Wednesday, January 30, 2013

A PSA

A warning to those who don't understand how mortgages work and yet still read this blog:  Higher interest rates means your mortgage payments will increase.

To illustrate this shocking revelation, here is the affordability chart with a line denoting what affordability would be if rates were no lower than 7% (current reading in this series* is 4.15%).

*V122497 - Average residential mortgage lending rate 5 year

Monday, January 28, 2013

Monday Market Update

MLS numbers update courtesy of the VREB via Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.

January 2013 month to date (previous weeks in brackets)
Net Unconditional Sales:  251 (177, 87, 32)
New Listings: 917 (701, 407, 161)
Active Listings: 3812 (3759, 3681, 3574)
Sales to new listings ratio: 27% (25%, 21%, 20%)

January 2012
Net Unconditional Sales: 372
New Listings: 1088
Active Listings: 3715
Sales to new listings ratio: 34%
Sales to active listings ratio: 10% or 10.0 MOI

Last year at this point we were at about 293 sales.  Despite the small sales bump recently in the low end, we're still down 14% on sales, while listings are outpacing last year by ~5%.  At this rate we'll hit something like 315 sales by the end.  And unlike in previous years, sales/assessment ratios haven't recovered from the winter slump yet.  The spring market will be interesting to watch.

Thursday, January 24, 2013

The affordability horse

Back in June I went on an affordability bent and concluded that based on the idea of an affordability cycle, our peak to trough correction in real dollars might be relatively mild at 15%.  Of course there a many factors not accounted for which might distort the picture over time (such as a change in levels of unreported income which would make affordability look worse than it is, or the increased debt load of Canadians, which would make it look better).

The latest update of that original affordability chart is here:


These things are tough to take into account, so I figured I'd revisit the issue and try to improve the model in other ways.  First I took out the variable amortization again, as the data was just too sketchy.  This keeps the comparison consistent across the range, with the only variables being income, house prices, and interest rates.

As we know average prices are more easily distorted by outliers, so I switched to the median SFH price (which only goes back to 1988, but on the plus side it is monthly data) and median incomes.  Interest rates is the StatCan table V122497, "Average Residential Mortgage Lending Rate: 5 year".

Last time I used the household income for all families.  This perhaps unfairly boosts mortgage payments relative to income, since it includes unattached individuals that are not likely to be buying houses. So this time I used data for economic families only (economic family refers to a group of two or more persons who live in the same dwelling and are related to each other by blood, marriage, common-law or adoption).  With an ownership rate of 70%, I think we can be fairly confident in saying that these kinds of families are buying single family homes in Victoria.

Long story short: Does the picture look any different?

Mortgage payments are now operating in a more realistic range.  The generally accepted threshold for affordability is 30% of your income.  Mortgage payments relative to income are still significantly above the levels of the 90s at this point, even with our incredibly low interest rates.  So far the improvement in affordability since about 2008 has come primarily from dropping interest rates, increasing incomes, and inflation.

So just for fun we can project forward assuming that we will correct back to approximately the recent low.  This is where accuracy goes out the window, since I'm assuming rates will remain at their current lows and incomes will increase with inflation.   Here's what that would look like:
That scenario would mean another 10% nominal decline from here, for a total nominal decline from peak of about 22%.  And that prediction is worth exactly what you paid for it.

Update:  Info points out that using economic families is discarding a large number of potential buyers and distorts the affordability picture.   Fair enough, it seems it is more common to use the overall median, so let's add a chart for that.   I don't think it's a good idea to get hung up about the exact value of the measure though.  There are several reasons why it might appear elevated in Victoria.  More importantly I think is where we have been in our last slump, which gives us an indication of what can happen in Victoria.  Using the overall median shifts the measure up, but doesn't change my conclusion.


Update 2: For the more bearish amongst our readers, here's an alternate theory.  If the times of worse than normal affordability are over, and Victoria will become like those other ordinary cities that make do with cheaper houses then we should look at how much a house would cost to be affordable using 30% of gross income.  Here's how that looks:


Monday, January 21, 2013

Jan 21 Monday Market Update

MLS numbers update courtesy of the VREB via Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.

January 2013 month to date (previous weeks in brackets)
Net Unconditional Sales: 177 (87, 32)
New Listings: 701 (407, 161)
Active Listings: 3759 (3681, 3574)
Sales to new listings ratio: 25% (21%, 20%)

January 2012
Net Unconditional Sales: 372
New Listings: 1088
Active Listings: 3715
Sales to new listings ratio: 34%
Sales to active listings ratio: 10% or 10.0 MOI

Sales are starting to pick up a bit, but last January at this point we were at about 220 sales and 665 listings.  So not only are sales way behind last year, we are now outpacing on listings as well.  

The low sales volumes in January put a proviso on any percentage comparisons, but this doesn't appear to be business as usual like we've seen in the past year.

Friday, January 18, 2013

A balance of probabilities

Based on the Totoro Info Inverse Index of comment activity, it's been a terrible day for the Victoria real estate market.  Time for another post.  I'm working on some more data regarding affordability, but it's not quite baked yet so here's a random thought instead.

The information out there in the media and in the stats is massive, and there are many factors and nuances to consider.  In the end the only thing that matters is what you do with it.   The real estate market is not really predictable, so I always come back to the balance of probabilities.

