Wednesday, November 13, 2013

Nov 13 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.


November 2013November
 2012 
Wk 1Wk 2Wk 3Wk 4
Unconditional Sales140



366
New Listings276


706
Active Listings4118


4488
Sales to New Listings
51%



52%
Sales Projection490



Months of Inventory
12.3

Teranet out and it is turning negative again.  With the strong growth in the Alberta housing market we are no longer just almost the weakest market in the country over the last 5 years.

Up in Rupert right now where you can buy this beauty for $39,500,  and the most expensive house currently for sale costs $459,000.  It sure rains a lot, but the place has it's charms, with a mix of Cowichan Bay, Victoria, and east coast..   Time to invest before they put in the pipeline?

91 comments:

koozdra said...

One hundred thousand dollars.

If one won this amount of money in the lottery one would say wow that's a lot of money. You would sit back and think what should I do with this large sum. Renovate the house? Go on vacation? Buy an investment rental? A new car perhaps (not buy, of course, but finance).

But what happens when you have these kinds of winnings happening all over the country? What happens when the typical house goes up that amount in ten years? What happens when the government is willing to insure home equity lines of credit for a large proportion of your homes value?

Maybe you could not notice that your country is in recession. Maybe delinquency rates would drop. Everyone is rich after all.

I could just be a pessimist. Delinquency rates might be dropping because Canadians are becoming more prudent money managers. Hard to reconcile that with the ballooning personal non mortgage debt. But hey, I'm not an exert.

This is such an amazing time. Before in capitalism you had to get investors to raise capital. Now all you need is to be one of the 70% of people that have owned real estate for at least ten years. Money flows forth in the economy.

Everybody is so confident about the economy because they have a personal stake in the outcome. "be careful what you wish for" they might say. A housing crash would scuttle the economy. That's just crazy talk. That can't happen here. My normalcy bias prevents me from even imagining a situation like that. Let alone prepare for. I don't want to be left out in the cold while my neighbor makes "mad cash" from the real estate market.

As long as interest rates stay low the recovery is ongoing. I hope they'll never rise. Debt growth is the replacement for salary growth.

Sorry guys. Tough economic times. Tough? Looks how well my real estate investments are going. I don't even need a salary increase.

caveat emptor said...

One thing I find interesting is that Edmonton is actually down further from peak than Victoria.

Surprising since the economy seems to be booming there (definitely relative to Vic.) and they are building new houses at a frenetic pace.

Just Jack said...

A 3,200 square foot estate set on 2 acres of level land in Brentwood Bay originally sold for $920,000 in April 2006 has just re-sold for $820,000.

That pushes prices outside of the core back to 2005 levels just before Flaherty introduced the zero down and 40 year amortizations.

What would that mean for the urban core? Back in the fourth quarter of 2005, the median price for a home in the core districts was $445,000. Today, the median is $570,750. Prices in the core would have to decline 22 percent to match what is happening just 10 miles away from the city centre.

Marko said...

A 3,200 square foot estate set on 2 acres of level land in Brentwood Bay originally sold for $920,000 in April 2006 has just re-sold for $820,000.

The 2006 transaction wasn't listed on MLS® which always raises a question mark as it wasn't exposed to the market.

caveat emptor said...

@Jack

This one?

While I agree with you that areas outside the core have fallen harder in general, I'd hesitate to hang too much on one sale - particularly an estate sale.

Also i think with newish houses you have the depreciation aspect to consider. Not much difference between a 93 year old house and a 100 year old house, but big difference between a 3 and 10 year old house....

SilverSurfer said...

"The 2006 transaction wasn't listed on MLS® which always raises a question mark as it wasn't exposed to the market."

LOL! Like MLS is "the market", hey there's no trademarks on "the market" btw, so MLS can't claim it is "the market.

BTW, how's y'all real estate holding up? Soon I will be able to buy the average house in victoria for only 1,000 bitcoins, but if I wait a year, probably a fraction of that.

