Wednesday, July 23, 2014

Incomes versus prices: what say the numbers?

Statistics Canada released a report of household earnings based on 2012 reported income recently. Depending on your POV, you may or may not be surprised to learn Calgarians reported the highest earnings in the nation. Thought it may be fun to compare 2012 earnings with 2014 average home prices as reported by CREA for a few towns in the Great White North.

City Median income Average price Price/Income
Calgary $98,300 $466,994 4.75
Edmonton $96,030 $371,839 3.87
Ottawa $94,230 $365,366 3.87
St. John's $87,150 $349,649 4.01
Victoria $81,580 $496,225 6.08
Canada $74,540 $413,215 5.54
Vancouver $71,140 $796,714 11.19
Toronto $71,210 $568,953 7.99

I was surprised by the incomes reported in Victoria. I would have thought they'd be closer to Vancouver. Perhaps not unexpected is the fact that the two most expensive towns to own a home are also below the national average for income. It's not completely clear what the inputs for "average home price" are in CREA's system, but I'd wager they're lumping and smoothing condos, semi-detached and detached. 

Useful exercise? Thoughts? I'm sure some of the more number savvy folks around here can improve upon my Grade 3 level analysis in the comments. 

407 comments:

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patriotz said...

Calgary had the highest median total family income (before tax) of all census metropolitan areas (CMAs) in 2012 at $98,300, according to data derived from personal income tax returns.

So these income numbers are the real deal, not the ones you get from the census "household survey" which IMHO are not reliable.

I think median dwelling price would be preferable to the average, but I think the rankings would be about the same.

Marko said...

From 2008 to 2012 to Median Total Income in Victoria has gone from $77,810 to $81,580 so for 2014 we are probably sitting at around $84,000 - $85,00 or an increase of approximately 9%.

Since January 1st, 2008 single family homes prices in Victoria are down about 2.7% according to the MLS HPI index and condos are down about 7.2% in the same time span.

5-year fixed mortgage rates currently are on average 2% lower compared to early 2008.

As we roll into 2015 we'll probably looking at the best affordability metrics in Victoria in almost a decade.

caveat emptor said...

The statscan numbers are adjusted for inflation, so the actual increase in nominal household incomes was greater than in the table.

caveat emptor said...


As we roll into 2015 we'll probably looking at the best affordability metrics in Victoria in almost a decade.


Marko - didn't you get the memo. Victoria is insanely expensive and is just looking for an excuse to crash. CRASH i say!

caveat emptor said...

Anecdote alert:

In the last 12 months three friends/acquaintances from Alberta have moved to Victoria while keeping some of their Alberta based employment/income. All three families have bought homes in the core districts.

reasonfirst said...

As we roll into 2015 we'll probably looking at the best affordability metrics in Victoria in almost a decade.

Awesome - so all's us bears who waited since 2005 have won!

dasmo said...

No, us Halibuts win. Flat plus inflation = real decline. Bears only win with nominal declines....

patriotz said...

Bears only win with nominal declines....

Except when buying has been more expensive than renting, which it was from 2005 to 2009 at least, and right up until now for many properties.

dasmo said...

^ that has nothing to do with being a bear or not. Not buying an overpriced house that you can not afford does make you a winner, I agree....

Russ Dale said...
This comment has been removed by the author.
reasonfirst said...

Dasmo - argue with Marko...

caveat emptor said...

"Awesome - so all's us bears who waited since 2005 have won!"

Keep waiting! You could be an even bigger winner.

Just Jack said...

When has housing ever been unaffordable?

If housing is unaffordable would not the price drop till it was affordable once again?

Perhaps the house you want is unaffordable to you, but not to someone else. All you have to do is lower your expectations and then housing is affordable to you again.

That's what I don't understand when someone says housing is more or less affordable. I can't afford a $16,000,000 house. Does that make the market unaffordable?

I have now come to the realization that when I hear an economist, bureaucrat or politician speak the words "affordable housing" or "supported by fundamentals", I close up my notepad and drift off to my happy place.

https://www.youtube.com/watch?feature=player_detailpage&v=vuEQixrBKCc

Death Plague said...

Yup I agree Just Jack. The problem for bears is universal. It's an income problem. Easy to solve if you apply yourself.

info said...

“I have no particular regrets. The (2006 US) housing bubble is not a reflection of what we did, as it is a global phenomenon.” - Alan Greenspan

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

A housing bubble is formed when a housing market experiences relatively rapid and large price gains which are not accompanied by similar increases in incomes and rents.

Extreme overvaluation defines a housing bubble (examples of national housing bubbles).

A housing market is overvalued when the price-to-income and price-to-rent ratios are substantially higher than the long term averages of these ratios.

The Economist rates Canada’s housing market as the bubbliest of the 23 countries it tracks. Canadian house prices are 34% overvalued compared to incomes and 78% overvalued compared to rental prices.

Let’s compare Canada’s housing bubble to the 2006 US housing bubble.

* Degree of overvaluation:

Overall, Canada’s housing market is more overvalued than the US at its peak, the Economist says

Canada:
Compared to incomes: 34% overvalued
Compared to rents: 78% overvalued

* Increase in price-to-income ratio (first chart):

Canada: + 56% (2000 to late 2011)
US: + 24% (2000 to peak (2006)

* Increase in price-to-rent ratio (second chart):

Canada: + 73% (2000 to late 2011)
US: + 35% (2000 to peak)

* House prices have increased more in Canada than they had in the US (first chart):

Canada: + 130% (2000 to 2013)
US: + 53% (2000 to peak)

(continued)

info said...

(continued)

Other signs of a housing bubble include:

* A dramatic increase in the household debt-to-income ratio (third chart):

Canada: + 53% (2000 to 2013)
US: + 41% (2000 to peak)

* A dramatic increase in real estate investment as percent of GDP (second chart):

Canada: + 63% (2000 to 2012)
US: + 41% (2000 to peak)

* A dramatic increase in housing market related industry activity (this temporarily stimulates the economy):

1) Increase in residential construction as percent of GDP (second chart):

Canada: + 56% (2000 to 2012)
US: + 38% (2000 to peak)

2) Increase in percent of labour force employed in construction (first chart):

Canada: + 43% (2000 to 2012)
US: + 10% (2000 to peak)


* Canada’s home ownership rate is at a record level and higher than the rate in the US at peak.

* HELOC debt increases substantially. At the peak of the US housing bubble, HELOCs in the US reached 5% of GDP. Currently in Canada, that figure is 14%.

Interest rates were lowered to emergency levels as house prices fell in the US. Lowering rates by that much was a powerful and effective option that helped stimulate the (weakened) US economy as the inevitable, major price correction took place. Obviously Canada will be without this option.

koozdra said...

Housing is dictated by stimulative policy, low interest rates.

Affordability would be eroded by an increase in rates.

An increase in rates would happen if our economy recovered from it's current terrible state.

Let's all hope that the recovery never comes.

Phil said...

“unaffordable to you, but not to someone else”

That’s why I believe Victoria is a no-brainer to get bid up again. The Albertans, Chinese and other foreigners that are buying here can easily afford it. They pay cash so rates are meaningless. Alberta alone is quickly becoming one of the wealthiest regions in the world. As caveat emptor mentioned, they will continue to relocate here while managing their business affairs from a province away.

dasmo said...

Our economy isn't terrible. It's just not booming. If it booms again then that will buoy prices against rising rates.

reasonfirst said...

If it booms again then that will buoy prices against rising rates.

Income could go up a few percentage points while rates could double.

koozdra said...

"Our economy isn't terrible. It's just not booming. If it booms again then that will buoy prices against rising rates."

Our economy is terrible. Too much is dedicated to housing. Our export market has been decimated. This is the reason why low interest rates are necessary.

This is why the Bank of Canada is warning people not to get too invested in the real estate market and be careful not to rely on these stimulative rates.

"If it booms again" is right. The Bank of Canada hopes it happens before we run out of "excess capacity" in the economy by 2015/2016.

Low rates can only do so much.

At least we can bring back 0-down 40 year mortgages. We did it before, we can do it again.

Marko said...

The Albertans, Chinese and other foreigners that are buying here can easily afford it. They pay cash so rates are meaningless. Alberta alone is quickly becoming one of the wealthiest regions in the world. As caveat emptor mentioned, they will continue to relocate here while managing their business affairs from a province away.

Plus one. Since January 1st, 2014 there have been 24 sales in Victoria over $2,000,000. Out of those 24 sales only 4 buyers were from Vancouver Island. All 8 sales over $3,000,000 have been to out of towners.

9 out of the 24 have been buyers from Alberta with 5 from Calgary. There is more demand from Calgary alone from homes over $2 million than within Victoria.

Can't see an area like Uplands tanking to a point where a Joe like me can get into it.

I like the stories on some of the high-end builder website I look at in my spare time....

http://www.christopherdevelopments.com/custom-homes-portfolio/midland.html

The Calgary owners, who purchased the property in 2006 had a small postwar house at the time, where their daughter lived while attending university until 2012.....

reasonfirst said...

In 2013, 6000 more people left BC for AB than the other way round.

Phil said...

“Income could go up a few percentage points while rates could double.”

However, reality is the opposite. The incomes of Victoria buyers are growing at double the pace of both mortgage rates and inflation. For instance, the most recent y/o/y growth in weekly earnings of prairie provinces; AB, SK, MN are 4.3%, 4.3% and 5.0%. CB’s will ensure interest rates remain lower than income & tax revenue growth until governments can sufficiently inflate away their debts again (2020’s).

info said...

@ dasmo

"Our economy isn't terrible. It's just not booming. If it booms again then that will buoy prices against rising rates"

Incorrect. The Canadian economy is extremely weak and has been for years. If the Canadian economy was strong enough to function in a normal, healthy way without the need for emergency level interest rates, then the feds would raise rates.

info said...

@ Phil

"That’s why I believe Victoria is a no-brainer to get bid up again. The Albertans, Chinese and other foreigners that are buying here can easily afford it. They pay cash so rates are meaningless. Alberta alone is quickly becoming one of the wealthiest regions in the world. As caveat emptor mentioned, they will continue to relocate here while managing their business affairs from a province away."

There is no evidence that out-of-town buyers from Alberta or anywhere else have had a positive effect on house prices in Victoria at any time.

info said...
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dasmo said...

Keep in mind a doubling of rates = a 30% increase in the mortgage payment. So over the next decade incomes could easily be up 30% by the time mortgage payments are 30% more.... Doesn't sound as bad if you look at it that way does it...

info said...