There are three options of what will happen in the next year:

1.  Prices will go up.  In this case we'd be making a mistake not to buy now when rates are low, the market favours buyers strongly, and selection is large.  But even the strongest bulls will admit that the chances of this are slim to none.  Nothing is impossible, but when even the extremely pro-real estate voices are forecasting a small slide in prices, the chances of increases are essentially zero and we can dismiss this possibility.

2.  Prices will remain roughly flat.   I think this is the best possible case for real estate right now, and every month that the market conditions deteriorate the probability of this scenario decreases.   However if it happens then whether it was correct to rent or buy depends on your rental and what you want to buy.  Luckily Roger has developed the excellent Rent VS Buy Calculator so you can figure out the balance for your own situation.  For us it works out to be a toss up.  If prices stay flat we lose nothing by waiting.

3.  Prices decline.   In this case it's almost impossible not to come out ahead by waiting.  We can debate the magnitude until the end of time, but it hardly matters because any decline is money saved, and when you're thinking of spending north of half a million dollars, even a few percent is big.

Right now I'm thinking the probability of option 1 is 0-1%, and option 2 less than 15%.   The conclusion for renters seems obvious.

Monday, January 14, 2013

Jan 14 Monday Market Update

Time for another post from your resident "wannabe buyer sitting on the fence" in this sad, empty pre-blog forum of the 90s (it was quite an epic thread over at GreaterFool).  :)

MLS numbers update courtesy of the VREB via Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.

January 2013 month to date (previous weeks in brackets)
Net Unconditional Sales: 87 (32)
New Listings: 407 (161)
Active Listings:  3681 (3574)
Sales to new listings ratio: 21% (20%)

January 2012
Net Unconditional Sales: 372
New Listings: 1088
Active Listings: 3715
Sales to new listings ratio: 34%
Sales to active listings ratio: 10% or 10.0 MOI

I'm surprised no one has mentioned that sales have completely collapsed compared to the first two weeks of January 2012.  One year ago we started the month with a sales rate of 15.4 sales per business day.  So far we're at 9.7.  Sales are going to have to seriously accelerate if we're going to get anywhere near last year's crappy numbers.

New listings rate is also down a bit but not nearly as much.  While sales rate has taken a 37% hit, new listings are only down by 9% compared to the same period last year.

Tony Joe provides the entertainment video of the week.
"So what you're saying is don't be afraid of that 5% down, or whatever"

Thursday, January 10, 2013

200 Post Refresh

Well we've blown past 200 comments again.   Time for a new thread.   For those tired of debating the merits of Garth, here's a new chart to ponder until the next market update.



Saturday, January 5, 2013

2013 Predictions

On the request of caveat emptor, here's a thread to submit your real estate predictions for 2013.  We had a 6 month version of this back in 2011 that I thought was good fun.

Just over a year ago I wrote in the comments my prediction for 2012: "Prices will continue to creep down, and the 6 month average will end next year under $590k".

Well, that didn't quite pan out.  Prices did nudge down, but the 6 month average as of Dec was $598k.

So I'll try again.
  1. VREB Sales for 2013:  5800
  2. 6 month SFH average in Dec 2013: $565,000
  3. BoC overnight rate Dec 2013:  1.0%
  4. Average MOI for 2013:  10
Monthly average and medians are far too volatile so I don't predict based on those.  Over at VancouverCondoInfo they have a prediction contest for 2013 based on the MLS HPI for June and December.  In little old Victoria we can use the Teranet index instead, so here's my prediction for Teranet values in 2013:

Teranet June 2013: 135
Teranet Dec 2013: 129

Anyone want to give theirs for the coming year?

For context, here's a repost of some graphs showing current market conditions.

Wednesday, January 2, 2013

Assessments drop and 2012 numbers

As already discussed in the comments, 2012 assessments are out and it's another year of drops.  The Times Colonist has it plastered over the front page of their website today, and it will be mirrored in print tomorrow.
"The majority of capital region homeowners will see values slide by two to six per cent." - Reuben Danakody, BC Assessment
For the average Victoria house that works out to $12,000 to $36,000 in imaginary value out the window.  Of course the level of impact depends entirely on the region.  Mike K over at VibrantVictoria posted a nice summary of the changes by region:


Region
Residential
Business/Other
Central Saanich
-2.04%
2.91%
Colwood
-2.31%
-8.22%
Esquimalt
-2.60%
0.38%
Highlands (SD61)
-3.62%
-4.60%
Highlands (SD62)
-3.03%
-9.60%
Highlands (SD63)
-3.36%
0.00%
Langford
0.47%
4.19%
Metchosin
-1.70%
6.25%
North Saanich
-3.65%
10.85%
Oak Bay
0.78%
10.31%
Saanich (SD61)
-2.63%
5.37%
Saanich (SD62)
0.00%
0.00%
Saanich (SD63)
-2.15%
3.87%
Sidney
-5.64%
2.35%
Sooke
-1.94%
0.51%
Victoria
-2.05%
2.62%
View Royal (SD61)
-0.75%
4.35%
View Royal (SD62)
-1.03%
0.00%

In other news, the VREB has their yearly summary posted.  The average price for 2012 came in at $603,298, which they correctly point out is a scant 4% under the peak of 2010 (8% in real prices).

However they also try to spin the current market conditions in a positive light, saying that "In December there were less active listings on the MLS system than in recent months", like, every single December in the history of Victoria.

As is their job, they come over all optimistic for 2013.  "What we heard at the local 2012 CMHC Housing Outlook Conference is that the market has bottomed and slow growth is in store for 2013".   Well.... we'll see.