Since 2008 we are the second weakest market in the country.
If we look back 5 more years the picture changes a bit.
We can see that Victoria along with the rest of the west got a little overly exuberant in the years leading up to the financial crisis. The relaxation of credit seemed to have no effect in the east, while over here it drove prices very quickly. Back more until 1999 (the earliest year of data for many cities).
This shows the entirety of the boom for Canada. After our extended flat period, we are on the middle to lower end. Hamilton, Toronto, Halifax, and Ottawa have appreciated less in 14 years, while the rest appreciated (relatively) more. Back to 1993, we are once again the weakest link.
In other news the November update is out. The VREB is a sad panda because sales aren't quite as rip roaring as they have been. What with last month's discovery that prices are actually down instead of flat, they are struggling to find something positive to say about November numbers. Well at least prices are up since 2005! "This represents a 36.5 per cent increase since January 2005, when the index was 100".
Funny the headline still says prices are flat, when the article goes on to elaborate that SFHs in the core are down 1.65% from last year, in the peninsula they are down 2.57%, and SFHs in the west shore are down 5.94% in one year.
131 comments:
Thanks! You make me look like a genius at listing presentations :)
Haha. Let me know if you want a particular graph. Been pretty lazy with the updates lately...
Been pretty lazy with the updates lately...
Yes, shame on you, Leo. It's as if you have a life or something.
"It's as if you have a life or something."
Or perhaps a baby/toddler to distract you and keep your hands full!
Interesting charts as always
I try not to look too closely at recent sales these days in case they are significantly cheaper than what we paid.... :)
I try not to look too closely at recent sales these days
Probably a very sane strategy! After we bought in mid/late 2008 I was obsessed with the market for a while, but then relaxed a bit.
When I look at stuff now in our area (Fairfield) it seems like we could get a little bit more for the same money now in 2013, but not dramatically so. That is the picture you'd get from teranet too. Slightly cheaper in nominal dollars than mid 2008.
Listings coming in slowly these days. November was a 10 year low for total new listings at 698.
The decline since the peak in 2009/10 might be more enlightening if we knew the number of SFH that sold in each $50K increment, during each year, from 2008 to the present. For example, how many SFH sold for between $400k and $449K in 2008, and 2009, and 2010, and 2011, and 2012, and so far in 2013. Then repeat for the next price range of $450K to $499K...etc...
The reason I'm suggesting this is that I watch very specific SFH in three separate large neighbourhoods in Victoria, Saanich, and Oak Bay, and the percentage decline in two of these three areas is significantly higher than the graphs.
The only reason I can see for this discrepancy is that the volume-skewing for different price-point SFH properties is much different now than it was at the peak.
A table such as:
____________2008 2009 2010 2011...
$400-449
$450-499
$500-549
...
...
A breakdown by specific area is probably too much work, but even an aggregate by the core areas would be insightful.
That kind of breakdown can only be done by someone with all the data. Best I can do is breakdown by region and dividing that into the lower and higher priced regions as per infos method.
no surprises from the BoC
No slowdown in the construction of Happy Valley. You can get your own detached house. Three feet to the next house guaranteed.
no surprises from the BoC
Love that Bank of Canada.
Generation Screwed
Wow, 42% of Canadians aged 20-29 live at home with their parents.
Are these the same folks that are going to be buying all the million dollar boomer homes?
Wow, 42% of Canadians aged 20-29 live at home with their parents.
Given the expense of both higher education and housing these days not surprising.
Also as far as education is concerned a bachelors degree is the new high school diploma and a Masters or PhD is the new bachelors.
Are these the same folks that are going to be buying all the million dollar boomer homes?
We need HAM! VREB should send a delegation to China.
Wow, 42% of Canadians aged 20-29 live at home with their parents.
Are these the same folks that are going to be buying all the million dollar boomer homes?
I lived at home from 20-24 while making a solid living. I could have bought a condo or rented and moved out; however, by doing neither it allowed me to get ahead. At 25 I had my bachelors/masters/real estate licence and a condo with no debt other than mortgage and just the student loans I acquired when I was 18/19 which I have chosen not to pay off (interest tax deductible). Also allowed me to go travelling for two months on two different occasions during that time period.
In conclusion, living at home might not be a bad idea. Can't say I could do it again but it was worth it looking back.
Also as far as education is concerned a bachelors degree is the new high school diploma and a Masters or PhD is the new bachelors.
Education is overrated in my opinion but at the same necessary. I learned almost nothing doing my masters in health admin at UBC.
A piece of paper is important in order to open some doors but it won't get you far past the initial door if you aren't component in addition. Problem is if you don't have the piece of paper the first door never opens.
@ Introvert
"no surprises from the BoC"
"Love that Bank of Canada."
You are missing the big picture here, Introvert.
First, 5-year mortgage rates increased a full percentage point this year and have not fallen back.
Buyers must qualify under the 5-year rate, not the BoC rate.
Second, that the BoC has kept rates at emergency levels for over 4.5 years is a clear admission by the government that the Canadian economy is weak and fragile, despite unprecedented stimulus spending since 2009. A weak economy is bad for house prices.
Japan's housing market crashed in an environment of 0% interest rates (scroll down to Japan's chart). It took 10 years to inflate the Japanese housing bubble and it peaked in 1991. Speculation was rampant. The party was definitely on in Japan during the inflation of the bubble. Lax lending standards were in full force. 100-year mortgages were available and considered "sound fiscal planning". Those who bought near the peak felt that they had to get in now or be priced out forever. Sound familiar?
