Monday, December 9, 2013

Dec 9 Market Update and a Note on New Condos

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.


December 2013December
 2012 
Wk 1Wk 2Wk 3Wk 4
Unconditional Sales94



283
New Listings148


405
Active Listings3829


3896
Sales to New Listings
64%


70%
Sales Projection---



Months of Inventory
12.3

No point in doing a sales projection when sales drop off so quickly in the later weeks of December.  Should be between 300 and 330 according to last year's performance.

A quick note on construction.   Here are the condo starts and completions over the last 23 years.

Some periods of note:

  1. The condo boom in the early 90s, when we were building some 75 units a month.  That was when the term leaky condo still made you think of defective prophylactics rather than building envelopes.
  2. The aftermath when completions dropped down to 25-30/month for almost a decade.
  3. And the market recovery in the 2000s, leading to first a pickup in building, and then a period of over exuberance in 2007/08 when credit was flowing like water.
  4. The current levels is what I found interesting.  The price of condos have flatlined and are significantly down from their peaks in 2008.  You can likely ignore the small rebound this year, the MLS HPI shows a dead flat market amongst condos.  And yet despite this miserable market, condo building is going strong.  Some 70 units a month are sprouting up and there is no sign that builders are getting tired of it.  We've seen some evidence of older condos being hit pretty hard by all the new construction, and I think at the current rate of building we will continue to see declines.   
Developers are building at boom-time levels in a declining market.  Interesting strategy...

272 comments:

1 – 200 of 272   Newer›   Newest»
Marko said...

Financing is very cheap for developers too so carrying units on completion isn't a total disaster. So far two bigger projects have been completed in the Mondrian and the Sovereign but both have been slowly picking off sales.

You have a combination of slow but steady sales and cheap carrying costs.

Also new condo sales are a bit better than what MLS numbers would indicate. For example, at the Promontory there are 130 sales but only 26 are MLS recorded.

Janion didn't post anything to MLS but they have had big numbers.

caveat emptor said...

"buy now or be priced out forever" - 48,900 results

OK. Maybe I don't trust Doctor Google after all :-)

koozdra said...

Listening to mortgage brokers is quite hilarious these days. They are urging caution in tempering the housing market. Apparently quite a chunk of our economy is in the fire and ancillary industries. They recommend letting the "free market" take care of itself.

It makes me wonder if they are delusional or just lying when the say that the market in Canada is at all free.

Our housing market now runs at the will of our regulators. They want stimulus we have growth, they get cold feet at deflationary signs we have a contraction.

People who say that Victoria's market is detached from the countries market are right. In the last six years it's been flat here but sky rocketing almost everywhere else.

While the whole country is awash with defaults from young people and boomers desperately trying to race to the bottom to try to stem the losses in their "equity" maybe, just maybe prices will start to rise here. Unlikely, but you never know.

Leo S said...

Also new condo sales are a bit better than what MLS numbers would indicate. For example, at the Promontory there are 130 sales but only 26 are MLS recorded.

I would assume this has always been the case.. no?

Bruce Hammerson said...

It has been used to support manufacturing for hundreds of years. At least Whole Foods is acting responsibly, fixing the bulkheads, trying to be environmentally responsible, etc.

Regards,
Komatsu Parts

patriotz said...

Do you teach Excel programming by any chance Leo?

As to why builders are still building - well prices are still very high by any historical measure. It's like robbing banks - it's where the money is.

Leo S said...

Also new condo sales are a bit better than what MLS numbers would indicate. For example, at the Promontory there are 130 sales but only 26 are MLS recorded.

Also I'm not even looking at sales, just construction. Unless you think the non MLS sales are keeping the median prices depressed?

PD said...

Looks to me like condo developers are surprisingly building less than the early nineties and late naughts. I'd say they best add to their construction starts as over 50% of surveyed boomers intend to downsize near retirement. It wouldn't surprise me if Victoria goes from weakest to strongest market in Canada over the next 5 years.

CS said...

At least Whole Foods is acting responsibly, fixing the bulkheads

Phew, that's a relief. I was dead worried about the bulkheads.

CS said...

new condo sales are a bit better than what MLS numbers would indicate

Based on the numbers you provide it would seen that MLS numbers are almost entirely useless as a measure of new condo sales. Is that not correct?

Just Jack said...

You can't have a recovery in the Victoria market until the unemployment and vacancy rates drop substantially. Those rates have to remain low for several years to build pent-up demand.

The government would have to stimulate the econonomy, like they did in the past, with mega projects like highway and sewer expansions for this to happen.

I don't see this happening. Actually I see the reverse trend as property taxes, utility rates, house maintenance and general living expenses take a larger and larger portion of family incomes. What's left over for a home mortgage payment declines and home prices follow.

There is a potential for our market to turn from one of orderly liquidation to a foreclosure market. Because our sales activity is low and home owners are overstressed by rising costs.

Court ordered sales might then form a significant percentage of the marketplace and start to set market values rather than just being an anomaly in our current marketplace.

Victoria is a small, small city. The entire population of all of Greater Victoria is equivalent to the City of Surrey alone. We are a little boat in a big ocean, isolated from the rest of the country by an expensive Ferry system.

Just Jack said...

Technically sales in complexes not yet finished are not Real Estate Sales. They are options to purchase. It's not real estate until there is a transferable title to the property.

Speculator/Investors will form a significant portion of those options. Some of those purchases may be by agents to get exclusive rights to list the complex in Victoria, Vancouver, Toronto, Beijing. That could be 5 to 20 percent of the total sales alone.

So I don't know how much validity these sales have in relation to the general market. Personally, I discard these contacts to purchase in any valuation. Some of the major lenders are now asking that appraisers not use sales in these complexes as these options to purchase may not reflect actual market value.

At best I see them as a guage of investors confidence of where they perceive market values might be in a year or two when the building is finished. That would make them a prospective value and not a current value.

Marko said...

Based on the numbers you provide it would seen that MLS numbers are almost entirely useless as a measure of new condo sales. Is that not correct?

Correct. Uptake for the microlofts at the Janion was huge but you wouldn't see that looking at MLS stats.

Marko said...

At best I see them as a guage of investors confidence of where they perceive market values might be in a year or two when the building is finished. That would make them a prospective value and not a current value.

Whenever I've bought pre-sales (834 and Promontory) I've used hypothetical current value as if the unit were finished. If I feel the spread is more than 15% I deem that a risk worth taking. I would never buy a pre-sale unit if I felt that I could buy an equivalent completed unit for the same price point. At that point to pre-sales makes very little sense.

I've been really happy with my rental unit at the 834 I think I will look to buy a low 200s one bedroom at the Era next year when they continue pre-sales.

It will be interesting to see how my Promontory unit rents being across the bridge.

Just Jack said...

I'd agree that the Janion was selling like a commodity to speculate on real estate. A small amount down could result in a good return if prices increase.

I don't believe the Janion would have had the same success if they were not priced at the bottom of the market both in price and liveability. The Janion is more of a gimmick to get investors rather than to provide home ownership or affordable housing.

The site would have been better as a city park for the community.

Just Jack said...

That's a reasonable expectation in a flat market. But look back to the years 2004 to 2007 when condo prices were advancing at double digit increases. You'd be silly not to consider that in buying a condo. And the developers would be silly not to price accordingly either.

Developers hire people to figure this out for them. You value the property on what it will likely be on completion in two years from now - a prospective value. Then market the hell out of it today.

You could discount that future value back to today and then reduce that discount the closer you get to completion. But with a short 1 or 2 year construction period the discount would be marginal.

For houses, the construction period is generally short. Less than 6 months, so a current market value could be used. Although technically it should be a prospective valuation. And the final value estimate would be "Upon Completion" a current value would have a ("Value As Though Completed).

And that's why you can get two different answers from appraisers on construction appraisals.

$400,000 (As Though Completed)
$400,000 (Upon Completion)

They aren't the same thing.

