The stubborn seller

After a near-decade of price inflation in the Victoria real estate market, you could probably forgive sellers for the hard times they must be feeling these days as the weeks go by without a sale and the days without showings outnumber the days with showings by a wider margin. Many Victoria sellers likely believe this period will pass in short order and 'the norm' will return before they start to feel the consequences of their stubborn-ness.

Those of us who have followed this market for some time know this phenomena as "catching a falling knife."

I overheard a conversation between a seller and an agent recently* that I've re-created** here for your entertainment:

Seller: It's been 45 days since we put the house up for sale and we haven't seen an offer. Why?

Agent: The market is slow all over town right now. There's lots of houses on the market and there aren't very many buyers actively looking to make a purchase. You might want to think about dropping your asking price if you want to invite an offer.

Seller: We did that 15 days ago. You told me August was slow and things would pick up in September again so we dropped our asking price by $10,000 to attract some interest. We've had two open houses and a handful of agents walk through. And yet not even a hint of an interested buyer. Our house is worth more than we're asking for it. We've invested almost $10,000 getting it ready to sell and making it the nicest house in the neighbourhood, why no buyer interest?

Agent: The market has changed. There are far more homes for sale than buyers actively looking to make offers. Believe me, I'm hearing the same thing from my other clients and I'm hearing other agents telling me their clients are all saying the same things. You have to understand, it's not just about having a nice house anymore that people can move in and enjoy right away. I know that when you bought 7 years ago, you would have faced bidding wars on houses that needed work. That's not normal. That market was too hot to be sustainable. This market is what we call balanced. Which means you have to not only have the nicest house in your area, you also have to have the best price. Right now, we're talking about you finding the best price.

Seller: So what does that mean? Are you suggesting we drop the price again? We started at $499,000 now we're at $489,000 and there are less showings than when we were at $499,000. That doesn't tell me the price is wrong.

Agent: Do you recall when we first talked about your listing price? We looked at some comparables in the neighbourhood to determine what price your house should be offered for sale at. We had a discussion then about the condition of your house in comparison to your immediate competition. We agreed the money you'd spent on getting your home ready for sale made it nicer than the rest. We agreed this was a good thing and would likely mean that you were more likely to get more for your house than Mr and Mrs Jones the next block over.

Seller: We did. We should. Our house is nicer. It's worth more.

Agent: Have any of those houses sold yet? They haven't have they? Have they dropped their prices too? They have. You see what I mean? Your house is in nicer condition and you're asking a premium price based on that when you look at the comparables. 

Seller: Of course we are. It's worth more.

Agent: I think we should price it the same as the Jone's house around the corner and see if we can invite more viewings that way and maybe entice an offer.

Seller: Are you suggesting we drop our price over $40,000 from the original? That's crazy, we may as well give it away.

Agent: If we price it the same, you'll have the best house at the same price. If you were shopping around for a new car, and saw a BMW for the same price as a Toyota, would you hesitate to look at the BMW and maybe even buy it?

Seller: We can buy a BMW with that $40,000 you're suggesting we just give away.

Agent: You're moving right? You've already made that commitment. What are your options? Can you afford to buy your new house if this one hasn't sold? Can you afford to wait to move until this house sells at the price you think it should sell for? I have to tell you, I don't see prices going up anytime soon. They haven't really been going up for a couple of years now. So if your price that you think your house should be at is already too high, when do you see the market bringing you that price? 

Seller: You tell me, you're supposed to be the expert.

Agent: I'm telling you now. The market doesn't agree that you have a $500,000 home. The market might bear $460,000, but we won't know until we try.

Seller: If we drop the price $40,000 in only 45 days we'll be inviting low ball offers. We don't want a low ball offer.

Agent: Right now you're not getting any offers. A low ball offer is better than no offer and gives us a chance to counter. Once a buyer has made a decision to make an offer, we'll have an opportunity to negotiate. That's a lot better position than you're in today. 

Seller: So we drop our price. What happens when the Jone's drop their's too, which they did already? What then? Drop our price all over again? That would be crazy. This is Victoria, people want to live here.***

Agent: That's competition and that's the way the market works. Hopefully you'll get a buyer soon. But you'll need to be prepared to adapt to the changing conditions in the market if you really want to sell your home . 
  
* no I didn't
** by re-created I mean made-up
*** see what I did there? 

