Monday, November 18, 2013

Nov 18 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.


November 2013November
 2012 
Wk 1Wk 2Wk 3Wk 4
Unconditional Sales140
224


366
New Listings276408

706
Active Listings41184077

4488
Sales to New Listings
51%
55%

52%
Sales Projection490428


Months of Inventory
12.3

It's interesting to keep on eye on the mortgage industry insiders, and they're getting nervous again.  According to Rob McLister at CMT, "We’d submit, however, that there is no need to wonder if we’ll get new mortgage restrictions. It’s a given that more regulations are coming. The only questions are what rules to expect and when."  These possible upcoming limitations might be more obtuse to the average consumer, but the effect is the same: reduced access to credit.

157 comments:

Dustin said...

reduced access to credit --> reduced ability to pay --> reduced home prices to come.

koozdra said...

I think we all know the answer to poorer affordability... slot machines. If ferries can do it so can I. Who wants to take their chances at Casino Koozdra?

koozdra said...

OECD calls for Bank of Canada rate to more than double to 2.25% by end of 2015

"The central bank has kept its policy rate fixed at 1% since September 2010, leading to one of the most stable and favourable borrowing environments in many decades."

Is there a methadone equivalent for the debt addicts?

PD said...

I'm actually hoping for bank rates to triple in the next few years like the late seventies. That was the fastest my house ever doubled in value.

koozdra said...

"I'm actually hoping for bank rates to triple in the next few years like the late seventies. That was the fastest my house ever doubled in value."

Lower rates see house prices double in ten years. Higher rates... another doubling? or halving?

To the real estate believer any rate movement will increase prices. Nothing stops the bubble... nearly nothing.

caveat emptor said...

with the Canadian and global economies about to return to more stable and predictable growth, that period is coming to an end.

Problem is the policy makers have been calling for that elusive full recovery since about 2009 and it keeps getting pushed further into the future.

According to the pundits the BoC was going to raise rates in 2012, 2013, 2014, and now 2015.

When they finally come they will be a welcome sign - I hope - of a genuinely strengthening economy.

CS said...

According to the pundits the BoC was going to raise rates in 2012, 2013, 2014, and now 2015.

Low rates are intended to encourage people to borrow and spend as much as possible, while the threat of imminent rate increases is intended to prevent the bad effects of people borrowing and spending as much as possible.

And anyhow the warnings about rate increases give the bankers some cover when rates are increased and the bubbles they created collapse thereby necessitating taxpayer bailouts of the banks.

Just Jack said...

Depending on where the market is in its cycle, like PD said rising interest rate may trigger higher prices.

In the late mid 1970's there was a construction boom in Victoria. Most of Gordon Head was built at that time where you could have your choice of four floor plan layouts.

That created economic activity with jobs and bigger bank accounts for most people. A rise in interest rates made the fence sitters jump into the market and fueled more demand for housing and higher prices.

But would a rise in interest rates do the same thing today as our economy is ebbing and Canadians are at their highest personal debt levels in history?

CS said...

I'm actually hoping for bank rates to triple in the next few years like the late seventies. That was the fastest my house ever doubled in value.

During the 70's inflation averaged 10% while wages rose even faster, resulting in an inflation adjusted increase of around $3.00 per hour over the course of the decade (see Chart 1 here).

Thus the seventies was a period during which RE prices rose rapidly from a low base, when rising incomes made it possible for mortgage holders to handle increased monthly payments, and while the value of the capital due for repayment was being rapidly inflated away.

Now real wages are falling, house prices are flat or falling, and inflation is not eating away the value of the money you gotta repay.

Anyone expecting the teens to turn out for mortgage holders like the 70's is likely, therefore, in for a disappointment.

CS said...
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CS said...
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CS said...

And in the 70s, mortgage lending was much less liberal than today, so the stakes were generally lower. Payments were limited to no more than 30% of income, with only a portion, I think half, of a wife's income being counted.

caveat emptor said...

@ CS I agree this won't be a 70's replay.

However according to Statscan real wages are now rising.

Canada wide wages went up 1.9% Oct 2012 to Oct 2013. Inflation was 1.1% in the same period. Surprisingly BC did better wages up 2.5% and inflation at 0%

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/labr69a-eng.htm

http://www.statcan.gc.ca/daily-quotidien/131018/dq131018a-eng.htm

koozdra said...

Canadian housing 26% overvalued, ratings agency says

PD said...

It estimates that current house prices are overvalued by up to 26 per cent in some regions, and will fall by as much as 10 per cent. Let me guess, TO and Van.

PD said...

The way I got it figured, inflation would only have to triple, from 1% to 3%. That's not too hard to imagine. Combine that with the tsunami of retirees headed this way by 2020, and we're soon off to the races again.

CS said...

Canada wide wages went up 1.9% Oct 2012 to Oct 2013.

No they didn't. Hourly wage rates went up 42 cents year on year, but wages, i.e., hourly rate times hours worked, are declining according to Stats Can:

"the average Canadian wage declined outright in September — 0.3 per cent to $872.75." (See the reference I gave above.)

CS said...

inflation would only have to triple, from 1% to 3%

At that rate prices double in 23 years, while wages, if rising in line with hourly rates, i.e., 1.9%, would double in 52 years.

I think you'd find the math didn't work for you.

CS said...

Canada wide wages went up 1.9% Oct 2012 to Oct 2013.

No they didn't. Hourly wage rates went up 42 cents year on year, but wages, i.e., hourly rate times hours worked, are declining according to Stats Can:

"the average Canadian wage declined outright in September — 0.3 per cent to $872.75." (See the reference I gave above.)

caveat emptor said...

@CS - I think your article referred to Sept 2011, whereas the table I referenced was the year up to last October.

Check out this table which shows average earnings (not wages) for the last few years.

info said...

Canada’s housing bubble is larger than the 2006 US housing bubble.

The following metrics are the most important when considering the size of any housing bubble. Using these metrics, let’s compare Canada’s current housing bubble to the 2006 US housing bubble.

Keep in mind that incomes in Canada and the US are about the same and have been for a long time.

1. Overall increase in house prices (first chart):

Canada: + 124% (2000 to present)
US: + 53% (2000 to the peak in 2006)

2. Increase in price-to-income ratio (first chart):

Canada: + 56% (2000 to late 2011)
US: + 24% (2000 to peak)

3. Increase in price-to-rent ratio (second chart):

Canada: + 73% (2000 to late 2011)
US: + 35% (2000 to peak)

4. Increase in household debt-to-income ratio (third chart):

Canada: + 53% (2000 to present)
US: +41% (2000 to peak)

5. Increase in percent of labour force employed in construction (first chart):

Canada: + 43% (2000 to present)
US: + 10% (2000 to peak)

6. Increase in residential construction as a percent of GDP (second chart):

Canada: + 56% (2000 to present)
US: + 38% (2000 to peak)

7. Increase in real estate investment as a percent of GDP (second chart):

Canada: + 63% (2000 to 2012)
US: + 41% (2000 to peak)

8. Canada’s home ownership rate (70%) is higher than the US home ownership rate (69%) at peak.

info said...

@ PD

"I'm actually hoping for bank rates to triple in the next few years like the late seventies. That was the fastest my house ever doubled in value."

You forgot to mention that house prices in Victoria crashed 52% from 1981 to 1986 (scroll down to Victoria's chart), after the late 70s price run-up. Prices went right back to the pre-bubble level. I doubt you liked that very much.

Victoria's current housing bubble is much bigger than late 70s bubble. Victoria's bubble has already burst and corrected 10-15% in an environment of falling interest rates. Rates have stopped falling. Without that strong force pushing upward against falling home values, downward price pressure will become even more dominant.

CS said...

@CS - I think your article referred to Sept 2011, whereas the table I referenced was the year up to last October.

Check out this table which shows average earnings (not wages) for the last few years.


