principal payments.

If you sell for $178,000 you lose $48,000 from the original purchase price BUT you get to add back the principal payments if you would have rented at equal cost reducing your overall loss to $15,000 plus transaction costs.

If you would have rented for less than the cost of ownership you need to add more to the loss. If you would have stayed with your parents for free you should never have bought.

totoro victoria said...

The most recent stats on bankruptcy show that the rate has declined significantly since 2009 and that BC has a significantly lower rate of bankruptcy than the Canadian average.

I'm not sure the fear-mongering has any credible basis JJ.
http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br01820.html

koozdra said...

That data is so 2011.

Leo S said...

> We have a difference of opinion.

No we don't. This was the initial scenario:
Condo bought in 2007 for $226,000, sold in 2013 for $178,000.
To which Just Jack said "you lost $48,000 on the re-sale".

Then you said: "you forgot to account for principal repayments I think JJ" implying that principal payments would reduce the loss.

This is just plain wrong. How much of the mortgage remains is completely irrelevant to the calculation of loss. The loss is $48,000 on that investment. Period. End of story.

So then you changed the argument to a rent VS buy analysis. That's fine, it's another way of looking at it but certainly was not what you said at first, which is that principal payments affect the loss (which they don't, in case I haven't said that enough).

So let's look at rent VS buy.
Buying:
$226,000-$50,000 down, so you have a conventional 25 year mortgage of $176,000. Back then 5 year rates were around 5.5%, but say you refinanced halfway through at lower rates for an effective rate of something like 3.5% over the 6 years.
So over 6 years
Interest on the mortgage: $33,767
Property Taxes: ~$6000
Strata: $14,400
Extra Insurance: $2000
Maintenance: $1000
Selling costs: $5500 (with a discount realtor)
Loss of $48,000 on resale:

Total cost of owning: $110,700

Rental costs:
2 BR, older building, not a great location, about $1150/month?
Rent: $82,800
Earnings on the $50k @ a very safe 3%: $9,700

Rental cost: $73,100

The principal payments still are not a factor.

So it costs an additional $37,600 to own that place rather than rent it. Nowhere do we get to $15,000.

totoro victoria said...

Site search not working for you? The Superintendent of Bankruptcy has lots of other stats.

In 2012 consumer bankruptcies declined from 12,283 to 11,891 and -6.8% to the end of June 2013.

http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/h_br03143.html

totoro victoria said...

I never changed the argument, that was always my point. You may choose to treat this as a different equation but that ignores the reality of ownership.

A home is not like a stock because you normally have to pay for shelter as part of the cost of living.

You cannot fail to account principal payments upon disposition IF you would otherwise have rented for a similar cost to your mortgage plus expenses. Your calculation puts renting as less expensive which changes the end numbers and your interest rate is slightly higher than the one I used.

Only accounting for gain/loss on purchase price is like saying 'I make a hundred grand a year' without accounting for taxation. Some will maximize their deductions and some won't, some will take the money as dividends, but the real figure is take home and not gross.

You cannot add lost opportunity costs to the $50,000 lent by the parents unless they would have given the money to you to invest if you were a renter. Seems unlikely on the facts but I agree that this would normally be a factor.

I also agree that you have to add in the whole costs of ownership and your figures are reasonable. In your scenario the difference would not be $15,000 because your cost of renting is lower than owning. Your end figure is $28,500NOT $48,000 - not accounting for lost opportunity costs on the loan from the parents.

patriotz said...

A home is not like a stock because you normally have to pay for shelter as part of the cost of living.

You need to pay for all kinds of things. A stock pays dividends which you can use to pay for anything you want, including rental accommodation.

A home provides accommodation the value of which is the market rent minus property expenses. You can rent this accommodation out and use the money to pay for anything, or live in it yourself in which case you are selling its use to yourself.

The difference you claim does not exist. You are claiming that there is something special about shelter, but there isn't. It's just another living expense.

totoro victoria said...

"A stock pays dividends which you can use to pay for anything you want, including rental accommodation."

Correct. However at a safe 4% withdrawal rate from your stocks you would need $500 000 of your dollars invested to pay a mortgage or rent of $2000/month. Most people don't have that kind of cash.

My point is that what you would have paid in rent during the same period of ownership is a valid factor when assessing the performance of your primary residence as an investment.

If you buy a home with financing approx. 30% of your mortgage payment goes to equity in the early years and this increases over time.

A mortgage has the power of cost effective leverage giving you $500 000 of buying power for a payment of $2000 a month - approx. $600 of which goes to principal in the beginning.

