December 2012 month to date
Net Unconditional Sales: 112
New Listings: 179
Active Listings: 4215
Sales to new listings ratio: 63%
December 2011
Net Unconditional Sales: 339
New Listings: 505
Active Listings: 3780
Sales to new listings ratio: 67%
Sales to active listings ratio: 9% or 11.2 MOI
A boost in sales in the first week of the month indicates Victorians are getting their Christmas house shopping done early, although we are still at a lower sales/list than last year. Expect sales to deteriorate quickly as the season gets into full swing. This is the month where most listings fall off the board so it will be interesting to see where we're at come the new year.
There's been some great lively discussion today about different metrics and how they compare to other cities or to long term averages. I wanted to add my 2 cents to interpreting these measures, and since it's market update time I'm going to abuse my posting privileges to prosthelytize my opinions from up here.
One of the common graphs that are used when talking about a long term trend for real estate is the Case Shiller 100 year history of home prices in the US. It's only up to the end of 2010 so prices have declined somewhat since the end of that graph. However it also seems increasingly clear that prices are now on the rebound in the US. I suspect the rebound will moderate, but I don't think anyone believes that prices will deteriorate another 30-40% to achieve that long term mean from 1945 to shortly before 2000.
To me this underscores the importance of interest rates and availability of credit, and any metric that doesn't take this into account will not be a very accurate predictor of overvaluation in the market.
Price to rent and price to income are used extensively because they are simple metrics and easy to calculate, but again it ignores the price of credit. If someone is grossing $60,000 and paying 8% on a mortgage, using CMHC's guideline GDS ratio they could afford a house of about $210,000, or a sensible 3.5 times income.
Now we've got that same individual paying 3% for a mortgage, and suddenly they can afford a $335,000 house which works out to a concerning 5.6 times income.
So what actually changed? Well savers get punished in the second scenario as pre-payments are much less effective at reducing those interest costs. Also the second borrower is at a higher risk because there is more room for interest rates to increase. However overall default risk is likely quite similar. Price to income (and similarly price to rent) paints a somewhat misleading picture in these situations.
Even what seems to be an apples to apples comparison like price/income between cities is more complex than it seems. One obvious problem is differences in the ownership rate, especially when you start comparing Victoria to cities we know nothing about. A place might have a high price to income ratio, but if their ownership rate is not substantially similar to Victoria then the numbers are not comparable.
The multitude of studies out there pointing at either massive overvaluation or perfectly normal prices illustrate how little consensus there really is. Sites like Zillow and Numbeo should be taken with a huge grain of salt given their partially croud-sourced nature. In fact any study or comparison should be questioned to matter how impressive the name behind it may be. If the data is not sourced you might as well ignore it.
There's been some great lively discussion today about different metrics and how they compare to other cities or to long term averages. I wanted to add my 2 cents to interpreting these measures, and since it's market update time I'm going to abuse my posting privileges to prosthelytize my opinions from up here.
One of the common graphs that are used when talking about a long term trend for real estate is the Case Shiller 100 year history of home prices in the US. It's only up to the end of 2010 so prices have declined somewhat since the end of that graph. However it also seems increasingly clear that prices are now on the rebound in the US. I suspect the rebound will moderate, but I don't think anyone believes that prices will deteriorate another 30-40% to achieve that long term mean from 1945 to shortly before 2000.
To me this underscores the importance of interest rates and availability of credit, and any metric that doesn't take this into account will not be a very accurate predictor of overvaluation in the market.
Price to rent and price to income are used extensively because they are simple metrics and easy to calculate, but again it ignores the price of credit. If someone is grossing $60,000 and paying 8% on a mortgage, using CMHC's guideline GDS ratio they could afford a house of about $210,000, or a sensible 3.5 times income.
Now we've got that same individual paying 3% for a mortgage, and suddenly they can afford a $335,000 house which works out to a concerning 5.6 times income.
So what actually changed? Well savers get punished in the second scenario as pre-payments are much less effective at reducing those interest costs. Also the second borrower is at a higher risk because there is more room for interest rates to increase. However overall default risk is likely quite similar. Price to income (and similarly price to rent) paints a somewhat misleading picture in these situations.
Even what seems to be an apples to apples comparison like price/income between cities is more complex than it seems. One obvious problem is differences in the ownership rate, especially when you start comparing Victoria to cities we know nothing about. A place might have a high price to income ratio, but if their ownership rate is not substantially similar to Victoria then the numbers are not comparable.
