An unexpected joy of homeownership came up this summer, twice even. That is scraping egg off stucco that some local teenagers tossed at the house. Or maybe it was info reminding me to put another damn post up before we hit 500 comments.
Well not much has changed in September, but more and more the market seems to be stabilizing. Is it a plateau? Is it a rebound? Is there a dead cat involved? Although we hardly fell fast enough to bounce. Time to update the spreadsheet and see if any particular graph looks interesting enough to post.
Here's one:
Since the market peak in 2010 we had steadily worsening conditions for three whole years. Every month the inventory grew and sales flagged. But since mid 2013 there has been a reversal that has been remarkably consistent. MOI has been dropping for over a year now while prices slowly creep up. Will this turn around without more government intervention? Or maybe the 112,000 lost private sector jobs in August will temper the trend all on its own.
257 comments:
«Oldest ‹Older 201 – 257 of 257That's pretty serious stuff. So I can't just simply dismiss that the original listing price is meaningless.
When I speak with home owners about their original purchase they tend to reflect the best scenario such as we got a deal at say 10% off the price. When I research the history, I find the home owner is usually referring to the original price and excluding the last reduction in the asking price.
The scenario is that you are looking at a home listed at $500,000. The agent drops the list price to $450,000 and then you make your offer. How much of a deal did you get?
Exactly. Then their friends armed with "10% off the price," make an offer on the $450,000 at 10% below asking.
The market isn't failing.
People can still go to the bank and get a hundred thousand dollars to install a suite in their basement or pay $10,000 for a 150 square foot deck or $15,000 for a roof.
And they do.
That means a tradesman can still earn $30 an hour.
When money is cheap, people over spend on home improvements. They feel they can do so because they are "building equity".
That's why owners of roofing companies live in Uplands and 20 somethings are driving new Dodge Ram trucks, and a laborer at a construction site will end up buying one of the condos he is working on.
Economic activity creates demand and raises or stabilizes prices. That's why building more condos doesn't solve affordability - it creates economic activity.
Affordable housing comes later when the economic activity slows down. Unfortunately, now people don't have a job and can't buy at the lower prices.
In my industry, we have to disclose the original asking price of the property in the report and the listing's history for at least the last three years.
Failure to do so can mean anything from censure to suspension from the Appraisal Institute along with the requirement to re-take a university level course.
That's pretty serious stuff. So I can't just simply dismiss that the original listing price is meaningless.
In this day and age original list price, assessments, ect., is at everyone’s finger tips so it isn't really a matter of disclosure but rather a matter of what does it real mean.
If buyer A buys a home with a fmv of $500,000 and pays $500,000 on a current list price of $495,000 and assessment of $400,000 and buyer B buys a home witha fmv of $500,000 and pays $505,000 on a current list price of $519,000 and an original price of $599,000 and an assessment of $600,000 what can one really conclude?
Things like assessments and original list price are better used in a broad market context.
The definition of a "good deal" to me is directly related to the amount of discomfort and/or loss inflicted on the seller and the accepted price in relation to the market. If the sellers take a hit but are happy to take the offer, that isn't really a deal to me because they got what they wanted regardless of what an observer might conclude based on pricing. If the sellers are irked or even offended by the discount on the price I am willing to offer but take it anyways, then I know that I got a good deal.
Like Jack said, you can only get a "good deal" if you are the only one with cash on the table. In my view, there aren't many "good deals" to be had in Victoria because the market is sufficiently liquid that as Marco says, there are frequent situations with multiple bids and/or less than a 10% drop will usually get the property sold, which doesn't hurt the seller that much (or at all if they purchased more than 10 years ago.
-10% can turn into to -20% to -30% as easily as selling at or above ask turned into -10% though. With economic pressures the way they are, I think it is just a matter of time before it will hurt to sell a house in Victoria and there will be "good deals" to be had.
In my view, only one party can be smiling after one of them got a good deal. If both walk away happy, it either wasn't a good deal for either party or one party is delusional (but that wouldn't be a new thing for house buyers in Victoria!)
If the sellers are irked or even offended by the discount on the price I am willing to offer but take it anyways, then I know that I got a good deal.
