Is the market about to become ugly?

Here's a quick recap of what we're seeing:

• record inventory
• lowest monthly sales numbers since 2001
• lowest prime interest rate since 2001
• divergence between the BoC interest rate and the mortgage companies' posted rates nearing 3%
• MSM publishing regular stories in western cities about record employment, "we're different here" etc.
  

With April and May the two biggest sales months historically, what will we see? If the declining sales trend continues with the increase in inventory will we get across the board price reductions?

Anecdotally, in my PCS I still see, especially with condos, high asking prices and very little price reductions ($5K or so). I'm not seeing much activity in SFH listings in the $400K range.

Looks to me like the bulls are digging in their heels in this game of tug of war.

Realtor Ethics and Contracts

A family I know want to move. They called a Realtor to help them purchase a new house. Realtor finds out that they currently own their own home and sees an opportunity to get two commissions. So Realtor comes round to discuss their options.

This family is looking for a pretty specific scenario. They want to downsize but stay in a SFH. They have about 85% equity in their current home and when they sell they ideally want to spend no more than 85% of the sales price on their new place thus freeing themselves from a mortgage.

Their plan was to take their time finding a new house that fits their needs and make a conditional offer subject to them selling their own place. Their Realtor's plan is to sell their house first, thus creating a pressure situation that will force them to buy a new place quickly. This family feels like this situation could at best get them into a house they aren't completely satisfied with and at worst get them into a financial situation that has them in worse shape than the current good state of their financials now.

Somehow in the confused state of the arguments for and against the Realtor's advice, this family found a sign on their front lawn and copy of a contract that they don't quite understand why and how they agreed to sign in the first place.

Here's my question to Realtors reading this blog: what happens if a seller decides to break their contract in the immediate week after singing it, prior to the listing going on MLS? Should Realtors be subject to a "grace period" or "cooling off" period where there is a reasonable time limit on buyer's or seller's remorse, say like a week? where the seller can change their mind consequence free?

To me, the whole scenario paints an ugly picture of the industry. These people were told by the Realtor that in this market, conditional offers aren't being accepted. They were told that they should prepare themselves for bidding wars on good properties.

It seems to me that the Realtor could have secured two commissions by giving good service. Instead, hopefully, this Realtor will lose out on two commissions by being a snake. The trust is blown for these people. They have already told the Realtor that they won't be buying through them now.

Let's hear your thoughts and advice...

...in most markets, renting wins: Redux

Mrs. HHV moved to Vancouver. She found a rental in the West End, exactly one block from Stanley Park. It's a beautiful, character one bedroom apartment. Great building, great location, wasn't the easiest search, but it took only a week and she got the place and it's about as perfect as one can get for a rental.

We pay $900 in rent, $25 for parking, $25 for hydro and $50 for cable/internet. This is more than we paid in Victoria at our old place by about $100 per month (I still live in Victoria, but found a zero rent family place). The place is about 100 SF smaller than our old place, but at 650 SF is big in relative terms for a one bed suite.

Let's take a look at the competition: MLS # V701479. 508 SF at $284,900. $125 Strata fee, roughly the same $100 per for bills, plus mortgage of $1650 (25 year amortization with 10% down) for a total of $1875 per month compared with $1000 per month for renting a slightly larger place on a slightly better street in the same great neighbourhood of town.

Ask yourself if you'd rather have that $875/month invested in a rapidly building condo market that is demonstrating some economic cracks or in something safer, like say, a balanced mutual fund? We did, and even in this market, renting won.

I'll be back in Victoria in the next week or so (politics ended my trip to the top of the world prematurely) and will continue this blog's focus on the Victoria real estate market in these most interesting of times. Thanks for the great commentary in the previous post. I haven't read them all, but it looks like this blog didn't die a fast death after all.

Open Post

I'm off to the top of the world.

Remember to stay the course Bears, we're so close.

Here's your open thread for posting. I'll be back to continue this where I've left off in early June.

...in most markets, renting wins.

“When the average family can no longer afford the average home, how can so many people be deluded into believing a boom will last forever?” he asks. “How could we put so much money into something we might never be able to sell, except to a greater fool?”

H/T to Roger for the link.

Discuss away.

What do developers do...

when they (collectively) can't sell enough condos to keep themselves out of receivership? (6 in six weeks I believe it is now)

Why, build more of course:

A big boom in condominium and apartment construction boosted February housing starts to levels that far surpassed market expectations, CMHC said Monday.

The seasonally adjusted annual rate of housing starts was 256,900 units last month, up from 222,700 units in January, CMHC said.