No, the article I referred to gave the average wage for September 2013, which was $875.75, $52 less than the figure you cite for 2012.

So in fact wages have fallen in nominal terms, beside the loss of purchasing power since 2012.

info said...

"Depending on where the market is in its cycle, like PD said rising interest rate may trigger higher prices.

In the late mid 1970's there was a construction boom in Victoria. Most of Gordon Head was built at that time where you could have your choice of four floor plan layouts.

That created economic activity with jobs and bigger bank accounts for most people. A rise in interest rates made the fence sitters jump into the market and fueled more demand for housing and higher prices."

The chart I referenced in an earlier post shows that Victoria experienced a housing boom in the late 70s, but that created a bubble that crashed 52% from 1981 to 1986.

Victoria's current housing bubble began forming in 2000 but burst in 2010. Prices are still deep in bubble territory. If the BoC were to raise rates, it would create additional downward price pressure. Raising rates would not push house prices higher.

CS said...

Good stats, Info. All that's missing here now is the 18 consecutive central bank rate increases that drove the US Fed Funds rate from 1% to 5% in a couple of years.

When you think about the underlying mechanism — a drop in interest rates to an emergency low, followed by a massive spike — the US housing bust looks less like a bubble of the tulip or South Seas variety than an engineered disaster, which appears to be a regular feature of Bush presidencies (remember the Savings and Loans disaster under Bush One).

Just Jack said...

This isn't the first time Victoria has had a baby boom. There was a baby boom after the first world war in 1918. That was the cause of the housing boom some 55 years later in the mid 1970's. When WWI baby boomers began to retire to Victoria which collided with the WWII Baby Boomers begining to buy their first home. Afterall you have to be able to sell your starter home to some one in order to move up the property ladder.

There was also a correction that coincided with the WWI baby boomers dying. That was in the mid 1980's, 65 years after the WWI baby boom.

The WWII baby boom caused the housing boom, 55 years later in the early 2000's. That coincided with a baby boom that happened in the mid 1970's who were starting to buy.

So what happens in 2020? The WWI boomers are now all dead. And the WWII boomers are dying off at an acelerating rate. A small baby boom that happened around 2005 isn't able to compensate for the die off rate of the WWII boomers. The small boom in the mid 1970's won't start to retire until 2030.

I don't see any tsunami of retirees beaching themselves on Gonzales or Willows in 2020.

If you look at the graphs, you'll see that there is a dramatic drop off in births in 1963-1965 with the birth control pill is in wide use - that coincides 55 years later with 2020. At the same time as baby boomers are dying off.

CS said...

What we can be fairly sure of is that there won't be a spike in Canadian rates before the 2015 election (cf the OECD call noted above realistically demands no change in BoC policy before the election).

info said...

"It estimates that current house prices are overvalued by up to 26 per cent in some regions, and will fall by as much as 10 per cent."

"Let me guess, TO and Van."

Actually, Victoria is the second least affordable city in Canada, not far behind Vancouver in that regard.

Vancouver is the second least affordable city in the world.

info said...

"The way I got it figured, inflation would only have to triple, from 1% to 3%. That's not too hard to imagine. Combine that with the tsunami of retirees headed this way by 2020, and we're soon off to the races again."

Retirees from other parts of Canada will not be moving to Victoria for retirement any more in 2020 than they are now.

Why? It is much more expensive to buy a condo in Victoria than it is in warm retirement cities such as Phoenix.

This 2 bed, 2 bath Phoenix condo is valued at $80 K. (5302 E. Van Buren St.)

A condo like this in Victoria would probably cost $300 K or more.

info said...

@ CS

"Good stats, Info. All that's missing here now is the 18 consecutive central bank rate increases that drove the US Fed Funds rate from 1% to 5% in a couple of years."

Japan's housing bubble crashed while interest rates there were 0%.

50 other national housing bubbles have burst and crashed in the past 40 years.

Rising interest rates is not a necessary condition for a national housing bubble to burst and crash.

The average Canadian cannot afford the average Canadian house without extreme leverage. The Canadian economy is weak and getting weaker. Canada's housing bubble will burst and correct/crash.

PD said...

At that rate prices double in 23 years

It should only take ten years to double again; 1970-80 doubled, 1985-95 doubled, 2000-2010 doubled, 2015-2025 doubled? The common error you are making is confusing consumer inflation with asset inflation. My rrsps show just how dramatically asset prices can soar during periods of low inflation. Real estate is one asset, especially here in BC, that requires some consumer inflation to do well. Hence why I'm shooting for 3% combined with the retirement wave.

Just Jack said...

The five best deals I have seen in the last 30 days.

A 60 year old basement entry home on an 18,000 square foot lot in the Cedar Hill hood of Saanich East. Sale price $460,000.

A WWI war shack in an area of Fernwood. Sale price $381,000. But you get 1400 square feet and a low ceiling basement on a level 6,000 square foot lot. Better than shelling out $480,000 for one-story on a rock out crop.

2,773 finished square feet on a 8,750 square foot Gordon Head lot. And you get a basement suite to pay for all the Oil you'll be burning heating this dated monster. Sold for $507,500

Another home in Fernwood - I mean Oaklands. You get a character home built by a pensioned British soldier from the First World War on a 7,200 square foot lot. Almost 1,200 square feet on the main and 1,200 square feet of unfinished lower level that Victorians call a basement and the rest of the world call storage. Yours at $442,000

And a one-storey home with nearly 1000 square feet of living space enough to put 3 micro condos in, for $390,000 in the Cedar Hill hood.

4 out of the five have never been on the market in the last 30 years or more. Most were vacant and all had not seen a paint brush in Poodle's life time.

koozdra said...

Here's another great one.

Mortgage Credit Growth Over the Years

That's 1.1 trillion dollars of outstanding mortgage debt. Will that get paid back ever?

Or, as delusional boomers such as PD think, house prices will double again.

3 trillion here we come.

caveat emptor said...

@CS

No, the article I referred to gave the average wage for September 2013


The dateline says Nov 2011 so they must have had a crystal ball

CS said...

The dateline says Nov 2011 so they must have had a crystal ball

Oh, right. You're right.

OK, wages increased by 1.9% in the last year, or net of inflation about 0.9%. Some people will need more than that to cover any substantial rise in mortgage rates.

CS said...
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CS said...

The common error you are making is confusing consumer inflation with asset inflation.

So you may think!

But your confidence that house prices will keep doubling in an era of near flat wages seems hardly realistic.

During the first decade of the 21st century, wages for all employees in Canada increased at a compound rate of 2.1%, and there is no reason to suppose that wage gains will accelerate anytime soon. yet you think house prices will double every decade, which is to say that they will increase at a compound rate of 7%. This starting from the point when 30% of Canadian home owners report being "very unhappy" with their debt situation, notwithstanding that mortgage rates are at a record low.

PD said...

But your confidence that house prices will keep doubling in an era of near flat real wages is hardly realistic.

You are overlooking that the incoming wave of retirees aren’t going to be working. They are moving here from big cities where they are selling million dollar houses. For clarification, I don’t necessarily think “house” prices will double. However I’m sure “home” prices will double. Retirees want things like easy maintenance, security (not ground level entry), near amenities and health care.

PD said...

30% of people are unhappy with their situation...wow, breaking news, has that ever been any different.

koozdra said...

"However I’m sure “home” prices will double."

The economy can buckle but the retirees will be just fine. They'll be able to sell their million dollar houses to the kids that will soon be declaring bankruptcy left and right.

Sorry to disappoint you but my generation spent all our money already. We're fresh out. Hopefully these retirees rope in some stupid young person soon because time is running out.

Ask some people selling in Metchosin how long it's taking them to sell their million dollar homes. It takes investors to buy these homes, not young deadbeats with no savings and shitty jobs.

Tick tock, let's race to the bottom

Leo S said...

