Wednesday, January 21, 2015

2015 Predictions

"I'll bet rates stay at 1% for another year." - me two weeks ago.
Well I'm not getting any more accurate, but at least I'm wrong more quickly.

Time to lay it out for 2015.   We're in the middle of some pretty momentous changes with oil (and oil related investments) dropping through the floor.  Now the Bank of Canada has surprised everyone with a rate cut.  Will the rate cut stimulate the local housing market with lower mortgage rates?  Or is it a sign of a slower economy that will drag on the market?

How are those numbers doing anyway?

Current prices and HPI.  Median down a bit in recent months.

Months of inventory

Annual rolling averages.  Months of inventory still going down at a good clip.  Prince increases flattening out lately.

Sales to new listings.  Still trending positive.

Relative to peak prices.

Affordability bigger picture stuff.  Income gains and interest rates drops causing affordability to steadily increase.

The 5 year lending rate recently cracked an all time low at 3.98%.    Looks like the journey down isn't quite done yet.

This year I'm guess we will see the Bank of Canada battle outright deflation.  If oil stays low for a while longer things won't look so pretty, and it might cost the conservatives the government in the fall.

In Victoria, I'm guessing a small improvement over last year's numbers but more or less more of the same, with the month over month increases petering out by springtime.   Prices will remain the same pulled down a bit by more first timers entering the market.
Total sales:  7200
2015 Average SFH price: $610,000
BoC Interest rate:  0.75%
Teranet June 2015:  138
Teranet Dec 2015: 140


Leo S said...

So it doesn't get lost, Dustin in the last thread predicted:

2015 predictions
1. 6,750
2. $619,000
3. 1.25%
4. 138
5. 138

caveat emptor said...

Also already wrong on interest rates

My predictions:
1) Sales 6950
2) Average = 600,000
3) BoC overnight = 0.75

Chris said...

1.3 Trillion more! Draghi also said the printing is open ended until desired inflation.

1. 7500 sales - American buyers return
2. $625,000
3. BoC = 0.75
Rates can start rising when my floating mtg is paid off in 2020.

Marko said...

Some bullish predictions. I think we squeeze out 7000 sales but 7,500+ would be needed to put upward pressure on prices in my opinion.

My predictions

1. 7000 sales
2. $610,000
3. 0.75%
4. 138
5. 138

patriotz said...

I cannot see Victoria going up with Alberta tanking, and Federal and BC governments taking a fiscal hit.

Teranet June 2015: 133
Teranet Dec 2015: 128

I don't think a mortgage rate cut following the BoC cut (which is far from a given at this point) will make up for this.

Nice graphs Leo, again.

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

In the last 7 years we've only had one year over 7000 sales (2009)...what gives with the majority predicting close, at, or over 7000 sales?

So far even the lowest projection of 6,750, if it panned out, would be the 2nd best sales year out of last 8 years.

dasmo said...

Thanks for the graphs Leo. I especially like the affordability one ;-) So nice to simply see the data...

My predictions

1. 7099 sales
2. $620,000
3. 0.5%
4. 139
5. 142.5

LeoM said...

Great collection of graphs.

If you want to show more historical perspective in your 5 year mortgage graph, you can get the details at this link:

Historical 5 Year Mortgage Rates

Leo S said...

Well I think we have a few more months of sales at +10% over last year which will make up the majority of the 500 sale increase I expect year over year (+7%). A few sales pulled forward due to lower rates (even if the variable sticks fixed rates will move downward). Compared to last years 7200 is a lot but compared to bull markets it's still very low.

Prices more or less flat unless the Feds mess with the rules then all bets are off

Leo S said...

I don't see any signs of the trend towards lower MOI and higher sales/list slowing down. Market still improving

dasmo said...

RE rates. I beleive we are in a zone known as "the new normal"....

dasmo said...

I'm taking the less safe prediction of another rate drop for one reason. The drive for a lower dollar. This will compensate for lower oil for established companies and this: "The Conservative government is considering a strong focus on the manufacturing sector in the upcoming budget, part of a general shift in attention towards Ontario and its voters."

reasonfirst said...

A little CHEK news clip on popn growth (or lack of) in Greater Vic:

Chris said...

I wouldn’t have thought Langfords 3.9% growth would be a provincial leader. I'm estimating Victoria will be up in that range by later this year as people return home from the oil patch. The same thing happened in the mid eighties when oil crashed. My 100 gran house in 1986 climbed to about 250 by 93-94. Mind you if I recall our dollar was in the doldrums around 75 cents then.

Chris said...

I was informed we only got 225 for it in 1995. I think we could have got more .

dasmo said...

Also note that this year U-Vic is raising the rent for residence by 13% and then 6% a year after that...

dasmo said...