@ caveat

"Anecdote alert:

In the last 12 months three friends/acquaintances from Alberta have moved to Victoria while keeping some of their Alberta based employment/income. All three families have bought homes in the core districts."

You have no evidence to support your claim. Even if you did, it wouldn't suggest that out-of-town buyers have suddenly decided to start moving to Victoria in larger numbers.

There are out-of-town buyers in every Canadian market. Victoria is no different.

Single family home sales in Victoria through the first six months of 2014 have been well below Victoria's long-term average. This has been the case since 2010. Sales are in the tank.

There is no evidence that out-of-town buyers from Alberta or anywhere else have had a postive effect on house prices in Victoria at any time.

Just Jack said...

I don't see those multimillion dollar sales helping prices.

Like the leasehold town homes along Admirals that were selling for $200,000 a few years back. A sale came through today at $76,500. A lot of good those Albertans did for these town home prices.

Or a two year old home in Langford that was bought for $411,000 in 2012 and sold this week for $370,000. I bet you those home sellers are wondering where all the blue eyed sheiks are.

And we should be happy for those uber riche for buying our over priced properties. It's making Victorians wealthy by converting stone foundations and creaky wood floors into cash!



info said...

Through the first half of 2014, single family home sales across Greater Victoria have been extremely weak.

Single Family Home Sales Totals
. . . .(January through June). . . . .
. . . . . . Greater Victoria. . . . . . . .
. . . . . . . . . . . . . . . . . . .
2007...******************
2014...****
2013...*
2012...***
2011...*
2010...********
2009...*********
2008...**********
2006...**************
. . . . . . . . . . . . . . . . . .
. . . . -35%. . . . . . . . . 0%


This chart compares single family home sales totals of recent years (January through June) to 2007’s total, which was (at best) average for Greater Victoria.

2014’s SFH sales total (January through June) is well below Greater Victoria’s long term average.

In June 2007, 5-year mortgages rates were 5.79%. In June 2014, 5-year mortgage rates were 2.78%. With today’s extremely low rates, SFH sales in Victoria should be at all-time record highs. However, this obviously hasn’t been the case. SFH sales in Victoria are extremely low because Victoria’s housing market is extremely weak.

dasmo said...

@ info incorrect.
the BC economy is fine. The 2013 numbers look fine to me. Some indicators like corporate tax have shown a huge increase: From 0.4 to 2.1 to 11.3% over the last three years. Stats Can predicts these indicators to all continue to improve. Here are the 2013 numbers for you....
Real GDP, % change 2.2
Nominal GDP, % change 4.0
Employment, % change 1.3
Unemployment Rate, % 6.5
Population, % change 0.8
Housing Starts, units, 000s 24.8
Retail Sales, % change 4.2
Personal Income, % change 2.8
Corporate Pre-tax profits, % change 11.3
Consumer Price Index, % change 1.2

Marko said...

in day to day life I am just not seeing this "terrible economy,"....had six rental applications (five of which I thought were all excellent candidates) for my condo at the Promontory and rented it out for $300 cash flow positive per month (after mortgage, strata fees, taxes, and tenant insurance). 25% downpayment.

I thought I lucked out with my 834 condo with rent and low interest rates but the Promontory ended up being a smaller capital investment by 10k, superior rent, 6 rental applications versus 2, and a sub 2.5% varaible rate yet again.

koozdra said...

"So over the next decade incomes could easily be up 30%"

Possible but unlikely.

"in day to day life I am just not seeing this "terrible economy,""..."and a sub 2.5% varaible rate yet again."

Exactly. Low rates create economic activity. Economic activity that is unsustainable.

reasonfirst said...

Phil,

CBs do not control the bond market.

reasonfirst said...

Dasmo,

Here's an exercise for you. Take that growth in GDP ~$9 Billionish.

Now subtract consumer debt growth, including mortgages, and government debt growth for all three levels of government. You will find most if not all of the GDP growth was funded by debt.

reasonfirst said...

Actually, BC government debt increase alone is about $8 billion so I will go out on a very thick limb and say that our total increase in debt attributable to BC exceeds our GDP growth.

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

@ dasmo

"the BC economy is fine..."

I don't think you read my post.

Any numbers that you can come up with that might be indicators of the strength or weakness of BC's ecomomy must be looked at while keeping in mind that BC's economy is under maximum stimulus due to emergency level interest rates.

Without the stimulus of emergency level interest rates, those numbers would be much worse.

If the BC economy was "fine", then no stimulus would be necessary to push those numbers to where they are now.

The removal of emergency level interest rates would have a negative, dramatic effect on BC's economy.

BC residents are the most indebted in Canada.

BC residents have the lowest saving rate in Canada at about -9%.

The removal of emergency rates would have a negative impact on house prices in BC and the wealth effect would quickly diminish. A diminishing wealth effect would have a strong, negative impact on BC's economy.

Currently, emergency rates are helping to maintain a high degree of overactivity in the construction, financing and selling of residential real estate which also stimulates BC's economy. This is not sustainable. When it ends, it will have a negative impact on BC's economy.

dasmo said...

"and government debt growth for all three levels of government." Which is why rates will remain low even as the economy picks up. Inflation is needed to dig government out for free...

Seth Perry said...

Saanich Resident Paying Big For Tank Removal

"With hopes of selling her home, a Saanich resident is paying more than she had hoped to remove an underground oil tank from her property."

$12,000 and the bills keep coming in... I hope she didn't buy at the top of the market to boot.

http://www.cheknews.ca/saanich-resident-paying-big-for-tank-removal/

patriotz said...

So over the next decade incomes could easily be up 30% by the time mortgage payments are 30% more....

The problem is that interest rates don't move by itty bitty amounts annually like wages do. They make rapid moves both up and down.

And as a certain poster likes to remind us, Victoria prices have gone nowhere since 2007 or so despite a huge drop in rates. What do you think a jump of just 1% would do?

And anyone who thinks Canada is in control of its own interest rates is kidding himself. We will follow the Fed as we always have.

Phil said...

“CBs do not control the bond market.”

CBs have complete control over the short-end of the yield curve. They’ve also been controlling the rest of the curve by buying up trillions worth of varying maturities since 2009.

Phil said...

“The problem is that interest rates don't move by itty bitty amounts annually like wages do. They make rapid moves both up and down.”

By looking at how long it took for interest rates to bottom in the previous two cycles, from 1890 to 1910 and 1940 to 1960, they seem to take about 20 years before rising more than a percent.
By the late 2020s is when I could see rates starting to rise more quickly as they began to by the late 1960s.

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

Since 2000, incomes across Canada have gone through a period of (well) above average growth as a result of the inflation of Canada's housing bubble. This rate of growth is unsustainable.

Again, the US experience provides us with valuable information.

In the US, income growth from 2000 to 2008 was well above average. That unsustainable rate of growth quickly ended in 2008 as house prices across the US began to decline.

The economic boost that has resulted from the inflation of Canada's housing bubble will disappear as house prices across Canada decline. The loss of this economic boost will have a negative impact on income growth in all Canadian cities for years.

Incomes do not support house prices in Victoria. An often overlooked fact is that rents do not support house prices in Victoria either.

The price-to-rent ratio may be a better indicator of overvaluation of a housing market than the price-to-income ratio.

Victoria's vacancy rate is favorable to renters. Compared to house prices, rents in Victoria are quite low. A comparison to most other Canadian cities would prove this (more on this later).

Canada's housing market is overvalued by 78% based on rents (first chart). I will argue that Victoria is worse off in this department than most other Canadian cities.

It would take many years for rents to catch up to current house prices in Victoria, restoring Victoria's long-term price-to-rent ratio.

House prices in Victoria will continue to fall until Victoria's long-term price-to-rent ratio is restored. In the US, prices fell below this level in many markets. Prices may overcorrect in Victoria as well.

info said...

@ patriotz

"And as a certain poster likes to remind us, Victoria prices have gone nowhere since 2007 or so despite a huge drop in rates."

Correct.

"What do you think a jump of just 1% would do?"

The answer to that should be obvious to all readers of this blog.


. . . . . . . House Prices - Canadian Markets. . . . . . . . . . .
. Percent Increase/Decrease Since December 2007. . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+50%. . . . . . . . . . . . . . . . . . . . . . . . . . .*. . . (Winnipeg)
+45%. . . . . . . . . . . . . . . . . . . . . . . . . . .*. . . (Regina)
+40%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+35%. . . . . . . . . . . . . . . . . . . . . . . . . . .*. . . (Toronto)
+30%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+25%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+20%. . . . . . . . . . . . . . . . . . . . . . . . . . .*. . . (Vancouver)
+15%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+10%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .0% . . . .*. . . . . . . . . . . . . . . . . . . . . . . . . . .
-5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . *. . . (Victoria)
---------------------------------------------------------------------------
. . . . . Dec. 2007. . . . . . . . . . . . . . . May 2014. . . . . . . . .


I posted this chart on July 14, 2014 on this blog.

Based on that data, house prices in Victoria fell 3% from December 2007 to May 2014.

In December 2007, 5-year (discounted) mortgage rates were at 5.89%. In May 2014, 5-year rates were at 2.79%.

patriotz said...

By looking at how long it took for interest rates to bottom in the previous two cycles, from 1890 to 1910 and 1940 to 1960, they seem to take about 20 years before rising more than a percent.

Those are US long bond rates.

Candian 5 year term mortgage rates

The other factors for mortgages are qualification and amortization which also change.

Phil said...

“Those are US long bond rates.”

Yes, but it was you who correctly pointed out that we follow US rates. It’s also worth pointing out that 5 year bond rates typically move even slower than long bond rates.

I agree with the bears that if rates jumped very quickly, home prices would correct. However, history shows no such example. Interest rates take decades to bottom, carving out what I would call multi-decade bowl shapes where rates slowly fall for decades (see 1861-1900 or 1920-1950) and then slowly rise for ~20 years like they did from 1900 or 1950. Keep in mind too that home prices rose from 1950 forward as rates climbed.

patriotz said...

Keep in mind too that home prices rose from 1950 forward as rates climbed.

That was only 5 years after the end of WWII. There was a huge surge in family formation and rising real wages.

The kids who born at that time are now retired or retiring.

There is really no past model for the demographic and economic trends we will see going forward.

koozdra said...

"However, history shows no such example."

That's why we use phrases like "unprecedented low rates" and "record levels of household debt" to describe the current situation.

When in history could a first time home buyer go to the bank and pop down a $25,000 dollar loan to borrow half a million dollars for a house? Don't have the money? Borrowed down payments are also acceptable.