In order to identify your ROI you need to account for what you would have otherwise paid for shelter as a renter during this period imo vs. total expense of ownership plus or minus appreciation/depreciation.

If you would have paid much less in rent and invested the difference maybe you don't come out ahead as an owner at all.

In our case, on the NYT calculator without rental income, the crossover point in which buying was better was 18 years. With rental income buying is better from year one as we spend less than renting and can invest the difference.

The value of a primary residence is not only in the rental price. The financial value of a home is judged, imo, by your financial position calculated at a point and time and comparing where you would have been as an owner vs. a renter.

If you disagree with my view on this it is fine.

Here is the NYT rent v. buy calculator. The calculator adds the principal paid to the positive side of the balance sheet when comparing rent v. buy. Just because you buy a home at a certain point in time doesn't mean the calculations don't continue to be valid or meaningful to real life imo: http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0

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

The New York Times shows both the paydown and the interest paid each month as a cost to the home owner.

You're paying for the use of the money and retiring a debt. That's a cost.

When you sell the property, you recapture the paydown.

You give me $10,000 to hold for you. Ten years later I give you back your $10,000. How much did you make?

totoro victoria said...

I guess the basic answer is you made whatever the percentage your home appreciated in 10 years on both equity and leveraged debt adjusted for the rent vs. buy calculation which includes lost opportunity costs on your ten grand.

Remember you don't get to leverage the debt without repaying - it is not like they are holding your ten grand and you are not getting anything for it - it is part of the package of home ownership.

The NYT uses 2% per year as a benchmark for appreciation (you can adjust it). 2% seems poor (although better than today's market) but you get this on the whole leveraged amount and not just your down payment or your equity.

If my house which was purchased at $720,000 at time of purchase it would have gained 21.9% (accounting for compounding 2%) in ten years.

I'd invest in that if the overall equation shows a gain in excess of renting and investing the difference. In our case it does.

In our example, our $720,000 home would be worth $877,675 in ten years. Of that if the the $10,000 was part of the down payment which financed $100,000 of the debt would have returned $21,900.

If we are talking about the $10,000 applied to equity through debt servicing payments I'm not sure how to calculate the return on this accurately prior to disposition/sale.

I would fall back to the sales point position - complete rent v. buy analysis adjusted for appreciation and depreciation.

totoro victoria said...

"You're paying for the use of the money and retiring a debt. That's a cost.

When you sell the property, you recapture the paydown.

You give me $10,000 to hold for you. Ten years later I give you back your $10,000. How much did you make?"

You are paying for the use of borrowed money that is for sure. It is part of the package and part of the overall return. The lost opportunity cost on your ten grand comes off at the end when you calculate your overall gain/loss.

How about we compare to renting because that is reality?

You pay $24,000 for rent a year for ten years (adjusted 3% for rent increase) and get none of this back but you do get the difference between owning vs renting over the ten year period (assuming you invested the down payment amount and any difference in cost).

totoro victoria said...

"I guess the basic answer is you made whatever the percentage your home appreciated in 10 years on both equity and leveraged debt adjusted for the rent vs. buy calculation which includes lost opportunity costs on your ten grand."

I don't think I am correct. It is the lost opportunity costs on the difference between renting and owning which may or may not be ten grand.

In our case we have no lost opportunity cost because owning is less than renting only because we have rental income.

Many SFH without rental income in Victoria will likely have large lost opportunity costs for a number of years.

patriotz said...

In our case we have no lost opportunity cost because owning is less than renting only because we have rental income.

That has nothing to do with opportunity cost, which is the return you could have got elsewhere on the capital payments (i.e. downpayment + principal part of mortgage payments).

totoro victoria said...

Maybe.

It would have been more accurate to say that our lost opportunity cost calculated at a conventional rate of return is much less than our gain on these funds through investing in a primary residence with rental income.

CS said...

Here's a quote that will amuse Info, from Steve Keen's "How to Spot a Housing Bubble":

The only clear conclusion [from Bank of International Settlements charts] that surprised me [is that] Canada does not have and has not had a housing bubble. Its price index is exactly where it was thirty years ago. I’ve just spent some weeks in Toronto, and its horizon-to-horizon condominiums and cranes seemed to reek of a bubble – but apparently not.

koozdra said...

Of course Canada doesn't have a housing bubble. A bubble isn't defined by how ridiculously bubbly it looks. A bubble is defined by it's pop. Our housing market is more of an inflated gas bag. When it pops we will be able to label it a bubble.