Sept 17 - Monday Market Update

MLS numbers 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. 

September 2012 month to date  (previous week in brackets)

Net Unconditional Sales: 208 (97) 

New Listings: 671 (359)

Active Listings:  4716 (4690)

Sales to new listings ratio: 31% (27%) 

September 2011

Net Unconditional Sales: 458

New Listings: 1303

Active Listings: 4940

Sales to new listings ratio: 35%

Sales to active listings ratio: 9% or 10.8 MOI

The market continues to be comatose and we're on track for again missing last year's already mediocre marks.  Meanwhile the BC Real Estate Association has been quick to lay the blame on the new mortgage rules for Vancouver's sales collapse, completely ignoring that it started before they were instituted (thanks JustWatching).  Their big brother illustrates how yearlong forecasts are useless by revising them constantly (again, credit JustWatching).  Does anyone actually use these forecasts or is this just make work by an organization trying to justify its own cost to its members?

About this time last year is when some people here made some forecasts about the end of the year, with mixed results.   Anyone care to try again just for fun?

Monday market update

MLS numbers 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. 

September 2012 month to date

Net Unconditional Sales: 97 

New Listings: 359

Active Listings:  4690

Sales to new listings ratio: 27% 

September 2011

Net Unconditional Sales: 458

New Listings: 1303

Active Listings: 4940

Sales to new listings ratio: 35%

Sales to active listings ratio: 9% or 10.8 MOI

It's ugly out there. If you were trying to sell your house last month, your agent probably told you things would pick up after the Labour Day long weekend. With just under 10 unit sales per day thus far, it's safe to say the "picking up" is closer to dropping off. 

Over yonder in the YYZ, the Competition Bureau is hearing a case against the Toronto Real Estate Board. It remains to be seen whether or not the case will have implications for all Canadian real estate boards or not, but suffice to say, this is a huge case. 

In one corner are agents who want to innovate and essentially automate the home buying experience, giving users the ability to bypass agents to access information they currently can't without a physical action by an agent. 

In the other is a bureaucratic board dominated by a few bloated brokerages with over $2 billion in annual commissions at stake. These folks believe you should have to call an agent if you want to know what your neighbour's house sold for--using the ridiculous claim that somehow knowing what your neighbour paid for their bungalow is "sensitive personal information" and that only a licensed agent is capable of determining whether or not you should know what they can easily look up with three clicks of a mouse. In other words, are you buying or selling anytime soon, or as they prefer to say to one another when we're not listening in: am I going to make 3 and 6 from these jokers or not? 

While I agree that there is a responsibility to protect homeowners for the industry, the reasoning of the TREB is well and truly the most egregious attack on common intelligence I've read in some time. 

Case in point: in B.C. every year, you can look up on the BC Assessment website what your neighbour's house sold for, if it sold last year. Otherwise you can see what the state thinks it should have sold for last July. Why does a real estate board feel this information is a breach of personal privacy? Here's the truth: they don't.

What's really sad in this whole pathetic affair is the fact that the TREB and their member agents believe their services are so devoid of consumer value that they have to resort to fear mongering in a pathetic attempt to protect their inflated commissions.

In case you were wondering, I'm wearing the Competition Bureau jersey in this playoff game.   

August sales, a sleepy disappointment

Subtitle: an emergency 200 comment update from the road.

What to say about August sales?  By all counts it's a sales disaster.  Never mind that you can still get 2.99% on a 5 year fixed, people just aren't buying anymore, and August sales are the second lowest in a decade.  The VREB maintains this is a flat, stable market; which I assume is about as positive as a flat, stable reading on a heart monitor. 

Where have prices gone?  Nowhere fast, as DavidL points out with a chart of the last eight years of August prices.  There is certainly weakness in the past few years, but not a lot of movement yet.  These donkeys will need a prod before they move.


The new rules do seem to be having an effect.  Anecdotally we've seen more offers fall through due to financing, and our mortgage broker is seeing the same: "The market is turning out to be a quite soft as approving mortgages for clients has become tougher on all fronts… Clients who would have easily been approved under the old rules are now getting turned down under the tighter requirements."
And it's not over yet.   OSFI rules are coming into effect and cash back mortgages are becoming endangered.

It's going to be an interesting fall. Just don't expect it to be exciting.