At the heart of the matter is the fact that house prices never go down in this country. If they do, then it will for sure be a soft landing. The alternative is too uncomfortable to consider.

Repeat the mantra:

There has never been a better time to buy. Interest rates are super low right now. Affordability has never been better.

Marko said...

Monday, July 28, 2014 8:00am

MTD July
2014 2013
Net Unconditional Sales: 576 583
New Listings: 1,032 1,213
Active Listings: 4,581 4,772

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

caveat emptor said...

"What do you think a jump of just 1% would do?"

Well we just had a jump of 1% in 5 yr bond yields (trough to peak) of about 1% starting May 2013. Even though trough to peak was nearly 1% the actual effect was more like a 0.5% change as neither the trough nor peak held long.

So we can say that in very recent history a jump of 0.5% to fixed rates made no difference whatsoever.

It's possible that 1% would be more dramatic (straw that broke the camel's back?), but it could easily be a total nothing burger.

Phil said...

That was only 5 years after the end of WWII. There was a huge surge in family formation and rising real wages.

Millenials are an average age of 23 this year (statcan birth graph). The average first buyer is mid thirties. Throw in record levels of immigration and that should provide a surge in family formation for at least ten years.

If you look above to the AB, SK, MN examples (4-5% wage growth), real wages are rising. Inflation is only running above 2%.

The kids who born at that time are now retired or retiring.

That has much to do with why interest rates are, and will remain, low (~ 2030).

reasonfirst said...

Dasmo:

1) The economy is fine
2) The economy requires extensive increases in government debt that need to be inflated away by low interest rates.

Pick one.

reasonfirst said...

They’ve also been controlling the rest of the curve by buying up trillions worth of varying maturities since 2009.

That is unsustainable and will eventually be reversed.

reasonfirst said...

Throw in record levels of immigration

Throw in Canada's slowest population growth since about the 1880s brodaly speaking. Post war population growth was about 4 times higher (by %age pnts)than now.

Diane said...

I am sure someone will have already posted this but it is interesting never the less. Heads in the sand, perhaps, but I would like to know how long the experts think the financial situation can continue without a major correction? http://blogs.reuters.com/macroscope/2014/06/11/canada-housing-this-time-its-different-eh/

dasmo said...

@Reasonfirst
I never said the gov needed to increase debt. They are in debt....

reasonfirst said...

Dasmo:

Correction noted,

1) The economy is fine
2) Governments are funding growth with debt and require rates to stay low so they can inflate away the ever increasing debt.

Pick one.

Phil said...

“Throw in Canada's slowest population growth since about the 1880s brodaly speaking.”

Looks to me like record levels of immigrants during the last 100 years.
http://www12.statcan.gc.ca/census-recensement/2011/as-sa/98-310-x/2011003/fig/fig3_1-2-eng.gif

I know the levels have increased too over the past few years since 2010.

reasonfirst said...

Phil,

I am assuming you understand the difference between absolute and relative.

reasonfirst said...

And I think you are missing the point. Population growth in total (in relative terms) is waaaay down from the post war.

dasmo said...

Relative doesn't matter as much as absolute. Relative distorts depending on what you compare it to. As I said to my son the other day when he asked "is ten a lot?". "It depends"

dasmo said...

@reasonfirst
Why pick one? Why are they exclusive? Plus I used past tense. The governments have debt that they would like inflation to erode for free.... You only need to look at the stock market. Money is being generated by the boat loads right now. It wasn't in 2008-2009....

reasonfirst said...

Dasmo,

You are missing the point. It has to be one or the other. The economy would not be fine (using your supporting stats) if debt loads had not (are not, will not) increased by $8 billion plus...

reasonfirst said...

BC govt is adding another $5B in debt this fiscal. Current tense.

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

Relative distorts depending on what you compare it to

Relative in terms of total pop - that should not need spelling out.

(you are being deliberately obtuse- maybe)

dasmo said...

"The economy would not be fine (using your supporting stats) if debt loads had not (are not, will not) increased by $8 billion plus..." So? We are where we are... Lots of debt and the economy is fine. This is all I'm saying. I don't see how my simple observation is so impossible....

"Relative in terms of total pop"... distorts the fact that the numbers on immigration are still high right now and climbing. In the era you speak of Canada's population was a quarter of the size it is now. So as a percentage of population, thank goodness it's not larger than that period!!!!

reasonfirst said...

Lots of debt and the economy is fine

That's hilarious. Are you a politician? Or your idea of the "economy" only includes positive metrics.

Back to population growth - Ok immigration is high - no argument but if overall population growth is low then immigration is a moot point. Total pop growth drives household formations - it doesn't really matter where it comes from - it's LOW. The facts are that the post war boom had 3 to 4 times the population growth as now which is why prices went up with rising rates (the original source of this discussion). Immigration would have to grow 10 times to make up for that difference.

dasmo said...

You should be making immigration relative to available land not population to make it relative to our topic....

Phil said...

“Total pop growth drives household formations - it doesn't really matter where it comes from - it's LOW. ”

Pop growth of ages 20-45 (immigrants age) drives household formation which is currently high.

“The facts are that the post war boom had 3 to 4 times the population growth as now which is why prices went up with rising rates”

The ~1950 to ’70 “post war boom” pop growth was in the age 0-20 group.

reasonfirst said...

The ~1950 to ’70 “post war boom” pop growth was in the age 0-20 group.

People who have babies don't buy houses?

reasonfirst said...

And now back to Victoria...our population growth is way slower than the BC average:

http://www.gvda.ca/about-greater-victoria/statistics/population/

Phil said...

“People who have babies don't buy houses?”

Sure they did, but rarely did that cause a net new household to be formed. Only IF the new parents were still living under their parents roof, before they decided to rent or buy their own place, THEN a new household was formed. However, that was atypical, as the so-called “G.I. Generation” were known for their responsibility and work ethic. Besides, numerous of these new parents-to-be had already lost their elders through WW-I, Spanish flu and Depression years.

Phil said...

The reason Canada's market should continue to see strength this coming decade is due to high household formation from immigrants and millennials average age of only 23 - many still livign in parent basements.

reasonfirst said...

...because they have minimum wage jobs.

reasonfirst said...

Sure they did, but rarely did that cause a net new household to be formed. Only IF the new parents were still living under their parents roof, before they decided to rent or buy their own place, THEN a new household was formed. However, that was atypical, as the so-called “G.I. Generation” were known for their responsibility and work ethic. Besides, numerous of these new parents-to-be had already lost their elders through WW-I, Spanish flu and Depression years.

So you are saying the post war baby boom had minmial impact on the housing market. I call BS. Goes against what is pretty much accepted as fact. Source?

Phil said...

“So you are saying the post war baby boom had minmial impact on the housing market.”

I never said such a thing. I think we’re getting confused on the time periods we‘re discussing. The “post war baby boom” certainly had a large “impact on the housing market” ONCE those babies started reaching adulthood and forming households. The same effect is happening today as the children of those baby-boomers begin to form households. They may only be averaging ~$20/hr now, but it should be more 5 years from now when they finally move out of their parents basement.

reasonfirst said...

I'm still talking about the babies and call you on your comment that "rarely did that cause a net new household to be formed" Anyway, hard to find any data either way as far as I can tell.

5 years from now when they finally move out of their parents basement.

That aligns nicely with boomers downsizing picking up steam and there are more of them.

Just Jack said...

I'm already seeing the trends in housing when it comes to Baby Boomers and Millenniums.

The Baby Boomers were mostly about building BIG houses outside of the core while the Millenniums are about living in small homes and being close to downtown.

That's a big disconnect as Boomers with most of their wealth in housing try to sell their homes to Millenniums/Hipsters who are the most indebted generation in history.

That's likely why Greater Victoria is not one cohesive marketplace but several different ones that act differently from each other.

LeoM said...

Everyone seems to think that the rapid rise is real estate prices from 1950 to 2008 was due to baby boomers and the inflation they generated. But that's less than half the reason.

When I was young, the parents of my generation could afford to raise five kids and buy a nice three bedroom house in Fairfield on the father's average income, with a 20 year mortgage, while moms stayed at home tending to home and family.

The main cause that I observed over the past 55+ years for housing price increases was due to women entering the workforce.

Suddenly young families began buying their first house at a younger age because family sizes were shrinking and the mothers were joining their husbands in the workforce. This trend from single breadwinner families to two breadwinner families, with fewer children, grew almost exponentially from 1950 to 1995.

Suddenly the baby boomer families had two incomes, small families, and very soon they were buying their second and third house as rental investments and this reduced the supply and increased the demand because everyone wanted to keep up with the Jones.

Of course, the increased demand for more houses caused prices to rapidly increase and families could now afford more expensive houses because mom was working too. Simple supply and demand forces at work and working women contributed significantly to the demand for more houses, bigger houses, and rental properties.

Women joining the workforce had a major impact on Canadian and American house prices from 1950 to 2008. But will it continue or has the market matured? Maybe the protesters were right about the 1% skimming and concentrating all the wealth; Warren Buffett and Bill Gates think so.

Some background reading at this link if you want more information about the workforce changes since 1950:

http://www.bls.gov/opub/mlr/2002/05/art2full.pdf

Just Jack said...

In my opinion....

I think if you're going to sell in this market, you'll have to be very conscious of the generation your home appeals to.

Baby boomers selling to baby boomers is a tough market and house prices for this group may be back to 2007 or 2006 levels.

However, if you are targeting Hipsters then you'll have to do a complete upgrade to your home and keep the price under $600,000. That means the home will have to be small. Most likely the reason why Fernwood and Oaklands are the center of the Hipster house market. Tiny war shacks that can be tarted up quickly and inexpensively.

Hipsters pay high prices for shiny and new and generally have no desire for anything that smells like Grandpa's house. They also tend to have no funds for repairs. That means selling a house that needs a roof or furnace will just not appeal to these buyers. It isn't about the money - it's about the image to them. They will pay over market value for a pig as long as it has the right shade of lipstick.

If there is such a thing as Darwinian economics, this is the generation that will be the worst off in a declining market. As they tend to overpay for real estate that they outgrow rapidly. In other words, they are not buying for tomorrows needs but today's wants.

Marko said...

I'm already seeing the trends in housing when it comes to Baby Boomers and Millenniums.

The Baby Boomers were mostly about building BIG houses outside of the core while the Millenniums are about living in small homes and being close to downtown.

That's a big disconnect as Boomers with most of their wealth in housing try to sell their homes to Millenniums/Hipsters who are the most indebted generation in history.