Or, as delusional boomers such as PD think, house prices will double again.

Hey makes perfect sense. After all they have doubled in the past so why not just keep doubling?

The fact that Victoria has been so weak in a period when demand should be ramping up from boomers is pretty strong evidence that the retirement wave is not all that PD believes it to be.

The best scenario we can hope for is flat.

caveat emptor said...

"The best scenario we can hope for is flat."

Another 10 years of flat or very slowly declining house prices would be perfect for killing the idea that RE is a speculative asset rather than just a boring old place to live.

A rapid crash like in the US (or in the stock market not so long ago) just seems to sow the seeds of the next bubble.

Beats me how anyone believes housing in Canada can double again in the next decade. Maybe in Prince Rupert and Kitimat if Christie's LNG vision comes to fruition

patriotz said...

The common error you are making is confusing consumer inflation with asset inflation... Real estate is one asset, especially here in BC, that requires some consumer inflation to do well.

The error you are making is confusing consumer inflation with wage inflation. It's wage inflation that's needed to support RE prices, and consumer inflation without wage inflation is negative for RE.

PD said...

Good morning Victoria. Again, I don't see why we will need much wage inflation for the incoming retirees. In any case as emptor pointed out, we now have rising 1.9% wages over the past year, so it looks like we’ve turned the corner on consumer and wage inflation.

Marko said...

The fact that Victoria has been so weak in a period when demand should be ramping up from boomers is pretty strong evidence that the retirement wave is not all that PD believes it to be.

I don't think it is that easy for boomers to move unless they have family in Victoria. If you've lived in Calgary your entire life your entire social circle would be there. What are you going to do in Victoria? Probably better off staying in Calgary and buying a place in Arizona for the winter months.

Also, what I am noticing locally is elderly people are moving very late in life. A lot of them are riding it out in their 2000 to 4000 sq/ft homes.

A lot of them also don't like the numbers. For example, their dated 3000 sq/ft 1970s Broadmead homes is worth 650k and then the downsizing option, a brand new townhome is 550k. After they pay all the fees and taxes it is a lateral financial move.

The impression I get is people want to downsize from their dated home to something smaller, but newer, and they want to pocket a ton of cash. Usually doesn't play out this way so they just don't move.

PD said...

It sounds like you must be set on a house Marko. We all sell ourselves in the direction we're headed.

What surprises me the most about this market is you have people getting places at 1/3 off assessed price, and then you have people still paying 1/3 more than assessed like 240-188 Douglas Street that sold two days ago. I guess it's across from the park, but $510,000 for 1250sq feet in an older building with $500 per month fees. Each their own. I'll walk the extra block to the park.

CS said...

Since PD cannot be shaken in the belief that 1.9% yearly wage increases will support 7% yearly house price increases, perhaps I can change the subject by asking if anyone knows what happens, when a strata unit is sold, to the vendor's share in the contingency fund? Is it understood to be included in the sale price, or what?

Any advice would be appreciated.

CS said...
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PD said...

Victoria, B.C. #1 Retirement Destination for Canadian Boomers
15 per cent of Boomers chose Victoria as top retirement destination in Canada – Small-town Ontario, Montreal and Toronto area also popular – Cost of living, local tax rates and access to health care key considerations when choosing where to retire.
Residents of Alberta, Manitoba and Saskatchewan are most likely to relocate for retirement.
The report also found that Canadian Boomers prefer to stay close to home, with only a small number considering relocation outside of Canada upon retirement.


You also have to ask yourself, do developers like Chard, Concert... pay or subscribe to research organizations who study economic and demographic trends before building hundreds of units?

koozdra said...

"15 per cent of Boomers chose Victoria as top retirement destination in Canada "

The question is have these people done any research. Sure they would like to move here when asked on the phone but are they prepared to pay 300 grand for a decent condo?

I know, I know they'll make mad money on their house if they can find some bleary eyed young person to fund them. That's getting harder and harder though.

The boomers had their chance. Now it's too late. Even if your theory is correct that we will have a massive boomer sell off, or as we like to call it the "boomer trigger", then supply will vastly overwhelm demand. Prices will tank as desperate people lower their prices. Those that don't can sit on their front lawn in their underwear and yell at their neighbors for dragging down the prices in the entire neighborhood.

The race to the bottom.

CS said...

And the outlook for young folks just entering the housing market is really looking up, according to the Globe and Mail:

Median earnings for men (in constant dollars) fell 11.2 per cent between 1981 and 2011 (to $36,600)...

The typical 25-to-34 year old is now making wages that are 11 per cent lower than they were for the same aged person in 1976 - even though their education levels (and student loan repayments) are higher ...

koozdra said...

"Cabin"

$750 / 300ft² - cabin (saanich)

Just Jack said...

I'm sure that Chard and Concert do perform market research. That shows up in the target market in their advertisements.

A look at their sites on the net shows that they are advertising to young urban professionals and not retirees.

That's different from a decade ago when the target market was retirees.

Just Jack said...

Most retirees I know would prefer to live 6 months in the Summer in BC's interior and the other 6 months in Arizona or Mexico.

As for health care:

According to the site www.internationalliving.com, health care in Mexico is described as very good to excellent while being highly affordable, with every medium to large city in Mexico having at least one first-rate hospital. In fact, some California insurers sell health insurance policies that require members to go to Mexico for health care where costs are 40% lower.

info said...

Huffington Post: Canadian Housing Bubble? 9 Signs We're In For A Major Correction:

"Some of the World's Most Trusted Economic Sources Are Worried.

Goldman Sachs has warned of a "large correction" in Canada's housing market, due to what it sees as overbuilding of housing units.

Renowned U.S. economist Robert Shiller fears Canada is experiencing the U.S.'s housing bubble burst but in "slow motion".

Nobel-Prize winning economist Paul Krugman thinks Canadians have taken on way too much debt, and a "deleveraging shock" is likely in the cards.

The Economist Magazine calls Canada's housing markets among the bubbliest in the world (second bubbliest in fact), noting that house prices are way above normal levels compared to rent and income.

The Organization for Economic Cooperation and Development (OECD) says Canada has the third-most overvalued housing market in the world, and is part of a group of countries "most vulnerble to the risk of a price correction"."

Victoria is the second least affordable (second most overvalued) housing market in Canada behind Vancouver.

While most Canadian cities experienced price increases from 2010 to 2013 due to falling 5-year mortgage rates, Victoria's housing market declined 10-15% from its 2010 peak. This market weakness, despite falling rates, will become magnified now that rates have stopped falling. That means bigger price declines. In the absence of the strong upward force of falling interest rates, downward price pressure will become much more dominant in the Victoria market.

It will take years for Victoria's housing market price correction/crash to play out.

info said...
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info said...

. . . . . . . . .Percentage Price Decline From Peak (MLS HPI). . . . . . . . .
. . . . . . . . . . . Greater Victoria - Single Family Homes. . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .( 6 month high-low chart ). . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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info said...

My 6-month high-low price chart was put together using MLS HPI data for SFHs.

There have been 7 consecutive (6-month) price bars with lower highs since the peak in 2010. A SFH price downtrend has been firmly established in the Victoria market.

Leo S said...

15 per cent of Boomers chose Victoria as top retirement destination in Canada

I wouldn't attach any meaning to that survey. If someone asked me I'd say I want to retire to Hawaii but not actually going to go there.
What they need to do is actually count real retired people. How many are moving out of their home towns and across the country to Victoria? I bet the number is very small.

Vancouverites may move over and their house prices could fund such a move, but I doubt there are that many in other cities that will actually end up here. Partially because unless you are a recluse, your family and friends are probably more important to you than the weather, and because you likely can't afford to even if you wanted.

PD said...

