Prediction thread

The timing of this latest article is interesting. Could it be that June numbers are going to be shocking coming out of the VREB?

TD Economics released a report yesterday declaring the housing boom is over. Yet housing starts are still up YOY, shocking many RE pundits into declaring that if the builders are building they still see profits to be had. So the market can’t be going down can it?

If bread gets cheaper next week, will Wonder suddenly stop making it?

It’s time for predictions. What will the June VREB numbers look like? I think we’ll see:

• higher listings in the range of 10-15% MOM, but reported as less than that cumulatively YOY
• increased sales from May 2008, but lower than June 2007 by roughly 20%
• lower average and median prices, both around minus 1-2% MOM, but remaining in the 10-11% YOY range

I’m guessing Tony et al will choose to spin this as the market remains balanced. Which it is. For now at least.

Selected quotes from the article linked above:

"For people hoping home values will be plummeting any time in the future, I don't think that's going to be happening any time soon." – funny that Joe is even acknowledging our voice exists. We must be getting louder.

Joe said the market has been cool so far in 2008, but he was quick to point out that comes in comparison to 2007 which he considered an "exceptionally busy year when we exceeded all the numbers." Except when you compare sales numbers from May 2006, to May 2007, you see only a slight increase, record
levels none-the-less, but not “exceptionally busy” in comparison.

"The cooling-off period is not unique to this region, and not to the province of B.C. -- the North American economy as a whole has seen a dramatic change in market value in the past year," said Landcor president Rudy Nielsen.

"Speculation, both from investors and homeowners expecting a major financial payoff, makes housing more volatile than other economic sectors," said Nielsen.

"Recently consumer confidence has dwindled, causing the market to correct. This is the normal real estate cycle and this is what we're seeing throughout B.C."

Emphasis mine. Your predictions in comments.

Times they are a changing

Long the darling of the upstart technology industry in Victoria, it seems Carmanah is closing the doors and issuing pink slips to the team at its manufacturing facility. Is this a sign of trouble in the tech marketplace or simply a globalization reality? Either way, people are losing well-paid jobs and it remains to be seen if they'll replace them by looking for work here or elsewhere.

Apparently high gas prices are driving highway-side residents to move to the worst corner of Victoria, otherwise known as Victoria's Yaletown. Apparently, as in Yaletown, if you drop prices drastically (like from $360K to $299K and then accept a lowball offer) you can sell a condo in town. But only to people who had previously lived on a highway.

My nomination for the greatest quote ever on HHV found in the last thread goes to Patriotz's response to:

Why is it that when someone makes a comment critical of Victoria or certain citizens' attitudes they are either told that they "loathe" the city or are asked why they don't leave?

Because you're either with or against us. If you don't buy a house right now, you're letting the bearrorists win. :-)

Bearrorists! Wicked.

I've never understood why when you believe RE is over-valued you're suddenly an enemy of the city. Victoria is a great city. It just has neighbourhoods that aren't as great as some RE marketers would have you believe. That said, I can compare the city to many, and I'd rather be here than there because I love my lifestyle. But I won't overpay for a crappy condo on a crappy corner just because a Realtor tells me it's our Yaletown. Not that I'd buy in Yaletown either... but you get my point.

Oh. Yah. Just one question for you Taylor: if the market is so hopping, how come you're wasting all those dollars on cheezy ads that make you look out of touch with reality? Couldn't you have stated the truth instead of the hype: "List with me and I'll price your place lower than anything else in the neighbourhood. Together, we'll get you a sale!"





Is it me, or is there a lot more real estate advertising on TV and the radio lately... must be all the sales.

How low can we go?

Thanks to Roger for providing these great graphs. Clearly from the non-inflation adjusted chart you can see just how out of whack we are right now.


Here's a similar chart expressing housing costs inflation adjusted into 2007 dollars.

If real estate doubles every ten years as our Realtor keeps telling us, where should we be right now? Well, RE didn't double between 1978 and 1988, so I guess you can throw that theory out the window. It didn't double between 1988 and 1998 either, it was a 50% gain during that period--roughly equal to the previous boom period between 1978 and 1982 right before a 43% decline. And then between 1998 and 2007 we've witnessed an unprecedented 85% plus run-up.