However, all housing bubbles burst and Japan's decade-long party ended too soon for too many. The deflation of Japan's housing bubble decimated its economy. Japan considers the time after 1991 to "lost decades" due to the negative effect the deflation of the housing bubble has had on its economy. Japanese house prices continue to decline.
This is clear evidence that housing crashes can play out in an environment of sustained emergency level interest rates.
House prices in Victoria have already corrected at least 10% in an environment of falling 5-year rates. Victoria's economy will continue to weaken as house prices continue to decline and house prices will experience more downward pressure as a result of a weakening economy. This is how it always plays out. There is no turning back now for Victoria.
244 King George just took a beating. Sold for $980,000 a few days ago. Purchased for $1,350,000 in 2011.
Auch.
. . Percentage Price Decline From Peak (3-month median) . .
. . . . . . .(Oak Bay, Saanich East and North Saanich) . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 2.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 2.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 3.5%. . .*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4.0%. . . . . * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 5.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 5.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 6.0%. . . . . . . . . . . . . . . . . . . . . . * . . . . . . . . . . . . . . . . . . . .
- 6.5%. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 7.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . .*. . . . . . . . . . . . . . .
- 7.5%. . . . . . . . . . . . . . . . . . . . . . . . .* . . . . . . . . . . . . . . . . .
- 8.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 8.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 9.0% . . . . . . .* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 9.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .*. .* . . . . . . . . . .
- 10.0%. . . . . . . . . . . . . . . . . . . * . . . . . . . . . . . . . . . . . . . . .
- 10.5%. . . . . . . . . . . . . * . . . . . . . . . . . . . . . . . . .*. . *. . * . .
- 11.0%. . . . . . . . . . . * . . .* . . . . . . . . . . . . . . . . . . . . . . . . . .
- 11.5%. . . . . . . . .* . . . . . . . * . . . . . . . . . . . . . . . . . . . . . . . .
- 12.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-----------------------------------------------------------------------------
. . . . . . . .J. A. S. O. N. D. J. F. M. A. M. J. J. A. S. O. N. . .
. . . . . . . . . . . . .2012. . . /. . . . . . . . 2013. . . . . . . . . . . . . . .
The 3-month median data points to a total price decline from peak of 10.5% for SFHs in Oak Bay, Saanich East and North Saanich.
Considering this data, a price decline of 10.5% for SFHs in these areas looks very solid at this point as the majority of points on the chart have been at or below -10.5% since October 2012.
info, this blog is lucky to have someone who can type so many words.
Problem is if you don't have the piece of paper the first door never opens.
Exactly. Employers are increasingly relying on pieces of paper certifying your education level, so you don't get a chance to prove your competence if you don't look at least as good on paper as the (usually numerous) other candidates.
Once you prove your worth your education (or lack thereof) counts for a lot less. However if you are in the consulting world you still have to sell yourself to clients with your credentials
info I do admire your dedication and perseverance in the dying art of ASCII graphs :-)
In conclusion, living at home might not be a bad idea.
I very much doubt that a large percentage of those 20 something's are choosing to move back in with their parents
I hope my kids stay and save money like Marko did. We have a good set up for that and I view living on your own when you don't yet have a profession or enough for your own place as kind of a waste. Look around the world and you will see it is common in a lot of countries.
Royal LePage Condo Report: ‘Instability' Ahead But No Housing Bubble
“An essential element of a ‘bubble’ is that demand becomes divorced from economic fundamentals and that has not occurred in the markets for condominiums,” Dunning wrote in the Royal LePage report.
Ah demand. That elusively defined term in our housing market. How much of the demand is investor demand rather than demand formed by household formation?
Oh yeah, we don't have any data on that. Fun times ahead.
House prices in Victoria have already corrected at least 10% in an environment of falling 5-year rates.
Leo's data show that SFH prices are down just over 8% from the 2010 peak, but are up more than 7% from the 2009 trough, so for the last six years prices have been essentially flat.
The only way you can argue for a significant downward trend over the last six years is if you adjust for inflation. In that case, there has been a real decline in the order of 10%.
The BoC and the Federal Finance Department will likely strive to maintain nominal prices more or less flat for the foreseeable future. This is good for the economy, at least those large sections of it connected with construction.
The probability, therefore, is that "emergency low rates" will continue for years to come. If that hastens the decline of the loonie, so much the better, since a cheaper dollar will stimulate resource exports, thereby creating jobs and increasing (house) purchasing power.
"The BoC and the Federal Finance Department will likely strive to maintain nominal prices more or less flat for the foreseeable future."
They'll try, they'll fail. It will be hard to control the bursting of the biggest housing bubble in the world (in my opinion).
Uncool Canada
"If Canada is exciting at all in 2014 it will be for the wrong reasons. With household debt and house prices at record levels and mortgage rates creeping up, a housing crash is the biggest domestic risk facing the economy."
When It Comes to the Economy, It Suddenly Seems Canada Can’t Do Anything Right
I very much doubt that a large percentage of those 20 something's are choosing to move back in with their parents
And I doubt many 20 something's understand the difference between a RRSPs and TSFAs.
This is where you will get the divide of those who will be able to afford homes and those who won't.
I doubt that the Bank of Canada will try to save the market if it burst. They'll just let the market forces play out. It has never been their mandate to support the price of a Yaletown condo or a Victoria bungalow. It would and has taken hundreds of billions of dollars just to stabilize this market.
No saving this real estate ship when the main hatchways cave in...
http://www.youtube.com/watch?feature=player_detailpage&v=9vST6hVRj2A
And I doubt many 20 something's understand the difference between a RRSPs and TSFAs.
