Sunday, January 19, 2014

2014 Predictions

Time for another prediction thread.  What will happen in 2014?

My guesses are:
1. VREB sales of 6200 (up slightly from 2013).
2. Greater Victoria 6 month SFH average in Dec 2014:  $580,000 (currently $593,000)
3. BoC overnight rate in Dec 2014: 1%
4. Teranet June 2014: 128 (currently 133)
5. Teranet Dec 2014: 124

As for macro events, the larger economy will be sluggish and boring, with Canada not making any headway on unemployment in 2014.  We will be teetering on the edge of deflation, and if the Bank of Canada is going anywhere it is more likely to be to cut rates than to raise them.   The US will slowly dial back stimulus but in baby steps.  Fixed mortgage rates within a narrow range of current values.

We are off the recent peak of months of inventory as the last mortgage changes worked their way through the market, but as the rest of the country goes gangbusters, I suspect there will be more tweaking of the CMHC this year.   Something less headline grabbing than a reduction in the amortizations, perhaps a tweak to the maximum TDS ratios.

Edit:  And the monthly numbers from Marko


January 2014January
 2013
Wk 1Wk 2Wk 3Wk 4
Unconditional Sales71
167


294
New Listings362610

1080
Active Listings32953346

3870
Sales to New Listings
20%
27%

27%
Sales Projection---295


Months of Inventory
13.2

The linear sales projection is meaningless in a month like January where sales increase strongly from the first weeks.  We'll be well over 300.

191 comments:

koozdra said...

Listening to the radio this morning and they were talking about the BOC announcement and if they will establish an easing bias. The commentator said that that would further inflate the "so called" bubble. Bubble talk is getting more and more prevalent. It's almost main stream now.

I agree with Leo that further controls will be added to the mortgage market but I think at least one of them will be head line grabbing. I'm going to go with regional caps re-established on CMHC insurance.

Locally I think inventory will swell as people who won't want to lose their "hard earned" equity evaporate rush to sell. However this is not the year for price drops. Prices will drop but it won't be significant. We'll see even more investor pull out.

1. 5300
2. $550,000
3. 0.5 (in addition to our own version of QE [hey the yanks did it, why can't we])
4. 130
5. 126

Thanks LeoS for another year of running the blog. Your effort is much appreciated!

koozdra said...

Shoppers flock to U.S. despite Cdn. dollar drop

What do we have to do convince people to pay more for things in Canada?

Marko said...

Monday, January 20, 2014 8:00am

MTD January
2014 2013
Net Unconditional Sales: 167 294
New Listings: 610 1,080
Active Listings: 3,346 3,870

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

Marko said...

1. 6400
2. $585,000
3. 1%
4. 132
5. 131

caveat emptor said...

Sales - 6000
6 mo Ave - $565K
BOC - 0.75%
June Teranet - 131
Dec Teranet - 128

I expect 2014 to continue a gentle price decline. Perhaps I am overestimating the rate of decline. BoC cuts rates late in the year.

Marko said...

I like these BoC predictions as come April I'll have 3 variable closed mortgages :)

koozdra said...

CBC:
"Insurance industry says damage from flooding, ice storms, and other extreme weather led to record $3.2B in claims last year"

Here is an interesting externality of high house prices: insurance costs.

When prices double nationally in ten years so do the costs of servicing insurance claims on those houses.

Insurance companies also make money on interest, but with interest rates this low they are having a hard time generating revenue using that method.

What do insurers do when they are cash strapped? Raise rates.

Who will this affect the most? Retirees on a fixed income that are sitting on piles of unrealized cash in the form of their house.

"You know Candice, I think it's time we sell and downsize"
...
"What do you mean no one is buying?"

Leo S said...

>> Perhaps I am overestimating the rate of decline

Yeah I cut back my estimate this year. I continue to be surprised by the resiliency of average prices in the face or the strong buyers market. Also 6 month average is a lagging indicator.

Leo S said...

So, what are the odds of getting a prediction out of info this year?

totoro victoria said...

I don't know about those odds but I pulled up mine from last year:

"I'm only going to put my guess out there for Oak Bay because I don't know other areas well.

Right now prices are flat. I think we will see a drop in prices of approximately 5% by December 2013.

As for the interest rate, I expect it will stay pretty much the same this year."

So my unscientific and unverifiable price adjustment in OB remains the same except I extend the period to December 2014.

As far as mortgage rates go, I think they might drop a tiny bit in spring bringing them back to 2013 levels.

totoro victoria said...

Early 2013 levels I should say.

koozdra said...

"I like these BoC predictions as come April I'll have 3 variable closed mortgages :)"

You won't like the cause of the lower rate.

info said...

. . . . . . . . . . . . . . .Percentage Price Decline From Peak . . . . . . . . . . . . . . .
. . . . . . . . . . . . .Greater Victoria - Single Family Homes. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . (MLS Home Price Index). . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .0%. . . . . . . . . . . . . . . . . . . . . . *. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 0.5%. . . . . . . . . . . . . . . . . . . . . . . (10). . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 1.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 1.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 2.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11). . . . . . . . . . . . . . . . . . . .
- 2.5%. . . . . . . . . . (08). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 3.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 3.5%. . . . . . . . . . . . . . . . . . . (09). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 4.5%. . . . . . . . . . . . . . . . . . . . . . . . . . .(10). . . . . . . . . . . . . . . . . . . . . . . . .
- 5.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 5.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(12). . . . . . . . . . . . .
- 6.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11). . . . . . . . . . . . . . . . .
- 6.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 7.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 7.5%. . . . . (07). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 8.0%. . . . . . . . . . . . . . . . . (09). . . . . . . . . . . . . . . . . . . . . (12). . . . . . . . . .
- 8.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13) . . . . .
- 9.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 9.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-10.0%. . . . . . . . . . . . . (08). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-10.5%. . (07). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-11.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(13) . .
-11.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-12.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
----------------------------------------------------------------------------------------------------
. . . . . . . . . . 07. . . . . 08. . . . . 09. . . . . 10. . . . . 11. . . . . 12. . . . . 13. . . . . .


This is a 6-month price chart for Greater Victoria single family homes. Two points have been plotted for each year (June and December) as well as the peak (*) which was in May 2010.

info said...
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info said...
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info said...

2013 single family home prices across Greater Victoria ended up lower in December than they were at any point from 2007 - 2012.

Since the peak in 2010, the weakness of Victoria's housing market has been very apparent. In contrast, virtually all other major Canadian housing markets have experienced price increases since 2010.

Once house prices in other Canadian markets join the price decline parade, I think the weakness of Victoria's market will change to a higher gear and we will see bigger price declines. This is how it played out for the early starters in the US housing market correction/crash.

Most Canadians are bullish in terms of where they think house prices across this country are headed (many Victorians have maintaned this positive outlook despite a 10-15% price correction from peak as many are unaware of the facts). However, this will change.

Psychology/emotion played a big role in pushing house prices into bubble territory in Victoria and the rest of Canada and psychology/emotion will play a big role in pushing prices back down (closer to the level where fundamentals provide price support) once prices across Canada begin to decline and people start reacting emotionally to these declines and the fear of further price declines. This is how it played out in the US housing market correction/crash.

In the future, other factors will add to the downard price pressure that Victoria is already experiencing, such as the further deterioration of the wealth effect.

House prices across the Canadian housing market may peak in 2014.

Victoria's big price declines will likely begin after the Canadian housing market peaks and it is evident that house prices across Canada have begun to correct.

koozdra said...

Is right now a good time to buy?

"Markets go up, markets go down and even the smartest experts can't accurately predict when a market will peak or bottom out. If you're buying a home as a long-term investment (and for long-term enjoyment), you should be protected from short-term changes in the market. Pick a home that meets the needs of you and your family. Then you'll enjoy living in your investment as it grows in value."


... eventually.

Tell that to these folks..

3041 Phillips Rd, Sooke

They are in it for the long term because they won't be able to sell. When will be the next time a suburb of Sooke go up to half a million dollars?

... eventually.

patriotz said...

When prices double nationally in ten years so do the costs of servicing insurance claims on those houses.

No, because the increase in RE prices beyond inflation is almost all land value.

Also note that a large % of claims ($ wise) for house insurance is for theft, not property damage. Over 50% in Vancouver I think.

patriotz said...

Teranet has lagged the decline shown in GVREB numbers for Q3 and Q4, so I think it has a bit of catching up to do.

So I predict a 10 point decline in 2014, about 7.5%.

June 129.
December 124.

koozdra said...

"No, because the increase in RE prices beyond inflation is almost all land value."

Makes sense for houses but what about condos?

caveat emptor said...

"They are in it for the long term because they won't be able to sell. When will be the next time a suburb of Sooke go up to half a million dollars?"

You have to admit that the pictures of the flooding river are bound to appeal to potential buyers....

koozdra said...

Why Canada’s cult of home ownership is in trouble

"Despite all the financial obstacles they face, young adults have been eager believers in home ownership. Now, they’re thinking more critically about houses."

I like the use of the term cult.

read the following in a chanty voice:

"buy real estate, everybody's doing it"

"we've all made money, don't you want to make money also"

"if you don't buy now, you might never be able to buy, it'll get too expensive"

"here, you can borrow some money for a down payment, no need to pay it back, what could happen to it?"

koozdra said...

The search saga continues for the East Sooke executive family.

$2300 / 3br - 2400ft² - Custom home on 1.7 acres


However now the wording has changed.