Truthfully, I don’t attach much meaning to the surveys. It is impossible to know how many of us ten million 47 to 67 year-olds will actually end up moving here. I still believe it will be considerable on our market over the next 15 years or so, however difficult to quantify. I say 15 years since the majority of us are early fifties. Also as price takes off again, this will of course limit the numbers coming.

I’m curious where the TV commercial is getting their 75% from?
“We know that Victoria is where 75% of Canada’s Boomers want to live!”
http://www.youtube.com/watch?v=ztm5qe-D88o&feature=youtube_gdata

koozdra said...

"Also as price takes off again, this will of course limit the numbers coming."

It's just really hard to tell if this person is being purposefully obtuse or not.

Citing a real estate commercial?

Are you for real, dude?

koozdra said...

PD =? Patrick Derricourt

koozdra said...

Poloz says Canadian housing market not a bubble, predicts soft landing

"The central banker, testifying before the Senate banking committee on his latest economic outlook, said he believes the most likely scenario is a soft landing where home prices stabilize, although he acknowledged that an imbalance in the market and high household debt remain key risks."
...
"Poloz said most of the fundamentals surrounding the housing market appear headed in the right direction. The prospects for the economy is improving, he noted, which should create more jobs."

The BOC just changed their stance on forward guidance because their outlook for the economy was so terrible. Suddenly it's all puppies and rainbows. Except for those pesky external factors. Surely it's nothing we've done. We had no choice.

Low rates are the new economic driver.

There's just no winning for the housing market. You give it a little leash and it starts pulling. You yank on the leash and it starts chocking. Such a fine line.

CS said...
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CS said...

It will take years for Victoria's housing market price correction/crash to play out.

Not exactly how bubbles burst. The Victoria market is more like a tire with a slow puncture.

And if Poloz handles the leash on the money supply just right, we'll see the $C dollar continually whittled down against the $US, giving a more competitive edge to our resource and auto industries, thus allowing some wage growth as measured in loonies, if not in wilting greenbacks let alone constant dollars.

The upside to this is that the thrifty but financially illiterate who keep their money in GIC's or, what amounts to almost the same thing, under the mattress will continue to be robbed of purchasing power, while the real cost of mortgage repayment will be diminished through inflation.

The downside to this is that the OECD calls Canada a currency manipulator, passing off the worst of its unemployment problem to others by trashing the dollar. Thus the OECD demands that Canada raise interest rates no later than immediately after the next election, advice which if followed could turn the housing market slow leak into a splendid bust.

According to the OECD, what a government's supposed to do is let the unemployed rot indefinitely, so that the specter of the mass army of the unemployed disciplines those who still have a job into accepting ever diminishing real incomes.

But Canada, home to the late Jane Jacobs, the most articulate advocate of currency manipulation, has in the past more sensibly let the loonie follow whatever erratic course served the best interests of the political party in power. Presumably, that's how it'll be this time too.

Just Jack said...

When I finished University, my thought was the longer it takes to pay off my student debt the more inflation will whittle it down.

That didn't work out to well as my wages didn't increase. I was still paying the same percentage of my income towards the debt.

If you want to pay off your debt through inflation you'll have to demand a wage increase every year from your boss. And always be prepared to move to a new job when your boss says no.

That's a lot easier if you don't have a mortgage. This is the reverse of the so called Golden Hancuffs. You've reached the highest pay scale in the company, but you can't relocate for a better paid job because of your mortgage.

That leaves you income poor but house rich. Having to worry if this next interest rate increase, at renewal time, means you'll have to amortize to a longer term.

The "never never" plan to home ownership or how to buy a home in Vancouver.

I think it's still possible to be mortgage free in Victoria today. As long as you don't have children - then most middle income households would slip into the never never plan. Constantly blending and extending their mortgages.

info said...

@ CS

"It will take years for Victoria's housing market price correction/crash to play out."

"Not exactly how bubbles burst. The Victoria market is more like a tire with a slow puncture."

Victoria's housing bubble burst in 2010, that is a fact.

So far, the price decline has been 10-15%. It would have been much more if it hadn't been for crashing interest rates.

Interest rates have stopped declining. That powerful force that has been pushing upward against falling prices has been eliminated. This will allow downward price pressure to become even more dominant.

You (and some other mortgage holders) think that the price decline cannot accelerate from this point onward. This is incorrect thinking. Can you provide an example of this from the past?

The fact that house prices have only declined 10-15% in 3.5 years does not make the Victoria market immune from a much faster rate of decline in the near future.

Time alone does not provide support for bubble house prices. Rents and incomes in Victoria are still far below house prices in terms of being able to provide support. It would take many years for incomes and rents to catch up to prices.

As prices in the US deflated, incomes took a hit. In fact, incomes in the US have still not caught up to 2008 levels. The same thing will happen in Victoria and the rest of Canada.

It appears that incomes in Victoria peaked in 2008 (this chart does not include data after 2011), and may still be below 2008 levels (scroll down to Victoria's chart).

info said...

This chart shows that incomes in the US have not recovered the peak reached in 2008.

Major housing market price corrections always have a negative impact on the economy and incomes. Canada will go through this as well once prices begin to correct across the country.

Japan is another good example of this. House prices in Japan peaked in 1991 and are still in the dumps along with the Japanese economy.

Housing bubbles are a bad thing. Period. All they do is temporarily mask problems with the economy until they burst. Once prices start their major correction (that always happens), the economy takes a major hit. When prices are done correcting, the (damaged) economy is worse off than it was before the inflation of the housing bubble.

koozdra said...

The Condo Game

Introvert said...

When I finished University, my thought was the longer it takes to pay off my student debt the more inflation will whittle it down.

That didn't work out to well as my wages didn't increase.


I can see your university degree did you a lot of good: you don't know the difference between "too" and "to."

Introvert said...

Housing bubbles are a bad thing. Period.

I keep forgetting that the world is black-and-white. Thanks, info.

Regarding bubbles, I bet many seniors in Point Grey would beg to differ.

soperj said...

FYI Introvert, in Canadian/British English the period goes outside the quotes.

Introvert said...

FYI Introvert, in Canadian/British English the period goes outside the quotes.

That's a style choice.

info said...
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info said...

Victoria's economy will feel the sting of this.

It can't be good for house prices.

info said...

"Housing bubbles are a bad thing. Period."

"I keep forgetting that the world is black-and-white. Thanks, info.

Regarding bubbles, I bet many seniors in Point Grey would beg to differ."

Obviously I was referring to the overall effect it has on the economy and the financial well being of young families and the future financial well being of future young families.

Today, most young families in Victoria are forced to pay 8 times their household income (with extreme leverage) to buy a (bubble-priced) house that their parents and grandparents bought for 3-4 times their income. That's what housing bubbles do. This is a sure sign of an unhealthy economy. An economy functions properly when the average family can afford the average home without the degree of extreme leverage and risk that is necessary as a result of today's housing bubble.

A major housing correction would reset the Canadian economy. It would be difficult for many Canadian families (especially those who bought near the peak), however, it would allow the Canadian economy to re-establish solid roots. It would allow young families to buy houses that they can afford without taking on all of the risk that is associated with buying at bubble prices.

I'm sure young families in the US appreciate the fact that house prices there are back in harmony with incomes and rents. Selfish landlords who bought near the peak are probably not happy about it.

vawr said...

@Introvert

"I can see your university degree did you a lot of good: you don't know the difference between "too" and "to"

That statement is simply another manifestation of your feelings of inadequacy, Introvert.

Grammatical mistakes are benign. Continually correcting the grammar of others is anything but.

caveat emptor said...

@info

no one is "forced" to buy a house. Renting in fact has many advantages as has been frequently discussed on this board.

If you are feeling "forced" to buy a house you need to spend more time at greaterfool.ca to cure you of your "house-horniness"

caveat emptor said...

Selfish landlords who bought near the peak are probably not happy about it.

Presumably most landlords are "selfish" to an extent. They become landlords to make money, not out of altruistic motivations.