This is where you will get the divide of those who will be able to afford homes and those who won't.
My point is not that young people can't be successful today. They certainly can. But it takes a lot more savvy and harder work than in some periods in the recent past as evidenced by the poor employment numbers. High youth employment is never a good sign for an economy, and certainly not a good sign for future housing demand.
"The BoC and the Federal Finance Department will likely strive to maintain nominal prices more or less flat for the foreseeable future."
Unlikely.
When housing bubbles burst in Japan, the US, Ireland, Switzerland (1988) etc., there was nothing governments in those countries could have done to stop the inevitable correction/crash of house prices.
Canada is in the same position now.
Canada has already played every card it had that could potentially delay the inevitable bursting of its housing bubble:
1. The BoC overnight rate was 3.0% in late 2008, but it was slashed down to 0.25% and then increased to 1.0%, where it stands today.
The drop from 3.0% to 0.25% in a matter of months provided a big boost to the housing market. That card has already been played. Any drop in the BoC rate now would have a very minor effect on the housing market in comparison to the crashing of the BoC rate from 3.0% to 0.25% in 08-09.
As I have outlined in another post, there is no evidence that sustained emergency interest rates prevent housing crashes anyway.
2. Total mortgage debt in Canada shot through the roof after the unprecedented, emergency intervention that started in 2009. Government backed mortgage insurance through CMHC, Genworth, etc. is also through the roof as a result of that intervention. It is highly unlikely that the government will use CMHC again to the same degree as it did in 2009 to prevent the housing market from crashing.
The government knows that the biggest obstacle that stands in the way of an economic recovery in Canada is too much consumer debt. Canada's household debt-to-income ratio is currently much higher than the ratio was in the US at the peak of their housing bubble. Most of this debt is mortgage debt. It is unlikely that the government will allow this ratio to continue to increase. Consumer spending is 70% of Canada's GDP. If consumers have too much debt, they stop buying tvs, computers, cars, etc. and that stands directly in the way of an economic recovery.
Canada's housing bubble will burst soon and house prices will correct/crash until fundamentals can once again provide price support. This is the way it played out in the US and many other countries.
House prices in some Canadian cities might continue to rise as a result of the current (extreme) housing market stimulus that exists, but the effect of that stimulus will wear out at some point in the future. My argument is that there will be no further (effective) stimulus to stop house prices across Canada from correcting.
I saw a big block of text and knew right away who posted it!
Introvert said: "I saw a big block of text and knew right away who posted it!"
You should try it sometime.
S2 (JJ's wife)
This is where you will get the divide of those who will be able to afford homes and those who won't.
A landlord who rents a property to someone who can't afford to buy it is losing money.
Think that over carefully.
Yes, I've thought that over and I'm not seeing the logic of the blanket statement.
A landlord who rents a property to someone who can't afford to buy it is losing money.
The nice thing about blanket statements is that they only need one counter-example to prove them wrong. This one has plenty of counterexamples.
Just as one really simple example look at several residential REITs in Canada whose entire business model is basically renting apartments to people who can't afford to buy. Yet they are making money.
Or here's an example from my own experience. I can afford to (very occasionally) travel to Hawaii and rent a beach front condo that I could never afford to buy. Explain how it follows that the owner of that condo is losing money.
there was nothing governments in those countries could have done to stop the inevitable correction/crash of house prices.
Well, no, it's generally not possible to prevent the inevitable, but if you are going assume that which was to be demonstrated, there's no point in continuing the debate.
Canada has already played every card it had that could potentially delay the inevitable bursting of its housing bubble
Not so, obviously. They could lower rates back to 0.25%, they could bring back 40 year amortizations, they could allow multi-generational mortgages or interest only mortgages, or they could do what Iceland just did, give every mortgage holder $24,000.00.
You entirely underestimate the capacity of government for crazy ideas.
The government clearly has the power to drive nominal house prices to any level it chooses simply by printing gobs of money.
Whether it would do so is another question.
But are Victoria house prices inflated?
Most new house construction is in the $125-225 per square foot range. That's not much different from twenty years ago.
Land prices in the core are up sharply, but if you don't want to buy a pricey lot, you can buy a house in the outer suburbs, where a new 2000 square foot home can be had for around $400 K.
So what could happen to the Greater Victoria housing market? The cost of new construction cannot fall greatly. And unless people leave the area in large numbers, the price of existing houses is not likely to crash.
So the only crash we could have is in the price of land in or near the core. But why would that happen? Will people who've paid for the convenience of living in the core suddenly get a yen to start commuting from Sooke?
You should try it sometime.
S2 (JJ's wife)
You should, too.
So the only crash we could have is in the price of land in or near the core
6,100 sq/ft lot Lakeview in Saanich just sold for $404,250. No sign of crash.
So the only crash we could have is in the price of land in or near the core. But why would that happen? Will people who've paid for the convenience of living in the core suddenly get a yen to start commuting from Sooke?
Any day now, owners in Kitsilano will wish they could commute from Abbotsford.
Jesus, I did it again. Sorry, S2.
"So the only crash we could have is in the price of land in or near the core. But why would that happen? Will people who've paid for the convenience of living in the core suddenly get a yen to start commuting from Sooke?"
One thing that we have in common with the crash down south is that everyone is sure it's not going to happen.
One thing that we have in common with the crash down south is that everyone is sure it's not going to happen.
Everyone on the blog who made a price prediction last January predicted declining prices. So clearly people believe RE prices can fall. Rather people are disagreeing on how fast and how far prices will fall.
One thing that we have in common with the crash down south is that everyone is sure it's not going to happen.
