Mid month numbers

Courtesy of Marko Juras and Double-Agent in last post comments.

Sales for the last week jumped to 108 from the anemic 78 in the first week of August.

Sales [volumes] can vary from week to week so we [Double-Agent] calculate(s) a rolling average based on the last 4 weeks of data. The current level sits at 113.

Extrapolating we should probably see about 420 sales for August. This is the worst level of sales in this decade!!

New listings are on the usual, seasonal downtrend. Active listings have dropped slightly but remain stubbornly high.

The overall months-of-inventory (MOI) has been climbing over the last year and will probably be close to 10 by the end of the month.

Prices are already dropping and this trend is suspected to continue in light of all the recent media attention.

You can clearly see that 2010 has had the worst June, July and August sales in 10 years! This defies the HST tax myth being pushed as the reason for low sales. Sales were at 10 year lows before the tax went into effect.

Market tracking

When I started this blog, I was interested in individual properties - namely 2 bedroom 2 bathroom condos priced under $250,000 and 3 bedroom 2 bath (minimum) single family homes with suites priced under $425,000. I'd chart sales, listings and watch individual properties. Units sold quickly, usually under 30 days, and usually sold for close to asking price, sometimes more, sometimes less, but usually not too surprising.

As time went on and it became clear to my wife and I that we'd be waiting and not buying in this market at that time, my market tracking morphed from individual neighbourhoods and unit-types to a more market-wide approach. I think there's some validity now that the market has turned and is headed down to start tracking individual property types in individual neighbourhoods. We're still not buying anytime soon, but I think we need to more closely watch what a three or four bed two or three bath house in Gordon Head (or insert your neighbourhood here etc) is priced at and sold at for the remainder of this year if we're to get a better understanding of the market shifts.

If we're going to do this right (and one of the reasons why I picked the Gordon Head neighbourhood to profile) we'll need to have a decent sample size of similar product. Back when it was a new neighbourhood, many Victorians would have said Gordon Head was "cookie cutter." We now call them Gordon Head Boxes. The houses aren't really the same, but they're similar enough that we can get a good sampling for our market tracking exercise.

Take this listing for example: MLS® number 282024. It's a standard 4 bed 3 bath Gordon Head Box without a suite, likely why it's priced ($568K) below the neighbourhood average. It's likely slightly bigger than it's competition at 2300 square feet, but a few hundred square feet can easily be eaten up in poor layout, so I won't be too quick to judge this one without having stepped inside it. It's been on the market for 18 days and hasn't had a price reduction or accepted offer yet.

Here's another example: MLS® number 279093. Again we have a 4 bed 3 bath Gordon Head Box, doesn't have a suite, is a few hundred square feet smaller than it's competition but has the same 7000ish square foot lot. It's priced at $599,000 today, but it was originally priced at $629,000 and has been on the market for 79 days.

Both of these homes are priced above assessment, but within eight to ten per cent. It will be interesting to see if they sell, what they sell for, or when the owners decide to not sell and take them off the market.

Here's one just like those two that sold recently: MLS® number 279899. After 30 days on the market and one price reduction, this property, not too unlike the above examples, originally listed for $585,000 sold for $560,000, almost 11% over the BC Assessment value. For this neighbourhood and this property type in today's market conditions, this one sold fast and for agent's-commission-close-to-asking. If I were the old owners of this house, I'd be happy with the deal I got.

Here's another relative comparison with an entirely different outcome: Originally listed at $590,000, MLS® number 279060 took one drastic price reduction to $550,000 and 55 days on the market to finally sell at $533,500, 10% below original list and about 1.3% below assessed value. It's bigger than any of the other houses in our comparison and it has a two-bedroom suite. I chose to highlight this one because it's the polar opposite of the previous sale and I think it's a good indicator of many sales to come for this property type in this neighbourhood. 

So what do you think? Can we glean any market tracking insights by comparing similar properties within the same neighbourhood? Can we use this kind of analysis to better judge market conditions or is this isolated sub-set just too small to get a true sense of market activity and value?

Market setters

Only homes that sell within a given month set the market for that given month. Over time, the market setting forms a trend and perception becomes a big factor in future market setting. Last month, July 2010, was a big month for setting both a declining market (-5.3% in SFH average price) and perception (the cat is out of the bag).  

There are two simple types of sellers in the local Victoria market right now: those that WANT to sell and those that NEED to sell.

Let's take a look at these two types individually in an effort to better understand their positions.