Things just don't work like this in residential real estate. You often have sellers that will price a fmv home of $500,000 at $600,000 because their home is "better" than everyone elses on the block and they'll will be offended at $550,000 even if it is $50,000 above fmv.
Other times you'll have sellers that will go in with a sharp price right at market value or slightly below and they'll be happy with a quick sale at or slightly below fmv. Most often than not they are not delusional and nither is the buyer.
If both walk away happy, it wasn't a good deal...”
Not always the case. I bought an older condo last year for 102,000 under assessed value -30 percent under - and both the estate trustee and I were very happy. I did have to go thru a heated argument with my buyers agent to present the offer.
I agree that the original asking price is more of disclosure regulation than one of estimating market value.
However, appraisals are coming under more scrutiny, especially in the USA. I expect that trend to cross over into Canada in the future.
One of the issues revolves around the government assessed values. They are legislated to be at fair market value as at July 1 based on the condition of the property on October 31.
Then an appraiser should provide a test of their market value estimate relative to the assessed values to determine if the market estimate is fair, equitable and reasonable. Or comment on why the assessments are not.
Many people heavily rely on the government assessments when pricing or buying a home. So do a lot of real estate agents in pricing. The relevance of the government assessments to market value should therefore be addressed.
What I generally hear from a home owner or prospective purchaser is someone saying "homes always sell at more than assessed value"
That's a real estate myth left over from a long time ago. It just isn't true. But it has to be addressed.
" Things just don't work like this in residential real estate"
As I said - they don't work like that in Victoria, yet
"Most often than not they are not delusional and nither is the buyer"
With rents, inflation, interest rates, government policy momentum and expectations for the Canadian housing market where they are, stock market returns being what they always have been (and associated opportunity costs of allocating capital to housing) and housing prices being what they are, EVERY buyer is delusional thinking that owning housing in this city is a good idea at these prices.
Buying a SFH in Victoria with leverage at the moment comes with an implicit admission that your future financial well being is now in the hands of government. With a 25 year mortgage and 5 year fixed rates, the individual no longer has control.
Buying with cash comes with an implicit admission that one is willing to forgo material increases in future wealth as a consequence of allocating so much capital to a non productive asset.
Either way, if Canadians were better at math, housing prices would be lower. Maybe delusional is the wrong word. Maybe I should used uneducated and scared.
I bought my first house at 12.5% off the current asking price. I had an estate agent and had a lengthy debate with her that pretty much went exactly like Marko's arguments here. Luckily I brought my dad who wore her down. I mean I was only asking 20% off Where My dad had recommended closer to 40%! Anyway, like I said before they came back right away with 10% off as a counter. So maybe I just beat them to the punch to lowering their ask? It was on the market for 80 days I think. This is why I think it's relevant. If you time it right and make an offer that is close to where they might be thinking with a revised asking price then you might be the only one at the table. This is very relevant. You need to be the only one at the table... If you wait for a revised asking price then it might be appealing to more people and the dynamic changes.
You often have sellers that will price a fmv home of $500,000 at $600,000 because their home is "better" than everyone elses on the block and they'll will be offended at $550,000 even if it is $50,000 above fmv.
I get that a lot from home owners that want a higher appraised value. If I show comparable properties they will always say "my home is better than that"
Possibly because a home owner places greater value on things that they have done to a property than a buyer.
For example, one client put in a commercial grade hot water boiler system in his depression era home. It was beautiful. This he believed raised his price over any other home on the street by a hundred thousand. Yes it was more efficient than a $6,000 gas furnace - but both still do the same job.
The same is for landscaping. I've seen people pay a couple hundred thousand dollars on landscaping and wonder why I've not increased the estimate dollar for dollar for their landscaping in my estimate.
Or a pool or a barn or a tennis court or a wharf...
In an economic downturn, you can be more ruthless in your bidding.
But that's not today's market in the urban core.
You could be successful with this type of bidding on Mayne Island but not on Main Street.