I suggest there may be a difference.
The crash in the US was precipitated by the bankruptcy of many thousands of ill-informed mainly minority home buyers who were fooled by low teaser rates into signing agreements that a financially literate person would have known they could not keep.
Mass bankruptcy and mass foreclosure spooked the market.
Perhaps something like that will happen here, particularly in the condo market. But is there any evidence of large scale fraud here in housing finance comparable to that in the US for which JP Morgan has just paid a penalty in the billions?
Yes, I've thought that over and I'm not seeing the logic of the blanket statement.
The logic is if the renter is not able to afford the costs of owning it means you are renting it out for less than the costs of owning.
"Everyone on the blog who made a price prediction.."
People here are in the extreme minority. Your thinking is too focused on the micro instead of the macro.
"But is there any evidence of large scale fraud here in housing finance.. "
There was fraud in the states yes, but the fraud didn't bring down the system. People love to focus on it. They love to blame someone. Here we'll be able to blame the government. Whatever, at least we didn't have a recession... yet.
A housing market without government manipulation?.. how Un-Canadian.
Time To Rethink Canada’s Backing of Insured Mortgages, Flaherty Says
"Government-owned Canada Mortgage and Housing Corp. has become “something more grand, I think, than it was intended to be,” Mr. Flaherty said at an event earlier Friday."
The CMHC out of control, say it ain't so. If only we were warned in some way. Too bad Flaherty doesn't read this marvelous blog.
"The crash in the US was precipitated by the bankruptcy of many thousands of ill-informed mainly minority home buyers who were fooled by low teaser rates into signing agreements that a financially literate person would have known they could not keep."
Housing bulls often miss the big picture and like to point to smaller details as reason to think it will be different in Canada than it was in the US.
I challenge you to consider other national housing bubbles and not just the 2006 US housing bubble.
As is the case with any national housing bubble, house prices in the US simply got to be too far detached from incomes and rents and a major correction was inevitable. The average US family could not afford the average US home. Sound familiar?
Once house prices in the US started to correct, the economy weakened dramatically. This always happens as housing bubbles burst and house prices begin to correct.
A weakening economy pushed house prices lower.
Lower house prices weakened the economy.
Down it all went.
Housing bubbles in Spain, Japan, Ireland, Switzerland and many other countries were created by slightly different mechanisms, but the end result was the same - bubble house prices. Various different triggers burst these bubbles and started the downward slide in house prices.
No two bubbles inflate, burst or deflate for the exact same reasons.
Therefore, we cannot only look at the US case and say that Canada's bubble bursting trigger will be different and therefore Canada's housing market will not correct as much as the US market did.
The bubble bursting trigger in Canada will probably be different than the trigger in Ireland, Spain, Switzerland, Japan, etc. as well, but it will be just as effective.
Canada's housing bubble is much larger than the 2006 US housing bubble. The potential for a much bigger correction/crash is definitely there.
"The government clearly has the power to drive nominal house prices to any level it chooses simply by printing gobs of money."
If that was an advantageous option for a country with a housing bubble, then it would have been effectively used in Japan, the US, Switzerland, Greece, Ireland, Spain, etc.. Some of these countries may have tried it.
If some of these countries did try it, it wasn't effective in stopping the crash or the imploding economy or the extreme financial distress put on many households.
There is no easy way out for Canada. Period.
Info
what is this Bubble and crash in Switzerland you speak of? House prices have increased there lately, but they aren't particularly above historic norms (which have always been way more expensive than here). Also they have yet to "crash". Certainly putting them in the same breath as Ireland and Spain makes no sense.
If an economy "implodes" should the GDP actually fall?
Not a lot of evidence of the economy in Japan imploding post 1989.
There is no easy way out for Canada. Period.
Because we all know:
(1) Whatever happened elsewhere was always exactly the same and must be repeated here. Exactly.
(2) The future is a piece of cake to predict.
(3) Economics is a morality play, so homeowners must be punished for their unearned gains.
(4) Info badly wants that Oak Bay house....
As I mentioned earlier, Switzerland went through a housing crash that began in 1988.
Japan has gone through 25 years of economic weakness that they refer to as lost decades. Their housing market crash contributed to that in a big way.
Since Japan has had this pro-longed housing crash is a 2,000 sq/ft home within a hour commute of a city center affordable?
Japan - "25 years of economic weakness" - at the end of which per capita GDP is almost 30% higher, they are an industrial powerhouse and the world's 3rd largest economy. I get that they stopped growing as fast as they were before and I get that the housing crash contributed, but I am still missing the part where the economy "implodes".
"Switzerland went through a housing crash that began in 1988."
Actually prices peaked in the 90s then slumped. It's pretty hard to call it a bubble and a crash. Prices have more than recovered. Also pretty hard to claim that the Swiss economy "imploded". Most countries would LOVE to have Switzerland's problems
Japan and Canada are complete opposites when it comes to demographics and immigration.
— simply don’t understand what drives housing in the first place.
It’s simple demographics, he says. Canada’s population grew by 1.2 per cent in 2012, versus just 0.8 per cent in the U.S., and 0.2 per cent in the eurozone. Japan’s population, on the other hand, has shrunk for six straight years.
The big reason? Immigration. Newcomers accounted for fully 60 per cent of Canada’s population growth last year, he says, far more than the U.S. or Europe.
What’s more, 55 per cent of those newcomers are between the ages of 20 and 44, when many are launching careers, getting married, starting families, and yes, buying new homes.
