What Price to Rent can I buy at today?

H/T to Captain Capitalism via Smalldeadanimals for the graphic.

A while back, the media went gaga over a recent UBC/Sommerville study that contradicted a slightly less recent Merryl Lynch study regarding fundamental value in the national and local real estate markets. ML came up with 35% as their benchmark for targeted balance between what a house is worth based on what rents are. UBC came up with 11%. UBC used that bastion of accurate statistics, Craigslist, to determine what market rent in Vancouver is. ML, they used CMHC and StatsCan numbers (I believe, but may be mistaken here).

Things are changing fast and furious on the employment front for myself and the Mrs these days and we may be looking for a new place again. I started looking this weekend, not physically, but just online. I went and re-read the post over at Langley Financial Planning about how Mohican buys a house, and I completely agree with both his rationale and math. Is it possible to find a deal like this in Victoria today?

So here's a bit of a challenge to all the readers of this blog. Find me a condo, townhouse or a SFH with a suite, that I can realistically buy today (not necessarily asking price here, think lowball offers that may get accepted, target Tuscany Village, Reflections etc... places we know are struggling with sales and economics and can realistically throw low offers to). Benchmark these places against Craigslist's dreamland of market rents and lets make a deal. Keep 10-15% down, 25 year mortgage, price under $425K parameters in mind. I'll keep looking too and do up the math on your suggestions and grow this post over the next week or so.

UNIT COMPARISON #1

Here's the first one. It's a 2-bed 2-bath unit on the Gorge. I have no way of knowing if it is the same unit for sale as for rent, so this isn't exactly accurate science here folks, but close enough for a comparison non?

Craigslist ad: rent at $1295 plus hydro.

MLS # 247947: currently for sale at $245K after 107 DOM (original price $264,500) incidentally, it's neighbour is also for sale at $259,900 after 119 DOM and original price of $279K.

Here are the numbers: Rent = $1295 per month. Ownership costs = (10% down mortgage, 5.25% over 25 years = $1315 per month) + $173 strata fees + $95 property taxes = $1583 per month.

Price to rent ratio is 189 (funny how it mirrors the graph above eh?). Monthly payment difference is 19%.

Can we make it smaller? This seller, according to my PCS account, is "motivated". That means make an offer. So I go in and offer a whopping 15% off the price, which is about $210K. We agree on $215K. I redo the numbers as: $1135 mortgage + other expenses = $1403/month for

Price to rent of 166, and monthly payment difference of 8%.

There are two problems with this scenario: 1. I think $1295/month for a Gorge Rd condo at Tillicum is inflated compared to market rent, probably by as much as 15%/month; and 2. I don't think that a seller that isn't in distress, and is just "motivated" at this stage would be willing to consider an offer that is almost 20% lower than their original asking price. I could be wrong, but even if I am, I'm still overpaying for this property.

When I do up numbers like this, it really hits home for me just how far out of whack this market has gotten, and how far it needs to fall to return to a balanced state. So when you read the local real estate pumpers punditry that this market has returned to "balanced", remember they aren't speaking of market fundamentals, they're speaking of buyers vs sellers, and they're wrong anyway, because clearly, it's a definite buyer's market.

Are Victoria Prices Falling?

Courtesy of, and a big tip of the hat to, Roger, for such great statistical analysis of the Victoria and Island real estate markets. He's hit another one out of the park with his latest slideshow: Are Victoria prices falling?

It neeeds to be pointed out that Roger uses VREB published data to produce his excellent graphs and tables. There is no spin. There is no "funky" numbers. Just straight as VREB wants us to have them, laid out in a way they likely wouldn't want you to see them. Cheers, Roger. (Click for larger view.)