Dave said...

"but if I wait a year"

Isn't that what you said on silver and then silver fell in half?

koozdra said...

New house prices fall, but real estate sector still strong

"Canada’s relative economic health, especially compared to our neighbours to the south, has kept residential real estate strong, says the report, released Wednesday."

Or is it the other way around?

Is this our 2005?

Just Jack said...

Real estate agents facilitate the exchange between buyer and seller. No one needs to have an agent sell their property. However, the more exposure to the market the better your chances of getting a faster sale.

A few years back, I looked at the home prices that full commission agents received versus "discount" agents. The difference between the two was minor. The full commission agent got only 2 to 3 percent more for the property they sold versus the other agent. It really didn't matter how "good" they were as an agent - the market sets 97 to 98 percent of the price. The rest is just talking the property up.

The building is 6 years older and has depreciated. But the property still sold less than it did in 2006. If you want to say that it was all due to depreciation that's fine, except houses in the core aged and their prices have yet to retrench to late 2005 levels.

Is this hanging everything on one sale? Possibly. Yet, this never happened when the market was hot back in the 2010's. And a correction has to start with one sale, then another, then another ...

As it is now, I find no evidence that our prices will remain stable as long as the prices outside of the core districts continue to decline.

Right now there are 730 homes for sale in the Western Communities and Saanich Peninsula compared to 592 in the urban core. Its like two earthquake plates rubbing against each other. Eventually they have to equalize again.

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

. . . . Percentage Price Decline From Peak (MLS HPI) . .
. . . . . . . Greater Victoria Single Family Homes . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 3.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 3.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 5.0%. .X. X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 5.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 6.0%. . . . . . X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 6.5%. . . . . . . .X. X. X. . . . . . . . . . . . . . . . . . . . . . . . . .
- 7.0%. . . . . . . . . . . . . . . X . . . . . . . . . . . . . . . . . . . . . . .
- 7.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 8.0% . . . . . . . . . . . . . . . . . X. . . . . . . .X. X. X. . . . . . .
- 8.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..X. . . . .
- 9.0% . . . . . . . . . . . . . . . . . . . X. X. X. . . . . . . . . .X. . .
- 9.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X .
- 10.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-----------------------------------------------------------------------
. . . . . . . M. J. J. A. S. O. N. D. J. F. M. A. M. J. J. A. S . .
. . . . . . . . . . . . . .2012. . . . . . ./. . . . . . . . 2013. . . . . . . . . .


Greater Victora single family home prices have declined 9.7% from peak, according to the MLS home price index (real estate boards).

We all know that real estate boards have a vested interest in keeping house prices high and that some real estate boards in Canada have recently been caught manipulating the data that they realease to the public.

It is, therefore, likely that Greater Victoria SFH prices have declined at least 9.7% from peak and unlikely that the decline from peak has been less than 9.7%.

The 3-month SFH median data certainly supports this. Upper end SFH prices have declined 10.6% from peak and lower end SFH prices have declined 13.3% from peak.

The bankers behind the Teranet HPI (all property types) claim that the total price decline from peak has been less than what the MLS HPI data suggests. But we all know that both bankers and realtors have a vested interest in keeping house prices high.

Again, if realtors are willing to admit that Greater Victoria property prices have fallen 10% from peak then it is likely that the actual decline from peak is at least that much. It certainly makes the Teranet data look questionable.

totoro victoria said...

You keep talking about vested interests. If someone is renting but wants to buy would they be invested in a theory that sees a bubble bursting and dramatic price drops?

caveat emptor said...

Is this hanging everything on one sale? Possibly. Yet, this never happened when the market was hot back in the 2010's. And a correction has to start with one sale, then another, then another ...

If that one sale was all we had to go on then sure - looks like Central Saanich has rolled back to 2005 levels. But as a matter of fact we had 18 SFH sales in Central Saanich last month. What's the bigger picture?