Tuesday's Monday Update

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

August 2012 month to yesterday  (previous weeks in brackets)

Net Unconditional Sales: 358 (254, 153, 75)

New Listings: 810 (620, 397, 207)

Active Listings:  4813 (4834, 4834, 4836)

Sales to new listings ratio: 44% (41%, 39%, 36%)

August 2011

Net Unconditional Sales: 542

New Listings: 1200

Active Listings: 4944

Sales to new listings ratio: 45%

Sales to active listings ratio: 11% or 9.1 MOI

Prices are weak at the moment, with the SFH average at $583k, median at $525k, and condos averaging $328k.  
Sales and new listings balance have recovered slowly from the terrible levels of the start of the month to just similarly bad as last year.   Too little too late for this month where we will likely come up 100 sales short.  However if the momentum continues maybe September will be better.  Otherwise we will be pushing 11 months of inventory for August with predictable pressure on prices.  

Orange Crush: Can government kill the housing market?

Given the current political situation in BC, it's almost a given that a new party, with very different economic goals and policies, will form government next spring. 

To be clear, this blog post isn't political. I could care less if you self-identify as a far-left moonbat dipper, a right-wing whacko or a centrist liberal who simply tries to get out in front of the herd... this post has nothing to do with your personal political leanings. Or mine for that matter.

I'm trying to answer the question: should we expect the local housing market to react to a government change next spring? 

History, perhaps, tells us we shouldn't: 

The areas highlighted by the orange are the years the NDP was in power in B.C. The rest of the time we've been governed by so-called free-enterprise coalitions under Social Credit or Liberal names. Does this chart tell us anything? You could perhaps make an argument that prices are more likely to rise, and rise further, when the NDP isn't the government, but I'm willing to bet a savvy statistician could make a mathematical argument that this is a junk claim.

Between 1972 and 1975 prices rose, but we can't say with certainty exactly what the dollar amounts were because VREB only gives us hard numbers from 1978 on.

Between 1991 and 1994, prices rose from around $192K to $256K or 25%, a nice little jump should you have bought and sold the average SFH in those years.

Between 1994 and 2001, prices fell around an inflation adjusted 21% if you believe inflation was 3% for each of those years - in non-inflation adjusted terms prices were roughly flat.

Does the provincial government establish policies that can impact the inflation rate? Economically speaking, not so much. So we can't really say with any certainty that the provincial government of the day was responsible for the financial woes apparent in our mid-to-late 1990s housing market.

There's a bit of a myth around B.C.'s population during NDP governing times in the 1990s--I fit into the myth too as I left the province for the last 5 of the 10 years they were in government to find decent work--but the data doesn't support the myth:

Population growth rates
1986-1991 = 13.8%
1991-1996 = 13.5%
1996-2001 = 4.9%
2001-2006 = 5.4%

Sure, it's true that the growth rate of B.C.'s population declined sharply after 1996, which may partly explain the housing doldrums in those years, but the rate didn't jump sharply afterwards to coincide with the rapid rise in home prices between 2002-2007 (or the change in governing party).

B.C.'s property transfer tax came into effect in 1996--this is definitely a provincial economic policy with direct effect on the housing market--but it appears to have had little to no effect on the local SFH price.

To end this post, and hopefully spark some discussion and some other contributions to the history here, I'll point out that I've failed to answer my own question and failed to bring in a number of other housing market factors (supply & demand rates, etc). What do you think? Will a change in government cause home prices to rise or fall next spring?

Market update; day-late, dollar-short

MLS numbers 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.

August 2012 month to date  (previous weeks in brackets)

Net Unconditional Sales: 254 (153, 75)

New Listings: 620 (397, 207)

Active Listings: 4834 (4834, 4836)

Sales to new listings ratio: 41% (39%, 36%)

August 2011

Net Unconditional Sales: 542

New Listings: 1200

Active Listings: 4944

Sales to new listings ratio: 45%

Sales to active listings ratio: 10.9% or 9.1 MOI

Almost 13 unit sales per day on average in August. It's F'ugly out there if you're trying to sell your home. I imagine more than a few listing agents are telling their clients "it'll pick up in September." Will it? One had better hope or one had better drop their price if one is trying to get a home sold.

SFH MTD Average = $591,274

SFH MTD Median = $539,000

Condo Average = $342,538