I'm no Ayn Rand, Virtue of Selfishness disciple but I do think it is OK that landlords want to make money (within a framework that includes government regulation against unacceptable practices).

Also what makes you think that landlords who bought at the peak are any more "selfish" than landlords in general.

The prime victims of the US housing bubble are hardly landlords in any case. The very fact that they are landlords, suggests some level of financial resources and savvy. Some of the real victims include low income people who were talked into signing up for mortgages with truly horrendous terms.

Leo S said...

Victoria's economy will feel the sting of this.

I agree. Pot is our biggest business. The collapse of the export market is going to take a lot of business away from BC, and by extension a lot of money going into real estate, whether it is for grow ops or a way to park the money. BC will have to follow suit and legalize in order to at least reclaim some tax revenue.

Just Jack said...

You scullion! You rampallian! You fustilarian! I’ll tickle your apostrophe!


http://www.youtube.com/watch?feature=player_detailpage&v=J7E-aoXLZGY

Marko said...

Today, most young families in Victoria are forced to pay 8 times their household income (with extreme leverage) to buy a (bubble-priced) house that their parents and grandparents bought for 3-4 times their income.

Things change. Adapt or keep complaining and awaiting the ever coming bubble burst.

Just Jack said...

I doubt that young families are paying 8 times their income with extreme leverage for a home in Victoria.

Bigger down payments and the need for a suite is how most are buying today.

That's inflating prices for inner city housing with suites, but sinking everything else. And that's causing low sales activity and a dysfuntional market supported by cheap money.

It's still easy to buy a home. What's hard to do - is sell one.

CS said...
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CS said...
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CS said...
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CS said...

@Info
You (and some other mortgage holders) think ....

Try to stick with the facts, rather than just making stuff up. I bought my house in 1974, so, if I am a mortgage holder, I'm must be a truly hopeless case.

Just Jack said...

Since 2003 there have been almost 2,000 condominums that have sold and resold in Langford/Colwood.

All have been built in the last decade. The typical condominum being 2-bedrooms, 2-bathrooms and some 860 square feet.

And almost everyone who has bought a skybox there, if they had to sell today, would sell at a lower price than they bought.

There are some 115 condominums listed in the Westshore and only 14 have sold in the last 30 days. In the same time period another 25 were listed. That's 8.5 Months of Inventory and a Sale to New Listings ratio of 56%. On average now taking 85 days to sell at typically 10 to 15 percent under the assessed value of July 1, 2012.

One was a quick sale (listed and sold in under 30 days) originally purchased from the developer for $270,000 in 2008 and now re-sold for $220,000.

Those are f-ugly numbers if you're looking to sell a condo in Langford or Colwood today.

The best evidence that a market correction can occur in Victoria is that it's already happening. That it doesn't seem to be in your style of home or along your street - well that's just a matter of timing.

Marko said...

Condos in Langford 2004-2007 were out of whack with fundamentals. Two bedroom condos on Bear Mountain were going for more money than solid homes in Fernwood/Oaklands.

Marko said...

It always amazes me how big of a roll marketing plays in condo sales.

When the Promontory launched sales 2.5 years ago they had six "junior one bedrooms," approximately 460 sq/ft with a parking spot for $193,000 including tax and including an approximately $7000 discount promotion at the time. These 6 units were slow to sell as the developer did not expend great marketing efforts on them but they sold eventually.

Along comes the Janion and people are lining up to buy 352 sq/ft studios with no parking for $173,900+tax.

The power of marketing.

Just Jack said...

More likely the power of "Hot Money"


Like fractional ownership condos, the Janion is a gimmick where the initial investors end up taking a loss as there is only a marginal re-sale market for these small suites.

Just Jack said...

Is Victoria City more like Vancouver or Toronto when it comes to planning condominiums?


http://www.cbc.ca/player/Shows/ID/2419796099/


Marko said...
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Marko said...

^That is quite possibly the worst piece of journalism I've ever seen from CBC. Total waste of my time.

I mean where do I start?

- We didn't hear from a single engineer or architect.
- Didn't hear from a single developer.
- Heard a few loose unverified comments from a REALTOR® driving around in an 80s Benz about foreign money buying condos.
- Showed footage of units that obviously did not have their interiors finished.
- Showed footage of a bit of mal-formed concrete.

etc., etc.

Unknown said...
This comment has been removed by the author.
Marko said...

Monday, November 25, 2013 8:15am

MTD November
2013 2012
Net Unconditional Sales: 326 366
New Listings: 574 706
Active Listings: 4,055 4,488

Please Note
Left Column: stats so far this month
Right Column: stats for the entire month from last year

Introvert said...

That statement is simply another manifestation of your feelings of inadequacy, Introvert.

Grammatical mistakes are benign. Continually correcting the grammar of others is anything but.


I sporadically correct the grammar of others.

And the chief inadequacy at issue is that of our public education system.

Introvert said...

Today, most young families in Victoria are forced to pay 8 times their household income (with extreme leverage) to buy a (bubble-priced) house that their parents and grandparents bought for 3-4 times their income.

This may be the new reality of homeownership in places like Vancouver, Toronto and--yes--Victoria.

Not everything can and will return to the "good old days."

CS said...

Re: Today, most young families in Victoria are forced to pay 8 times their household income (with extreme leverage) to buy a (bubble-priced) house ...

This may be the new reality ...

No, it's not the new reality, it's rubbish.

First No one is forced to buy anything.

Second, most young families are not "paying 8 times their household income (with extreme leverage) to buy a (bubble-priced) house" because they cannot afford to.

The market is highly differentiated. There are young people buying condos and townhouses, and SFH's outside the core at much less than the SFH median price.

Then there are wealthiest 10% who receive almost half of all earnings, many of whom purchase houses for many times the median price. Hence a median price well above what most young families can afford.

The problem is that Info makes wild generalizations, often totally wrong, and then asserts that they are facts that only morons could contest.

For example, Info's claim that the Victoria median SFH price has dropped 10% since 2010. That is technically correct, but is just one way of looking at things. If you compare 2008 with 2013, you find prices, overall, have been flat, if you compare January 2009 with today, prices are up 11%.

These are all legitimate ways of looking at the market, the future of which no one actually knows for the simple reason that it depends on decisions by multiple actors yet to be made and events in multiple places at at multiple times that have yet to occur.

Which means it's a waste of time arguing with the dogmatists who've predicted a crash for years.

Even if there were a crash tomorrow it would not make them right. It would just prove that a stopped clock ...

What those of modest means can infer from current historically high prices is that the only way the market is likely to go in the near future is down. But it may not do that, or if it does it may not happen immediately, or even soon.

Just Jack said...

You'd have to have a very narrow definition of Victoria for 8 times income being the norm.

Say within a 5 mile circle of downtown Victora and east of the Gorge Waterway.

Yet, in the last month, this small postage stamp of an area accounted for nearly 50 percent of all the sales from Port Renfrew to Oak Bay to Sidney.

It's illogical to believe that that paying 8 times income for a home will be the new norm especially when properties outside of this postage stamp area are declining.

How do you own a million dollar home in Victoria?

- You buy a 2 million dollar home - and wait.

CS said...

How do you own a million dollar home in Victoria?

- You buy a 2 million dollar home - and wait.


The real question is, how long do you wait?

But no one knows.

With CPI and wage inflation of 2% per year, you'd might have to wait 35 years, by which time — all other things being equal — the resale value of your house in constant dollars would have halved, as would the cost of repaying your 35-year no repayment mortgage.

Or, panic selling could drive the real price down 50% in a year or two.

Or something entirely different could happen.

CS said...

It's illogical to believe that that paying 8 times income for a home will be the new norm

Because it cannot be!