Avg & Median Sale Prices

Why 2008 is different

Avg & 6-month rolling Avg

Median & 6-month rolling Avg

YOY percent change - no averaging

Percent change YOY of 3-month Avg

Just the prices - Avg & median

Roger has even given us a PDF version so you can print it out and have it handy to take with you whenever you're talking real estate. (edited)

Journalistic Integrity

I've made much over the spin job we see the MSM (particularly the VanSun and the TC) doing when it comes to how market information is portrayed in the local media.

Is it the responsibility of journalists and editors to delve into the information and fact check it, when the local real estate boards release their market information related to the MLS system?

A quick wiki of journalistic integrity gives us this:

the principles of — truthfulness, accuracy, objectivity, impartiality, fairness and public accountability — as these apply to the acquisition of newsworthy information and its subsequent dissemination to the public.

Let's take a look at the most recent news piece on the Victoria August numbers. Tony Joe, president of the VREB, is quoted as an expert. As is the developer behind Chelsea.

These are two individuals who make a living selling real estate and have a much better grasp of the current state of the market than you or I, but it serves them no purpose to state the obvious truths. The developer's job is to impart confidence in his business. Tony's?, he's elected by the local group of REALTORs to impart confidence in them. I don't believe Tony is attempting to pull the wool over anyones eyes; here is his key message:

well-priced properties can still move quickly

This statement is fundamentally true. Well-priced properties can, and do, move quickly. He's told us a few things this month: the market dropped by 5%, if you want to sell your place next month, drop your price, and if you're looking at buying, low-ball. He's also telling us REALTORs are the only ones with the ability to well-price your home. His job is to increase sales volume, not necessarily price, and that is what I see is his focus; he's a confidence cheerleader.

His explanations of why sales are down "vacation-caused" are weak. We know they are weak. Roger has proven them patently false, using VREB's own data. Does Tony have a responsibility to prove his assertions? I think such a small statement can get passed off, and should be, by anyone looking at buying or selling a house in Victoria. Look, if you're buying or selling, that one sentence in one article on one day should not be the deciding factor in your decision.

The bigger question is, should Carla have called him on it? Does she, or her editors, have a responsibility to fact check a quote? Probably not. She is publishing someone else's statement, not her own, and not trying to take credit for it. She should make sure she quoted him correctly, and if she did, Tony ends up wearing the egg on his face.

The trouble is, it spits in the face of those of us who wrongly assume that the MSM has journalistic integrity in today's market place. Are we wrong to expect it? The internet has changed everything. It has democratized information. You and I, we both have the same access to information as the average journalist these days. We can decipher the spin, we can analyse the stats, we can even publish our opinions and facts that we find. If I spouted off on this blog more often, you wouldn't read it. Many people don't.

But when the MSM drops their integrity, they sell less papers and there is a cause and effect reaction in the market that punishes them greatly. They've already dropped the ball on classifieds. They're dropping the ball on advertising. They're dropping the ball on reporting. The TC especially is dropping the ball on what people have come to expect of the the internet (a voice of their own) and don't even allow comments, moderated or not. I'll leave you with this to end my editorial:

Every news organization has only its credibility and reputation to rely on.

-Tony Burman, editor-in-chief of CBC News

The MSM has been slow to adapt to the internet reality, as have the players that rely on them to get their messages out. In effect, these gang of change-fearing "presstitutes" are committing a slow suicide. Check out their stock valuations, they're not making money and they're getting hammered by investors.

Their credibility is crumbling and their reputation is diminishing. And the consequence of this is that people seek information elsewhere and advertisers follow. I fully expect to see further consolidation of media outlets (National Post is probably done in the very near future) and further entrenchment of the old ways of doing business. Because they really just don't get it. Nor do I, but I think I may be onto something...

Property sales and prices soften in August

No need for spin: straight from the horses mouth (VREB)

Sales of homes and other properties in the Greater Victoria area followed the expected trend and softened last month as many people enjoyed vacation time. Prices also moderated slightly. A total of 517 homes and other properties sold in August through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®) compared to the 616 sales in July. There were 846 sales in August of last year.