As for depreciation it seems to me that a 3 year old house (2006) will depreciate significantly in an additional 7 years (2006-2013). Most of the houses in the core are 30-80 years old. I wouldn't expect them to depreciate much in 7 years

koozdra said...

"Most of the houses in the core are 30-80 years old. I wouldn't expect them to depreciate much in 7 years"

If you take into account why they appreciated so much and so quickly then it's quite easy to see how these rat traps will depreciate even more.

SilverSurfer said...

"Isn't that what you said on silver and then silver fell in half?"

Yeah but this is a new paradigm. This time it's different! Max Keiser even said Bitcoins will be worth $100,000 USD each one day.

Bitcoins will end the Fed, and "money" will be worth more each year.

Also, I converted all my silver to physical bitcoins, so now I can't possibly lose!
https://www.casascius.com/

caveat emptor said...

If you take into account why they appreciated so much and so quickly then it's quite easy to see how these rat traps will depreciate even more.

I don't think you are getting my drift. For a new 3200 sq ft home in Central Saanich a major portion of the value is in the structure. So independent of where the market as a whole is going I could see this place being worth less (due to depreciation of the building) when it is three times as old. For an 80 year old "rat-trap" in the core the vast majority of the value is in the land so there won't be (much) depreciation of the building. That's not to say that the prices in the core can't go down. They could go down rapidly if people readjust what they are willing to pay for land.

That's not "depreciation" in my books though.

For a concrete example. I could burn down my house in Fairfield (100 y.o.)and probably still sell the lot for about 70% of it's current value (with the house). Therefore it stands to reason that the aging of my house (depreciation) can't greatly affect the market value of my property.

Just Jack said...

If I get your drift, you're saying a house depreciates until it reaches its maximum loss in diminshed utility. For example, that could be 60 percent of its current replacement value. As long as the improvements are habitable and rentable there is no longer any loss in improvement value relative to its cost new.

But at some point these homes are torn down and the depreciation seems to go from 60% to 100% immediately. But that isn't what really happens. The improvements to the land are actually suppressing the land value. Only when the home is demolished does the land value rise to its highest and best use as being vacant and ready for new construction.

Your house in Fairfield may have a value of $600,000. And houses that are torn down and the lots sold might sell for $500,000. That doesn't mean your improvements have a residual amount of one hundred thousand. Because you can't sell them separately. Your property value is in situ. It can't be separated.

Introvert said...

Leo, how's homeownership treating you? Do you like where you are?

Introvert said...

HHVers, please take note:

its = possessive (e.g., "its current value")

it's = it is

We can learn the difference.

Seth Perry said...

Introvert, if you get as much joy from mispronounced names as you do from misspelled English, then, sit back and enjoy...

Substitute Teacher: Key & Peele

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

One thing I find interesting is that Edmonton is actually down further from peak than Victoria.

Surprising since the economy seems to be booming there (definitely relative to Vic.) and they are building new houses at a frenetic pace.


The last part of the second sentence answers the first sentence.

patriotz said...

For a new 3200 sq ft home in Central Saanich a major portion of the value is in the structure. So independent of where the market as a whole is going I could see this place being worth less (due to depreciation of the building) when it is three times as old.

I think you have it completely backwards. This is not a house on a regular lot, it's a 2 acre estate. So the structure value as % of total would be lower than for a house on a regular lot in the same area.

When RE prices go down, almost all of the decline is in the value of the land rather than the structure. So in a downturn - which greater Victoria is indisputably seeing - I would expect properties with the largest land component of price to go down the most within a given area.

Marko said...

LOL! Like MLS is "the market", hey there's no trademarks on "the market" btw, so MLS can't claim it is "the market.

I've seen many transactions where private buyers paid above market value for various reasons (they wanted to buy the neighbouring property, etc.)

What I am trying to get at is if this home didn't sell in 2006 for $920,000 privately and had to go to MLS would have it sold for $920,000?

koozdra said...