I bought my first house at 12.5% off the current asking price. I had an estate agent and had a lengthy debate with her that pretty much went exactly like Marko's arguments here. Luckily I brought my dad who wore her down. I mean I was only asking 20% off Where My dad had recommended closer to 40%! Anyway, like I said before they came back right away with 10% off as a counter. So maybe I just beat them to the punch to lowering their ask? It was on the market for 80 days I think. This is why I think it's relevant. If you time it right and make an offer that is close to where they might be thinking with a revised asking price then you might be the only one at the table. This is very relevant. You need to be the only one at the table... If you wait for a revised asking price then it might be appealing to more people and the dynamic changes.
12.5% is outside of three standard deviations. You are in one of the less than 0.3% who timed things correctly before the price drop perhaps; however, if the property was priced at 12.5% or above market value despite being in the 0.3% you may still have paid fmv or greater.
In conclusion, anything at or beyond 10% off current asking price is extremely rare and when it does happen it doesn't mean that the property was even purchased at or below fmv.
You could be successful with this type of bidding on Mayne Island but not on Main Street.
+1
Over $1,000,000 - Mayne Island - tear down - on market for 500 days - ....etc., 10% off current asking may work.
But for the average home in the core, probably not.
Below $200,000 there is also more opporunity for 10% off. $180,000 for a $200,000 is sure a lot more common than $540,000 for a $600,000 home.
The Days-on-market can be quite relevant in your bidding.
So many wanted to be first through the door that they became irrational in their bidding paying over market value. Agents were "peak pricing". The last sale price on the street plus another $20,000.
Luckily, the government was more than happy to finance these bidding wars as CMHC was getting close to 3% on everyone of these deals. CMHC even developed its own computer risk assessment program called EMILI that could approve these deals at a faster pace without the need of an appraisal.
CMHC was still doing its due diligence in verifying the price paid. Its just they were in charge of the program. That's like having the fox guard the hen house.
And that's how we got here today. Where people are paying a massive chunk of their entire future lifetime income for one single asset.
In 2011 I bought a place for 455k that was originally listed at 520 and the relist was 490...
Ok well since we're on the subject... have there been any price drops on 3025 Jackson?
And I'd love to hear anyone's picks for current best deal for starter homes in that range now that the place on Dominion is gone.
"And that's how we got here today. Where people are paying a massive chunk of their entire future lifetime income for one single asset."
I would swap out "massive chunk" with "at least half" in Victoria and possibly all of it in Vancouver in many cases.
Many of today's buyers simply will never retire or send their kids to University without massive student loans if they mortgage for 25 years at todays prices.
West Coast housing prices are now on par with many of the most expensive cities in the world (whereas 15 years ago, they were closer to a third of big city prices)
There is simply no pressure for housing to get more expensive in Victoria and we are starting to see upward inflationary pressure on interest rates coming from the US and Canada. Victoria families will have to pay off high prices in a flat market (at best) while interest rates increase over the next 25 years. I have no idea what will happen to salaries.
With a modest interest rate curve moving up to 9% between now and 25 years from now and a house bought with a $550,000 mortgage (starting today @ 2.7%), I estimate that a family needs about $145k/ ($220k pre tax) per year to live modestly (no major extravagances) secure their retirement (@ 65), afford childcare & future university tuition & maintain the house, pay property taxes, etc.
I think you would find that the average after tax income in Victoria is closer to a third of that and even among those buying houses, maybe 2/3.
Tough choices out there if you need to own in Victoria. Unless renting is an option for you in which case, no worries.
West Coast housing prices are now on par with many of the most expensive cities in the world
Sure but would you rather live in Toronto where average price is past 1M, Calgary with ave price 0.5M, East Van where prices now average over 2M, Hong Kong with a median over 4M or Victoria?
http://www.cbc.ca/news/canada/british-columbia/vancouver-real-estate-breaks-2m-mark-east-of-fraser-street-1.2776611
At least here you can buy a house with a bsmt suite and live cheaper on the main floor than if you were to rent that main floor.
True, you are fucked in Van.... Blows my mind...
When sheep are following each other off the cliff, some decide to do backflips, I guess.
If one is going to go down, some prefer to go down in a ball of flames.
Those other cities are overpriced as hell too but I don't want to live anywhere else. I love Canada and Victoria.
I just hate the fact that the principal move the Harper Government came up with the counter the wealth concentration at the top of the food chain brought on by uncontrolled globalization was to loosen financing so that the unwashed massed could unknowingly borrow their brains out to maintain their "standards" of living amidst increasing unemployment & falling real wages.