Victoria Real Estate Board President, Tony Joe, notes that today’s buyers now have more properties from which to choose than at any time since 1996. "The number of properties available for sale is now at the highest level in over 12 years, increasing in August to 4,657. That represents a 39 per cent increase compared to August of last year." Joe notes that prices moderated last month with nearly 46 per cent of single family homes selling for under $500,000. "The average price of single family homes in Greater Victoria last month was $549,914, down from over $578,000 in July; the six-month average was $592,582 though the median price in August was considerably lower at $512,000." Joe noted that eleven single family homes sold for over $1 million in August, including two sales on the Gulf Islands.

The average price of all townhomes sold last month was $413,994, down from nearly $455,000 in July; the six month average was $435,309. The median price in August was $382,000. Joe noted that the overall average price for condominiums at $302,200 last month was virtually unchanged from July. The average for the last six months was $319,825. The median price for condominiums in August was $280,000.

MLS® sales last month included 269 single family homes, 160 condominiums, 53 townhomes and eight manufactured homes.

Roger has a good analysis (from comments in last thread):

August 2008 Statistics - Monthly Analysis

July 2008 shown in ()

MLS Sales - 517 (616)
MLS listings - 4657 (4557)

SFH Average - 549.9K (578.2K)
SFH 6 mo. Avg. - 592.6K (596.7K)
SFH Median - 512K (529.9K)
All SFH Sales - 269 (359)

Condo Average - 302.2K (302.5)
Condo Median - 280K (285K)
All Condo Sales - 160 (168)

Town Average - 414K (454.9K)
Town Median - 382K (417.5K)
All Town Sales - 53 (52)

Year-over-Year Analysis

GV - Greater Victoria
August 2007 shown in ()

MLS Sales - 517 (846) - Down 39%
MLS listings - 4657 (3352) - Up 39%

GV SFH Average - 549,914 (576,632) - Down 4.6%
GV SFH Median - 512,000 (515,000) - Down 0.6%
GV SFH Sales - 244 (399) - Down 39%

GV Condo Average - 302,200 (298,478) - Up 1.3%
GV Condo Median - 280,000 (275,000) - Up 1.8%
GV Condo Sales - 160 (217) - Down 26%

GV Townhouse Average - 415,327 (396,129) - Up 4.8%
GV Townhouse Median - 382,000 (378,950) - Up 0.8%
Townhouse Sales - 51 (95) Down 46%

I'm assuming he'll have updated graphs in the next few days...

Comment away. H/T Roger (apparently the TC already is)

Kyle would never buy another pre-sale

If he had to do it all over again, Kyle Lake would never buy another pre-sale home. But, if some real estate experts are right, buyers are not likely to see the trend again for another seven to 10 years.

Lake and his partner, Ashley Hughes, are among the tens of thousands of British Columbia families and individuals caught in a hot real estate market in the last few years. To get into the market, they chose to buy a condo that had not yet been built, commonly referred to as a pre-sale.

A pre-sale is a contract for the purchase of a home, usually a unit in a condominium, made prior to its completion. In some projects, sales have been made before construction has even started.

Purchasers and developers enter into a contract that provides for units to be built within a period of time for an agreed price. Real estate agents or lawyers for the developer usually hold deposits in trust as part of the agreement.

In Lake and Hughes's case it took 15 months before they moved into their Langford two-bedroom-plus-den condo.

When the young couple put their deposit down last April, the target date for completion was March 2008. A series of delays resulted in them finally moving in in late July.

"If I had known it would take this long I would have looked for something else," says Lake, 23.

He says the real estate market at that time was characterized by a lack of new condos to choose from, a low inventory of existing resale condos and real estate values that seemed to rise steadily.

"Back then, there was this mentality to buy what you can and get into the market before they sold out."

While he estimates his new condo is worth more than the $299,000 he paid, the delays surrounding possession and repairs on deficiencies in the unit have soured the experience for him.