Average house price in Canada rises 8% to $391,820

Oooh, so close. I hope we break 400 grand mark before the pop.

Marko said...

When RE prices go down, almost all of the decline is in the value of the land rather than the structure.

But bare land hasn't gone down much in my opinion and I follow it on a daily basis.

Why is residential construction at a snails pace? Building lots are still expensive and homes have dropped 5-10%; therefore, the margin to make a profit has disappeared.

caveat emptor said...

"it's = it is"

Hi Introvert
I did notice my mistake immediately after postingbut didn't think a new post correcting myself was a good use of my typing time or HHV'ers reading time....

caveat emptor said...

@patriotz I agree with your reasoning on what is suppressing house prices in Edmonton (and Calgary to an extent).

However last time I advanced that theory here(ease and speed of new development around Alberta's major cities) as a partial explanation for lower home prices in Alberta my reasoning was attacked.

CS said...

Re: its and it's, "We can learn the difference."

Why bother?

"Why are so many people so confused by apostrophes? Because they cant hear them in speech, and they dont serve a valuable grammatical function. They simply mark contraction or possession, and you can tell the meaning without them. If you couldnt, the indignant red-pen-wielding self-appointed correction brigades wouldnt know for sure which ones were wrong because the meaning wouldnt be clear. But they always do know, because the meaning is clear even when the apostrophe is used wrongly or omitted." Source.


Introvert said...

Instead of learning something, I'd rather the world conform to my ignorance.

CS said...

What's ignorant about writing as one speaks, uncluttering the written word by removing a mark that "serves only to annoy those who know how it is supposed to be used and to confuse those who dont," and abandoning a pedantic achaism?

Introvert said...

What's ignorant about writing as one speaks, uncluttering the written word by removing a mark that "serves only to annoy those who know how it is supposed to be used and to confuse those who dont," and abandoning a pedantic achaism?

I'm sure you intended to type "archaism." But I suppose we don't need rules of spelling because I knew what you meant.

Introvert said...

And if we all wrote as we spoke, we would see a lot of "like"s and "um"s. Great!

Introvert said...

When people find the difference between "it's" and "its" tough to grasp, I naturally wonder what other, more important, concepts may be eluding them.

Just Jack said...

Like comma splices?

totoro victoria said...

Every so often we have a grammar day. Martha Brockenbrough would approve.

Introvert said...

Every so often we have a grammar day.

Grammar Fridays! ... How many sessions will it take for most people to learn one of the simplest rules of grammar? Stay tuned to find out!

I could also give out weekly awards such as "Most Improved" and "Fiercest Defender of Stupidity."

CS said...

"we don't need rules of spelling because I knew what you meant."

Exactly.

CS said...

Re: fierce defense of writing that is uncluttered with pointless archaims

And since everyone knows what it means to say "its raining" what, again, is the rational for sticking in an apostophe there or anywhere else?

It's true, by the way, that archaism needs an R, I simply mistyped. But why not rkism? Presumably that's how the text messaging generation will spell it, anyway.

CS said...

"we don't need rules of spelling because I knew what you meant."

Exactly.

Introvert said...

... what, again, is the rational ...

You meant "rationale," which happens to be spelled, pronounced, and defined differently from "rational."

Was this error a typo or did it come from a lack of understanding?

CS said...

rE: Percentage Price Decline From Peak

The MLS HPI may show a 10% decline from peak, but probably shows an increase of a few percent since the post 2007 low. In fact, accordng to the Teranet index, Victoria prices are now exactly where they were six years ago, with little variation during the interim.

So unless one can pinpoint a flaw in the Teranet methadology, it seems necessary to conclude that far from being in a bubble, the Victoria market is set in concrete.

It seems possible, though, that the Teranet index is biased by new investment in old property, i.e., renovation or reconstruction, which very frequently follows the sale of old houses in OB.

So does anyone know how Teranet deals with new investment, e.g., by a flipper, between successive sales of the same property?