That was much stronger than the consensus estimate of 210,000 units that the market had been expecting.

"February's housing starts figures highlight more than ever the stark contrast between the Canadian and American new home markets," said Pascale Gauthier, an economist at TD Bank Financial Group.

But Gauthier and many other analysts expect the building surge won't last.

"The deterioration in affordability and growing economic uncertainty should gradually slow home building activity in the months ahead," said a commentary from BMO Capital Markets.

The CMHC also said it's unlikely the torrid pace will continue.

"Despite this sizeable growth in February, we continue to expect that the trend in housing starts will decrease gradually between now and the end of 2008," said Bob Dugan, chief economist at CMHC's market analysis centre.

Construction of urban multiple-family units jumped 30.3 per cent to 140,700 units in February, while singles rose 1.8 per cent to 83,000 units. The overall seasonally adjusted annual rate of urban starts increased 18.0 per cent to 223,700 units compared to January.

Urban starts rose by 45.2 per cent in British Columbia, 26.2 per cent in Quebec, 16.9 per cent in the Atlantic region and 16.4 per cent in Ontario. The Prairies witnessed a decline of 9.6 per cent last month, CMHC said.

Rural starts were estimated at an annual rate of 33,200 units in February.

Of course, this isn't a carbon copy of what went on in the states right before their RE market avalanche.... up here in lotusland it's different.

Every night I go to bed saying a little mantra... "when I get home from my trip people will be rational." One can only hope; it may be the only thing that keeps those who bought in the last six months out of the loonie bin.

Real estate T-Ball

When I was a kid I was lousy at baseball. So I played T-ball, because that meant the ball was set up for you and all you had to do was step up to the plate and smack it as hard as you could.

Today, VREB set the ball up for all us bears to step up and smack it out of the park. And all you have to do is NOTHING. DON'T BUY. WAIT. IT'S HAPPENING!

These are busy months in RE. Prices should be creeping up along with sales. But the only thing creeping up is listings. Prices and sales are headed down. You can grease the slide by doing NOTHING. Except if you own a property, especially a second or third property that you currently spend an extra $1000 or so a month on subsidizing someone else's living, you can grease the slide by LISTING that money-losing property. And get out while the getting may almost be categorized as good.

Property Sales Moderate in February

The number of sales of homes and other properties in the Greater Victoria area moderated in February. There were 619 sales through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®) in February, down from the 707 sales in the same month a year ago. There were 464 sales in January.

Victoria Real Estate Board President, Tony Joe, says the market continues to be well-balanced with strong demand for homes that are realistically priced coupled with a growing selection of available properties for sale. "The total number of properties available for sale rose to 3,311 in February - a 13 per cent increase over February of last year," noted Joe. Last month over 27 per cent of single family homes sold for under $450,000 while nearly 37 per cent of condominiums sold for under $275,000. At the higher end of the market, Joe noted that there were nine sales in Greater Victoria and one sale on the Gulf Islands of over $1 million.

The average price of single family homes sold in February in Greater Victoria was $587,295; the median price was lower at $543,500. The six-month average for single family homes was $588,826. The average price of all condominiums sold in February was $333,408; the average for the last six months was $334,577. The median was again lower at $299,450. The average price of all townhomes sold last month was $422,607; the six month average was $426,685. The median price was $395,000.

MLS® sales last month included 316 single family homes, 177 condominiums, 73 townhomes and 13 manufactured homes.

My favourite line here is "strong demand for homes that are realistically priced." What this actually points to is two things. First of all, no one can afford anything but the lowest end of our market. Realistically priced means that only homes under $475K are realistically priced. Given that a full 3/4 of homes in Victoria are above that mark, then 3/4 of home owners are out to lunch on what is realistic for their properties. And secondly, why is anyone buying right now when clearly the two-month-does-not-a-trend-make is telling you that the longer you wait the cheaper these houses are going to be. Feels good to be a bear today. Even if I am getting a bit ahead of myself.

Personal anecdote related to a previous post about how we almost bought two months ago: the condo sold for $13K below asking, which means had we taken the support we were offered we would not have really received the full value of the support. This point is not meant to belittle the significant value of the help that was offered to us. But seeing as how in a sudden, unplanned turn of events, we would have had to list this place as soon as it closed, we would have either lost out financially or sentenced Ms.HHV to having to turn down a great career moving opportunity. That place would have cost us $25K (sold less plus the Realtor commission) in two months. Crazy when you put it into perspective eh?