Japan is at the opposite end of the spectrum. Its aging population, low birth rate and aversion to immigration curbs demand for housing. Yet the same Economist article that slammed Canada’s housing market as bubbly argues that Japan’s house prices are “undeservedly flat,” Marion says.
“If you don’t have household formation where are your home prices going to go? That’s the key right there. That’s where Canada really, really is different from other countries,” he says, notably in high-growth provinces like Alberta.
http://www.edmontonjournal.com/business/Lamphier+bust+housing+bubble+that+doesn+exist/8929807/story.html
Speaking of Alberta, yesterday’s jobs report shows that province has created 74,000 full-time jobs in the past year (4.1%). To put that in perspective, Ontario with almost 4 times the population only created 57,100 (1.0%).
I wonder if those rich Albertans will start buying up their BC playground again now that the States is getting too expensive?
Like the TV commercial says, “We know that Victoria is where 75% of Canada’s Boomers want to live!”
"The logic is if the renter is not able to afford the costs of owning it means you are renting it out for less than the costs of owning."
Faulty logic.
People rent for all sorts of reasons:
1. they are temporarily in town for school or work
2. they have not yet saved a down payment
3. their jobs are not stable
4. they dislike the responsibility of home ownership
5. they are room-mates and can afford to rent what they could not afford to buy
6. they believe house prices will drop
7. they don't qualify for a mortgage on the basis of income but can still afford to pay the rent
and so on.
I am not renting for less than the cost of ownership. If you have a suite in Victoria you likely are not owning for more than the cost of rent.
“...That’s where Canada really, really is different from other countries,”
The amount of differentness is proportional to the amount of really qualifiers before the different. I've heard "it's different here" (everybody says that). But to have two reallys before the different. That makes it even more different.
I guess we can ignore stats that say that building has kept up with household formation. Yes, including immigration. Some might even go as far as to say we are overbuilding.
Whatever, those are just numbers. I like to base my thinking on tv commercials.
The government clearly has the power to drive nominal house prices to any level it chooses simply by printing gobs of money.
Conversely, the government (i.e., central bank) has the power to crash the housing market by slowing the growth of the money supply or causing a monetary contraction.
This (contrary to what I said above) was the primary cause of the US property crash. There were 17 consecutive Fed rate increases between 2003 and 2005 causing brisk growth in money supply to level off. In fact, US M1 adjusted for inflation was falling sharply after 2005 only to recover with the money printing spree beginning with the TARP program and continuing to the present.
The renewed growth in the US money supply has been accompanied by recovery in US house prices.
What is peculiar about the US housing crash is that it happened at all.
Why did Greenspan contract the money supply?
My own view, somewhat cynical, is that it was in keeping with the standard operating procedure of a Bush presidency, i.e., create optimal conditions for financial fraud, as occurred under both Bush I and Bush II.
In the latter case, uninformed consumers of mortgage credit bought into a rising housing market unaware that the Fed would engineer a credit contraction that would kill the housing market and bankrupt many borrowers. The smarter, or maybe just better informed, members of the financial industry, made out brilliantly both in the up and the down.
Cheaper to OWN than rent in Victoria. That’s why most of the incoming retirees will choose to buy over rent.
Examples of very recent sales with monthly expenses.
1st property
3.5% on 220,000 = 605 interest
strata fee = 296
p tax = 153
Total = 1054
2nd property
3.5% on 255,500 = 703 (2.5% Var = 502)
strata fee = 315
p tax = 191
Total = 1209 (1008)
You would pay about $1400 to rent places that size.
Note that the lost opportunity of downpay was included. Contents Insurance is often cheaper too when you own.
In all fairness I don't think those places would rent for $1,400 per month.
" I wonder if those rich Albertans will start buying up their BC playground again now that the States is getting too expensive?"
You can easily buy a nice house in the Seattle area or anywhere else in the pacific northwest for the price of a Langford starter condo. Or if you want nice weather in the winter just rent a place in the southwest for a few months a year. Still way cheaper than buying in Victoria.
""Switzerland went through a housing crash that began in 1988."
Actually prices peaked in the 90s then slumped. It's pretty hard to call it a bubble and a crash. Prices have more than recovered. Also pretty hard to claim that the Swiss economy "imploded". Most countries would LOVE to have Switzerland's problems"
I second that!
Info, have you been to Switzerland? We have been living in Zurich for past 3 months (house swap), and haven't even met any beggar on the streets yet. Yes, the houses here are expensive, but the restaurant meals and meat prices are about 2 to 3 times as they are in Victoria, so does the minimum salary.
Fairfield 2 bed 2 bath condos might rent for about 1400. You would also have to account for principal pay down in the equation somehow. That said, for a SFH without a suite you are probably paying more to own in Victoria.
Here is a couple condos in the same area for rent with only one bath:
http://victoria.en.craigslist.ca/apa/4228907657.html - note heat and hot water included
http://victoria.en.craigslist.ca/apa/4213657609.html
850 for the privilege of renting my attic.
"loft"
@ caveat
"what is this Bubble and crash in Switzerland you speak of? House prices have increased there lately, but they aren't particularly above historic norms (which have always been way more expensive than here). Also they have yet to "crash". Certainly putting them in the same breath as Ireland and Spain makes no sense."
Starting in 1989, house prices in Switzerland corrected 37% (third chart), compared to a total correction/crash of only 27% in the US (first chart).
If house prices in the US crashed, then we have to say that house prices in Switzerland crashed also.
Once again, caveat, you got caught up in a small part of the main point that I made.
There have been at least 48 national housing bubbles, worldwide, over the last 40 years. In every case, once prices peaked after having gone through a major bubble inflation, prices always fell back the same amount that they had inflated. This is based on a combination of price-to-income and price-to-rent ratios.