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

. . . . . Total Yearly Single Family Home Sales. . . .
. . . . . . . . . . . . . .Greater Victoria. . . . . . . . . . . . . .
. . . . . . (Percentage below 25 Year Average). . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. 0%. . . .**. . . . . . . .*. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .**. . . . . . . .* . . . . . . . . . . . . . . . . . . . . . .
- 5%. . . .**. . . . . . . .*. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .**. . . . . . . .*. . . . . . . . . . . . . . . . . . . . . . .
- 10%. . .**. . . . . . . .*. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . **. . . . . . . .*. . . . . . . . . . . . . . . . . . . . . . .
- 15%. . .**. . . . . . . .* . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . **. . . . . . . .* . . . . . . . . . . . . . . . . . . . . . .
- 20%. . .**. . . . *. . . *. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .**. . . . *. . . *. . . *. . . . . . . . . . . . . . . . . . .
- 25%. . .**. . . . *. . . *. . . *. . . *. . . . . . .*. . . . . . . .
. . . . . . . .**. . . . *. . . *. . . *. . . *. . . . . . .* . . . . . . .
- 30%. . .**. . . . *. . . *. . . *. . . *. . . *. . . *. . . . . . .
. . . . . . . .**. . . . *. . . *. . .*. . . *. . ..*. . . *. . . . . . . .
- 35%. . .**. . . . *. . . *. . . *. . . *. . . *. . . *. . . . . . .
-----------------------------------------------------------------
. . . . . 25 yr. . .08. . 09. .10. . 11. . 12. . 13 . . . . . . . .
. . . . . avg . . . . . . . . . . . . . . . . . . . . . . (proj.). . . . . .



Total single family home sales for Greater Victoria (2013) are on pace to equal 2011's total, which was the second lowest total since 1985.

Note that these totals were not adjusted for population growth (that graph coming soon). Adjusting for population growth would increase 2013's percentage below the 25 year average substantially.

Total single family home sales since 2010 have been very weak.

With all of the hype about much improved sales this year from the VREB and realtors in general, I would have expected 2013's total to blow away 2012's (extremely weak) total, but that will not happen.

Weak sales always lead to lower prices. Prices have been declining since 2010 in Victoria even though most other Canadian markets have experienced price gains since that time. This market is nowhere near the bottom.

Marko said...

The site would have been better as a city park for the community.

Just like the lovely park immediately across the street primarily used by drug users?

info said...

Based on November 3-month median data, single family home prices in Oak Bay, Saanich East and North Saanich have declined 10.5% from peak.

Single family home prices in Sidney, Esquimalt, Colwood, Langford and Sooke have declined 14% from peak (this graph coming soon).

These numbers support the MLS HPI data which points to a total price decline of 10% from peak for single family homes across Greater Victoria (to the end of October).

House prices in Victoria no longer have the strong force of falling 5-year rates to push upward against falling prices. This will allow downward price pressure to become even more dominant.

BMO is anticipating that the US Fed will start tapering back its bond-buying program within 10 weeks and has raised its fixed and variable home mortgage rates by 0.1 percentage points, effective today.

5-year fixed rates will normalize. This will increase downward price pressure on house prices in Victoria.

Just Jack said...

The solution to the drug problem is to get families back into the city. Light the city up at night. And if that doesn't work play Barry Manilow music in the streets from midnight till dawn.

Building more bird cages for transients is just going to make the problem worse.

http://www.youtube.com/watch?feature=player_detailpage&v=D8955_YASoQ

Marko said...

Reality is families would rather live in the West Hills than downtown.

koozdra said...

The "Ideal for Executive smaller family." listing has returned and now instead of $0 (to be discussed) we have $2500 per month.

$2500 / 2br - 6555 East Sooke Road (6555 East Sooke Road V9Z 1A4,Victoria, BC, Canada)

Strange that someone hasn't snapped this baby up. "Executives" love living rurally.

Leo S said...

Right downtown the only option is condos. Impossible to get the density otherwise.

But I really doubt many families are choosing to live in the west shore unless they work there. People are moving there because it's more affordable. Not because they are dying to spend a good part of their day in the colwood crawl.

BtuB said...

Just on the subject of the Swiss property slump back in the 90s. Blomberg happened to run this article just now:
http://www.bloomberg.com/news/2013-12-11/snb-gauges-bubble-risks-as-euro-crisis-danger-recedes.html
http://www.bloomberg.com/news/2013-12-11/snb-gauges-bubble-risks-as-euro-crisis-danger-recedes.html

There was a recent debate here about whether that really qualified as a crash, but as the article notes, some banks failed, so it must have been reasonably profound. Oh, and why googling "Swiss housing crash" won't turn up results is the Swiss won't refer to it in English. German is the most likely language.

We've been living in Switzerland the last nearly 5 years (moving back to Canada shortly) and certainly anecdotally, it's overwhelming how many fellow ex-pats we know here that have bought properties here in the last couple of years. The properties are at eye-watering prices, more or less in line with Vancouver, but insanely expensive by global standards.
Of course the irony is that even with the runup in prices here, they are not far away from Vancouver, whereas incomes here are far in excess of Canada, and taxes lower to boot.

Marko said...

But I really doubt many families are choosing to live in the west shore unless they work there. People are moving there because it's more affordable. Not because they are dying to spend a good part of their day in the colwood crawl.

In a hypothetical scenario of brand new 3 bedroom downtown condo for $450,000 or starter home in the Westhills for $450,000 I think most families would go for the starter home.

koozdra said...

Wooooooooooooooooooooooooooooooooh!!!

Re/Max forecasts 'exceptionally healthy' residential real estate market in 2014 - See more at: http://www.timescolonist.com/news/national/re-max-forecasts-exceptionally-healthy-residential-real-estate-market-in-2014-1.755026#sthash.UjZsjOp8.dsLJLG4P.dpuf

The downturn is over my friends. Prosperity is just around the corner!

Hmm... who to believe. Economist that keep warning of serious risk factors to the economy, ReMax (the "experts") or tv commercials. Decisions, decisions.

koozdra said...

The Bank of Canada changes it's forward guidance on interest rates because it sees disinflation with possible deflation to follow. Emergency low interest rates might need cut further because our economy is on life support.

Let's just ignore all this doom and gloom. Apparently the economy is doing great!

Metro Vancouver home prices to rise in 2014: Re/Max

koozdra said...

Bank of Canada holds key interest rate at one per cent

"It said underlying conditions were weaker than it appeared, noting sustainable growth requires a rotation from domestic activity -- in particular housing and consumer spending -- to more export growth and businesses spending. That has not happened yet, it said.

Real GDP growth in the third quarter ... was stronger than the bank was projecting, but its composition does not yet indicate a rebalancing towards exports and investment," it said. "Business investment spending is up from previous low levels, but is still recovering more slowly than anticipated."

Being stuck between a rock and a hard place. They want to devalue the dollar for exports to take some of the weight of the economy. You can't devalue the dollar while the real estate sector is doing so well.

caveat emptor said...

"Oh, and why googling "Swiss housing crash" won't turn up results is the Swiss won't refer to it in English. German is the most likely language."

"schweizer immobilienkrise" = 529 hits.

"amerikanische immobilienkrise" = 14,100 hits

Introvert said...

From today's post at CanadianMortgageTrends.com:

As is customary every quarter, we've poured through all the major banks’ earnings reports...

It should be "pored."

Whatever.

caveat emptor said...

It should be "pored."

Maybe both. Most might appreciate a jug of beer for that task.....

Introvert said...

By the way, did Europe finally collapse from its financial troubles?

Boy, I can remember when Greece, Spain and Europe were referred to constantly on this blog.

Guess people were wrong about that one. Oops.

Introvert said...

Wonder what else they could be wrong about...

koozdra said...

"Wonder what else they could be wrong about..."

Who is "they"? The bank of Canada?

Introvert said...

People who have retrospectively been shown to be frequently wrong are probably not the people whose opinions we should be valuing right now.

reasonfirst said...

Spain's unemployment situation looks pretty close to a collapse to me:

http://countryeconomy.com/unemployment/spain

reasonfirst said...

and Greece:

http://countryeconomy.com/unemployment/greece

koozdra said...

We should only listen to people that are consistently correct. Or people like you that only criticize instead of making any kind of prognostications.

Introvert said...

We should only listen to people that are consistently correct. Or people like you that only criticize instead of making any kind of prognostications.

Offering no prognostications is more helpful than offering consistently incorrect ones.

koozdra said...

In your opinion.

koozdra said...

Introvert, you should contact RE/MAX and tell them that they should not be saying that the housing market will rise next year. No forecasts can be made anymore.

Introvert said...

In your opinion.

So consistently incorrect prognostications are more helpful than no prognostications, in your opinion?

koozdra said...

Professional economists have been predicting that interest rates that interest rates would have risen by now. They have been absolutely wrong. We are facing a potential reduction. Should they have just stayed quiet? Should we still have economics?

Should we listen to anything they say now? They are wrong all the time.

kabloona said...

Greece and Spain should be fine as long as the Germans have a collective back broad enough to support them all...

Oh, wait... now the Ukrainians want 20 billion euros for some reason:

http://www.theglobeandmail.com/news/world/ukraine-seeks-20-billion-euros-in-aid-from-eu-prime-minister-says/article15866342/

Cough it up, Merkel!

Introvert said...

Introvert, you should contact RE/MAX and tell them that they should not be saying that the housing market will rise next year. No forecasts can be made anymore.