Globalization is great for humanity on average (ask 1.4BB Chinese how their standards of living have increased over the last 30 years), but there was nothing average about the pre-globalization western hemisphere. For every $1 in profits "created" by offshoring jobs, a greater loss in Canadian average real incomes was also created.
It was a "have our cake and eat it too" type decision where they were able to keep the rabble happy while at the same time allowing their rich & powerful friends to keep all the spoils.
The end result is that it is almost impossible to buy a house without taking on risk you don't understand. You have 3 choices
1. Save up and buy a house (virtually impossible at these prices and wholly impossible over the last 15 years as prices have soared)
2. Take impossible to understand interest rate risk and borrow your brains out (and hand over your financial freedom to the will of government via interest rate levels.
3. Rent.
Frankly, I don't think that any of these are good alternatives for long term economic well being & family formation.
Bush had it all wrong: Home ownership isn't a contributing factor to economic strength that should be directly encouraged.
Home ownership is a sign of wise past investment in things that generate real returns and increase society's collective standard of living.
Homes get awesome & plentiful because society productive.
Society doesn't become productive because of housing, so the government should stop pretending like it does.
At least here you can buy a house with a bsmt suite and live cheaper on the main floor than if you were to rent that main floor.
I've been saying this for a while. Of course, how could one ever live with a stranger in their house.
In 2011 I bought a place for 455k that was originally listed at 520 and the relist was 490...
That is 7.69% of current asking if my math is correct.
But 12.5% off original ;-)
I'm not saying this to brag. I think it's just useful for other people to hear it. This relisting thing is hiding the facts. Too many estate agents stopping their clients from making reasonable offers. I remember when I asked my estate agent in 2003 how much less I should offer she said maybe 5k max!I offered 40k less. Anyway. Second time I didn't have a buyers agent. Nothing against estate agents I just don't think they represent buyers well at all. they are in the business of selling. Thus, I would hire one to sell my house...
Oh and with this last house I also negotiated a further 5K off the sale price after the house inspection. Another Horrible thing to never do! But hey, the estate agent didn't disclose the vermiculite in the attic.... it cost 7k to remove though....
Sorry Marko, but your math is not correct, the correct answer is he got 7.143% off the listed price of $490,000 if he paid $455,000.
But you're still a good realtor Marko :)
I stand corrected.
After watching the deal or no deal argument, can someone give me a definition on fair market value? Is the fair market value equal to average selling price for properties with similar features in past six months?
I principally agree with Marko that >10% off current asking price is outside of three standard deviation. It is not going to happen to everyone here. However, i believe every potential buyer following the blogger here is very interested in getting an accepted offer lower than other sold house in similar condition. In that case, I would consider it is deal, no matter a big deal or so so deal.
Remember my friends, there is always people behaving irrationally on whatever reason in a free market. In a world commonly following a normal distribution, we want to be the 50% paying less than the other 50% who is purchasing similar house in your neibourhood. In that, I would call you fellow do a good job on house hunting.
Just Jack can probably give a very good definition of fmv.
When I use fmv, for example $500,000, that is just a hypothetical number I am throwing out there for the purposes of examples.
In reality, when people asking me "what do you think the fmv value of this listed place is?" I'll say something like "$450,000 +/- $15,000." Problem is properties in the core are not very homogeneous and the market is a moving target.
In the Westhill (same builder, same floor plans) or a condo building you might be able to bring fmv range to something like $450,000 +/- $10,000.
However, i believe every potential buyer following the blogger here is very interested in getting an accepted offer lower than other sold house in similar condition. In that case, I would consider it is deal, no matter a big deal or so so deal.
Reality is there a very few deals out there especially on single family homes in the core.
I've uploaded listings in the core, under 600k, with a suite, that have hit 1600 PCS accounts the following morning. (I can see exactly how many PCS accounts are set up for each listing I have and I can also see realtor.ca traffic).
Very difficult to sneak in and pick up a deal with 100s of other people glazing it over and they too have access to floor plans, google street view, sophisticated municipal online maps, etc.
Not saying it is impossible to get a "good deal," but it certainly is much tougher than it use to be with the flow of information the way it is today.