The wealthiest 10% of the population receive approximately 50% of all income. So if mean average family income is $65,000, the average income of the top 10% is $325,000, whereas that of the 90% is only $36,000. So if the top 10% buy SFHs for, say, twice the median price of $520,000 their income/price ratio is only 3.2.

If the remaining 90% buy SFHs at the same price to income ratio, they would pay an average of $115,000. But that implies that the 90% buy 90% of the SFHs, which is certainly not the case. Many by condos or town-homes or just rent. Therefore, we cannot calculate the income to price ratio for the 90%, but we can be sure it is less than 8.

info said...

"Today, most young families in Victoria are forced to pay 8 times their household income (with extreme leverage) to buy a (bubble-priced) house that their parents and grandparents bought for 3-4 times their income."

"This may be the new reality of homeownership in places like Vancouver, Toronto and--yes--Victoria."

The housing bubbles in Vancouver, Toronto and Victoria are massive and comparable to the bubbliest US cities before the US housing bubble burst and crashed.

Las Vegas: -58%
Phoenix: -55%
San Francisco: -47%
Los Angeles: -42%
San Diego: -43%


Note that this chart was made before the US housing crash reached bottom.

Just Jack said...

"the cheque is in the mail"
"I'll respect you in the morning"
"he's just a friend"

and now...

"I sporadically correct the grammar of others"
-Introvert

ROFLMAO

info said...

"For example, Info's claim that the Victoria median SFH price has dropped 10% since 2010. That is technically correct, but is just one way of looking at things. If you compare 2008 with 2013, you find prices, overall, have been flat, if you compare January 2009 with today, prices are up 11%."

House prices in Victoria have not been flat since 2008. I have already provided a chart with MLS HPI data that provides conclusive evidence of this.

There is no two ways of looking at it.

House prices in Victoria reached a new high (in 2010) after 2008. Since 2010 prices have corrected at least 10%.

info said...

@ Marko

"Today, most young families in Victoria are forced to pay 8 times their household income (with extreme leverage) to buy a (bubble-priced) house that their parents and grandparents bought for 3-4 times their income."

"Things change. Adapt or keep complaining and awaiting the ever coming bubble burst."

You must be ignoring the real facts about Victoria's housing market. Victoria's housing bubble burst in 2010 and SFH prices have already corrected at least 10% since the peak (based on MLS HPI data). (see my chart in an earlier post)

info said...

@ Leo

"Victoria's economy will feel the sting of this."

"I agree. Pot is our biggest business. The collapse of the export market is going to take a lot of business away from BC, and by extension a lot of money going into real estate, whether it is for grow ops or a way to park the money. BC will have to follow suit and legalize in order to at least reclaim some tax revenue."

I heard on a radio talk show that pot is BC's second largest industry. It contributes to BC's GDP in a big way - something like $8 B per year.

This is a massive hit to BC's economy.

info said...

Currently, SFH prices in Victoria are level with the lowest price point of 2008 (based on MLS HPI data (my chart)).

I don't know how anyone can conclude that prices have been flat since 2008.

Since the peak in 2010, there have been 7 consecutive (6-month) price bars with lower highs. This is conclusive evidence of a price downtrend that has been in effect since 2010.

info said...

This SFH price downtrend applies to the core as well (Just Jack claims that SFH sales in the core have dominated the Greater Victoria market lately).

CS said...

Wow, six posts in a row. Feeling reassured about your fixed ideas now, Info!

Just Jack said...

Yet today an option to purchase a penthouse was shown to have sold in one (1) day at the highest price per square foot rate in downtown Victoria's history. $945 a square foot for a condo.

You have to ask yourself why this condo with the same quality of interior finish as many other condos sells for so much. Is it truly the location of being on a top floor?

Can you really justify paying half a million dollars more than a sub penthouse condo two blocks away on Rupert Street?

I'm sure many property agents can try, but is there sound thinking for paying close to 1.4 million dollars for 1,450 square feet in Victoria.

There is only one reason that I find palusible. It isn't to do with the natural beauty of Victoria, or being a penthouse, or that it doesn't snow here, or that everyone wants to retire here.

It's just has to do with hot money. You can move 1.4 million dollars anywhere in the world simply by handing the deed to the property over to someone else.

That's one hell of a Mahjong game.

Leo S said...

The wealthiest 10% of the population receive approximately 50% of all income. So if mean average family income is $65,000, the average income of the top 10% is $325,000, whereas that of the 90% is only $36,000. So if the top 10% buy SFHs for, say, twice the median price of $520,000 their income/price ratio is only 3.2.

That's very nice and all, but doesn't change the fact that the price to earnings ratio used to be much lower. So those top 10% were buying houses at perhaps 1.5 times their income while the rest were paying 3 times.

Leo S said...

I don't know how anyone can conclude that prices have been flat since 2008.

Well if you are liberal enough with the definition of flat then sure.

It seems some people think that because something is at the same level at two points in time it means the intervening period was flat. Such as the well known flat period in the dow between 2008 and 2013.

Just Jack said...

What's interesting about the Sooke market these days is the massive spike in sales of single and double wide manufactured homes in parks.

28 percent of the sales in the last month were manufactured homes in parks? Selling anywhere between $25,000 to $167,000.

-I think Len Barrie lives in one now.

45 houses sold in all of the Western Communities in the last 30 days and 30 of them were in Langford and Colwood.
Considering this is the fastest growing area of Greater Victoria - these numbers are dismal.

Believe it or not, that's better than for all of the Saanich Peninsula including Sidney. Those hoods had only 20 house sales.

A waterfront townhouse in Central Saanich that was sold by the developer back in 2007 for $1,750,000. Just sold for $1,125,000 or about $550 a square in Saanichton. More square footage, more privacy, unobstructed beach access and waterview and you don't have to worry about being on the 15th floor in a city that has no way to rescue you in case of a fire.


$126,000 gets you a fairly new 1200 square foot manufactured home in a 45 plus park Central Saanich. $145,000 gets you a condo in Saanichton.
A 3-bedrrom, 3-bathroom townhouse in Saanchton for $270,000. And a 2,250 square foot home with a suite for $390,000 in Brentwood Bay.

In contrast someone paid $480,000 for an 1100 square foot 2-bedroom, 1 bathroom rancher on a rock in Oaklands/Fernwood.

It really seems that we have two distinct markets in Greater Victoria today. That's a lot different than a year or two ago.

If you're living in a 1950's basement entry home in Oak Bay valued at $600,000 to $650,000 - you might want to think about your options. When you consider newer homes are $150,000 to $200,000 cheaper in Sidney and Brentwood Bay.

patriotz said...

Well if you are liberal enough with the definition of flat then sure.

Sure, if you define flat simply as having the same starting and ending values you could say Canada is flat, since Victoria and St. John's are at the same elevation.

Leo S said...

A waterfront townhouse in Central Saanich that was sold by the developer back in 2007 for $1,750,000. Just sold for $1,125,000

Wow.

Just Jack said...

I think condos have played a big roll in the multiple of income equation. They've seemed to have become the starter home of today. Mostly by default.

But now that there is so F$%^ing many of them! That could destabilize the entire market if we had another "leaky condo" or something along those lines crisis.

Or maybe people just wake up one morning and say I don't want to live like a Beijing coolie anymore and leave the city.

CS said...
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CS said...

Can you really justify paying half a million dollars more than a sub penthouse condo two blocks away on Rupert Street?

No one is asking you to. Some people just pay it, for the same reason they'll pay more for a house in the Uplands than next door, beyond the pale in O.B., or much more for water view than a somewhere sheltered from the cold sea breezes a block or two inland.

Sure, the average wage earner won't pay $1000 per square foot because he can't, but the top ten percent earn almost ten times as much, so they may pay it because they can and they want you to know it.

CS said...

Well if you are liberal enough with the definition of flat then sure.