Forecasts can be made; what's at issue is in whose forecasts should value be placed.

Too nuanced for you?

And RE/MAX's forecasts have probably proved to be substantially more accurate than yours and many others' on this blog, by the way.

CS said...

We are living in a time of economic paradox. Any sign of pickup in the economy leads to warnings of rising interest rates, which cause the Dow to sink, which then causes central bankers to reaffirm their commitment to permissive, emergency low, sub-inflation rates for the foreseeable future.

Bankers have a particular concern for the housing market since construction is one of the few manufacturing sectors that cannot be offshored (except for that radioactive Chinese dry-wall, and until the Japanese start exporting manufactured homes to North America).

In this connection the commodity condo industry that Just Jack mentioned the other day seems important. Perhaps the Feds could boost it by creating a special foreign section to the Order of Canada to be awarded to any non-citizen of good character purchasing a Canadian condo for more than $35 million. (I guess the bit about good character might be honored mainly in the breach.)

kabloona said...

Marko has a listing in my 'hood!

http://beta.realtor.ca/propertyDetails.aspx?PropertyId=13888268

Sweeeet!

:-)

koozdra said...

"what's at issue is in whose forecasts should value be placed."

Who is placing any value in those predictions? You are pointing out the obvious. We could be wrong or we could be right. It doesn't really matter.

Do you take issue with the conversation?

You are the type of person that thinks adults who like my little pony are stupid. But instead of just thinking that, you go onto online forums for my little pony and tell them they are stupid. "What kind of adult plays with my little pony. That's for kids. You are all stupid."

Well I like my little pony and I reserve the right to play with anything I want.

koozdra said...

Canada’s housing market most overvalued in the world, Deutsche Bank says

"Canada is home to the world’s most overvalued housing market, Deutsche Bank says in a new study that suggests overvaluation to the tune of 60 per cent."

Now that would be a monumental crash.

Leo S said...

Boy, I can remember when Greece, Spain and Europe were referred to constantly on this blog.

Oh yeah, I heard everything is peachy there now. Don't confuse the fact that the media is tired of the story with "everything is ok".

caveat emptor said...

Forecasts can be made; what's at issue is in whose forecasts should value be placed.

What I look for in a forecast.
(1) The underlying rationale
(2) Acknowledgement of uncertainties
(3) Credibility or expertise of source
(4) Bias or self interest of the source
(5) Factually correct assumptions

#4 means rosy forecasts from RE associations should be discounted. OTOH cautiously negative statements from the BoC should be given some weight because we know that no matter how bad things look the BoC is never going to say - "Looks like the economy is going to be in the dumps for the next 8 quarters."

Anonymous internet posters (myself included) obviously have an uphill battle to establish credibility.

Leo S said...

Offering no prognostications is more helpful than offering consistently incorrect ones.

If it were actually consistently incorrect it would be immensely valuable. But of course like any prediction of the future, it is partially correct and partially incorrect. Housing prices were overvalued in Victoria, hence the crappy performance of our market compared to anywhere else in Canada. However it was not overvalued enough to cause a crash.

A prediction has value, because it can be analyzed and evaluated based on it's rationale. No prediction has zero value.

Leo S said...

Or rather, not making a prediction has zero value.

Just Jack said...

7 percent of the facts you learn today will be proven wrong one year from now. In ten years most of what you'll learn today will be wrong.

The trick is to know which 7 percent is wrong?

As for me, I consider all of my predictions to be wrong until they're proven right. And the few times they're shown to be correct - I question the source showing them to be right is likely wrong.

I like reading Astrology. That doesn't mean I believe in Astrologists. The same with those that make predictions. Someone who is right more times than not at predictions isn't clairvoyent she's just better at being obscure.

A good economist is one who can say one thing and mean two different things at the same time.

Introvert said...

Well, you're right, Leo. Value does come from knowing that the opposite of what most people on this blog predict is what is most likely to happen.

Introvert said...

The trick is to know which 7 percent is wrong?

Or maybe the trick is knowing which sentences should properly have question marks at their termination.

Introvert said...

It is possible to quantify the degree to which people's predictions have proved accurate.

reasonfirst said...

"And RE/MAX's forecasts have probably proved to be substantially more accurate than yours and many others' on this blog, by the way. "

Re/Max predicted an average price of 504,000 for 2012 in Victoria and the actual was $486,000. Hmmm.

http://www.remax-quebec.com/pdf/perspectives/complete-report_en.pdf

http://www.remax-western.ca/news/remax-housing-market-outlook-2013

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

It's an interrogative question.

But you knew that - right?

koozdra said...

I wonder what tapering would do this chart.

American Housing Equity

Introvert said...

Just Jack, you were probably the kid who, when the teacher told the class it was time for silent reading, pulled out your Where Is Waldo? book.

Just Jack said...

That's it! That's all ya got?

Waldo

How about poetic...

You're an empty vessel adrift on an ocean of unfullfillment.

Visual...

A mongrel dog content to nip at the heels of those that dare to stand upright.

Scientific...

A million years of evoulution would bring you up to pond scum status.

Sweetie - Ya got no style.

Introvert said...

And you got no ability to write correctly.

Leo S said...

Well, you're right, Leo. Value does come from knowing that the opposite of what most people on this blog predict is what is most likely to happen.

Most people on this blog predict one thing? Please do elaborate on what that thing is.

Given that the rate of spelling mistakes on this blog has not changed over time, I think we can deduce the value of that effort.

Leo S said...

It is possible to quantify the degree to which people's predictions have proved accurate.

Yes, and unlike ReMax, there is open discussion here about predictions, and how they have turned out, followed by new predictions. Ever heard ReMax reference how they did on last year's prediction?

In the end what matters are what you do in response to a prediction. We predicted that house prices would decline, and so we put off buying until we could afford a place to stay in for the long term. Prices declined less than I predicted, but it was still worth it to wait. Successful prediction from my perspective even though it was not correct.
You predicted prices would stay flat, and in response you decided to keep your house. There has been only a small decline, and it would not have been worth it to sell the house and rent, so another successful prediction.

This is the reason people make their predictions. I doubt anyone cares very deeply about being lauded as a successful predictor, just about making the best decision for themselves.

Just Jack said...

LOL

Introvert said...

Given that the rate of spelling mistakes on this blog has not changed over time, I think we can deduce the value of that effort.

You spelled "its" wrong:

A prediction has value, because it can be analyzed and evaluated based on it's rationale.

Leo S said...

You spelled "its" wrong:

Our very own Sisyphus.

totoro victoria said...

I rather picture info as Sisyphus if we are in the renaming game cause every day s/he's pushing big blocks of text with the same message. You can't get enough of that.

DavidL said...

@Introvert
Given that the rate of spelling mistakes on this blog has not changed over time, I think we can deduce the value of that effort.

Itz the ideas that matter, not the grammar.

patriotz said...

"Canada is home to the world’s most overvalued housing market, Deutsche Bank says in a new study that suggests overvaluation to the tune of 60 per cent."

Now that would be a monumental crash.


To go from 160 to 100 (the reverse of a 60% overvaluation) is a decline of 37.5%, about the same decline as the US nationwide.

patriotz said...

Teranet for November 2013 now out:

% change y/y -1.43%
% change m/m -1.81%
Year to date -2.36%

Once again the weakest numbers in Canada.

Introvert said...

Can someone please explain to me why a person would choose to get a mortgage at 5.34% with RBC, for example, when a Coast Capital Savings mortgage can be had for 3.65% (and that's not even the lowest rate out there)?

If one were to negotiate with RBC, would it drop its posted rate down to 3.65% to match? Otherwise, I cannot explain why a mortgage shopper would willingly flush tens of thousands of dollars down the toilet by taking a mortgage from one of the big banks.

Thoughts, insights, anyone?

Leo S said...

Can someone please explain to me why a person would choose to get a mortgage at 5.34% with RBC, for example, when a Coast Capital Savings mortgage can be had for 3.65% (and that's not even the lowest rate out there)?

How did you get a mortgage without getting a quote from at least one of the big banks?

Posted rates have nothing to do with what rate you will get. Not sure why the banks are sticking to this system, but basically they will give you a competitive rate if you ask. I.e. our rate with CIBC is 2.79% with a stated "discount" of 2.35% from their posted rates at the time.

koozdra said...

As I understand it you won't pay the posted rate but you have to qualify for it. They are being more "prudent" in their lending.

Credit unions don't care at all. They are provincially regulated. They'll lend till they drop.

caveat emptor said...

Most of the big banks will calculate your penalty if you break your mortgage based on the posted rate. So even if almost no one gets a mortgage at that rate it still serves a purpose in inflating the penalties they charge.

Marko said...

Wouldn't the bank want to base the penalty off their possible best rate?

caveat emptor said...