CS said...

"Was this error a typo or did it come from a lack of understanding?"

Why not answer the question? Or are you now claiming not to understand the meaning of what would be obvious to almost anyone familiar with the English language.

Come on, give us the rashnarl the apostrophe.

CS said...

Oops, that should be:

give us the rashnarl for the apostroffy.

koozdra said...

"So unless one can pinpoint a flaw in the Teranet methadology, it seems necessary to conclude that far from being in a bubble, the Victoria market is set in concrete."

The problem is that our market has been declining even in the presence of low interest rates. As the national housing market starts to erode, can you see our market starting to pick up?

What will be the magical factor for that? Immigration? Retiring boomers? What will be different?

What will happen is that this market will tank also. It's never happened before but that doesn't mean we can't make history.

Introvert said...

I apologize for digressing. Let us return to accurately predicting housing crashes that never occur.

subprime11 said...

listing on 910 Transit Road, South Oak Bay just sold at $575K, assessed at $654K again setting a new value for all Oak Bay homes of this age and size. Makes me wonder why 2588 Dufferin is still fishing at $718,500. It's time to face the new reality, prices are in correction mode, even in Oak Bay.

caveat emptor said...

Want to know the demographics of the neighbourhood you are living in?

Here's an interesting tool.

http://www.environicsanalytics.ca/prizm-c2-cluster-lookup

Apparently all Canadians have been slotted into 66 demographic groups (with really silly names) and this tool will tell you what the dominant demographic is for your postal code.

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

slo' RE day when all we got t' do is talk 'bout 'postrophes.

caveat emptor said...

shorter info:

Crash baby! Crash!

info said...

"So unless one can pinpoint a flaw in the Teranet methadology, it seems necessary to conclude that far from being in a bubble, the Victoria market is set in concrete."

Incorrect.

Do you have any evidence that "the Victoria market is set in concrete"? All evidence points to the opposite.

Do you have any evidence that the Teranet methodology is reliable and doesn't break down in conditions of extreme upward price skewing?

As I have pointed out, given the fact that some Canadian real estate boards have recently manipulated the housing market data to make it look stronger, it is likely that the actual price decline from peak (all property types) is at least as much as the amount that the MLS HPI data suggests (-10%).

Other data supports this.

Upper end SFH 3-month median data shows a -10.6% price decline from peak.

Lower end SFH 3-month median data shows a -13.3% price decline from peak.

MLS HPI data indicates that Greater Victoria SFHs have experienced a -9.7% price decline from peak.

Canada's housing bubble is much larger than the 2006 US housing bubble (more on this soon).

House prices in Victoria are in bubble territory to the same extent that Miami, Phoenix, Los Angeles and Las Vegas were. We all know what happened in those cities.

SFH prices in Victoria have declined 10-15% (since 2010) in an environment of falling 5-year mortgage rates.

5-year mortgage rates have stopped falling. Falling rates have provided a strong upward force against falling house prices in Victoria. The removal of that strong upward force will allow downward price pressure to become even stronger.

Incomes and rents do not support house prices in Victoria.

Excess credit as a result of lax lending standards is what pushed Victoria house prices into bubble territory - the same basic force that pushed Miami, Phoenix, Los Angeles and Las Vegas house prices into bubble territory.

There has never been an example of a national housing bubble that went through a soft landing. The Canadian housing bubble will not experience a soft landing.

Victoria's housing market has a 10-15% price decline head start on most other major Canadian markets. In the US, the cities that started to correct first, in general, were the biggest price losers.

info said...

@ subprime11

"listing on 910 Transit Road, South Oak Bay just sold at $575K, assessed at $654K again setting a new value for all Oak Bay homes of this age and size... It's time to face the new reality, prices are in correction mode, even in Oak Bay."

That Oak Bay house sold for a full 12% below assessment.

Assessments have been down each of the last 2 years. That house probably sold for 15-20% below peak assessment and/or peak value.