A recent cooling in the real estate market and an increase in the number of units for sale could signal the end to the trend.

At the height of the boom, real estate agent Guy Crozier estimates, pre-sale contracts accounted for 65 per cent of his sales. It is a cycle he has seen repeat itself every seven to 10 years. With a rising real estate market, many purchasers buy units on the assumption that property values will be higher by the time the building is finished.

Driven by high demand and low inventory of resale properties, pre-sales were a popular way for individuals and families to shield themselves from escalating prices.

"In pre-sales, clients were shown a hole in the ground and asked to buy a piece of air," says Crozier, one half of the Crozier and Marchant team based out of Re/Max Camosun. He points to an overheated market where many investors entered the market looking for equity appreciation. They bought condos like stocks.

The investors had no intention of occupying the suites, and usually sold them as the completion date approached. But their involvement in the market contributed to a shortage in supply, further driving up prices.

With a downturn, more units are available for immediate sale, so there is almost no demand for pre-sales.

"I haven't done a pre-sale in two months," Crozier says. "Condo listings are up 50 per cent."

The numbers might be down for now, but developers say there will always be a place for pre-sales in the construction industry. Developers looking for financing for multi-unit projects are used to financial institutions demanding proof of a certain number of pre-sales before they commit to financing.

"The more pre-sales you can bring to the table, the more confident the bank will be that the project will succeed," says Bob Gill, president of Parkway Alliance Developments. His Reflections development in Langford is 70 per cent pre-sold ahead of the project's September target completion date.

While he says pre-sales aren't suitable for individuals who cannot wait to buy, pre-sale pricing -- which is generally lower than what the units will ultimately list for -- can be a good deal for buyers.

But Gill cautions that pre-sale purchasers should do their homework and read the fine print on the disclosure agreements, as every developer has different wording in contracts. The contract is a legally binding agreement and buyers need to seek legal advice.

He says deposits, which range from 10 to 15 per cent of the purchase price, are generally not refundable. Buyers who change their minds and try to get out of the contract can forfeit their deposit and can be sued by the developer for damages. Pre-sale buyers who try to sell their contracts might also find certain restrictions and fees for doing so.

Even with a market slowdown, Gill is confident he will be able to sell the remaining units of his development.

He says, "Ultimately, people like to touch and feel what they are going to buy."

Emphasis mine. Kind of speaks for itself, don't it? Long story short: young guy and his girlfriend buy condo before built; young guy and girlfriend have less than positive experience with developer; young guy still confident that "my place is immune to downturn"; REALTOR confirms massive speculative buying drove prices upwards unsustainably and market is now very slow with rising inventory and falling sales, then says "sharpen yer pencil young fella"; Developer says: "I sell it all"; Developer doesn't say: "I dropped prices $20K" (he did, and will again); Market says: "Yawn, see you in 7-10 years".

There you have it folks... Buyer turned homeowner, CondoKing and Langford Beautifier all agree, this market has boiled out.

The G&M has an interesting story that, I think, while not only telling the present, also tells the future.


There are few economists working for the big dogs--the banks, the real estate associations and just about any others that have their hands in the real estate pockets of Canada--that I trust to truly tell it like it is when it comes to market predictions. I think their mandate is to report the numbers as they currently are and have recently been, then look forward and seek language in their press releases and interviews that serve to soften the blow or the hype, in the name of the economy and their major shareholders. Armed with a critical mind, and a constructive attitude though, anyone is able to figure out what they need to from the numbers and subtle suggestions these financial wizards cast, to protect themselves from the spells of the bubble(s).

The slowing economy is taking its toll on household finances, driving up debt at a faster pace than incomes and assets, new analysis from CIBC World Markets shows.

In the first quarter of 2008, household debt in Canada rose almost 3 per cent but personal disposable income rose just 2 per cent, pushing the debt-to-income ratio up to 130 per cent from 122 per cent a year earlier.