That's likely why Greater Victoria is not one cohesive marketplace but several different ones that act differently from each other.


I've seen this exact trend the last few years! Having sold three big houses in Dean Park in the last 24 months it is definitely a very tough market compared to the core. All three houses in Dean Park sold to baby boomers and all three saw some major price reductions with days on market at 202, 213, and 2 years.

It's a tough go when you have to sell to another baby boomer.

Just Jack said...

Has the million plus market for housing slowed since the introduction of the new CMHC regulations?

To answer this question I don't think it as easy as to add up the sales over a million before the introduction of the new regulations and compare that to after the new regs.

That would only be answering half the question. I think you would have to look at listings too. How the months of inventory has changed. The success rate of sales relative to listings being added and lastly how the time to sell a million plus home has changed.

In other words you want to compare markets not just sales activity.

Does anyone else have any thoughts of how you could answer the question?

Marko said...

If there is such a thing as Darwinian economics, this is the generation that will be the worst off in a declining market.

Oaklands/Fernwood are a decent buy in my opinion. Undervalued in the past if you ask me. I think a hipster in Oaklands will probably see a better return than a hispter in Happy Valley.

When you drop $500,000 in Oaklands $350,000 is the lot. When you drop $500,000 in Happy Valley $150,000 is the lot.

Just Jack said...

I don't think any neighborhood will be immune to a fall. Fernwood prices have just continued to inflate while others like Happy Vally stopped.

The saying goes.....

The bigger they are - the harder they fall.

Fernwood has a lot farther to fall.

dasmo said...

Except fernwood has other things that give it momentum and staying power. Gentrification, walking distance to town, a revitalized and funky village, a great neighbourhood character and an easy and desirable location to rent out.... Happy valley is a langford suburb. As you stated yourself JJ, this local doesn't fit the most desirable product right now, nor in the near future. As I have predicted in the past, I think we will have a return to more price separation in our different markets. One of the things that boggled my mind in the run up was the evening of prices in the region. Sooke should be cheaper than the core. Langford should be more affordable and should not be the sprouting grounds of luxury condos that cost more than ones in the core... That was all just hype. I think with the collapse of bear mountain and capital city center, the hype has deflated. It takes decades to transform neighbourhoods let alone create them! Shoot, look at the gentrification of Vic West. That started on Arthur currie lane in the late eighties. Almost thirty years later and the neighbourhood is still in transition. Dockside Green was supposed to be a seven year build out, as was the railyards. More like twenty...

Just Jack said...

I don't see anything significantly different happening in Fernwood than I do in Langford. In fact Langford has gone a lot farther in cleaning up its image than Fernwood has gone.

What you're calling gentrification is not new. Fernwood first gentrified in the 60's and 70's.

Phil said...

Just my 2 cents, but I see Fernwood, Vic West, Fairfield…among the best bets in the country. Millions of downsizing Boomers about to kick any remaining kids from the nest and hit the downsize button. Many of whom have had a lifelong goal of retiring here.

dasmo said...

"I don't see anything significantly different happening in Fernwood than I do in Langford"... enough said...

nan said...

@ Phil: I don't know about your experience but in mine, the last bastion of status for most of the status conscious boomer generation is showing off their grandchildren...which you can't do if you move away from your kids...Victoria is a great place but ditching your family for expensive real estate in mild weather is likely very appealing for a few thousand but probably not millions...In addition, I would wager that a number of young people abandoning Victoria in coming years in search of work will exceed the number of retirees flocking here in search of weather at the expense of family life.

Just Jack said...

But that's not what's happening. Boomers are not downsizing to Fernwood houses.

The stock of housing in Fernwood is inadequate. The homes are small war shacks that require substantial upgrading.

Retiring boomers are about easy care low maintenance living where they can lock their condo door and go to Mexico for 4 months. They are not about bohemian and deferred maintenance coffee shops or grocery stores where the siding is falling off in chunks such as along Haultain.

The boomers are not retiring to Fernwood they are retiring to new subdivisions and new condos.

Take a step back and look at the streets in Fernwood, this ain't Rodeo Drive. Boomers don't buy cute and funky - Hipsters do.

We are now half way through the boomer's retirement wave aged 55 to 70. So when is it going to start in Fernwood?

Just Jack said...

Langford has spent millions on its infrastructure to revitalize its core. Sidewalks, underground services, parks, trees, boulevards, play areas, etc.

Fernwood put a light in at the corner of Haultain and Belmont.

enough said

caveat emptor said...

"the last bastion of status for most of the status conscious boomer generation is showing off their grandchildren."

That's what Facebook is for - subtly or not too subtly highlighting the achievements of your progeny.

caveat emptor said...

I don't think you'll see an influx of wealthy retiring boomers into Fernwood. James Bay and Farifield condos maybe?

That said Fernwood is likely to continue to command a sizeable premium to areas on the outskirts of Langford. The premium could narrow if Langford continues to become a more desirable location. On the other hand there does seem to be a growing demand (and not just from impoverished hipsters)for walkable, bikeable urban neighbourhoods, so the premium could also widen.

Just Jack said...

Until the Hipsters get older and outgrow those small homes in Fernwood. Then they're off to neighborhoods with more sizeable homes like Maplewood.

Fernwood has a high turn over rate of real estate. That usually is a sign of discontent.

My bet is the inner city transient housing will expand out of the downtown core and into Fernwood. City council is not doing anything to improve these areas as they are more absorbed with downtown condos, bridges and sewers than improving the life of its older citizens.

Just Jack said...

high land values won't save any neighborhood from price declines.

For example, 22 acres of land along Blenkinsop Road ust south of Royal Oak has been up for sale since 1997 starting at 4.5 million.

Well it just sold for 2 million.

22 acres with a 3,000 square foot home this close to the city for 2 million - that's a smart investment. An 800 square foot home with low basement ceiling in Fernwood for $500,000 - not so much.

dasmo said...

Yes langford's core is much improved from the days of Mr Mikes. That two block strip is nice now... In another 50 to 100 years it might be a nice walkable core in it's own right. Maybe faster if a rail link happens. Fernwood already has those bones though, it doesn't need to fabricate them from the ground up. Fernwood has improved organically over those top those bones. A nice coffee shop here, a nice wine bar there and suddenly the theater becomes more busy and the night life lights up and people are fixing up the houses etc. Plus people like the character of these old neighbourhoods. The structure of langford's bones was created in the 70's and 80's so it it has a lot of restructuring to fix the strip mall car culture infrastructure that's there.... In fact for the most part that style continues to be built out. Just look at the home depot zone debacle...

dasmo said...

I personally would be hard pressed to call any real estate in Victoria a smart investment. Looking at 4589 Blenkinsop Rd, it has a 1970's 3000 sq/ft home with baseboard heating. That's a big heating bill and or a large renovation cost.... At $17180.0 in taxes a year that's another huge carrying cost. Even as a developer it is suspect since it will be very difficult to subdivide with minimal gain since it is A1 zoning and could only subdivide by 4. If it could subdivide since the lot is surrounded on all sides and has very poor access. It's a fantastic location for a rich persons house though. At 2 million, the lot is probably at or around fair market considering it's limitations. In essence it's a huge project for a wealthy person, not an investment...

Just Jack said...

There are a lot of options other than residential development when you have 22 acres of land less than 15 minutes drive from downtown Victoria and not in the land reserve.

The property that borders this site has been developed as the Seven Oaks Health Facility.

So there is precedence in the neighborhood for an alternative use other than housing or agriculture.

You just have to put your gray matter to use and think outside of the box.

dasmo said...

Sure...like I said, it's a big project not an investment. A good investment would have been 2 million in GoPro stock....

Leo S said...

The idea that boomers will prop up Victoria is proving to be spectacularly wrong so far. The boomer wave has been increasing and what has Victoria done? Nothing, in fact it's been the weakest market in the country.

What about our neighbouring sleepy Sidney full of nothing but boxes of the elderly and restaurants that close early? Well they've failed so completely at attracting retirees that their population is actually declining.

Guess all those retirees are actually staying close to their families after all. Who would've thought

Just Jack said...

The boomer wave started here when they hit 55 years old and ran for about 8 years. The number one reason for re-locating is to be close to their young grand children.

Rarely will someone re-locate at 65 years old. They have a hard enough time putting their socks on in the morning. Let alone that by age 65 their grand children are entering university getting nipple rings,tramp stamps and dating IT guys.

dasmo said...

Exactly what I have been saying! The boomers won't have a big effect on real estate!

Phil said...

If my math is correct, Boomers are age 49-68 this year (born ‘46-‘65). Very few would have downsized yet. Once in their seventies, retired, a hip giving them problems, want lower maintenance, less stairs, closer shopping, and a little more money in the bank, then they will start downsizing. No question.

The rationale why Victoria and the Van Island have been so weak for a few years and now are stabilizing is the US sunbelt prices crashing and now recovering. With the loonie falling and US prices jumping, the retirees will be looking to the left coast again.

Leo S said...

>> Very few would have downsized yet.

Tons have downsized. Remember freedom 55? Also many retiring at 60 or shortly after so there is no shortage of retirees, although the bulk is still coming.

>>Once in their seventies, retired, a hip giving them problems, want lower maintenance, less stairs, closer shopping, and a little more money in the bank, then they will start downsizing. No question.

Who said they won't downsize? The question is where, and the answer will overwhelmingly be: where their families are.

You think 70 year olds will uproot their lives en masse and move across the country away from all grandchildren just because the winter is a little warmer here?

Just Jack said...

If the BB's are leaving small town Manitoba at 65 and beaching themselves along Dallas Road in greater numbers you would see an impact on real estate stats. You would also see it in the advertising for pre-construction condo towers. It isn't there.

The opposite is happening as condominiums with age restrictions are discounted in today's market.

You can argue what constitutes a BB, but when you look at price increases and how advertisements were directed the BB wave was in the early 2000's when the first of the BB's either retired or transferred here from other parts of the country. If you want to see the wave look back at the market from 2000 to 2008.

Marketing is now directed at Hipsters, those born after 1980. Hipsters that are very different from Gen Y in there attitude towards debt and entitlement.

dasmo said...

Among the sampling of the BB's that I know none have downsized. My parents died in their 4000 sqft house in the boonies, My friends dad who is almost 70 is still in his highlands home, of my BB pals, all are still in their homes before their nest emptied. One winters in Arizona, one talks about selling and moving to Nanaimo and has for years now, one downsized after the divorce a decade ago, the other is still in the house he has been fixing up for a decade, My aunt and uncle relocated to a suburb in Alberta following their grand kid!... The world is just not so simple as "the baby boomers will all downsize...." there will be a spectrum of activity with unknown factors that will affect the outcome as it might affect the real estate market. I personally see the BB's staying put as long as they are able and in Victoria people are healthier longer....

caveat emptor said...