Wouldn't the bank want to base the penalty off their possible best rate?

The article explains it better than I can.

This is my understanding:
Let's say 5 year fixed rates plummet to discounted rates of 2.19% (unlikely I know) and Leo (paying 2.79%) wants to refinance at a better rate. The bank could calculate his interest rate differential penalty based on 5.14% - 2.19% rather than just 2.79%-2.19%

Irrelevant if you stay full term with the mortgage but painful if you have to get out.

Leo - in retrospect you are looking like a genius for the timing of your mortgage. You must have hit close to the all time Canadian low for fixed rates...

Introvert said...

I.e. our rate with CIBC is 2.79% with a stated "discount" of 2.35% from their posted rates at the time.

What are your lump sum and monthly prepayment options with that?

Introvert said...

Why would any business advertise its highest/least competitive price on an item?

vawr said...

@Introvert

"Or maybe the trick is knowing which sentences should properly have question marks at their termination."

Ha ha, Introvert. If there ever was a one trick pony, it is you.

Introvert said...

Leo - in retrospect you are looking like a genius for the timing of your mortgage. You must have hit close to the all time Canadian low for fixed rates...

"No, Leo, you made a huge mistake by not waiting until the 60% price crash that is sure to come."

–info

Introvert said...

Ha ha, Introvert. If there ever was a one trick pony, it is you.

Thanks, buddy. I was worried when you didn't promptly comment on my grammar corrections. Glad you're OK. If anything happened to you, I don't know what I would do.

Marko said...

The article explains it better than I can.

This is my understanding:
Let's say 5 year fixed rates plummet to discounted rates of 2.19% (unlikely I know) and Leo (paying 2.79%) wants to refinance at a better rate. The bank could calculate his interest rate differential penalty based on 5.14% - 2.19% rather than just 2.79%-2.19%


Both my mortgages are the difference between my mortgage interest rate and what the lender can charge today.

I would never sign off on something as ridiculous as the penalty being calculated between posted and discounted rate. I've didn't even know banks could do that.

Marko said...

What are your lump sum and monthly prepayment options with that?

Is it really relevant? I remember getting my mortgage and one bank trying to sell me on a higher rate but a 20% lump sump payment versus going with a lower rate and a 10% lump sump payment.

a/ How many people pay off 20% of their mortgage via lump sump?

b/ With interest rates this low 10% lump sump per year is more than I would care to pay off even if I had the cash.

Just Jack said...

Seems to have been a bit of a wave of Baby Boomers selling off their rental condos recently.

In some cases it makes sense for the tenant to purchase the suite. However, the units that are vacant are dumped at cheap prices.

Such as a condo on Amherst in Sidney. A one-bedroom, 1-bathroom suite of almost 700 square feet that sold at $145,000.

Will this be next year's trend? Baby Boomers dumping their investment properties. Demographics suggest it could be as the leaders of the Boomers (1945-1956) change lifestyles.

And how will these cheap condos effect the rental market? Higher vacancy rates? lower rents?

CS said...

I consider all of my predictions to be wrong until they're proven right. And the few times they're shown to be correct - I question the source showing them to be right is likely wrong.

How can you be so bad. A prediction is either right or wrong. You ought to be right half the time!

But since you're so wrong, you can be almost always right merely by making your assessment and then betting on the exact opposite.

But it's hard. I try to do it in the stock market, but have yet to turn this infallible method to good account.

CS said...

While the bears are salivating at the prospect of price declines, vendors in the Uplands are dreaming of windfall profits:

2595 Lansdowne is offered at half a million over BC Assessment Authority valuation (29%), while 3375 Upper Terrace is available at $579 K, or a mere 22.9% above assessment.

CS said...

Oops, should have been a comma after 22.9%, the $579K being the amount in excess of the assessment, not the full price.

CS said...

Will this be next year's trend? Baby Boomers dumping their investment properties.

How much of what is really important in the market is concealed by the focus on means and medians?

According to these data, the market is almost perfectly flat, yet there is evident weakness at the low end, as is to be expected given the poor job market, rising student loan burdens, etc., while there seems to be a boom in OB view property, consistent with the rising share of income of the 1%.

I submit, therefore, that all predictions about the direction of the market as a whole are, if not bunk, totally useless and potentially harmful to your financial health.

koozdra said...

What's been happening in Canada? Obvious to all here but to the general public that thinks the economy is doing great.

"At the height of the crisis, although our financial system remained sound, our exports collapsed, causing a recession. To support economic growth, we have relied mainly on household spending, supported by exceptionally stimulative monetary policy.

But there are trade-offs, lots of them. Today, the most obvious is that prolonged low interest rates can result in the development of imbalances in the household sector. In Canada, we have seen rising levels of household indebtedness, stretched house-price valuations and overinvestment in housing. To address these imbalances, the Finance Minister tightened mortgage insurance rules four times, among other measures, and the Superintendent of Financial Institutions introduced stronger mortgage underwriting standards for Canada’s banking institutions."

Don't worry though, they still expect a soft landing. They are hoping that a slow down in housing will sink the dollar and exports can pick up the slack. Lets keep our fingers crossed.

Monetary Policy as Risk Management

Just Jack said...

We're not dealing with cigarettes or unprotected sex.

How can predictions be harmfull?

Are you really going to make a life decision on an anomalous blogger's viewpoint!?

Of course you're not. You're going to weigh the different views and make a decision that fits your lifestyle.

Predictions are not 50% right all of the time. We live in a dynamic world that changes daily. I would say that all predictions are wrong until they are fortuitously proven correct.

Except for Astological predictions that are almost always correct as Astrolgists have learned how to tell the people what they want to hear. Much like a real estate agent. You do that - you're always going to be right - even when you're wrong.

"I see money in your future - lots of money"

patriotz said...

As I understand it you won't pay the posted rate but you have to qualify for it. They are being more "prudent" in their lending.

Credit unions don't care at all. They are provincially regulated.


You understand wrong. Qualifying at the posted rate is a requirement for CMHC insured mortgages whatever the lender.

For uninsured mortgages, lenders are free to set their own qualifications.

koozdra said...

"You understand wrong. Qualifying at the posted rate is a requirement for CMHC insured mortgages whatever the lender."

Ah, right.

Introvert said...

Just Jack, I can see by your last post that you're trying to make my head explode. Nice try!

koozdra said...

I was thinking about this.

"[30 year mortgages] These longer terms loans are no longer available to higher-risk borrowers, defined as those who need to borrow more than 80 per cent of a property’s value.
But they continue to be offered to low-risk borrowers, those with more than 20 per cent equity in their property.
The regulator is looking at whether lenders are applying the same standards for credit scores and loan-to-value ratios to 30-year mortgages as they apply to shorter mortgages, she said."

I heard somewhere they might make these people qualify at the banks posted rate. The BNN interview I think.

Bank regulator watching 30-year mortgages closely

Introvert said...

Marko, the lump sum payment option may not be that important, but I love the ability to double my mortgage payment.

It feels good to hack off chunks of my principal when normally most of my payment would be going toward interest.

Leo S said...

What are your lump sum and monthly prepayment options with that?

100% monthly (so we can double payments) and 10% of initial balance lump sum per year.

Leo S said...

Is it really relevant?

Some rock bottom rates come with 0% prepayment and 0% increase. So yes, it is relevant.

CS said...

How can predictions be harmfull?

Easily. All rational action is based on the anticipation, which is to say prediction, of its effects. Some such predictions can be seriously harmful, as in, "I don't think that mushroom is poisonous," or "sure the ice is thick enough to walk on."

Predictions are not 50% right all of the time.

If you predict the future without any conception of the time to which the prediction applies, you are really not making a prediction at all, just emitting a bubble of hot air.

koozdra said...

Canadian Housing: The Bubble Debate

"It is always difficult to spot a speculative bubble in advance, but in the case of Canadian housing the weight of evidence is clear in our view"
..

"Over-Investment: Residential investment has risen to 7% of GDP, above the peak in the U.S. and far outpacing population growth."

Yikes, what if that dropped to 4%. Full blown recession. Or maybe some people think the rate of our construction industry is sustainable.

Just Jack said...

It might feel good to pay down chunks of the mortgage and thereby increase the equity in your home.

But you won't do that for long if prices are declining.

A rational person would not paydown the mortgage by $50,000 when the house value declines by $50,000. All of that money is gone! With house prices so high, it's unlikely you could get ahead in that kind of a game. De-leveraging is a bitch in a declining market.

It's like filling up a gas tank with a hole in the bottom.

Better to invest the $50,000 to generate income to offset mortgage payment increases.

If your mortgage is more than four times your gross income - you're stuck with it. You're on the never, never plan to home ownership.