Whereas before they were looking for a "smaller executive family", now they have lowered the rent and have broadened the search criteria to "small family or executives". So, executives are still definitely welcome but a small non executive family is now also being considered.

Does executive mean employed? Am I executive? What is the wage cut off?

Fiduciary said...

Info, no prediction from you? It'd be nice for you to put some numbers behind your certainty that the housing market will become a smouldering crater imminently.

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

Really? Are only 4 people willing to make an anonymous prediction?

The stakes aren't that high....

caveat emptor said...

@Info
"This is how it played out for the early starters in the US housing market correction/crash."

The graph you linked seems to show that the percentage price decline did not strongly depend on when you started.

The two early peakers (2005) were Boston and San Diego. Boston had a comparatively small decline (both absolute and percentage), while San Diego had a large decline.

Most of the other cities peaked in 2006 and had a wide range of declines.

The late peakers (2007) included three average or slightly below average decliners (Atlanta, Seattle and Portland) and one city that barely bubbled and didn't crash at all - Dallas

Just Jack said...

Any generalized market prediction would be meaningless in this market. You would have to limit any prediction to type, location and income group.

How else would you explain a condo in Sidney that sold for $1,650,000 in February 2008 reselling today for $1,150,000.

Does this mean all condos in Sidney are down 30 percent from 2008 levels? Or does it mean high end condos are down 30 percent?

Your prediction would have to be limited to starter homes in the core. Or Gordon head boxes with suites. Or older condos in Fairfield. Or whatever you chose.

To accurately predict prices will be one or two percent lower next year for the general market just means you've got horseshoes up your pants. Because there is no general market. What we have is many different markets.

info said...

. . . . . . . . . . . . . . . Percentage Price Decline From Peak . . . . . . . . . . .
. . . . . . . . . . . . . .Greater Victoria - Single Family Homes. . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .(MLS Home Price Index). . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 0.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 1.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 1.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 2.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 2.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 3.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 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%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
--------------------------------------------------------------------------------------------
. . . . . . . .A. M. J. J. A. S. O. N. D. J. F. M. A. M. J. J. A. S. O. N. D. . .
. . . . . . . . . . . . . . . . .2012. . . . . . / . . . . . . . . . . 2013. . . . . . . . . . . . . .



This is a monthly price chart for Greater Victoria single family homes.

SFH price levels for the months of August, September, November and December were all new post-peak lows.

Alexandrahere said...

Assessments for some older condos in Fairfield are down a good 25-28% since 2012 BC assessments.

reasonfirst said...

1. 6100
2. Don't do averages
3. 1.25
4. 128
5. 123

info said...

@ Ficuciary

"Info, no prediction from you? It'd be nice for you to put some numbers behind your certainty that the housing market will become a smouldering crater imminently."

I'm still waiting for someone to post a quote of mine from the past that states that a crash is imminent.

Victoria's housing market is set up for a deep, multi-year correction/crash based on comparisons of current fundamentals to long-term fundamentals such as price to income and price to rent ratios.

Victoria's bubble price run-up (2000 - 2010) was on the same scale as the most bubbly US markets at the peak of the 2006 US housing bubble. Incomes in Victoria have stagnated since 2008 (14th chart). House prices would have to drop a lot before they would reach a level where fundamentals could provide price support.

A deep correction that takes 8-12 years to reach bottom would be effective in convincing Victorians that there is always risk when buying a house and that Victoria isn't different.

koozdra said...

Oooh, reasonfirst, a rate hike. Do you think the recovery is going to happen this year?

info said...

@ caveat

"This is how it played out for the early starters in the US housing market correction/crash."

"The graph you linked seems to show that the percentage price decline did not strongly depend on when you started.

The two early peakers (2005) were Boston and San Diego. Boston had a comparatively small decline (both absolute and percentage), while San Diego had a large decline."

Boston didn't have much of a bubble price run-up in comparison to San Diego, LA, Phoenix, Miami, Las Vegas and Washington.

The smaller the price run-up, the smaller the correction (in general).

"Most of the other cities peaked in 2006 and had a wide range of declines.

The late peakers (2007) included three average or slightly below average decliners (Atlanta, Seattle and Portland) and one city that barely bubbled and didn't crash at all - Dallas"

Other cities that had relatively small price run-ups include: Seattle, Portland, Atlanta and Dallas.

info said...

The major bubble markets in the US (Miami, Phoenix, LA, San Diego, Las Vegas, Washington and San Francisco) all peaked between 2005 and 2007 and experienced the biggest price declines.

Seattle, Portland (smaller price run-ups) and Dallas (minor price increase) all peaked between 2007-2008 and experienced much smaller price declines.

The major bubble markets in the US were generally among the first to peak and generally experienced the biggest price declines.

reasonfirst said...

Koozdra - wishful thinking probably.

Just Jack said...

And what are the long term fundamentals? 15, 20, 35?

They are so fundamental - that noone knows what they are.

Like God - they're a matter of blind faith. Initially part of the original 15 commandments before Moses dropped one of the tablets and was heard to say "Shit, that's really going to $%^$ up the market".

caveat emptor said...

Info:
"I'm still waiting for someone to post a quote of mine from the past that states that a crash is imminent."

The increase in chatter is likely due to the fact that Victoria's market is starting to crash. I think we will look back on this time (and earlier) as the beginning of the end of Victoria's housing bubble.
The same thing happened in the US immediately prior to and at the beginning of their crash.
December 12, 2012 at 11:39 AM

caveat emptor said...

info:
"There will be a good time to buy Victoria real estate in the not too distant future. Wait it out for a year and watch prices sink."
November 2, 2012 at 1:50 PM

caveat emptor said...

"all peaked between 2007-2008"
Info - your chart shows that zero cities peaked in 2008. All cities on that graph had price peaks in 2005,6 and 7.
Weak if any correlation between time of crash and depth of fall. Las Vegas (55% fall) and Denver (10% fall) peaked at the same time.

The "early crashers" San Diego and Boston were also among the fist to reach bottom.

In any case Victoria's slow decline has been going on for longer than it took the whole crash to unfold in some US cities.

Suggests to me the possibility that things here may not unfold like the US crash but may rather be a long slow decline/plateau

LeoM said...

I just watch specific SFH types in specific neighbourhoods, on quiet streets, with average current assessments in the $650,000 range.

I predict that the average selling price by late 2014/early 2015 will decline to less than $599,000 for my specific property profile.

Lots of Lay-offs in 2014.
I also predict that Trade Jobs and related businesses will decline significantly throughout 2014 in Greater Victoria. For example, plumbers, electricians, carpenters, excavation contractors, general contractors, realtors, and all related wholesale suppliers. Many layed-off people will have mortgages; consequently, many will sell their homes. Just check UsedVictoria for all the construction gear for sale, from hammers to Bobcats.

I also predict 2014 will see the beginning of SFH investors selling off their properties to lock-in profits. I also predict that many SFH investors selling as they retire from the 'landlord' business.

In short, 2014 to early 2015 will see a sharp transition. This will result in either a significant increase in MOI or significantly lower prices; probably a combination of both.

I also predict that late 2014 to early 2015 will be the time when the word DEFLATION becomes a popular word with the masses, as feared by Poloz.

Jack and Cate said...

I have been really surprised that no one has made to analogy that with the falling dollar will come hoardes of American buyers and the prices will sky rocket! (Just like the when the HAM money "flooded the market"...)

Slide baby slide.

koozdra said...

Lots of full houses coming to the rental market.

Let the competition begin.

Just Jack said...

If our little city by the sea were to experience a drain of the 25 to 34 year olds to Alberta and Manitoba - what type of property would most likely get hammered in the marketplace?

In my opinion, it would be the ugliest form of bastardized space ever to come from a designer.

And that's the micro condo.

For those that have a difficulty understanding how large a micro condo is - think double garage with some as small as a single garage.

Originally designed to maximise developer's profit while minimizing buyer's bank accounts with the interior's designed by Leggo. These lunch box sized living tubes were touted as the saviour of the 20 somethings and the spatially challenged investor.

Now with the pending exodus of the urban professionals to the prairies they may become unsellable to many. Destined to be real estate's ugly spinster sister.

patriotz said...

I also predict that late 2014 to early 2015 will be the time when the word DEFLATION becomes a popular word with the masses, as feared by Poloz.

I think the falling CAD will make consumer price deflation very unlikely. CPI inflation/deflation is the BoC's mandate.

Asset price deflation (e.g. housing bust) is another story, but you certainly don't need CPI deflation to have asset price deflation. All stock market and housing busts since WWII in North America have taken place during CPI inflation.

Also anyone who thinks a falling CAD should be positive for the RE market should note that the historical correlation is positive not negative, i.e. falling CAD, falling RE.

caveat emptor said...

Interesting statistics from the Credit Suisse Global Wealth Report.

US has a mean wealth per person of around 300K. Canada's is more like 250K. But our MEDIAN wealth is double theirs. (all figures USD)

However, as a result of a more equal wealth distribution, Canada has much higher median wealth: USD 90,300 compared to USD 44,900 for the USA. Relative to the USA, Canada has both a smaller percentage of people with less than USD 10,000 and a larger percentage with wealth above USD 100,000. It has 993,000 millionaires, and accounts for 3% of the top 1% of global wealth holders, despite having only 0.5% of the world’s population.

Not sure whether this has relevance to the different housing pictures in the two countries, but food for thought.

patriotz said...