Canada's housing bubble is much larger than the 2006 US housing bubble. The US housing bubble crashed. Canada's inevitable housing market correction/crash has the potential to be much bigger than the US crash. Why? Canada's price-to-income ratio and price-to-rent ratios are much higher than they were in the US at the peak of the US bubble (see charts 21 and 22).
"But are Victoria house prices inflated?"
Vancouver's housing market is the second least affordable in the world, and Victoria isn't far behind. Victoria's housing market is the second least affordable in Canada.
House prices in Victoria are extremely overvalued.
@ caveat
"Not a lot of evidence of the economy in Japan imploding post 1989."
Incorrect. There is plenty of evidence that Japan's economy has struggled over the last 25 years.
"In the late 1980s, on the heels of a three-decade long “Economic Miracle,” Japan experienced its infamous “bubble economy” in which stock and real estate prices soared to stratospheric heights driven by a speculative mania. Japan’s Nikkei stock average hit an all-time high in 1989, only to crash in a spectacular fashion shortly after, causing their real estate bubble to collapse and throwing the country into a severe financial crisis and long period of economic stagnation known as the “Lost Decades.”"
"During this time, many unprofitable and debt-ridden companies were kept afloat through frequent government bailouts, leading to their nickname, “Zombie companies.” By 2004, residential real estate in Tokyo was only worth of 10% of its late 1980s peak, while the most expensive land in Tokyo’s Ginza business district had fallen back to just 1% of its 1989 level in the same year (Barsky, 2009)."
"It has been over two decades since the popping of Japan’s economic bubble and the country is still actively battling with deflationary forces that are so powerful that near-zero interest rates (zero-interest rate policy or ZIRP), repeated bouts of quantitative easing (some call it “money printing”) and constant Yen-weakening currency interventions have barely made a dent."
Japan's roaring, robust economy of the 80s hasn't been roaring at all since their housing bubble burst at the end of the 80s.
Without the extreme stimulus that has been applied to the Japanese economy over the last 25 years, including near-zero interest rates, repeated bouts of QE and constant Yen weakening, Japan's economy would be in much worse shape than it already is.
As I wrote in another post, Japan's housing bust changed the Japanese economy from "roaring" to completely dependent on government stimulus.
The exact word to describe the major hit that the Japanese economy took as a result of their housing bust isn't important. Again, caveat, you need to look at the big picture and the main point that has been made instead of concentrating on one word in a post.
I wonder if those rich Albertans will start buying up their BC playground again now that the States is getting too expensive?
What planet are you on? US expensive, yep.
@ PD
"Cheaper to OWN than rent in Victoria."
Incorrect. More on this soon.
"That’s why most of the incoming retirees will choose to buy over rent."
Again, why would Canadian retirees buy a condo in (cold and wet) Victoria when they could buy a similar condo in (warm) Phoenix for a fraction of the cost?
This Phoenix condo is valued at $106 K.
A similar condo in Victoria would probably cost (min.) $350 K.
Actually prices peaked in the 90s then slumped. It's pretty hard to call it a bubble and a crash. Prices have more than recovered.
What a bizarre definition of a crash. So in your opinion the financial crisis of 2008 was not a crash, because markets have since recovered?
"Again, why would Canadian retirees buy a condo in (cold and wet) Victoria when they could buy a similar condo in (warm) Phoenix for a fraction of the cost?"
Easy.
1. You can't get a mortgage in the US.
2. You can't stay there full time or you will lose your health care coverage in Canada.
3. You can't fix anything yourself - you have to hire someone - that is the law that applies to foreign owners.
4. Complicated taxation and inheritance issues with US property ownership - especially if you try to rent out.
5. I personally don't want to live away from my kids, I'm sure many people feel the same.
6. The crime rates for Phoenix are quite high in many areas: http://www.trulia.com/crime/Phoenix,AZ/
Like I said, ^expensive to buy in the States for more reasons than surging prices, and as totoro explains, impossible for most.
Regarding the 20 somethings discussion. I got caught up on my blog reading.
There’s a ‘green’ shift starting to occur. It’s not an easy task around here to get the bears to see the ’green’ light! The majority of the Echo generation is about to transition from 10 years of buoying rental markets to 10+ years of buying their first homes.
http://www.fvreb.bc.ca/newsreal/2011NR/2011articles/Altus.html
Victoria will of course draw plenty of 20 something renters from across Canada as well as retirees. University of Victoria just took first place in Maclean’s 23rd annual university rankings.
House prices in Victoria are extremely overvalued.
You ignore the obvious fact that you can still by a new 2000 square foot home in the suburbs for around $125 per square foot plut $150K for the serviced lot. In what way is that extremely overvalued, or even overvalued at all?
Tiresomely repeating the same thing without dealing with evidence to the contrary makes for a pointless discussion.
House prices in Victoria are extremely overvalued.
You ignore the obvious fact that you can still by a new 2000 square foot home in the suburbs for around $125 per square foot plut $150K for the serviced lot. In what way is that extremely overvalued, or even overvalued at all?
Tiresomely repeating the same thing without dealing with evidence to the contrary makes for a pointless discussion.
When comparing the cost of renting with the cost of buying you have to take into account the projected capital gain/loss on the owned property, which does not accrue to the renter.
True, there has been no capital gain over the last six years, but over the last sixteen Victoria real estate has averaged about 6% yearly capital gain, which has made owning over that period a better bet than renting.