I just noticed your SDRL jab :-) To set myself up for further ridicule, I did add to my position a third time when it dropped below $10...

My low Oil plays are doing well so far though. UN +9% TNK + 17% POT +7%.

Justsilver said...

an interesting Globe article:

Banks will likely wait until the end of the fiscal quarter on Jan. 31, after a large share of homeowners have refinanced their mortgages, to slash rates in order to protect their profits, Mr. Gaetano said.

dasmo said...

"The University of Victoria has proposed a 10-year plan to massively hike residence rental fees. Beginning with a startling 13 per cent increase starting this September, the hikes would then be compounded with six per cent increases annually for the next two years and four per cent increases for the remaining seven years"

This will fill a few more basement suites or sell some more micro lofts....

reasonfirst said...


Those oil workers must have had jobs to come back to in Victoria in the late 80s. What will they do now?

reasonfirst said...

...and the increase in house prices between the late 80s and mid nineties had a lot more to do with rates dropping ~ 50% over that time (the charts are right in front of you).

dasmo said...

What makes you think rates aren't going to drop 50%? BOC just dropped theirs by 25%...

patriotz said...

What makes you think rates aren't going to drop 50%?

Mortgage rates aren't going to drop 50% because of the lending margin, which would be there even if the banks' borrowing costs dropped to zero (which they won't). The lower the mortgage rate the bigger the proportion of the margin in the rate.

dasmo said...

UK mortgages were .99% when their central bank rate hit .5%

reasonfirst said...

Dasmo, that wasn't the point. Chris attributed the price gain to returning oil workers.

Leo S said...

>I did add to my position a third time when it dropped below $10...

Now that's something I could be convinced of. Then again I'd still rather buy an energy index in case they go under.

dasmo said...

"in case they go under" They are still leasing rigs they built in the 80's. Plus if Shale oil is regulated out after they are out of biz anyway then it's back to deep water drilling....

Jack and Cate said...

I predict that all your predictions will be wrong....and then some....

This year will be full of fiscal disasters predicated on the upcoming election of promises....or as we know now with the delay of the budget...what promises?!?! It can and will all change that fast.

Leo S said...

So put in your prediction then. No armchair crititisizing allowed.

Jack and Cate said...
This comment has been removed by the author.
Jack and Cate said...

Urban dictionary definition -

Predict: You think you know. You have no idea.

That is the best that makes sense in this economy. I leave it to all you prognosticators, who, in the end, like the politicians, will justify the end results.

Dustin said...

I believe completions will continue to decline in Victoria in 2015. We saw a few major projects come to fruition in 2014 adding to sales volume.

What are some big projects that will bring up sales in 2015? Era, Westhills, Colwood, etc.

Just Jack said...

Here's a bit of anecdotal information that I gleamed from one condo developer in Surrey last weekend.

The largest group of purchasers were the people building the condo complex.

Just like Henry Ford and the automobile but with a twist. When the guy on the assembly line could buy the car he built as mass production made the car cheaper.

The government policy of low interest rate has made it possible for the guy building the complex to buy a suite.

What this does is cause a relationship between supply and demand. They're not distinct from each other like commodities or making widgets. Another way to put this would be that the economic activity of building more supply also increases demand and possibly price.

That has interesting conclusions.

One that if construction slows down so will sales.

And that you can't build affordable housing as the act of building makes condos unaffordable to those the government is trying to help such as single parents, low paying jobs, the physically challenged, etc.

Ironically, the solution to creating "affordable" housing may be to stop building and let market prices drop.

And if you're a developer of condos you might want to hire only those that don't own a condo or are looking for an "investment condo" and directly market to the workers themselves in order to sell out the complex.

For most developers the top two floors represent the profit in building. So flog the penthouse and sub penthouse suites in China, Mexico or Las Vegas at ridiculously high prices while you sell the lower suites to the workers.

What you've done is socialized housing with lower interest rates and commoditized the most expensive units as a form of international currency, citizenship or just simply money laundering.

SJ said...

1. 6900
2. $620,000
3. back to 1.00%
4. 138
5. 143

Condos should slightly outperform houses again as retiring Zoomers choose Vic over US with their 'swoonies.'

Marko said...

Here's a bit of anecdotal information that I gleamed from one condo developer in Surrey last weekend.

The largest group of purchasers were the people building the condo complex.

Definitely anecdotal. Having bought three pre-sales in the last five years and represented many pre-sale buyers at many developments haven't seen any sort of trend of the developer, his or her employees, or the contractor buying into the building. Occasionally but not significant.