Not sure whether this has relevance to the different housing pictures

That's virtually the whole explanation. Compare median household wealth in the US in 2005 versus Canada today.

koozdra said...

Garth talked about this today.

TD mortgage clause change

Do they see a crash greater than 20% in the cards? I know I do.

LeoM said...

Those 'new' TD rules are not new; just minor tweeks from the TD actuaries.

I've seen many cases, in past decades, of people buying at the peak and then going underwater as house prices decline. The banks have always forced home-owners to pay-down their mortgages before renewal. Most people can't come up with the cash, so they are forced to sell. I've been flamed a couple times on this blog in the past couple years for saying this; but it does happen.

This will start happening soon if prices keep declining in greater Victoria.

Does anyone else notice the beginnings of a 'perfect storm' brewing?

koozdra said...

"Does anyone else notice the beginnings of a 'perfect storm' brewing? "

That's a good description.

Leo S said...

The banks have always forced home-owners to pay-down their mortgages before renewal.

I just don't think this would happen on a grand scale. If the bank can keep you paying your mortgage they are better off. They do not benefit from forcing paying customers to default for no reason. I can see that they will levy fines if you can't maintain your equity position as outlined, but unlikely they will force defaults on those that continue to make regular payments.

dasmo said...

What is the logic behind the banks doing what they did in the US when that so obviously did not work out in their favour at all? Plus the house of cards there started to unravel with the special ARM mortgages that suddenly reset to paying off the principle and interest therefore doubling people's payments overnight. They actually couldn't pay. This set of a chain reaction that forced out people that could pay (like my friend). This then set off a chain reaction of people walking away from their mortgages (like another friend). Why would our banks initiate this sequence?

Leo S said...

10 year fixed not worth it.

Unknown said...
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Marko said...

Lots of Lay-offs in 2014.
I also predict that Trade Jobs and related businesses will decline significantly throughout 2014 in Greater Victoria. For example, plumbers, electricians, carpenters, excavation contractors, general contractors, realtors, and all related wholesale suppliers. Many layed-off people will have mortgages; consequently, many will sell their homes.


While everyone in government and health care that is completely immune with their secure jobs takes advantage of the poor contractors having to sell their place :) Can't see it happening.

My father right now has a home under construction and I just bought a building lot to build my principal home. Two framers I know moved to Alberta and the other two gave me their usual prices. No one is begging for work, let me rephrase that, no one that is competent is begging for work.

People will continue to do renovations, roofs will continue to need replacement, and hot water tanks will continue to leak. Combine it with fewer younger people going into trades and jobs all over Canada I don't think anyone will start losing their houses. I know an electrician who just got his licence. He is working in Saskatchewan for $42/hour (flight and accommodation paid for) and when he is back in Victoria on his weeks off he is doing side jobs. Somehow I think he'll survive.

I also predict 2014 will see the beginning of SFH investors selling off their properties to lock-in profits. I also predict that many SFH investors selling as they retire from the 'landlord' business.

I am an investor, but rather two condos instead of two SFHs. First of all, I have no profits to lock-in and if I were to sell and why would I sell when I am quite a bit cash flow positive in this environment (low interest rates, and rents are holding up if you have a decent property).

I think we need to see rates budge off 2.45% for the variable before investors start dumping.

Marko said...

The banks have always forced home-owners to pay-down their mortgages before renewal. Most people can't come up with the cash, so they are forced to sell.

This just doesn't make any common sense. Let's say, hypothetically, that I make $200,000 per year but I am really bad with my money and I only have $50,000 for a down payment.

I buy a $1,000,000 home and 5 years later the market has dropped 20% it's worth $800,000 and the principal owning is $850,000 and I've made regular payments. I still make $200,000 per year.

I am pretty sure the majority of banks would renew the mortgage instead of forcing a sale.

koozdra said...

"hypothetically, that I make $200,000 per year "

Who are Canada's top 1%?


1% of income earners: $191,100

Marko said...

A few days ago I had clients make an offer for 96% of asking price on a property that has been on the market for a while and recently was re-listed, 2 month completion and 8 business days for subjects (fairly standard).

Seller came back with 99.5% of asking price, 3 weeks for completion and 6 business days for subjects.

Naturally, my buyer just walked away. Always interesting to see sellers behaving like its 2005-2006 :)

Marko said...

hypothetically, that I make $200,000 per year

Okay, switch the numbers to $100,000 per year, $25,000 downpayment, $500,000 home. Same thing.

koozdra said...

OSFI mandates that banks keep certain levels of capital. When people talk about how "our banks are regulated" this is what they are talking about.

Having a CMHC insured mortgage that now sits below the 80% ltv could mean that the bank would have to make you pay the difference on renewal.

Leo S said...

No one is begging for work, let me rephrase that, no one that is competent is begging for work.

What difference does it make whether the people who are not getting work and forced to move/sell are competent or not? Like you said, 2 framers moved to Alberta. Assuming they had houses they would have sold (or distance-managed a rental). If construction slows down there will be less work for sure.

Renter said...

Top 10% of Canadians have incomes over $80,400.

Top 5% of Canadians have incomes over $102,300.

http://www12.statcan.gc.ca/nhs-enm/2011/as-sa/99-014-x/99-014-x2011003_2-eng.cfm

Your $100,000 per year earner is still a pretty rare bird.

Marko said...

Do banks send out an appraiser on renewal mortgages?

Marko said...

Your $100,000 per year earner is still a pretty rare bird.

Okay, two income family making $80,000 per year, $400,000 starter home, $20,000 down.

Marko said...
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Marko said...

Assuming they had houses they would have sold (or distance-managed a rental). If construction slows down there will be less work for sure.

These were both younger guys with no homes to sell looking for more money. They both could be employed in Victoria, but for less money.

Those with a house and families usually take camp jobs until an opportunity opens up. My parent's neighbour did a year up north and kept his family/home here until he got a job at the dockyard.

If you can get a camp job for $42/hour you probably aren't going to take a job locally for $15/hour.

Then you have those that have worked hard for most of their life, have been smart with their money and simply don't take jobs if they can't earn what they want.

The per square foot prices I am getting for framing do not reflect how ridiculously slow the residential construction is (this isn't a matter of if it will slow down, residential construction has been at a snails pace since 2011).

All logic says it should be significantly cheaper to build a new home, it isn't, that is reality.

caveat emptor said...

Poloz is killing the Canadian dollar and murdering 5 year Canada bond rates.

% year GC bond now at 1.6% yield. Down from a recent peak of 2.13 last September, but still well above the amazing low of 1.18 in April 2013

Just Jack said...

Somtimes the banks send out an appraisal or use a computer valuation system at renewal time if the person is increasing their principle or other terms of their original mortgage.

Mostly the lenders just roll the mortgage over at the new interest rate.

Although, I have heard that TD-Canada Trust may be changing that. Awhile back OSFI proposed that change to CMHC. But it went nowhere.

So why would a bank do such a thing? They want protection. If your mortgage is not insured they want about 20 percent protection. It's a way to purge the uninsured high risk mortgagees or have homeonwers take out high ratio insurance.

This is good business practice. Until all the other banks start doing it too. But banks have only been known for business cents not common sense.

koozdra said...

Time to throw the housing market under the bus and focus on exports.

We can't run the economy on people taking on non stop debt for much longer.

info said...

In the US, Phoenix, Miami, Las Vegas, etc. were all markets that crashed. Looking back at the price declines of these markets, the crash began when prices started to decline.

If Victoria's housing market crashes, we can look back at Victoria's price decline and point to 2010 as the beginning of the crash.

koozdra said...

Your crappy car can become a down payment on a new Vancouver condo

"The low buy-in of $5,400 is possible thanks to a two-per-cent down payment program offered by Vancity.

It allows qualified buyers to shell out only two per cent of, say, a $269,800 one-bedroom, 519-square-foot unit — although monthly payments will be required over the next 16 months of construction to get the buyer to at least a five-per-cent deposit before the building is completed in 2016."

The absurdity of this bubble is becoming palpable.

Condos should not be an appreciating asset. A hard lesson the youngens will learn soon.

info said...
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info said...
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info said...
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Leo S said...

Household income is the important stat here

info said...

The fact that Victoria's housing market price correction started in 2010 but hasn't crashed yet does not, in any way, provide any sort of protection against a future price crash.

If anything, the inability of Victoria's housing market to make price gains like the rest of Canada (prices in Victoria actually fell 10-15%) in an environment of falling 5-year mortgage rates is, in my opinion, proof that Victoria's housing market is more likely to crash at some time in the future than it was from 2010 - 2013.

Current house prices are still well above the level where fundamentals (price to rent and price to income ratios) would be able to provide price support. As long as potential price support from fundamentals remains well below prices in Victoria, there will always be the risk of a price crash.

Leo S said...

These were both younger guys with no homes to sell looking for more money. They both could be employed in Victoria, but for less money.

We're getting too lost in the details. Less construction work means less money for the people in that field, simple as that. Some will tighten their belts (impacting the local economy), some will sell their homes and leave (increasing supply), and some will leave their rental (increasing rental vacancy).
It's impossible for a decline in construction not to have this effect, unless the decline in that industry is accompanied by an equal increase in another.

All logic says it should be significantly cheaper to build a new home, it isn't, that is reality.


The decline so far has been localized to Victoria so that could explain why people have managed to deal with the reduced income. Some people get camp jobs because the industry in other areas are still strong. If market weakness spread to the rest of canada then most of those camp jobs would already be filled, and people couldn't easily pick up and move to another location where work is plentiful.

info said...

