Let's not get ahead of ourselves

For those of us who believe that residential real estate prices are greatly over valued in Victoria currently, we need to remind ourselves that our desire for price reductions can skew our outlook of actual market changes in the same manner that perception of future gains skewed the outlook of housing when the market was hot.

The market's falling in Victoria. Sales are way down and prices are slowly starting to recede. But this isn't like 2008. And I can't say with certainty that it will continue to play out like 2008 did, with a substantial correction over a short period of time.

Here's why:

These are the numbers for SFH purchases in September 2010 and 2009 excluding waterfront and acreages:

At first glance, these numbers likely look terrible with REALTORS® making just over half of what they did in September 2009. But look closer:

• there's only 6.7 months of inventory - just barely into buyers market territory
• Days on Market is just over a week longer - hardly cause for concern for most home sellers
• Average prices are roughly the same - not enough to make people trying to sell feel like they're losing money, yet

Now take a look at the 2010 and 2009 year-to-date comparisons:

These numbers are more mixed:

• Unit sales are down 20% and falling fast
• Over half of all listings put on the market remain unsold
• Yet prices are up 9% year over year 
• And the homes that sell are still selling 16% faster than they did last year

It's important to recognize that people are still buying homes for a lot of money in this city. And I'm not talking about the million dollar or even $750,000 plus homes here. Over 43% of homes that sold in Victoria last month were priced between $400,000 and $550,000 - this is the bread and butter single family home market in this city. Using monthly payment metrics at current interest rates, these homes are "affordable," especially if they have suites, which many of them do. Comparing them to average household incomes ($80Kish) these homes are between 5 and 6.8 times annual incomes - very high in the big scheme of things - but it's also unlikely that the majority of people who are buying these homes are earning those incomes, especially after the changes to suite income mortgage calculations.

Don't get me wrong, things are ugly in our market, but the inputs still look fairly stable: employment is steady, incomes are steady and interest rates are steady. In my opinion, what's happening in our market is people are getting better quality homes for the same money as a year ago. This is next to impossible to quantify in data, but if it's true and the trend continues we'll start to see more homes selling for less as the upper end of the market pushes down. But it's going to take more time than six months to reflect in the numbers and I don't see it as cause for a wave of panic selling, yet. 

The rental market

If you thought the market for Victoria rentals was tight, think again.

It's not. If landlords need to rent a unit, the price is likely being reduced. It's not uncommon to find listings on Craigslist and UsedVictoria with lines like: "available immediately" and "flexible move in dates" meaning the place is empty now and if you'll only agree to lease it for a year, we'll let you move in slowly this month until you vacate your present place.

It's a buyers' market in the rental pool and if you're a renter searching for a new place to call home for the next year or so, you should be negotiating that rent down. Heck, if you're a renter not currently under lease, you can likely negotiate your rent down under threat of moving on.

We rented our current house in July of this year. I had coffee with our landlord the other day and she asked me how we were enjoying the house. I told it her it has great character but it's tired and could really use an empty month of maintenance work to get it into better shape. She tried to strike a deal with me to get me to do the work for "free" if she paid for materials. I laughed out loud... damn near spat my coffee on my pants.

I said to her, "Why would I want to do that? My time is valuable and the labour part of the work will be your most costly expense. Are you offering to drop my rent?"

She said, "You're already getting a great deal. You're paying less than the previous tenants were."

I said, "This is your only rental property isn't it?"

"Yes."

"So you're probably not aware what's happening in the rental market so much then right?"

"I always look at what's online whenever I need to rent the place and make sure I'm in the right ballpark. That was back in July, it's only October now."

"Things are coming down," I said.

"Maybe."

"We look fairly frequently and I need to tell you I'm tempted to start looking to see if we can find the same kind of place for less money or find more place for the same money."

"Really?" she asked. "I don't know how that's possible, I'm not making anything on the house each month off you. You only pay the hydro bill. I pay property tax, city water and garbage. You've got it pretty good."

"Seriously. There's lots out there and people are dropping their prices. We're tempted."

"Are you giving me notice then?"

"Not yet. But please don't confuse your costs on the house with what the rental rates should be. If we do decide to move, I won't make any decisions without talking to you first. If you want us to stay, we may be able to come to an agreement. But I won't sign a lease."

We started talking about other things. It was a friendly conversation and I think I caught her off guard. I like my landlord, we haven't had to deal with any real issues with the house but we never planned to stay in it too long and told her so when we agreed to move in. We negotiated on the rent and she took seven per cent off her original asking rent even though we refused to sign a one year lease. We verbally agreed to 6 months at $1400 per month and we'll respect that verbal agreement.

I have people close to me who are snowbirds. Each winter they head to warmth and usually try to rent their house out for four months or so. They recognize that most people don't want a short term furnished rental so they usually price it about 60 per cent of what a long term unfurnished place would rent for and be very picky with their tenants. This year, after two months of searching and nearing four weeks to departure they've given up hope. I got a call over the weekend offering us to move in, rent free, just pay the utilities and make sure the house is looked after. Four or 5 months of rent-free living will add over $5,600 to our down payment fund. We're tempted.