From 2010, there's a statistically significant negative linear slope, but not from the beginning of 2008, so whether the best-fit curve is straight and down or straight and level (i.e., flat) or straight and up, or whether a curvilinear function fits the data best is a matter of where you pick and choose your starting point.

That's why it is mere dogmatism to insist that the market is currently falling. Sure we're probably in a seasonal downturn now, but no particular reason to suppose that that won't be reversed in the spring.

CS said...

If you're living in a 1950's basement entry home in Oak Bay valued at $600,000 to $650,000 - you might want to think about your options. When you consider newer homes are $150,000 to $200,000 cheaper in Sidney and Brentwood Bay.

You're comparing apples with oranges. Here's what you get for 600 to 650K in OB. More than 2000 square feet on a 6500 square foot lot on a quiet street.

Here's what you get in Sydney for $150,000 to $200,000. Only one thousand square feet and a strata lot only 3500 square feet in a 55+ development.

SJ said...

“A waterfront townhouse in Central Saanich that was sold by the developer back in 2007 for $1,750,000. Just sold for $1,125,000 or about $550 a square in Saanichton.”

There is lots of stuff that can be had for 35% off in Victoria proper too. That’s one of the many reasons I know we’re at bottom. You just got to get off your butt n look. There are always desperate sellers who foolishly fear things like rising rates, et cetera. I just got one for under 200 a foot in one of the best areas <:0) best streets of Victoria. Ka-ching. There’s no bell at the top, or bottom. Sell high, buy low, rinse, repeat.

Marko said...

A waterfront townhouse in Central Saanich that was sold by the developer back in 2007 for $1,750,000. Just sold for $1,125,000 or about $550 a square in Saanichton.

So if it was sold for $1,750,000 by the developer in 2007 how come there is nothing in the tax records and GST was subject on the current transaction?

Leo S said...

From 2010, there's a statistically significant negative linear slope, but not from the beginning of 2008

Sure. But the conclusion is not "the market has been flat since 2008" just like the Dow was not flat between 2008 and 2013.
What actually happened is that it declined 2008-2009 then rose to 2010, and has been declining ever since. Who knows what it will do in the future, but it certainly has not been flat since 2008.

Leo S said...

Here's what you get in Sydney for $150,000 to $200,000. Only one thousand square feet and a strata lot only 3500 square feet in a 55+ development.

You read that wrong.

CS said...

What actually happened is that it declined 2008-2009 then rose to 2010,

The Teranet index shows a 10% dip in 2008-2009. That's the largest excursion from a flat line in six years. This in a market that more than doubled in the previous ten years and is supposed to be about to crash. In that context, it seems reasonable to say that the market has been essentially flat for six years.

But if you want to break that up into a series of ups and downs, you can, although I doubt you could show them to be statistically significant, and even if you could, they would be trivial deviations from the six-year horizontal trend.

As for

You read that wrong, in what way?

fizzy said...

Marketing doesn't play any roll, nor do condos play any roll. You can argue that they play a role, perhaps.

LeoM said...

Just Jack keeps me reading this blog!!

Interspersed with his rhetoric and humour is acute wisdom and keen observations, and of course his current knowledge of the various 'hoods' in greater Victoria.

BTW - how would an economist describe the elasticity of SFH prices when mortgage interest rates decreased 35% and during the same period of time SFH prices decreased by 9%? They would probably sell their SFH and rent before commenting...

Leo S said...

>> But if you want to break that up into a series of ups and downs, you can, although I doubt you could show them to be statistically significant

>> From 2010, there's a statistically significant negative linear slope

Well nice to see you are being consistent in your argument.

>> they would be trivial deviations from the six-year horizontal trend.

In an economy where a large percentage of people would have trouble with a 5000 unexpected expense, I'd say having your house lose $50,000 is not trivial for those sellers. But hey the market is flat.

>> You read that wrong, in what way?

JJ said 150k cheaper, not 150k

patriotz said...

BTW - how would an economist describe the elasticity of SFH prices

Elasticity of prices of a speculative investment (e.g. houses) is an entirely different animal than elasticity of prices of consumer goods. The latter is pretty straightforward, the former isn't.

Because speculative investments are bought with the expectation of resale, higher prices often result in higher demand because people expect prices to go still higher. And the converse going down.

patriotz said...

Sure, the average wage earner won't pay $1000 per square foot because he can't, but the top ten percent earn almost ten times as much

That's way off. The median family income in Canada is about $60K. $170K gets you into the top 10%. It takes less than $300K to get you into the top 1%.

CS said...

JJ said 150k cheaper, not 150k

Good point. Thanks for the correction.

But note, living in Sidney you'd spend an extra $150,000-200,000 over 15 or 20 years on commuting if you worked in Victoria. So you'd be as well off buying in Fernwood and walking to work.

CS said...

$170K gets you into the top 10%.

It's more than that. It was over 180K in 2001.

In 2011, the top ten percent of individuals averaged an income of $135K, whereas the bottom 90% averaged an income of $29K, a 4.6-fold difference. Add investment income which is received almost exclusively by the top 10%, take account of the fact that the top ten percent are more likely to be members of double income families than those at the bottom end of the income scale and my estimate of a ten fold difference between the top ten percent and the average wage earner may be about right.

CS said...

Here's the source of those income stats: http://o.canada.com/news/national/nhs-canadas-top-earners-take-home-nearly-200k-in-annual-income/

caveat emptor said...

No nation wide bubble?

Interesting post and some interesting critiques in the comments. One of the critiques is that the analysis assumes the prices were at the "correct" level to start with. Another is that the analysis only starts in 2006.

Leo S said...

Another is that the analysis only starts in 2006.

That's the main issue. 5 years of data is nothing in housing cycles. I like the approach, but needs to be redone at 10 years, 15 years, 20 years, etc. At least back to 1990 which he can do using Teranet data.

Fiduciary said...
This comment has been removed by the author.
Fiduciary said...

New Globe & Mail article:

Why Canadian homes are more unaffordable than ever.

Just Jack said...

When it comes to "hot money" and condos that are bought, never occupied and never mortgaged. They are just another form of currency to move wealth freely around the world.

Just Jack said...
This comment has been removed by the author.
Just Jack said...

For decades Greater Victoria had a vacancy rate of under 1%. That translated into demand for housing as interest rates crumbled. People moved from being renters to home owners. And as long as that vacancy rate remained low, there was a steady demand for more housing every year.

And as prices steadily increased, a lot of buyers found themselves as landlords too. As the need for suite income was a substantial factor in qualifying for a mortgage.

That changed a few years back when the vacancy rate shot up. Still that was fine as unemployment was low and the kids moved out to a basement suite or bought a condo. But with construction slowing down, unemployment rising and people finding it necessary to relocate for work. Those basement suites are not being filled as quickly and for as much as they were once. Most home owners then fall back on their home equity lines of credit. And these home onwers begin the march forward forever extending their mortgages and maximizing their payments.

And with a home equity line of crdit there is no re-qualifying for your debt service ratio. You are not restricted to 44% anymore. 50, 60, 70 percent of your income can go to a mortgage. You just keep on going until you're broke.

Borrowing from your home equity to pay your mortgage.

DavidL said...

@Just Jack
Those basement suites are not being filled as quickly and for as much as they were once..

Unfortunately, this scenario is just too common. Ten years ago, there were three suites (two occupied by actual in-laws) within the twenty-two houses on my street. Five years ago, the number of suites had increased to nine. Over the past couple of years, some neighbours mentioned that they were obliged to lower rent a number of times in order to keep their suite occupied.

caveat emptor said...

Unfortunately, this scenario is just too common.
Unfortunately for the homeowners, but obviously a bonus for potential renters.

We had to take our basement suite off the market due to requiring the space ourselves. Late 2008- through 2012 we rented to a few different tenants at a constant price (which means slightly falling price in real terms). No problem filling it each time but not a huge number of applicants considering the good location and competitive rent.

tune pilots said...