In the US, the major bubble markets (Los Angeles, San Diego, Las Vegas, Miami, Phoenix, San Francisco and Washington) all peaked in 2005 or 2006.

Other US markets experienced smaller bubble price run-ups. Portland and Seattle peaked in 2007, Chicago in late 2006 and Boston in 2005 (the exception). Atlanta and Dallas experienced minor price gains and peaked in 2007.

In general, the bubbliest housing markets in the US peaked first and experienced the biggest price corrections.

I think Victoria and Vancouver will experience the biggest price corrections of all major Canadian cities.

Marko said...

The 1990s were far worse for trades people in Victoria and we didn't see the market crap out then secondary to that so I don't see why we'll it this time.

The amount and variety of predictions on this blog is rather amusing.

I could make one up every day. Let me start.

The pipeline, despite the controversy, will probably go ahead. Canada as a result will shift more of its fleet from Halifax to Esquimalt which will bring with it many new jobs positively impacting the locally economy and driving houses prices up.

What should I predict tomorrow.

Leo S said...

The 1990s were far worse for trades people in Victoria and we didn't see the market crap out then secondary to that so I don't see why we'll it this time.

It's not the same as it was in the 90s

info said...

"The 1990s were far worse for trades people in Victoria and we didn't see the market crap out then secondary to that so I don't see why we'll it this time."

Greater Victoria SFH sales in the 1990s were significantly higher than they have been over the last 4 years. Victoria's housing market is extremely weak.

SFH sales:
1990 - 4017
1991 - 5496
1992 - 5103
1993 - 4220
1994 - 3608
1995 - 3117
1996 - 3812
1997 - 3639
1998 - 3145
1999 - 3288

2010 - 3236
2011 - 3069
2012 - 2907
2013 - 3068

If we adjusted for population, the SFH sales totals for the 1990s would be significantly higher, making the sales totals over the last 4 years look even weaker.

As of December 2013, SFH prices across Greater Victoria were lower than at any time from 2007 - 2012 (MLS Home Price Index 6-month price chart). The vast majority of that price decline took place while 5-year mortgage rates were falling and while the Canadian housing market, in general, experienced price increases.

info said...

The price of pot is falling dramatically across BC. Pot is one of Victoria's biggest industries (possibly the biggest).

This will have a significant negative impact on Victoria house prices.

Marko said...

It's not the same as it was in the 90s

Makes sense.....construction was slower in the 1990s and the percentage dropped.

Marko said...

Greater Victoria SFH sales in the 1990s were significantly higher than they have been over the last 4 years. Victoria's housing market is extremely weak.

And over the last 4 years condo sales have been much higher versus late 1990s. Do we conclude that the condo market is extremely strong?

Marko said...

On a side note Info, we are still waiting for the predictions from you.

totoro victoria said...

The reason for higher sales for SFH's in the 90s is clear: grow ops. Pot made the SFH world go round but those days are over. We're all crashing.

info said...

"And over the last 4 years condo sales have been much higher versus late 1990s. Do we conclude that the condo market is extremely strong?"

We are comparing the overall Greater Victoria 90s housing market (sales) to the current market, not the late 90s condo market to the current condo market.

A comparison of 90s (all property types) yearly sales totals (population adjusted) with (all property types) sales totals for each of the last 4 years would prove that Victoria's housing market is weak compared to the 90s.

We already know that the SFH market is weak compared to the SFH market of the 90s.

totoro victoria said...

Oh, why limit it to the 90s - how bout getting back to the well-known future facts you are so fond of.

info said...

Making predictions based on the Teranet Index is useless. Their methodology appears to be affected far too much by upward skewing. Their results also appear to be upward biased (no surprise there).

In 2013, the SFH median and SFH average were subject to extreme upward skewing (again, no surprise).

The MLS Home Price Index methodology has subjective elements to it and is, therefore, not useful for making predictions.

If I had to choose one of the above to use to make a prediction for 2014, it would probably be the MLS HPI.

MLS HPI (2014): - 4%

2014 will likely not be the year that the rate of price decline increases in Victoria. I think we will have to wait for other Canadian markets to join the price decline parade before that happens.

Last spring there was a sudden and dramatic shift in the SFH sales mix toward the upper end of the market. I don't think that big of a shift will happen again in 2014.

Marko said...

We are comparing the overall Greater Victoria 90s housing market (sales) to the current market, not the late 90s condo market to the current condo market.

Overall market? but you focus in on SFH and ignore condo and townhome sales?

The 1990s includes 1991-1992 and 1998-1999 which are two totally different markets so do we compare 1991-1992 to current or 1998-1999 to current? Overall market sales currently are better than 1998-1999.

(population adjusted)

And we'll ignore the basics of supply and demand?

Marko said...

2972 Doncaster Drive (teardown) listed for $379,000 yesterday and sold today for $461,500 in a bidding war. Building lots or building lot potential continues to out-perform every single other market segment.

caveat emptor said...

"Victoria's housing market is more likely to crash at some time in the future than it was from 2010 - 2013." - info


Is that a tautology?

info said...

VREB's website doesn't include yearly sales totals for all property types from 90 through 94. It does, however, include total yearly SFH sales from 90 through 94.

Without having access to this data, I'm willing to bet that yearly sales totals for all property types from 90 through 99 are higher than from 10 through 13 (population adjusted).

caveat emptor said...

Wow. I am more bearish on Victoria RE than you info!

You predicted -4% on the HPI.

I predicted approx -5% on the 6-month average which is lagging so will actually require perhaps 6-7% fall by the end of the year. The HPI and the simple medians or means have actually tracked moderately well despite the susceptibility of the latter to bias.

Leo S said...

Overall market sales currently are better than 1998-1999.

They are about the same actually (they were lower than 1998/9 but have recovered a bit in recent months).

And we'll ignore the basics of supply and demand?

What does supply and demand have to do with population adjustment?
If you want to compare the supply and demand balance of now VS in the 90s then that would be the
MOI , which is higher now than it was back then.

info said...

A lot of denial on this site.

As of December 2013, Greater Victoria SFH prices were lower than at any time from 2007 through 2012 (MLS HPI SFH 6-month price chart).

2013's SFH sales total (Greater Victoria) was the second lowest since 1984 (without population adjustment). 2012's SFH sales total was the lowest since 1984 (without population adjustment). 2011's SFH sales total was the third lowest since 1984 (without population adjustment).

Price declines always follow slow sales. SFH prices across Greater Victoria will continue to decline for years and the rate of decline will increase.

Marko said...

What does supply and demand have to do with population adjustment?
If you want to compare the supply and demand balance of now VS in the 90s then that would be the
MOI , which is higher now than it was back then.


MOI is a much better metric than population adjustment in my opinion.

Marko said...

Price declines always follow slow sales.

and

1996 - 3812
1997 - 3639
1998 - 3145
1999 - 3288


Prices

1996 - 241,910
1997 - 248,921
1998 - 246,018
1999 - 249,930

Let me guess, there was some sort of skew going on that is not evident in the pricing numbers.

Leo S said...

More up to date MOI.

totoro victoria said...

Well, what we do know for sure is that info's past predictions of future facts have changed a tad. From massive crash like the US to -4% HPI...

On December 7, 2012 she stated: "I wouldn't be surprised to see a 15% drop in Victoria house prices over the next year and then more after that." What was the HPI for last year again?

Last year she stated: "Being a math major, I can tell you that there are a thousand ways that... calculations can be manipulated". So maybe she'll be able to use a skew theory to explain how prices actually did drop 15% and she was 100% correct - as she always is.

A year ago she was posting about how "Garth Turner has been 100% correct" and "Garth also correctly predicted the current major market correction that has recently started for most of the country."

Now, a year later, most of the country is not in a "correction" and Garth has publicly admitted he was wrong.

Info told us at the time that "You have always tried to discredit Garth. If you would open your eyes ... you might actually learn something about the good that Garth has done for so many people in this country."

Thanks for the valuable tip. I would have been lost without it.

Introvert said...

I just read the most recent 652 comments posted on this blog. I learned nothing except that tenants like non-carpeted suites and that dasmo is not dead.

totoro victoria said...

I hope you didn't miss JJ's racy new pic.

Just Jack said...

Thank-you.

I lift my hat to you, Madam.

Leo S said...

You know who is dead? A simple man

LeoM said...

Rosa is certainly alive and well!!!

koozdra said...

If you are wondering why arrears rates are down watch this excellent piece of marketing material.

When this stops being an option, and it will, arrears rates will spike like crazy.

Second Mortgage Explained - Approved On Equity Not Credit

"no income or credit check required"

CS said...
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CS said...

A Stunning 63% Of Florida December Home Purchases Were "All Cash

Victoria all cash sales are not so high, but they are high enough to make price/income calculations of limited value in predicting price trends.

Central bank action to increase the money supply creates a problem for those with cash to invest. In the past, most investors had a balance of stocks that were risky but offered the possibility of capital gains and bonds that offered safety but a low yield. But central banks bond buying has driven up prices and driven down yields to (after tax) below inflation.

So what's an investor to do? Many have evidently cashed in their bonds to capture the capital gains of the last five years. But what to do with the cash?

Buy more stocks? Presumably many have, which explains the current bull market. But for safety, why not invest in RE too? Here the calculation probably has less to do with current return than with a calculation as to whether RE will hold its value over the long run in real terms. In that case, all the investor is hoping for is that the rent covers the cost of depreciation, maintenance, and management.