There are several definitions of Market Value.
In Canada, the most widely accepted definition by lenders and the Courts is provided by the Canadian Uniform Standards of Professional Appraisal Practice
The most probable price which a property should bring in a competitive and open market as of the specified date under all conditions requisite to a fair sale, the buyer and seller acting prudently and knowledgeably and assuming the price is not affect by undue stimulus.
That's the short version of the definition. It gets expanded as it later deals with how payment is made, terms, passing of title, conditions, etc.
I agree with Marko, that Market Value is a range in value. If someone pays $500,000 for a property and another person pays $505,000 for the property both are considered at market value as long as the value is supported by the market place.
The price paid or market price of the property must be fair, equitable and reasonable. For most properties that might be a 2 or 3 percent range.
In a more limited or restricted market that could be a substantially greater range. For example if you were contemplating buying a small island.
I believe Marko that your latest posts are well intentioned to protect your industry and peers but they do nothing to advise dealing in the real world of a failing market place.
Marko said...
"But the market isn't failing..."
(Sept. 26)
-------------------------------
I am not sure what your bench mark on not failing is but to quote a quite realiable source who uses real statistics...
" VREB, the local real estate board says sales prices have flatlined – up a scant 0.3% in the past year – less than the rate of inflation."
Not soaring I would say. Where else would you invest 750k for .3% return other than the local bank? Yes the quote is from the fellow who banned you from his website...
He has an excellent track record of predicting the market in Victoria.
http://www.greaterfool.ca/2009/01/31/victoria-bust/
Not soaring I would say. Where else would you invest 750k for .3% return other than the local bank?
I don't know about you but my primary residence is not an investment for me. I have my RRSPs and TSFA on that front.
What is wrong with me! Once again I agree with Marko. Your home is not an investment.
You have too much emotional attachment that clouds any decision on buying, selling or holding.
Anything can be called an investment these days, but is it really an investment? You have an investment in your children. Would you sell them?
I sold 10K of gold on Friday, I didn't have to look for a new place to live, or worry about schools, moving trucks, or a mortgage.
My view is that the act of investing is forgoing consumption now in order to have the ability to consume more (in real terms) at a later date
This happened in housing for previous generations who bought more or less until 2008, therefore, it was probably an investment for them. The real value of housing went up because interest rates started high and housing prices started low (relative to rents, incomes and most other markets)
That being said, that is not the case anymore. Interest rates are historically low and will go up. Houses are at historically high levels in relation to other markets, rents & incomes. There has been no material change to the number of people moving to BC each year to accelerate demand.
Based on those factors, the expectation that housing will continue to provide real gains (in excess of inflation) is probably incorrect, effectively disqualifying housing as an investment.
For those of you who disagree, I would ask why? I mean where will demand come from to keep the party going?
There is no room to run left in:
1. net immigration (and the Fed seems to be tightening this every day)
2. Interest rate decreases
3. Price disparity when compared with international markets (most expensive in the world...)
4. Increases to government support through the likes of interest rate support or CMHC
And without continued price increases, people will start seeing housing for what it is (and not a easy $100k over 2 years) and probably focus on what matters - getting the absolute lowest price possible instead of rationalizing the current price in the context of next year's price increase.
Marko said..."I don't know about you but my primary residence is not an investment for me. I have my RRSPs and TSFA on that front."
------------------------
You got me there Marko but I wasn't talking about you and your several investment properties that you speak of.
I am speaking of the people you may or may not influence on purchasing real estate as a investment as well as a home. Hipsters and Gen Xer's certainly aren't putting themselves in exhorbetant debt loads just to live in a house for 25 years like their parents did, they're chasing the "hype" that the failing and falling market is playing a shell game with.
But I will give you the benefit that you maybe should go into polictics as you never really answered the question directly, just turned it around....
But the market isn't failing?
Monday, September 29, 2014 8:00am
MTD September
2014 2013
Net Unconditional Sales: 511 487
New Listings: 1,034 1,106
Active Listings: 4,261 4,547
Please Note
Left Column: stats so far this month
Right Column: stats for the entire month from last year
Great post I must say. Simple but yet entertaining and engaging... Keep up the good work.
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