The baby boom is generally accepted to be 1946 to 1964 although you will find slightly different end dates cited ranging from 61 to 65.

Generation X is less well defined generally accepted as from being the end of the baby boom till the early eighties. Call it 65-83.

Millennials - aka Gen Y are even less defined but are generally called those from the earlier eighties to the turn of the millennium or the early "noughties". Call it 84-2002.

Personally i think the difference between the generations is greatly over-rated and I chalk a lot of it up to middle age angst about young people basically being young.

Jack's "hipsters" are just a small subset of the Gen Y group, a very substantial cohort that is just barely entering home-buying years. Todays first time buyers are presumably a mix of later Gen X and early Gen Y/Millenials

reasonfirst said...

Victoria people are healthier longer....

They are also older demographically speaking.

caveat emptor said...

The generation born before the boomers has been called the "Silent Generation" or the "Lucky Few". They were born between 1927-1945. They were young enough to escape many of the ravages of the Depression and did not have to serve in WW2. They experienced strong economic growth through most of their adult lives, not to mention inflating real estate and equity prices benefiting their retirement.

These folks are 69-87 years old and are probably downsizing in some cases. Though, like Dasmo I can think of many exceptions to the downsizing trend including my own parents...

Just Jack said...

Time to play "Let's Make a Deal". A subjective game on my part illustrating the 5 best deals made this month.

1) A Pender Island home on Spyglass that sold in February 1998 at 250,000 and resold 16 years later at $288,000. A 2,150 square foot lake front home. Actually there are about a half dozen properties in the Gulf Islands that I would consider good deals. Boomers are letting there getaway homes go cheap these days.

2)A foreclosure along McNeil Bay in South Oak Bay. Granted the Baby Boomer owner probably contributed greatly to this low price for restricting access. But pride goeth before the fall. $1,245,000 for a 2,850 square foot home on a 6,500 square foot water front lot with a fantastic south westerly water view.

3)22 acres on Blenkinsop -what can I say. If you are the only one bidding you're going to get a good deal.

4) Another home on Blenkinsop but on just 1 acre this time. $480,000. Originally listed at $730,000. This is the basic Fernwood 1940's box that sells for the same price in Fernwood but on an acre. Hipsters are not into the land thingy - there into image and this property doesn't have image. You don't impress your peers by growing vegetables as hipsters will only buy certified organic from trendy grocery stores.

5) A 3,200 sq. ft. custom built home in Matticks Wood Lane. Bought in 2004 at $825,000 plus GST and resold at $955,000 and no GST. This is a look back to when the BB's were coming to Victoria and overpaying on properties. Without the influx of BB'ers market activity for these properties have been sluggish. The market is reverting back to the locals. A lesson for Vancouver when the offshore purchases slow down.

Just Jack said...

How about non detached homes.

1) few people like leasehold town homes on First Nation's Lands. That means opportunity and a 1979 built town home with 1,050 finished square feet within biking distance to the core at the cost of a custom Dodge Ram Truck with Spinners or $76,500.

2) A shortage of 55 BB'ers has left the manufacture home park in Florence lake in Langford to sell at 1980's prices again or $32,000 for 834 square feet

3) Esquimalt condos. It ain't cool to live in squish anymore. No age restrictions and you can have cats and dogs. 2 bedroom condo at $120,000

4) Sunny Sidney the land of the Blue Rinse Hair. Get on a bus in Sidney and it looks like the seats are filled with life sized Q-tips.
$160,000 for a 748 square foot condo without age restrictions.

Lots more condos that aren't hip happening sky boxes.

Just Jack said...

So there is affordable housing in Victoria and if the market were to crash - more affordable housing would be created.

Finally a government program that works.

dasmo said...

http://finance.yahoo.com/news/san-francisco-real-estate-1m-wont-buy-much-170606015.html

Just Jack said...

Anyone remember the hype around Dockside Green?

The platinum green complex that was to change how Victorians bought condos.

People lined up and bought pre-construction with one town house selling at $465,000 or $427 per square foot. I remember going to a couple of meetings and the marketers were anticipating prices to break the $500 a square foot rate in Victoria. A new standard of living as the enviro buyer market was touted as huge.

But it turns out that it isn't easy being green and that same town house sold this week at $381,000.

Dockside Green, like some other projects are "gimicks" that are not sustainable once the developer has sold out of the complex.


https://www.youtube.com/watch?feature=player_detailpage&v=z4ZxxHbJGbY

dasmo said...

Certainly selling them for top dollar before the vision exists is a joke. People should get a discount for living in a construction zone regardless of the final vision....

Just Jack said...

Incidentally if you're 55 and older you can buy a 1,200 square foot 2 bedroom condo along Beach Drive for $175,000.

Just 300 feet from Willows Beach

It's a co-op so bring cash or use the equity in your home to buy it.

If this had been a strata where you could get conventional financing, the price would be almost $200,000 more like at 1440 Beach which start at $369,000. In essence the ability to easily finance a property doubles its price.

Phil said...

Co-ops screen their applicants for residency. Even if you were 55 JustJack, I doubt they would allow you :)

Just Jack said...

That's because I'm too damned good looking.

Just Jack said...

For any of those who at one time thought of buying in Dockside Green. A certain bank offered financing for buyers. And those units were appraised by one Appraisal Firm in town.

I wonder if a class action lawsuit could be made against the lender and the appraisal firm on the basis that if the purchaser had received a fair market value from the appraiser they would not have purchased in the complex?

Anyone have the expertise to answer such a question?

totoro victoria said...

Must be stressful to be a tradesperson ...

Our next-door neighbour just had their roof redone by Phil Smith Roofing ($15,000 btw - steep pitch). http://www.philsmithroofing.com/

The worker(s) spilled tar on our car which was parked in our driveway while we were away on holiday. We had no idea before we left that they were redoing the roof. The car had just been repainted in May.

We came home to find the boat full of wood and shingles and some tar as well.

According to the worker there had been an "accident" and he was "F'n tired of this job" and he had "tried to knock on our door" (yes, we're sorry we went on holiday)

With those pleasantries over, we cleaned up the boat ourselves (no biggie - it is a bit beat up anyway). The car was a different story. We tried to remove the tar ourselves but it left two big spots.

Phil's well-mannered worker tried to get rid of the spots, but it did not work.

Phil scheduled a time to drop by yesterday but didn't show, and then when he did show today he outright denied they were responsible and was angry and abusive. He told my husband he was "laughable" (he is pretty funny) when he asked for the 250 to repaint the hood (the estimate we had obtained).

Phil said he had covered the car himself and it was damage from some construction across the street! He became more belligerent and threatening (go ahead sue me!) and then sped off in his bmw.

Any ideas on what to do?? Except maybe post this online - oh, wait... 0 stars.

Katyusha said...

@Totoro

I notice that Mr.Phil has an article on his business website about the perils of not having appropriate liability insurance. www.philsmithroofing.com/insurance-job-tc-article-march-17-2012

Hmmm.

A new dispute resolution option is available through Consumer Protection BC, as an alternative to the traditional Small Claims court route:

http://www.consumerprotectionbc.ca/odr

Sometimes just illustrating that you are moving forward with initiating some type of 'action' can be enough to make someone realize that $250.00 is a reasonable compromise.

Of course, mentioning your negative experience with a local business online can also assist with the whole 'buyer beware' concept. Gracias!

totoro victoria said...

Yes, I'm pretty much venting and I appreciate your response.

For the $250 repair bill it is not worth it to go further than a BBB claim - or maybe the Consumer Protection BC.

Sometimes the principle of the thing is motivational, especially when a business owner calls your husband "laughable" and drives off in his BMW saying "sue me".

Just Jack said...

That really sucks that a contractor would treat you that way.

Put a complaint in with the BBB, then at least it will be on file for the next person that checks his company.

totoro victoria said...

Yep, I filed a complaint just now and forwarded it to him.

We deal with contractors frequently and, while we have had our share of good and bad, none have come anywhere near this.

I think he may have had in his head that an asphalt shingle must have fallen on the car from the third story. There was no dent so it was not his damage. In fact, there were simply two tar spots that probably dripped from somewhere after the car was uncovered or when it was uncovered - his worker admitted there had been an "accident". It will only cost $250 to fix - could've been much worse.

When I think of it now I can laugh though. It was like watching a cartoon character in action.

totoro victoria said...

Well, looked at Consumer Protection BC and I don't think I could use this route as I'm not the consumer. My neighbour would have to file that complaint.

Katyusha said...

I would think that $250 is chump change for Mr.Phil, well worth it to maintain good will and avoid a call to the local BBB. And a posting on social media.

But that would require rational behaviour, which is not always homo sapiens' strong point.

totoro victoria said...

Agreed.

Curly Fry said...

i am addicted to this blog.

Just jack, i love your posts! I log-in frequently for a good real-estate bed-time story! thanks

~age-30, condo-renter

(whose BB parents actually did just move to the island, away from the grandkids! so +1 for that BB stat. however, they moved 30 minutes up island where their storage area is larger than my entire condo)

i was sending them links to a cement slab for sale in the oaklands area (almost same price as their 3000 sqft ontario home with 1 acre & a pool) but for some reason they weren't sold on that!

Death Plague said...

This is very anecdotal but some phases of Westhills houses were pretty much 100% bought by retiring boomers. I could see why. Who would want to spend their retirement fixing some piece of junk in Fernwood.

Death Plague said...

totoro make a vandalism claim with ICBC. You know who did it. Also a police report as well. You tried to resolve this amicably. The only problem is ICBC sucks so good luck.

Marko said...

Fri Aug 1, 2014 8:20am:

Jul Jul
2014 2013
Net Unconditional Sales: 681 583
New Listings: 1,195 1,213
Active Listings: 4,570 4,772

Please Note
Left Column: stats for the entire month from this year
Right Column: stats for the entire month from last year
This information comes from the latest 'Monthly Comparative Activity By Property Type' Report

Marko said...

This is the first time in over 10 years that July sales have exceeded those of June in the same calendar year.

Last 5 Julys...

2010 - 527
2011 - 523
2012 - 523
2013 - 583
2014 - 681

totoro victoria said...

I think vandalism requires intent and I truly believe this was an accident. Plus the damage is only $250 (less than our deductible I think). I appreciate the support though.