CMHC shows that rental rates have increased at a rate of just under 1%/year between 1992 and 2007. I'm looking for a 35%-45% correction in Victoria. The signs are all there if you open your eyes wide enough to see them.

Of course, a good number of househunters seem to still be wandering around with their eyes wide shut. But that pool is getting smaller. Thankfully.

Less for More?

Via Siobhan in comments:

...some condo stats for all areas.

broke down into two groups for comparison purposes.

Group one - Condos built in 2007 and later.

648 listed for sale with an average 46.6 sold per month for a 13.9 month supply. Number of new listings in the last 90 days is 429 of which 72 have sold for a sales to listing ratio for new condos of 0.17

Which may be compared to group 2 which are condos built in 2006 or earlier.

574 condos listed for sale with an average 57.4 sales per month for a 4.4 month supply of older condominiums. Number of older condos listed in last 90 days is 771 of which 268 have sold for a sales to listings ratio of 0.35

You can see that the demand for older condos is significantly stronger than new ones. Although neither group would be considered a stellar performer - especially for a spring market.

I find the difference between the two MOI numbers staggering. New condos aren't selling at a rate that will make developers keen to build more and re-sales aren't suffering from increased inventory, yet.

Is there anything definitive we can take from these stats? I'd say two things:

• people aren't buying new condos because there isn't perceived value in them or they just can't afford the price per square foot, and
  
• people are still buying re-sales because they can get more for less

The big question is how long can developers and speculators afford to hold assignments, because as soon as the new prices start to fall drastically, the re-sales will too. I don't think the 20% price drops we've seen in some new developments is drastic because IMHO they were priced in lalaland to begin with. What is the true premium to pay for new versus resale in the condo market?

Sign, Sign, everywhere a sign

Blocking out the scenery breaking my mind, do this, don't do that, can't you read the sign?

Just got back from a fantastic weekend in Vancouver, enjoying the West End and running the trails in Stanley Park. Mrs. HHV's new pad is great, close to everything and costs us $50 a month more than we were paying in Victoria. Which, turns out, is a net savings of $100 a month because she walks everywhere and the gas bill for our 4 cylinder car is less than a quarter of what it was here. But I digress.

Man, are there a lot of properties for sale there. Everywhere we went downtown, there was either a place being built or a building with a half dozen or more for sale signs. And lots of rental suites available too. We even drove out to Pitt Meadows to her boss's place today and on one corner of their fairly new development there were 8 For Sale signs. I had a bit of a perma-grin going on all weekend. This sure is fun to see some of the regular posters on this blog's predictions play out.

The writing is on the wall. Anyone who hasn't seen it yet is either not paying attention or is blinded by emotions. The peak was sometime this spring.

Back on the homefront, my neighbours still haven't sold their place, but they did tell me they got two lowball offers on the same evening last week (why their Realtor couldn't parlay this into competing lowball offers is beyond me). Looks like they may take one of them. The last three weeks has demonstrated that the market is indeed different now and their confidence isn't what it was.

Every few months, the Mrs and I take some time to review our finances and our plans to see how well we are on our way to making them happen. We've decided that number one priority this year is to eliminate any debts (we still have a bit left in student loans to go) and number two priority is to preserve savings. She has a great stock purchase plan through her employer and I happen to believe bank stocks are starting to get back into value range, all factors considered.

We expect this market to turn slowly. First new condos will burst. They already have in Victoria. I believe it will take the Vancouver condo market to turn ugly to be the "climber falling over the precipice" that drags the rest of the market kicking and screaming with the MSM coverage of bursting bubble. SFH in outlying areas and re-sale condos in urban centres will go within a few months of one another.

We set our benchmark for coming into the market: no more than 35% of our pre-tax income for a SFH or very nice townhouse (without a suite) in a neighbourhood we like. Until this happens, we don't buy. If the market doesn't correct to what I believe it should, then we won't buy here. We have had no trouble finding good quality rental accommodations. We don't believe that we will in the future. If we can't find what we'd like when it's clear the market has run its course, we will consider leaving for the right opportunity.