I want to sell my home.
There's all kinds of reasons for wanting to sell a home: to return to renting, to buy something different, to move across town closer to work etc. But the underlying factor that differentiates a want to sell from a need to sell is financial circumstance. Financially speaking, the want to sell types do not need to sell. Nothing catastrophic will happen if the want to sell doesn't make a move. These people may tend to have a realistic outlook on their home's value, understand the market forces at work and are financially organized and patient enough to not make rash decisions in the sales process. The few buyers left in the market are likely being steered away from homes owned by these folks as the deals may be harder to negotiate/close. Simply put, the want to sells can, and very likely are, being picky in the process.

I need to sell my home.
I've lost my job. I'm getting divorced. I'm being transferred at work. When I bought my home a year ago I thought I could afford it, turns out I can't. My parent(s)/in-laws have passed on, I need to sell their home to get cash now. These folks may prove more emotional, less rational and more attached to their perception of their homes inflated value. But it won't matter. These homes may be more neglected, less appealing to a broader range of buyers and likely more difficult for agents to show (though they'll be forever dubbed as "good bones," "sweat equity options" and "fixer-uppers"). Simply put, the need to sells are home ownership situations undergoing various degrees of distress.

Need to sell homes will set the market. 
Only homes that sell will set the market. Only need to sell homes have to be sold. These won't sell fast. Nor will they sell for the home owners' perceived market value. Over the coming months, stories of distressed sales, "haircuts" and "thank goodness we got out just in time" will creep into the public real estate mind.

On the way up, it was greed and the want to sells that set the market. On the way down, fear and the need to sells will drive market prices. Ultimately, the buyers will decide what fair market value is. There are few buyers and lots of homes. Even the buyers ignorant of the true state of the real estate market will be smelling blood. Low ball is the phrase of today. Below assessment will be the phrase of the near future.

This downward market setting is only getting started.

Monday market numbers, courtesy of Marko Juras, REALTOR®:

Net Unconditional Sales: August 1 - 9 = 78     August 2009 = 764 (total)
New Listings: August 1 - 9 = 240                  August 2009 = 1,094 (total)
Active Listings: August 1 - 9 = 4,282             August 2009 = 3,509 (total)

Blame

It's a powerful word that blame. It implies that things aren't always as they first appear. It suggests some outward, untoward force may be the root cause of an issue, or somehow be responsible for adding to an outcome.

You'd have to be living under a rock in Victoria right now to not know that home prices are falling fast - or you'd have to not care. It's quickly becoming an issue for real estate industry associations, like the ones that represent REALTORS® or the builders of the products they sell. These are government policy savvy organizations; organized, collaborative and intelligent. They know how government works and they employ people whose primary responsibility is to lobby government to adapt policy and legislation to make it easier for them to conduct their business. Fair enough. It's a time honoured tradition in our system of government.

But this is just disingenuous and misleading. By taking advantage of the misconceptions and misinformation surrounding the newly rolled-out HST, Royal LePage agents remove themselves (and by default all other real estate transaction services actors) from having to do anything about the situation. Blame the government. Apply pressure for policy changes (this is step one in what will be a long series of real estate market bail-out requests, mark my words). Maintain the industry status quo.

Home prices are extremely high. Home ownership levels have never been higher. Prices are now falling because extensive supply outstrips weak demand. Prospective buyers move to the sidelines because, hey, the longer they wait the cheaper the house gets - it is a no-brainer. Agents have a tough time making a sale. They want us to believe its not their fault and they want us to believe their commissions aren't out of line.

Here's the thing though. The HST is ultimately good for all independent business people as most agents are. They are now able to write-off the full 12% portion of their sales taxes paid against the full amount of HST sales taxes they collected (previously, they could only write-off the 5% GST). In the past, they just paid PST out without collecting any and didn't have a corresponding tax write-off. This occurred throughout the entire real estate industry. Simply put, the HST has decreased the business operating costs for agents, lawyers and builders alike. These are the groups that would have, should have and very likely were supporting this tax policy change in BC. And now they are crying foul.

Government didn't educate the people about the tax, instead letting the naysayers have a free run with all kinds of negative information - some true and some false - leading to widespread confusion amongst the public. Tough sh&t, I say, for the business people who have done a poor job of educating their clients on the changes, despite VREB president, Randi Master's claims to the contrary:..."we have tried so hard to get the message out." Cry me a river. I don't recall seeing the special advertisement in the Times Colonist titled The HST and resale homes, what you need to know, do you? The VREB has nothing about the HST effects on the resale market in the two most logical places here or here on their website. Try harder guys.  