After sleeping on it, I realize it is not the damage or the failure to pay for it that is the problem, it is the feeling of being subject to outrageously bad behaviour and I don't think there is anything for that but a BBB complaint?

And me moving on :)

dasmo said...

See if they are on google plus. A nasty review there can be good revenge...

dasmo said...

yellow pages review:
http://www.yellowpages.ca/bus/British-Columbia/Victoria/Phil-Smith-Roofing/7275220.html

dasmo said...

I might add that anyone looking for roofers should use High Def. They have great prices and do great work. I just did my place last year with a 50 year. Stripped all the old, new plywood sheeting, roofing, flashing vents etc for $8500. 1000 sq ft footprint, steep pitch,T shape.
http://www.roofingvictoria.ca/

totoro victoria said...

I've heard good things about high definition as well.

I will follow up on the google review option, but I've done a couple of reviews already and I find my motivation is waning.

I'm starting to consider that I might possibly have a better use for my time.

dasmo said...

then what are you doing here? ;-)

totoro victoria said...

Good point.

caveat emptor said...

I was poorly treated by a company recently. There is some satisfaction in posting crappy but fair reviews on line. Of course the company took away my satisfaction by going belly up shortly thereafter.

If some company is truly a bad actor then your negative reviews are a form of public service.

Phil said...

That's a HOT July.

2010 - 527
2011 - 523
2012 - 523
2013 - 583
2014 - 681

Well, at least they're heating up. I'll go out on a sturdy limb here and say Victoria will now transition from one of this country's laggards to leaders.

caveat emptor said...

^cue to info saying sales are "in the tank". I think every month since info made the "sales will tank" prediction has had y-o-y increase in sales. Contrary indicator?

totoro victoria said...

I agree fair comment where there is poor treatment is in the public interest. It is enough now though. It also seems like the work he does is good in general, just his professional handling of incidents and people skills were atrocious.

On the real estate front, I have spent my time looking at a variety of options, including investing in the US.

Yes, I've been hanging out on biggerpockets... sorry hhv.

I've confirmed that I don't want to invest in the US, despite the obvious opportunities to make much higher returns. Too complicated for a Canadian - financing, taxes, inheritance issues...

It is interesting to see that a number of folks in the US invest successfully at a distance with the use of a team on the ground (realtor, banker, property manager...). I guess Victorians could do the same in Canada if the returns were there - but they don't seem to be that great anywhere.

I ended up speaking with one holder of a huge number of investment properties on the phone (a down to earth Las Vegas elementary school teacher by day) and it was an interesting discussion and a different take on the market from being local, to potentially global. I guess sophisticated overseas investors have always known that.

Back to Victoria. Appreciation flat, prices are high, rents are relatively low... hmmm...

I looked for mixed commercial/residential space and discovered that it is hard to find. Particularly around Oak Bay area unless you want to pay over a million dollars for a place that would rent for $3000 a month. I can see why a lot of people just rent office space - it is cheaper.

We also had discussions with a local commercial real estate developer. Apparently commercial cap rates are 5%-6% on average, but the risk of loss is high if you have vacancy.

Nobody has an easy time in Victoria right now it seems.

reasonfirst said...

Sales are heating up it seems but prices are down a tad...hmmm.

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

July's single family home sales total (354) was down from June (379).

Monthly sales totals fluctuate. It is, therefore, necessary to look at the big picture when attempting to determine the strength or weakness of a housing market when using sales as a gauge.

2014's SFH sales total (January through July) is well below Victoria's long-term average.

So far, 2014 has been another extremely weak year for Victoria's housing market. Considering the high degree of housing market stimulus that continues to be applied to Canada's housing market (extremely low rates, etc.), SFH sales should be well above Victoria's long-term average, not well below it.

As well, house prices in Victoria should be hitting new all-time highs as they are in many other Canadian markets. But this certainly isn't the case in Victoria.

The weakest housing markets in the US (before house prices across the whole country began to fall in unison in 07-08) included Miami, Phoenix, Los Angeles, San Diego and Las Vegas. These markets ended up being the biggest overall price losers in the US housing correction.

Victoria was the first major Canadian market to peak and begin correcting. Prices in Victoria are already 10-15% lower than they were in 2010. Victoria's housing market may end up being the biggest overall price loser of the Canadian housing correction.

There are many near-peak buyers with underwater mortgages in Victoria as a result of falling prices since 2010. Many of them have, effectively, been eliminated as move-up buyers and this situation can only worsen as prices continue to fall. This will continue to contribute to downward price pressure in Victoria over the next number of years as it did in many US markets as prices fell there.

It will be years before a price bottom is reached in Victoria.

Phil said...

So, sales are up 17% over last July in Victoria (39% in Duncan, for those who enjoy commuting) and it's the first time July sales have beat June sales in Victoria since 2003. Single family prices up 3.1% over last July (pg 9 vreb report).

Is it safe to say the worm has turned?

Just Jack said...

There were 190 detached Freehold house sales in the core districts of Victoria in July 2014

Prices ranged from a low of $325,000 to a high of $4,600,000 with an Average Price of $656,000 along with an average exposure of 55 days on the market. During the same time period another 265 homes were listed for a New Listing to Sales Ratio of 1.4:1

The median price came in at $569,950 or $263 per finished square foot, with the median home selling at 104 percent of its 2013 assessed value.


July 2013 had 172 home sales that sold from a low of $315,000 to 2,030,000. The Average price was $636,808 with an average market exposure of 47 days. Another 269 were listed during the month for a New Listings to sales ratio of 1.5:1

The median price was $569,950 or $262 per finished square foot and the median sales to assessment ratio had the typical home selling at 100.4% of its 2013 assessed value.

Just Jack said...

The core had 118 strata condominium sales in July 2014. Starting at $120,000 all the way up to $1,700,000. Average Price is $334,970 with 65 days to find a buyer. 233 more listed for a NListings to Sales of 2:1

Median Price is $269,950 or $273 per sq. ft. Median sales to assessment ratio is 99%

July 2013 had 104 sales. Ranging from $152,000 to $1,000,000 with an AP of $315,129 and a DOM of 66 days. NL:S was 1.8:1

Median Price $277,600 or $280 per finished sq. ft.

info said...

2014‘s (January through July) single family home sales total was 27% below that of 2007. Note that 2007’s total was (at best) average for Greater Victoria.


Single Family Home Sales Totals
. . . . (January through July). . . . .
. . . . . . .Greater Victoria. . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
2007...********************
2014...******
2013...***
2012...****
2011...***
2010...********
2009...*************
2008...***********
2006...***************
. . . . . . . . . . . . . . . . . . . . .
. . . . . .-35%. . . . . . . . . 0%

SFH sales so far this year are well below Victoria’s long-term average. This has been the case since 2010, the year that sales cratered in Victoria. 2010 was also the year that Victoria’s price decline began.

Overall, Victoria’s housing market is extremely weak with prices down significantly since 2010 and sales well below average.

That Victoria’s housing market is this weak despite historically low rates (and other strong sources of stimulus) makes it easy to argue that this market weakness will not go away any time soon.

Victoria house prices are extremely bubbly. This is the main reason that sales are way down. Not enough people can qualify for mortgages. This was the case in many US cities as well, as prices peaked and began to decline there.

As prices in the US declined, many Americans were turned off by the idea of buying a house. The psychological aspect of the deflation of a housing bubble is as powerful as the psychological aspect of the inflation of a housing bubble.

Victoria experienced panic buying as prices increased quickly until 2010. There will likely be panic selling in Victoria at some point in the future as Victoria's housing bubble deflates.

Further significant price declines in Victoria will be necessary to restore sales to near-normal levels. The return of sales to near-normal levels may indicate that Victoria’s price correction is nearing bottom.

CS said...

Apparently commercial cap rates are 5%-6% on average, but the risk of loss is high if you have vacancy.

Why not buy a REIT? Yields of 5 to 10% are not hard to find and there's no hassle with blocked toilets, vandalism, roof repairs, etc., etc. Furthermore, REITs provide easy access to foreign markets and are no more susceptible to interest rate spikes, depression or world war than a direct investment in the local market.

CS said...

It will be years before a price bottom is reached in Victoria.

At the rate we're going that would seem to be true — unless we're already there!

SilverSurfer said...

"Is it safe to say the worm has turned?"

Relax, we're on the verge of another USA lead recession. Q1 2014 was already negative (although barely).
http://static.cdn-seekingalpha.com/uploads/2014/5/30/saupload_ABOOK-May-2014-GDP-Averages-last-6.jpg

If Q2 is also negative, it's a recession, else expect Q3 and Q4 to be negative.


You heard it here first, the Death Cross guarantees it.

http://www.zerohedge.com/news/2014-05-30/global-death-cross-just-got-deathier

Phil said...

“If Q2 is also negative, it's a recession “

The advance Q2 number was out on Wednesday. It was +4.0%. In the words of Maxwell Smart, “Missed it by that much!”

http://www.forbes.com/sites/samanthasharf/2014/07/30/u-s-gdp-grew-4-in-the-second-quarter-2014/

totoro victoria said...

"Why not buy a REIT? Yields of 5 to 10% are not hard to find and there's no hassle with blocked toilets, vandalism, roof repairs, etc., etc. Furthermore, REITs provide easy access to foreign markets and are no more susceptible to interest rate spikes, depression or world war than a direct investment in the local market."

Partly because of the lack of leverage and lower ROI overall than a good RE investment. I wouldn't borrow to invest in a REIT - would you?

If you have a large pile of cash and are looking for truly passive income then REITS could be part of that strategy. I'm not in that situation, and if I was, I would probably just use the Canadian Couch Potato route.

I also think REITs can be a part of an investment strategy for TFSA and RRSPs. REITS distribute their income (primarily from rent) to shareholders, usually in the form of dividends, return of capital, and income. While it depends on the REIT, if the REIT distributes a portion of their income as return of capital, interest, capital gains or dividends, each portion will be taxed accordingly. Keeping REITs inside a TFSA or RRSP avoids this tax complication.

REITS should be compared to other passive stock investments and not put forward as an alternative to real estate investing IMO. Owning your own business is more like active real estate investing than a REIT is.

In real estate investing, and in most businesses, it makes sense to maximize the use of OPM–Other People’s Money.

With REITs you become the OPM, and the people running a REIT will never be as careful with OPM as they would with their own.

In addition, the company running the REIT is taking out money for themselves at every step of the way.