Roofs, furnaces, windows, temporary unemployment, divorce, education, cars are just some of the reasons why the odds are stacked against anyone with a high ratio mortgage ever paying off the mortgage in their life.

None said...

^ Just jack

What you just wrote makes no sense. It doesn't matter what the value of your house is debt is debt.

Indeed I can see a good argument to pay off your mortgage if house prices have gone down.

For instance, if you put 20% down and then the price goes down 15% you may have to pony up CMHC insurance once your term is over. At least as a Canadian tax payer who backs these crappy mortgage I hope so!

Marko said...

Some rock bottom rates come with 0% prepayment and 0% increase. So yes, it is relevant.

I haven't seen too many of those around?

My rock bottom mortgage (lowest rate I could find at the time) has four different features in terms of paying it down faster.

Increasing Your Monthly Payments
Making Double-Up® Payments
Accelerating Your Payment Schedule
Making Principal Prepayments

Haven't exercised one of them, maybe I will if it ever goes over 2.5% but for now I personally prefer to invest any excess cash.

Over two years into it still stuck in the low 2s, plus interest is tax deductible now that it is my rental property.

Just Jack said...

You don't have to pay for CMHC insurance again. Unless your increasing your mortgage.

Your mortgage is simply rolled over at renewal time. You can even change lenders as the CMHC insurance is with the home and you. Don't get that confused with CMHC writing a check to you if you forfeit on the mortgage.

Here is a scenario for you. Renewal time has just come up for your mortgage and your monthly payment is going to increase by $500. How much would you have to pay down the mortgage to get the same payment as you were paying the month before?

Today, it's roughly $100,000 you'd have to pay down. Very unlikely that people have that kind of cash hidden in their flour cans. And if interest are going up - your home value is likely going down too.

You're going to have to find some income from somewhere to pay the higher mortgage. Maybe it's a basement suite or maybe it's other investments.

De-leveraging is expensive. Most people with a big mortgage are not going to be able to do it.

Just Jack said...

Not all mortgages are the same. Usually what happens is that in order to get a great rate, you give something up.

Like the ability to make a lump sum payment each year. Not all mortgages allow you to do that. And there is ALWAYS a limitation on how much you can make as an extra payment.

So you may want to pay down $50,000 - the bank just aint gonna let you.

It's in the fine print.

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

A rational person would not paydown the mortgage by $50,000 when the house value declines by $50,000.

Luckily, you're not the arbiter of what's rational. I personally would still pay it down in this scenario, and would have rational reasons for doing so.

All of that money is gone!

For the umpteenth time, the money isn't gone until you sell.

It's like filling up a gas tank with a hole in the bottom.

Really bad analogy.

Marko said...

Not all mortgages are the same. Usually what happens is that in order to get a great rate, you give something up.

Like the ability to make a lump sum payment each year. Not all mortgages allow you to do that. And there is ALWAYS a limitation on how much you can make as an extra payment.


This is exactly what the mortgage industry sells.

"We can't match 2.79%, but with our 2.89% you can pay down 20% instead of 10% lump sum per year, etc."

My point is, in reality, how many people throw down 20% on their mortgage every year?

In my opinion, the real life benefits of the lower rates exceed the hypothetically benefits of larger lump sums in an environment where mortgage rates are extremely low.

I would think if mortgages were 5 to 8% a lump sump might be of more benefit.

Just Jack said...

Debt is debt. No denying that. .

If feels great to pay-off the credit card each month. But that isn't realistic with a mortgage nor is it that financially savy when your paying so little in interest rates. While you can get a lot higher return investing in the stock market.

That you chose not to - is fine. Just don't criticise those that put their money in a flour can. Because they're doing better than you are. Your equity is gone but their money is still on the kitchen counter.

CS said...

Re: Canadian Housing: The Bubble Debate

Compared with the US, Canadian RE looks pricey. But compared with the rest of the world US RE looks dead cheap.

But according to this list, the US looks cheap because it is dead last, internationally, in price to income ratio. In Georgia, you pay 40 times income, in China 25 times, in Taiwan 15 times, whereas in Canada you pay only 5 times.

So is Canada expensive or really, really cheap?

And the reason the US is so dirt cheap is that the RE estate market received two shocks, Greenspan's 4% hike in the Fed rate between 2003 and 2005, and mortgage fraud, which placed the most vulnerable borrowers at great risk of bankruptcy. In the US, the crash in prices was from quite low to very low.

If Canada wished to emulate the US, we could no doubt have an engineered crash too. But there is no fundamental reason why current price to income ratios should not be maintained indefinitely, or even increased.

koozdra said...

"If Canada wished to emulate the US, we could no doubt have an engineered crash too. But there is no fundamental reason why current price to income ratios should not be maintained indefinitely, or even increased."

Poloz disagrees with you. Did you read his speech posted above?

It basically says that in the best case scenario we have a soft landing. I've heard those are rare though.

Just Jack said...

I would shit myself if I had a high ratio mortgage at 2.79% and it went to 5 or 8% at renewal.

But that's what happened in the early 1980's. Those with an 11% mortgage were looking at a renewal rate of 18%. They knew that they were not going to make the new mortgage payments - so they all rushed to sell.

A supply-driven downturn or what some might call a bubble. Back then the real estate board sent out a catalogue each month of listings. The catalogues were thicker than the Vancouver telephone book.

But back then a hundred grand cost $1500 a month not $500 like it does today. So starter homes were under $200,000.

Just Jack said...

The cost of our high prices is ultra low sales activity.

Can that be sustained for years or indefinitely?

Likely not. The time to sell a home would increase dramatically. That would make the marketplace vulnerable to distress sales.

A "foreclosure market" where court ordered sales set market value.

caveat emptor said...

Renewal time has just come up for your mortgage and your monthly payment is going to increase by $500. How much would you have to pay down the mortgage to get the same payment as you were paying the month before?

for a 400K 25 year mortgage on a 500K house that would equate to renewing from a current 3% to a future 5.8%. Obviously not happening to anyone renewing now, but anything is possible 5 years out. In the scenario I presented you'd have to pony up 71 k to bring the payments back down by $500/month. Of course if you actually had 70K cash you could set aside 30K for the 60 $500 payments and keep the flexibility of having the other 40K

Leo S said...

Better to invest the $50,000 to generate income to offset mortgage payment increases.

Putting $50k towards paying down the mortgage is an after tax return of 2.79% regardless of whether I have 50% or -50% equity.

Leo S said...

I haven't seen too many of those around?

If you check the lowest rates on rate hub there are some with those terms. Non-sketchy mortgages have some prepayment. I agree that paying off more than 10% a year is not likely to be necessary.

CS said...

Poloz disagrees with you. Did you read his speech posted above?

It basically says that in the best case scenario we have a soft landing ...


No he doesn't disagree with me. He is "sanguine" and

"The bank continues to expect a soft landing in the housing market."

Meantime he's doing exactly the opposite of what Greenspan did — he's keeping rates at 1%, not jacking them up like an idiot — 17 consecutive increases in two years.

Meantime, the Canadian dollar is weakening, off about 3 or 4% y-on-y, which means some imported inflation, stimulus to investment and exports and, hence, some room for wage growth (nominal only).

CS said...

Putting $50k towards paying down the mortgage is an after tax return of 2.79% regardless of whether I have 50% or -50% equity.

Yeah, but it lessens your debt. Put that 50K in the stock market and you could be off 40% in a matter of months, were we to have a correction. Then you have a pre-tax loss of 42.79%

None said...

Could someone give me a description or a link to what a 'soft landing' actually is? It is just a sloooow crash?

Jack and Cate said...

Look out below...!
Nothing soft about it...

CS said...

Or you could put your $50 K into bitcoins and lose 50% overnight, which would probably not even be a tax deductable loss.

None said...

yeah, I've seen the plot before and we can debate whether a soft landing or crash will occur. I think I have a good idea of a crash - 30-40% decline in 2-3 years... I just don't get what a soft landing is... I can't find any examples.

Lots of people just saying 'expect a soft landing'. What IS A SOFT LANDING?????

None said...
This comment has been removed by the author.
None said...
This comment has been removed by the author.
CS said...

Soft landing: The landing of a space vehicle on a celestial body or on Earth in such a way as to prevent damage or destruction of the vehicle.

Same thing with real estate except it refers to non-destruction of home owner equity, rather than space vehicles, i.e., prices stabilize, without falling substantially below the constant level ultimately achieved.

None said...

So a soft landing is that prices stay high but follow inflation ?

Leo S said...

Could someone give me a description or a link to what a 'soft landing' actually is? It is just a sloooow crash?

A small decline followed by flat or almost flat nominal prices.
Pretty much what happened in the 90s in Victoria

Leo S said...