At the same time, the level of assets hardly changed during the first quarter of 2008, since the stock market was correcting and house prices were levelling off.

“Canadians are seeing their net wealth position shrinking,”

Rising net worth has been an important driver of consumer activity in the past few years

“The wealth effect should not be underestimated.”

I bring this last point to your attention because it want to contrast it to what Mr. Muir says about the factors leading to, what he calls, "slow[ing] to a level not seen since the beginning of the decade... BC households are now cautious about making major purchases in light of uncertainty around fuel prices and other inflationary pressures."

I would like it very much if someone, anyone, anyone, Bueller, Bueller, would write it down (oh wait, Merrill Lynch did): Western Canada is very much like every other housing market that has peaked and is now heading down: we are over-valued, over-building and under-selling expectations to margins not unlike other nations that experienced the same trends.

In the last post below, the old "Victoria is different, don't you know, every boomer and their immigration cousins are moving here en masse and everyone else just got 40% raises" myths crept back in to the housing correction denier's talking points.

The way I see it, is even if, and I use if here very strongly, because statistics from BCStats and StansCan do not support the claims, it wouldn't matter, because very few will want to buy RE when they know they can get it cheaper next month or next year--and the decline in sales is evidence enough for this theorist. And guess what? According to those experts with their hands in your pockets, the people, regardless of where they come from or how much they make, have started to figure it out. And now they are waiting to see what happens in the next 6 months or longer. Like us.

TC shifts focus

I guess now that the writing is clearly written on the wall (but not in their paper) for buying a local property, the TC, in tribute to its obsession with hyping local RE, came up with this gem over the weekend. Here's the hype (emphasis mine).

They're facing the realities of a landlord's market

With the vacancy rate in Victoria 0.3 per cent, there's limited affordable housing available. (They are actually 0.5% which is a whopping 0.2% or 60% difference than what's stated... and they aren't reflective of the secondary market, which is where the majority of students find rentals).

The average rent for a room in a house is around $400, while a one-bedroom apartment is around $750. However, many listings have rooms starting at $700, or one-bedroom apartments higher than $1,000.

...the eviction of 13 students from a 4,000-square-foot, nine-bedroom house because of a Saanich bylaw which prohibits more than four unrelated residents to share a dwelling.

The three had a hard time finding a place, but rented a house for $2,800 a month.

Year-long leases are a problem for students, unless they are intending to stay in town over the summer or rent a place for more than a year.

To be fair, the piece is newsworthy, students do have a hard time finding a place to live in Victoria every September. That's why the smart ones look in May and get jobs in the ultra-low unemployment area that is Victoria.

It seems to me there are two things happening in the Victoria rental market:

1. Long-term landlords are enjoying consistent return on their long-paid off properties and are being picky about tenants, which is their right; and,
2. Short term landlords and recent Uvic/Camosun grads with huge mortgage payments believe that rents should pay at least 50% of their mortgage, so they ask for $1500 for a dumpy two-bed suite.

Because of the way CMHC calculates average rents and decides what constitutes a "rental," vacancy rates, much like inflation numbers, are notoriously low. If a property, or property manager/landlord, doesn't have three "units, " it's not counted. So every new basement suite in GH and Langford isn't counted. And students have a hard time getting rentals because they generally tend to party, move 13 kids into a house for a year (which isn't living, it's partying), move frequently, don't look after stuff, cause problems for landlords with their neighbours, run out of money etc. Their main problem is not that Victoria has low vacancy, it's that they are students with student lifestyles.

I feel for people looking for rentals. It is difficult to be picky. I have been lucky in this market because of two things: a really good network, no pets and never putting myself in a position to have to make a rushed decision. My only tip for would be renters in Victoria? Do the same. Establish a network, don't do things/have things that make you an undesirable tenant, and never, ever, ever, put yourself in a position to have to make a quick decision, like say, decide to move in September.

What are others seeing in the rental market right now?