CS said...

Some people are predicting a RE crash on the basis that household debt is at a record high. But the cost of household debt is not exceptionally high, due to low interest rates. Therefore, at current rates, current house prices are quite sustainable. For example, the median Victoria household, with an income of around $65K, may be inferred (from national numbers) to have debt of around $107K (mostly mortgage debt). How difficult is that to sustain?

We'd need to see something like a doubling in rates before the median household was greatly troubled by the cost of mortgage debt.

And it should be remembered that the median household income is probably significantly lower than the median income of the 65-70% of households that have actually bought property.

CS said...

All stock market and housing busts since WWII in North America have taken place during CPI inflation.

The connection between inflation and market busts being interest rates.

But currently central banks are trying to drive up CPI inflation by lowering interest rates.

In the long run, the current housing/RE market cycles may resemble those of the past. But it seems that for now we'll have rising CPI inflation as interest rates are held down by QE and related central bank actions.

For the central banks, this appears to be a costly strategy. They buy assets now when prices are abnormally high, driving up inflation and causing the price of the assets they sold to fall, at which point they sell those assets, causing interest rates to rise, thereby driving down even further the price of assets the bank is selling.

In the past, the effects of inflationary monetary policy have taken nine to 18 months to have much impact on CPI. So there seems no reason to expect significant interest rate increases here until after the Federal election.

January 24, 2014 at 9:34 AM

koozdra said...

"But the cost of household debt is not exceptionally high, due to low interest rates."

I wonder if the deflation isn't from "retail competition" but by people having to service all that debt. Even at these low rates.

totoro victoria said...

On the plane with a fellow from ns today who works in fort Mac. 54 and a union man earning 200 000 a year with food and camp room covered. He and his wife are going to sell their place in cape Breton when he retires in a couple of years and move to - yes - Victoria. Kids are off to uni and not coming back to cape Breton and they don't want the winters and 500 a month heating bills. Wonder how many of the oilfield workers have their eye in Vic? They can afford it.

Just Jack said...

It's not the population size that is important it's the size of the market.

There may be 20,000 condominiums in Greater Victoria. But that's not the supply in the marketplace. The supply is currently about 500 listings.

The same for demand. Our population in the city may be 80,000 but that isn't demand. There may only be a thousand people looking at buying a condo over the next 6 months. And within those numbers the market can be futher segmented into one and two bedroom condos.

What is important is the Months of Inventory, the Sales to New Listings Ratio and to a lesser extent the Days on Market.

Replace the words Real Estate for any other commodity and it makes sense to everyone. Call it real estate and it baffles people. Not only does it baffle people but it allows others to baffle us. We give them names like the "Condo King" believing that they have some mystical powers to make things like the Olympic Village profitable.

CS said...

I wonder if the deflation isn't from "retail competition" but by people having to service all that debt. Even at these low rates.

Mostly it's because we buy cheap stuff from collapsible Bangladeshi garment factories and Chinese sweatshops with nets to catch suicidal workers, instead of paying Canadians decent wages to make things as we used to.

In addition, by exporting manufacturing jobs we've robbed the blue collar workforce of much of its income. So even though stuff's cheap,many people cannot afford to buy much of it.

info said...

The price to income or price to rent ratio of a particular housing market doesn't determine whether or not that market is overvalued.

A housing market is considered to be overvalued (like Victoria's) when the current price to income and price to rent ratios are much higher than the long term averages of these ratios.

Victoria's price to rent and price to income ratios are a lot higher than the long term averages of these ratios. Thus, Victoria's housing market is extremely overvalued.

As of December 2013, SFH prices across Greater Victoria were lower than at any time from 2007 through 2013 (MLS HPI 6-month chart). Falling 5-year mortgage rates could not stop this from happening.

Victoria's price decline will continue without rising interest rates.

info said...

@ CS

"Victoria all cash sales are not so high, but they are high enough to make price/income calculations of limited value in predicting price trends."

You failed to state the percentage of cash sales for Victoria and how that number compares with other Canadian markets and markets in the US at the peak of the 2006 US housing bubble.

Cash sales do not compensate for Victoria's extremely high overvaluation based on comparisons of Victoria's current price to income and price to rent ratios to the long term averages of these ratios. If cash sales did compensate for Victoria's overvaluation then SFH prices would not have fallen as much as they have (below 07, 08, 09, 10, 11 and 12 prices) in an environment of falling 5-year mortgage rates where housing markets across the rest of Canada experienced price gains.

Denial runs deep on this site.


koozdra said...

"Mostly it's because we buy cheap stuff from collapsible Bangladeshi garment factories and Chinese sweatshops with nets to catch suicidal workers, instead of paying Canadians decent wages to make things as we used to."

It's been this way for years.

You have to look at the changes that occurred in the last ten years to analyze the difference.

I agree with you that the problem is that we don't do anything anymore. We need to focus on the export sector.

Building houses as an economic driver is unsustainable and we are now reaching that limit. But now we have a bunch people paying a bunch of their wages to service debt.

The BOC thinks that retail competition is causing deflation. It's not, it's being caused by people spending too much money on servicing debt.

The BOC thought that inflation would pick up after the christmas season would end and retail competition would settle.

It didn't.

info said...

"Well, what we do know for sure is that info's past predictions of future facts have changed a tad. From massive crash like the US to -4% HPI..."

My predictions remain the same.

2014 will likely not be the year that Victoria's housing market experiences a substantial increase in the rate of price decline, but that will happen, probably after 2014 at some point. Bigger price declines are on the way.

Victoria's housing market might decline for 8-10 years before reaching bottom. If the rate of price decline averages 5% per year for 8-10 years, that would add up to a total decline of 40 - 50% (note that I'm not predicting the total decline at this point).

A lot of people would consider a price correction of 40-50 % over 8-10 years to be a crash, even if it doesn't fit the definition of a crash.

info said...

@ Marko

"MOI is a much better metric than population adjustment in my opinion."

Population adjustment makes a comparison of recent yearly SFH sales to yearly SFH sales of the 90s a fair comparison.

There are more people living in Greater Victoria now than there were in the 90s. There are more houses in Greater Victoria than there were in the 90s. Therefore, we must adjust for population if we are comparing recent yearly sales totals to yearly sales totals of the 90s.

With population adjustment, the weak yearly SFH sales totals of 2010 through 2013 would look significantly weaker.

Even without adjusting for population, 2012's yearly sales total was the lowest since 1984, 2013's total was the second lowest and 2011's total was the third lowest.

No matter how you slice it, Victoria's housing market is weak. The party has been over in Victoria for years.

totoro victoria said...

"My predictions remain the same"

Oh the info jibber jabber. I only wish you could use more words.

So, in 2013 it was going to be a 15 percent decline and mr turner was to be commended.

Looking back the word that comes to mind is phooey.

The problem you have info is that you are promoting theory as fact and when you are incorrect you remove non- favorable info from info's info.

Just Jack said...

Here's a bit of trivia. Yesterday I spoke with a local Assessor and they've been surprised to find that half of the appeals are to RAISE the values.

I suppose the home onwers feel that will help sell their properties for more.

So is that true?

Looking at the last 90 days for the different hoods shows that the median property in Oak Bay sold at 97.3% of its 2014 assessed value

Oak Bay 97.3%
Victoria 99.4%
Saanich East 98%
Saanich West 98.5%
Esquimalt 100.9%

Looks like it does.

The median ratio is 99% for the core districts. With 40% of all the houses that have sold in the core for the last 90 days selling within 95 to 105% of the 2014 assessed value.

And nearly 64% selling within 90 to 110 percent of assessed value. For mass assessing that's is considered acceptable. The courts generally consider any valuation within 90 to 110 percent as reasonable.

So for mass appraising the assessment authority gets a grade of 64% which is a "C" or average grade.

Or put it another way, the assessments are accurate to within 5% four out of ten times. And accurate within 10 percent 6.5 times out of ten. And by court standards they are wrong 3.5 times out of ten.

Do you still want to rely on them?

Marko said...

There are more houses in Greater Victoria than there were in the 90s.

There are but what is more important is how many owners are actually selling.

Just Jack said...

A sale today in Estevan. While not a miracle in itself was interesting to see how prices have changed over the lifetime of the Baby Boomer buying spree.

Originally purchased in 1977 for $62,500 the property has escalated in value over the last 37 years to $615,000.

Anyone have access to inflation numbers over this time. Or what the interest rate was in 1977.

Because it seems to me that while house prices have increased 10 fold. Mortgage payments have increased by 4 times.

CS said...

A housing market is considered to be overvalued (like Victoria's) when ...

Considered. Right. Question is whether those who consider this rather than that are more likely to bet right as to the direction of the market.

Unfortunately, is cannot be considered certain that because unnamed persons consider Victoria's RE market to be "overvalued" because of this or that, that the market will necessarily be valued for less at some specific time in the future such as one year from now.

So what is "considered" is really not worth considering too seriously. More useful would be to consider the arguments for or against a rise or fall in price and also to consider the counter arguments.

But even then the rational expectations theory for which Eugene Fama just won the Nobel prize tells you that what ever you consider for whatever reasons your chance of being right in a prediction of the direction of a market is entirely a matter of chance.

koozdra said...

1977: $62,500.00
2013: $219,734.96

Not letting me do 2014 but you get the idea.

Just Jack said...

Jesus Info, stop making me agree with Marko.