So a soft landing is that prices stay high but follow inflation ?

Prices are flat nominally while incomes catch up.

Introvert said...

I don't invest in big companies. I don't want to encourage them.

None said...

So the idea is that I'll buy say a 600K house, for $625K after taxes and after 5 years after adjusting for inflation I'll be able to sell it for $575K after realtor fees which is just below paying a mortgage for 5 years on a 5%- 25 year mortgage?

That's the rosy picture everyone is painting?

I generally don't hold people's financial decision making in high regard but some people may be dumb but they aren't stupid.

I don't see how demand here wouldn't get wacked.

None said...

Added note: that's paying a monthly mortgage of $3,635.04.

Rents are high but not THAT high.

I don't see how a soft landing could even happen.....

Leo S said...

I generally don't hold people's financial decision making in high regard but some people may be dumb but they aren't stupid.

I don't see how demand here wouldn't get wacked.


What are you saying here?

Added note: that's paying a monthly mortgage of $3,635.04.

No it isn't.

totoro victoria said...

Your math is off.

You might want to try to find a rent v. buy calculator to find out why.

Also, why would you get a five year 5% mortgage? Do you like paying a whole more money than you need to?

You can get a 10 year fixed for 4.25. Not to mention a 5 year variable at 2.5.

None said...

I'm on a mobile now so I can't check the mortgage calc I used. I used 5 simply because that's a reasonable estimate of 5 year fixed rates in a couple years based on us bonds.

Could you correct my math?

totoro victoria said...

No, it is not a reasonable estimate imo as it does not account for the possibility of prices dropping if that occurs and you don't have a crystal ball.

Use today's rates/prices - use 3.5 for a 5 year fixed if you'd like to be conservation and 2.5 if you don't mind variable.

You forgot:
1. the fact that you need a down payment
2. the lost opportunity costs on your down payment
3. other costs of ownership
4. the cost to rent if you did not buy est 2500 a month for that type of home
5. principal pay down

http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0

None said...

Oh I see. Yes I omitted many of those simply because they can be distractions.

Sure we can talk a downpayment, CMHC insurance, opportunity cost of money out of the market, cost of ownership etc etc but I was trying to keep it simple.

You could probably argue that the property taxes and house maintence more/less balance the difference between my 5% and the current big bank 5-year fixed of 4.09%

My quick 'n dirty takes care of principle paydown but I read the table wrong. After putting $3600 a month on your 5 years your principle is about $555,000.

So based on this 'rosy' soft landing - you get 20K out of the deal. Yeash, if you need a new roof you're hooped.

BTW, the NYtime calc suffers from mortgage writeoffs and is not directly applicable to Canada.

totoro victoria said...

Oh, I see.

Yes, well, keep it simple and please don't get distracted by relevant costs/benefits. I'm sure $20,000 is the right enough number.

You are right, it will likely be better for you to keep renting.

BTW there is a Canadian version of the NYT on this website at the top right corner of the home page under resource links.

But it might not be for you cause it is quite distracting.

None said...

Sorry, I do statistical modelling for a living I have found that usually focusing on the main predictors gets you 90% of the way there and is much more transparent.

If you would like to do a more thorough analysis to show me how my math is wrong feel free.

koozdra said...

CS you are applying rational rules to human systems.

Prices have to start declining for people to start getting scared. The news media creating waves about a bubble. Comparing the bubble to the states. The bubble message coming from foreign objective observations of the Canadian situation.

You seem to think that nothing can happen while the stimulus is in place. Well it can(will[in my opinion{not really}]).

totoro victoria said...

That is an interesting explanation.

I agree, transparency is easy to achieve when you don't have too many facts cluttering things up.

All your calculations must work out just as you'd expect.

I'm sorry, but no, I do have some other pressing matters to attend to.

Otherwise I would love to do the same sort of detailed analysis you could do yourself using the free tools provided on this site.

caveat emptor said...

balance the difference between my 5% and the current big bank 5-year fixed of 4.09%

4.09 would be very steep for a halfway decent borrower now. Should be able to get 3.3% to 3.4%or 2.45 variable

patriotz said...

For the umpteenth time, the money isn't gone until you sell.

The money was gone when you bought the house. You used to have money, now you have a house. Or you didn't have money, and now you have a house and owe money, which is the same change in your cash and RE positions.

patriotz said...

Could someone give me a description or a link to what a 'soft landing' actually is?

It's a decline in RE prices that is slow enough not to have political consequences.

Leo S said...

You could probably argue that the property taxes and house maintence more/less balance the difference between my 5% and the current big bank 5-year fixed of 4.09%

Why argue when you can calculate?

CS said...

You seem to think that nothing can happen while the stimulus is in place.

I think almost anything could happen anytime.

But if people are going to draw comparisons between the US and Canada they should take account of the relevant differences. And the big difference, thus far, is that Canada has not engineered an RE crash by putting the hydraulics under interest rates as the Maestro Greenspan did between 2003 and 2005, while at the same time tolerating massive fraud and exploitation of ignorance in the mortgage market.

CS said...

Here's a soft landing.

Canadian house prices doubled between 1985 and 1990, and then remained flat for a decade. There was no decline before the landing.

It's like landing a plane on the Channel Island of Alderney when the airstrip on a plateau at the highest point on the island is shrouded in mist.

You come in at sea level, then as you cross the beach you start climbing, keeping withing ten or 20 feet of the ground. As you enter the mist, you hug the ground even more closely so as not to lose visual contact. Then, when the ground begins to fall away, you shove the stick forward sharply, put down firmly on the edge of the field and taxi to the terminal building.

koozdra said...

Prosperity is just around the corner.

Global upswing should lift Canada in 2014: Larry MacDonald

Next year guys, next year. Everything will pick up next year. Hopefully this fluff piece will make the pocket bulls feel better.

koozdra said...

We did it again!!

Debt ratio hits record high of 163.7%

DavidL said...

@patriotz

Your definition of a "soft landing" is the best I have read!

CS said...

Debt ratio hits record high ...

In his 2011 comments illustrated by the soft-landing graph I linked to above, Ben Rabidoux attributes rising Canadian house prices to rising debt. So with the prospect of debt continuing to rise, a house price collapse does not appear imminent.

Rabidoux says the pace of debt accumulation is not sustainable, implying an eventual fall in house prices.

But that may be incorrect. $1.64 of debt for every dollar of income is not that difficult to support as long as rates remain low.

Sure, sometime rates will rise, but that could be decades away.

Certainly it will be as far into the future as politicians can make it, for when rates do rise, we will experience what Louis XV called "le deluge," likely resulting in the decapitation of whoever happens to be in charge at the time (Louis XVI, in the case when France went bankrupt).

And

koozdra said...

Privatizing CMHC would weaken banks, leave economy vulnerable: TD’s Ed Clark

"Any move by Ottawa to privatize or even tinker with the Canada Mortgage and Housing Corporation would weaken the Canadian banking system and put the economy at risk, the chief executive of Toronto-Dominion Bank said in an interview Thursday."

The Canadian economy can't handle unsocialized risk.

If we privatized the risk people would have to pay higher rates to borrow. No biggy, right?

Prices are high because income and population growth are creating massive amounts of demand. No, wait that's not it.

koozdra said...

"But that may be incorrect. $1.64 of debt for every dollar of income is not that difficult to support as long as rates remain low. "

Exactly, nothing *should* happen while the stimulus is in place.

You make it seem like there are no consequences to the stimulus. Unfortunately we can't refer to any precedent on this because it's never happened before. To use Poloz's favorite go to analogy, we are in uncharted waters. The fog is getting thicker though and there might be a few ice bergs out there.

None said...

I think you're right about the soft landing. Basically it's such a slow melt that they think everyone will continue to be engaged in the housing market during it's decline to few people lose a lot of money and lots of people lose some.

yeah...... I think I'll just stay on the bench.

CS said...

But I'm as skeptical as many others about the future of Victoria's market, the course of which I believe is very poorly represented by the aggregate data supplied by VREB.

This is a market with a 100-fold difference in price. The people buying in different price ranges differ radically in financial status and reasons to purchase.

At the low end, Info detects evidence of decline, which seems reasonable. When prices are no longer going up, the buy-now-or-be-priced-out argument no longer motivates young people worried about their chances of setting up a family home. And the rapid pace of low end condo construction must begin to tip the supply-demand balance.

But at the other end, there are folks able to spend $3.1 million on a dated OB bungalow with a view. These are the 1% with rapidly growing incomes who know that OB view properties are not being made any more. For the kind of people who pay millions for crap art, Oak Bay is a snip.

