Aug 14 Market Update

Weekly numbers courtesy of the VREB.

Aug 2017
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 157  322
New Listings 222  431
Active Listings 1932 1915
Sales to New Listings  71%  75%
Sales Projection  777
Months of Inventory 2.4

Detached homes are still being outpaced by condos, with 29% of detached homes in August going for over ask compared to 39% of condos.    At 21 days, it takes almost twice as long to sell the average house as the average condo right now.   To keep some perspective that is still relatively low given that two years ago it took 35 days and the year before it took 54.   However we can already see price cuts are necessary to shift houses, with the average sell price to original list dropping to 98.6% for detached while it remains over 100% for condos (this measure varies from 95% in declining markets to 103% in hot markets).

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You gotta know when to hold ’em, know when to fold ’em

Generally real estate is a slow moving beast.   There are no flash crashes here, and without an external stimulus, there is generally plenty of time to catch a market change from hot to slow or vice versa.   That said, periodically it can be quite volatile.   If we look at the history of the average single family home price, we see individual years where prices jumped or collapsed by almost 30%.

These are all inflation adjusted values, otherwise the picture would be quite distorted in times of high inflation.

So if you’re a bit queasy about the prospect of losing 25% of an asset worth hundreds of thousands of dollars, how long would you have had to hold a single family house in Victoria to avoid losses?

3 years?

Nope, if you had bought in ’81 and sold in ’84 your house would have lost almost 13% in value every year.   The late 90s also weren’t super great.    How about 5 years?

Getting better but still some periods of large negative annual returns.   Once you add in the very high transaction costs in real estate, even the 5 year periods of relative flatness look pretty miserable.  So 10 years then?

This is better.   Outside of the mid eighties, it’s been either a winning or at least not losing proposition to buy and hold a single family home in Victoria for at least 10 years.   Problem is, according to some estimates, the average Canadian family moves every 5 to 7 years so most people will move much more often than is good for them financially.    For condos, the appreciation is not as good and people tend to stay in them for fewer years so the issue compounds.

And this is looking at the past, mostly during periods of either decreasing interest rates or large societal changes (number of dual income families doubled between 1976 and 2015).   Going forward neither of those things will happen again, so as usual, your mileage may vary and past returns are not indicative of future results.