Can't bank rates increase dramatically so we'll get to experience the best time to purchase.
-Australia Business News Online

Seth Perry said...

Looking for some advice on financial advisors. How do you manage your investments? Do you pay a fee-based adviser for a commission based advisor? Or you manage them on your own? Also, what is your expected rate of return on your investments? I have about 50K that I am looking to invest. I think most commission based advisors charge between 2 and 3 % - is this a good price to pay for someone to take care of your investments? What do you invest in? Index funds? Stock market?

Thank you. I appreciate your thoughts and comments.

Seth Perry said...

Oh, btw, I read all of your posts and comments and I'm very grateful for your time. I appreciate the different viewpoints. That's what makes this blog so amazing.

caveat emptor said...

Seth

You could do worse than follow the advice in Garth Turner's recent post http://www.greaterfool.ca/2013/11/17/finding-balance/.

I take issue with a few things he says. Like US markets could correct but no more than 5 or 10%. Anyone who has been awake for the last 15 years knows that writing off a greater than 10% decline as "unrealistic" doesn't really hold water. But his asset allocation advice is sound nonetheless.

My recommendation is take some time to get informed yourself and do some reading and then manage the money yourself if you feel at all confident to do so.

Open a discount brokerage account. Purchase some appropriate ETFs to give yourself some broad diversification. Some discount brokerages have commision free ETF purchases which are useful for ongoing monthly contributions. Failing that you can do your monthly contributions to some low cost mutual funds and then sell them once you have enough to make more ETF purchases worthwhile (buying tiny amounts of ETFs if you have to pay comission does not make sense).

$50,000 is also enough to open an account with one of a few low fee fund families in Canada (Mawer, PHN) as an alternative to the ETF route.

50,000 is on the verge of large enough to invest in individual stocks IMO. Assuming you went for 30% fixed income allocation (via ETFs or funds) that would leave you 35000 to invest in individual stocks. $2,000 each in 17 individual stocks could give you reasonable diversification if you choose carefully.

I manage my own investments and mostly invest in individual equities and I get my fixed income exposure through an account with PHN (they have excellent fixed income funds and mediocre equity funds). If you are going to purchase individual stocks you should obviously be targeting market beating returns (otherwise why the heck bother).

My own portfolio has done better than "the market" since 2000 (when I started) although it has lagged in the last few years

BtuB said...

Hi Seth,

Canadian funds are among the most expensive in the world. I recommend this book on the subject of fees and how (especially now when rates are low) fees really are more important than anything else in eating your returns:

http://www.amazon.com/The-Clash-Cultures-Investment-Speculation/dp/1118122771

Questrade, the Canadian discount broker, lets you buy ETFs commission-free. And while some would say the above book is promotion of Vanguard, Vanguard is inarguably the only significant mutually owned mutual fund - the only one worthy of being called mutual. It is arguably the Mountain Equipment Coop of fund investing.

One last bit of two cents is that while Vanguard have low-cost Canadian funds now, most Canadians overinvest in Canada. I would stick to mostly global and US indexes such as VTI and VXUS to get exposure to the real, full global market.

BtuB said...

Bogle also talks about expected rate of return in that book and in recent interviews, so far as it is possible at all to talk about expected returns, in a general sense.

His advice, echoed by Warren Buffett and others, is to invest the majority of your nest egg in boring all-index, lowest cost Vanguard ETFs, and only play in individual stocks with a subset of your money. It is advice that I am only more recently learning to take myself, after years of mostly playing individual stocks. I have done well, but so has the market, and it is far easier to just track and forget - for one thing you save all transaction costs, which do eat returns.

BtuB said...

I'm not trying to take away from caveat emptor's excellent advice, which overlaps with my own, but just in terms of fees, even the nominally low-cost providers caveat mentions, PHN and Mawer, have fees (MERs) mostly north of 1%:

https://www.phn.com/Default.aspx?tabid=89

http://www.mawer.com/mutual-funds/fund-profiles/mawer-u-s-equity-fund/

Which can't remotely compete with Vanguard:

https://www.vanguardcanada.ca/advisors/etfs/etfs.htm

...just look at FTSE Canada index ETF at 0.09% MER.
or

https://personal.vanguard.com/us/funds/snapshot?FundId=0970&FundIntExt=INT

...VTI at 0.05%.

Over the long run, funds charging over 1%, that will never beat the index over the truly long term, cannot compete with fee drag that is that much lower.


SJ said...

Virtual Brokers charges 99 cents per trade. Ranked #1. Nobody beats them. Set up two registered TFSA accounts online, one for you ($25,500), one for the wife or significant other ($25,500). You’re allowed to add another $5500 each in 2014. Start with something like “Trade Like a Stock Market Wizard”. You can probably get that one at Bolen’s or Chapters. Follow the disciplined steps.

yogurt said...

@Seth Perry -- as others have said, with $50,000, a self-directed account is the way to go. I believe advisors who charge based on the portfolio size are usually for people with 1M+ to invest.

I use QTrade for my self-directed accounts. As an alternative, TD Direct Investing will give you access to the TD e-series mutual funds, which can be good for people starting out.

For fundamentals, see http://canadiancouchpotato.com/

For ongoing advice, see http://canadianmoneyforum.com/

As SJ says, if you're married, then two TFSA accounts will cover your needs. Otherwise, open a self-directed RRSP account.

Don't worry about trying to pick individual stocks or anything like that, unless you want a new hobby. You just want to buy a few ETFs that cover broad indexes: US equity, world equity, bonds. It takes only a few hours per year.

If even the model portfolios at Canadian Couch Potato seem too confusing (they aren't), then you could also buy an ING Streetwise mutual fund. They're more expensive, but you just have to buy one fund and forget about it.

Just Jack said...

The lowest asking price for a starter home in the core districts is now $299,900.

Actually there are two homes listed at this price. One in Vic West and the other near the new Target and Silver City in Saanich West.

The first on Skinner has now been listed for close to 130 days and the latter is a fresh listing that was most likely flogged in-store for some time before being put on the real estate system.

Both are suitable for the "handyman". Yet they are livable, rentable and a bank will give a buyer 25 or more years to amortize the loan. Hence, the improvements contribute value to the site.

So why are they listed below the BC assessed value of just the land component?

Because when most agents, assessors and appraisers speak about land value, they're talking about sites without improvements that are ready to build on. Not sites that have houses on them. They are two different markets appealing to builders and first time house buyers. In a market with stable to increasing prices, a good deal of the time these prospective purchasers are competing against each other. But not in a declining market. The builder folds up his tent and leaves the first time house buyer as the sole bidder.

These are the types of properties that get SLAMMED in a downturn. Properties that have the majority of value situated in the land component. And the core districts have a LOT of these properties. Generalising a bit here, but builders don't want them and first time house buyers can't afford to buy and repair them.

Greater Victoria's ugly ducklings.

koozdra said...

IMF recommends Canada scale back CMHC

OMG, guys did you hear about this CMHC thing?

At least they like our low rates policy.

koozdra said...

Homes less affordable: RBC

"the world is screaming for you to rent, don't buy, rent.."

Usually I don't like O'Leary, but can't disagree here.

koozdra said...

Banks could withstand housing collapse, but consumers vulnerable, warns Canada’s top financial watchdog

“Consumers must be considered here because, while banks may be able to withstand shocks, consumers may not,” said Julie Dickson, the head of the Office of the Superintendent of Financial Institutions. “Banks have to set aside reserves for unexpected losses and are typically far better situated to deal with shocks than consumers — who may be highly indebted and therefore particularly vulnerable to significant increases in interest rates or unemployment.”

If only we could impose financial regulations on individuals. Coming soon?

caveat emptor said...

Gen Y's pain is real

www.theglobeandmail.com/globe-investor/personal-finance/household-finances/gen-y-wages-the-pain-is-real/article15638656