Quite likely, the buyer of the dated bung on one acre on Upper Terrace will tear it down and build a 10,000 square footer. When that comes on the market in a year or two for $20 million, it will lift the mean price for Victoria by $50,000. (This, I suspect, is why the Teranet index shows prices so buoyant. There is much new investment in resales at the top end, so that the paired sales that Teranet uses may not be a comparison of like with like.

CS said...

You make it seem like there are no consequences to the stimulus.

Come on.... I'm saying that when the stimulus ends heads may roll — literally. That's why I think it will remain for ever, or as long as the manipulators can manage it. They've gotta, their reputations, if not their lives, entirely depends upon it.

CS said...

we can't refer to any precedent on this

Yes, when Maestro Greenspin, slashed rates between 2000 and 2003, BC-born economics Nobel prize winner Robert Mundell said "something bad may happen." He just didn't say when. I think it may not be for a while.

And certainly not before the next election if the Feds have anything to do with it.

koozdra said...

"And certainly not before the next election if the Feds have anything to do with it. "

I don't know. A slow down in the economy, blamed on external forces of course, could be beneficial for the cons.

"We are experiencing an uncertain era. You must elect the only party with proven a track record at managing the economy. It is the conservative party that lead Canada through the global economic crisis unscathed. It is the conservative party that will definitively lead Canada through our current situation. This is not the time for economic experimentation. Remember, we are voting for the leader of this country not the winner of Canadian Idol."
-Stephen Harper 2015

CS said...

As long as folks are just worrying about the economy, that pitch might work. But if house prices hit the skids, Harper's lot will too.

None said...

^ which is ironic seeing that conservatives are generally quite bad at running economies.

GST cut???? Yeah, how's that all work out?

CS said...

As long as folks are just worrying about the economy, that pitch might work. But if house prices hit the skids, Harper's lot will too.

Introvert said...

A slow down in the economy, blamed on external forces of course, could be beneficial for the cons.

Cons. Love it. Duffy, Wallin, Brazeau--all cons.

patriotz said...

Canadian house prices doubled between 1985 and 1990, and then remained flat for a decade

They sure as hell didn't in Toronto.

Looking at Canada-wide averages obscures the ups and downs in local markets. Before the current post-2000 bubble the local RE cycles were not in sync.

patriotz said...

$1.64 of debt for every dollar of income is not that difficult to support as long as rates remain low.

You are not taking into account the distribution of that debt. The problem is not with those who have a debt of 1.64 times income, but with those who have many times that.

CS said...

They sure as hell didn't in Toronto.

Are you saying Rabidoux's data are false?

CS said...

The problem is not with those who have a debt of 1.64 times income, but with those who have many times that.

Meaning that most people don't have a debt problem at all.

But supposing your mortgage debt is 3X the average debt, your carrying cost is still only 12 to 15% of pretax income, which is manageable for most.

Those who've borrowed even more than that must be a worry to their bankers.

koozdra said...

Canadian real estate most overvalued in world, study says

Same story but now with video. "There's no bubble. Our economy is doing really well", lol.

CS said...

And as for Toronto prices from 85 to 90, they did not double, the increased 2.5-fold according to the Toronto RE Board.

But they had no soft landing. Prices dropped by over 30% from the peak in 89 to the trough in the mid nineties.

In fact, the TO market was so hot in the late 80's when we were there that there were virtually no listings. Anything that came up went in an informal auction within days. If you hadn't a mortgage already approved, there was no point in even looking at a house.

CS said...

Real estate prices in Canada are the most overvalued in the world...

Bald statement without any evidence or reference to any evidence.

And people pay to read the Globe and Mail. LOL.

What about Georgia, price to income = 40, or China, price to income = 25, etc.

Or even many cities in Europe with price to income ratios well into double digits.

koozdra said...

"Bald statement without any evidence or reference to any evidence."

Did you read the study? It compares income and rents to prices. They are "out of whack".

Why aren't rents higher than they are? Prices have sky rocketed but rents haven't. Why is that?


I think it's because you can't pay your rent on credit. Or maybe you can...

CS said...

Price to income ratios are fairly meaningless, anyhow, since half the population earns almost nothing — average wage for the lower half in the states was less than $12,500 in 2011 (presumably similar in Canada). Few of those people are buying houses and none of them are buying average or better-than-average priced houses, although they are all included when calculating price to income ratios.

CS said...

Did you read the study? It compares income and rents to prices. They are "out of whack".

I read the Globe and Mail article and it said nothing whatever about evidence. I doesn't even provide a link to the Deutsch Bank Study.

Just Jack said...

Nice to see that asking prices have now slipped under $300,000 for some starter homes in the core districts. The lowest price paid for a starter home in the core districts this year has been $265,000.

Lowest price for a bachelor strata condo sold in Fairfield at $85,000, $115,000 for a 1-bedroom and $146,000 for a 2-bedroom in the Tillicum area.

At these prices kiss your landlord good-bye and tell her she can pay for her own mortgage from now on.

If you're paying more than $1,300 a month for a 2-bedroom basement suite it could be time to give Marko a call.

info said...

@ None

"I think you're right about the soft landing. Basically it's such a slow melt that they think everyone will continue to be engaged in the housing market during it's decline to few people lose a lot of money and lots of people lose some."

Why would you assume that the rate of price decline has been set in stone and that it cannot accelerate dramatically in the future?

The rate of decline was slow in many US cities before it suddenly accelerated.

Once the rest of Canada begins to experience RE price declines, Victoria's rate of decline will increase.

There will be no soft landing.

All national housing bubbles burst and the resulting price decline is always deep. Soft landings do not follow the bursting of national housing bubbles.

None said...

@info

I totally agree. I was just looking at that as an example of what people think is the rosy picture and to me, the rosy picture is still a pretty big stinker.

i don't see how any sane person would get involved in a soft landing. If house prices are going down you wait it out. I'm not going to spend my cash to effectively bail out over leveraged people.

None said...

@info

I totally agree. I was just looking at that as an example of what people think is the rosy picture and to me, the rosy picture is still a pretty big stinker.

i don't see how any sane person would get involved in a soft landing. If house prices are going down you wait it out. I'm not going to spend my cash to effectively bail out over leveraged people.

totoro victoria said...

info finds a friend.

you are predicting that in five years your five year fixed rate will be 5% on $575,000 (because we don't care about down payments).

right now you are saying the house would cost $625,000 (because down payments clutter things up) and your five year fixed would be 3.5%.

Mortgage payment today: $3,120.44
Mortgage payment in five years: $3,344.23....

Add $65,000 in principal pay down plus $7,500 savings in mortgage payments at current rates vs 2018 rates = $72,500 in the black in 2018 if you bought now.

Now, if you lost $50,000 in equity due to depreciation over the next five years you would be up $22,500 if you waited. You would; however, still come ahead by $17,500 by waiting.

Of course, in five years we may also have the same prices as now, or higher.

And, if you have rental suite income I know you won't want to include it, but in our case we do. This means our mortgage is paid for entirely by rental income. But it is a bit of a distraction to factor in.

We bought last year with a 10 year fixed at 3.79. We must be insane.

totoro victoria said...
This comment has been removed by the author.
Introvert said...

We bought last year with a 10 year fixed at 3.79. We must be insane.

A ten-year term at an historically low rate must really be stressing you out! I can imagine you have trouble sleeping.

totoro victoria said...

Yes. Home security, rate security, rental income and principal payments keep distracting me. It is a lot to keep track of.

Introvert said...

Unfortunately, like the average homeowner in Victoria, I'm way overextended.

When I bought, my down payment was only 5%, and I had to get my Aunt Edna to gift me the money. Today, I have a HELOC, not to mention credit card debt up to my eyeballs. Two car payments. And no rental income. In short, my future is bleak!

Oh, wait. None of this is true for me.

koozdra said...

"When I bought, my down payment was only 5%, and I had to get my Aunt Edna to gift me the money. Today, I have a HELOC, not to mention credit card debt up to my eyeballs. Two car payments. And no rental income. In short, my future is bleak!"

Not true for you but true for many of your neighbors. They do badly, the economy does badly. You aren't affected by the economy are you?

None said...

@toto would it make you feel better if it was a 720K house where we put 20% down the the stock market matched inflation?

would it help that instead of having a stranger live in my basement that I did consulting 10 hours a month that paid the majority of my mortgage?

You sounds pretty defensive and really the absolute amount you locked your mortgage in at is irrelevant, it's what it is relative to what the market is doing.

3.79 over 10 years is terrible if the market does what Toronto did in the late 80s.

Hey, I could be wrong, I was just musing about this 'soft landing' that everyone was talking about like it wouldn't be that bad. It sucks.

Introvert said...

Not true for you but true for many of your neighbors.