The multitude of studies out there pointing at either massive overvaluation or perfectly normal prices illustrate how little consensus there really is. Sites like Zillow and Numbeo should be taken with a huge grain of salt given their partially croud-sourced nature. In fact any study or comparison should be questioned to matter how impressive the name behind it may be. If the data is not sourced you might as well ignore it.
233 comments:
«Oldest ‹Older 201 – 233 of 233Victoria is one of the best places to live in one of the best countries in the world.
How come its population growth rate is so low then?
Perhaps the tiny fraction of the global population which doesn't have to work for a living prefers to live in more exciting places?
The Gulf Islands are even nicer IMHO and that hasn't stopped them from crashing already.
it's population growth rate is so low because there is no where to move into. Langford has the bare land why do you think it's growth rate is so large, because it's close to Victoria! Jobs are a little more limited on the golf islands and the commute is a lot worse than that the crawl...
How come its population growth rate is so low then?
I doubt population growth is huge is many other desirable cities due to cost.
If Victoria was cheaper than Edmonton and the job prospects were better as well who would want to live in Edmonton?
Marko are you suggesting that no one should be concerned about them rising? Are you saying that the current rates will not rise?
What I am saying is if you predict something long enough it will come to fruition. Yes, rates will rise, at some point. The market will crash, at some point, in the next 100 years.
However, on this blog + Garth Turner rates have been set to rise any day, for 5 years. Hasn't happened, just saying.
"Rates will rise inevitably, starting soon."
What could the US FED do to make it more abundantly clear that they won't be raising rates any time soon?
And the BOC will avoid acting independently of the FED if at all possible.
Rates will rise, but not soon (IMO)
"However, on this blog + Garth Turner rates have been set to rise any day, for 5 years. Hasn't happened, just saying. "
What are you saying? That this fact has bearing on the future?
I wonder if slower housing markets in other parts of the country will have an effect on Victoria as some(higher then Canadian average) of our demand for houses comes from people moving from across Canada to retire here. If retirees have a problem selling their house in Toronto or Vancouver or get less than they expected wouldn't that affect us more than a typical market?
"if the long term real price appreciation was > 0 eventually even Jim Pattison ...would be unable to afford one"
except that over the long term real wages have increased too (and will continue to if productivity growth is > 0)
What are you saying? That this fact has bearing on the future?
Just saying that maybe Garth and other haven't been looking at present at facts when predicting the future.
I don't see a lot of facts pointing to rates going up singificantly any time "soon" at the momemnt.
"That this fact has bearing on the future?"
Bearing on the future - no.
Bearing on the credibility of those predicting imminent rate increases - yes.
Leo, if you're not reading this blog right now, I can understand why...
But if you are, could you please start a new post? I don't like having to click on "Newest" all the time.
Thanks.
"I don't see a lot of facts pointing to rates going up singificantly any time "soon" at the momemnt."
Of course you don't because interest rates are chaotic and unpredictable. He predicts they are going up and you predict they won't. Both are meaningless.
The real question is what will be the consequence of them rising. I personally don't want to be on the ugly side of that.
Also consider the likely direction in which interest rates will go. They are called historically low interest rate because they have never been so low.
Well, good point. That is why I like the ten year low rate that is currently available.
Rates were around 2% for at least 20 years from 1935 to 1955. Could easily happen again. Mortgage rates could go lower too. I've seen 15 year fixed down south for 2.25%...
If I can lock in a 3 or a 3.09% five-year fixed in a year or two, I'll be laughing. (Knock on wood!)
It will mean 10 years of freakishly low rates precisely at the time that one needs it the most (i.e., at the beginning of a mortgage).
Here's a video of a smart bear, Ben Rabidoux.
The Most Staggering Insight about the Canadian Real Estate Market
caveat emptor
except that over the long term real wages have increased too
Annual real wage growth over last 30 years was 0.3% per year.
Annual real home price over last 30 years was over 3 % per year.
http://www.statcan.gc.ca/pub/11-626-x/2012008/c-g/c-g01-eng.htm
I doubt population growth is huge is many other desirable cities due to cost.
What is your metric of desirability? Because you say so doesn't count.
No other city of Victoria's size or larger in Canada has such a combination of high prices and low growth. None.
it's population growth rate is so low because there is no where to move into. Langford has the bare land why do you think it's growth rate is so large, because it's close to Victoria!
I was talking about the whole Victoria CMA (i.e. Capital RD) having a low population growth relative to other metros, not City of Victoria.
Newlyweds and Nearly Deads.
A Bay Street beauty of a starter home, originally bought in July 2007 for $360K. And today sells for $350K.