It does appear to be the new reality in Oak Bay and the rest of Greater Victoria.

Your input is appreciated.

CS said...

As the national housing market starts to erode, can you see our market starting to pick up?

That's an interesting question, isn't it. As debt compensates for declining real wages, the only thing possible seems to be more debt. I mean income redistribution is out of the question. Right?

Which is why, presumably, Obama's Fed Chair nominee is promising more QE at least until the next Presidential election.

The idea, I think, is that as real wages erode and the currency declines against the renminbi, etc. the West will eventually attain wage parity with the Rest. Although by that time the Rest will not only have the jobs in all tradable sectors of the economy, but the capital, the technology and the workforce skills too, so we'll still be uncompetitive.

But then more QE, I guess.

CS said...

Do you have any evidence that "the Victoria market is set in concrete"?

Yes, the evidence I cited. The Teranet index almost dead flat for six years. But who knows, as we glide along the smooth pavement, perhaps we'll hit a sinkhole.

The odd house selling a few percent below assessment doesn't mean anything. For every one sold in the last 12 months at 10 or 12% below assessment there have been about as many selling by as much above assessment.

As JJ pointed out, a tear-down is worth less than a bare lot, but the BC Assessment authority values every tear-down, of which we have plenty, above lot value. So naturally some houses sell below assessment.

patriotz said...

it seems necessary to conclude that far from being in a bubble, the Victoria market is set in concrete.

The definition of a bubble for RE (or for any other asset) has nothing to do with patterns of price movements, but with the cost of buying versus earnings (rental value in the case of RE).

CS said...

cost of buying versus earnings (rental value in the case of RE)

You can no more evaluate RE from rental value than you can evaluate stocks by the dividend. You have to look at total return. RE has done well nationally, though not so well locally during the last six years. But looking at the total return on Victoria RE since the millenium, there is no basis for concluding that housing has done poorly compared with stocks.

Or if you want to be technical, Investopedia defines a bubble as:

An economic cycle characterized by rapid expansion followed by a contraction.

But the rapid rise in Victoria RE prices has not been followed by a contraction — yet. So after six years of flat prices it seems unreasonable to argue that Victoria's market is in a bubble.

For the market to collapse there has to be something to change buyer psychology. A sharp rise in interest rates would do it, but that does not seem to be on the cards at least until after the 2015 election.

So what else will do it. A rip-roaring bull market in stocks might be a factor. Conversely, a stock market crash or correction would reinforce the widespread faith in RE as the best of all possible investments.

CS said...
This comment has been removed by the author.
Leo S said...

As the national housing market starts to erode, can you see our market starting to pick up?

Unlikely, but I do see that our 5 years of flatline has reduced the risk of a crash. We are still very vulnerable to increasing rates, but without that we will likely just continue drifting down slowly for a few more years.

Leo S said...

So after six years of flat prices it seems unreasonable to argue that Victoria's market is in a bubble.

Yes. I think this is a very good argument and one that caused me to shift focus to affordability, not prices. Prices cannot be in a bubble because bubbles don't increase and then plateau.
Affordability is/was in a bubble for sure. It declined to very low, almost record levels, and then increased again almost symmetrically. Most of the increase was due to lower interest rates, some was due to lower prices, and some due to higher incomes.

Just Jack said...

When you're talking about flat prices for six years, I assume that is only for detached houses in the core districts.

Because that isn't what is happening in condominiums or detached homes in the western communities or Saanich Peninsula.

Just Jack said...

The ease of obtaining credit has kept prices from crashing. Every other real estate "bubble" around the world had a contraction in the availability of credit before a crash.

Instead the Canadian government eased up on credit requirements and inflated the cost of housing.

We haven't cured the disease we have only treated the symptoms. Thus saying the plateau of prices is proof that there is no bubble is premature.



koozdra said...

Drove by a condo development in Langford. "99% financing" the billboard read.