The price to rent ratio can only be used to compare current rents to current prices in the same market.

It can't be used to compare markets 20 years apart. Nor can you compare different markets because the distribution of wealth is different between say Guondong and Toronto.

It's just a fluffer to sell magazines. It isn't recognized by the International Valuations Standards Council in the way you're bastardizing it.

You would think they would know!

Just Jack said...

There are 396 condos listed that will allow you to keep your sperm swimming and ovaries intact.

That leaves 153 condominiums requiring chemical castration as part of ownership.

Those with wiggly sperm and shiny eggs typically pay $295,000 for a condo. While the child haters pay $250,000 or 14 percent less.

If the Mayor wishes to create affordable housing maybe we should ger rid of age discrmination in condos. Or instead of a rain water tax we have a lazy sperm tax call it a tad poll tax. Condominiums that have age restrictions must pay 14 percent more property tax.

patriotz said...

But even then the rational expectations theory for which Eugene Fama just won the Nobel prize tells you that what ever you consider for whatever reasons your chance of being right in a prediction of the direction of a market is entirely a matter of chance.

Fama developed the Efficient Market Hypothesis, not Rational Expectations which preceded it.

Residential RE fails the preconditions for EMH on many counts due to illiquidity (which includes inability to short sell) and the preponderance of irrational actors including of course the government.

Leo S said...

For example, the median Victoria household, with an income of around $65K, may be inferred (from national numbers) to have debt of around $107K (mostly mortgage debt). How difficult is that to sustain?

The average household will be ok. So what? The average household was ok in the US as well. The average household was ok in Ireland and Spain and Italy. That says nothing about the impact of any decline, except that it won't be completely cataclysmic.

Leo S said...

Victoria all cash sales are not so high, but they are high enough to make price/income calculations of limited value in predicting price trends.

Cash sales don't by themselves influence the utility of price/income. It's still income being used to pay the price. If you had evidence that cash sales have greatly increased in Victoria then I could buy the theory that houses are being bought up by the rich as hedges against the market.

Leo S said...

On the plane with a fellow from ns today who works in fort Mac. 54 and a union man earning 200 000 a year with food and camp room covered. He and his wife are going to sell their place in cape Breton when he retires in a couple of years and move to - yes - Victoria.

On the plane with my boss the other day.. His son is moving from Victoria to Calgary because his girlfriend found a good job there.

Ah anecdotes.. They mean so much.

Leo S said...

A housing market is considered to be overvalued (like Victoria's) when the current price to income and price to rent ratios are much higher than the long term averages of these ratios.

So you say that different markets have different ratios and just because one is high and one is low doesn't mean they are necessarily over or undervalued.

But a change in ratio definitely means the market is overvalued? That makes no sense. How did the markets with a high price/rent get that way if not by that ratio increasing over time?

Leo S said...

There are but what is more important is how many owners are actually selling.

Both numbers are interesting. MOI is current supply/demand balance. Comparison of population adjusted sales, inventory, and new listings will give you a clue as to market activity over longer periods.

totoro victoria said...

Anecdotal evidence means little when it is limited in quantity.

My trip on the plane falls into this category. Who knows how many Fort Mac workers are planning to buy homes in Victoria.

The only thing I know for sure is that Fort Mac and other northern BC destinations are creating a lot of high paying jobs for workers who have homes elsewhere. WestJet just added a Kelowna-Fort Mac direct flight for the workers. Whenever I fly up north, which is frequently, about half the plane filled with these guys.

When anecdotal evidence comes from a large representative sample because, say, you are a real estate or mortgage professional and deal with buyers all the time, it becomes, in my opinion, more credible. This type of evidence can point to emerging trends.

Leo S said...

Unlimited High paying jobs in the Canadian oil industry are today's story. The energy independence of the US is tomorrow's.
If the rest of Canada weakens like we have, those jobs in fort Mac won't be nearly as easy to get or pay as well

CS said...

Residential RE fails the preconditions for EMH on many counts due to illiquidity (which includes inability to short sell) and the preponderance of irrational actors including of course the government.

If, today, buyers rationally expect the market to fall by x percent in the next 12 months, they will not offer to pay what was the current price yesterday. They may offer to pay a little more than the current price less x percent, but not much. Therefore, even without short selling, the RE market must adjust immediately to expectations about the future.

The reason that the Victoria market has not crashed is that no one is expecting it to do so any time soon. Not even Info. LOL.

CS said...

The average household will be ok. So what?

Those at the margin will never be OK if the market moves against them. That is true now and always.

CS said...

Cash sales don't by themselves influence the utility of price/income. It's still income being used to pay the price

I doubt very much whether most of the 63% of houses bought for cash in Florida are being paid for out of income. Nor do I think it likely that the multimillion dollar houses offered for sale here (dozens of them in Oak Bay alone), are being purchased out of current income.

Sure that's mere surmise, but hard data are difficult to obtain.

There's said to be up to $4 trillion in Chinese money stashed in tax havens in the Caribbean. Some of this is surely looking for a more permanent home.

In one recent month, according to Savills, over one-third of the total value of London property purchases were by Chinese investors.

How much of that cash finishes up here, who knows, but there are plenty of mainly unoccupied houses in the Uplands and we know the Chinese like owning unoccupied condos, shopping malls and even whole cities, so why not a place on the OB waterfront too.

Then there's also hot money from elsewhere, which may be flowing more freely now the dollars been devalued.

koozdra said...

The best thing about foreign ownership is that they are willing to drop their prices for rents thereby undercutting the local landlords that actually need the money to afford their mortgages.

If they bought the property for cash, any rental income, even if it's below "market value" is pure profit.

Marko said...

Line up outside of the Janion for the remaining 15 units.

On initial launch the two bedrooms did not sell so those were converted to micro lofts to make the remaining 15 units.

totoro victoria said...

Really?

You realize that the industry forecast for the oil sands is for volumes to more than double to 6.2 million barrels a day by 2030?

It is forecast that the US will not reach energy independence until 2035 at the earliest and this measure is largely intended to reduce reliance on Persian gulf oil.

The need to develop other markets for Canadian oil and natural gas has already been identified.

Have you been to Terrace or Kitimat lately btw?

In any event, I would predict that tradesfolk are going to continue to find high-paying jobs in this field if they want them through the next real estate cycle. Many of them will commute from other places in the province on their on/off schedule.

http://www.huffingtonpost.ca/2012/03/05/income-gap-oilsands-fort-mcmurray_n_1321666.html

totoro victoria said...

"If they bought the property for cash, any rental income, even if it's below "market value" is pure profit."

Total and pure bunkum.

First, of all, there are other costs to ownership besides a mortgage.

Second, people who buy with cash generally know that money makes money imo.

Most investors would never buy RE for investment purposes without considering ROI, including cash flow, and comparing it to the alternatives.

Lost opportunity cost is not a magical concept.

koozdra said...

"Total and pure bunkum."

Haha, I like the implication of your post.

People with money know not to invest in real estate. Only people that have to take on massive amounts of debt do that kind of thing.

totoro victoria said...

Haha.. I like the total and pure twisting to suit your purposes.

However, I happen to agree with you. I think the smart money for pure investment purposes is not in Victoria. The ROI is not there and probably won't be there for seven years imo.

If you buy now it should be because you live here and plan to keep the property for at least seven years imo.

If you really have a load of cash and love RE head to Texas, or maybe Kitimat still. Or investigate REITs.

I've probably shouldn't say this because this site does have a following in the Chinese community. I might be influencing all those international investors.

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

@ totoro

"So, in 2013 it was going to be a 15 percent decline and mr turner was to be commended."

I made no such prediction for 2013.

However, this is nothing new for you. For some time now you have been fabricating statements (that I didn't write) and then saying that I wrote them.

CS said...

Most investors would never buy RE for investment purposes without considering ROI

So where's the ROI on this place

info said...

@ totoro

"My trip on the plane falls into this category. Who knows how many Fort Mac workers are planning to buy homes in Victoria."

You sound like a pork chop-hungry realtor.

The oilsands in Fort Mac have been operating for decades. It is unlikely that Victoria real estate would suddenly be a target for workers there to a much greater extent than before.

As someone who knows a lot more about the oilsands than the average BC resident, I can tell you that finding a good job in the oilsands is a lot harder than anyone from BC could possibly understand.

Over the years, I have talked to many young men from Ontario and BC who went to Edmonton and Fort Mac looking for work in the oil industry. Most discovered that it was more difficult to find a good job in the oil industry than what they had thought.

It is even more difficult to get a camp job and be flown in and out of Fort Mac from a city in another province.

The price of oil has declined in the last number of months. In August 2013 it was at $112 and now it is at $97. This doesn't help Fort Mac or the rest of Alberta.

From 2007 - 2009, house prices in Calgary and Edmonton fell about 15%. Most of that price decline took place while the price of oil was above $100. If the high price of crude oil couldn't prevent house prices in Edmonton and Calgary from experiencing a significant correction, how could $100 oil and Fort Mac workers prevent house prices in Victoria from correcting?

Fort Mac workers will not prevent house prices in Victoria from correcting.

The Bakkan Play in the US is being developed at a startling rate and is already providing a lot of oil for the US. This trend will continue in the coming years as production from the Bakken Play continues to increase. I think many people underestimate the amount of oil and natural gas that lies within the US part of the Bakken Play.

Then there is the whole dirty oil thing. To much of the rest of the world, the oilsands now symbolize deforestation, climate change and corportae greed. Ask Neil Young.