"True, there has been no capital gain over the last six years, but over the last sixteen Victoria real estate has averaged about 6% yearly capital gain, which has made owning over that period a better bet than renting. "
A very accurate analysis of the past. Zero implications for the future.
You just have to get used to the new new new new normal of losing money on real estate.
Wow - pretty incredible to have that superpower that lets you know the future. Must be true because info has that too and your predictions are matchers!
"Wow - pretty incredible to have that superpower that lets you know the future."
Not really a super power more of an ability to not let bias taint your thinking. You are a house believer. Housing can do no wrong.
Could we double our prices in the next ten years again? Sure. Like CS says the government can do anything they want.
All it would take would be to double the CMHC ceiling and cut interest rates in half.
I argue that that kind of thing is unlikely. More likely a crash just like down south only a couple years ago.
"What a bizarre definition of a crash. So in your opinion the financial crisis of 2008 was not a crash, because markets have since recovered? "
Crash to me implies (1) rapid,
(2) large fall in value, (3) significant fallout - i.e. lots of people are affected. 2008 met all those criteria in spades.
The 90s slump in swiss home prices doesn't really meet those criteria. (1) The fall in value was more modest (2)It took place over multi years, (3) Most Swiss aren't home owners, (4) there were impacts on the economy but they weren't severe
My comment that you quoted referred to "BUBBLE and crash". The full recovery in Switzerland implies either that prices before the slump weren't that bubbly or else that they are bubbly again. In the same way the full recovery in US stock prices implies either that pre crisis equity valuations were not that bubbly or else they are bubbly again.
"Again, caveat, you need to look at the big picture and the main point that has been made instead of concentrating on one word in a post."
Look at the big picture and ignore the incorrect facts and hyperbole. Check.
Do you stand by the fact that the Swiss and Japanese economies have imploded. Have you ever been to either place?
"As I wrote in another post, Japan's housing bust changed the Japanese economy from "roaring" to completely dependent on government stimulus."
3rd largest economy, 4th largest exporter, numerous world leading companies - hardly completely dependent on government stimulus.
Canada - government spending as percent of GDP (2011)- 39.7
Japan - 37.1
Obviously the land of hosers is even more dependent on government stimulus than the land of the rising sun.
I'm thinking of moving to Burma. The economy must be awesome. After all the gov't there only spends 8% of GDP.
Wow - two other superpowers! The self-professed power to be free of bias AND the ability to not only view the world as black and white but apply it to others too!
You should start an advice column.
5. I personally don't want to live away from my kids, I'm sure many people feel the same.
Bingo. So much for the idea of retirees across the country migrating to Victoria in great numbers. Some will come, but only those that have well above average wealth, and no family connections to where they live.
Keep in mind, future retirees across the country have many of their children going to the highest ranked University. That serves to acquaint them with our city. I've noticed retirees moving to the island and then the kids following. Perhaps they are the wealthier sort of retirees.
From the looks of this VREB data, past bottoming cycles for Victoria have taken 4 years. That would put us very near bottom.
PD, come on extend that graph to the right for us.
According your metric we're about to gain another 100%.
The average Oak Bay home is going to be worth 1.5 million.
Wait, aren't we in disinflation right now? Aren't we about to hit the dreaded D word, deflation?
Uh, dude, the economy of the country doesn't affect Victoria. You could say Victoria is an island of stability among a turbulent economic Canada.
Even if the "shit hits the fan" boomers won't be affected. They'll are really really rich. Haven't you seen how much their homes have gone up in value?
"Wow - two other superpowers! The self-professed power to be free of bias AND the ability to not only view the world as black and white but apply it to others too!"
I guess you're right, it is a super power. Can't I just have super powers? Maybe I do.
The only thing that we can be sure of is that the vast majority of people are certain no crash is coming. Surely so many people can't believe the same thing and be plain wrong... surely.
I've noticed retirees moving to the island and then the kids following
Kids go where the jobs are, not where their parents are.
There are inexpensive homes in Greater Victoria. One of the issues with these economical choices is that most, if not all, have age restrictions.
A decade or more ago this wasn't an issue. There was enough retirees coming to Victoria that properties with age restrictions inflated with the rest of the market.
For example, a double wide manufactured home near McDonald's (a favorite retiree dining spot) in Central Saanich sold in October 2006 at $122,500. Today it's listed for sale at $39,800.
However, if you're unlucky to have fertile eggs and Olympian swimming sperm then you'll pay big dollars to live in Canada's California.
Your options are to live in the urban core in an outdated and small energy gobbling house with a basement tenant or a newer energy efficient home with a basement tenant and have to commute downtown each day from Langford and Colwood.
That would put us very near bottom.
Yes, because we all know that real estate and financial markets always follow predictable patterns. In 20 years every house will cost 2 million.
My thought on condominiums is that we likely have two separate markets. One is socialized housing where prospective purchasers pay based on their financial ability and not on the physical aspects of a property. A possible reason why starting prices for new condos in Victoria are nearly the same price as new condos in Vancouver and Toronto.
The other is a market divorced from economics where condos are a commodity and used as global world reserve currency.
A 35 million dollar condo in Vancouver bought by a Shah of Bahrain. The condo is insurance for the Shah in case he has to get access to a tradeable asset other than US bucks. The same for wealthy Chinese industrialists, Russian mobsters and Mexican drug dealers. Best to hide the wealth in stable real estate markets like Canada - just in case.
The latter is likely a very small fraction in Victoria. However in Vancouver and Toronto it could explain the overbuilding of condominums with line ups of buyers for new construction. With the complex nearly selling out in a day. While sales of condos just a few years older languish on the market like day old bread.