The only rational reason I can think of why industry actors didn't want you to understand the HST effects, was an effort to effectively garner a 7% increase in pay without disclosing their costs went down (it's not actually 7%, it will be all over the map depending on the business volume and operating costs etc, but operating costs decreased across the board for these business people because all of them benefit from new tax write-offs on the operating side of their balance sheets).

So to all of those agents, builders, lawyers, inspectors and appraisers out there who want to cry foul over the HST miss perceptions: shut up, drop your fees or spend the difference educating YOUR clients about why the HST doesn't impact your product. Don't expect my tax dollars to do it for you.

The last point in my rant goes like this: I don't actually care what Royal LePage agents say they believe their clients think about the HST. I want to hear whether or not prospective home buyers believe the HST impacts the resale market, how and why. Where's that supporting evidence? They couldn't even drum up an "agent's friend" to give an anecdotal piece of "prospective buyer" BS evidence to support their claims for their press release. And once again, the Times Colonist didn't bother to make a phone call outside the VREB office either. This whole issue is trumped-up poppycock.      

July sales volume sucked

July sales data (unconfirmed) via local REALTOR® Marko Juras:

July 2010
527 Net Unconditional Sales
1,119 New Listings
4,477 Active Listings

July  2009
933 Net Unconditional Sales
1,357 New Listings
3,632 Active Listings

Net Unconditional Sales volume plummeted 44% from July of 2009 and is down 16% from June 2010. The number of new listings however dropped 18% from July of last year, although it matters little to the overall picture at this point as Total Active Listings remains high at 4,477, 19% higher than one year ago.

Prices
July 2010 vs (June 2010)
SFH: $615,004 down from $649,280 or a 5.3% drop
Townhouses: $420,578 down from $429,549 or a 2.1% drop
Condos: $322,905 down from $331,131 or a 2.5% drop


July 2009 (YOY % change compared to July 2010)
SFH: $563,282 (+8.5%)
Townhouses: $443,109 (-5.1%)
Condos: $328,441 (-1.7%)


Sales and listings graphs courtesy of Double-Agent:

Things are getting ugly out there

Sales volumes are way down. Price changes are creeping through the PCS/Matrix systems of the VREB REALTORS®. Sellers are likely getting frustrated with the lack of attention to their "perfect Victoria properties." Will they de-list and reduce inventory or drop their asking prices in an effort to beat the falling market?

The difference between a seller's market, a balanced market and a buyer's market in Victoria seems to be about 1000 available units - under 3500 units (seller's with rising prices), 3500 to 4000 (balanced, with flat to slight rise) and 4000+ (buyer's with negative price pressure mounting over time) - in the peak selling months of April, May and June. The market will bleed listings for the rest of the year, most likely at the same rate as it loses buyers. The sales to active listings ratio will likely remain below 20% keeping us safely in buyer's market territory even as total listings volumes drop. 

There are approximately 152,482 occupied private dwellings in the Greater Victoria area. Current active listings number 4435 or 3% of total. Approximately 3% to 4% of Victoria housing stock is bought and sold each year. I did a quick comparison to another real estate obsessed city, Vancouver, to find that our market turnover numbers are extremely close (within 1%).

Do we have a small market - meaning a small number of units changing hands setting the market each year? If so, does this skew the true market value? I'm willing to bet that if these two questions are answered affirmatively, the same forces that skew on the upside will skew on the downside, likely to a very similar degree. Get ready for falling average prices, they are almost guaranteed for the rest of 2010, because the spring selling period is over, and it wasn't a good one. 

Mortgage statistics

As VancouverCondo.info so accurately notes, there is a massive absence of publicly accessible and usable data in the Canadian real estate industry. Much of that stems from the anti-competitive practices of the CREA and it's member boards, but occasionally some businesses will offer a great resource for understanding who is buying and selling. CanEquity is one such organization. I'm not sure what their market share in Victoria is like, but I'd imagine their experiences are fairly similar to most mortgage lenders in the local game. Here's what they say about who is applying for mortgages in the CRD:

I'll let readers dissect this data in the comments. I'm surprised at the new insights and pleased by having prior convictions confirmed in this information. Most surprising is the number of renters trying to become homeowners for the first time. I'd have thought the low average dollar amount of mortgages would point to a disproportionate number of refinances, not an almost 50% FTBer market share.