CS said...

Or closer to home, where's the ROI on 15% of the apartments in downtown Vancouver?

There's a lot of money sloshing around, which is not surprising. Governments have been printing the stuff by the $trillion.

Question is what to do with it. A lot has gone into the stock market but few want to be 100% in stocks when the market may crater at any time (like last week). So what's the alternative?

Ten-year bonds yield 2 point something percent, or less than inflation after tax. So yeah, RE even without rent looks better to some people than government paper.

CS said...

If you really have a load of cash and love RE head to Texas, or maybe Kitimat still. Or investigate REITs.

The Chinese tend to be gregarious. I don't think many would want to have anything to do with the rain-soaked boonies of BC's North coast.

As for REITS, the are generally leveraged, which makes them a dicey proposition for those wishing to preserver wealth.

totoro victoria said...

info, on December 7, 2012 you stated: "I wouldn't be surprised to see a 15% drop in Victoria house prices over the next year and then more after that."

I am making nothing up. The post is still there for anyone who wants to verify it.

I never said that Victoria is a target for all FM workers - although I have met some from Victoria and others who are planning on relocating here.

The salary level and desirability of Victoria for retirement in my Cape Breton seat-mates eyes made me wonder about this as a lifestyle choice for oil sands workers.

I agree the oil sands have been operational for decades - since 1967 in fact. However, it is only since oil prices started to rise in 2003 that production has been ramped up and jobs too.

As someone who also knows a whole lot more about the oil sands and the proposed pipelines than the average BC resident I can tell you the jobs are there in FM and other places and there are a lot of fly in-fly outs. I personally know many.

As far as the environmental issues go, yes, this is an issue. I never stated I was in favour of the oil sands, just that many many of those who fly with me frequently are oil sands workers and they make a lot of money. Its a trade-off though, living in camp is not for everyone.

There is a reason WestJet just added a DAILY direct flight from Kelowna to FM - there are loads of workers commuting. http://www.castanet.net/news/Kelowna/107362/To-Fort-Mac-and-back

totoro victoria said...

I was on flight to Terrace about three years back. My seat-mate was a realtor from Vancouver sent up by her client to check Kitimat out. Her instructions were to buy whatever looked reasonable.

Assessments rose 26.7% last year alone in Kitimat - I wish I had followed up.
http://www.vancouversun.com/business/Kitimat+increases+highest+2014+property+assessments/9344634/story.html

totoro victoria said...

Also, as far as the Garth quotes from info, here it is from January 19, 2013 at 3:01 PM:

"Garth Turner has been 100% correct, 2 out of 2, in predicting major housing market corrections in Canada over the past decade.... He, like many economists in this country and around the world, uses price/income ratio, price/rent ratio, household debt levels and so forth to predict the direction of house prices. It is logical and based on factual information.

... Garth was still correct with his prediction that the market would correct/crash and it did.

Garth also correctly predicted the current major market correction that has recently started for most of the country.

You have always tried to discredit Garth. If you would open your eyes to information other than what real estate boards and other realtors use to convince people to buy houses, you might actually learn something about the good that Garth has done for so many people in this country."

And, on February 27, 2013 at 2:24 PM :

"Garth Turner has a lot to say. In terms of predicting the future of the Canadian housing market, he has always been correct...

Garth also predicted the current housing market correction that has started in Canada...

He should be commended for his work."

And here is Garth himself in September 2013 doing a 180:

http://business.financialpost.com/2013/09/04/canada-housing-doomsayers/

totoro victoria said...

What is a pork-chop hungry realtor btw? How different is it from a skew-focussed crash zealot?

Leo S said...

Those at the margin will never be OK if the market moves against them. That is true now and always.

All the big crashes have been because those at the margin were in trouble. Sometimes that margin is bigger than others, but I don't know of any crash where the average person was in trouble (in other words, a full 50% of owners couldn't manage).

Hence the complete meaningless of platitudes like "the average household will be ok".

Leo S said...

In any event, I would predict that tradesfolk are going to continue to find high-paying jobs in this field if they want them through the next real estate cycle. Many of them will commute from other places in the province on their on/off schedule.

Unlikely this will have a large impact on Victoria. Commuting means two places. So sure, if someone has a house here and loses their job they could temporarily go to Fort Mac and spend an additional $2000/month in rent and $1000/month in flights back and forth. That will work as a stopgap for some but won't have much impact on Victoria's housing demand.
Those that have permanent jobs up there will also have permanent homes and look to sell off their Victoria places.

totoro victoria said...

The people I know in Fort Mac have camp jobs. This means that their food and private room are included at no extra charge to them - the company or client pays. This is quite a common scenario for fly-in/fly-out workers.

totoro victoria said...

And most jobs like this have a flight allowance after each shift (can be ex. 7-21 days). It pays for their flight home, they stay at home for a week or longer and then fly back on the company's dime..

So maybe it has no impact on Victoria, but it isn't the picture you are painting either.

koozdra said...

First it was the boomers that were supposed to turn this market around now it will be the campers.

Prosperity is just around the corner friends.

Leo S said...

It's been a while since we've heard the stories of hot albertan money. Looks like they are back. Never mind the stats, those foreigners are buying up all the houses.

totoro victoria said...

Working in camp is nothing new Leo. Been going on for years. This is not hot Alberta money ~ this is how a whole bunch of people all over bc and canada are paying the bills. A lot if the former mill workers or fishermen get trades and do this. The only new part of this story from the whole history of resource jobs going back to the coal mines is that air travel means workers do not have to permanently relocate.

koozdra said...

More complaints from the debt peddlers:

Brokers may be waiting with baited breath to see if the B-21 guidelines pass but there seems to be a consensus that the industry will feel the impact if they do.

Let's see what exciting mortgage changes will come with B-21.

subprime11 said...

People on this blog naturally focus on Victoria house data which leads to tunnel vision and in truth nothing much changes here in our perfect Utopia but we don't live in a vacuum - there's a whole screwed up desperate world out there. More than likely it's external influences that will cause our home values to collapse which can happen at any moment. I don't think anyone would argue that Canada is walking a tightrope and weakness is showing with weak dollar, high unemployment, trade deficit, declining oil and housing is all we have left but that will not last. Polotz expressed his concern over an "external shock" in the Lange interview a few times because he knows how vulnerable we are now as a result of his "pumping of real estate" low rate policy.

CS said...

The average household will be ok. So what?


It was Leo S who introduced the statement that "the average household will be ok", only to deride it at platitudinous.

What I asked was how hard will it be for the median Victoria household with a mortgage to survive an increase in interest rates, the answer being, not very.

This may or may not be platitudinous, but it is not an idea that has had much currency here. Leo S, for example, implies that many of those buying property whose household income is less than the median are financially reckless people who will go bust if interest rates rise.

This may or may not be true, but if new entrants to the market have acted with reasonable financial prudence, a rise in interest rates will not inevitably cause a crash.

Certainly, one might expect, for reasons that it would be tedious to spell out here, that the number of low-income households sucked into dubious mortgage arrangements is proportionately less here than in the US prior to their housing bust.

It should be noted, also, that the "average household" of Leo S's statement has a higher income than the median income to which I referred.

To identify "the average person" with a "full 50% of owners" is an error. Those with an average or greater than average household income account for much more than 50% of home owners, since those with incomes less than average are less likely buy property.

CS said...

The reason to consider the ratio of median household debt to median household income is that is shows, overall, whether debt in Canada is manageable and whether it will remain so, even if interest rates rise significantly.

But an increase in rates will force bankruptcy on those who have borrowed imprudently, whatever their income.

To know how many have placed themselves at the financial margin by taking on excessive debt, we would need the distribution of the income to debt ratio.

I am unaware of any current data set. There are some data for 2008 in this paper, which concludes that debt is generally not a problem. However, since 2008 debt has substantially increased.

patriotz said...

CS, colloquially the "average person" does not refer to someone with the mean income. If Bill Gates moves to a village the "average person" remains the same, rather than morphing into a non-existent person between Gates and everyone else.

Rather the "average person" usually means someone near the median income within their own demographic group.

Formally, the term is not defined.

CS said...

colloquially the "average person" does not refer to someone with the mean income

But according to the Oxford dictionaries that is precisely what average does mean most commonly, i.e., colloquially: it means the mean.

Average n

A number expressing the central or typical value in a set of data, in particular the mode, median, or (most commonly, the mean, which is calculated by dividing the sum of the values in the set by their number.

Leo S said...

When someone says to you the "average person" they mean the average person they encounter in their lives. They don't mean someone with the mean income. Unless perhaps your friends are all statisticians.

Leo S said...

It was Leo S who introduced the statement that "the average household will be ok", only to deride it at platitudinous.

No, this is a common argument on this site. When people bring up the poor financial data others counter with examples of how the average family will be fine. Totoro, Marko, Dasmo, Introvert, and apparently you too come back to this often.
My point is that just because the average or median family is ok doesn't really mean anything. The average family was ok in all countries that experiences a real estate crash. Didn't change the magnitude of the decline.

Marko said...

People are pulling up average family data, yet the preferred area of discussion on the blog is Oak Bay. The average family is not buying into Oak Bay.

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

When people bring up the poor financial data others counter with examples of how the average family will be fine

I never said the average family will be fine.

You incorrectly claimed that I said it, and then added the derisive "so what?"

