October Sales: Need's Analysis

Roger's words:

VREB stats are now out. More positive spin from VREB. Lets take a look at the facts.VREB in italics; Last months numbers in brackets.

• The average price of single family homes sold in October was $556,222 (584,193); the six-month average for single family homes was $570,454 (572,007).
• The median price was considerably lower at $495,000 (520,000).
• The average price of all condominiums sold in October was $343,334 (341,014); the average for the last six months was $321,993 (318,198).
• The median was again lower at $291,000 (288,500).
• The average price of all townhomes sold last month was $407,031 (402,213); the six month average was $404,163 (402,246).
• The median price was $369,950 (375,000).
  
• MLS® sales last month included 375 (335) single family homes, 196 (150) condominiums, 79 (77) townhomes and 22 (21)manufactured homes.
• There were 3,311 (3381) properties listed for sale on the MLS® system at the end of last month, down slightly from the 3,426 properties in the same month a year ago.

Now for the analysis:

1. Sales of homes and other properties in the Greater Victoria area soared 20 percent in October compared to the same month a year ago. There were 708 sales through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®) in October, up from the 590 sales in the same month a year ago. There were 632 sales in September of this year. This is true but the tone leads the reader to believe that the market is still hot and rising. What is happening is that more buyers are buying houses at a price that is cheaper than last month!!

2. Meantime, prices for single family homes moderated somewhat while prices for condominiums and townhomes showed little change. Victoria Real Estate Board President, Bev McIvor, says the strong sales and stable prices show continued consumer confidence in the market. McIvor added that it’s normal for overall prices to fluctuate on a month-to-month basis depending on the properties that sell in a given month. “While the average price of single family homes moderated slightly last month, the overall average price so far this year is over seven percent higher than at the end of last year.”

Moderated somewhat - moderated slightly - stable prices !! The statement is true for condos and townhouses but the average price for single family homes dropped by $27,981 (4.8%) and the median by $25,000 (4.8%) in one month!! stable prices show continued consumer confidence in the market. Oh yeah - for those of you registered for real estate PCS you know that there are big price reductions every day and some nice haircuts given out in October. Bears - stay tuned - we are on a roll here. The cold weather and Christmas season are coming up fast. Next month sales will be down, lowballers will be active and the inventory is still high. I can hardly wait for the November and December numbers.

H/T Roger...

UPDATE: I'd just like to add how funny it is in a month that the average and median prices in SFH both dropped 4.8% that VREB decided to compare the average to the 6-month to make it seem less so of a drop. Ah, spin.

Differing Opinions

I've gotten way more than my $2 worth out of the National Post this weekend. Two commentary pieces caught my eye, or rather, contradictions within themselves and each other caught my eye.

The first, entitled What subprime crisis? reminded me that I'm pretty much sub-primed out. It's almost as if the sub-prime debts have become the big bad wolf that economists and people who write about the markets can just refer to and expect us all to just get it--though apparently few do--without question. It's as if they can't explain their point using rational, reasoned, time-tested economic theory, so they just cry "wolf."

In a completely different section, and an obscure location as if editors either expected no one to read, or wanted no one to read, Our housing bubble may be the next to pop seems to have a more credible author (economics professor) and an easier sell in hhv-land.

Here are the highlights:

What subprime crisis?

Subprime does not mean the interest rate is below the prime lending rate. It means the borrower is below what is considered a prime candidate for a mortgage.

Canadians are not facing a subprime mortgage crisis.

After [subprime lenders] got the borrower to sign on the dotted line, the lending institutions packaged up the loans and sold them to hedge funds, mutual funds and private equity groups looking for quick returns.

The shares of these companies were then bought by pension funds and insurance companies looking for high returns, even though they would never have bought the risky mortgages outright.

Over the past five years, thousands of new mortgage brokers have entered the market in Canada and the U.S.

...it is true that some Canadian lenders dramatically lowered their lending criteria...

...the Canadian housing market has not been artificially driven by bad lending practices.

So, what's the lesson in all of this? Chasing short-term returns leads to an inevitable correction in any market.

Look carefully at those last three lines: lowered lending criteria, not been artificially driven, chasing short term returns = correction. Anyone else see the contradictions there? Nope, no one in Victoria has been chasing short term returns in the RE market. Not my dad with his two houses, nor my friend's parents with their two houses, nor my other friends' parents with their three houses (only one of this group happens to be rented by the way). Nope 5 people, 7 properties, 3 principle residences, 1 rental, and 3 vacant "flips." Nothing to see here kids.

Our housing bubble may be the next to pop

After a decade of low interest rates, it is no surprise that investors poured their money into real estate and the stock market.

Not raising interest rates in the foreseeable future may stave off pain for a little while longer, but the end of cheap credit is near.

...Canadian housing prices over the last decade have risen to the extent that we may also need to be concerned, given interest rate trends.

In Canada, the average MLS residential price rose from $150,720 in 1995 to reach $249,311 in 2005 -- a 65% increase.

In many cities, the price increases are so steep that homeowners are experiencing massive wealth effects as their homes appreciate, while first-time buyers are increasingly unable to afford a home.

The lowest interest rates in 40 years fueled this boom, and as prices and mortgage sizes have risen, financial institutions have "helpfully" come up with new affordability strategies, such as putting only 5% or even a zero down payment and extending amortization periods beyond 25 years.

A price-earnings ratio is the ratio of the price of an asset to its earnings flow.

...a crude P/E ratio can be constructed by taking the average MLS residential price and dividing it by the average annual rent for a two-bedroom apartment.

Declining P/E ratios can represent undervaluation, while rising P/E ratios can represent overvaluation.

...in Toronto, the residential housing P/E ratio remained at about 20 from 1995 to 2001 and then jumped to 27 by 2005.

...Vancouver, which already had P/E ratio of 31 in 1995. This actually declined to a range of 26 to 28, but then soared after 2003 and reached 35 by 2005.

Does this mean anything? Maybe no.

...in stock markets, whenever the P/E ratio for the market has risen substantially above 25 there has often been a correction, meaning a sharp drop in the prices of shares.

The P/E ratio for Canada as a whole is about 28, suggesting that the real estate market may be overvalued.

In light of the turmoil in the U.S. economy and the tightening of credit markets, which foretell a rise in interest rates, the question is not if but when the housing boom here will end.

Reading this one seems kind of familiar to anything else being espoused lately by economists: inflation concerns, rising interest rates, over-valued markets, looming correction. History has a funny way of repeating itself, non?

As an aside, with my new schedule it would appear I will have all kinds of blogging going on over the weekends. I know many of the regular readers of HHV are Monday-Friday types, so I'll make a habit of indexing the weekend posts on Sunday afternoons so you can catch up Monday mornings if you'd like. Did you like the polls?

A life sentence to the poorhouse
Weekend Poll