REITs may indeed be a way for to make money without having to fix toilets, but the real money made in REITs is by the people running the REIT itself.

http://www.biggerpockets.com/renewsblog/2014/03/31/passive-real-estate-investments-vs-reits/

SilverSurfer said...

Phil said: "The advance Q2 number was out on Wednesday. It was +4.0%. In the words of Maxwell Smart, “Missed it by that much!”

http://www.forbes.com/sites/samanthasharf/2014/07/30/u-s-gdp-grew-4-in-the-second-quarter-2014/


Phil, "advanced" is the key word. They also thought Q1 GDP was going to be +.01, the second estimate a while later came in at -1%, and then reality turned to be -2.9%.. oh but then it was re-re-re-vised to -2.1%.

http://www.bea.gov/newsreleases/national/gdp/2014/pdf/gdp1q14_2nd.pdf

http://blogs.wsj.com/economics/2014/06/25/economists-react-to-2-9-q1-gdp-revision-different-shades-of-nasty/


... In other words, their estimates are a complete joke.

That said if they are estimating a whooping 4%, maybe it will manage to stay above 0%, but let's see what reality turns out to be.

Again, I'm far less optimistic for Q3 and Q4... oh and did you see the latest Japan GDP estimate by goldman? -6.5% ... if reality is anywhere near that (again I wouldn't hold my breath - it's a preliminary estimate), they might as well pray for another fukushima to distract the masses.

Phil said...

"oh and did you see the latest Japan GDP estimate by goldman? -6.5%"

That's just the give back from their +6.7% Q1 GDP (to do with consumption tax hike on Apr 1). Japan's economy has been stagnate for over 20 years.
From looking at the numbers I'll say US Q2 GDP gets revised upwards to near 5%.

CS said...

Partly because of the lack of leverage and lower ROI overall than a good RE investment.

But there are plenty REIT's that are leveraged, that's how they get returns of 10% or so, which is much more, not less, than the measly returns on Victoria RE that you were complaining of earlier.

totoro victoria said...

A REIT being leveraged might raise their ROI somewhat but it doesn't mean that you are leveraging your investments unless you borrow to invest. I'm saying I won't borrow to invest in a REIT.

If I have $50,000 to invest and I buy a REIT and I earn an average of 7% that is $3500 less taxes.

If I have $50,000 and I buy a cash flow positive rental property for $500,000 (not in Victoria) and it appreciates an average of 4% (historical norm here), I'm making $20,000 a year (and more in each subsequent year) on your $50,000 investment.
(yes less eventual cost of sale but plus equity pay down)

In the US it is possible to buy houses that give good cash flow and have appreciation potential. Just not so much here.

As an owner you have a lot of control. You can reno it yourself, furnish it and rent it for more, suite it, live in it... and if it is your primary resident that $20,000 in appreciation becomes tax free.

caveat emptor said...

Marko or anyone know the recent sales history of 1321 George? It sold a couple years ago and is on the market again with no renos or upgrades other than paint. So it will be a good indicator to see how prices are faring in my general neighbourhood.

patriotz said...

If I have $50,000 and I buy a cash flow positive rental property for $500,000 (not in Victoria)...

That is exactly what REIT's do. The difference is that they buy larger properties which are out of reach of the individual investor, and have higher rental yields.

A share in a REIT represents a slice of the equity in their properties.

Note that REIT's don't buy properties on the expectation of appreciation, they buy for the rental yield. If there is appreciation that's a bonus.

Do they have overhead costs? Yes. But you just don't have the option of directly buying properties with the yield they get, unless you buy in the US or perhaps some market like Windsor.

totoro victoria said...

Yes, that is what REITs do but the management and other costs and taxes result in a return similar to a Canadian Couch Potato investor. After all when you buy a stock you are also buying into a company that is using leverage.

What I am saying is that the US market right now does permit a much much higher ROI for an experienced individual investor making smart choices and using leverage. Canadians have a hard time with obtaining the leverage needed to do this.

And FWIW Windsor doesn't make sense IMO. Sure prices are low, but the chance of appreciation is very low too, and the rental market is not that great.

Appreciation potential in combination with low vacancy rates are key to great returns when you are using leverage to buy rental property.

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

"It will be years before a price bottom is reached in Victoria."

"At the rate we're going that would seem to be true — unless we're already there!"

In the US, some markets showed signs of weakness before house prices across the US began to fall together in unison, beginning in 07-08. These markets included Phoenix, Los Angeles, Las Vegas and San Diego. These were among the weakest markets in the US in 2005 (think Victoria today) and they ended up being the biggest price losers of the US housing correction.

Clearly the US experience showed us that those (bubbly) US markets with early signs of market weakness (think Victoria) corrected the most overall with most of that price correction occuring as prices across the US fell in unison, beginning in 07-08.

Victoria's overall price correction will be among the deepest of all major Canadian markets. Most of that price correction will occur as house prices across Canada fall in unison.

In 2011, Canada's housing bubble was larger than the 2006 US housing bubble at its peak and has grown substantially since then.

Victoria's price correction will be much deeper than it currently is by the time a price bottom is reached.

patriotz said...

Yes, that is what REITs do but the management and other costs and taxes result in a return similar to a Canadian Couch Potato investor.

That's the stock market at work. If returns in one class were consistently higher capital would move over and balance the returns. But diversifying your investments reduces overall risk.

Also in a taxable account it matters what kind of returns you get, so there can be a reason to buy (or sell) a particular class.

Appreciation potential in combination with low vacancy rates are key to great returns when you are using leverage to buy rental property.

You don't know what future appreciation is going to be for RE or any other investment. As the old Will Rogers joke goes, "just buy stocks that go up". What you know is today's purchase price, interest rate, revenue and expenses.

totoro victoria said...

If you are going to go into RE as an investor you'd better know more than purchase price, interest, rate, revenue and expenses.

With in-depth knowledge of any investment class I do believe you can manage risks more effectively.

You might not be able to guarantee the future but you can assess the likelihood of certain events.

Ie. if you bought in Phoenix or Las Vegas after the crash you knew at some point prices would rise. And they have.

You can also understand that RE is cyclical and have a long enough hold window to ride out a market. Even then some markets are going to be much better than others for reasons that are somewhat predictable.

If you buy in an area that more people are moving to than leaving that is a good sign for house value.

If you've had ten years of appreciation and you have high prices and no drop - well flat seems more realistic than continued high rates of appreciation.

Then there is knowledge of housing components and expected life span. There is market rents and neighbourhood desirability - it goes on.

Lots and lots of variables that you might enjoy researching, or not.

Same as some people love to learn about stock fundamentals, like Warren Buffet. Not magic at play.

patriotz said...

If you buy in an area that more people are moving to than leaving that is a good sign for house value.

Phoenix and Las Vegas were among the fastest growing cities in the US in 2005.

Value is based on the parameters I gave in my previous post. If you buy at good value, that makes appreciation more likely. But nothing in the future is certain.

Just Jack said...

You can be more quantitative in determining when to buy and when to sell real estate. It doesn't have to be all "gut feeling". But as we have seen with anecdotal evidence your gut feeling is often wrong.

Long term real estate follows the local economy, employment and vacancy rates. When the Provincial and local economies are picking up, employment rates are rising and vacancy rates are dropping that's when you begin to buy for the long term. The opposite and you start to sell. If nothing is happening - you wait and find some other place to make your money.

Deciding when to sell or buy in the next 12 months or short term relies on months of inventory, new listings to sales ratios and days-on-market for the specific type and physical characteristics of the property you're looking to buy or sell.

For example: It's a good time to sell your updated Fernwood basement homes. And it's a bad time to buy an updated Fernwood basement home. Because with the low inventory, listing to sales ratio and DOM you are going to have to overpay to buy a specific style of home with similar physical characteristics in this hood.

Overbuying real estate has short and long term repercussions. Higher mortgage costs and loss of potential wealth on re-sale.

If you overpay by say $50,000 today. Which is quite possible in some of the hot neighborhoods. That will likely cost you another $50,000 in interest charges over the next 25 years and if property prices were to double that would cost you a opportunity loss of $100,000 upon re-sale that others who paid market value would have received.

What you need today is someone to assist you to make an informed decision. You'll need all of the above-mentioned information and an unbiased interpretation of the data. Cross checked for reliability and reasonableness. There are very very few professionals that are capable of doing that today.

Or you can go with your gut feeling.

Phil said...

The time to “vultch” Victoria was last year when Leo S bought. As soon as vacancies tighten, sales jump...your competition and price jumps.

July sales
2010 - 527
2011 - 523
2012 - 523
2013 - 583
2014 - 681

Just Jack said...

The time to "vultch" will be different depending on the style, physical parameters of the property you're looking to buy and where it is located.

There are estate's that are up for the first time after several generations of ownership. Once in a life time offerings and a limited number of buyers. Some could be great deals.

The days of buying a property and parking your ass in a chair and wait for the equity to grow is over.

Today, you have seek out undervalued properties and re-vamp them to create equity. That's not buying a fixer upper and a can of paint. You have to think farther such as re-zoning, selective clearing, etc. This is the market where those that really know real estate can make money, while the passive investors loses.

Most people have such a myopic view of real estate that they refuse to see opportunities. elsewhere. Out of the hundreds of transactions that will be done this month, there might only be 1 or 2 really good deals made.

dasmo said...

Yep, RE is not an investment. Now adding value is another matter. Abstract seems to be doing very well at that in this market...This is another thing entirely though. It means becoming a developer....

MD80 said...

Speaking of adding value...
Can anyone give me an idea of roughly the cost/sqft for an addition? Take this place at 1617 McRae with a pretty small living space. What would it cost to expand out back with a master bedroom/bath, larger kitchen/eating area with the same finishings as the rest of the place? Say 500 square feet total. Are we talking $100/sqft? $150/sqft

Leo S said...

A large factor influencing the cost of an addition is how much self-control you have. Will you be able to stop yourself at just building the new addition? Or will you find yourself 12 months in with the main house stripped to the studs because you wanted to make it just as nice as your addition? Just one more thing...

Just Jack said...

You'll need to talk with several builders. There are too many variables to estimate a reliable cost for the project. And there will be over runs. Costly over runs.

But I can tell you, that it isn't going to add a heck of a lot of value to your home. It will leave you with a poor floor plan layout and will always look like an add on.

A prospective purchaser faced with buying a home with an addition and one that was originally built will always pay less for the home with the addition. Furthermore, a 500 square foot master bedroom addition with a bathroom is not going to address the problems with that age of home. Nor are you going to successfully match the old with the new. The original part of the home will need a complete gut and update.