Let me repeat what I said:

"... the cost of household debt is not exceptionally high, due to low interest rates. Therefore, at current rates, current house prices are quite sustainable. For example, the median Victoria household, with an income of around $65K, may be inferred (from national numbers) to have debt of around $107K (mostly mortgage debt). How difficult is that to sustain?"

This is not to do with the solvency of the average household (however you chose to interpret the word average). It is to do with the ratio of debt of all households to the income of all households. I used medians because those numbers are readily available. But the ratio applies to all households insofar as all households maintain a similar debt to income ratio.

Obviously, not all households are equally indebted relative to income. But we don't have the data (or anyhow no one here has pointed to it), to show how many people have borrowed unwisely and are close to the margin of solvency.

When someone says to you the "average person" they mean the average person they encounter in their lives.

But again you misquote me by implication. I did not say "the average person." I talked of the median household income and the median household debt. When in that context you referred to averages it seemed pretty clearly to imply the arithmetic mean of household income or debt.

Naturally, if I'd wished to speak about Joe Six Pack rather than some specific statistical fact, then that's the term I would have used.

CS said...

People are pulling up average family data, yet the preferred area of discussion on the blog is Oak Bay. The average family is not buying into Oak Bay.

Yeah. That's the problem. A chronic lack of relevant data to characterize a highly complex market.

totoro victoria said...

Well, after thinking on this for a couple of years I would say that there is no crisis.

People will continue to buy houses. The market will fall and rise again and fall again within most of our lifetimes.

Some people will have to sell and will lose money, others will be rewarded when they hold and sell at the right time. Jibber jabber will continue on this site and others.

It is not that glamorous or dramatic. When you buy is a big decision, but once made, life goes on.

Leo S said...

But again you misquote me by implication. I did not say "the average person." I talked of the median household income and the median household debt.
Holy semantics batman. None of that affects the point at all. Median or average, no one is worried about that household.

koozdra said...

Should cash-strapped retired home owners eye HELOCs or reverse mortgages?

"Unfortunately, that won’t be a reality for up to one-third of Canadians who rely on their home equity to survive retirement. For many of those folks, the HELOC vs. reverse mortgage debate is one they’re sure to encounter."

They can always sell. What would that do to listing volumes? Further, what would that do for sales prices as these people are cash strapped and need money immediately?

"What do you mean no one's buying right now? What the hell is a deflationary cycle?"

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

Monday, January 27, 2014 8:00am

MTD January
2014 2013
Net Unconditional Sales: 243 294
New Listings: 854 1,080
Active Listings: 3,340 3,870

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

CS said...

None of that affects the point at all. Median or average, no one is worried about that household.

Holy misrepresentation batman:

To reiterate:

This is not to do with the solvency of the average household (however you chose to interpret the word average). It is to do with the ratio of debt of all households to the income of all households. I used medians because those numbers are readily available.

Thus, so far as the median values are reflective of the mean values we can say that there is no problem overall. There will be a problem in the case of those at the margin whose debt to income ratio differs greatly from the median. But we have no data on the distribution of debt to income, therefore, neither you nor I can say whether those at the margin, who by definition are at risk if bankruptcy in the event of a sharp rise in interest rates, constitute a large number or an insignificantly small number.

CS said...

What we can probably assume is that the situation in Canada is very different from that in the US where (a) a lot of dodgy brokers sold ARM's to simple-minded people who did not properly understand the terms they were agreeing to, and (b) that the Bank of Canada is not so insane as to willfully and needlessly raise rates 17 consecutive times in two years as did "Maestro" Greenspan between 2003 and 2005.

Leo S said...

But we have no data on the distribution of debt to income, therefore, neither you nor I can say whether those at the margin, who by definition are at risk if bankruptcy in the event of a sharp rise in interest rates, constitute a large number or an insignificantly small number.

That kind of data actually comes out regularly and is discussed here. Data such as number of households that would be in financial difficulties at the prospect of missing one paycheque, or facing an unexpected expense. Or how many borrowers report they would be in trouble with a small rise in rates.

Just Jack said...

There are some savy buyers in La La Land. And some of them are purchasing condos.

Here are a couple of what I consider good purchases made by buyers this year.

The 6th floor of the Savoy along Blanshard. A 1302 square foot steel and concrete condo built in the mid 1970's at $275,000 or $211 a square foot. Updated inside with city view and a glimpse of water. Note: for these older condos make sure to check the square footage as some agents will include the balconies in the square footage.

A third floor suite in the 3200 block of Quadra. $201,000 for 1,128 square feet. Good for single people with kids or mom and pop starting out. With all the costs associated with home ownership this would be within a hundred bucks a month of renting a basement suite. Everytime one of these sell a basement suite goes vacant in the city.

And for non condos.

How about a house along Chiltern in Uplands. 4100 square feet and a half acre. Too bad Oak Bay municipality won't let you be buried there. Then you could almost take it with you. At $1,375,000 or $335 a square, this sprawling California rancher has an inground pool and privacy that will let you tan without tan lines.

Or you could have bought a 1700 square foot home with Waterfront along the Gorge at $570,000!!!!!!!

At these prices, maybe I should put Marko on my speed dial!

Just Jack said...

Want to own in the better neighbourhoods and NOT pay the high prices.

Then buy a Co-Op or a Leasehold Condominium.

You can get a third floor updated micro suite of aroud 465 square feet steel and concrete high rise on Michigan Street in James Bay for $138,000. And it rents for $815 a month. A price to rent ratio of $170. There's your long time price to rent ratio!!!!

So far it has been on the market for 53 days - I guess some people have never heard of Fundamental Value!

And a top floor Cook Street Village condo - Just call Marko.
Sweet deal for $149,900. You can go bohemeian, throw away your shaving cream and hang out at the Mocha coffee shop with the other IT workers at this price.

Don't like leasehold condos - then go Co-Operative. All the big cities, like New York, do it.

You find these mostly along Beach Drive in Oak Bay. They tend to be large units without elevators. But for under a $175 a square foot across from the Marina in Oak Bay. It's like owing an old Rolls Royce. Sure its old - but its still a Roller!

Maybe you have reached that age where you think hair under a guy's lip just looks dumb or women should leave their junk done up. Then there are some well priced 55 and up condos too.

For under $75,000 you can put grandpa in a care-a-minium. And for $1600 bucks a month someone else can feed him while you spend the inheritance from grandpa's house sale. Guilt free - for $1600 a month.

There are quite a few 55 and older condos available in some choice locations like Lansdowne, Oak Bay and Rockland. And most are vacant. Buying in one of these is to never worry about appreciation again.

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Canada's housing bubble is much larger than the 2006 US housing bubble.

It took longer for the Canadian housing bubble to inflate than the US bubble. Canada certainly has more than enough first-time, high-risk, high ratio mortgage holders.

House prices began to fall in the US because the average person could no longer afford the average home. Once prices began to fall, those that bought at bubble prices and qualified for mortgages under the lax lending standards of 04, 05 and 06 (who would not have qualified before lax lending standards were brought in) were, in general, the first to experience problems with making payments. The same will happen in Canada.

A typical mortgage in Canada has a 5 year term. Americans have 30 year terms which makes Canadians much more vulnerable to increases in interest rates. Interest rates will normalize. The long-term average for the 5-year fixed rate is 7-8%.

Americans can deduct mortgage interest from their taxes, Canadians can't.

Canadians have borrowed against their homes to a greater extent than Americans did at the peak of the 2006 US housing bubble.

The degree of overvaluation in Canada is higher than it was in the US at the peak of the 2006 US housing bubble.

The Canadian economy is more dependent on increased activity in housing market related industries (as a result of the housing bubble) than the US was at the peak of the 2006 US housing bubble.

The Canadian housing market will peak while interest rates are at emergency low levels. The US housing market peaked at a time when rates were a lot closer to normal and that gave the US government the ability to slash rates dramatically to combat falling house prices. The Canadian government will not have this option as interest rates are already at emergency levels.

The list goes on.

The Canadian housing market is set up for a bigger correction than the US housing market was in 2006.

Victoria is Canada's weakest housing market. Single family home prices in Victoria have fallen 11% since 2010 while the rest of Canada has experienced a 14% price increase (MLS HPI).

As of December 2013, single family home prices in Victoria were lower than at any point from 2007 - 2012 (MLS HPI 6-month chart). There are thousands of high-risk, high ratio first-time buyers from that period of time who now have underwater mortgages. Most of these mortgages holders have been eliminated as potential move-up buyers in the years to come as house prices in Victoria will not be moving higher any time soon. This will contribute to lower than normal sales and falling prices.

The situation Canada finds itself in right now with respect to its housing market is no better than it was for the US at the peak of the 2006 US housing bubble.


Just Jack said...

So far the cheapest house to sell in the core districts is $280,000 for a home on Finlayson.

And $272,000 for a starter home in Sooke Village.

You would think the difference for starter homes in Sooke Village would be a lot different than a starter home in Victoria City. But they're not.

We should be asking ourselves - why?

There are some physical differences between them, but it's what they have in common that is more interesting. Not based on physical differences but financial similarities.

You pay $280,000 for a home in Sooke or in Victoria because you can. The low interest rates and easy credit socialized housing and by doing that universally raised the threshold at which people buy homes.

So a starter house here or Prince George or Nelson - are basically the same price.

The same with new condos.

When the government pulls that social safety net out from under the housing market that's when we will return to a free market.

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Kate Louise said...

Here i am gonna wait and watch the changes real estate industry gonna show this year.

Rent in Toronto

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