Commoditizing condos does nothing for affodability or relieving the shortage of rentals in a city. These units would be left vacant and mortgage free resulting in cities with tens of thousand of empty condos that only consume enough electricity to power a fridge.
This commoditized market could be doing the reverse of what we perceive when seeing all the construction cranes. By creating jobs you are building condos that will never be lived in and at the same time stimulating demand and creating a shortage of affodable units.
$625 Tiny Bright Bachelor Suite (1485 Fort st)
"Ideal for Grad student."
Ah the prestige of a graduate degree.
Potential "Graduate Degree" tenant:
This place is great! Once I get my doctorate I'll be able to buy something like this.
Monday, December 9, 2013 8:15am
MTD December
2013 2012
Net Unconditional Sales: 94 283
New Listings: 148 405
Active Listings: 3,829 3,896
Please Note
Left Column: stats so far this month
Right Column: stats for the entire month from last year
$625 Tiny Bright Bachelor Suite (1485 Fort st)
I lived in worse as a student, would have taken that.
Ottawa to introduce ‘risk fee’ on CMHC insurance
"Canada will impose a “risk fee” starting Jan. 1 on mortgage insurance provided by the country’s housing agency to compensate taxpayers for potential losses in the housing market."
Way way too late. What they also fail to mention is that this risk fee will go to general revenue. So a tax then. Better to tax where the money is, mortgages.
"$625 Tiny Bright Bachelor Suite (1485 Fort st)
I lived in worse as a student, would have taken that."
Ditto. Some nice character, clean, bright, good location, and affordable considering heat and hot water are included.
I lived in worse as a student, would have taken that
I lived in worse as well. But also paid less than half that amount in rent.
$300 a month for a bachelor apartment in a central location including heat and hot water in Victoria? Was it in the 70s by chance?
BMO raises 5-year fixed mortgage rates
Pfft.. nobody goes fixed any more.
"The increase comes as long term interest rates on the bond market tick higher in anticipation that the U.S. Federal Reserve will soon start tapering its $85 billion US a month in bond purchases."
Dammit Janet. She won't do that to us.
Although... people might have to qualify for the fixed rate even if they are getting a variable rate mortgage with then new regulations coming in next year, B21.
Wow - a half million for this.
Crayzay: http://beta.realtor.ca/propertyDetails.aspx?PropertyId=13741032
@ caveat
"Actually prices peaked in the 90s then slumped. It's pretty hard to call it a bubble and a crash. Prices have more than recovered."
As I said, if we say that the US housing market crashed with a -27% correction, then we must also say that Switzerland crashed, with a -37% decline in prices (1989 - 2000).
I agree with Leo, your definition of a crash is "bizarre". According to you, a crash is erased if and when house prices recover. Then you call the crash a "dip".
Do you think, perhaps, that your thinking is a little "off", caveat?
@Totoro
I paid $275 for a 1 bdrm apartment downtown in the 90s, heat and hot water included. Also shared a couple of 5-6 bdrm houses in the 90s and early 00's for $1300-$1400 per month split 5/6 ways.
When I sold my condo in 09, I was pretty shocked by how much rental prices had gone up in 8 years.
I should add - my renting experience took place between late 80s to 2005, when I bought my condo. So actually I sold after 4 years, so half the number of years that I mentioned above for rental rates to jump significantly (in my experience).
Hi info
For your reading pleasure here are some definitions of "crash"
"to hit something hard enough to cause serious damage or destruction"
"to decline suddenly and steeply"
"To undergo a sudden severe downturn, as a market or economy."
An 11 year decline that causes only modest economic effects doesn't meet the definition of a crash. The fact that prices fully recovered doesn't affect whether there was a crash or not but suggests it may not have been a bubble in the first place.
Also you seem to be comparing a nominal decline to a real decline which is misleading and makes the Swiss "crash" look worse that it was.
Google "swiss housing crash" in quotes - Zero results.
Google "US Housing crash" in quotes - 343,000 results
Google "2008 stock market crash" in quotes - 195,000 results
Apparently I am not alone in my "bizarre" belief that one of these things is not like the others.
Just too many condos in this town. And the Mayor wants more to be built - like 1500 more suites!
Roberts House is a 1973 built high rise towers with many of the suites having good to excellent views of the water and city.
Back in May of 2007 a 12th floor 2-bedroom suite would cost you $400,000 or about $480 a square foot.
But with all of the competition from new condo complexes you can get that same suite for under $300,000 today or about $350 a square foot.
You think the Mayor might just be listening to the wrong people?
‘Dr. Doom’ warns Canada’s housing bubble about to burst
He's probably right. After all he is a doctor.
$300 a month for a bachelor apartment in a central location including heat and hot water in Victoria?
That's not the question. Marko said he lived in worse. So did I (shared kitchen/bathroom with one other) but it only cost me $295/month (and later $245 for another place).
As for central location, you can get a bachelor on campus for $595/month, that is as central as you can get for a grad student.
For your reading pleasure here are some definitions of "crash"
I agree, the Swiss decline is not a crash like the US was. But as a home owner this is all semantics. If my asset loses 30% over 1 year and flatlines or it loses 30% over 10 years it really doesn't matter to me. Either way I'm out 30% if I tried to sell.
Google "swiss housing crash" in quotes - Zero results.
Google "US Housing crash" in quotes - 343,000 results
Google "2008 stock market crash" in quotes - 195,000 results
I like this line of argument..
"canadian housing crash" 449,000 results.
:)
. . . . . .Percentage Price Decline From Peak (MLS HPI). . . . .
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- 8.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *. . . . . . . . .
- 9.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 9.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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