Perhaps 99% seems less like a scam than 100% financing.

CS said...

Because that isn't what is happening in condominiums or detached homes in the western communities or Saanich Peninsula.

Which raises the question: are the core and edge disconnected and governed by different factors, or is the decline at the periphery the start of a contagion that will take the whole market down.

saying the plateau of prices is proof that there is no bubble is premature.

As Maestro Greenspan said, you can't tell a bubble until it bursts!

A spike in interest rates will surely cause the market to crater. But the probability of a spike in rates seems low. We have low rates because swaths of the economy have been bleeding away to the Third World and low rates are the only means Western Governments have devised to prevent the great depression of the 21st century turning into destabilizing a catastrophe.

It's unlikely we'll regain general prosperity any time soon. So this time (at least since WWII) it really is different. Low interest rates are not a short-term measure, but necessary economic life-support for the foreseeable future.

Low rates may be insufficient to keep house prices elevated. But then even lower rates might do the trick. With central banks raising their inflation rate targets, negative real rates may be in prospect.

SJ said...




So it seems everyone is convinced that if rates go up, prices will go down.

You MAY want to look at LeoS graph he posted on Nov. 1 with fixed interest rates included and "ask yourself, do I feel lucky?"

Take special note of how much rates climbed in 2009 and what happened to prices months later.

Anyone care to explain what's going on here?

Introvert said...

My earlier post got buried amid the grammar discussion:

Leo, how's homeownership treating you? Do you like where you are?

Leo S said...

We haven't cured the disease we have only treated the symptoms. Thus saying the plateau of prices is proof that there is no bubble is premature.

I'm not saying there is no bubble. There is/was for sure. Just that the bubble is in what people were paying relative to their incomes, not in house prices per se. That's why house prices haven't crashed yet because lower rates and increasing incomes were able to bring down monthly payments. Going forward I don't know what will happen. There is no more room on rates, so any further correction will have to come via house prices or increased incomes.

Leo S said...

The decline in condos has been mostly due to overbuilding for the market. Developers have been building like boom times in a very slow market.

The decline in SFHs in the periphery will eventually migrate to the core if it persists long enough.

Leo S said...

Leo, how's homeownership treating you? Do you like where you are?

Good. No surprises so far about the house which is always good on a place that some self-proclaimed handyman has had their mitts on. Like the location, but then again we had long enough to think about it so that's not a surprise!

Introvert said...

Good. No surprises so far about the house which is always good on a place that some self-proclaimed handyman has had their mitts on. Like the location, but then again we had long enough to think about it so that's not a surprise!

Glad to hear it.

Marko said...

Drove by a condo development in Langford. "99% financing" the billboard read.

Perhaps 99% seems less like a scam than 100% financing.


That development is in receivership.

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LeoM said...

So some of you think Spelling and Grammar are unimportant. It's just a missing comma, or a misplaced whatever... One ignorant change compounded with another would soon lead to utter nonsense with the written word.

Right then, lets make some changes:

It finally has been agreed
That English now will be
Officially the language of
Our nations' destiny.

We first considered German but
Consensus has agreed
That English is the proper tongue
To serve our future need.

There'll be a few small changes in
The spelling of some words
Because we've found that many now
Are strictly for the birds.

We've settled on a a five-year plan
To implement this change;
The first year we'll let "s" replase
Soft "c," which may seem strange

And for a while perhaps may make
Our sivil servants sad;
But when the hard "c" next bekomes
A "k" they'll all be glad.

Konfusion will be kleared up and
The sekond year much better
When "ph" is replased by "f"
To save another letter.

Then publikly akseptanse of
This fase kan be expekted
And any komplikations kan
Be kleverly korrekted.

The third year double letters which
Enkumber now our speling
Wil disapear with al of us
Kontent and not rebeling.

The fourth year we wil al agre
The silent "e" 's not neded
And its elimination wil
Be cherfuly konseded.