CS said...

Sorry, the link to Steve Keen's article doesn't work. Try this:

http://www.businessspectator.com.au/article/2013/10/15/economy/how-spot-housing-bubble-it-bursts

There you can see from the BIS Real House Price Index for Canada that our housing market is no gas bag, it's a flat line for 30 years. Well that's what the BIS says.

totoro victoria said...

That is an interesting article. Whether we are in a bubble or not my take on it is that we will continue on fairly flat and that interest rate hikes would result in greater debt load and prices wld drop a bit.

totoro victoria said...

That is an interesting article. Whether we are in a bubble or not my take on it is that we will continue on fairly flat and that interest rate hikes would result in greater debt load and prices wld drop a bit.

Just Jack said...

I don't think we are in a bubble either. As long as inventory remains steady, this demand-driven downward drift of prices is only a correction.

It can turn into a bubble, if inventory increases significantly. Then that would be a supply-driven downturn - and we would just be f$%$ed.

Just Jack said...

You can't paint this market with one brush. On one hand I don't think we're in a bubble, then I take a look at some sectors of the market and just think holy crap.

Like Westshore condos. A one-bedroom condo along Goldstream that was bought in August 2008 at $205,000. Originally listed a year ago at $265,000. Re-sales today for $167,000. That looks like a bust to me.

A 2-bedroom CO-OP condo along Beach drive in Oak Bay sells for $187,000. Really if you're 75 years old and moving to Victoria - do you really have to worry about the re-sale market!? Buy a co-op and spend the rest of your money on expensive scotch and cheap hookers. Or spend $430,000 on a strata condo, go to Church drink tea and will the condo to your grand kid. Who will sell it - and spend the money on expensive scotch and cheap hookers.

Marko said...

Monday, October 28, 2013 8:00am

MTD October
2013 2012
Net Unconditional Sales: 433 373
New Listings: 828 1,068
Active Listings: 4,338 4,876

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

Just Jack said...

So what is one of the "hottest" market segments right now!

It's manufactured homes in parks on leased pads.

Sales have doubled from this time last year.

Makes sense (cents) to me. Sell the Mcmansion and buy a cheap place to live until the market corrects. And you can't get cheaper than $25,000 for a single wide.

fatjay said...

Interesting article from Steve Keen. I am very surprised that he doesn't consider the obvious issue with the Canadian data (and all the graphs for that matter): choosing the start date.

For Canada it is indexed to what looks to be roughly 1981 and it promptly plunges about 25%. If it were indexed to 1985 the graph would look much different.

The line spends most of the last 30 years below the index because it was indexed close to a peak. Two other peaks occur in roughly 1990 and 2009, but the line is smoothed out in relation to other countries on the graph because the original index starts at a high point.

I would also be interested to know what house price data they could possibly be using that tracks reliably back to 1981 (possibly averages? hopefully not a quality adjusted index like the New Housing Price Index).

The only interesting trend I might take from that data about Canada without any further info is that housing costs in Canada appear to track inflation more closely than in other countries. Although, I would be more likely to conclude that they're using bad data - especially since the graph shows declining real prices between 2000-2005 and only moderate gains from 2005-2009.

Leo S said...

> That is an interesting article.

Except the data is bullshit. If the index says real prices declined in the 2000s then the index is not a reflection of reality

koozdra said...

816 sqft Duplex in East Sooke

Are you ready for this...
$429,000

"Did we mention they come fully furnished?"

koozdra said...

COURT ORDERED SALE. Great Family Purchase.

How long has this been a court ordered sale? I guess it's true what they say, "nobody needs to sell".

Who pays the property tax on this while the court twiddles it's thumbs waiting for the "right buyer"?

koozdra said...

This is new. Put the court date in the listing with the accepted offer. Maybe fish out a higher offer.

ACCEPTED PRICE $400,000, COURT DATE NOV 6 @ 9:45AM

koozdra said...

Hidden costs of suburban sprawl in the billions: B.C. economist

"The study, set to be released on Monday by the University of Ottawa think tank Sustainable Prosperity, says the real estate mantra “drive until you qualify” is part of the reason suburban sprawl is outpacing the rate of growth in city centres by more than 160 per cent."

totoro victoria said...

Actually Steve Keen has said there is something wrong with the Canadian BIS data and he is doing a follow up post soon.

http://www.debtdeflation.com/blogs/2013/10/28/will-the-souffle-rise-twice-3/