Victoria is a totally different market than Vancouver where pre-sales make up a bigger percentage of sales. In Victoria it really takes time to move units and a lot more of the sales are post-completion. For example, the Sovereign has been completed for 1.5 years and they still have three units left but they sell one every couple of months and keep things moving along.

Gardiner’s Green Townhomes in Saanich certainly took time to sell and people were commenting on this blog how horribly overpriced they were. Well, the developer slowly chipped away at sales over the course of 1.5 years and now the 22 townhome development is sold out.

Just Jack said...

Well here's another little tidbit from the same developer.

This guy is buying properties that were former Marijuana grow operations licenced or illegal. He claims to get them at a 30% discount from market value.

If you're looking for a deal in real estate you may want to consider impaired properties, along with estates and foreclosures.

Lenders don't like grow operations. Does not matter if they are legal or not. So be prepared to have difficulty financing them and have deep pockets.

However, I don't know if the new owner has to disclose if the house had been a grow operation under a former owner. In that case the stigma may be gone after a couple of years of new ownership and the property would revert back to market value.

dasmo said...

What world does this developer live where he is snapping up multiple licences grow ops for 30% off?

Just Jack said...

You can't "snap up" grow licenses.

No one wrote that. The word "former" may have been the biggest clue for you.

Grow-Op licences are non transferable between persons and you can't move the operation to a different location either. They're not like Salmon fishing licences.

I have worked with the police when they have seized properties that have been used as grow-ops under their forfeiture program.

And yes they are in Victoria. They can range from the guy with a grow lamp in his apartment's closet to a thousand square feet or more in a basement or garage where they can harvest $40,000 to $80,000 a month.

There's one listed right now in Metchosin for $860,000. That was once listed for $1,300,000.

Both licenced and illegal are sophisticated operations that have been professionally installed into the homes. And the international gangs like the Hell's Angels are involved with the illegal ones. Financing and setting up the operations.

A typical scenario is that a gang member from California will buy the property for cash and set up an individual or couple without gang affiliations in the home to cultivate the crop. The gang member team of professional contractors come in and make the modifications to the property. After so many years the property is transferred to the grower for their services. If the grower is caught and the odds are they will. They're looking at 10 years of government housing in their future.

All of the grow-ops have to be vented and that's when the neighbors complain. You can smell a grow-op from forty feet away. Perhaps that's why most Marijuana operations are on acreage in Metchosin and Sooke. The chemical drugs being manufactured in the city.

I don't think licenced grow ops are ever going to be successful in Canada. It's certainly one thing we can easily outsource to China without any of the domestic problems in our cities. Even if it were made legal, China could undercut the homegrown market.

That would certainly hurt the economies of some of the smaller BC towns like Nelson where dope keeps their economy going and white trash can own homes.

Marko said...

Monday, January 26, 2015 8:00am

MTD January
2015 2014
Net Unconditional Sales: 265 342
New Listings: 786 1,090
Active Listings: 3,198 3,489

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

Leo S said...

It would appear I'm well on my way to being wrong.

dasmo said...

Wow! That is an early tap out!

Mrs. W. said...

The economic news has become decidedly recessionary. Oil prices have dropped (for a varity of reasons), the dollar is tanking, mass layoffs in the retail sector with Target missing the mark, Mexx packing up, same with Jacob. I'm not entirely sure what CC is thinking with her plea for prodigal British Columbians to come home as from where I sit, there might not be much to come home to - at least on the jobs front.

It also seems fairly widely accepted at this point in time that Canadian RE is over-valued. As such, a correction seems unavoidable and as LTV's grow, there won't be the room for people to gorge on housing secured lines of credit regardless of what the interest rate is for doing so.

Here's my prediction - there's going to be another substantial economic shock on par with 2008. Interest rates will be cut, possibly to as low as 0.25%. The dollar will continue to weaken (good for our exporters, but awful for consumers) - I'm thinking it'll hit $0.72 by end of year. The housing market will go much softer - with days on market increasing substantially, and prices making a slow and steady march towards the "affordability" range. Locally, unemployment will edge up by 1-2%, and foreclosures will become more common.

I hope I'm terribly wrong - because there really isn't much room to maneuver as is...

dasmo said...

No room?
In the Netherlands the lending rate for a 5 year fixed is 2.5%. You can borrow up to 30 years and borrow 103% of the value. There is also a tax cut on renovations: -6% instead of 25%. A percentage of interest is tax deductible and family members can receive a tax free gift up to 100,000 Euros to buy a house. There is plenty of room left to prop up this market....

Leo S said...

The desire to prop up the market burned out years ago. All moves in the last 4 years have been to restrain the market.

dasmo said...

Except the latest one...

Mrs. W. said...

Latest move is not about the housing market. It's about the economy. People without jobs don't buy houses, or anything else for that matter.