"Th" wil be replased by "z"
And "w" zen wiz "v"
And ozer useles leters dropd
By law ofishily.

So in ze fifz year ve vil hav
A ritn styl zat's nu;
Zer vil be no mor trubl and
Ze drem vil zen kum tru.

koozdra said...

I think I'd have less problems with spelling and grammar if they were more axiomatic. Instead of memorizing all the stupid little exceptions to the rules I would like our language to have well defined rules. Why is there a k in knife? Just because, that's why. Just memorize it. Obviously the grammarista's will complain about any changes. You know what they say, progress is made one death at a time.

Leo S said...

I think I'd have fewer problems

FTFY

CS said...

One ignorant change compounded with another would soon lead to utter nonsense with the written word.

But apparently not! For example:

Aoccdrnig to rscheearch at Cmabrigde Uinervtisy, it deosn't mttaer in waht oredr the ltteers in a wrod are, the olny iprmoetnt tihng is taht the frist and lsat ltteer be at the rghit pclae. The rset can be a toatl mses and you can sitll raed it wouthit a porbelm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the wrod as a wlohe.

CS said...

There is no more room on rates,

That is not so. At present, rates are still positive by one or two percent, relative to the CPI.

But negative real mortgage rates have prevailed on various occasions in the past and so, presumably, can again.

so any further correction will have to come via house prices or increased incomes.

Increased real incomes are most unlikely. Real incomes in the US and presumably Canada have been flat or declining for more than a generation. With more Americans receiving some form of welfare than a paycheck, the likelihood of increased real wages is between nil and less than nothing.

CS said...

I'm not saying there is no bubble. There is/was for sure.

A bubble involves not only a sharp increase in price but also a subsequent sharp decrease, which is why Greenspan said you can't tell if there's a bubble until afterwards.

Moreover, if there is a sharp increase in price and then a sustained high plateau, can you call it a bubble if the market craters many years later?

I think all that one can say is that there can be eras of high or low price and, currently, we are in an era of high price. That might end in the next couple of years, or it might last for a generation.

Leo S said...

Increased real incomes are most unlikely.

Not necessary though. Incomes just pacing inflation will still improve the affordability picture. You can correct both prices and incomes for inflation but it doesn't matter to the end result.

Moreover, if there is a sharp increase in price and then a sustained high plateau, can you call it a bubble if the market craters many years later?

Dunno. Has that ever happened?

Introvert said...

I think I'd have fewer problems

FTFY


Leo, would that be "Fixed That For You" or "Fuck This Fuck You"? Or both?

Leo S said...

Or FTFI?

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Tren said...

1852 San Pedro Ave sold on Sep 15th at 660k.
again, on Nov 17th sold at 661500 with 329975.... looks like a nice home... what's going on ? the owner is taking a loss?? can somebody tell me more detail about it?

CS said...

Has that ever happened?

Various price series indicates that it has, e.g., the US where prices were relatively stable from around 1890 to 1918, but slumped with the outbreak of the Spanish flu. remaining low until the great post-WW2 credit expansion.

Or in Amsterdam, where prices were high between around 1725 to 1780 and then slumped by more than 50%.

Marko said...

Monday, November 18, 2013 8:00am

MTD November
2013 2012
Net Unconditional Sales: 224 366
New Listings: 408 706
Active Listings: 4,077 4,488

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

caveat emptor said...

The rise of the miserable home owner ?

koozdra said...

"The problem with housing is that it’s expensive compared to our incomes. I will document this further in an upcoming column, but for now let’s just say that mortgages plus other basic costs of day-to-day living, such as cars and daycare, may leave us with little money left over. And so we borrow more through credit lines and credit cards. That’s our unofficial second income."

Carrick really nails it here. In a time of amazing affordability total cost of ownership is just an abstract concept. Till you buy that is. Then the harsh reality of home ownership hits you like a ton of bricks. Wait, are houses still made out of bricks?