September sales continue falling trend

Month-End Market Statistics courtesy of the VREB via Marko Juras. Now updated with prices.

September 2010
Net Unconditional Sales: 395
New Listings: 1,211
Active Listings: 4,323
Average SFH Price: $599,825
Median SFH Price: $531,000

September 2009 
Net Unconditional Sales: 776
New Listings: 1,129 
Active Listings: 3,419
Average Price: $619,936
Median Price: $550,000


Month over month changes
Net Unconditional Sales: -8%
New Listings: +21% 
Active Listings: -1%
Average Price: + 2%
Median Price: - 3.2%


Year over year changes
Net Unconditional Sales: -49%
New Listings: +7%
Active Listings: +21%
Average Price: -3.3%
Median Price: -3.5%


There was a definite surge in sales in the final two weeks of the month. Will the surge continue? There's also been a consistent surge of new listings keeping inventory stubbornly high.

Current market-wide months of inventory stands at 10.9%.

REALTORS® cave

Recognizing they're bringing a butter knife to an aerial dogfight, the CREA (umbrella organization of Canadian REALTORS®) have agreed to step down from the shoving match and accept the fact they've been running the MLS® system in an anti-competitive manner:

In a development that could drastically change the way Canadians buy and sell their homes, the real estate industry has reached a landmark agreement with federal competition authorities.

The legally binding deal will allow for home sellers to pay for only those services they want from their real estate agents. Previously, under the rules established by the Canadian Real Estate Association (CREA), consumers had to opt for an entire slate of services, a practice the Competition Bureau deemed anticompetitive.

Says one lawyer who wanted to access the MLS® system without acting as a full-service REALTOR® for his clients: 

“This is precisely what I’ve been fighting for for the last decade,” he said. “That the consumer and real estate agent get to decide the framework of their relationship without having CREA and their local boards say certain arrangements are not appropriate for MLS.”

It's still early in the big schemes of this new development. But two things remain: the CREA's claims against the Competition Bureau regarding agency weren't strong enough for the CREA to spend money defending and the Competition Bureau didn't feel it necessary to push the CREA to allow non-REALTOR® access to MLS® listings. Simply put, as far as I can tell, you'll still have to use a licensed REALTOR® to list your home on MLS® and that REALTOR® will still have the option of not charging a flat rate or simple MLS® listing fee if said REALTOR® believes they can make a living without offering that basic service. 

Time will tell, along with the details of this new agreement, but I'm not sure this development creates the conditions necessary for drastic change in the way Canadian consumers buy and sell homes.

(H/T Mr.4AM for link)

Monday market update

Numbers courtesy of the VREB via Marko Juras.

Month to date September 2010. (2009 September numbers in brackets)

Net Unconditional Sales: 306 (776)
New Listings: 1,002 (1,129)
Active Listings: 4,181 (3,419)

Price Original = $649,357
Price List = $635,443
Price Sold = $612,296

SFH average days on market = 56

Price changes last week = 203

Sales volumes jumped last week. If the next three days play out similar, it won't be impossible to surpass 350 for the month, perhaps even hit 375. Regardless, this number can only be called disastrous as it is less than 50% of last year's numbers and still marks a 20-year-low for September sales volumes.

Due to the low sales volumes, average price reporting is going to be extremely volatile. In August, $586,000 was likely reported too much as a "drastic drop" without the corresponding explanation "lack of high end sales" skewing the average down. In September there have been considerably more expensive homes selling dragging the average back up - somewhere near $610K. The truth likely lies somewhere in between.

Double-Agent market update

Here are the weekly graphs of market conditions based on VREB data.

Sales stayed in the doldrums with only 67 pending sales reported in the last week. Active listings rose which is not the typical September pattern.

September is shaping up to be a sales disaster unlike anything seen in the last 10 years.

New listings increased which is unusual for this time of the year.

VREB only reports sales and listings on a monthly basis. We calculate a running total of the last 4 weeks every Monday.

The overall months-of-inventory now exceeds 12 which is almost 3 times the level seen in Sept. 2009!! The sales/new listings ratio has also taken a nosedive this month.

Sellers are now under pressure to lower their price expectations if they want to sell. The few buyers out there can take their time, be choosy and can grind hard when making an offer. Under these conditions prices will undoubtedly keep falling for the foreseeable future.

HHV note: The above is quoted directly from Double-Agent's comment in the previous post, the graphs are from his work. Contributions from readers are what make this blog what it is. I'm extremely grateful for the contributions of commentators. 

Times Colonist misleads again

Today's story about housing construction starts increasing is completely out of context with current market conditions.

Sales volumes can only be described as disastrous. Average prices, including average prices for new construction, are falling.

Yet builders started more projects in August of 2010 than in August of 2009 - so "logically," the Times Colonist implies through it's headline: Victoria's housing market improves

Um, no. It hasn't. It's actually getting worse. What happened, and the headline you should have written, is Victoria housing starts increase from one year ago.