You're correct that most of my neighbours are in poor financial shape; they also happen to be renters. (The landlords are doing pretty well, from what I can tell.)

They do badly, the economy does badly. You aren't affected by the economy are you?

Not much, no.

My partner has a job that isn't affected by the economy. Also, if the economy tanks, it would probably help us more than hurt us: interest rates would stay low or go even lower. Good for paying off our mortgage even faster!

And if a tanking economy crashes Victoria's housing market, it's no sweat. We ain't selling for another 25-30 years. By then, prices should be back and better than ever. If any place is going to recover relatively strongly and quickly from a crash, it's going to be Victoria (and a small handful of other places). I mean, we're not Winnipeg.

Note that this approach would not be that unlike buying and holding a solid stock or mutual fund for a decade or two, and not selling out of panic at any point.

Leo S said...

What about Georgia, price to income = 40, or China, price to income = 25, etc.

Yeah. Sheesh people! We are still doing better than some third and second world countries!

totoro victoria said...

"@toto would it make you feel better if it was a 720K house where we put 20% down the the stock market matched inflation?"

1. toto is a toilet or a dog. totoro is a magical creature loved by children round the world.

2. did the rest of that sentence make sense to anyone else?

"You sounds pretty defensive and really the absolute amount you locked your mortgage in at is irrelevant, it's what it is relative to what the market is doing."

3. Yes, I'm really really defensive. It's better than being offensive.

4. Did the rest of that sentence make sense to anyone else?

"3.79 over 10 years is terrible if the market does what Toronto did in the late 80s"

5. I like pie.

"Hey, I could be wrong, I was just musing about this 'soft landing' that everyone was talking about like it wouldn't be that bad. It sucks."

Yep, I agree that no-one really has a crystal ball. At least you admit it.

Leo S said...

i don't see how any sane person would get involved in a soft landing. If house prices are going down you wait it out. I'm not going to spend my cash to effectively bail out over leveraged people.

Given I'm one of these insane people, having bought this summer, here's my reasoning.

According to the rent/buy calculator on this site, what we were paying for rent and what we bought for was a wash if prices stayed flat. The place we bought was nicer than the rental, and some family things came together as well making it a convenient time to buy. If prices declined we would have saved the difference, and if prices rose we would lose the difference.

I'm pretty sure that prices will continue to decline, but I don't think it will exceed 5-10% from here. 10% would bug me for sure, but I can live with it because there's no reason for us to move anytime in the foreseeable future.

If you can wait, wait. If you are in a position to buy a condo but really want a house, wait. If you aren't certain about your job, wait. But for us it was an ok time to buy. In retrospect by pure chance we seem to have timed the last days of the ultra-cheap fixed mortgages so that was a bonus.

Leo S said...

Not true for you but true for many of your neighbors. They do badly, the economy does badly. You aren't affected by the economy are you?


Probably a government worker...

Leo S said...

would it help that instead of having a stranger live in my basement that I did consulting 10 hours a month that paid the majority of my mortgage?


Haha yeah I tried that argument with Totoro. You won't get anywhere. She believes that running a rental suite is not work.

koozdra said...

"The landlords are doing pretty well, from what I can tell."

Do they have new cars? Some home renovations, perhaps? Do they take many vacations? A motor home or boat?

Did you hear how much their houses went up in value? These are rich people. They've made real money with their investment. Why not tap into those earnings? "When we sell we'll be making a profit anyway. At these rates you'd have to be an idiot not to go into debt. {insert chorus of aristocratic laughter}"

totoro victoria said...

"If you can wait, wait. If you are in a position to buy a condo but really want a house, wait. If you aren't certain about your job, wait. But for us it was an ok time to buy. In retrospect by pure chance we seem to have timed the last days of the ultra-cheap fixed mortgages so that was a bonus."

I would add that if you are in a shaky marriage, don't buy.

Anything foreseeable that would compel you to sell in the next five-seven years and you might want to wait.

I would also add that if you have a really large down payment, don't buy. A drop caused by rate hikes and you are in a much better position than today.

If you have a 20% down payment and you are ready to buy you have a lot more choice right now than in recent years. You may also benefit from current rates given that they might rise.

If you buy something with a suite it is a hedge against a downturn in prices or rise in rates. Not for everyone, but something to consider if you think it is worth it.

I'm glad you got a great rate Leo.

totoro victoria said...

"She believes that running a rental suite is not work."

Yes, it is pretty darn easy compared to any job I've had. Although I did have one tenant that was work recently.

Do you remember that I mentioned an "ideal" tenant way back that was a retired librarian with a pastor as a reference?

Well, my overconfident statement that she was not going to cause trouble did not take into account the early dementia issues. Resulted in a res ten complaint that was work, but was resolved in my favour.

That event aside, I spend very little time on this. I'd bet a fair bit that the ROI per hour is much more than the consulting per hour.

None said...

In regards to the: 'Wait or buy analysis tool '

Isn't it omitting cost of buying (isn't there like a 20K transfer tax + lawyers etc) on a 600K house and a 25K or so cost to sell it?

Nathan Stretch said...

"I would also add that if you have a really large down payment, don't buy. A drop caused by rate hikes and you are in a much better position than today."

That would depend on where you stash that money otherwise. Most financial assets will also drop in the case of a rate hike. Short-term fixed income (short-term bonds, GICs, etc.) would be safest, but obviously pays very little.

That said, the most convincing research I've read basically concludes that the best guess for next year's rates is this year's rates; iow, interest rates are unpredictable, so we shouldn't plan for them to move in a particular direction.

(Of course, if you believe real estate is overvalued even given low rates, or feel that the long duration of real estate as a fixed-income investment doesn't fit your risk profile, those would certainly be reasons not to buy.)

patriotz said...

In regards to the: 'Wait or buy analysis tool '

Isn't it omitting cost of buying (isn't there like a 20K transfer tax + lawyers etc) on a 600K house and a 25K or so cost to sell it?


The comparison is "buy later versus buy now", not "don't buy ever versus buy now and sell later".

So selling costs don't enter into it. I do think the buying costs are included and adjusted for the anticipated buying price for the comparison, but the difference doesn't amount to much.

totoro victoria said...

"would it help that instead of having a stranger live in my basement that I did consulting 10 hours a month that paid the majority of my mortgage?"

Not everyone wants a tenant. I agree. Totally reasonable to hold this view.

However, if your reasoning is "I can just work more", have you actually done the math?

Ex.

Consulting income of $100/hr - 10 hours is $1000 a month.

If you make this amount and if you are already working almost full-time you are probably making $150,000 a year or so.

This puts your average tax at 30% BUT your marginal tax at 44%.

This means your extra $1000 is going to be taxed at 44%. Your net is $660 for ten hours of your time or $66/hour. This pays $660 of your mortgage.

Now let's say you buy a triplex. Two suites pay $3000 in rents per month. You get to deduct mortgage interest and associated costs based on a floor space calculation.

This means that your taxable income is maybe $2000 a month. Your marginal tax rate is also 44%so $1120 is available to pay your mortgage.

You also gain the tax free mortgage interest which was paid with rental income, and other allowable expense amount that otherwise you would have paid it anyway. Add $1000. You are up $2120.

We spend approx. one hour a month on suite-related matters. That would be $2120 net per hour based on the estimate provided.

Of course, there are other factors like buying more house than you would have without rental income (and paying more), the chance of greater loss/gain at time of sale, but I'm trying to be transparent.

Now most people are going to have a suite in their basement that might bring in $1000 a month. They would have to pay the full amount of the mortgage themselves so suite income is a large benefit. It still works out to a very high hourly wage. I'd ballpark it at $750 a month divided by time spent.

I personally don't want to work more to pay for a house. I'd rather be able to work less because I buy a house.

Marko said...

would it help that instead of having a stranger live in my basement that I did consulting 10 hours a month that paid the majority of my mortgage?

Why not have a stranger in the basement and do 10 hours a month extra? :)

Now let's say you buy a triplex.

Problem with triplexes in Victoria is they are on average 100 years old. It is a part time job renting out a triplex in my opinion which is great if you are retired or you have spare time.

I have a slightly different triplex strategy. Condo at the 834, Promontory and I'll buy a 3rd one a the Era. Total investment = approx. $600,000 with a $3,500 gross per month. The advantage with brand new maintenance is zero, I can negotiate 1 year leases, and there is more liquidity (I can sell one or two condos instead of having to sell an entire triplex).

As far as having a stranger in your basement it all comes down to personal preference. I've concluded there is no right or wrong. I think when I go for my principal residence in 2014 I'll lean towards a basement suite. When you are on a commission income it is re-assuring to have a $1,000 or so coming from the basement every month.

And in terms of prices I am predicting flat and 2014 is the year I am getting into a SFH.

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