To put it succinctly. An addition to home like this is a waste of money.

Now get over it. Sell the home and find one already built that meets your needs. Or bulldoze it and start new.

Hate me now - love me later.

Katyusha said...

I'm interested in any input others have on exterior siding options that won't break the bank, but refresh a great looking house (on the inside). What has worked/added value for you in the past?

I've looked at fibre cement board (Hardie), vinyl, hardboard, and have a pretty good sense of the pros and cons for each product. The labour/install $ for Hardie seems to be 1.5 to 2x other products.

Is vinyl really the poor cousin that it is made out to be? Would a realtor sneer in its presence? I saw a home with a higher end vinyl product, board and batten style....looked impressive to me.

So many choices....

Marko said...

Tuesday, August 5, 2014 8:00am

MTD August
2014 2013
Net Unconditional Sales: 54 540
New Listings: 107 935
Active Listings: 4,459 4,593

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

koozdra said...

Canadian Real Estate: A Crack in the Tree

Seth Perry said...

Interesting post on /r/canada this morning, re: financialpost article "What’s ailing Canada? Economists puzzled over ‘humdrum’ growth"

http://www.reddit.com/r/canada/comments/2cs4tl/whats_ailing_canada_economists_puzzled_over/

here is the first response (Skip down to last part of the note on housing):

"What's ailing Canada?"
Wealth and income inequality increasing rapidly while already being at historic highs since the 1920s (and we all know the 1920s are known as the party that never ended)

Structural human resource issues at the national level creating a lost generation and possibly two (i.e. structural unemployment/underemployment for most youth)

Severe distribution imbalance of economic output since the 1970s (min wage should be about $17.50/hr or more if kept at same relationship with gpd/capita as it was in the 1970s)

The opening of the domestic labour market to foreign competition, while output is priced at domestic prices without interference (i.e. we have companies paying 3rd world wages and charging Canadian prices, thinking they can have poor employees and rich customers all at the same time)

And finally, the big one. Ohhh boy. The BIG one.

We have the Conservatives telling us how we are "richer than ever before". Probably because home ownership in Canada is at over 70% and we are at the peak of a housing bubble. Nowhere to go but down. When the "value" of your house increases rapidly year over year, you're not "richer". You have a larger tax burden for the same place. You have more real estate commissions if you sell. And you have more to spend if you want to upgrade.

But a lot of people don't see it that way. They see their house rapidly increasing in assessed value, and they go expand their home equity line of credit. This phenomenon is well documented, it's called the "wealth effect".

The racking up of middle class debt to hide the effects of increasingly precarious, low paying employment has finally reached its peak. The middle class, no longer receiving anywhere near the same proportion of gdp as they did for most of the last century, is reaching their collective credit limit. They cannot continue to support current levels of consumption because they are reaching the limits of what they can borrow. Can't borrow much more, even if rates go to zero. And the new class of economic elites cannot replace that demand as it falls because no one person needs 10,000 pair of pants and no person no matter how rich will go and buy 5,000 mid-priced sedans or go out to coffee shops/wonderland/the zoo 50,000 times in one year.

Seth Perry said...

@koozdra

Thanks for posting this article. It was a good read.

Link to PDF
http://bit.ly/1lAsqt8

Even if you are a bull or bear I think the author shares a very good understanding of the Canadian market and provides his best guess at where it's heading. No, you won't see any burning houses or buildings (I'm looking at you Macleans.ca), but you'll enjoy an easy read and a light analytical overview of the driving forces in the Canadian Real Estate market today.

I encourage you to read the whole article but for those of you who say "TLDR Seth!", I'll post the authors concluding statement.

--------------------------------

As we sit here today, this scenario may seem implausible, but keep in mind, the cycle has been working in the same fashion for years on the way up. What was I thinking?

There’s an exercise I put myself through every once in a while. I ask myself: In 3 to 5 years, what obvious thing will I be kicking myself for missing?

What might we be kicking ourselves for in a few years?

“Of course interest rates had to go up. Money couldn’t be free forever. Duh!”

“How did we ever expect to get a bargain in a bidding war?”

“How could we justify buying an income property that generated no income? We were speculating on prices, not buying an income stream.”

“Why did we think our kids had to own real estate right out of University? We rented a crappy apartment for the first five years of our work life.”

Phew … A final word

I’ve been focusing on the negatives intentionally. My former colleague at PH&N, Peter Guernsey, used to say when we were looking at a depressed stock, you need to focus on finding the positives because the warts are easy to see. The Canadian residential real estate market is the opposite. We’ve been living the positives for a long time, so the warts aren’t so obvious.

All the measures I look at are at extremes. On the positive side of the ledger are factors that tend to be
transient, subject to change without warning, or just plain flaky (low carrying cost, foreign buying, bidding wars), while the negatives are more lasting (prices, cap rates, debt levels, demographics).

None of the numbers or trends support what economists and real estate executives are suggesting, namely that the market will experience a ‘soft landing’, with prices flattening out or dropping a little. I can’t finda business cycle that has gone on for this long and been this good that has ended with a ‘soft landing’. Steadyhand

dasmo said...

I agree with all these statements:

“Of course interest rates had to go up. Money couldn’t be free forever. Duh!”

“How did we ever expect to get a bargain in a bidding war?”

“How could we justify buying an income property that generated no income? We were speculating on prices, not buying an income stream.”

“Why did we think our kids had to own real estate right out of University? We rented a crappy apartment for the first five years of our work life.”

These are universal truths in regards to regards to real estate. Personally I could never condone buying RE under 30. Mobility is King in your 20's I rented crappy apartments for the first ten years of my working life...

Although I must say Money has been cheap and gotten cheaper for more than a decade. I think it will remain cheap for some time to come. Not forever but another ten years is long enough...

Just Jack said...

In just the core districts of Victoria there are 154 detached homes or 23% of the total house listings over $1,000,000.

Last month there were 15 sales over a million. The prices ranged from a low of $1,045,000 to a high of $4,600,000. The practice of re-listing these properties in order to lower the days-on-market is common for these properties. Hence the days-on-market at 111 isn't that good of an indicator by itself.

Excluding foreclosures and recently updated homes, the sales to assessment ratio ranged from a low of 98% to a high of 131%. Which means that the assessments are not reliable, except for setting a price floor.

During the same time period another 32 homes were listed for over a million dollars

That means there is over 10 months of inventory and new listings are being added at a rate 2.1:1 for every property that sells.

These are not so good stats for million dollar homes. The market is bearish for these properties.

That makes it a good time to sharpen up the Talons and go hunting. Look for Estate sales and Foreclosures that you can get an accepted offer at 75 to 80 Percent of the property's assessed value. Then hire your own appraiser and get the home valued giving you three estimates. A low, a high and the appraisers opinion.

totoro victoria said...

I wish there were great deals to be had around the million dollar mark in Oak Bay.

My sense is you have to be quite a bit over one million for any "bargains" to appear.

DavidL said...

@Just Jack

I know that you try to separate your comments on this blog from your career as a professional appraiser ... but if someone wanted to hire you, how could they contact you?

Phil said...

My sense is Oak Bay will begin to outperform Van West next couple years, or at least keep up.
$2,273,600 last month for a detached house on Vancouver’s west side, up 9.9 per cent from July, 2013...“This is the fourth consecutive month that the Greater Vancouver market has exceeded 3,000 sales,” board president-elect Darcy McLeod said in a statement. “Prior to this, our market had not surpassed the 3,000 sale mark since June of 2011.

http://www.theglobeandmail.com/report-on-business/economy/housing/vancouver-housing-prices-rise-to-new-highs/article19926194/

Just Jack said...

I enjoy the anonymity of this blog, because I work in a trade with a lot of professional criticism.

As I like to poke fun, sometimes even being a little absurd in what I write, some of my colleagues would be quick to criticize.

This blog allows me to present new thoughts and ideas without another appraiser ridiculing them simply because they have never been done or discussed before.

Even writing for a blog, would be considered "unprofessional" by some appraisers. Let alone being interviewed by the media as Marko has done. And I think what Marko does is good for both him and his industry.

If I were to say who I am, then I would get a tap on the shoulder to tell me that I'm not acting in a "professional" manner. And - you know - sometimes - I'm not. And then I would begin to censor myself and this blog just wouldn't be fun anymore. Being bearish on real estate in Victoria is fine as long as no one listens to you. Have someone stand up with credentials and say that's bull feathers may not be good for their career.

It really isn't difficult to find out who I am. Call an appraisal company and ask for someone who doesn't know jack about real estate.

That's me!

Seth Perry said...

Phil, I found a fantastic local site for your posts. They are lacking relevant content and your enthusiasm might be the spark they need to get motivated again.

http://victoriaoptimistclub.blogspot.ca/

Seth Perry said...

Just Jack, I would like to present you with this unofficial HHV Star Performance Award for all the great contributions you have made to this blog.

Sincerely,
All those who enjoy Just Jacks posts.

ps. Your anonymity is safe with me.

Leo S said...

Hear hear

DavidL said...

@Just Jack
It really isn't difficult to find out who I am. Call an appraisal company and ask for someone who doesn't know jack about real estate.

Thanks! When I need you, I'll start calling. :-)

koozdra said...

"good debt"

Thirty-Something Canadians Most Indebted After Home Boom

Death Plague said...

I love the latest liberal invented crisis to get votes : "income inequality". The term is ridiculous to begin with as usual. The first thing that comes to mind when someone says income inequality is thank god that exists. I don't want my income to be equal. I enjoy working hard and making more than the guy who doesn't. I oppose income equality.

Leo S said...

>> The term is ridiculous to begin with as usual.

The word ridiculous does not actually mean "things I don't understand or pretend not to understand."

What the ___ said...

Income Equality.
Good idea. Let's remove the incentive to work hard in this country. That's always worked out well throughout history. Take from the people who try and give to the slouches.

From the Liberal petition page -
>A rise in inequality of opportunity leads to tremendous social and economic costs for Canada.

Since when does not every Canadian have the opportunity to move their lazy arse to Alberta as example to make the big bucks? Which is by the way, the one successful province where ironically everyone is treated equally in that they are taxed the same %. What a novel idea - Not being penalized to support the slouches, for choosing to work smarter and/or harder.

koozdra said...

Canada in ‘significant’ housing bubble = Financial Post

"I firmly believe we have a significant property bubble here in Canada,” Hodgins said, noting residential property prices on a price-to-rent ratio are more than 50% overvalued if rates end up in the more normal 3%-to-4% range. “If and when short-term interest rates rise, you’ll see property prices come down sharply."

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