How about another first time home owner property in Oaklands. Bought April 2010 for $535,000. Sells today for $510,000.
So much for the newlywed property market. How about the nearly deads.
Sidney condo, bought August 2010 for $327,000. Today sells for $285,000.
How to make money in real estate?
-don't invest in Victoria!
What is your metric of desirability? Because you say so doesn't count.
Population growth is not the only indicator of desirability. We've been over this.
Are Hyundais more desirable than BMWs simply because more Hyundais than BMWs are sold each year?
You narrowly focus on population growth and conveniently disregard price and affordability in your assessment of desirability.
How about another first time home owner property in Oaklands. Bought April 2010 for $535,000. Sells today for $510,000.
I was the listing agent on this property. Bought at the very peak, market has dropped 4-5% in the last two years. No denying that. Seller were realistic and listed it at $529,900 to start, now sold.
Canada's bank bailout.
Finally you post the first actual piece of evidence! Ok let's look at that article.
In 2007 CMHC had $345 Billion insurance in force. End of 2011 it was $567 B. So an increase of $222B or 63%.
$140B of that increase is low ratio from their bulk insurance business. So exactly what I said that the majority of the increase is not from more high risk loans.
Of course the high ratio portfolio also increased, but that doesn't mean the overall risk increased. That's the part that's missing in your theory. I'm not saying it didn't, but I'm not going to jump to that conclusion without good evidence.
Leo and Introvert
Wow did I ever not think I would ever be lumped in with Introvert!
Victoria house prices more than doubled from 2003 to 2008 (125% is an estimate). Incomes did not increase by 125% from 2003 to 2008
So you completely ignored the fact that prices increased even more in the late 80s early 90s and did not crash after. It seems you only read what you want to read.
Leo, I'm not sure why you don't spend more time explaining how misleading the average price has been the last number of months. I think that would be valuable and informative.
Go for it. Back up your argument with data and how a distorted average could be maintained for the last few years and I'll post it in the next update.
National post article says today: soft landing and sustainable housi market... What's does that mean? To me, the price is coming down slowly, and overtime, it will go up.
Todays paper(national post) we are experiencing a soft landing and a sustainable housing market.
To me, the price is going down over time , and will come up over time too... Timing is so hard.
Leo, if you're not reading this blog right now, I can understand why...
Yeah, I actually have to work during the day! Marko has an excuse, the market is slow. Everyone else get back to work! :) Sheesh.
But if you are, could you please start a new post? I don't like having to click on "Newest" all the time.
Ok might get to it tonight. On the plus side maybe the "Newest" link will make everyone simmer down a bit.
Wow did I ever not think I would ever be lumped in with Introvert!
Leo and I are now buddies!
In fact, soon he's going to give me the password to the blog so that I can start new threads.
It's all part of a new bias-balancing initiative that Leo and HHV have finally agreed to.
OMG introvert with a password... talk about pandora's box of spelling correctness!
Sorry, how could I mix you up with info...
Meanwhile down south....the US starts to swing into housing recovery as the foreclosure inventory starts reducing...
Here's an incredible tidbit...
Vancouver went from 370k in 2001 to 1240k in 2012... + 235% return if you paid all cash, yeah so what
Meantime many US cities retraced thier entire gains in that time frame....0%, yawn
BUT if you put the Vancouver gain in US dollars...you know that same coloured money accepted at all vacation hot spots.
Vancouver really went from 230k in 2001 to 1266k... + 451%!! Vancouverites truly gained TWICE what they think they did.
TO BOOT if you some how leveraged the house @ just 5% down.. + 10908% !!!! return on your money for living in a house! All at a time when inflation kept trending towards 0 so as not to eat into your profit much.You have to admit, current bulls and bear alike..once in a lifetime!
So, y'all enjoyed Benny's QE4 announcement today of $45 Billion of Tbill purchases/month? When you combine that with the open market $40Billion/month purchase, you get over 1 TRILLION American dollars injected into the system... and what does that buy us these days? A 2 hour market rally that doesn't even survive the day.
Beyond this, it's more ZIRP as far as the eye can see, more money printing until the world runs out of trees, and eventually Bernanke will own all the US mortgage securities. It's easy to buy up the world, when you own a legal printing press.
On the bright side (because hey, rose tinted glasses don't work in the dark), the Fed retracted his previous extremely low interest rate target from 2015, to until unemployment dips below 6.5% (note he didn't say how low below 6.5%).
So, I read that as low interest rates beyond 2015, or until the bond market blows up, whichever comes first. Serenity now... insantiy later. Prepare accordingly.
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