In the meantime, as Patriotz says, we'll just "grab a bag of popcorn and watch as this show plays out for the next couple of years or so."

It will be pretty cool when we buy our first place and our parents and friends say to us: "are you crazy, real estate sucks, what are you thinking?"

What are you waiting for? When will you buy? And what will it be?

Buy vs Rent.

H/T to Talus for the link via Mohican.

From the NYTimes: (in bits and bites)

One of the big lies of the real estate business is the idea that renting a home is tantamount to throwing money away. It’s a useful fiction for real estate agents, because they make vastly bigger commissions on house sales than rentals. But the comparison isn’t nearly so straightforward for the rest of us.

Renting involves one obvious, recurring cost that can never be recouped: the monthly rent check. Buying, on the other hand, involves multiple expenses, some of which aren’t so obvious. On top of closing costs, there are repairs, property taxes, mortgage principal and mortgage interest...When you own, you also lose the ability to invest your down payment elsewhere, like the stock market.

Over the last several years, I’ve come to like a simple, back-of-the-envelope way to compare the costs of renting and owning. You find two similar houses, one for sale and the other for rent, and divide the sale price by the annual rent. You can call the result the rent ratio.

The concept will probably sound familiar to stock market investors. It’s the real estate market’s version of a price-earnings ratio — a measure of how expensive an asset is, relative to the underlying economic fundamentals. Like a P/E ratio, the rent ratio provides something of a reality check.

You should really read the rest. It's US specific data, but the same underlying factors apply here and the ratios are fairly similar. A good read, thanks Talus.

They even provide a cool Buy vs Rent calculator to play with.

A welcome addition to the Victoria RE blogosphere has arrived. Womp brings us MLSstats.ca for daily stats on the local market, emulating one Realtor I'd happily work with in Vancouver, Paul.

UPDATE: a week ago I gave you some snapshots of low-end market inactivity. A week later, of the 16 May listings for SFH in my criteria four have sold:

MLS #246067 original price $419,900. 16 days on the market. Sold for $390,000 or 8% less.

MLS #246160 original ask $419,900. 8 days on the market. Sold for $425,000. (It's a triplex).

MLS #246156 original ask $399,900, sold after 10 days for $375,000, a full 7% less.

MLS #246107 original ask $389,900, sold after 11 days for $377,500.

This time it IS different

At least in the TC courtesy of Carla Wilson.

Some notable quotes:

Markets in the West, which have risen the furthest above their underlying values, are the most at risk of an increase in defaults as a result of recent mortgage innovations

The delayed arrival of softer housing markets can be partly attributed to recent mortgage innovation that has seeped into the Canadian market during the last two years

so we are looking for even Western Canada to really start to cool off

And obligatory spin from industry:

While there is some "hefty" price appreciation, the market is starting to return to balanced conditions

Prices rose four per cent year-over-year in April, she said.

Canada's housing market is on much firmer footing than the U.S. market," it said, citing more conservative mortgage lending practices, healthy household finances, tight labour markets and a manageable supply of homes on the market

Since when is four per cent growth hefty? I mean if I bought a condo April and wanted to trade up to a house as all my friends have managed to do over the past two or three years, wouldn't I be sad to find out that my "hefty" gains don't even cover my Realtor's commission for selling my place?

I'd like to point out that the US has higher average wages, lower unemployment and just last week the RBC was telling us Canadian's weren't saving enough. How does that equate to "healthy household finances?"

Don't forget owners: you're in it for the long term. Unless you aren't. And then you're a speculator about to get caught, unless you get out now.

I wonder if the next big boom is going to be in counselling services? Can you buy stocks in that? I can see the future headlines: Counselling boom fed by dis-illusioned condo owners "I thought I was only going to have to live in it for a year, maybe two at the most."

Don't let anyone tell you different. This market has changed. And is now starting to show some weakening momentum. Prices will be the last thing to go down. Sales first, prices second.